THE NEWSLETTER
Tax Planning Opportunities for Everyday Business
DGRS NEED TO REGISTER AS A CHARITY
Tax law has been amended so that from 14 December 2021, all non-government deductible gift recipients (DGRs) will need to register as a charity. This amendment does not apply to ancillary funds or DGRs specifically listed in tax law.
If your DGR is not already a registered charity. You will need to take steps to register with the Australian Charities and Not-for-profits Commission (ACNC).
Transitional arrangements are available to provide you with additional time to meet the new requirements. Check on the ATO website if your organisation is eligible for the following transitional periods:
- a 12-month transitional period to become a registered charity
- an additional three-year extension by application.
The ATO is willing to provide further guidance if you have questions about DGR endorsement, the transitional arrangements or what steps you need to take. You can phone the ATO on 1300 130 248 between 8.00 am and 6.00 pm, Monday to Friday.
MODERNISING BUSINESS REGISTERS
As part of its Digital Business Plan, the government has announced the full implementation of the Modernising Business Registers (MBR) program.
This program will:
- establish the new Australian Business Registry Services (ABRS)
- streamline how you register, view and maintain your business information with the government.
About the MBR program
The MBR program will establish a new and modern registry service, the ABRS.
The ABRS will:
- progressively roll out between 2021 and 2024
- bring together the Australian Business Register (ABR) and more than 30 Australian Securities and Investments Commission (ASIC) registers in one place
- introduce the director identification number (director ID) initiative.
The program aims to:
- make it easier for businesses to meet their registration obligations – giving them more time to focus on their customers and business operations
- make business information more trusted and valuable
- improve the efficiency of registry service transactions.
The ABRS high-level milestones are to:
- establish the foundations for the new registry service
- introduce director identification numbers
- transition the companies register to the new registry service
- transition the business names register to the new registry service
- transition Australian business numbers (ABN) to the new registry service
- transition the professional and historical registers to the new registry service.
What’s changing
The new ABRS is now live and has information on the director ID requirement. From November 2021, you can use the ABRS to apply for your director ID.
To find out more, see Director identification number.
As the program rolls out, we’ll keep you up-to-date with any changes that may affect you.
What’s already changed
On 15 April 2021, ASIC registry staff moved to the ATO in a Machinery of Government (MoG) administrative change to help the Registrar.
This move was a staffing change only. It doesn’t change your registry obligations, how you interact with the ASIC registers or the ABR at this time.
What’s not changing
Registry data will continue only to be provided to other parties, including other areas of ASIC and the ATO:
- to maintain the registers
- if authorised by law.
The existing requirements for the collection, storage, integration and management of data will be upheld.
For now, how you register, search and get extracts of the registers and interact with the ABR and ASIC remains the same.
There will be a clear separation between registry functions and other functions of the ATO.
Director identification number
Director identification number (director ID) is a unique identifier you need to apply for once and keep forever.
You must apply for your director ID yourself so that your identity can be verified. No one can apply on your behalf.
Your authorised agent can’t apply for a director ID for you. They can help you understand the new requirement and if you need to apply, and when.
The director ID application will be available from November 2021 at abrs.gov.au.
To log in to ABRS online, you’ll need to use the myGovID app, set it to a Standard or Strong identity strength. If you haven’t already, you can set up your myGovID now.
To find out more, see How to set up myGovID.
Administering the MBR program
On 4 April 2021, the Commissioner of Taxation was appointed as Registrar under the following:
- Business Names Registration Act 2011
- Commonwealth Registers Act 2020
- Corporations Act 2001
- National Consumer Credit Protection Act 2009.
The Registrar’s role is to:
- lead and implement the MBR program
- perform statutory registry functions
- exercise powers under the relevant laws.
Initially, this will also include assisting ASIC in performing statutory registry functions and exercising its powers as a delegate of ASIC. At a later stage, the Registrar will assume primary responsibility for those functions under the law.
The ATO is rolling out the MBR program in partnership with:
- Treasury
- ASIC
- Department of Industry, Science, Energy and Resources
- Digital Transformation Agency.
ATO STATEMENT REGARDING PANDORA PAPERS
The ATO issued a media release on 4.10.2021. They stated they were aware of the International Consortium of Investigative Journalists (ICIJ) reporting they have released data referred to as the ‘Pandora Papers’.
ATO Deputy Commissioner and Serious Financial Crime Taskforce (SFCT) Chief Will Day said that the ATO regularly receives information from various sources in their efforts to fight tax evasion and crime.
