Tax Update – Impact on Small Business
TAX AND JOB CREATION MEASURES TO APPLY FROM 1.7.2021
These measures aim to provide tax relief, incentivise businesses to invest and ensure our superannuation system is more effective.
Retaining the low-and middle-income tax offset
The Government has extended further personal income tax cuts to support more than 10 million low‑and middle-income earners. These tax cuts are worth up to $1,080 for individuals or up to $2,160 for couples. This is more money to spend in local businesses, giving them the confidence to take on an extra worker, offer an extra shift or buy a new piece of equipment.
Providing tax incentives for businesses
The Government is further supporting businesses by extending its temporary full expensing and temporary loss carry-back measures beyond this financial year.
This will allow more than 99 per cent of businesses employing 11.5 million Australians to deduct the full cost of eligible depreciable assets of any value in the year they are installed until 30 June 2023.
These measures are estimated to boost GDP by around $7.5 billion in 2021‑22 alone and create around 60,000 jobs by the end of 2022-23.
Cutting taxes for small and medium businesses
The tax rate for small and medium companies with turnover below $50 million will decrease from 26 per cent to 25 per cent. For a small unincorporated business such as sole traders, the tax discount rate will increase from 13 per cent to 16 per cent (up to the existing cap of $1,000). Access to a range of small business tax concessions will also be expanded with the turnover threshold rising from $10 million to $50 million, providing tax relief and reducing red tape for eligible businesses.
Supporting business research and development
Reforms to the Research and Development Tax Incentive take effect from 1 July. This includes generous tax offset rates above the company tax rate and includes an intensity test to reward companies that commit a more significant proportion of their expenditure to R&D. In addition, the cap on eligible R&D expenditure will rise from $100 million to $150 million per annum.
Providing tax relief for small brewers and distillers
As announced in the 2021‑22 Budget, the Excise remission scheme for alcohol manufacturers will provide brewers and distillers with full remission of any excise they pay, up to an annual cap of $350,000.
This builds on the Government’s 2020‑21 MYEFO announcement to automatically allow eligible alcohol manufacturers to automatically receive their excise duty remission, reducing administrative overheads and providing additional assistance by addressing cash flow concerns. These changes also commence from 1 July.
Exempting granny flat arrangements from capital gains tax (CGT)
The Government is supporting older and disabled Australians and their families by providing a targeted CGT exemption for granny flat arrangements. From 1 July, CGT will not apply to the creation, variation or termination of formal written granny flat arrangements providing accommodation for older Australians or people with disabilities.
This change removes the CGT impediments to families entering into legally enforceable granny flat arrangements, reducing the risk of financial abuse to vulnerable Australians.
Supporting first home buyers and single-parent families
From 1 July, the Government will release an additional 30,000 places to eligible applicants under the First Home Loan Deposit Scheme, the New Home Guarantee Program, and the Family Home Guarantee.
As announced in the 2021-22 Budget, the Government will establish the Family Home Guarantee to support single parents with dependants. From 1 July, 10,000 guarantees will be made available to eligible single-parent families to build a new home or purchase an existing home with a deposit of as little as 2 per cent.
The Government will also extend the New Home Guarantee for a second year, providing an additional 10,000 places in 2021-22 for first homebuyers seeking to build a new home or purchase a newly built home with a deposit of 5 per cent.
Making superannuation work harder for Australians
As part of the most significant changes to superannuation in nearly 30 years, the Government is holding underperforming funds to account and strengthening protections for the retirement savings of millions of Australians.
The Government will require superannuation products to meet an annual objective performance test. Funds with products that fail the test will be required to inform members, while persistently underperforming products will be prevented from taking on new members. Members will be notified by 1 October 2021 if their product fails this test.
Australians will also have access to a single, trusted, and independent source of information to compare superannuation products through a new interactive online YourSuper comparison tool from 1 July. In addition, trustees will be required to demonstrate how their actions are in the best financial interest of members.
The Your Future, Your Super reforms are estimated to save Australian workers $17.9 billion over ten years.
Increasing flexibility for self-managed superannuation funds
The Government is providing Australians with more flexibility and control in managing their retirement savings. From 1 July, the maximum number of allowable members in self-managed superannuation funds and small APRA funds will increase from four to six.
Extending the temporary reduction in superannuation minimum drawdown rates
As part of the Government’s COVID-19 response, the superannuation minimum drawdown rates were reduced by 50 per cent for the 2019‑20 and 2020‑21 income years. To further support retirees and provide extra flexibility, the Government has recently extended the temporary reduction to the 2021-22 income year.
Implementing Financial Services Royal Commission recommendations
Consumers will continue benefitting from the Government’s strong record on implementing recommendations of the Hayne Royal Commission, with several reforms taking effect from 1 July.
