Recent Tax Developments
CHANGES TO THE R&D TAX INCENTIVE FROM 1.7.2021
The Research and Development Tax Incentive (R&DTI) has been in operation for ten years. This initiative aims to encourage innovation entities to grow and elevate their creative projects in Australia.
The Department of Industry, Science, Energy and Resources (AusIndustry) and ATO regulate the R&DTI. AusIndustry administers the R&DTI, and the ATO reviews the R&DTI expenditure claims when lodged by the entity.
Reforms to the R&DTI were announced as part of the Federal Budget in 2020/21. They formed part of the Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020. The following changes apply from 1.7.2021.
Changes to the R&D scheme:
- The tax offset for eligible R&D activities is based on a premium on top of the corporate tax rate for your entity.
- Entities with less than an aggregated turnover of $20 million – may claim a refundable R&D tax offset; this is your corporate tax rate plus an 18.5% premium. Previously entities making less than $20 million could claim a tax offset rate of 43.5%.
- Entities with more than an aggregated turnover of $20 million may claim a non-refundable R&D tax offset, which is your corporate tax plus an incremental premium. These incremental premiums are based on an entity’s R&D intensity for its R&D expenditure. Previously entities making more than $20 million could claim a non-refundable R&D tax offset at a rate of 38.5%.
- The expenditure threshold has increased from $100 million to $150 million and is now a permanent feature of the law.
- A tax benefit can be denied by the Tax Commissioner in the form of an amount of a refundable or non-refundable R&D tax offset that an R&D entity seeks to obtain from a tax avoidance scheme.
- There is a ‘uniform clawback’ rule.
- Changes to assessable income for R&D entities.
- Changes to R&D entity’s deductions.
- Changes to balancing adjustments for R&D assets held by R&D partnerships.
- Changes to transitional rules are amended to align with the primary amendments. Still, they continue to apply to R&D assets acquired before the R&DTI in 2011.
- The Commissioner must publish information about R&D entities where the entities have claimed notional deductions for R&D activities, including the amounts claimed.
Once eligibility has been determined, the R&D entity must register its entity with AusIndustry to be eligible for the R&DTI. Once the application is reviewed and if approved, your entity will be given a registration number to lodge a request for the RD&TI.
The R&D entity must summarise its eligible expenses by lodging them with the ATO’s R&D incentive schedule. Your registration number must be included.
Part of the application process requires a description of your projects and activities. The registration must be lodged within ten months of the income year end and lodged with the entity’s company tax return.
FBT RETRAINING AND RESKILLING EXEMPTION NOW LAW
Employers who provide training or education to redundant, or soon to be redundant, employees may now be exempt from fringe benefits tax (FBT).
Eligible employers can apply the exemption to retraining and reskilling benefits provided on or after 2 October 2020.
There are no limits on the number of training or education courses your employees may undertake or the cost of the education or training.
You don’t need to include these exempt retraining and reskilling benefits in your FBT return or your employee’s reportable fringe benefits amount.
Suppose you’ve already lodged and paid your 2021 FBT return. In that case, you’ll need to amend your return to reduce the FBT paid for any exempt retraining and reskilling benefits.
If you intend to claim the exemption, you must keep a record of all training and education provided to redundant, or soon to be redundant, employees.
AN INCREASE IN SMSF MEMBERSHIP RECEIVES ROYAL ASSENT
Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 received royal assent on 22 June 2021. From 1 July 2021, self-managed super funds (SMSF) and small APRA funds (SAFs) will be able to have up to six members instead of the previous cap of four.
If you are considering expanding your fund, you will need to consider things such as:
- what your fund’s trust deed allows
- the structure of your fund, and
- its reporting requirements.
Some State and Territory laws restrict the number of trustees a trust can have. Because an SMSF is a type of trust, your fund may be impacted by these restrictions. To avoid this issue, you can set up your SMSF with a corporate trustee and each member as a director of the corporate trustee.
It is important to seek professional advice and check State or Territory law restrictions before registering or expanding your fund.
The ATO has implemented the necessary system changes to enable SMSFs to add members five and six to their fund through the Australian Business Register (ABR).
ATO DATA-MATCHING PROGRAM – LIFESTYLE ASSETS
In July 2021, the ATO announced its intention to acquire lifestyle assets data from insurance policies for 2020-21 through to 2022-23 for the following assets where the value is equal to or exceeds nominated thresholds.
|Asset class||Minimum asset value threshold|
|Fine art||$100,000 per item|
The data items include:
- client identification details (names, addresses, phone numbers, dates of birth, Australian business number, email addresses), and
- policy details (policy number, policy inspection date, start date of current policy, end date of current policy, total value insured, purchase price of the property insured, registration or identification number of the property, insurance category, policy cost, description of the property insured, primary use type)
The objectives of the lifestyle assets program are to: data-matching
- promote voluntary compliance and increase community confidence in the integrity of the tax and superannuation systems
- assist with profiling to provide compliance staff with a holistic view of a taxpayer’s wealth
- identify possible compliance issues with income tax, CGT, FBT, GST and superannuation obligations
- determine avenues available to assist in debt management activities
- gain insights from the data to help to develop and implement treatment strategies to improve voluntary compliance, which may include educational or compliance activities as appropriate
- identify and educate those individuals and businesses who may be failing to meet their registration and/or lodgement obligations and assist them to comply
- help ensure that individuals and businesses are fulfilling their tax and superannuation reporting obligations.
LABOR AIMS TO DELIVER INCOME TAX CUTS AND CERTAINTY ON NEGATIVE GEARING
Earlier this year, the ALP dumped its dividend franking credits policy, which would have abolished franking credits refunds for people who paid no tax. This cost them clearly at the 2019 Federal Election. The coalition dubbed it the ‘retiree tax’ in their election-winning campaign.
On 26.7.2021, the ALP also announced an Albanese Labor government would deliver the same legislated tax relief to more than 9 million Australians as the Morrison Government, with the Shadow Cabinet and Caucus confirming that Labor in government would uphold the legislated changes to personal income taxes and maintain the existing regimes for negative gearing and capital gains tax (CGT)
You may recall it was ALP policy to reduce the CGT discount on assets held longer than 12 months from 50% to 25%.
