Issue 93 – Newsletter

Joshua Easton

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The ATO has identified some issues with the Small Business Superannuation Clearing House (SBSCH) system that impacted the processing and crediting of payments
to some employee’s super fund accounts. They are working closely with super funds to resolve these issues.

This caused some concern but it would appear that the issues impacting the allocation of payments have been resolved and all payments are now with funds.
The backlog of payments has been cleared and the ATO does not hold any payments earlier than 16 April. The exception is a small number of payments
requiring some manual intervention, such as where incorrect fund account numbers have been supplied. This is in-line with normal practice.

Reassurance in relation to Super Guarantee Obligations

Also, the ATO has confirmed that where an employer has made a payment to the SBSCH by the quarterly due date they are considered to have met their obligations
under the Superannuation Guarantee (Administration) Act 1992. This is irrespective of any delays in crediting amounts to employee superannuation

If employers are unable to make SBSCH payments by the 28 April quarterly due date because of difficulties arising from the transition to the new system,
or access issues, the ATO will not pursue the lodgment of super guarantee charge statements. This is provided the employer:

  • had funds available to pay their SG liability by the 28 April due date
  • took all reasonable steps to make the payment, and
  • made the payment promptly once the ATO system or access issues were resolved.

We will keep you update on developments throughout the June Quarter and advise on any problems.


Small business owners are advised to urgently contact the Australian Small Business and Family Enterprises Ombudsman (ASBFEO) if they have experienced
heavy handed tactics by the Australian Taxation Office (ATO).

“Minister for Revenue and Financial Services, Kelly O’Dwyer, has requested an inquiry into the allegations raised in the joint Fairfax/Four Corners investigation,”
Ms Carnell said.

“Under the direction of Treasury, my office and the Inspector-General of Taxation, Ali Noroozi, will examine cases of unfair conduct by the ATO.

“Our timeframes on this inquiry are extremely tight, so its important small business owners tell us their story as a matter of urgency – within the next
week or two.

“My office is interested in examples where the ATO has targeted small businesses unfairly and the business owner has been affected financially.

“According to the ATO’s latest annual report, there are 3.8 million small business taxpayers, including sole traders, in the tax system. The Inspector-General
says in roughly 5% of cases, the ATO gets it wrong … which on the face of it is way too many.

“We want to gain a better understanding of how the ATO is adversely interacting with small businesses, so we can provide government with constructive and
realistic advice.”

With complete anonymity assured, small business owners can explain their situation by emailing: [email protected]

If you have raised your concerns with ATO and the Inspector-General and your matter has not been resolved, ASBFEO may be able to assist via emailing:
[email protected]


Panayi v Deputy Commissioner of Taxation

Outlines the ATO’s response to this case which concerns the application of the lockdown director penalties provisions as introduced by the Tax Laws Amendment Act 2012.

The ATO commenced proceedings to recover liabilities due under the director penalty regime against the taxpayer in his capacity as director of a company.
The taxpayer defended the proceedings on grounds that he was not a director of the company at the relevant time and that the liability had been remitted
when members of the company resolved that it be wound up voluntarily. The success of this argument depended on the application of section 269-30 of
Schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA) in its unamended form as in force before 30 June 2012.

The primary judge applying the decision of the Western Australian Court of Appeal in Roche v. Deputy Commissioner of Taxation [2015] WASCA 196 at
[56] -[58], rejected the arguments and held that the amended form of section 269-30 of Schedule 1 to the TAA applied to the appellant’s penalty
because the appellant, as a director of the company, did not stop being under the relevant obligation under section 269-15 of Schedule 1 to the TAA
until after 30 June 2012, the date of commencement of item 9 of the Tax Laws Amendment Act 2012. Applying that section as amended, subsection
(1) did not apply to effect a remission of the appellant’s penalty because the company did not give the Commissioner any notification under section
16-150 of Schedule 1 to the TAA within the period of three months after the due date for the payment of any of the withheld amounts.

Issues decided by the court

The issue in the appeal as relevant to the special leave application was limited to:

  • whether the primary judge erred in applying the amended form of section 269-30 of Schedule 1 to the TAA. 

The Court of Appeal held that an amendment that prospectively alters a person’s unexercised opportunity to have a liability remitted does not engage the
common law presumption that statutes do not have a retrospective operation.

