From the ATO
GST property settlement online forms and instructions
The ATO has released the online forms required for purchasers of new residential premises or potential residential land to remit part of the purchase price to the ATO.
The GST property settlement withholding notification form (form one) is used to advise the ATO that a contract has been entered into for the supply of new residential premises or potential residential land in which there is a withholding obligation.
The purchaser or their representative can submit the form at any time after a contract has been entered into and prior to the date the withholding obligation is due. Usually that will be the settlement date but if the contract is an instalment contract it will be the date the first instalment is paid.
The GST property settlement date confirmation form (form two) is used to confirm the settlement date.
The purchaser or its representative can submit form two at the time the withholding obligation becomes due, either when the first instalment is paid or at settlement, or as soon as practical thereafter.
More information
ATO GST property settlement online forms and instructions
Form one – GST property settlement withholding notification
Form two – GST property settlement date confirmation
Incorrect application of GST and low value goods imported into Australia
New GST rules dealing with low value goods imported into Australia commence from 1 July 2018. The introduction of the changes may mean that clients pay GST on purchases that were not previously subject to GST. However, it is important to note that business clients should not be charged GST when purchasing low value goods for their business use where they provide their ABN and state that they are registered for GST to the overseas supplier.
If a client is charged GST incorrectly, they should seek a refund from the supplier by providing their ABN and stating to the supplier that they are registered for GST. However, if a client is incorrectly charged GST on goods they import for their business, they should be entitled to a GST credit if:
- They would otherwise be entitled to claim a GST credit;
- They have a valid tax invoice (showing the supplier’s ABN) or the amount they paid is A$82.50 or less;
- The supplier has not reimbursed the client for the GST charged on the sale (if the client later receives a reimbursement, they will need to make an adjustment to repay any GST credits claimed), and
- They have no information to suggest that the GST has not been paid to the ATO by the supplier.
More Information
Avoid being incorrectly charged GST from overseas
GST Low Value Imports – Information for business purchasers
Single Touch Payroll exemption
From 1 July 2018 employers with 20 or more employees will be required to start using Single Touch Payroll (STP). The head count needs to have been performed as at 1 April 2018.
Employers with less than 20 employees don’t have to do anything yet, however they can choose to report through STP if they use payroll software that is STP-enabled.
Clients who are not ready for STP will need to take urgent action. Broadly, the steps required to ensure a business is ready for STP are:
- Ask the payroll software provider if the software will be updated for STP, and what needs to be done by the business.
- Ask the software provider if the software version the business is using has a later start date from the ATO (a deferral).
- If the software has a deferral and the business will not be ready by that date, ask the ATO for a deferral for that employer.
- If the software will be ready by 1 July, but the business needs more time, ask the ATO for an employer deferral.
More Information
Single Touch Payroll begins 1 July 2018
Get ready for Single Touch Payroll
Medicare Entitlement Statement form
There are three broad categories of taxpayers eligible for an exemption from the Medicare Levy:
- Category 1: Medical exemption from Medicare levy
- Category 2: Foreign residents exemption from Medicare levy
- Category 3: Not entitled to Medicare benefits
Taxpayers in Category 1 or 2 do not need a Medicare Entitlement Statement to claim the exemption. If a taxpayer is not eligible for Medicare benefits (Category 3), they may be able to claim an exemption from the Medicare levy in their tax return. However, to claim the exemption the taxpayer must have a Medicare Entitlement
Statement from the Department of Human Services. Other evidence that the taxpayer is entitled to the exemption is not sufficient in the absence of a Medicare Entitlement Statement. When practitioners are assisting clients in applying for a Medicare Entitlement Statement the following things should be kept in mind to avoid unnecessary delays in processing:
- Make sure you use the current form on the Department of Human Services website as old forms won’t be accepted;
- Send certified copies of supporting documents with the form;
- Check that documents are in a PDF file and not password-protected;
- Send separate emails for each client; and
- Send one email for a client who has multiple applications for different claiming periods.