Clearly, Labor intends to take its unpopular tax policies off the table and turn the forthcoming Federal election into a battleground over the Federal Government’s handling of the Covid-19 pandemic.
We remain apolitical, and it’s up to the voters to decide.
WHAT TO EXCLUDE FROM YOUR BUSINESS’S ASSESSABLE INCOME?
Not all payments you receive are assessable income for income tax purposes. Therefore, some may not need to be included as assessable income.
List of non-assessable amounts
The following amounts are not assessable: betting and gambling wins (unless you operate a betting or gambling business)
- earnings from a hobby
- gifts or inheritance
- GST you have collected
- non-assessable non-exempt government grants for grant recipients
- prizes and awards not related to your business
- money you have borrowed
- money you contribute as the business owner.
Non-assessable non-exempt government grants for grant recipients
The Federal Government can declare eligible business support grants as non-assessable, non-exempt (NANE) income. This means you do not include NANE income in your income tax return, and you do not pay tax on it.
COVID-19 recovery payments
Some COVID-19 recovery payments from the government to support small businesses will be NANE income for tax purposes.
To meet the eligibility requirements to treat support grants as NANE income on your income tax return, you will need to self-assess.
A payment will be NANE if it was received:
- under an eligible grant program
- in the 2020–21 or 2021-22 financial years
- by a small business with an aggregated turnover of less than $50 million in the income year, the payment was received.
Example – Receiving a grant eligible for NANE income
Fresh Brew is a small business operating a café in Victoria.
Fresh Brew received an eligible grant payment under the Outdoor Eating and Entertainment Package for the 2020-21 financial year.
This package is part of the Victorian Government’s response to the economic impacts of Coronavirus.
The Minister has declared that the Outdoor Eating and Entertainment Package is a grant program eligible for NANE income.
In the 2020-21 financial year, Fresh Brew self-assessed and identified that they are a small business. Their turnover was less than $50 million in the income year the payment was received.
As Fresh Brew received an eligible grant payment in the 2020-21 financial year and is a small business, they do not need to include the grant in their business income.
Some recovery grants from natural disasters are also NANE. The key takeout is to check out whether any government grant or non-business receipt qualifies as non-assessable non-exempt income (NANE).
To ensure it does not get lumped with your normal business, always include it as a separate income item in your accounting software. This will ensure all NANE gets properly identified.
TIME TO CLAIM THE JOBMAKER HIRING CREDIT
The ATO has advised the JobMaker Hiring Credit scheme’s third claim period is now open. Suppose you’ve taken on additional eligible employees since 7 October 2020. In that case, you may be able to claim JobMaker Hiring Credit payments for your business.
To claim, you need to:
- Register at any time before 6 October 2021 through ATO online services, Online Services for Business, or through your registered tax or BAS agent.
- Nominate your additional eligible employees by running payroll events through your Single Touch Payroll (STP)-enabled software.
- Claim your payments – enter your headcount and payroll information for the JobMaker period. The ATO will calculate your claim amount based on the information you provide.
Eligible businesses can receive up to:
- $10,400 over a year for each additional eligible employee hired aged 16 to 29 years
- $5,200 over a year for each additional eligible employee hired aged 30 to 35 years.
The JobMaker Hiring Credit is available to businesses for each additional eligible employee hired before 6 October 2021.
If you’re thinking about taking on extra staff, check if you’re eligible to participate in the scheme. The ATO has the resources available to help you, including a guide, key dates, and a tool for estimating payments.
Remember, registered tax agents and BAS agents can help you with your tax.
MUNKAYILAR v C OF T – WORK-RELATED DEDUCTIONS DISALLOWED BUT SHORTFALL PENALTY REDUCED
The taxpayer, a social worker, worked as support staff for an organisation providing services for adults and children with disabilities. In his 2018 tax return, prepared by his tax agent, the taxpayer claimed work-related deductions (laundry, non-slip shoes, mobile phone charges and hand cream) totalling $670. He also claimed self-education expenses consisting of fees for a child protection course ($9,435), a HELP debt ($4,000), travel expenses from work to Geelong for training ($1,500) and depreciation of a computer ($137). When the return was lodged, the taxpayer was yet to pay the course fees and was unsure whether he was obliged to do so. It turned out the employer paid this in disallowing the work-related deductions and the self-education expenses. The ATO also imposed a 50% shortfall penalty.
The Administrative Appeals Tribunal (AAT) held that:
- the course fees were not deductible as the taxpayer had not paid them
- the HELP debt was not deductible by virtue of s 26-20 of the ITAA 1997
- there was no evidence to support the travel expenses; and
- the taxpayer could not substantiate the various work-related deductions (for example, there were no receipts).
In dealing with the shortfall penalty, although the AAT held that reasonable care had not been taken in preparing the 2018 tax return and the “safe harbour” exception did not apply, they were willing to remit the shortfall penalty by 85%. This was largely because the tax agent had made a mistake in claiming the course fees and provided incorrect advice to the taxpayer in relation to the deductibility of HELP loan repayments and the travel expenses.
EXTENDING RELIEF FOR VIRTUAL MEETINGS AND ELECTRONIC COMMUNICATIONS
On 10.8.2021, Parliament passed legislation renewing temporary relief that allows companies to use technology to meet regulatory requirements under the Corporations Act 2001.
These temporary relief measures will allow companies to hold virtual meetings and use electronic communications to send meeting materials and execute documents until 31 March 2022.
This relief ensures that companies can meet their obligations as they continue to deal with the uncertainty of the COVID-19 pandemic. The renewed relief will give much-needed certainty to listed and unlisted companies expected to hold an annual general meeting later this year and early next year.
The legislation also gives ASIC permanent powers to provide individual or class order relief in relation to meetings and sending documents to provide additional flexibility. ASIC will provide this relief in circumstances beyond companies’ control, such as those caused by the COVID-19 pandemic.