“While the information in data leaks is interesting, we don’t rely on data leaks to do our job. We detect, investigate and deal with offshore tax evasion year-round,” Mr Day said.
The ATO will be analysing the information to identify any possible Australian links.
“We are well connected locally and globally in our efforts to fight financial crime. We will certainly look at this data set and compare it with the data we already have to identify any potential connections,” Mr Day said.
Mr Day said the ATO has strong international partnerships, treaties and agreements that enable a collaborative approach to identify and address international tax evasion and crime.
The ATO intelligence on tax evasion comes from a variety of sources, including the community, advisers, partner agencies and international bodies. Mr Day said it was important to remember that being included in a data leak doesn’t automatically mean that there has been tax evasion or crime.
“There is a range of legitimate reasons that someone may have for an offshore bank account or structure. We know most Australians do the right thing. However, some attempt to hide their ownership interests or financial misdoings through offshore arrangements,” Mr Day said.
Mr Day said staff from the ATO and their partner agencies form an impressive intelligence capability that uncovers crime.
“We have some of the best auditors, investigators, analysts and data scientists in the world who work together to sort the good from the bad, ensuring no stone is left unturned,” Mr Day said.
“The message is clear for those who try to cheat the system – your secrets are no longer safe, and you can expect to feel serious consequences for your actions. No complicated money trail is too difficult for us to unravel.”
“From the very first data leak, we responded quickly through the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC). JITSIC brings together 42 national tax administrations that have committed to more effective and efficient ways to deal with tax avoidance and evasion.”
JITSIC member countries will continue to work together to pool resources and share intelligence to rapidly develop a more accurate picture of what the data is revealing.
This collaboration, coupled with the ATO’s work through the Serious Financial Crime Taskforce and the Joint Chiefs of Global Tax Enforcement, means that the ATO will be able to respond to any so-called data leaks decisively.
The ATO encourages those who may have undeclared offshore income to contact them.
WORK-RELATED EXPENSES – ARE YOUR CLAIMS REASONABLE? OR ARE YOU PUTTING YOURSELF IN THE FIRING LINE?
When analysing deductions claimed by taxpayers in particular occupations and locations, the ATO uses a real-time comparison with what they term the taxpayer’s ‘nearest neighbour’.
From this real-time data comparison with other taxpayers in the same industry and location, the ATO actively prompts the taxpayer in real-time that their claims are out of the normal range, effectively allocating them the opportunity to consider, prior to final confirmation, whether their claim is valid.
When preparing their tax returns using MyTax in 2020, taxpayers were issued around 350,000 prompts, requesting them to check the figures they entered in MyTax. This being due to proposed deductions being significantly different to those of others in similar circumstances.
How did people deal with this warning?
- Around a third immediately changed their deduction
- Around a third made no change – this may be valid if they actually incurred the expenses and it related to them earning assessable income
- However, the final third progressively reduced their claim for a deduction to see when they dipped below the warning threshold. It really is putting you in the firing line for a tax audit!
In reality, this may only involve the usual letter questioning the claim and requesting substantiation, but this is not smart. It is akin to saying, “I may not have incurred the expense… but what can I get away with?” It’s far better, to be honest!
MJ AND IT PTY LTD v FEDERAL COMMISSIONER OF TAXATION [2021] AATA 3250 CASH FLOW BOOST SCHEME
A company was not entitled to the cash flow boost in respect of an amount paid to its sole director because it entered into a scheme to increase its entitlement to the cash flow boost.
In this AAT case, in agreeing with the ATO, it was held that the taxpayer company, in the final week of March 2020, had entered into a scheme for the sole or dominant purpose of accessing the cash flow boost stimulus measure by recording a single payment to its sole director for the March 2020 period.
Although the AAT accepted the taxpayer’s argument that the director had constructively received the payment. But, after following the recording of the expense and the subsequent offset against the director’s loan in the accounts, the AAT decided that various steps would not have occurred. Concluding that the March payment would not have happened if the parties were at arm’s length or the cash flow boost did not exist.
It followed the taxpayer had the sole or dominant purpose of increasing the amount payable under the cash flow boost.
As a result, the company was only entitled to the cash flow boost in respect of PAYG amounts withheld from amounts paid to arm’s-length employees.
PRIVATE COMPANY DIRECTORS: LODGE OR REVIEW YOUR RETURN
If you are a director of a private company and your tax returns aren’t up to date, or you didn’t report all your income, now is the time to speak to a trusted adviser and lodge a tax return or make a correction.
It is not uncommon in small businesses to clear out company profit to directors fees. While this may deal with company tax, the directors must disclose this income in their individual tax returns for this to be effective. We suspect that some discrepancies have come to light due to single touch payroll.