Given the high volume of applications received between July and November it can take up to six weeks for applications to be processed.
More Information
Lodging the Medicare Entitlement Statement form correctly
Medicare Entitlement Statement
Crackdown on clothing expense claims
The ATO has indicated that it will be closely examining work-related clothing and laundry expense claims of taxpayers in the 2018 year. The ATO is concerned that many taxpayers are either making mistakes or deliberately over- claiming these expenses. The ATO has found that a number of common mistakes are made in this area including people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.
In particular, the ATO is worried that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ due to that amount being the threshold beyond which taxpayers are required to keep detailed records substantiating their claim. This is not correct and taxpayers can expect much closer scrutiny of clothing and laundry deductions this year.
While this particular document focuses on clothing related expenses, it has been clear for some time now that the ATO is paying very close attention to work related expenses in general and clients need to be reminded to ensure that all deduction claims can be supported by appropriate evidence.
More Information
Clothing claims put through the wringer this Tax Time
FAQs on recent superannuation changes
The ATO has provided some answers to a number of frequently asked questions on recent changes to the superannuation laws, most of which commenced from 1 July 2017.
This includes guidance on issues relating to new aspects of the law, such as the transfer balance cap and transitional CGT relief as well as information on common issues such as contributions caps, Division 293 tax and offsets such as the spouse tax offset and the low income super offset.
The ATO provides information on how the law applies as well as guidance on what trustees of SMSFs need to do in order to comply with the updated legislation.
More Information
Super Changes – Frequently Asked Questions
Rulings
New GST withholding rules for property development
This Law Companion Guideline provides practical guidance on the application of the new GST withholding rules that apply to certain residential property transactions from 1 July 2018. In broad terms, the rules require the purchaser to pay a GST amount to the ATO when acquiring certain types of new residential premises and potential residential land. The withholding obligation will generally only arise when the supply triggers a GST liability.
The rules also impose an obligation on vendors to provide written notification of whether an obligation arises to the purchaser under these new rules. These rules can apply in a much broader range of situations, including where the vendor is not registered for GST and where the sale is input taxed.
Penalties can apply for failure to meet either of these obligations so it is important for practitioners and clients to consider whether these new rules could be triggered for all property sales that happen from 1 July 2018.
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Single touch payroll exemption
This instrument provides an exemption from an obligation to comply with the STP provisions for entities if the following circumstances applied on the most recent 1 April:
a) For at least 10 out of the immediately preceding 12 months before that day, the employer had fewer than 20 employees at any one time; and
b) For at least 10 out of the immediately following 12 months after that day, the employer reasonably expects to have fewer than 20 employees at any one time; and
c) The employer is not a member of a wholly- owned group for the purpose of the STP provisions.
The instrument recognises that some employers may have a small number of employees for the majority of the year, but due to industry specific factors may have a much larger number of employees for a short period. The example used in the Explanatory Statement is that of an orchard. The instrument provides relief for these employers from the requirement to comply with the STP rules commencing on 1 July 2018, although it is worth noting that the Government is planning to make STP compulsory for all employers from 1 July 2019.
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On-lending to discretionary trusts
The ATO confirms its long-standing view that when a beneficiary of a discretionary trust borrows money and on-lends all or part of that money to the trust on an interest-free basis they are not usually entitled to a deduction under section 8-1 ITAA 1997 for the interest expenses accruing on the money they borrowed. This is because there is not generally a sufficient connection between the interest expenses incurred by the beneficiary and the derivation of their assessable income. The TD provides that some part of the interest expense might be deductible in circumstances where:
a) The beneficiary is presently entitled to income of the trust estate at the time the interest expense is incurred; and
b) The expense has a nexus with the income to which the beneficiary is presently entitled.
However, the ATO notes that even if the above criteria are satisfied, the interest expense is likely to have been incurred in the pursuit of one or more objectives other than the derivation of assessable income by the beneficiary, and they would often only be able to claim a partial deduction for the interest expense.