With the extension of this temporary relief, the government will seek to introduce permanent reforms later this year. The reforms will allow companies to use technology to hold meetings, such as hybrid meetings, and sign and send documents.
SUPPORTING BUSINESSES AND INDIVIDUALS IMPACTED BY COVID-19
The passage of the Treasury Laws Amendment (COVID‑19 Economic Response No. 2) Bill 2021 on 10.8.2021 will provide additional support to individuals and businesses that continue to be affected by the COVID‑19 pandemic.
The Bill provides additional relief for individuals who are doing it tough by ensuring that COVID‑19 disaster payments received by individuals from the 2020‑21 income year are tax-free.
The Bill also gives effect to the Morrison Government’s commitment to assist any state and territory that is unable to administer its business support payments in the event of a significant lockdown imposed by a state or territory.
The Treasurer will also be able to determine the tax treatment of eligible COVID‑19 business support payments administered by the Commonwealth.
Under the Bill, the ATO will share data with Australian government agencies to administer a COVID‑19 business support program that the Treasurer has declared is eligible for data sharing.
Importantly, the Bill will also provide flexibility to enable necessary temporary adjustments for complying with information and documentary requirements under Commonwealth legislation.
TAXATION RULING TR 2021/4 INCOME TAX AND FRINGE BENEFITS TAX: EMPLOYEES: ACCOMMODATION, FOOD AND DRINK EXPENSES, TRAVEL ALLOWANCES AND LIVING-AWAY-FROM-HOME ALLOWANCES
This Ruling which was released on 11.8.2021, explains:
- When an employee can deduct accommodation and food and drink expenses under section 8-1 of the ITAA 1997 when travelling on work, including where it is necessary to apportion.
- The fringe benefits tax (FBT) implications, including the application of the otherwise deductible rule, where an employee is reimbursed for accommodation and food and drink expenses or where the employer provides or pays for these expenses.
- The criteria for determining whether an allowance is a travel allowance (as defined in subsection 900-30(3)) or a living-away-from-home allowance (LAFHA) benefit (see section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)) and the differences between them.
Whether accommodation and food and drink expenses are deductible depends on the facts and circumstances of each case. This Ruling uses examples to show how to determine the deductibility of these expenses in a range of situations.
TR 2021/4 Contains 14 worked examples that are relevant to everyday situations.
CORRECTLY CLAIM TEMPORARY FULL EXPENSING
Some sole traders have experienced errors when completing the temporary full expensing (TFE) and backing business investment (BBI) sections in their tax returns.
The error occurs when you incorrectly select an item from the TFE opt-out drop-down list in your return.
If you are not opting out of TFE or BBI or claiming a TFE deduction, you can skip all the labels about TFE or BBI in your tax return. No errors will occur, and you can proceed to lodge your tax return.
To claim TFE:
- add your TFE claim to your ‘Depreciation expenses’
- complete the ‘Temporary full expensing deductions’ labels to include the value of the TFE deduction claimed, and
- complete the number of assets you are claiming for.
Only complete the ‘Temporary full expensing deductions’ labels if you are claiming TFE.
To opt-out of TFE or BBI:
- select the appropriate option at the relevant opt-out question
- state the number and value of assets you are opting out of TFE or BBI.
You only need to complete the opt-out question and details if you choose not to apply TFE or BBI to your eligible assets.
Remember, registered tax agents and BAS agents can help with your tax return.
PAID PARENTAL LEAVE SCHEME BILL INTRODUCED
Legislation introduced into Parliament on 25.8.2021 will allow parents to count the period they have received the COVID-19 Disaster Payment towards the work test for Parental Leave Pay (PLP) and Dad and Partner Pay (DaPP).
This Bill will come as welcome relief for families living in extended lockdown conditions. The change will help parents who have had their hours of work reduced or stood down during the recent outbreaks retain their eligibility for the payments under the Paid Parental Leave Scheme.
The change will also support families who have received the COVID-19 Disaster Payment to meet the work test and will apply to anyone who receives the payment in the future.
The amendments, included in the Paid Parental Leave Amendment (COVID-19 Work Test) Bill 2021, follow a similar approach in 2020 where time spent receiving the JobKeeper payment counted towards the Paid Parental Leave work test.
Primary carers of a newborn can receive Parental Leave Pay for up to 18 weeks which can be transferred to the other parent at any time should they take over primary caring responsibilities. Flexibility measures introduced last year also allow the final six weeks to be shared or taken by either parent at any time until their child turns 2. In addition, Dad and Partner Pay is available for two weeks. Both payments are paid at the national minimum wage of $772.55 per week.
Families may also be eligible for Family Tax Benefit Part A up to $191.24 per child a fortnight for children up to 12 and Part B up to $162.54 per family a fortnight for children under 5.
BILL INTRODUCES REPORTING REGIME FOR THE SHARING ECONOMY
Legislation to implement a reporting regime for the sharing economy was introduced into Parliament on 25 .8. 2021.. The Bill requires operators of online marketplaces or electronic distribution platforms (EDPs)to report seller identification and payment details relating to transactions facilitated through their platform to the Australian Taxation Office (ATO).
The sharing economy has grown significantly over recent years. There is a risk that some sellers who use these platforms are not reporting their full income or paying the right amount of tax. The reporting regime helps ensure that the sharing economy meets their tax obligations and do not have an unfair advantage compared to similar activity elsewhere in the economy due to poor tax compliance. Key players in the sharing economy include Airbnb, Uber, and Lyft.
The Treasury Laws Amendment (2021 Measures No.7) Bill 2021 will:
- require electronic platform operators to provide information on transactions made through the platform to the ATO
- facilitate the closure and any transitional arrangements associated with Australian Financial Complaints Authority replacing the Superannuation Complaints Tribunal; and
- removes the $250 non-deductible threshold for work-related self-education expenses.
EXPORT FINANCE AUSTRALIA EQUITY INVESTMENT BILL PASSES HOUSE
This Bill also passed the House of Representatives on 26.8.2021 and moved to the Senate.