In fact, by matching data across a range of sources, the ATO has noticed that some directors of private companies received income but haven’t lodged a tax return or disclosed all their income.
The ATO has commenced reviews on lodgment and correct reporting for these company directors and their connected entities.
When they find income that has not been disclosed, the ATO will work with taxpayers to get them back on track.
Suppose you make a voluntary disclosure to the ATO. You can generally expect a reduction in the penalties that would normally apply.
PERMANENT CHANGES TO ANNUAL GENERAL MEETINGS AND ELECTRONIC COMMUNICATIONS
On 20.10.2021, the Federal Government introduced into parliament a Bill to modernise the Corporations Act 2001 by permanently allowing companies to use technology to meet regulatory requirements under the legislation.
The Corporations Amendment (Meetings and Documents) Bill 2021 (the Bill) will allow companies and registered schemes to hold virtual meetings, distribute meeting-related materials and validly execute documents. These reforms build on recently renewed temporary relief, which will remain in place until 31 March 2022.
Specifically, the permanent reforms:
- ensure that meetings can be held physically, as a hybrid or, if expressly permitted by the entity’s constitution, virtually, provided that members, as a whole, are given reasonable opportunity to participate in the meeting;
- ensure that companies and registered schemes can meet their obligations to send documents in hardcopy or softcopy and give members the flexibility to receive documents in their preferred format; and
- allow documents including deeds to be validly executed in technology-neutral and flexible manners, including by company agents.
These reforms will provide relief to around one million operating businesses and are estimated to deliver deregulatory savings of $450 million each year, averaged over 10 years. They will be reviewed two years after the legislation commences to ensure that they are operating as intended.
Importantly, the Bill ensures that companies can continue to meet their obligations amid the uncertainty of the COVID‑19 pandemic.
TAX GAP HIT $34 BILLION JUST BEFORE PANDEMIC
The Commissioner of Taxation annual report for the year ended 30 June 2021 makes for some interesting reading. Almost $34 billion worth of tax was not paid in the year before the pandemic hit (30.6.2019), with a small business tax gap and individuals responsible for most of this.
ATO estimates reveal a 7.3 per cent gap between collected tax and what was expected to be brought in during 2018-19. About $33.5 billion, up by $32 billion from the prior year.
Most of this “tax gap” was attributed to small businesses ($12.5 billion) and individuals ($8.4 billion). A further $2.6 billion was missing from large corporate groups.
As yet, figures are not available for the tax gap during the pandemic. The ATO decided to be less aggressive in its compliance activities at the height of the crisis.
The ATO collected $11.5 billion in total revenue from 5.2 million compliance activities out of a target of $15 billion in the year ended 30.6.2021. In 2019-20 there were 3.9 million compliance activities with $ 13.7 billion in revenue raised.
In his annual address to the Tax Institute on 21.10.2021, ATO Commissioner Chris Jordan said compliance work was paused in 2020 amidst the impact of the COVID-19 outbreak.
The ATO intends to contact 500 tax agents under its “shadow economy” program. The program aims to approach tax professionals early if they are considered engaging in risky tax behaviour.
Unsurprisingly, The tax office’s annual report says total revenue effects – an indicator that measures the impact of compliance activities – were below target for the first nine months of the 2020-2021 financial year due to the pandemic.
Lodgements by taxpayers and businesses for each category were lower on average during the pandemic than in typical years, and refunds were increased.
ATO WELCOMES ANNOUNCEMENT OF SETTLEMENT OF TAX DISPUTE
On 29.10.2021, the ATO welcomed the announcement from medical equipment company ResMed that they have settled their tax dispute for the equivalent of USD381.7 million and locked in future tax certainty.
The ATO has lauded this announcement as another example of the success of the Tax Avoidance Taskforce in strengthening the Australian Tax System.
Since its inception in 2016, the Tax Avoidance Taskforce has proven very successful. It contributes to the ATO collecting over $10 billion in additional tax from public and multinational businesses over that period and locking in future tax compliance.
Since the commencement of the task force, numerous taxpayers have publicly acknowledged finalising their tax affairs with the ATO, including Apple, BHP, Chevron, Facebook, Google, and Microsoft.
ENHANCING THE SUPER SYSTEM AND DRIVING BUSINESS INVESTMENT
On 27.10.2021, the Federal Government introduced into Parliament the Treasury Laws Amendment (Enhancing superannuation outcomes for Australians and helping Australian businesses invest) Bill 2021. The Bill will improve flexibility for Australians preparing for retirement, support more Australians to own their first home and help Australian businesses invest. The Bill also reduces costs and simplifies reporting for self-managed superannuation funds and small APRA‑regulated funds.