The ATO also notes that even if a trustee makes a resolution to appoint income to a beneficiary early in the income year (e.g., July), the beneficiary is not presently entitled to the income until it has actually been received by the trust, which may make it difficult for the beneficiary to show that they were made presently entitled to the income at the time the interest expense was incurred.
The TD notes that similar principles would apply to other expenses incurred by beneficiaries of a discretionary trust such as motor vehicle expenses. Unfortunately the ATO does not provide specific guidance on the tax treatment in situations where the beneficiary charges interest on the loan to the trust and the steps the ATO expects beneficiaries to take to ensure that a full deduction is available for their interest expenses.
New cents per kilometre rate
This draft legislative instrument seeks to change the rate at which deductions for work-related car expenses may be calculated using the cents per kilometre method. The Commissioner has determined that the new rate is 68 cents per kilometre for the income year commencing 1 July 2018.
CGT improvement threshold
This TD confirms that the CGT improvement threshold is $150,386 for the 2018-19 income year. The improvement threshold is relevant in determining whether post-CGT improvements undertaken in connection with pre-CGT assets should be treated as a separate post-CGT asset.
Effective life of depreciating assets
The Commissioner has released a new ruling which sets out the effective lives of depreciating assets from 1 July 2018. Taxpayers can choose to use the effective lives set out in the ATO ruling or make their own estimate of the effective life of a depreciating asset.
2017-18 value of stock taken for private use
The Commissioner has released updated amounts that can be used in determining the value of goods taken from trading stock for private use for 2017-18. The determination provides values for range of industries such as bakeries, mixed business stores, restaurants and cafes.
2018-19 Reasonable travel and overtime meal allowance
The 2018-19 reasonable amounts for the substantiation exemption for claims made by employees for overtime meal expenses, domestic travel expenses, and overseas travel expenses.
Cases
Permanent place of abode for tax residency
Harding v Commissioner of Taxation [2018] FCA 837
This case looked at whether the taxpayer should be treated as a resident of Australia for tax purposes and focused on the ‘ordinarily resides’ test and ‘domicile’ test of residency. The Federal Court held that the taxpayer had an Australian domicile and had not established a permanent place of abode overseas, which meant that they were treated as a resident of Australia even though they no longer resided in Australia under general principles. In this case, the taxpayer departed Australia in 2009 to work in the Middle East, having previously lived there for a significant period before relocating to Australia. It was accepted that he had no intention of returning to Australia to live. However, the taxpayer did retain ownership of his residence in Australia (primarily for the use of his wife and children) and returned to Australia each year to visit his family. While in the Middle East the taxpayer stayed in several serviced apartments which he claimed became his home.
The court looked at whether the taxpayer could be treated as a resident of Australia under the resides test, which looks at whether someone resides in Australia under ordinary concepts. Despite the existence of several factors which suggested that the taxpayer retained a “continuity of association” with Australia, the Court was satisfied that he did not reside in Australia. The evidence suggested that the taxpayer prioritised his occupation and showed a resolute intention to stay overseas despite his family circumstances. It was concluded that the taxpayer had formed the necessary intention to cease residency in Australia.
However, it was still necessary to consider the ‘domicile’ test, which states that a person is a resident of Australia if they have an Australian domicile unless the Commissioner is satisfied that their permanent place of abode is outside Australia. While the taxpayer had ceased to reside in Australia and had established a place of abode outside Australia, the Court was not convinced that the serviced apartments had become a permanent place of abode. This was largely because of the following factors:
- The taxpayer did not intend to remain permanently in the place he was living in (i.e. it was established that he intended to move to alternative premises); and
- The taxpayer retained few personal belongings in the accommodation which meant that he was able to, and did, move between locations very easily.
This case highlights how difficult it can be to apply the residency tests and how hard it can be for an individual to cease being a resident of Australia, even if they no longer reside in Australia and have no intention of returning to Australia to live.