The purpose of the Export Finance and Insurance Corporation Amendment (Equity Investments and Other Measures) Bill 2021 (the Bill) is to give legislative effect to the Federal Government’s decision to broaden the range of transactions that Export Finance Australia (EFA) can finance. The Bill will enable the EFA to make equity investments, including supporting important infrastructure investments in the Indo-Pacific export-linked projects in Australia.
SUPPORTING MORE SMALL AND MEDIUM-SIZED BUSINESSES TO ACCESS FUNDING
The Federal Government is expanding eligibility for the SME Recovery Loan Scheme. The expansion will provide additional support to small and medium-sized businesses (SMEs) who continue to deal with the economic impacts of the COVID‑19 crisis.
In recognition of the continued economic impacts of COVID‑19, the government will remove requirements for SMEs to have received JobKeeper during the March quarter of 2021 or to have been a flood-affected business to be eligible under the SME Recovery Loan Scheme.
As with the existing Scheme, SMEs dealing with the economic impacts of Coronavirus with a turnover of less than $250 million will be able to access loans up to $5 million over a term of up to 10 years.
Other key features of the SME Recovery Loan Scheme include:
- The Government guarantee will be 80 per cent of the loan amount.
- Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
- Loans can be used for a broad range of business purposes, including to support investment.
- Loans may be used to refinance any pre-existing debt of an eligible borrower, including those from the SME Guarantee Scheme.
- Loans can be either unsecured or secured (excluding residential property).
The expanded scheme will enable lenders to continue supporting Australian small businesses when they need it most.
The SME Recovery Loan Scheme builds on earlier loan schemes introduced during COVID‑19, under which around 74,000 loans totalling around $6.2 billion were written.
The loans will be available through participating lenders until 31 December 2021. The expansion complements the Commonwealth’s other financial support to businesses impacted by the current COVID‑19 health restrictions.
The Morrison Government will continue to support small businesses as they seek to rebuild, adapt, and create jobs on the other side of this crisis.
Further information can be found on the Treasury website.
AUSTRALIANS LOSE $70 MILLION ON SCAMS, ACCORDING TO SCAMWATCH
- There was a 119.6 per cent increase in the losses associated with investment scams between the first six months of 2020 compared with the first six months of 2021.
- Cryptocurrencies were the most common payment method used in investment scams and caused the biggest losses. Of the 1,931 reports involving a loss, 955 (49.5%) were due to cryptocurrencies with losses of $29,277,896. Bitcoin accounted for over $25 million of these losses.
- People aged 65 years and over have lost the most money to investment scams so far in 2021, experiencing losses of $18.8 million from 548 reports.
- There has been an increase of 66 per cent in the number of reports about investment scams made by people aged 18-24 years. The losses of more than $1.7 million so far is an increase of 259 per cent compared to all last year.
- Indigenous consumers made 84 reports of investment scams and lost $945,270, a three-fold increase on the $336,796 lost for all last year.
- The phone was the most common contact mode used with investment scams, accounting for 1,429 reports (30%) of all investment scam reports with losses of $27.7 million (39% of all losses to investment scams).
- Mobile apps and social networking sites accounted for 40% of all investment scams, which involved a financial loss.
GRANTS TO BOOST AUSTRALIAN EXPORTERS’ GLOBAL GROWTH
In August, Minister for Trade, Tourism, and Investment Dan Tehan outlined recent reforms to export grants. The grants will better support Australian exporters to succeed on the world stage, supporting local jobs and businesses.
Applications are now open for the reformed Export Market Development Grants (EMDG). The program, which will ensure exporters know how much funding they will receive before they spend, has been improved by simplified legislation, a streamlined application process and a shift to a forward-looking grant program.
“The EMDG program has helped support Australian success stories like the Wiggles, Atlassian and Penfolds to become international sensations,” Mr Tehan said.
“Our government provided $214.5 million to more than 4,700 Australian businesses to support their exporting activities through the EMDG program in 2020-21.
“These businesses employed more than 70,000 people and generated around $4.7 billion in export income.
“EMDG is a valuable form of assistance for Australian exporters, and these changes will help many new and emerging exporters reach new heights in the years to come.
Since 1974 EMDG has supported close to 50,000 Australian exporters and distributed around $5.7 billion in grant payments.
The top five markets for EMDG grant recipients in 2020–21 were the US (56.9%), followed by the UK (25.3%), China (17.5%), Singapore (8.9%) and Canada (8.6%).
Reforms to EMDG are supported by a new application form which allows for better integration across Austrade services to deliver an improved client experience and export outcomes.
Applying for Export Market Development Grants from 1 July 2021
For export promotional activities from 1 July 2021, EMDG will no longer operate as a reimbursement scheme. Applications open on 16 August and close on 30 November 2021.
You can still claim reimbursement of eligible expenses incurred up to 30 June 2021 by applying under the final year of the reimbursement scheme. Applications for the reimbursement scheme close 30 November 2021 or 28 February 2022 if you are using a participating EMDG consultant.
The new forward-looking grant program will enable you to plan your marketing and promotional activities with confidence because you will know how much you will receive over the life of your grant agreement.
Grants are designed to support you during different stages of your export journey, and if you are an exporter or will be soon, you need to explore this.
STRENGTHENING UNFAIR CONTRACT TERM PROTECTIONS FOR CONSUMERS AND SMALL BUSINESSES
On 23.8.2021, the government released a draft Bill to strengthen unfair contract term (UCT) protections for consumers and small businesses.
The exposure draft Bill proposes reforms to the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 to help reduce the prevalence of unfair terms in standard form contracts and improve consumer and small business confidence when entering into standard form contracts.
Key reforms include:
- Prohibiting the use, application, and reliance on an unfair term.
- Providing courts with the power to impose a financial penalty for a contravention.
- Expanding the protections to capture a larger number of small businesses; and
- Creating a rebuttable presumption that a term is unfair if a court has already found a similar term used in similar circumstances is unfair.
The consultation on the draft Bill follows an earlier consultation process on options to enhance the UCT protections.
