THE NEWSLETTER
ATO CIRCLES PRIVATELY OWNED AND WEALTHY GROUPS AS AUDITS HEAT UP
Speaking at an Accountants luncheon in March, Jonathan Ortner, a partner at law firm Arnold Bloch Leibler, warned practitioners the ATO may ramp up its auditing efforts, notably larger companies after compliance activities were deferred due to COVID-19.
According to Mr Ortner
- The ATO has deferred disputes due to COVID-19 but this is likely to end soon.
- It is likely that companies and individuals that fit the criteria of the Tax Office’s Top 500 and Next 5,000 programs are likely to attract auditing efforts. Here the ATO is likely to take an industry-by-industry approach.
- Emerging privately owned and wealthy groups with a combined annual turnover — including associated subsidiaries — of more than $10 million, or controlled wealth of over $5 million, are also likely to be captured by the ATO audits, due to a tax gap of 7.7% indicating $772 million in lost revenue.
What Attracts Attention…
The following behaviours and characteristics of privately owned and wealthy groups may attract ATO attention:
- tax or economic performance not comparable to similar businesses
- low transparency of their tax affairs
- large, one-off or unusual transactions, including the transfer or shifting of wealth
- aggressive tax planning
- tax outcomes inconsistent with the intent of the tax law
- choosing not to comply, or regularly taking controversial interpretations of the law, without engaging with the ATO
- lifestyle not supported by after-tax income
- accessing business assets for tax-free private use
- poor governance and risk-management systems.
EXTENSION OF GOVERNMENT ASSISTANCE
The Morrison Government will expand and extend its ‘SME Loan Guarantee Scheme’ as part of its commitment to support up to $40 billion in lending to small and medium enterprises.
Under the existing Scheme, more than 35,000 loans worth more than $3 billion have already been provided, helping thousands of small businesses get to the other side of this pandemic.
As Australia moves into the recovery phase, the Scheme will be targeted and tailored to support those businesses that have been relying on JobKeeper during the March quarter.
The SME Recovery Loan Scheme will benefit from an increased Government guarantee, increasing from the current 50/50 split between the Government and the banks to an 80/20 split. This will encourage more banks to support small businesses and demonstrates the Government’s commitment to back those businesses that are prepared to back themselves.
The expanded scheme will also increase the size of eligible loans, increasing from $1 million under the current Scheme to $5 million. Businesses with a higher turnover will also benefit under the expanded Scheme, with the maximum eligible turnover increased from $50 million to $250 million.
Maximum loan terms under the expanded Scheme will also be increased from 5 to 10 years – providing businesses and lenders with greater flexibility.
The expanded scheme will also allow lenders to offer borrowers a repayment holiday of up to 24 months.
Importantly, the Scheme will also be able to be used by eligible businesses to refinance their existing loans. This will allow SMEs to access the more concessional interest rates available under the program and to better manage their cash-flows through an extended loan term and lower combined repayments.
The Government has also extended the following programs to 30 September 2021:
- the successful Domestic Aviation Network Support (DANS) and Regional Aviation Network Support (RANS) programs
- the 50 per cent waiver of domestic air services charges for Regular Public Transport (RPT) and aeromedical flights
- the International Freight Assistance Mechanism.
The $50 million Business Events Grants Program will also be extended by three months to support Australian businesses to hold multi-day business events, covering up to 50 per cent of costs incurred in participating business events during the 2021 calendar year. This will help restart Australia’s business events sector.
The $94.6 million Zoos and Aquarium program will be extended by six months to support zoos, aquariums, and wildlife parks to maintain their animal populations where their tourism revenue has been affected by travel and social distancing restrictions.
The COVID-19 Consumer Travel Support Program will also be extended for three months beyond 13 March.
ATO UPDATE ON THE IMPACT OF COVID-19 ON CAR PARKING AND MOTOR VEHICLE FRINGE BENEFITS
In February, the ATO updated their Covid-19 guidance relating to car parking and vehicles.
No car parking fringe benefit will arise if:
- a work car park is closed due to COVID-19, as no car space will have been available for use by the employee for more than 4 hours between 7am and 7pm on that day
- all commercial parking stations within a one km radius of business premises are closed on a particular day due to COVID-19, or
- the reduced rates at commercial parking stations on 1 April 2020 within a one km radius of the business premises for all-day parking where less than $9.15.
The ATO has also provided guidance on cars returned to the employer’s business premises during the period of COVID-19 restrictions. A car fringe benefit will no longer arise where:
- the car is returned to your business premises
- your employee cannot gain access to the car, and
- your employee has relinquished an entitlement to use your car for private purposes.
TAXATION DETERMINATIONS
The following Taxation Determinations relating to Fringe Benefits Tax were released by the ATO in March.
- TD 2021/3 – Fringe benefits tax: reasonable amounts under section 13G of Fringe Benefits Tax Assessment Act 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit for the fringe benefits tax year commencing on 1 April 2021.
- TD 2021/4 – Fringe benefits tax: what are the rates to be applied on a cents per kilometre basis for calculating the taxable value of a fringe benefit arising from the private use of a motor vehicle other than a car for the fringe benefits tax year commencing on 1 April 2021?
FCT V HEALIUS [2020] FCAFC 173
The taxpayer’s special appeal application against the Full Federal Court’s decision has been declined by the High Court. In this case, it held that lump sum payments by a medical centre to its doctors were on capital account. The Full Federal Court had held they were not simply payments to secure medical practitioners as customers who would then pay to use the facilities provided by the centre. Rather, they were payments made for the practitioner to cease operating an existing practice, to commence trading as a part of the centre’s mode of practice, and to accept a restraint on establishing a competing practice.
YOUR FUTURE, YOUR SUPER REFORMS INTRODUCED INTO PARLIAMENT
On 17.2.2021, the Morrison Government introduced legislation into parliament to ensure the superannuation system works harder for all Australians.
These measures will reduce waste in the system and save Australian workers $17.9 billion over 10 years by holding underperforming funds to account and strengthening protections around the retirement savings of millions of Australians.
Australians currently pay $30 billion per year in superannuation fees, while three million accounts sit in underperforming funds worth over $100 billion in retirement savings.
The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 also addresses key recommendations from the Productivity Commission’s (PC) comprehensive assessment of the system, Superannuation: Assessing Efficiency and Competitiveness.
The Your Future, Your Super package is scheduled to commence on 1 July 2021. Under the package, the superannuation system will be significantly enhanced by:
- Having your superannuation follow you: preventing the creation of unintended multiple superannuation accounts when employees change jobs.
- Making it easier to choose a better fund: members will have access to a new interactive online YourSuper comparison tool which will encourage funds to compete harder for members’ savings.