The High Court refused to grant special leave and dismissed the application with costs.

ATO View of Decision

The decision accords with the ATO’s view of the application of the lockdown director penalties provisions as introduced by the Tax Laws Amendment Act 2012.


This issue has been a constant for the last 25 years and simply will not go away. Given the tax concession SMSFs enjoy there will always be an incentive
to divert income into these entities. Be warned the ATO has a focus on this issue and SMSF Auditors are more vigilant given this.

The non-arm’s length income rules can apply to investments, transactions and other arrangements undertaken by self-managed funds (SMSFs) when the terms
of the relevant investment, transaction or arrangement is uncommercial in nature.

Let your clients know that if they distribute any income from their discretionary trust to a SMSF beneficiary, it is:

automatically deemed non-arm’s length income of the SMSF (regardless of the nature of the dealings between the relevant parties)

taxable at the highest marginal rate.

Income received by a SMSF that is a fixed entitlement to trust income is also non-arm’s length income if it is:

income from a scheme where the parties were not dealing with each other at arm’s length

more than the SMSF might have expected to derive if the parties were dealing with each other at arm’s length.


The timing of this ATO media release was particularly interesting – just prior to Easter when owners of holiday homes head there for the Easter break.

They have in their sights the large number of mistakes, errors and false claims made by rental property owners who use their own property for personal

According to Assistant Commissioner, Kath Anderson:

  • As Australians enjoy the Easter break, they should be aware that the ATO is focusing on taxpayers who claim deductions for holiday homes that are not
    actually available for rent or only available to friends and family.
  • While private use by family and friends of a holiday home is entirely legitimate, it does reduce your ability to earn income from the property. This
    in turn impacts the deductions you can claim.
  • You can only claim deductions for your holiday home if your property is genuinely available for rent. You cannot claim for times when you were using
    it for your own personal holidays or letting friends and family stay rent-free. It’s not ok to expect everyone else to pay for your holiday.
  • Holiday home owners also need to remember that if their property is rented to friends and family at mates’ rates, they can only claim deductions for
    expenses up to the amount of the income received.
  • Besides holiday rentals, the ATO is also focused on other times when a property is not rented or genuinely available for rent. While some taxpayers
    claim their property is available for rent, but when the ATO investigates, it is clear they have little intention of renting it out.
  • The ATO sees things like unreasonable conditions placed on prospective renters, rental rates set above market rates, or failing to advertise a holiday
    home in a way that targets people who would be interested in it.
  • Incorrect rental property claims will not go unnoticed. Whether it is a genuine mistake or a deliberate attempt to over-claim, new technology, data
    matching and other systems allow the ATO to identify unusual claims.
  • Where something raises a red flag, it will be investigated. Property owners whose claims are disproportionate to the income received can expect scrutiny
    from the ATO.
  • All rental property owners should double-check their claims before lodging their tax return, even if submitting through a tax agent.
  • Taxpayers should make sure that you declare all rental income and only claim deductions for periods that the property is rented or was genuinely available
    for rent at market rates.
  • Taxpayers need to keep accurate records of the income they receive from the rental property, expenses incurred, and evidence of the property being
    rented or genuinely available for rent at market rates. Also keep records of who stayed at the holiday home and when, including the time you and
    your family stay at the property.

If you refuse to rent out your property to interested potential tenants without a good reason, this indicates that you may not have a genuine intention
to make income from the property and could be reserving it for private use. In this case, your property wouldn’t meet the criteria for being genuinely
available for rent.


Income earned from foreign employment by independent contractor not exempt

PZTL and Commissioner of Taxation [2018] AATA 461 (23 February 2018)

The above AAT case found that income earned by a taxpayer while deployed overseas in a support role by the Australian Defence Force was not exempt under
s 23AG of the Income Tax Assessment Act 1936. The taxpayer was employed by an independent contracting entity as a Field Service Representative.

The AAT found that the taxpayer’s continuous foreign service did not arise from his being deployed by the Commonwealth or a Commonwealth, State or Territory
authority, within s23AG(1AA)(d). Crucially it was the taxpayer’s employer who was the relevant responsible entity.