The government is delivering on a key commitment in the Women’s Budget Statement by removing the $450 per month income threshold under which employees do not have to be paid the superannuation guarantee by their employer—eliminating structural discrimination that has been part of the superannuation system since 1992, improving equity in the superannuation system, and increasing women’s economic security in retirement.
Recent reforms have paved the way for this important change. The introduction of Single Touch Payroll has made it easier for employers. And recent superannuation reforms, such as the Protecting Your Super package, have strengthened protections for small superannuation balances from high fees and insurance premiums.
The maximum amount of voluntary contributions that people are able to release under the First Home Super Saver Scheme (FHSSS) will increase from $30,000 to $50,000, empowering more Australians to save effectively for their first home deposit.
The eligibility age to make downsizer contributions into superannuation will reduce from 65 to 60 years, allowing more older Australians to consider downsizing to a home that better suits their needs. It is freeing up the stock of larger homes for younger families.
The Bill supports the repeal of the work test for non-concessional and salary sacrificed contributions which will be implemented through regulation changes the government intends to make before the end of the year. The legislation preserves the work test for personal deductible contributions made by individuals aged between 67 and 75. It will also make amendments necessary to allow eligible individuals to make non-concessional superannuation contributions under the bring-forward rule. This will improve flexibility for older Australians to contribute to their superannuation.
Australians will be able to take advantage of these changes from 1 July 2022.
In addition, the legislation reduces costs and simplifies reporting for superannuation funds and provides choice for fund trustees for the 2021‑22 income year onwards. Trustees will now be able to use their preferred method of calculating exempt current pension income if the fund is fully in the retirement phase for part of the income year but not for the entire income year.
The government is extending the temporary full expensing measure by 12 months to 30 June 2023 to support business investment further and create more jobs.
As part of the 2020‑21 Budget, the government introduced a time-limited investment incentive to support business investment and the economic recovery from COVID‑19 by allowing businesses with aggregated annual turnover or total income of less than $5 billion to deduct the full cost of eligible assets, of any value, purchased after 7.30 pm AEDT on 6 October 2020 and first used or installed ready for use by 30 June 2022.
The legislation will extend the end date of temporary full expensing to 30 June 2023, providing eligible businesses with more time to access the incentive.
Temporary full expensing applies to around $320 billion worth of investment, and over 99 per cent of businesses, employing 11.5 million workers are eligible for this measure.
14TH PERSON CHARGED IN RELATION TO $20 MILLION FRAUD INVESTIGATION
On 28.9.2021, a man from Sydney’s inner west became the 14th person to face charges relating to a deceptive $20 million fraud and money laundering operation.
The 54-year-old Earlwood man was set to appear before Downing Centre Local Court after being charged with recklessly dealing with the proceeds of crime to the value of $100,000 or more, contrary to section 400.4(2) of the Criminal Code (Cth). The maximum penalty for this offence is ten years imprisonment.
As part of Operation Bordelon, he was issued a court attendance notice by Australian Federal Police (AFP) investigators on Thursday, 9 September 2021, following a close evidence review by federal prosecutors at the Commonwealth Director of Public Prosecutions. Operation Bordelon is a Serious Financial Crime Taskforce (SFCT) joint agency operation into a criminal syndicate using labour-hire and payroll companies associated with the building and construction industry to defraud the Commonwealth.
It was alleged in court that the man received and possessed a total of $456,150 that was proceeds of an illegal scheme to siphon off money that should have been remitted to the ATO and that he was reckless as to the fact that the money was the proceeds of crime.
He allegedly used two personal bank accounts to receive money from five other corporate entities set up to facilitate the fraud scheme. It was also that alleged the man was the sole director and secretary of a corporate entity that received payments from another entity established by the syndicate to launder money illegally, diverted as part of the scheme.
AFP Detective Superintendent Matthew Ciantar said the growing list of people charged under Operation Bordelon highlighted the tenacity of AFP investigators and their ability to uncover the entire scope of criminal and offence committed by this syndicate.
According to Mr Ciantar
- The AFP understands that the sole purpose of organised crime is to make money. The best chance to inflict lasting damage on those seeking to accumulate significant wealth at the expense of the Australian community is to target their efforts to legitimise their proceeds of crime.