A new independent body, the Financial Regulator Assessment Authority, will be established to review and report on the effectiveness and capability of the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority.
The enhanced framework around providing financial advice to clients under ongoing fee arrangements starts to address the Royal Commission’s concerns about fees for no service. To assist with this transition, the Government has recently made a regulation to lower compliance costs for generating fee disclosure statements. There is also a new disclosure obligation to ensure financial advisers who are not ‘independent’ provide clients with a clear and concise written disclaimer.
In the area of superannuation, there are new measures to prohibit the deduction of ongoing advice fees from MySuper products and to increase the transparency of fees to members. There is a new measure prohibiting superannuation trustees from having a duty to act in the interests of another except those arising from its role as trustee to address concerns about conflict. The Royal Commission recommendation that individuals be ‘stapled’ to a single super account has passed the parliament and will commence on 1 November 2021.
Cutting Cross-Border Red Tape for Tradies and Skilled Workers
Automatic mutual recognition (AMR) of occupational licences comes into effect across New South Wales, Victoria, the Australian Capital Territory, and the Northern Territory. This will enable licensed workers, including plumbers, builders, and architects, to operate across jurisdictions without applying, paying for, and waiting for a further licence to perform the same type of work in another state or territory. These measures, which will be implemented progressively, will provide a $2.4 billion boost to the economy, and directly benefit over 168,000 workers each year. Other states are expected to join the scheme subject to the passage of legislation.
Extending the Junior Minerals Exploration Incentive (JMEI)
The Government is extending the JMEI by four years to incentivise new investment in small minerals exploration companies undertaking greenfields minerals exploration in Australia.
Balancing the rights of franchisors and franchisees
Significant changes to the Franchising Code of Conduct commenced on 1.7.2021. This includes reforms to balance franchisors and franchisees’ rights and improve access to justice through additional, more efficient dispute resolution processes.
Improving payment times for suppliers in government contract supply chains
From 1 July 2021, large businesses awarded government contracts valued above $4 million will be required to pay their suppliers with subcontracts of up to $1 million within 20 calendar days or pay interest.
Rolling out the Consumer Data Right
Starting from 1 July 2021 — exactly 12 months after the big four banks — the rollout of Open Banking by the remaining banks is set to occur. This means that even more Australians will now securely access and share their banking data to access better value products and services.
Introducing licencing obligations for debt management services
From 1 July, providers of debt management services will be required to hold an Australian credit licence and meet ongoing obligations imposed on licensees. These regulations form part of the Government’s consumer credit reforms.
GST TIPS THIS TAX TIME AND GETTING IT RIGHT
When you give your work to the accountant this year, consider the following:
- Check for missed GST credits on purchases you have claimed income tax deductions on – a four-year time limit applies for claiming GST credits. This may occur if you occasionally use a personal account or credit card to make business acquisitions.
- Ensure you are registered for GST if required and backdate if needed. You need to register if:
- Your enterprise meets the GST turnover threshold ($75,000)
- A hobby has become a business
- You are a ride-sourcing driver who needs to be registered regardless of turnover.
- If you are renovating houses for sale or developing and selling property for a profit, you may be running an enterprise and should be registered for GST, even for one-off sales.
- Make sure you are using the most suitable accounting method to meet your business needs. Ask whether the accrual or cash methods are suitable.
- Check that stimulus vouchers are accounted for correctly, where you have participated in a government voucher subsidy program.
If you are in the pay as you go (PAYG) instalment system, it is important to lodge your outstanding activity statements before lodging your tax return, so your tax assessment accounts for instalments paid throughout the year.
JUNE 2021 – MAN COPS CRIMINAL RECORD FOR FALSE WRE CLAIMS
A finance and IT manager who made false work-related expense claims in his income tax returns has been convicted and fined at the Southport Magistrates Court.
Mr Gavin Crosswell claimed ‘other work-related expenses’ totalling $86,229 and $79,472 respectively in his 2016 and 2017 tax returns.
The ATO systems immediately flagged that the claims were unusually high for someone of his income and occupation. But he ignored the real-time warnings asking him to double-check his claims and proceeded to lodge them.
When the ATO commenced an audit, Mr Crosswell took it a step further by submitting a voluntary disclosure form increasing his ‘other work-related expenses’ in the 2016 tax return to $104,837. In doing so, he attempted to claim an additional $18,608 of work-related expenses.
Mr Crosswell provided 47 invoices and eight bank statements in an attempt to substantiate his claims, but checks proved they were false or altered. He had not incurred the expenses relating to 46 of the invoices, and the remaining invoice was for private expenses.
As well as 58 criminal convictions being permanently entered on his record, he was fined $4,000 and ordered to pay $75,000 to the Commissioner, plus court costs.
If you have a criminal record, you may have to declare it to authorities and employers. It may impact your ability to:
- work with children
- apply for insurance
- obtain travel visas.