CASH FLOW BOOST FOR EMPLOYERS – SCHEMES TO ARTIFICIALLY CREATE OR INFLATE ENTITLEMENTS
This is now an area of ATO focus as they are aware of schemes that may be used to artificially create or inflate an entitlement to the cash flow boost. These include artificial:
- business restructures that attempt to create eligibility for the cash flow boost
- arrangements to split a business that exceeds the $50 million aggregate turnover threshold in order to create eligibility for both parts of the business
- re-characterisation of payments to salary and wages to maximise the cash flow boost.
Strong integrity measures have been designed to protect against these types of schemes.
Businesses involved in these schemes may:
- have their entitlement to the credit cancelled
- be required to repay the amount received, along with interest or penalties.
An advisor who helped a client to make arrangements to create an entitlement for the cash flow boost artificially:
- may have promoted a tax exploitation scheme
- could become subject to a civil penalty under the Promoter Penalty Laws.
The ATO will be actively reviewing entitlements to the cash flow boost. Their digital reporting systems, including Single Touch Payroll, informs how many employees each business has.
If they identify that you have entered into a scheme to create or inflate entitlements to the cash flow boost artificially, you will either:
- not receive any cash flow boost
- be required to repay any overpaid amounts.
Taxpayers and advisors who have entered into these types of arrangements will be subject to increased scrutiny. Compliance action may also be undertaken.
Registered tax agents who advise taxpayers to claim the cash flow boost inappropriately may be referred to the Tax Practitioners Board. The board will consider whether there has been a breach of the Tax Agent Services Act 2009.
Under Division 290 of Schedule 1 to the Taxation Administration Act 1953, Promoter penalty laws may also apply to promoters of these schemes. Penalties may include:
- civil penalties of up to 5,000 penalty units for individuals
- 25,000 penalty units for body corporates
- impositions of up to twice the amount of consideration received or receivable.
If you have entered into an arrangement of this type, you should seek independent professional advice.
REFUND OF LARGE-SCALE GENERATION SHORTFALL BILL PASSES HOUSE
On 26.8.2021, the Treasury Laws Amendment (2021 Measures No. 6) Bill passed the House of Representatives and will now be considered by the Senate.
The Bill proposes to:
- Make refunds of large-scale generation shortfall charges non-assessable non-exempt income for income tax purposes.
- Increase the maximum amount of penalty units included in regulations that prescribe an industry code, with specific amendments for industry codes relating to franchising.
- Remove the requirement for superannuation trustees to provide an actuarial certificate when calculating exempt current pension income using the proportionate method, where all members of the fund are fully in retirement phase for all of the income year.
- Provide regulatory certainty for industry participants that are governed by industry codes prescribed by regulations; and
- Create a new mechanism for sharing superannuation information for family law proceedings.
ATO ISSUES GUIDANCE ON TAX DEDUCTIONS FOR NON-ASSESSABLE NON-EXEMPT (NANE) COVID-19 GRANTS
Recently the Federal Government declared a number of New South Wales and Victorian COVID-19 business support programs to be eligible for non-assessable non-exempt (NANE) income treatment.
Broadly, payments will be treated as NANE income if made under an eligible program, received in the current financial year, and received by a business with an aggregated turnover of less than $50 million.
The ATO has issued guidance making it clear you can only claim a tax deduction for the part of these expenses related to gaining your assessable income. You cannot claim a tax deduction for the part that relates to getting the non-taxable government grant.
There is no set way to work out the part of the expense that relates to each purpose, but the way you work it out should be fair and reasonable. You should keep a record of how you work it out.
Example – Expenses incurred to gain assessable income and to get a non-taxable government grant
Flame Pty Ltd is eligible to receive a non-taxable government grant.
Flame Pty Ltd asks their accountant to apply for this grant on their behalf. Their accountant does not separately bill Flame Pty Ltd for this service but itemises the fee charged for applying for the grant in a quarterly bill that they give to Flame Pty Ltd for professional services provided over the quarter.
Flame Pty Ltd cannot claim a deduction for this part of the Bill.
Expenses that you would usually incur in the ordinary course of carrying on your business but are incidentally related to getting a non-taxable government grant.
You can claim a tax deduction for the whole of these expenses.
Getting a government grant is considered incidental where the expense relates to the whole of your business and is a type of expense you would usually incur. It will be considered that a government grant is not incidental where the expense is not one that you normally incur and is a pre-condition of being eligible for the grant.
Example – Expenses incidentally related to getting a non-taxable government grant
Flame Pty Ltd is eligible for a non-taxable government grant if they keep their staff on the payroll.
Flame Pty Ltd uses the grant to pay for wages, rent and utilities that they would ordinarily incur in carrying on his business.
Flame Pty Ltd can claim a deduction for the wages, rent and utilities paid.
ANTI-AVOIDANCE TASK FORCE FOCUS IN 2021–22
The ATO has outlined the Tax Avoidance Taskforce targets for 2021-22. During 2021–22, the focus will continue to be specialist large market advisors who promote and run tax avoidance schemes and engage in uncooperative, misleading, and obstructive behaviour. This includes the misuse of legal professional privilege (LPP) during their reviews and audits. The ATO is developing best practice guidance to establish best practice when making LPP claims in a tax dispute.
Under their engagement and streamlined assurance programs through their various compliance products, the ATO has indicated that they will continue engagement with the Top 500 and Next 5000 taxpayers and their associated entities.
The Taskforce uses its “growing data holdings” to identify and treat tax avoidance behaviours. This data is also used to improve systems designed to ensure leveraged approaches are applied across this population, reducing risk.
The Medium and Emerging program focuses on the performance and compliance of the medium and emerging private groups. The ATO reports risks most associated with this group, including tax or economic performance not comparable to similar businesses, low transparency of tax affairs, aggressive tax planning, accessing business assets for tax-free private use, and poor governance and risk-management systems.
By updating the Taskforce’s programs since inception, they have engaged with 1,978 taxpayers and their associated entities that fall within this category. It has raised $229.2 million in liabilities, with collections reported at $142.43 million in cash.