- The AFP issued a warning in August 2021 that anyone involved in this scheme should be worried as they would lay further charges if the evidence allowed. These new charges highlight a commitment to ensuring serious criminal activity is brought to account. And it serves as another warning to others in the professional services industry seeking to facilitate organised crime activities.
ATO Deputy Commissioner and SFCT Chief Will Day said one of the common features of serious financial crime is businesses that may appear legitimate on the surface. Still, when you peel back the layers, you discover webs of criminal activity.
“Financial crimes cause real harm to people’s livelihoods and line the pockets of criminals. The SFCT takes these matters extremely seriously, and this latest charge shows that we take firm action against those who think they won’t be caught,” he said.
bO2 READERS QUESTIONS AND ANSWERS…
Question 1
Subject: GST registered provider for NDIS
My client is a registered provider for NDIS and has the GST concession as a NFP entity. Currently registered for GST
Major incomes are from government funding.
The question is whether this business can still claim a GST credit for expenses, such as rent and general business overhead expenses, for running a business.
ATO website does not really show specific examples on this case. Please provide a link if you find any.
Answer
If your client is registered for GST, you need to consider….
Many supplies under the NDIS are GST free, but some are not.
It is possible to claim input tax credits (ITC) on GST free supplies.
Regarding expenditure – if the outgoing has been incurred in earning the NDIS income, an ITC may be claimed.
You need an eligible tax invoice to claim an ITC.
As these are general principles, the ATO has not provided examples specific to the NDIS.
Refer to the ATO Community Page, which has some discussion on the NDIS topics.
Question 2
Subject: 2021 pension and late penalties
In Manual 2021, I cannot find an explanation of how the pension amount should be calculated. I would also like to know what penalties there are if the pension is not paid on time?
I had a problem paying the 2021 pension before 30 June, and I wondered whether I could appeal to someone for leniency. It could have been a Covid-19 staff problem.
My SMSF asked XXX Share Investments to sell its shares in ZZZ on 17 May. They have still not done that. 3 apologies have been received, but no cash. So, no pension could be paid.
Then I transferred the shares off-market, but now my accountant says I have to put the money back. He said the pension had to be paid in cash. The share price has crashed. I received a welcome letter from ZZZ, but their website shows that the super fund owns the shares. Maybe everyone is short-staffed because of the pandemic?
Answer
It was the task of your Accountant or SMSF administrator to advise you in writing on pension options well before 30.6.2021.
Usually, a minimum and maximum amount apply, and the fund member receives a pension prior to 30 June.
As you would be aware, income on assets in pension mode is tax-exempt, providing the pension has been properly paid for the year.
Due to Covid-19, for 30.6.2020 – 30.6.2022 inclusive, the rate on minimum pension drawdowns have been reduced by 50%, meaning a pension as little as 2% on the level of relevant SMSF assets could be paid.
We don’t have the full circumstances, and you should have an open and frank discussion with your accountant to resolve this.
There are some wider issues at play here – and some real care and attention is called for:
- If a SMSF fails to meet the minimum pension requirements in an income year. The super income stream will be taken to have ceased at the start of that income year for income tax purposes.
- From the start of the income year, the account is no longer supporting a super income stream. Any payments made during the year will be lump sums for both income tax and SIS Regulations purposes.
- If you comply with the minimum pension rules in this current year, this results in the payment of a new pension. The trustee will need to revalue assets at market value and recalculate the minimum pension required at the start of the new pension.
Question 3
Subject: CGT Calculation Unit Trust
Just wondering if you could assist please with a CGT calculation for a commercial property owned by a unit trust.
It is a commercial property from which my clients run their business. They lease it to their trading entity, another unit trust. They will continue to lease the premises from the new owners.
I understand that there are some anomalies in calculating the CGT for Unit Trusts.
The Unit Trust has a corporate trustee, and the two unitholders are Discretionary Trusts holding 10 units each @ $1-.
From my calculations below (not published by bO2 to protect privacy), you can see a gross gain of $ 604,965 which will be split between each discretionary trust, i.e., $302,482 CGT each before any CGT concessions. I just need to know what they are entitled to, how it all works in the unit trust, flowing the funds out to their discretionary trust and the beneficiaries.
Answer
While we have not reviewed source data, your calculations on the CGT event A1 appear to be correct. Next, you must work out the CGT event A1 gain at the discretionary trust and individual level.
In addition, we draw your attention to capital gains tax event E4.
E4 only applies if some or all the payment to unitholders is non-assessable income previously sheltered from tax by the CGT active asset discount, the building allowance under Division 43, or a return of capital.