These convictions will also go against you if you are ever before a court again.
The ATO has timed this media release to urge the public to double-check their claims this tax time and not make excessive and untrue claims.
CONSULTATION ON THE PATENT BOX
The Federal Government announced a new patent box as a part of the 2021-22 Budget.
On 5.7.2021, the Government released a discussion paper on the design of the patent box, which will start on 1 July 2022.
Under the patent box, income earned from new patents that have been developed in Australia will be taxed at a concessional rate of 17 per cent.
Initially, the patent box will apply to the medical and biotech sectors.
Patent boxes are widely used in other jurisdictions, including the UK, France, Switzerland, and Singapore.
By providing internationally competitive tax treatment, the patent box will encourage the retention of Australian‑developed inventions in Australia.
The patent box will also encourage research and development in the medical and biotechnology sectors and complements the substantial support the Government already provides to innovative sectors through the Research and Development Tax Incentive.
The discussion paper also seeks views on whether the patent box would effectively support low emissions technologies.
The paper is available on the Treasury website and will be open for submissions for six weeks until 13 August 2021.
The Government will then consult on exposure draft legislation for the patent box prior to introducing legislation into the Parliament.
USING TECHNOLOGY TO HOLD MEETINGS, SIGN AND SEND DOCUMENTS
On 25.6.2021, the Morrison Government has released exposure draft legislation to support companies and their officers using technology to satisfy Corporations Act 2001 requirements. Specifically, this legislation will facilitate technology in meetings, execute company documents, and send meeting-related materials.
These reforms make permanent the temporary measures put in place during the COVID-19 pandemic relating to the electronic execution of company documents and meeting notifications, which received overwhelming stakeholder support.
Building on the reforms to facilitate the use of technology in meetings, the exposure draft will also:
- make it clear that companies can hold hybrid meetings.
- make it clear that members, as a whole, must be given a reasonable opportunity to participate in meetings whether the meeting is a physical meeting, a hybrid meeting, or a virtual meeting.
- ensure that using a show-of-hands is the default method for voting at both physical and hybrid meetings; and
- allow members who hold at least 5 per cent of voting capital to have polls independently scrutinised.
These changes will provide shareholders with enhanced opportunities to both participate in and scrutinise company meetings.
The exposure draft legislation also includes further reforms to modernise business communications. This reform allows sole directors who are not appointed as the company secretary to execute documents electronically, delivering on a commitment under the Government’s deregulation agenda to improve the technology neutrality of Treasury portfolio laws.
SUPER FOR CONTRACTORS
This issue never goes away and certainly has hurt some employees after superannuation guarantee audits. In June, the ATO released a fact sheet on this topic.
If you pay contractors mainly for their labour, they are employees for superannuation guarantee (SG) purposes, and you may need to pay super to a fund for them.
It does not matter if the contractor has an Australian business number (ABN).
Super contributions for contractors
Make super contributions for contractors if you pay them:
- under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour)
- for their personal labour and skills (payment is not dependent on achieving a specified result)
- to perform the contract work (work cannot be delegated to someone else).
Example: employee for super guarantee purposes, not a contractor
David’s Caravan Park has a contract with Amanda, a freelance administrative assistant, to answer phones and do administrative work for 15 hours per week.
The contract specifies that Amanda herself must perform the work. Amanda has an ABN and invoices David’s Caravan Park weekly for the hours she works. Amanda is an employee for SG purposes because:
- her contract is wholly for the labour and skills she provides
- she is paid according to the number of hours worked
- she performs the work herself.
Assuming that Amanda is paid at least $450 per month, David’s Caravan Park pays SG contributions for her in addition to her pay.
If you enter into a contract with a company, trust, or partnership, you do not have to pay super for the person they employ to do the work.
Example: contractor, not employee for super guarantee purposes
Harry’s Hobby Shop wants to paint their new shop. They contract Pete’s Paints for the job. One painter from Pete’s Paints completes the entire job.
- The contract is between Harry’s Hobby Shop and Pete’s Paints.
- Harry’s Hobby Shop paid Pete’s Paints to achieve a result.
- The painter is not an employee of Harry’s Hobby Shop for SG purposes.
Harry’s Hobby Shop does not have any SG obligations for the painter or Pete’s Paints. This is the case even if Pete is a sole trader and does the work himself because he was contracted to achieve a result.
Pete’s Paints may have SG obligations for the painter.
How much super to pay for contractors
The minimum super you must pay is the super guarantee percentage (from 1.7.2021, 10%) of the worker’s ordinary time earnings. This is the labour component of the contract. Do not include:
- any contract payments that are for material and equipment
- overtime for which the worker was paid overtime rates
If the values of the different parts of the contract are not detailed in the contract, the ATO will accept their market values and consider standard industry practices. If you cannot work out the contract’s labour part, you can use a reasonable market value of the labour section.