- Holding funds to account for underperformance: to protect members from poor outcomes and encourage funds to lower costs the Government will require superannuation products to meet an annual objective performance test. Those that fail will be required to inform members. Persistently underperforming products will be prevented from taking on new members.
- Increasing transparency and accountability: The Government will increase trustee accountability by strengthening their obligations to ensure trustees only act in the best financial interests of members. The Government will also require superannuation funds to provide better information regarding how they manage and spend members’ money in advance of Annual Members’ Meetings and disclose all of their portfolio holdings to members.
This package builds on the Government’s superannuation reforms which include consolidating $2.9 billion held in unintended multiple accounts on behalf of 1.4 million Australians, capping fees on low balance accounts, banning exit fees and ensuring younger Australians do not pay unnecessary insurance premiums.
EXTENSION OF MEASURES RELATING TO VIRTUAL AGMS AND SIGNING AND SENDING ELECTRONIC DOCUMENTS
On 17.2.2021, the Morrison Government announced it will introduce legislation into Parliament to extend the application of temporary relief measures introduced at the height of the coronavirus crisis relating to virtual AGMs and signing and sending electronic documents.
Specifically, the Treasury Laws Amendment (2021 Measures No. 1) Bill will extend from 21 March 2021 to 15 September 2021 the expiry date of the temporary relief allowing companies to use technology to meet regulatory requirements to hold meetings, such as annual general meetings, distribute meeting-related materials and validly execute documents.
Following 15 September 2021, member meetings will need to be conducted consistent with pre-COVID-19 laws which require an-in person meeting to be held.
The Government will also conduct a 12-month opt-in pilot for companies to hold hybrid annual general meetings to enable a proper assessment of the shareholder benefits of virtual meetings.
The Government will finalise permanent changes to allow electronically signing and sending documents prior to the expiry of these temporary arrangements on 15 September.
Extension of this temporary relief will allow businesses to continue to comply with their regulatory requirements as they continue to deal with and emerge from the COVID-19 pandemic.
TRANSFER BALANCE CAP
The transfer balance cap began on 1 July 2017. It is a lifetime limit on the total amount of superannuation that can be transferred into retirement phase income streams, including most pensions and annuities.
All retirement phase income streams and retirement phase death benefit income streams you receive count towards your transfer balance cap. The age pension (or other types of government payments) and pensions received from foreign super funds do not count towards your transfer balance cap.
The general transfer balance cap, currently $1.6 million, will be indexed to $1.7 million on 1 July 2021.
TRANSFER BALANCE CAP CHANGES ON 1 JULY 2021
Before 1 July 2021, all individuals have a personal transfer balance cap of $1.6 million.
From 1 July 2021, all Individuals will have a personal transfer balance cap between $1.6 million and $1.7 million. Individuals who start their first retirement phase income stream on or after 1 July 2017 will have a personal transfer balance cap of $1.7 million.
You will be able to view your personal transfer balance cap in ATO online.
Individuals who had a personal transfer balance account before 1 July 2021 will have a personal transfer balance cap calculated proportionally based on the highest balance of their transfer balance account. Their personal transfer balance cap will not be increased if, at any time before 1 July 2021, the balance of their transfer balance account met or exceeded $1.6 million.
PRIVATE WEALTH – WITHHOLDING TAX ON OVERSEAS INTEREST
The ATO’s International risk for Private Groups program has launched a campaign focusing on non-resident withholding tax relating to interest expenses paid overseas for the 2018- and 2019-income years.
Taxpayers who have paid interest to a non-resident must meet certain obligations, including:
- lodging a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report (PAYG annual report)
- paying withholding tax to the ATO (typically at the rate of 10%) unless a withholding exemption or double-tax treaty relief applies.
As part of the campaign, the ATO intends to contact identified taxpayers by an initial letter and a follow-up phone call. This is to ensure compliance with withholding tax obligations.
The campaign will also deliver targeted education to assist taxpayers in meeting their obligations to:
- withhold and remit tax
- claim deductions for overseas interest expenses
- lodge the PAYG annual report.
LARGEST PROMOTER PENALTY IN R&D HISTORY HANDED DOWN
The Federal Court has handed down a judgement against Mr Paul Enzo Bogiatto and ordered $22.68 million in penalties be paid.
On 12.2.2021, Mr Bogiatto was ordered to pay $6.51 million, in addition to $6.01 million and $3.65 million penalties for his related entities, Ryusei, Lambda Chase Chartered Accountants and Lambda Chase Service, respectively.
Between 2012 and 2015, Mr Bogiatto operated as a Research and Development Tax Incentive (R&DTI) adviser for a range of businesses in his capacity as a registered tax agent and chartered accountant.
Investigations into Mr Bogiatto’s activities began in late 2015 and uncovered Mr Bogiatto’s promotion of arrangements for his clients to lodge overstated and unsubstantiated R&DTI claims. In total, research and development (R&D) tax offset refunds of $45.5 million were paid to Mr Bogiatto’s clients.
Evidence gathered in relation to Lambda Chase’s activities indicated systematic abuse of the R&DTI, with claims that were not reflective of taxpayers’ actual R&D expenditure for the relevant years.
Mr Bogiatto avoided regulators when investigated and never looked to redress any amount of loss or damage incurred by scheme participants.
According to Assistant Commissioner Ash Khera:
- This outcome reflects the scale of Mr Bogiatto’s scheme, which had a devastating impact on the individuals and businesses that followed his advice and trusted him. The size of the penalty is the highest ever seen in Australia and reflects the scale and abusive nature of these schemes.
- The ATO aims to protect individuals and businesses from being unwittingly caught up in schemes like this one. Those who encourage others to do the wrong thing and claim the incentive to which they are not entitled will be caught and held to account for their actions.
- This decision builds on several previous successful results under promoter penalty laws that are designed to ensure that promoters are held accountable when they encourage their clients to enter into risky tax schemes.
- The ATO will continue to protect the tax system by those seeking to undermine it.
- The ATO has the tax technical and investigative skills to deal with those who promote non-compliance with the tax and superannuation system.
- This decision provides further judicial clarification on the application of the promoter penalty laws and the eligibility of the R&DTI.
- The ATO and the Commissioner view this recent decision as a strong deterrent for the advisers exhibiting repeated poor behaviour.
As a result of these investigations, Mr Bogiatto was also investigated and de-registered as a tax agent in October 2017, as well as forfeiting his membership of the Institute of Public Accountants. He had his CA membership terminated and his name removed from the Registers in 2018.