OECD/G20 Base Erosion and Profit Shifting Project

This interim report of the OECD/G20 Inclusive Framework on BEPS is a follow-up to the work delivered in 2015 under Action 1 of the BEPS Project on addressing
the tax challenges of the digital economy. It sets out the Inclusive Framework’s agreed direction of work on digitalisation and the international tax
rules through to 2020. It describes how digitalisation is also affecting other areas of the tax system, providing tax authorities with new tools that
are translating into improvements in taxpayer services, improving the efficiency of tax collection and detecting tax evasion.

Highlights: More than 100 countries agree to work towards a consensus-based solution. 


On 28.3.2018, The Federal Government passed legislation to clamp down on GST evasion in the property development sector.

From 1 July 2018, the tax law will require purchasers of new residential premises and new residential subdivisions to withhold the GST on the purchase
price at settlement and pay it directly to the Australian Taxation Office (ATO).

According to the Minister for Revenue and Financial Services, Kelly O’Dwyer: This measure targets illegal phoenix activity in the property development
sector. It puts an end to the problem of some developers collecting GST on new properties but then dissolving their business to avoid remitting the
tax when it is owed to the ATO.

This measure complements the Government’s comprehensive package of reforms to combat illegal phoenix activity, including the Government’s commitment to
introduce a Director Identification Number.

The legislation also delivers on the Government’s commitments to:

  • make regulatory improvements to Treasury portfolio laws such as in superannuation and corporations law,
  • extend tax relief for merging superannuation funds until 1 July 2020,
  • provide ongoing funding to the SuperStream gateway network governance body, and
  • transfer the regulator role for early release of superannuation benefits on compassionate grounds from the Department of Human Services to the ATO,
    cutting the administrative burden for superannuation trustees and helping applicants to receive their funds sooner.


On 29.3.2018, the Supreme Court of NSW sentenced Michael Issakidis to 10 years and three month’s jail for his involvement in the largest prosecuted tax
fraud case in Australia’s history. He and co-conspirator Anthony Dickson deliberately absorbed $450 million of otherwise assessable income through
falsely created losses overseas to evade $135 million in corporate tax netting themselves $63 million in fees. 

This result follows the sentencing of co-accused Dickson, who in 2015 was sentenced to 11 years’ jail, later increased to 14 years on appeal. Dickson’s
sentence marked the longest ever jail time for tax fraud and money-laundering.

The significant sentences handed down to both Issakidis and Dickson bring to a conclusion the multi-year fraud investigation by the Serious Financial Crime
Taskforce involving members from the ATO and the AFP.

The pair created a web of false identities to aid their deception and siphoned money through the UK, Hong Kong and the UAE via fake domestic and international
companies to fund their lavish lifestyles, netting them approximately $63 million.

While the scheme was incredibly complex – involving the worldwide movement of funds – this didn’t mean it couldn’t be detected. The ATO maintains that
parties who pursue dishonest and fraudulent behaviour, including the use of abusive trust arrangements and the guise of commercially justified business
transactions are on notice that they will use all our available powers, including partnering with law enforcement agencies, to bring them to justice.

The sentencing of Issakidis and Dickson may serve as a wake-up call to the lawyers and accountants who devise and promote tax evasion schemes and never
think they could go to jail.

According to the Commissioner, Chris Jordan,

  • There are serious consequences and personal impacts for these crimes. Those unethical lawyers and accountants devising these schemes don’t want to
    have to face the reality of having to going home, pack your bags and to tell your family “daddy’s going to jail”.
  • The ATO maintains enforcement strategy for dealing with complex financial fraud arrangements is robust and effective. Through the partnership of the
    Serious Financial Crime Taskforce and Criminal Assets Confiscation Taskforce, the ATO will continue to successfully uncover significant fraud operations
    and bring the perpetrators to justice.


Recently the ATO published a fact sheet outlining their compliance approach to the superannuation guarantee. The superannuation is payable when employers
fail to meet their compliance obligations.

It would be fair to say that while employers are usually aware of their obligations, they are often unaware of the consequences of failing to meet their
obligations and in particular the ATO’s approach to these breaches. The four examples below may prove useful and bear in mind the superannuation guarantee
payment and associated penalties are not a tax deduction.

Example 1 – On 2 October 2016, employer Big Books reviewed their super guarantee obligations and identified that due to a payroll anomaly,
some eligible employees had not been paid all of their SG entitlements for the last 3 quarters. Big Books is usually up to date with all their obligations
and took action to immediately rectify the situation by lodging SGC statements with payment in full to the ATO. The ATO will consider Big Books to
be an example of an engaged employer and will not consider additional penalties in this circumstance. 