Paying an additional amount equal to the SG rate to the contractor on top of their usual pay does not count as a super contribution. To avoid the super guarantee charge, you must make the SG contribution to the contractor’s super fund each quarter.
The ATO website contains valuable additional information.
SIMPLIFIED TRADING STOCK RULES
You can use the simplified trading stock rules if you:
- are a small business with an aggregated turnover of less than $10 million a year (or from 1 July 2021, with an aggregated turnover of less than $50 million a year)
- estimate that the value of your trading stock changed by less than $5,000 in the year.
If you use simplified rules, you do not have to:
- conduct a formal stocktake
- account for the changes in your trading stock’s value.
ATO WARNS ON ‘COPY/PASTING’ CLAIMS
The ATO is alerting taxpayers that its sights are set on work-related expenses like car and travel claims predicted to decrease in this year’s tax returns.
Overall, around 8.5 million Australians claimed nearly $19.4 billion in work-related expenses in their 2020 tax returns.
Assistant Commissioner Tim Loh noted that COVID-19 has changed people’s work habits, so we expect their work-related expenses to reflect this.
“We know many people started working from home during COVID-19, so a jump in these claims is expected,” Mr Loh said.
“But, if you are working at home, we would not expect to see claims for travelling between worksites, laundering uniforms or business trips.”
Last year, the value of car and travel expenses decreased by nearly 5.5%. However, there was a slight increase of around 2.6% in clothing expenses. With uniform and laundry claims significantly lower, this increase was driven by frontline workers’ first-time need for things like hand sanitiser and face masks.
According to Mr Loh
- While it’s good to see most people have been doing the right thing, ATO data analytics will be on the lookout for unusually high claims this tax time. Particularly where someone’s deductions are much higher than others with a similar job and income.
- The ATO will also look closely at anyone with significant working from home expenses that maintains or increases their claims for things like car, travel, or clothing expenses.
- You can’t simply copy and paste previous year’s claims without evidence.
- But the ATO is aware some of these unusual claims may be legitimate. If you explain your claim with evidence, there is nothing to fear.
- The ATO also wants to reassure the community that they will be sympathetic to legitimate mistakes where good faith efforts have been made. However, where people are detected deliberately claiming things they are not entitled to, firm action will be taken.
During 2020, the ATO had to shift focus on getting stimulus benefits out the door as quickly as possible to support so many businesses in need.
In 2021, the ATO will be continuing to balance its role in supporting taxpayers through this very challenging time while recommencing its focus on addressing overclaiming of work-related expenses.
How COVID-19 has changed work-related expenses
Working from home expenses
The temporary shortcut method for working from home expenses is available for the full 2020-21 financial year. This allows an all-inclusive rate of 80 cents per hour for every hour people work from home, rather than separately calculating costs for specific expenses.
All you need to do is multiply the hours worked at home by 80 cents, keeping a record such as a timesheet, roster, or diary entry showing the hours you worked.
Remember – the shortcut method is temporary. If you want to claim part of an expense over $300 (such as a desk or computer) in future years, you need to keep your receipt.
Personal protective equipment (PPE)
Suppose your specific duties require physical contact or close proximity to customers or clients, or your job involves cleaning premises. In that case, you may be able to claim items such as gloves, face masks, sanitiser, or anti-bacterial spray.
This includes industries like healthcare, cleaning, aviation, hair and beauty, retail, and hospitality.
To claim your PPE, you will need to have purchased the item for use at work, paid for it yourself, and not been reimbursed. You also need a record to support your claim – a receipt is best.
Clothing and laundry, self-education, car, and travel expenses
In 2020, the ATO saw a decrease in the value of work-related expenses for cars, travel, non-PPE clothing, and self-education due to the introduction of travel restrictions and limits on the number of people who could gather in groups. The ATO expects this trend to continue in the 2021 tax returns.
If an employee is working from home due to COVID-19 but needs to travel to their regular office sometimes, they cannot claim the cost of travel from home to work as these are still private expenses.
Case study – overclaiming work-related expenses
A Canberra administrative worker fraudulently received nearly $7,000 in refunds after claiming work-related car, travel, clothing, and self-education expenses he wasn’t entitled to. He had his fraudulent claims knocked back in 2014 after he couldn’t provide any receipts, instructing the ATO to “just process the return”. He tried it on again in his 2015 and 2016 returns, this time providing a fake letter from his employer.
Given the brazen and repetitive nature of the fraud, the taxpayer was prosecuted and now has a criminal record. He was also fined $1,800.
SUPPORTING RETIREES WITH EXTENSION OF THE TEMPORARY REDUCTION IN SUPERANNUATION MINIMUM DRAWDOWN RATES
On 29.5.2021, the Federal Government announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022.