FBT RETURN – DUE DATES
The ATO has informed tax agents that fringe benefits tax (FBT) returns can only be lodged through the practitioner lodgement service (PLS).
The statutory due date for lodgment and payment is 21 May. The due dates for lodgment of 2021 FBT returns for all tax agents are:
- 25 June if the return is lodged electronically.
- 21 May if the return is lodged by paper.
The due date for payment under the lodgment program remains as 28 May or 21 May if lodging by paper.
To ensure you are covered by your lodgment program for their 2020 FBT return, you must appoint your tax agent in that role by 21 May.
DATA MATCHING UPDATE ANNOUNCED THAT WIDENS SERVICES AUSTRALIA ACCESS
In February, a notice of Single Touch Payroll (STP) Data Matching Programme was gathered signalling further meshing of STP data sourced through ATO systems and individuals relying on Services Australia. The payroll information is to be matched against the latter’s records, with guidance issued by Services Australia outlining this process.
A VERY COMMON QUESTION: CAN THE ATO KEEP MY REFUNDS DURING BANKRUPTCY?
Yes, but only if you owe a debt to them or another Commonwealth agency e.g., Child Support or Family Assistance. They will use the tax refund to go towards what you owe.
The ATO can withhold your tax refunds even if you list these debts in your bankruptcy.
CASE STUDY: Tax Obligations in Bankruptcy
Felicity is a 37-year-old unemployed woman from Dandenong in Victoria. She is currently single and has no children.
For 8 years she was a sole trader running a small business as a pastry chef. Felicity struggled to stay on top of her bookkeeping and bills. As a result, personal and business debts built up until Felicity had no choice but to close the business.
Felicity ended up filing for bankruptcy. At the time she had not lodged a tax return for the past 4 financial years.
Felicity listed the Australian Taxation Office (ATO) as a creditor on her bankruptcy form. She did not know how much she owed because of her unfiled tax returns. She estimated on her form that it would be about $150,000.
AFSA contacted Felicity to talk about her bankruptcy. AFSA explained that Felicity still needed to lodge her overdue and future tax returns in the normal way. AFSA does not do this for her, and bankruptcy does not remove this obligation.
AFSA explained that most ATO debts are covered by bankruptcy. This means they do not have to be repaid (except in certain circumstances). The ATO would still be a creditor in the bankruptcy, which meant that if any money became available to pay creditors, the ATO would get a share.
However, any tax refund Felicity is entitled to during her bankruptcy may be kept by the ATO. The ATO would use this money to pay off some of her tax debt. This would reduce the ATO’s claim against Felicity’s bankrupt estate.
After Felicity’s bankruptcy ends, she does not need to keep paying back any of the remaining tax debt from the period before she became bankrupt. She can also keep any future tax refunds after her bankruptcy ends.
Without the constant pressure of running her business and mounting debts, Felicity finally made an appointment with an accountant. She intends to get her outstanding tax returns lodged with the ATO in the next few weeks.
FIRST CRIMINAL CONVICTION FOR JOBKEEPER FRAUD
Mr Raed Saleh has today been convicted in the Heidelberg Magistrates Court of three counts of making a false and misleading statement to the Commissioner of Taxation, in order to receive $6,000 in JobKeeper payments to which he was not entitled to.
In addition to the conviction, Mr Saleh was fined $3,000, ordered to pay reparations of $3,000 and costs of $282.
Mr Saleh applied for and lodged two months of JobKeeper claims online, declaring he had experienced a downturn of at least 30% for the months of May and June, he was a sole trader, his business met all the eligibility requirements and he had not agreed to be nominated by any other employer or entity. He confirmed prior to submitting the applications and claims to the Australian Taxation Office (ATO) that it was all true and correct.
The true state of Mr Saleh’s affairs was that he was not operating a genuine business and he had already agreed to be nominated by his full-time employer for the allowance.
Mr Saleh received $3,000 from his false May 2020 claim, but his June claim was stopped by the ATO pending further investigation.
Mr Saleh pleaded guilty to the charges after admitting to the ATO that he had not been carrying on a business as a sole trader, had agreed to be nominated as an employee with his full-time employer, and was not eligible for the JobKeeper payments.
According to ATO Deputy Commissioner Will Day:
- The ATO has an important role to ensure the integrity of the stimulus measures and when they uncover fraud or people seeking to exploit them, they will take action, as we know the community would expect.
- Since the first payments were made in April, the ATO has monitored every payment, every day, every month, and will continue to do so until the last payment is made.
- The ATO understands how vital the JobKeeper payment is to the community. As at 16 February 2021, $84 billion in JobKeeper payments have been made by the ATO to over 1 million businesses.
- The ATO has a dedicated integrity strategy that supports the administration of the Government’s stimulus packages, with robust and efficient compliance systems that make it very easy to identify fraudulent behaviour and stop it.
There has been some concerning and fraudulent behaviour and claims by a small number of individuals. While most businesses and employees are doing the right thing, the ATO is committed to tackling illegal activity and behaviour of concern to protect honest businesses and the community.
Penalties for fraud can include financial penalties, prosecution, and imprisonment for the most serious cases.
TAX DETERMINATION TD 2021/2
This settles what is a common query for Advisers – the question being:
Income Tax: can a company that carries on a business in a general sense as described in Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? but whose only activity is renting out an investment property claim the capital gains tax small business concessions in relation to that investment property?
Ruling
- A company that carries on a business in a general sense as described in Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? but whose only activity is renting out an investment property cannot claim the capital gains tax (CGT) small business concessions in Division 152 of the Income Tax Assessment Act 1997[1] in relation to that investment property. This is because an asset whose main use is to derive rent (unless such use was only temporary) is subject to an exclusion from those concessions[2], even if it is used in the course of carrying on a business.
Example – property investment company
- InveproCo is a company incorporated in Australia. InveproCo owns a commercial property, which it has rented to unrelated third parties at market rates on normal commercial terms since its inception. InveproCo provides no other services in relation to the property and conducts no other activities. InveproCo has produced a profit in each of the income years it has rented out the property. InveproCo is engaged in ongoing activities that have a purpose and prospect of profit, namely letting out the property.
- In this situation, the company has derived rental income from the leasing of a property to an unrelated third party. Accordingly, the company carries on a business in a general sense described in TR 2019/1. However, the main (only) use of the property is to derive rent and it is therefore excluded from being an active asset under paragraph 152-40(4)(e) regardless of whether the activities constitute the carrying on of a business in a general sense. Therefore, the investment property would not satisfy the active asset test in section 152-35 and InveproCo would not meet the requirement in paragraph 152-10(1)(d) to be eligible for the CGT small business concessions in Division 152 in relation to the disposal of the investment property.