Another specific initiative of the Taskforce, The International Risk Program to date, has conducted 325 compliance activities with privately-owned wealthy groups and non-resident taxpayers on international tax-related matters, raising $266.4 million in liabilities and collecting $232.8 million in cash.
The ATO has pointed out that it continues to identify and address taxpayers deliberately entering abusive trust arrangements.
The Top 1000 Combined Assurance Review program commenced in late September 2020 and builds on the Top 1000 tax performance program. Work will commence with the reviews and associated engagements regarding those taxpayers that obtained overall low assurance.
Complex trust structures and distribution flows designed to exploit the use of trusts will again be firmly in ATO sights.
The ATO is working with their partner agencies to remove and disrupt harmful practices. Sharpening their focus on the small number of wealthy individuals (and their private groups) who continue to engage in deliberate tax avoidance behaviours,
The ATO will continue to advance their D&A capabilities and use cutting-edge technology to improve how they analyse and use data to support the Taskforce. Further improvements to data accessibility and risk detection services will enhance their ability to target engagement and assurance work. This program of work will continue over the next two years, with technology and analytics enhancements that continue to manage, interrogate, and provide insights from their extensive data resources.
bO2 READERS QUESTIONS AND ANSWERS…………..
Subject: Dual Company Structure
Would you please help with the following questions?
There is a Holding company and Trading company under a dual company structure.
The Holding company owns 100% shares of the Trading company and has no other business activity.
Only the income for the Holding company will be the dividend income if the Trading company pays the franked dividend in the future.
Here are the questions.
- Does the Holding company need to apply for the ABN and TFN in the above circumstance?
- Do we need to lodge the company tax return every year for the Holding company although no dividend income is received?
- Suppose the Holding company receives dividends from the Trading company. Should the Holding company pay the corporate tax on this dividend income?
- There may be small expenses related to the Holding company. Can this be included in the company tax return of the Holding company, e.g., accounting fee, or postage and so on?
- Having been registered with ASIC, the company is entitled to an ABN – effectively, the client has a choice. There is no requirement for it to have an ABN. As there is the possibility of receiving dividends, inter-entity transactions and additional subsidiaries, a TFN should be applied for. In the event of future tax consolidation and/or GST grouping, the holding company should have both a TFN and ABN.
- A return is not strictly necessary but could be lodged in the event of no income and care taken to ensure records are retained to prepare financial statements (Corp Law requirement). However, this is not best practice, and normally financial statements at the very least are prepared annually.
- This will depend on whether the dividends are franked. Normally only franked dividends are paid, which means the franking credits cover the holding company tax liability.
- Yes, as the holding company expects to receive dividends, these minor expenses will be deemed to be incurred in earning assessable income.
Subject: Home Schooling
Can an employee take carers leave for home-schooling during a Covid-19 lockdown?
The answer is no. Careers leave only applies and is taken when the person they are caring for is sick, ill, or injured.
A business can pay it if they wish, but they are not obligated.
Subject: Loan for Investment Rental Property
If a family member lends funds for another family member to purchase an investment property and charges interest on the loan, is the interest deductible for the member/owner of the property?
I assume if one claims a deduction, the other member declares the interest in their tax return.
What rate of interest should be charged against the loan?
The interest is deductible to the owner of the property as the principal was used to invest in an income-earning asset.
You are correct – the lender must include the interest they receive in their assessable income.
A commercial interest rate should be charged, making reference to the big 4 bank’s standard variable home loan rate.
This interest rate will fluctuate over time.
Subject: FBT – Change of Position
An employee leaves working for a large chain as an area manager, takes a new position at an associated subsidiary being an area manager.
The employer’s ABN changes, but he rolls his AL, LSL, and SL to the new employer, as it’s the same parent company.
As part of the package at the large chain, he gets a salary packaged car under a Novated Lease.
He leaves the large chain and starts with the subsidiary the next day.
Upon leaving, he ceases the novated lease, trades in the old car, and gets a new one with the subsidiary.
In August, the salary packaging company advised him he had a $10,460 adjustment on his salary package to pay. The shortfall relates to the actual v estimated usage of the car. The running costs were $10,460 over his budgeted running costs.
Can he claim a deduction for the amount he has to pay for running costs for the motor car, i.e., the $10,460 subject to the logbook percentage?
Or is the documentation pointing to an employee contribution of $10,460 and not deductible?
If this amount represents a shortfall on a trade-in, it is before-tax dollars costed to the employee’s package.
As all expenses are borne by the employer, the taxpayer has not incurred an expense in earning assessable income.
We note that the statutory formula is being used in calculating the FBT liability.
As the cost is to his pre-tax salary package, he would be double-dipping if he claimed a tax deduction which, as we have stated, is not available in any case.
While we don’t have the documentation, we don’t see how a tax deduction can be claimed in these circumstances.
Subject: Setting Up a Company
For example (his wife and brother-in-law ) are planning of purchasing the late sisters’ property as an investment property. They intend to keep their sisters legacy at the same time as an investment for him and his wife for future generations. They will be using their own personal funds (husband and wife) for the purchase. The sale proceeds can be included in the liquid assets for distribution among the beneficiaries by the executor.
Husband and the sister of the deceased Maria are thinking of setting up a company and purchase the property through this Company name. It would be much appreciated to hear your view and insight.
Concerning this new company,
- It is a “Shelf” company from an organisation that specialises in this practice providing us with necessary documents. Much better than setting it up myself through ASIC for registration.
- Other than limited liability and maximum tax on future income of 30%, if an asset is purchased under a company, what other benefits are there from a taxation perspective?
- From a tax perspective, what are the pros and cons of purchasing the property as an investment under a company name versus buying it under husband and wife’s name?
A shelf company is the best option for set-up purposes should you decide to go this way. If you have an Accountant, they can arrange this for you.
As this proposed company will earn passive income, you are correct in stating the company tax rate is 30%.
The downside is that companies do not get the 50% capital gains tax discount for assets held longer than 12 months.