As part of the response to the coronavirus pandemic, the Government responded immediately. It reduced the superannuation minimum drawdown rates by 50 per cent for the 2019-20- and 2020-21-income years, ending on 30 June 2021.
The announcement extends that reduction to the 2021-22 income year and continues to make life easier for our retirees by giving them more flexibility and choice in their retirement.
For many retirees, the significant losses in financial markets as a result of the COVID-19 crisis are still having a negative effect on the account balance of their superannuation pension.
This extension builds on the additional flexibility announced in the 2021-22 Budget.
The Federal Government will continue to support retirees as part of their plan to secure Australia’s economic recovery from COVID-19.
SUPER GUARANTEE RATE RISING 1 JULY
On 1 July 2021, the super guarantee rate will rose from 9.5% to 10%. If you have employees, you will need to ensure your payroll and accounting systems are updated to incorporate the increase to the super rate.
The super rate is scheduled to progressively increase to 12% by July 2025.
VIRGIN AUSTRALIA AIRLINES PTY LTD V COMMISSIONER OF TAXATION  FCA 523
This Federal Court case held that Virgin did not provide car parking fringe benefits to its flight and cabin crew at Sydney, Brisbane, or Perth airport. The reasoning being the flight and cabin crew’s primary place of employment was the aircraft where they operated, only on one aircraft on a particular day, or where they operated on more than one aircraft involved on a particular day, there was no primary place of employment. The airport car parks were not in the vicinity of the aircraft.
MUSSALLI V COMMISSIONER OF TAXATION  FCAFC 71
This Full Federal Court case has held that the upfront payments to secure a rent reduction under long-term leases were to obtain a more profitable business structure. Thus, the payments were on capital account and not deductible under s 8-1 of the ITAA 1997.
NEW R&D TAX INCENTIVE CUSTOMER PORTAL
The ATO has advised a new customer portal (https://incentives.business.gov.au/) has been launched to make it easier for companies to manage their applications for the Research and Development (R&D) tax incentive.
This facility has been available since 5.7.2021.
The portal includes:
- an online space for you, and your authorised representatives, to manage your company’s interactions with the R&D tax incentive program
- an updated application form – making it more straightforward for you to understand the eligibility criteria and how to address these in your application
- improved security using myGovID digital identity services, linked to your company’s ABN using Relationship Authorisation Manager (RAM).
In the future, you’ll also be able to use the portal to apply for and manage your Advance and Overseas Finding applications, request to withdraw or vary your R&D tax incentive application, apply for an extension of time, and even check the status of your submitted applications.
The new customer portal help and support page includes videos to help you access and complete your application, including a walk-through of the portal.
COLLECTABLES AND PERSONAL USE ASSETS (SMSFs)
This issue comes up time and again for SMSFs with trustees/members wanting to invest in collectables and personal use assets, including:
Investments in such items must be made for genuine retirement purposes, not to provide any present-day benefit.
Collectables and personal use assets can’t be:
- leased to, or part of a lease arrangement with, a related party
- used by a related party
- stored or displayed in a private residence of a related party.
- your investment must comply with all other relevant investment restrictions, including the sole purpose test
- the decision on where the item is stored must be documented (for example, in the minutes of a meeting of trustees), and the written record kept
- the item must be insured in the fund’s name within seven days of the fund acquiring it
- if the item is transferred to a related party, this must be at market price as determined by a qualified, independent valuer
- as with all fund assets, check prior to purchase that they are not encumbered in any way (you can use the Australian Financial Security Authority’s Personal Properties Security Register to ensure that collectables and personal use assets have no security interests over them prior to your purchase).
For collectables and personal use assets you held before 1 July 2011, you had until 30 June 2016 to comply with these rules.
G7 NATIONS AGREE ON 15 PER CENT GLOBAL TAX RATE FOR MULTINATIONAL COMPANIES
The G7 nations have reached a landmark deal to pursue higher global taxation on multinational businesses such as Google, Apple, and Amazon.
The group of Seven large, advanced economies, including the United States and the United Kingdom, have agreed to back a minimum global corporate rate of at least 15 per cent and for companies to pay more tax in the markets where they sell goods and services.
The deal means hundreds of billions of dollars could flow into the coffers of G7 governments left cash strapped by the Covid-19 pandemic.
The deal sealed after years of negotiation aims to end national digital services taxes levied by Britain and other European countries that the United States considered unfair to US technology giants.
These measures will still need to be ratified at a meeting of the G20 – which includes the emerging economies – due to take place in July in Venice.
For some years, G7 nations have been unable to agree on the way to raise more revenue from the likes of Google, Amazon, and Facebook. These large multinationals often book profits in jurisdictions where they pay little or no tax.