Broadly, CGT Event E4 operates to write down the cost base that the recipient unit holder has in their units in the trust (a nominal $10) by the amount of the distribution. And to the extent there is an excess, the recipient unit holder makes a capital gain.
The conditions for eligibility are outlined on page 54 of our annual publication. The steps to work out CGT event E4 are outlined in the following:
Cash paid by the unit trust
- Less amount included as the trust distribution
- Less amount sheltered by CGT active asset discount
- Less amount sheltered by Div43 building allowance
- Less cost base of the units
= Amount subject to CGT event E4
If the CGT Small Business Concessions apply, CGT Event E4 may be reduced by the CGT active asset discount. If the units are active assets and the 90% significant individual test can be met. The E4 gain may be further reduced by using the Retirement Concession to effectively eliminate the capital gain.
As each relevant individual has a lifetime limit of $500k for the retirement concession. The use of the concession must be carefully considered if significant small business capital gains are expected to occur in the future when the business is eventually sold.
If the “significant individuals” are less than 55 years of age, this amount must be contributed to superannuation. Those over 55 effectively have a choice, and there is no requirement that the funds go into super.
Question 4
Subject: 3-way cash flow
I wondered if anyone could provide me with a template for a 3-way cash flow recently requested by my client’s Bank.
Answer
We suggest you google…. cash flow statement www.business.gov.au/-/media/Business-information/Template
Question 5
Subject: Purchased Leave
I would like to know how purchased leave works. Could you please help with this?
Specifically, I would like to know how purchased leave is taxed. Is it taxed when taken or when the initial deduction is made?
I would also like to know how superannuation works when an employee purchases leave and if any additional leave is accrued on the purchased leave when taken?
Answer
When an employee purchases leave, the amount is taken out of their pay before tax is applied.
It is when they take the leave that tax is withheld.
Purchased annual leave paid on termination is taxed the same way as non-purchased annual leave on termination.
The Superannuation Guarantee (SG) amounts would be based on reduced salary.
For example, if purchasing four weeks of annual leave meant that the total salary paid reduced from $100,000 to $92,300, SG would be payable on a maximum of $92,300.
The only time that SG might be payable on a higher amount than your received salary is when you salary sacrifice super contributions.
Whilst the above relates to SG obligations, you should also check your employment agreement as it might allow for a more generous outcome.
Question 6
Subject: CGT on the transfer of interest
I note the rollover provisions relating to the transfer of an asset under relationship breakdown, i.e., the party receiving the asset is liable for CGT if/when eventually sold. The cost base being that of the other party.
However, what is the situation when under the “divorce” agreement, the property recipient pays an agreed price for the 1/2 share of the jointly owned rental property. I.e…is the party disposing of the property liable for CGT on “sale” of 1/2 share of the property?
example:
- – Rental property cost $305,000; half share $157,000
- – Agreed settlement amount $315,000
- – net gain $158,000
- – The original cost base to be further adjusted for Div43 deductions claimed
Subject to div43 adjustment, is the disposing party subject to CGT on the transfer of 50% interest?
Just to confirm…in this case, although the spouse received $315k for her half interest in the rental property, she doesn’t have to declare any capital gain? This falls to the husband when /if he eventually disposed of the property…and his cost base is not increased by the $315k he paid?
Answer
If the asset is transferred under a relationship breakdown rollover. The recipient or person receiving the asset does not pay CGT until they dispose of it.
The cost base is the amount originally paid for the asset (with adjustments), which is the essence of the rollover.
The fact that there may have been a value assigned to the asset at the time of the final allocation of all distributable assets is irrelevant.
The question is:
- Was this a rollover pursuant to binding orders of the Family Court? If yes, then our advice stands?
- Did the husband and wife, separate to the family law financial settlement, have a simple sale of the wife’s interest without reference to the above?
Furthermore, (2) above means the former wife was willing to accept and disclose a CGT liability in her tax return while actually receiving $315k from the sale of her interest in the property?
This plainly has not occurred.
This is a rollover, and while the former husband would no doubt like a higher cost base, this is not possible.
Question 7
Subject: SMSF Question
I need to clarify the following scenario.
If you have a Self-managed Super Fund, are you able to use any of the funds in providing a deposit for a house ( First Home Buyer)?
Answer
If we are talking about existing funds in super, the answer is no… But we mention in passing the First Home Super Saving (FHSS) scheme, which is open to all eligible participants whether or not they have a SMSF.
Currently, under the FHSS scheme, you can apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released. Up to a total of $30,000 of contributions over all years. You will also receive an amount of earnings that relate to those contributions.
From 1.7.2022 the $30,000 maximum will increase to $50,000.