A possibility for the couple is to use the company as a trustee and set up a discretionary trust.
As income flows through a trust with tax to be paid by the beneficiaries, it retains its character.
This means the 50% capital gains tax discount can be accessed.
The trustees also decide who in the family group is allocated the income, and there are potential tax minimisation opportunities
The investment vehicle selected must fit current requirements while considering asset protection and estate planning issues.
For instance, holding the property in a discretionary trust means it will not form part of the couple’s individual deceased estates.
This may determine whether they wish to hold the property in their own names.
Subject: Redundancy Payment
I need to make a redundancy payment but need some advice on how to calculate the payment correctly.
We take it the payment has been negotiated and that it is only a matter of determining the tax treatment.
If it is a genuine bona fide redundancy, then the following tax treatment applies.
No tax will be payable on $11,341 plus $5,672 for each year of completed service.
The balance of the payment will be an Eligible Termination Payment.
The tax treatment will depend on the recipient’s age – refer to page 10 of our 2022 annual publication.
Subject: Lessee and GST
We are a not-for-profit registered charity, registered for GST and endorsed for income tax exemption, operating as a church.
Another legal entity (also a registered not-for-profit charity) owns the church property. It leases it to our legal entity, which is the local church.
The lessee pays property costs (e.g., rates, insurance) as part of the lease agreement.
Because the invoices are related to the property ownership, it is not an option to request that all invoices be issued in the lessee’s name.
Can the lessee pay those tax invoices on the lessor’s behalf and claim the GST for the invoices issued in the lessor’s name?
Would you please direct me to any relevant ATO advice or legislation to support your response?
The owner of the church should send you a separate invoice to recover their costs on the outgoings.
This is what normally happens, and it is possible that GST will be charged on the tax invoice.
You will then be able to claim the GST back when you lodge your Business Activity Statement.
Subject: HR Health Check docs
I am being asked to do a HR health check at our workplace. What things would they be covering, or what information do I need to provide them?
This is a question that we are asked frequently.
Log in to your secure portal and look at the current and up to date Covid resources available as a member. You will see the latest workplace Covid-19 safety plan template.
This is the information required to update your workplace Safety Policy Manual and your requested HR health check. All you have to do is customise it to suit your workplace.
Alternatively, you can click on the link below, and it will take you to it.
I trust this has helped with your enquiry. Don’t hesitate to contact us if we can be of further assistance.
Subject: Carry-Back Losses
There are two separate questions:
- Would you please provide a brief explanation as to the mechanics behind carry-back losses? And
- details as to who is entitled to fuel tax credit and how it is calculated.
The loss carry back is covered in the Form C instructions guide section S item 13.
We trust you find the following link useful:
As you have requested the mechanics for fuel tax credits, we consider the following link most useful:
Subject: Superannuation-Performance Bonus
Is the superannuation to be paid when I pay an employee a performance bonus?
Correct, you do pay super because a bonus falls within the definition of Ordinary Times Earnings (OTE).
Subject: Snap Lockdown Payment
Our preschool is currently in the LGA with a snap lockdown. I am just curious if we have no children turn up to preschool – and no jobs to be done at preschool, can I send my staff home with no pay? Do I use their sick pay?
If they don’t want to come to work due to mental health, what kind of payment do I pay them?
They will not be working from home, as they cannot work from home due to being a preschool.
They need to look for suitable alternative work as preschools are essential and are not mandated to close.
Suitable alternative work may be that they clean the preschool or do some forward planning.
The employees cannot be simply stood down.
It would be an annual leave day for people who do not wish to come to work unless they were ill or injured or caring for someone in that category; then, it would be personal leave.
Subject: Changing Company Registration
I have composed a resolution concerning changing the company registration from Queensland to NSW. Can you suggest the fastest thing to do to address the resolution? The company was just incorporated yesterday. This shelf company noted that these changes would cost $1,000, which should have been confirmed before the registration.
We are looking forward to your kind advice.
Our perspective is that the state of registration is of little consequence.
This is a remainder from the days when prior to 1990, each state had a Corporate Affairs department that dealt with company registrations.
The Federal Government, through the formation of ASIC, took over this responsibility in 1990.
A registered company is free at any time to conduct business in more than one state and have or change its registered office to any state of its choosing.
It is the address of the registered office, which is important.
It is fine to have a minute or resolution, noting the registration state should have been NSW.
As for changing the state of registration and incurring a $1,000 expense… in our view, this is unnecessary.
Subject: What Pay Rate?
Our Educator is Certificate 3 in children’s service qualified and is working towards a Diploma of Early Childhood Education and Care in NSW Pre-school.
We are a small Pre-school and already have a diploma trained Educator.
Do we have to pay them at the diploma level because they have completed 50% of their course?
The employee is not entitled to be paid at diploma level until they achieve the diploma. Partial completion is not eligible.
Subject: Voluntary Bankruptcy and SMSFs
In the event of voluntary bankruptcy and SMSF, I presume the director of the corporate trustee must remove themself, and therefore fund must close.
What happens to the assets in the fund?
Are the funds exposed to the bankruptcy trustee if already bankrupt, and the fund must then close?
If the funds remain in the SMSF (cash), can I close the fund and remove the cash without it being taken by the trustee, or must the money stay in a super fund? I am 62 years old and can retire and take the money out.
You are right that a disqualified person cannot act as a trustee of a self-managed superannuation fund (SMSF) when they become bankrupt.
This applies whether they are the director of a trustee company or act as an individual trustee.
The ATO must be informed immediately, and alternative arrangements must be made within the six-month period of grace.
Where the funds held in the SMSF are liquid, such as shares or cash at the bank, this usually does not cause a problem as the funds can be rolled over into a superannuation fund that is not a SMSF.
However, there may be problems when the assets are not liquid. Such as real property where there may be delays in selling or when the Trustees simply do not wish to sell as they believe the property is a good investment.
In such cases, they can appoint a small APRA fund to act as the fund trustee.
A small APRA fund allows the members to run the investment along similar lines to a SMSF, but a specialist company regulated by APRA performs the trustee role. There are costs associated with this which need to be considered when deciding what course of action to take.