The Joe Biden administration paved the way fresh by proposing a minimum global corporation tax rate of 15 per cent.
While Germany and France have welcomed the agreement, French Finance Minister Bruno Le Maire wants a higher global minimum corporate tax rate than 15 per cent, which he has described as a “starting point”.
The tax proposal will allow countries to tax a share of the profits earned by companies with no physical presence but have substantial sales, such as selling digital advertising.
The G7 nations will then tax their home companies’ overseas profits at a rate of at least 15 per cent.
This aims to prevent accounting schemes from shifting profits to a few very low-tax countries because earnings untaxed overseas would face a top-up tax in the headquarters country.
bO2 READERS’ QUESTIONS AND ANSWERS……
Subject: Deed of Settlement
In 1983 Client A purchased a commercial property (ACT leasehold) in the ACT, which contained several commercial premises.
A substantial portion of the land was still vacant and available for further development.
In 2002 the whole property was sold to another party (Party B). However, Client A retained one of the commercial rental premises (rented to a third party) under the deed of trust pending the development of the vacant portion of the parcel of land and subsequent strata titling of the whole property.
Once the property was strata-titled, the retained commercial premises were returned to Client A for $1.00.
To date, this has not occurred, notwithstanding the demands made by Client A for this to be completed.
The property can no longer be strata-titled due to the long delay by Party B in lodging the appropriate application with the ACT Government.
As a result, Client A can no longer obtain possession of its commercial rental property.
Legal processes have now resulted in a deed of arrangement wherein Client A will be paid a yet to be determined amount as settlement for forging its right to the commercial property.
Client A has continued renting the commercial premises under the original deed of trust up to this point in time.
Whilst Client A did not have legal title of the commercial premises other than a deed of trust are the following assumptions correct:
- The proceeds of the deed of settlement are not subject to CGT, given the original purchase occurred in 1983.
- The pending settlement is not subject to GST given that the “sale” is a going concern with the commercial tenant in place.
Note Client A is registered for GST?
Given that the A.C.T. has unique property title considerations and the complexity of this matter, we decline to give general advice.
While we accept that, in all likelihood, you have done an excellent job in summarising the matter. We need to know the full facts and circumstances.
Even if this were available, we would recommend seeking legal advice, or at the very least, an application be made for a private ruling.
Subject: Request Advice
My client owns an old house on a large block. They intend to level the building and build two new units, which will be rented purely as a profit-making venture. Do you believe that the venture should be carried out through a discretionary trust? If not, please provide your alternative.
On the face of it, a discretionary trust has merits.
It allows asset protection along with flexibility as to who receives the income for taxation purposes.
Income retains its character as it flows through the Trust. If a valid income distribution is made each year, the relevant individuals will be assessable on their share of income at their marginal tax rate.
A trust allows some perpetuity in that the corporate trustee will retain ownership after key individuals pass away.
You may wish to check with your client if holding the asset in a trust suits their estate planning requirements.
Subject: Is CGT Applicable
- The property was purchased on December 11, 2006.
- The cost of purchasing the property with her husband is $465,654.
- June 12, 2012, separated from husband.
- June 1, 2013, rented out the property and moved to a rented unit.
- July 1, 2013, divorce was finalised.
- February 1, 2015, refinanced the house with a new bank and an additional $95,000.00 was borrowed and given to the ex-husband.
- October 26, 2019, the house sold for $1,180,000.00 less costs of $ 10,368.00.
We believe that the six-year rule should apply due to the circumstances of the case, and no CGT will apply. Would you look at the issue and confirm whether we are correct in our conclusion or CGT will apply?
If CGT applies, appraisal of the property from a reputable realtor valued it between $770,000 and $800,000 at the date she moved out.
Do we calculate the CGT on the difference between the sale price and valuation and apply the 50% balance?
The best outcome would be to apply for a 6-year temporary absence.
The taxpayer did not have any other principal place of residence (PPR) allowing this.
It is not necessary to move back into the property to claim the six years. This assumes the wife moved out of the property on 1.6.2013.
Because this means for the period 11.12.2006 to 1.6.2019, the property qualifies as the PPR.
For the period 2.6.2019 to 26.10.2019, CGT applies.
As this is apportioned on a ‘days of ownership’ basis, this is, of course, a tiny percentage of the total ownership of 12 years, ten months.
After applying the 50% discount, very little CGT will be payable.
Subject: Concessional Personal Contribution
My question is about catch-up contributions. I have been working the whole year round as a sole trader and have stopped contributing to superannuation for more than 20 years now. I will be 73 years of age this June.
I want to make a concessional personal contribution of $50,000.00 and claim this contribution against my taxable income. I have not contributed to superannuation for a long time. I believe I can contribute a total of $75,000. ($25,000 x 3 years).