Question 8
Subject: staff refusing to vaccinate
In NSW, the public health order has been updated for early childhood workers to have both vaccines by 8 November.
I have one staff member that isn’t getting it and has no intentions of getting it.
I am just wondering what I do. Do I need to write a letter of termination? Or does she write a letter of resignation?
Is it even classed as termination?
Answer
Suppose the government mandates the public health order for early childhood workers to have both vaccines by 8 November, and you refuse to comply. In that case, the employer can terminate employment for not meeting the inherent requirements of the role.
There is case law out there to support the employer’s decision, but of course, there is still a process to follow.
Do you have access to or have already acquired a written policy on mandated vaccinations in your workplace?
If not, you can obtain one, for a fee, directly from our Human Resources & Industrial Relations team.
If you don’t wish to purchase, that’s fine, but you will still need some form of protection.
Question 9
Subject: Deductibility of payments due to scams
Could you please advise whether payments by a business as a result of a scam are tax deductible?
My client is a farming partnership and receives invoices by email.
Several of the invoices were intercepted by scammers advising of a change of banking details on the invoices.
The changed invoices were then received by my client and paid into the changed bank accounts.
After a month or two, my client received phone calls from the suppliers querying why the accounts had not been paid and only then realised that the payments went to scammers.
My client then paid the amount again to the suppliers. My question is – is the payments to the scammer’s tax deductible? My research indicates that it may be deductible over 5 years under Sec 40 -880 (2) of the ITAA 1997.
Answer
There needs to be a clear distinction drawn between investors and those in business.
Clearly, your client is conducting a business.
If the source of the funds that the payments were made from were assessable income, then we believe the amounts will be deductible under the general provisions.
A loss is deductible under the general provisions if it was incurred in gaining or producing assessable income or was incurred in carrying on a business for the purpose of producing such income.
The loss cannot be capital or of a capital nature (section 8-1 of the ITAA 1997).
We also direct you section 25.45 of ITAA 1997 but suggest this relates more to losses due to fraud by employees and/or agents.
Question 10
Subject: GST on House and Land Packages
My client has purchased several blocks of land. Some with GST, some without.
They are registered for GST.
Their business is property development; they contract to the builder to build the house and sell it to people.
Hence a house and land package. I.e., they purchased one block for $143,000 incl. GST. The block is a standard size house block for the area.
They are just about to sign a contract to build the house and sell the land for $630,000. The house is a 4-bedroom standard house.
Should the sale have GST on it? I believe it should, as there is no reason it shouldn’t.
I also came across this piece from the ATO.
Answer
GST is definitely payable on the sale. Since 1.7.2018, it has been the responsibility of the solicitor acting for the purchaser to forward 7% of the selling price to the ATO.
When doing the BAS, the developer later adjusts this figure upwards or downwards when doing the precise calculations.
Question 11
Subject: Annual Leave – Leave Loading
I have an educator who is on leave without pay until the end of the year. They have requested two weeks of their annual leave.
I am going to pay it. Do I have to pay leave loading on these two weeks?
Do you have a template letter that I can give to the employee to sign off on regarding this agreement?
Answer
Yes, you will have to pay leave loading.
You can find the leave application forms in your HR/IR Toolpacks #2 Downloads in the secure portal on our website.
Question 12
Subject: GST on Land Sale
The client is getting old and wants to sell the land they own. It is approx. 30 acres on the edge of town.
They are not registered for GST, and no business has been carried on, on the land. Meaning not having any cows, etc., on the land.
They have owned the land for several decades.
Do they have to register for GST and sell the land with GST added to the sale price?
I believe they don’t have to register or charge GST because they aren’t in the business of land selling etc. i.e., not made in the course of the furtherance of an enterprise that he carries on (sec 9-5(b)).
Answer
As we may not have the full facts and circumstances, we will only give general advice.
While you may be correct, this requires further consideration, and we direct you to Miscellaneous Tax Ruling 2006/1.
Refer to paras 271-287 Examples of subdivisions which are enterprises.
Then to paras 288-305 examples of subdivisions that are not enterprises.
This will give you more guidance, but you could request a private ruling if you are still in any doubt.
Question 13
Subject: Transfer of Livestock on Cessation of a Partnership
Just requiring verification of transfer of livestock on Cessation of a Partnership, 4 Partners in equal shares. The livestock is transferred to 2 Sons in equal shares, and they will trade individually going forward.
Can I use the election and transfer the livestock at book value, i.e. 3661 Sheep at $21966?