If your client is an undischarged bankrupt, it may be that the funds stay in superannuation.
If the funds pass to the individual, the trustee, in some limited circumstances, may access them in bankruptcy, resulting in further financial loss.
Exercise extreme caution taking professional advice.
Subject: What Level Is Paid?
I have an employee who will soon complete her Diploma in Early childhood Education and Care services.
She is also room leader when the ECT is absent or off the floor doing programming duties.
This employee is paid at a higher rate when required to do these duties.
Here are the answers to the questions.
- At what level is she paid when she gets her diploma?
- On the date we receive her new qualifications, is this the date she moves to the next level each year, NOT the date she started work with us.
- Are we required to pay her a higher rate when she is left in charge of the room or is this in her Job description for a Diploma trained Educator? Yes, she gets higher duties.
- What paperwork am I required to give her to sign off on once she agrees to the role? e.g., new job description, variation to wages etc., I’m not sure?
- Level 3.4 when not supervising
- That date of her qualifications, there are no higher pay levels in level 3
- If she carries out the duties for more than 2 hours, clause 18 of the award gives a better breakdown of higher duties.
- A new position description and an updated letter of offer if no other terms and conditions are changing. If there are changes to terms and conditions, a new employment contract would be a good idea.
Subject: Policy on Bereavement Leave
We are updating our policy on bereavement leave, and we want to support our staff as much as we can.
Is it best practice to offer the employees additional financial support for bereavement leave?
e.g., Organisation covers employees cost for travel or additional days. Could you explain why this should or should not be done?
Yes, it is good practice to offer additional support. Still, it would be best to be wary of how much support you give and whether it is evenly distributed amongst the bereaved staff members.
Organisations generally do not cover costs of travel for employees but may loan them funds for travel. Then get an authorised payroll deduction for the cost to be paid back.
Many businesses grant additional days due to cultural or religious needs, and some may extend the meaning of family.
An example of this is in indigenous culture. Many people are close to Aunties and Uncles, and the legislation does not provide bereavement leave for these family members.
You may wish to grant leave in these circumstances. Please bear in mind we only used one cultural group as an example.
Subject: Trust Return – Deceased
I am in the process of preparing the 2021 trust return for a deceased person who passed away in September 2019.
The 2020 estate return has been lodged and assessed to the trustee.
In Dec 2020, the estate disposed of the deceased’s rental property originally acquired in Dec 1997, resulting in a capital gain of around $650,000.
The estate is still under administration and is to be finalised towards the end of September this year.
It is intended that the return will be lodged with income assessed to the trustee under the 3-year provisions.
Is the trustee entitled to the 50% discount ($325,000) on capital gain?
The trustee is definitely entitled to the 50% discount.
The cost base is the original acquisition cost with the usual adjustments for capital expenditure and renovations etc.
Subject: Second Job Travel
My question is about the second job travel km that an employee, not a contractor, can claim.
From home to the first workplace ( Private), I understand that the first workplace to workplace 2 is ( Allowable to Claim).
Are the following allowed or not?
- 2nd Workplace to Home
- From home to 2nd workplace
- 2nd workplace to home
If not an employee but a contractor with an ABN, can he claim travel expenses from home to the various workplaces?
You are correct in your understanding that from home to the first workplace ( Private) and the first workplace to workplace 2 is allowable to claim.
- No, this is commuting from a workplace to home
- Again, commuting and is non-deductible
- Not deductible – again, this is commuting
They can claim travel expenses from home to the workplaces, only if he is an independent contractor with his home as a genuine place of business.
For instance, if he works almost exclusively for another Contractor, it is unlikely he will be an independent contractor.
Subject: Medicare Levy Surcharge
Our client aged 57 withdrew $633,572 (8Q) from his super in 2021.
Tax withheld was $139,386 (8)
Tax-free Component was $213,949
It was not a death benefit. He does not have a Private Fund.
Is the above payment subject to MLS?
A taxable superannuation benefit is included in assessable income. The Medicare Levy Surcharge (MLS) will be payable on the portion of the amount withdrawn subject to tax.
The Medicare Levy Surcharge is based on taxable income with adjustments for taxable fringe benefits and amounts of trust distributions subject to family trust distribution tax.
Subject: Payment of Tax
Please could you confirm the latest date that you can pay company income tax to the ATO for the tax year ending 30.6.2021?
This is largely determined by the due date for lodgement, and your Accountant/Tax Agent will advise.
The company will self-assess and pay the tax at the time of lodgement.
A company with a turnover of less than $2 million for the year ended 30 June 2000 will be expected to lodge their 2021 tax return by 31.3.2021, making payment on that date.
If the company did not have a tax liability for the year ended 30 June 2020, their lodgement date for the year ended 30 June 2021 is 15.5.2022.
They have an extension until 5.6.2022 to pay their tax.
Subject: Capital Gains Tax payable?
A young couple purchased a unit in February 2016 for $1,100,000. The couple could not afford to live there, so they lived with their parents until May 2019. The unit was rented for the period March 2016 to May 2019.
In May 2019, the couple returned to their unit and used it as their main residence. At that point, the estimated value of the unit was $1,200,000. Subsequently, the unit was sold while it was their prime residence in April 2021 for $1,475,000.
- Is there any Capital Gains Tax payable?
- Can we use the capital increase of $100,000 as the capital gain during the renting period, i.e. March 2016-May 2019, as Capital Gain?
It would appear the couple did not live in the dwelling.
The settlement being February 2016, with the unit being rented out in March 2016.
Therefore the 6-year temporary absence cannot be applied.
There appears to be some suggestion the couple did live in the unit… “in May 2019, the couple returned to the unit.”
We would caution against using the 6-year temporary absence.
There is no facility to use the $100,000 capital gain suggested.
Capital gains tax will be applied using the days the dwelling was not the principal place of ownership divided by the days of total ownership.
Effectively the taxable capital will be determined on this basis using the 5 elements of the cost base then applying the individual 50% CGT discount.