Date of effect
- This Determination applies both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 to 76 of Taxation Ruling TR 2006/10 Public Rulings).
bO2 READERS’ QUESTIONS AND ANSWERS…….
Question 1
Subject – Legal Obligation- Breastfeeding
I have a few questions regarding maternity leave (returning to work).
I have 2 staff members currently on maternity leave both breastfeeding. They are due to return in March / April.
I am wondering what I can legally do regarding them being able to feed their babies – off-site (as we are preschool 3-5 years) and do not have enough to cover ratios?
Answer
We need to be mindful that a business cannot discriminate against a person who is breastfeeding.
As each state differs on discrimination law, they all cover breastfeeding parents.
The answer to the question is that the employer does not have a legal obligation to let the employee go home to breastfeed but may find the employee takes the employer to the Anti-Discrimination Tribunal.
Negation is the keyword here, support breastfeeding in the workplace by allowing expressing of milk etc, as not to do so would be discriminatory, the matter of the business owners need for cover ratios to be maintained would be a key consideration in making an agreement.
The information below is from NSW Health when returning to work.
Can I go to work and still breastfeed my baby?
Many mothers return to work while their baby is breastfeeding. Although it may take some time before you get into a routine that works for you and your baby, it is well worth the effort. There are many ways you can balance breastfeeding and work. This will be determined partly by the kind of work you do and the length of time you will be away from your baby.
An increasing number of workplaces actively support women to return to work and breastfeed. Many workplaces are designated ‘mother-friendly workplaces. This means that facilities are available to express and store breastmilk and mothers are entitled to ‘lactation breaks’ to breastfeed their baby or express.
Talk to your employer before you go on maternity leave to find out what options are available for you when you return to work.
There are a number of options for balancing breastfeeding and work:
- Ideally, you should feed your baby just before you go to work and as soon as you return home. You may be able to arrange childcare close to work so you can feed your baby in the ‘lactation breaks’.
- If you miss a feed while you are at work, express and store your milk (see the section on Expressing your breastmilk). This milk can be given to your baby at a later time.
- Babies will need to be fed your breastmilk by spoon, bottle, or cup
if under 6 months while you are at work. Once babies are over 6 months bottles may not be necessary as your breastmilk can be given by cup and they are eating family foods. - You also have the option to provide bottles of formula for worktime feeds while continuing to breastfeed at non-work times. Remember – the longer you breastfeed, the greater the benefits.
Question 2
Subject: Independent Contractor – Paying SGL
I am a subscriber to your excellent magazine.
I have recently become aware that in some circumstances an entity engaging a person to do work as an independent contractor rather than an employee may have to pay SGL to the contractors nominated super fund.
I have not been able to find any clarity on this and the circumstances in which it might apply.
Can you advise me of the circumstances when this may be payable?
I assume the rate would now be 9.5 percent but if not, I would appreciate confirmation of the applicable rate.
I get it that if a worker is in fact an employee and not an independent contractor, even though contracted on that basis, then SGL would be payable by the head contractor as the employer in truth (along with the proper leave entitlements). This would depend on the arrangements being determined to be a sham though I assume.
My concern is that in some circumstance’s SGL may be payable by a head contractor to a person who is in fact properly engaged as an independent contractor arises out of the Fair Work Fact sheet. http://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/rights-and-obligations/independent-contractors-and-employees
Please see the note in para 5 in the independent contractor side of the table. The wording of the note suggests that SGL may be legally payable even though there is a legitimate contractor relationship and no question of a sham arrangement. In support of this interpretation, it does not make the same qualification in terms of leave at the last paragraph in the table.
If this is right, I am keen to ascertain in what circumstances the obligation to pay SGL to a genuine contractor might apply to a head contractor. Presumably, as a starter, only if the contractor engaged is a natural person and not a company or partnership.
I would be pleased to hear your thoughts on this.
Answer
If you engage an independent contractor then the 9.5% statutory superannuation will not be payable.
Typically, such people are paid for a result, not by the hour and are able to determine their hours of work and able to delegate their work.
You hit the nail on the head when you stated “contractor rather than an employee” – if the person works under your direction and control, is paid hourly, working stipulated hours and cannot delegate their work then it is very likely statutory superannuation will be payable.
Some general protections provided under the Fair Work Act 2009 extend to independent contractors and their principals.
For more information on workplace rights, industrial activities, and what constitutes adverse action, please see the Protections at work fact sheet. https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/rights-and-obligations/protections-at-work
Question 3
Subject: Deceased Estate
I am dealing with a lawyer who is winding up a deceased estate. I have received a letter from the lawyer asking me these questions.
Please would you confirm the following:
- A new TFN must be obtained for the deceased estate.
- The estate becomes a Trust following the death.
- Any Income that the estate earns within 3 years from the death, must be distributed to the beneficiaries as per the will, on a Trust tax return form.
- The beneficiaries record this income on their personal tax returns and pay income tax on this income.
- If the estate is not wound up after 3 years from the death, the estate pays income tax on its income.
- Any value of the assets (Cash, shares, property etc) that are distributed to beneficiaries, as per the will instructions, is Tax-free in the beneficiary hands.
Answer
- Correct…
- Obtain a tax file number(TFN) for the deceased estate. … This is required as a deceased estate is treated as a trust for tax purposes.
- Broadly correct – in practical terms, the total distribution is normally made well within the three years with income earned simply forming part of the estate – if the estate is still being determined, there is no need to make an annual distribution.
- Disagree- for the first three years of the estate, it is the estate that pays tax being taxed at normal adult marginal rates.
- Correct – this at the highest marginal rate.
- Correct – both super funds will have already paid the necessary tax for payments to non-dependents and made the required notifications to the ATO – there is no further tax to be paid by the beneficiaries and the proceeds simply form part of the capital of the estate.
Question 4
Subject: Division 293
Can you please assist me with the date that Section 293 came into effect?
Answer
We believe you are referring to Division 293 tax which is a 15% super surcharge tax on high income tax earners.
This was announced in the May 2012 Federal Budget and first applied in the year ended 30 June 2013.
The threshold of adjusted taxable income of $300k was lowered to $250k in the year ended 30.6.2017.
Question 5
Subject: Casual Rates or Normal Rates?
We have a cert 3 (children services) who works permanent hours (Thursday & Friday).
If she gets called in on another day to replace another worker. Does she get paid casual rates or normal rates?
Answer
They are paid at ordinary time for the first 8 hours then over time as per the award.
Question 6
Subject: Overseas Company Tax Return
This is about an Australian private company (Pty Ltd), but 100% of ordinary shares are held by overseas company. It has one Australian resident director and main activity is medical research and development.