Reallocation of non- concessional contributions
Ward and Commissioner of Taxation (Taxation) [2018] AATA 1519
This case dealt with a review of the Commissioner’s decision not to disregard or re-allocate a taxpayer’s excess non-concessional contributions in a situation where the penalty tax was so significant that the taxpayer lost almost the entirety of their superannuation balance.
The taxpayers, fearful that the value of their superannuation funds (which were mostly based on shares) would diminish as a result of the global financial crisis, withdrew their funds and placed them into bank term deposits in early 2008. In July 2008, one of the taxpayers, acting on advice from a major bank, placed $450,000 into one of the bank’s superannuation products. As the taxpayer was under the age of 65, and the amounts deposited were non-concessional contributions, the bring forward rule was triggered for the 2009 income year. Under the bring forward rule, payments may be made above the normal cap, up to $450,000, but the effect of such a payment is that no non- concessional contributions can be made in the subsequent 2 financial years without triggering penalty tax provisions.
Due to a mistaken belief in the nature of the bank product they had invested in, and the falling income from the account, the taxpayer withdrew funds from that account and returned them to term deposit investments. Acting on financial advice from a different adviser in the 2010 income year, the taxpayer and his spouse established a self- managed superannuation fund and the taxpayer made a non-concessional contribution of the $450,000 into this fund. The ATO then issued an excess contributions tax Notice of Assessment, due to the previous use of the bring forward rule. Section 292-645 ITAA 1997 allows the Commissioner to make a written determination that all or part of your non-concessional contributions for a financial year are to be disregarded, or allocated instead for the purposes of another financial year specified in the determination, if the Commissioner is satisfied there are special circumstances and that making the determination is consistent with the object of the Division. The Commissioner declined to exercise his discretion in this case and the taxpayer challenged this.
In the initial decision, the AAT had found that the taxpayer had not made a conscious and informed decision to breach the bring forward rule, based on the fact that the taxpayer’s limited understanding of the law had been overwhelmed by the seemingly authoritative advice given to him. However, the AAT had reluctantly agreed with the Commissioner, concluding that it was not open to the AAT to find that there were “special circumstances” that would warrant altering the Commissioner’s decision. The harshness of the impact of the tax upon the taxpayer was an outcome that was reasonably foreseeable and therefore the legislative provisions imposing the tax operated as they were intended to.
The matter was appealed to the Federal Court which ruled that the AAT had made an error in conclusively dismissing the issue of whether special circumstances could arise on that basis and returned the matter to the Tribunal for re- assessment.
However, the AAT has concluded again that there were no special circumstances which would justify the Commissioner exercising his discretion to reallocate the non-concessional contributions despite the fact that the outcome is harsh and unfair on the taxpayer (i.e., the penalty is 19,527% of any tax benefit obtained).
While concluding that the Commissioner’s decision should not be overturned the AAT has urged the Commissioner to reconsider the fairness of enforcing this penalty on the taxpayer. Failing this, the Tribunal Member has indicated that a request will be made for the Minister for Finance to step in and consider an act of grace payment.
Legislation
Personal income tax cuts
Treasury Laws Amendment (Personal Income Tax Plan) Bill 2018
The Government’s full three stage personal income tax plan has been passed by both Houses of Parliament. These are the personal tax cuts that were announced in the 2018-19 Federal Budget. The changes introduced by the legislation include:
- The introduction of a new low and middle income tax offset for the 2019 – 2022 income years, before the merging of this offset with the presently existing low income tax offset (LITO) in 2023;
- Amending the upper threshold for the 32.5% rate applicable to Australian residents from $87,000 to $90,000, for the 2019 – 2022 income years;
- Further amending the upper threshold of the 32.5% bracket to $120,000 in the 2023 and 2024 income years;
- Finally amending this upper threshold to $200,000 in the 2025 income year, such that the 37% tax bracket is removed; and
- Equivalent changes to the above for non- resident and working holiday maker tax rates.
If you have any questions about any of the information contained in the Essential Tax Summary, please contact John Kalachian from Fortis Accounting Partners on 92670108.