Can I then withdraw the money three months later, say on September 22, 2021?
My second question is, is there a time limit as to when I can withdraw my contribution? And what would be the possible reason for withdrawal?
You need to meet a work test to make contributions into super as you are over 67 years of age.
The main issue to resolve is whether, in the last 12 months, you have worked 40 hours in any 30 consecutive days?
There is a one-off exemption for the work test if you have ceased work within 12 months of the contribution and have a total balance in superannuation of less than $300k.
If you are still eligible, we need to consider your proposal.
You are effectively talking about making catch-up contributions for 30.6.2019 and 2020 in 2021, making a total of $75k.
To be able to do this, your super fund balance must be less than $500k.
We take it you are aware there is a 15% tax on concessional contributions as they go into the fund.
There is no time limit as such, but you would be well advised to leave the contribution in the fund for at least a month and then have a reason for any lump sum withdrawal. It is improbable you would be required to provide a basis; it could be pressing and personal family matters etc.
Subject: Changing Super Funds
At the age of 67, my Client’s ABC super fund benefit, after being conservative balanced for 30 years, is equal to $ 450,000. Not being happy with the return compared with XYZ super fund, now wants to transfer to the XYZ super fund(or another one), believing that the returns will be better.
Can you please advise whether transferring to a new fund will have an advantage or disadvantage regarding insurance or any other matters (like tax or getting a pension later)?
First, if your client has invested with a conservative risk profile, they cannot expect high returns.
We wonder if this has been fully explained to them by a professional.
The characteristics of the contributions and end benefits and preservation will not change, and this will be part of the information supplied by ABC to the new fund.
There may be some insurance issues, though, and you need to check this out.
It is quite possible the premiums vis-a-vis the benefits payable to the member or their estate will be markedly different.
You will need to investigate this and proceed with caution.
It would be advisable to take advice from a reputable financial planner.
Regarding the pension, there were some grandfathered benefits several years ago that may need to be taken into account.
Subject: SMSF Query
A Full Pension owns a commercial property, installed solar panels for $30,000. Can SMSF write it off at one go (as the legislation allows up to $150,000)?
Unfortunately, the answer is no, as the SMSF does not conduct a business.
Subject: Non-Preserved – Roll Over to SMSF
We have a client aged 57, medically discharged from work on Work Cover with a state authority super scheme with a large portion of the fund having a restricted non-preserved amount.
Upon rollover, the specified non-preserved portion will change to unrestricted non-preserved once the Client provides medical documents showing he cannot work anymore.
The question is:
- If we set up a SMSF and transfer the total super balance, will there be any issues related to the restricted non-preserved amount?
- Will there be tax or any other issues when transferred to unrestricted from restricted non-preserved?
- Does it trigger a taxing event if transferred to the SMSF?
- I confirm it will just be a transfer, and the Client will not access any benefit until he is 60.
- We think there will be no tax payable, and when he is 60, he can set up a pension and receive tax-free.
- There will be no change in the classification of the benefits due to the transfer between the superannuation funds.
- When the classification of the benefits changes due to medical advice, there will be no tax issues within the SMSF.
- The taxing event will be due to liquidation of benefits (to make the transfer) from the State Fund, and there will likely be capital gains tax issues. CGT is effectively 10% on assets held longer than 12 months… otherwise, 15% within a complying super fund.
- Noted, and we mention in passing there may well be benefits in rolling over the permanent incapacity insurance to a SMSF.
Subject: Anniversary of Traineeship?
I have a Certificate 3 trained educator for our pre-school. While employed as a trainee, we had to extend her traineeship by approximately 6mths because she could not get it done.
Is the anniversary date to go to the next level the date she started her traineeship or the date she finished training?
My payroll clerk has it as the day she started (this decision was not discussed). If this is not the case, can I change it to the date she completed her course after discussion with the employee?
The payroll person is correct by basing on when they left school, and it increments yearly on their anniversary whilst they are on a traineeship.
Nothing in the award impacts the fact the employee took an extra six months.
An apprenticeship is a different story.
Subject: Business Sale – Employee Entitlements at Changeover
Upon sale of a business, is Long Service and Sick Leave calculation negotiable in QLD?
Recently, I was involved with a business acquisition in the construction industry where they calculated Long Service Leave on staff employed greater than five years and sick leave 100%. In NSW & Victoria, only 20 or 50% of total Sick Leave accrued; I could not find a fixed % for Qld.
If the new owner recognises the existing entitlements
When there is a transfer of business, a new employer must recognise an employee’s service with the old employer when working out most of their entitlements, including:
- sick and carer’s leave
- requests for flexible working arrangements
- parental leave.
However, there are some entitlements that the new employer might not have to recognise. These include:
If they recognise service, then it is 100% there are no percentages.