Q1. 1- Ultimate and immediate holding company name and ABN or country code:
Should I put the name of the overseas company for this question in the above scenario?
Q2. 26- International related party dealings/transfer pricing – Did you have any transactions or dealings with international related parties (irrespective of whether they were on revenue or capital account)? I just want to confirm that IDS (international dealings schedule) is required for Equity contribution from the overseas parent company or not as some people say “not required” for equity contribution by the overseas parent company.
- The overseas company provided the fund for issued capital for the value of shares (paid shares amount by the overseas company). Should we say to YES to this question?
- Should we complete an International Dealings Schedule?
Q3. This Australian private company (Pty Ltd) is conducting medical research in Australia. Total income/turnover of Parent and Australian company is AUD 6 mil. So, I believe that an Australian private company (Pty Ltd) can apply for an R&D tax incentive if all other conditions are met.
Australian private company (Pty Ltd) is wholly owned subsidiary of the parent company. Is this going to affect the outcome of the R&D tax incentive?
Q4. What is the impact/consequences if we answer Yes to the above questions?
Answer
Q1. Yes
Q2. a. Yes
- Yes. The following is a direct quote from International dealings schedule instructions 2020:
Trigger points that will require completion of this schedule.
If you are a relevant company, you must complete an International dealings schedule if you have written an amount or Y (for yes) at certain labels in your relevant tax return listed below:
“Company tax return 2020
Question 6 Calculation of total profit or loss
J Interest expenses overseas
U Royalty expenses overseas
Question 7 Reconciliation to taxable income or loss
C Section 46FA deductions for flow-on dividends
P Offshore banking unit adjustment
Question 27 International related party dealings/transfer pricing
Y Was the aggregate amount of the transactions or dealings with international related parties (including the value of property transferred or the balance outstanding on any loans) greater than $2 million?
Question 28 Overseas interests
Z Did you have overseas branch operations or a direct or indirect interest in a foreign trust, foreign company, controlled foreign entity or transferor trust?
Question 29 Thin capitalisation
O Did the thin capitalisation provisions affect you?”
Q3. The ownership of the subsidiary company has little impact on the eligibility of Research & Development Offset. As Division 355 covers company either incorporated in Australia or overseas.
We suggest that you consider two aspects of the R&D tax offsets.
- Whether or not the company is an R&D entity. You can only claim an R&D tax offset for expenditure on R&D activities conducted for you rather than for another entity. Working out for whom the R&D activities are conducted involves determining who receives the major benefit from carrying out the activities (for example, who owns the results of the activities). I refer you to Subdivision 355.35 & 355.220 of the ITAA 1997.
- Whether or not the company has incurred notional deductions of at least $20,000 on eligible R&D activities. I refer you to Subdivision 355.20, 355.25 & 355.30 of the ITAA 1997.
Q4. 1. Please refer to the Company Tax Return Instructions 2020, which states:
“Under the income tax transparency reporting requirements, the Commissioner of Taxation will publish Report of entity tax information about:
- Australian public and foreign owned corporate tax entities with total income of $100 million or more, and
- Australian resident private companies with total income of $200 million or more.
The information will be extracted from tax returns and amendments by the relevant entity that have been processed by 1 September in the year following the one being reported, and the report will be published around December. For example, information from 2018–19 will be extracted on 1 September 2020 and published around December 2020.
The information you include at items 1, 2 and 3, along with certain income labels, will be used to identify entities for inclusion in the Report of entity tax information.”
And…
- “International related parties are persons who are not dealing wholly independently with one another in their international commercial or financial relations, and whose dealings or relations can be subject to Subdivision 815-B of the ITAA 1997 or the associated enterprises article of a relevant double tax agreement (DTA). The term includes:
- any overseas entity or person who participates directly or indirectly in the company’s management, control, or capital.
- any overseas entity or person in which the company participates directly or indirectly in the management, control, or capital.
- any overseas entity or person in which persons who participate directly or indirectly in its management, control or capital are the same persons who participate directly or indirectly in the company’s management, control, or capital.
Participates includes a right of participation, the exercise of which is contingent on an agreed event occurring.
Person has the same meaning as in subsection 6(1) of the ITAA 1936 and section 995-1 of the ITAA 1997.
For more information as to the relevant degree of participation, see Taxation Ruling IT 2514 Income tax: Company Schedule 25A: Information return for companies that transact business with related overseas entities.
The type of ‘dealings or transactions’ that will require the entity to answer yes at this question are dealings by the entity with related parties (as mentioned above), such as an overseas holding company, overseas subsidiary, or non-resident trust in which the entity has an interest. These dealings or transactions may be the provision or receipt of services, or transactions in which money or property has been sent out of Australia or received in Australia from an overseas source during the income year. The dealings may also include transfer of tangible or intangible property, or the provision or receipt of loans or financial services.”
Question 7
Subject: Small Business Entity Criteria
We have a client that has several commercial properties.
At what point can this be classed as a small business entity, and what are the relevant criteria to be met?
Are there any expenses that cannot be claimed?
Also, can you please confirm if Commercial Rental Income is to be recorded under a rental schedule like residential properties or under Business income.
Answer
Answer to first question…
The fundamental question is whether your client is conducting a business such as short-term rental accommodation or a hotel?
You indicate that this is only passive rental income. This may not be a small business entity.
Useful guidance is contained in Taxation Ruling TR 2019/1 Income Tax: when does a company carry on a business?
Although it may meet the criteria, the Capital Gains Tax Small Business concessions will not be available – refer to page 7 of this edition.
Second question – It should be recorded in the rental schedule.
Question 8
Subject: Instant Asset Write Off- Luxury Cars
We understand that there is an instant asset write off (100%) for assets up to $150,000 each. Please advise if this is also related to luxury cars bought in the business and if so, is there a limit to the number of luxury cars that can be bought under this ruling?
Answer
The accelerated deprecation tax incentive applies to all depreciable business assets. However, there is a ceiling for luxury cars. The car limit for the 2021 financial year is $59,136. Costs over this amount should be capitalised. Please refer to Section 995.1 of ITAA1997 for definition of car and taxation ruling MT2033 for modification of the car.
Question 9
Subject: Anniversary/Entitlement Date?
The employee started with us 27.1.16. She went on maternity leave on 11.4.18 & returned on 29.1.19. Then took maternity leave on 21.7.20 & returned on 27.1.21. What would be her anniversary/entitlement date?
Also, how do I calculate personal leave?
Answer
The anniversary date does not change it is the original commencement date.
The length of service is counted as approximately 44 months and 8 days or 3.6 years’ service upon her return to work on 27/1/2021.