Example 2- Employer Beck Tools has been experiencing cash flow problems due to non-payment of invoices by several of their customers.
As a result, Beck Tools is struggling to meet their SG obligations and pay all of their eligible employee’s super for the quarter ending 31 December
2016. Beck Tools takes steps to rectify the situation and lodges SGC statement, but still experiences difficulty in paying the resulting debt by the
due date. The ATO contacts Beck Tools to follow-up the outstanding liability and an arrangement is negotiated for Beck Tools to pay their debt in instalments. 

The ATO will consider Beck Tool’s circumstances and compliance history. In this example, Beck Tools generally has a good compliance history, cooperated
with the ATO once contacted, met their payment arrangement conditions and voluntarily took action to rectify their non-compliance prior to the ATO
commencing an audit. The ATO will not consider additional penalties in this circumstance.

Example 3- Employer Robopen has been experiencing cash flow problems due to unexpected changes in seasonal demand for their products.
As a result, Robopen hasn’t met their SG obligations for their eligible employees for the quarter ending 31 December 2016. Robopen decides to do nothing
for the time being, hoping to be able to rectify the situation once their cash flow improves. The ATO receives a notification from an employee of Robopen
reporting that their superannuation appears to have been unpaid for a period. The ATO investigates the notification and commences an employer audit.
Robopen is found to be non-compliant with their obligations and is advised to lodge an SGC statement. 

Robopen lodges the required SGC statement and after discussing their cash flow concerns with the ATO, they negotiate an appropriate payment arrangement.
Although Robopen did co-operate with the ATO audit, they should have voluntarily disclosed that they had not met their obligations by lodging an SGC
statement by the due date. As such, penalties were considered by the ATO for their non-compliance, but were reduced based on Robopen’s circumstances
and willingness to co-operate during the audit process.

Example 4- Employer Paper Jam has not paid their employees SG entitlements for the quarter ending 31 December 2016. They are aware that
this is a failure to comply, but as they already have debts to both the ATO and other creditors, they decide that these are more pressing to keep their
business afloat. Paper Jam does not take any action to rectify the situation or discuss their circumstances with the ATO. The ATO receives a notification
from an employee of Paper Jam reporting that their superannuation appears to have been unpaid for a period. The ATO investigates the notification and
notes that Paper Jam has a history of non-compliance and has previously been subject to an audit for an earlier period. 

The ATO commences an employer audit. Paper Jam does not respond to the ATO’s requests for contact or provision of information and does not lodge an SGC
statement. The ATO raises a default assessment for the quarter ending 31 December 2016 and informs Paper Jam of the outcome in writing. The ATO will
consider Paper Jam to be an example of a disengaged employer. In this example, heavy penalties will be imposed due to Paper Jam’s failure to comply
with their obligations, previous compliance history, and failure to engage with the ATO when requested to do so.

The important take out here is that the ATO is unlikely to impose additional penalties for employers who engage with them and have a generally good compliance
history. Losing tax deductibility when the S.G. is imposed is costly and it is suggested that borrowing to fund on time superannuation contributions
is a tax deduction and that this may prove to be very cost effective for a genuine going concern.


The Treasury Laws Amendment (Black Economy Taskforce Measures No.1) Bill 2018, will to taxable payments reporting system to business in
the courier and cleaning industries form 1.7.2018. The ATO has updated its draft guidance on the proposed expansion of the taxable payments
reporting system.


Government response to inquiry into Tax Deductibility

With the stresses on the revenue, work related expenses claims remain an area of focus.

Recently the Government released its response to the report produced by the House of Representatives Standing Committee on Economics’ inquiry into tax
deductibility. The Government is clear that Treasury should provide a clear estimate of the cost of work-released expenses to Government revenue to
aid policy formulation. The Government notes that denying these deductions will result in lost revenue as individuals affected, and their employers
are likely to adjust their behaviour in response to any changes.

The ATO agreed with the Committee’s recommendation to review its compliance activity in relation to work related expenses, nothing that it currently undertakes
a range of activities to consider how compliance can be further improved. The ATO also agreed to continue with technological development and progress
on pre-filling of returns to simplify taxpayer’s interaction with the tax system, with the eventual goal being to minimise, and ultimately remove,
the need for taxpayers to amend pre-filled returns.