Also, can you please very the correct Notice of Election, previously Sub-Section 36AAA(8) of Income Tax Assessment Act 1936
Answer
While section 36 AAA(8) has been replaced, we cannot find its equivalent in the 1997 act.
We believe the sheep can be transferred at book value. The election should simply state the facts and be kept on file.
Further, we refer you to section 70-100 of ITAA 1997 which states you can use the same methods available to value closing stock or “book value” as you refer to it.
This section does not mention any need for any formal election.
However, like yourself, we recall that being a requirement in the past.
Question 14
Subject: Sale of Shares
Could I have your thoughts/comments on my client’s position? He has sold all his shares to another Company that will assume the running of the business in which he and 2 others were the operators/employees/directors. They have also sold all their shares, like my client.
My client’s shares sold [600,000 units] were acquired [for $900] upon incorporation some 10 years ago and were sold for $450,000 per a Contract dated 30 June 2021.
The purchaser of the shares required payment to be over three instalments – one early July 2021 [$240,000]with the others on 30 June 2022 [$105,000]and 30 June 2023 [$105,000].
I can add that the small business aggregated turnover is less than $2 million and that the net assets do not exceed $6 million. And furthermore, the 15-year exemption does not apply, with the shares bought when the Company started some 10 years ago.
I am not familiar with cases like these, but I understand I should be reviewing certain Tax Concessions like Sale of Business as well as Active Asset Provisions, Small Business Retirement Exemption as well as Capital Gains Tax.
Also, I rang the ATO, who quickly questioned whether shares were active assets or not.
Are you able to elucidate on why the ATO asked me this, please?
Answer
Of key importance here is meeting the eligibility conditions common to all 4 small business CGT concessions.
The ATO wanted to establish whether the shares were “active assets” – they clearly are if they are shares in a company that actively conducted a business.
Next, if we confirm that your client as an individual owns the shares. it is necessary to establish if he is a “significant individual.”
Broadly this means owning 20% or more of the Company.
As you mentioned previously as being the case, your client must be either be a small business entity with an aggregated turnover of less than $2 million or meet the maximum net asset value test of $6 million.
As your client is selling shares in a company, they must meet further conditions:
- You either:
- carried on a business just before the CGT event
- meet the maximum net asset value test
- Just before the CGT event, either:
- you were a CGT concession stakeholder in the Company or trust
- the CGT concession stakeholders in the Company or trust had a total small business participation percentage of at least 90% (the 90% test) in you.
- The Company or trust, when applying the modified connected entity rulein determining entities controlled by it, must either:
- be a small business entity for the income year
- meet the maximum net asset value test.
- Your shares or interest must meet the modified active asset test.
The four business CGT exemptions are:
- Small business 15-year exemption
- Small business 50% active asset reduction
- Small business retirement exemption
- Small business rollover
A capital gain can potentially be reduced to zero by applying multiple small business CGT concessions. Care needs to be taken in applying the concessions in the correct order along with any capital losses and the general CGT discount.
Applying the concessions in the correct order, in this case, would mean:
- Active asset 50% discount
- Individual 50% discount on the above balance
- The remaining 25% could be dealt with by the retirement concession
If your client is less than 55, then this means 25% of the taxable capital gain needs to be placed in a complying superannuation fund to get the retirement concession.
There is no superannuation tax on this contribution.
If over 55, your client can choose whether he places the funds in super to access the concession.
As the retirement concession is limited to $500k per lifetime, it is important to access all available concessions in the “right order” to preserve this concession.
Question 15
Subject: Super member investment
This question is about my client.
They belong to the APSS superannuation fund with a member saving account and defined benefits.
The trustee has decided to change strategy and next year 2022 and merge with Sun Super.
Will the change and the merger impact member investments as their savings are invested in conservative investment options and are 68 years old?
Answer
Thank you for this question.
This crosses the line into giving financial advice, which is something we legally cannot do.
These observations relate only to the APSS member conservative savings account as mentioned in the notification letter.
“The trustees are gradually moving to more liquid asset classes in public market assets.”
“The trustees believe these adjustments are in the members’ best interests whilst continuing to abide by the fund’s (conservative) investment objectives.”
If there are any taxation issues your client would like to clear up, we would be happy to do so.
Question 16
Subject: LSL to cover Sick Leave
I have a staff member who has been employed for nine years as of May this year.
He has no personal leave. Can he use his long service leave entitlements to cover his sick leave? He was away for surgery for five days.
Answer
If workers require more time off work than they have accrued in personal leave, they can access any other accrued paid leave, such as annual or long service leave, to cover absences due to illness or injury.