The entitlement to personal/carer’s leave is calculated based on an employee’s hours of work, not days.
Sick and carer’s leave comes under the same leave entitlement. It is also known as personal / carer’s leave.
The yearly entitlement is based on an employee’s ordinary hours of work and is 10 days for full-time employees, and pro-rata for part-time employees. This can be calculated as 1/26 of an employee’s ordinary hours of work in a year.
Refer to: https://calculate.fairwork.gov.au/leave
Question 10
Subject: FBT – Definition of an “Associate”
We understand that FBT is payable for any fringe benefits provided to an associate of an employee. What is the definition of an “associate”, does it include wife, mother, children, in-laws, etc?
Answer
The term ‘associate’ is widely defined to include a spouse, a child, or any other relative. Please refer to S318 of ITAA1936. It also includes any trust under which the employee could benefit.
Question 11
Subject: Clarification on The Margin Scheme
My client’s scenario is:
The client decided to purchase land and build a duplex. At the completion of the duplex, he decided to sell one of them and keep the other as an investment property. I then advised my client that this would more than likely attract GST on the sale of the one he sold.
He then went away and sought some advice from the ATO who said that he should register himself for GST and backdate it to before the signing of the land contract. So, the GST registration was backdated to 14 March 2019. They said that he could use the margin scheme.
I have attached for your reference the original land purchase contract together with the sale contract and the settlement statement that shows the tax withheld.
My questions are:
Is he entitled to use the margin scheme in the first place?
He cannot claim GST on Stamp Duty which we agreed, but the ATO literature shows that he cannot claim GST on his Conveyancing/Legal Fees on the purchase?
We have attached a spreadsheet with our calculations which divides everything by 50% to apply to the duplex he sold, do you agree with these calculations.
We have attached the settlement statement that shows the GST withheld of $32,452 of the sale price.
Answer
We make general comments and given we do not have source data do not check calculations.
It is correct that GST cannot be claimed on legal fees for the purchase.
The ATO advice to register for GST is correct – there is no doubt that your client was conducting an enterprise.
As the vendor of the land was a company, we suggest that GST was charged on the transaction.
Therefore, unless there was a mutual agreement in writing that the margin scheme applied, then there is no scope to use the margin scheme.
Question 12
Subject: Using Franking Credits?
The question is:
If a client declares a dividend in 2021 using franking credits from 2017 to 2020 (during which different tax rates applied for small companies), what % will the franking credit be, 30%, 27.5% or 26%?
Answer
The franking rate applicable will be that of the current tax year – if it is prior to 30 June 2021, the franking rate applicable will be 26%.
Question 13
Subject: GST – Investment Property Transfer/Sale
I have a few questions about GST on investment property transfer as below:
- My individual client bought a brand-new house from the developer. She then leases it back to them (for them to use as a display unit) for two years. After that she plans to sell the house immediately. Will there be GST on the sale price?
- My corporate client enters a contract to build 4 houses for their client. The total value of the building contract will be $950,000. On completion, their client will transfer 2 houses back to them as the payment for the contract. My client will then sell these 2 houses to the public at an estimated price of $810,000 each. What are the taxes on the sale? Is there GST on the sale? If there is GST, what does my client need to do so GST does not apply to the sale?
Answer
- The key issue you need to determine was whether there was a genuine change of title and your client paid GST on the purchase – if she did then a second-hand property is being disposed of and there will be no GST. If not, then it is very likely that GST will need to be charged. It sounds like the developer and your client may be associated in some way. GST needs to be paid once on the sale of the property at market value. If your client purchased the property at a significant discount to market value two years ago, then there is a real problem.
- Refer to my earlier comments – again there is no way to avoid the fact that GST must be paid on the market value on the sale of the properties. The building contract is $475k for each property and GST is included in this amount.
For your client to own the property again there must be a genuine change in title with stamp duty paid. Having effectively paid $475k… it now transpires the properties are worth $810k each – it goes back to our earlier comments that GST must be collected on the market value of the property. If the ATO uncovers a scheme to avoid GST they will take a dim view of this, particularly where the parties are closely associated.
Question 14
Subject: Employee – Not Called or Reported to Work
We require clarification on an issue we are experiencing with an employee.
The individual has not called or reported to work yesterday or today. Their usual workdays are Tuesday, Wednesday & Thursday.
Can you advise how long it must be before they have “abandoned” their place of employment?
Can you advise if we still must pay them for a “notice” period of two weeks if they do not return?
Do we still issue a letter of termination?
Answer
Abandonment of employment is a complicated and risky area, and employers should not lightly conclude that it has happened, especially if there is any indication the employee intends to return.
Employers should, at a minimum, try to make contact with the employee. If an employer can reasonably assume an employee has abandoned their employment, there are a number of steps it can take. Which steps are appropriate will depend on the circumstances?
The employer has an obligation to try and contact the employee via telephone on a couple of occasions, then try the next of kin, failing any of that they should report the matter to police as a welfare check if they cannot get in touch with the employee or and relevant next of kin. Also, they need to send a registered letter to the employees last known address at about the same time they call the police.
There is no set period of time that an employer must wait before they can assume an employee has abandoned their employment.
Clauses in modern awards previously required a period of at least three days’ unexplained absence before there was prima facie evidence an employee had abandoned their employment. There is no longer any abandonment of employment clauses in the modern awards, as the Fair Work Commission considered they were not necessary to meet the modern awards objective.
Once a reasonable period of time has passed and an employer can reasonably assume the employee is not coming back, there are a number of options available to an employer.
Which option is appropriate will depend on the relevant employment instruments and the facts of the matter?
If there is no reply from the phone calls or reply from the letter it is only then that they can assume the person has terminated their employment due to abandonment and they pay the employee all outstanding entitlements up until the last day worked and the relevant notice period (casuals excluded from notice period).
Whilst the process seems a little arduous anything less may be seen as an unfair dismissal.
Question 15
Subject: CG Distribution
My query relates to Capital Gains distribution in a family trust.
Have 3 beneficiaries who are presently entitled and could receive a distribution of CG in the 20/21 year.
A – earns $3000 in the year.
B – earns $50,000.
C – is a foreign resident for tax purposes (no earnings here).
Could you please show what would be the likely tax payable on $30,000 CG distribution made to each beneficiary?
Answer
Firstly, we assume the $30k distribution has taken into account the CGT individual 50% discount.
Also, that we are dealing with adults.
A – will pay very little tax but take $2,392 as a guide – if a senior Australian this figure could be less.
B – will pay $10,350 on the distribution (at the 32.5% marginal rate plus 2% Medicare).