Indicate that for the 2018/19 year, tax agents will be held accountable for excessive W.R.E. claims made in tax returns that they lodge on behalf of their


The ATO has issued the following taxation rulings in relation to the application of the goods and services tax (GST) on low value imported goods:

  • Law Companion Ruling LCR 2818/1, which outlines the new rules to apply from 1.7.2018 to ensure that Australian GST is payable on offshore supplies
    of low value goods that are purchased by Australian consumers.
  • Law Companion Ruling LCR 2018/3, outlining the amendments that make a ‘redeliverer’ responsible for GST on an offshore supply of low value goods
    brought to the indirect tax zone.

Finally, Law Companion Ruling LCR 2018/2 explains how GST will apply to supplies made through electronic distribution platforms (EDPSs). This ruling
applies to supplies of digital services and digital products for tax periods starting on or after 1.7.2017, and respect of offshore supplies of low
value goods for tax periods starting on or after 1.7.2018.


  Question 1 Can you provide information about flat rates of pay and what is included in the rate? Are
holidays & holiday pay incorporated in the rate? How are public holidays paid? How is sick leave applied or are these all part of the
Flat rate payment. Can the flat rate for ordinary hours 38 hrs be say $40.00 and the rate for the balance of hour worked be say $40.25
for superannuation purposes?



Answer Each workplace requirements are different, and there is no one size fits all. In order to reach agreement on a flat
rate of pay for an employee covered by a Modern Award all provisions of Clause 7 of the applicable award (detailed below) must be complied
with and pass the Better Off Overall Test (BOOT).



7. Award flexibility

[Varied by PR986427, PR542122]

7.1 Notwithstanding any other provision of this award, an employer and an individual employee may agree to vary the application
of certain terms of this award to meet the genuine individual needs of the employer and the individual employee. The terms the employer
and the individual employee may agree to vary the application of are those concerning:

(a) arrangements for when work is performed;

(b) overtime rates;

(c) penalty rates;

(d) allowances; and

(e) leave loading.

[7.2 varied by PR542122 ppc 04Dec13]

7.2 The employer and the individual employee must have genuinely made the agreement without coercion or duress. An agreement
under this clause can only be entered into after the individual employee has commenced employment with the employer.

7.3 The agreement between the employer and the individual employee must:

(a) be confined to a variation in the application of one or more of the terms listed in clause 7.1;

[7.3(b) varied by PR542122 ppc 04Dec13]

(b) result in the employee being better off overall at the time the agreement is made than the employee would have been
if no individual flexibility agreement had been agreed to.

7.4 The agreement between the employer and the individual employee must also:

(a) be in writing, name the parties to the agreement and be signed by the employer and the individual employee and, if
the employee is under 18 years of age, the employee’s parent or guardian;

(b) state each term of this award that the employer and the individual employee have agreed to vary;

(c) detail how the application of each term has been varied by agreement between the employer and the individual employee;

(d) detail how the agreement results in the individual employee being better off overall in relation to the individual
employee’s terms and conditions of employment; and

(e) state the date the agreement commences to operate.

7.5 The employer must give the individual employee a copy of the agreement and keep the agreement as a time and wages

7.6 Except as provided in clause 7.4(a) the agreement must not require the approval or consent of a person other than the employer and the individual employee.

7.7 An employer seeking to enter into an agreement must provide a written proposal to the employee. Where the employee’s
understanding of written English is limited the employer must take measures, including translation into an appropriate language, to
ensure the employee understands the proposal.

7.8 The agreement may be terminated:

[7.8(a) varied by PR542122 ppc 04Dec13]

(a) by the employer or the individual employee giving 13 weeks’ notice of termination, in writing, to the other party
and the agreement ceasing to operate at the end of the notice period; or

(b) at any time, by written agreement between the employer and the individual employee.

[Note inserted by PR542122 ppc 04Dec13]

Note: If any of the requirements of s.144(4), which are reflected in the requirements of this clause, are not met then the agreement may
be terminated by either the employee or the employer, giving written notice of not more than 28 days (see s.145 of the Fair Work Act 2009 (Cth)).

[New 7.9 inserted by PR542122 ppc 04Dec13]

7.9 The notice provisions in clause 7.8(a) only apply to an agreement entered into from the first full pay period commencing on or after 4 December 2013. An agreement entered