Subject: Family Trust Carry-Forward
A family trust has 100,000 carry-forward losses as at 30/6/2019. In 2020 the family trust had 100,000 profits.
My question is…
Can the family trust ignore the carry-forward losses, distribute the profit, including franking credits?
The carried forward losses are included in the calculation of taxable income.
The only argument for not including the losses would be if a valid family trust election (FTE) had not been done in 2019.
However, not having a valid FTE in place could endanger the franking credits if they are over $5,000.
To gain the benefit of the franking credit, everything should be done to ensure the Trust legitimately has a small taxable income in finalising the accounts, and this includes recognising revenue in 2020 or deferring expenses until 2021.
Subject: Transfer Funds to Foreign Company
Company A was established in Australia and owned by foreign company B (100% ownership by ordinary shares: $600,000).
Company A used the fund of $600,000 to operate the business in Australia, and it made a total loss of $200k for two financial periods.
Company A decided to cease the operation in Australia. Company A currently has $400,000 in the bank because they have not spent all the initial funds.
- How can the remaining balance be transferred to a foreign company (located in an overseas country) and the process/tax implications?
- Are they any other points to consider when company A ceases to operate?
I want to clarify if:
- There will be no tax payable regarding the transfer of remained cash balance in Company A to foreign company B, which owns 100% of Australian company A. Is it correct?
- There will be no limitation of the above when transferring to a foreign company?
For company A…
It is crucial that the company’s balance sheet be cleared and there are no assets or liabilities.
In particular, make sure no lodgements or amounts are outstanding with the ATO or ASIC.
Be sure that the company is facing no legal matters.
Prepare appropriate company minutes returning the shareholder funds to company B.
After the funds have been returned to Company B, fill out a form 6010 for ASIC to deregister the company.
The lodgement fee for this is $42.
On the form, the Director must make signed declarations relating to the above, so exercise due care.
The company has incurred tax losses – there is no tax payable on a return of capital to shareholders.
Subject: Superannuation Guarantee
10% Superannuation Guarantee is payable effective July 1, 2021.
The various circulars we are receiving advocate that if the salary paid on July 21 for the period ended on or before 30/6/21, superannuation is still 10%.
Would this be true if we are paying Cash / Bank (Salary) against “Salary Payable”, for which we have booked expenses before 30/6/21 for the salary?
My argument is, expenses booked in a period before 30/6/2021, Super should be 9.5%.
Please advise what the ruling around this is.
We understand the confusion, but for payments related to the June 30, 2021 (or earlier) quarter, the amount is definitely 9.5%.
Subject: – Deceased Estate with Farm
We have a deceased estate with farm property Estate JH.
Under the will of his father, who died in 1959, JH was left the farm property under these clauses:
“I authorise my wife to continue for such period as she may desire the farming operations carried on by me on my death.”
“On the death of my said wife, I direct that all the property of which my wife shall have had the use of during her life as aforesaid shall pass to my son JH.”
The wife died in 1985.
For capital gains tax purposes, what is the date on which JH is deemed to have acquired the property?
We need to be very careful where the CGT issues are linked to the terms and conditions of a Will.
While we strongly suggest you speak to the client’s lawyers, the relevant CGT dates will be linked to title transfers.
Establish whether a testamentary trust was created by the terms and conditions of the Will – take legal advice.
If so, was the title transferred to the testamentary trust?
Or was the title transferred to the wife?
Or is this an Estate of long standing that has not been settled?
It will be necessary to establish who has the current title and work back from there, taking legal advice.
Subject: Residency of a Deceased Estate.
We have a question regarding the residency of a deceased estate.
Following are the facts regarding the estate:
- The deceased was a non-resident of Australia (UK resident), lived in the UK since the 1960s.
- The deceased owns 3 Property Units here in NSW, Australia. The properties were passed onto him under his brother’s Will. The deceased filed his Australian tax returns as a non-resident and taxed at non-resident rates.
- After death, the properties above formed part of the deceased’s Australian estate.
- The sole executor and trustee of the deceased’s Australian estate is an Australian resident residing in Australia.
- The estate’s sole beneficiary is the deceased’s spouse, also a non-resident (UK resident).
Given the above scenario, would you kindly advise the tax residency of the above deceased estate?
While we think this is a deceased estate for a UK resident, to be administered in accordance with the relevant legislation in the United Kingdom, you will need to take legal advice to confirm this.
The CGT issues on the disposal or transfer of the Australian units will be subject to Australian law.
A lawyer with Deceased Estate experience will need to review the Will.
Subject: Top-Up Maternity Leave
We are current members & have a question regarding maternity leave & annual leave payments.
Is it possible for an employee to ‘top-up’ the maternity leave minimum wage payments with annual leave payments?
The short answer is yes; they can.
As long as both the employer and employee agree, and a leave application is filled out.