C – will pay $9,750 tax at a non-resident flat rate of rate of 32.5%.
Question 16
Subject: SMSF and Limited Recourse Borrowing
Hi, this query relates to self-managed superfund and limited recourse borrowing.
An existing client (SMSF and member thereof) jointly own commercial premises in Canberra, i.e., leasehold property as is all land in Canberra.
The commercial premises are rented to another entity (unit trust) that operates a restaurant business. The commercial property is unencumbered.
The joint owners are considering expanding the commercial premises, however, will require loan funds to facilitate the construction of this extension. The proposed extended premises will also be leased to the current operator.
The issue at hand is how the proposed extension can be funded without exposing the SMSF’s assets including its 50% share in the existing property.
My initial thoughts were (subject to ACT Gov approval) to subdivide the existing leasehold property with the subdivided vacant parcel being owned (leased) by a new unit trust which in turn is owned 50/50 by the same joint property owners.
I understand that under the limited recourse borrowing provisions, providing the new asset is held in a trust, the trust is able to borrow the necessary funds providing the debt is secured only by the property of this trust and not by the SMSF.
Should the ACT Gov not allow the subdivision of the existing leasehold, could the joint owners still borrow the necessary funds with the member using his own personal assets as security?
As such, neither the existing commercial premises nor other assets of the SMSF would not be exposed.
Answer
You are correct to identify that no existing asset owned by an SMSF may then be pledged as security or encumbered in any way.
This should not be confused with limited recourse borrowing arrangements (LRBA), where an SMSF purchases an asset using a bare trust arrangement.
The subdivision proposal you suggest may have merit, but you will need to take legal advice from a lawyer specialising in SMSFs and ACT long term leases.
First, there will need to be an assignment of the long-term lease for consideration at market value and care taken to ensure the unit is not a related trust.
If the trust is related (more than 50% ownership), then the in-house asset rules apply.
Of course, the SMSF trust deed has to be checked to confirm such activity is allowed. LRBAs does not apply to purchases by unit trusts but to the bare trust arrangements outlined above.
In the event, the subdivision is not allowed and the fund members finance the development themselves, then there is the danger of these funds being deemed to be contributions to the fund.
Depending on the funds required and the fund balances this could be formalised by making non-concessional contributions.
In summary, there is a lot that can go wrong here – seek specialist advice.
Question 17
Subject: SMSF – Single Member Fund
I have a question regarding an SMSF.
I have a single member fund with a corporate trustee who also is the only director and member of a private company (A) that owns 16% of the shares in another private company (B) which the member is not a director or a majority shareholder.
My question is, can the SMSF buy from Company A – the unlisted shares in company B or does that constitute an in-house asset?
Answer
Buying these shares from the member (or associate) would certainly constitute an “in house asset.”
This means no more than 5% of the fund’s assets are allowed to be in-house assets.
There are only two exceptions:
- Business real property
- Listed shares on the ASX or an equivalent approved stock exchange.
Question 18
Subject: Temporary Full Expensing
Regarding the Temporary Full Expensing – can these assets be leased? For example, truck/trailer.
The Client has financed the purchase of the truck/trailer however wish to lease to another entity. The entity is part of a corporate group i.e., the entities are associated.
I am aware that with the instant write off, it is detailed that you are unable to receive the instant write if the asset is leased?
Can you please confirm that the entity that purchases the asset and has leased to an associated entity is able to claim a 100% temporary full expense? As this asset cannot be claimed under the instant write off method.
Also, that there are no issues with leasing out to another related entity as with the instant write off method.
Answer
Yes, we confirm it is the holder of the asset who claims the tax deduction.
This is a common asset protection technique, no issues are highlighted, and we can find nothing to indicate that this a problem.
However, we recommend you contact the ATO to confirm this and/or apply for a private ruling.
Question 19
Subject: Mortgage Refinancing Expenses Tax Deduction
My client has incurred exit fee of $2000 when refinancing the loan in FY 2019. They forgot to claim tax deduction :
My Question:
- Would that be tax-deductible as borrowing expenses?
- Can this be adjusted in the 2020 tax return instead of amending the 2019 return?
Answer
Mortgage discharge expenses on investment properties are deductible in the year they are incurred.
For this reason, we would recommend amending the 2019 tax return as it is best practice.
In the event the relevant marginal tax scales are identical and the amendment involves additional work, then you may wish to consider including the expense in 2020.
Question 20
Subject: Tax Payable by Trustee?
A client has passed away and has an amount in super. The Superfund is an Industry fund, and it produces a PAYG Payment Summary – Superannuation Lump Sum.
| Total Tax Withheld | $0 |
| Taxed Element | $274,139 |
| Untaxed Element | $65,139 |
| Tax Free component | $0 |
Death Benefit – Yes
Type of Death Benefit – Trustee of deceased estate.
Other information 16/02/1957 was the Date of Death.
How much tax is payable by the trustee?
Answer
Assuming the Estate is the beneficiary, any tax payable will be paid by the superannuation trustee.
The deceased estate will not be liable for tax.
Question 21
Subject: Normal or Salary Sacrifice?
If an NFP employee is being terminated and being paid 3 week’s leave in lieu of notice. Can salary sacrifice be deducted from the ETP?
Currently, $610 and $165 of pre-tax pay per f/n is paid to Salary sacrifice and Meals and Entertainment cards as part of our FBT. Do we just pay this as part of her normal salary or as the salary sacrifice?
Answer
It is suggested that the ETP be paid out in normal salary.
Payment on termination means there is no prospect of further salary sacrifice as employment has ceased.
Question 22
Subject: Classic Car in an SMSF
a client of mine wants to buy a classic car in an SMSF (1 member fund).
I am happy for him to do that as long as he follows the storage procedures etc and doesn’t drive the car himself etc as pointed out by the ATO.
However, he wants to do some restoration work on the vehicle himself to increase the value of the vehicle, but he is not qualified as such to do that – he knows cars and can work on the car as such, but he is not qualified.
I believe this will not be allowed by the ATO but just want your thoughts.
Answer
We would advise against this – as you say he is not qualified, and this could be construed by an Auditor as straying into “personal use and enjoyment of the asset”.
Next your client will be suggesting he needs to take the car on a test drive.
Question 23
Subject: What Is the Best Practice?
I am the Director; the staff have made complaints to the Management Committee about a couple of issues.
The main one is ringing me when they are not coming in for work.
We are in NSW and staff start at 8 am or 8.30 am. I ask staff to ring me on my mobile by 7.15 am in order to organise a replacement. Is this good practice, what is the best practice?
Should I be the one bringing these complaints up at a staff meeting to make changes? How should I do this?
Should they be speaking to me or is leaving a message on the answering machine good enough?
Answer
The Fair Work Act 2009 says an employee should advise the Employer as soon as practical.
The best solution would be to have a staff meeting and memo regarding personal leave.
The memo should answer these questions below:
The memo should say for example The Fair Work Act 2009 advises that you should notify the centre of your unavailability for work as soon as practical, we would really appreciate notification by 7.15 am if you are able to do so.
The best practice is to be flexible but certainly, have a set of guidelines that are conveyed to employees so that they have an understanding and yes raise the complaint but as a generalisation only not targeted at any one employee.
About speaking to you personally or is leaving a message, it is entirely up to you whether you feel leaving a message is appropriate or sufficient.
Some employers insist they speak to the manager in this regard, other employers will call their employees back if they leave a message to gauge how legitimate the request for leave is.
There are no rules to suggest what is good enough.
However, we do suggest you have written clearly in your staff policy manual exactly what is expected in this instance and be consistent in the way you manage it.
Remember, there will be times when flexibility, empathy and sensitivity toward the situation will be required.
Question 24
Subject: Employee Returning to Work
We have a teacher returning to work after maternity leave.
She is still breastfeeding and wanting time to leave the workplace to feed her baby.
She is an ECT under the Educational Services (Teachers) Award 2020.
Could you please clarify 16 – breaks? We are a preschool that operates for 41 weeks per year, not 48.
Also, can you clarify lactation breaks to express, as she will not be included in ratios for the time that she is off the floor?
Are we obligated to pay her? or are they unpaid breaks? I cannot find anything in the award.
Answer
We believe Clause 10 (below) covers your question. We have also included a link that will go far more in-depth for you and answers a lot of questions regarding breastfeeding and the workplace.
According to the NSW Department of Education under the Educational Services (Teachers) Award 2020.
Clause 10: lactation breaks
10.1 This clause applies to employees who are lactating mothers. A lactation break is provided for breastfeeding, expressing milk or other activity necessary to the act of breastfeeding, or expressing milk and is in addition to any other rest period and meal break as provided for in this award.
10.2 A full-time employee or a part-time employee working more than 4 hours per day is entitled to a maximum of two paid lactation breaks of up to 30 minutes each per day.
10.3 A part-time employee working 4 hours or less on any one day is entitled to only one paid lactation break of up to 30 minutes on any day so worked.
10.4 A flexible approach to lactation breaks can be taken by mutual agreement between an employee and their supervisor provided the total lactation break time entitlement is not exceeded. When giving consideration to any such requests for flexibility, a supervisor needs to balance the operational requirements of the organisation with the lactating needs of the employee.
10.5 The Department shall provide access to a suitable, private space with comfortable seating for the purpose of breastfeeding or expressing milk.
10.6 Other suitable facilities, such as refrigeration and a sink, shall be provided where practicable. Where it is not practicable to provide these facilities, discussions between the supervisor and employee will take place to attempt to identify reasonable alternative arrangements for the employee’s lactation needs.
10.7 Employees experiencing difficulties in effecting the transition from home-based breastfeeding to the workplace will have telephone access in paid time to a free breastfeeding consultative service, such as that provided by the Australian Breastfeeding Association’s Breastfeeding Helpline Service or the Public Health System.
10.8 Employees needing to leave the workplace during the time normally required for duty to seek support or treatment in relation to breastfeeding and the transition to the workplace may utilise sick leave in accordance with subclause 17.9 Sick Leave of this award or, where applicable, through the operation of the provisions of subclause 8.4 of this award.
Question 25
Subject: Late Lodgement of BAS’s
Can you please advise how late lodgement of BAS’s impact on our tax agent lodgement program?
Also, how late lodgement of Tax Returns impact on our tax agent lodgement program.
If you can send through a link or documentation to confirm it would be appreciated.
Answer
Generally, if more than 15% of the returns are late, then the ATO may become concerned.
You will sometimes be visited by an ATO official for a discussion.
You may receive a “please explain” letter.
In the event lateness becomes an annual event the concessions accorded in the usual tax agent program may be curtailed.
This rarely occurs.
In the event you have encountered difficulties through staff illness, family circumstances or staff departure, simply email the ATO, outlining this, seeking lodgement extensions.
They will usually grant an extension in legitimate circumstances.
Question 26
Subject: One-Off Gift
Our client is a Church based in NSW and they are asking if they can give a $10000 one-off Gift per financial year to a pastor which is tax-free on the pastor’s hand.
Answer
If the payment is for work done or can be linked in any way to the performance of the Pastor’s duties, then we suggest it is assessable.
Question 27
Subject: Capital Gains Implications
Our client inherited 2 x investment properties in June 2017 after her husband passed away.
Probate granted, and deceased estate tax return done sometime in August 2017.
She continued to rent the properties and decided to sell one of them last month and entered into a contract with settlement by the 1st week of April 2021.
In the title, she still appears as “Executor” not the sole owner.
We have established that the Property needs to be transferred to her name as a beneficiary from her being as executor.
Our questions:
- Are there a Capital Gains Implications when she transfers the title to her as the beneficiary from her as executor?
- Is there a Capital Gains Tax Implications in the Settlement happening in the 1st week of April?
Answer
We note that while probate has been granted and a tax return has been lodged, this does not mean the Estate has been finalised.
This only occurs when all assets are dealt with as instructed in the Will.
Further as Executor, your client gets to call the shots.
If possible, have the estate dispose of the property.
This avoids paying stamp duty on the transfer to your client.
Division 128-10 states the passing of an asset from the deceased to either the Executor or the Beneficiary, will not trigger a CGT event nor will the transfer from the Executor to the Beneficiary. Refer to page 41 of this publication.
If the property was purchased after September 1985 the original cost base to the late husband is used for the sale by your client.
A net foreign resident withholding certificate has to be filled out prior to settlement if the sale proceeds exceed $750k.
Even if you are an Australian resident this is necessary.
Question 28
Subject: – What Company Rate?
Could you please confirm what company rate is applicable on the following?
Distribution from a Family Trust to a Company. All income is from a trading business within the Trust.
As more than 80% of the income being distributed from the discretionary trust to the company is not passive income, can you confirm that the company tax rate in this scenario is at 27.5% for the 2020 year?
Answer
For the year ended 30 June 2020 the company tax rate for base rate entities is 27.5% (26% in 2021).
To be a base rate entity your turnover must be less than $50 million.
Receiving a discretionary distribution is passive income.
Given more than 80% of the income is a discretionary trust distribution, this means the company in question does not qualify as a base rate entity.
Therefore the 30% tax rate applies.