Legislation extending single touch payroll to all employers on 1 July 2019 passed Parliament in February.
The legislation will create a few practical issues for smaller employers. The Government also pushed the legislation enabling an extension and increase of the instant asset write-off into Parliament.
We also explore two interesting cases. The first looking at what ‘permanent place of abode’ means for residency purposes, and the second exploring whether land used in the course of carrying on a business can be treated as an active asset.
Extension and increase to immediate asset write-off
The Government has announced that the threshold small business entities to claim an immediate deduction for depreciating assets will be increased to $25,000 (up from $20,000). The increased threshold is intended to apply from 29 January 2019 until 30 June 2020.
Legislation containing the changes has been introduced to parliament but has not yet been passed by the House of Representatives (Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019).
The Bill also contains provisions to increase the threshold for the small business low pool value immediate deduction to $25,000.
While the proposed change only represents a relatively small increase to the existing threshold, it is worth noting that in the absence of this extension the threshold would revert back to $1,000 from 1 July 2019.
More information – Increase and extension to instant asset write- off for small businesses
From the ATO
Single touch payroll extends to all employers
The legislation which extends single touch payroll (STP) to all employers from 1 July 2019 has recently been passed by parliament (Treasury Laws ).
While the rules will technically apply from 1 July 2019, the Commissioner has released a statement indicating that the ATO will take a flexible approach to the expansion of STP to smaller employers. The Commissioner has stated that these employers should start reporting using STP at some point between 1 July 2019 and 30 September 2019. The ATO will also be more lenient on mistakes that are made within the first year of reporting with STP.
When it comes to micro employers (1 to 4 employees) the ATO intends to offer a number of alternative options to assist them in transitioning to the new system. This includes allowing micro employers who rely on a registered tax agent or BAS agent to report quarterly for the first two years.
One of the major issues in relation to the extension of the STP regime to cover all employers from 1 July 2019 is the increased costs and compliance burden the change would place on small and micro employers who may not currently use payroll software.
A number of software providers have now released their low-cost solutions to STP reporting, including MYOB and Xero, who have both also included additional options which allow tax agents to add-on STP capability to their accounting software.
Small or micro employers will need to consider the appropriate option for their business to ensure that they comply with their obligations under STP. The ability for tax agents to report quarterly on their clients’ behalf may assist with the transition process.
Salary sacrificed amounts
The amending legislation also introduces the requirement for employers to include “sacrificed ordinary times earnings amounts” and “sacrificed salary or wage amounts” paid to their employees’ superannuation funds in the amounts reported under the STP reporting rules. This requirement is effective from 1 July 2019.
More information
- STP Transition for Small Employers – Commissioner’s Statement
- Single touch payroll authorisations
- STP engagement authority
Assistance for those affected by the Townsville floods
In line with its usual response to natural disasters in Australia, the ATO has announced that automatic deferrals will be applied to certain lodgements that are due in February 2018 for those affected by the recent Townsville floods. Lodgement deferrals have generally been allowed for a period of one month. All lodgements deferrals which have been previously granted for later dates will still apply.
The lodgement deferrals will apply to both clients with tax agents in the affected area, and tax agents with clients in the affected area. The affected area includes the postcodes listed here.
More information
Fuel Tax Credit rates changed
A quick reminder that fuel tax credit rates increased on 4 February 2019 in line with fuel excise indexation. Where a client claims less than $10,000 in fuel tax credits per year, in the next BAS you can use the rate that applies at the end of that BAS period.
More information
Rulings
Value of stock taken for private use
TD 2019/2 value of goods taken from stock for private use for the 2018-19 income year
The Commissioner has released updated amounts that can be used in determining the value of goods taken from trading stock for private use for 2018-19. The determination provides values for a range of industries such as bakeries, mixed business stores, restaurants and cafes.
Cases
Is land used for storage of business assets an active asset?
Eichmann and Commissioner of Taxation [2019] AATA 162
This case dealt with a common issue that arises in the context of the small business CGT concessions, which is whether land is used in the course of carrying on a business and can be treated as an active asset.
In this case, the taxpayer held land which contained two sheds. Both the sheds and the remaining area of the land were principally used for the storage of work tools, equipment and materials that were used in a related entity’s business of building, bricklaying and paving.
The ATO contended that the active asset test requires the use of the asset (the land) to be integral to the process by which the business is carried on, and that in these circumstances the taxpayer’s use of the land was not sufficient to satisfy the active asset test.
Ruling that the ATO’s objection decision be overturned, the AAT referred to the wording of section 152-40(1)(a) ITAA 1997 which only requires the asset to be used “in the course of carrying on a business,” and that the phrase necessarily encompasses a fairly wide range of activities. The Tribunal concluded that the taxpayer was using the land in the course of a business carried on by a relevant entity and could be treated as an active asset.
The decision provides some authority for the argument that a taxpayer can use land outside the main function of their business (i.e. in this case, as storage of equipment etc used in a business necessarily carried on at other locations) and be able to pass the active asset test in respect of the land. However, it is still necessary that the use of the land has a tangible connection with a business.
For example, the use of land simply to store assets which are not being actively used in a business would not generally be sufficient. In the AAT case of Re Karapanagiotidis and Commissioner of Taxation the taxpayer simply stored old assets that were no longer being used on vacant land and the AAT found the use was not sufficient to satisfy the active asset test.
Temporary accommodation overseas can be a permanent place of abode
Harding v Commissioner of Taxation [2019] FCAFC 29
The Full Federal Court has overturned the previous Federal Court decision in this case (Harding v Commissioner of Taxation, see the July 2018 Knowledge Shop tax round-up) which considered the application of the ‘domicile’ test for residency and the meaning of the phrase ‘permanent place of abode’.
In the earlier decision, the Court had found that the taxpayer had not established a permanent place of abode overseas (in Bahrain) due to the nature of their accommodation. While the taxpayer had ceased to reside in Australia and had established a place of abode outside Australia, the Court was not convinced that their chosen accommodation (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.
The conclusion reached by the Court was that as the accommodation was effectively temporary in nature, it was not capable of being a ‘permanent’ place of abode sufficient to enable the taxpayer to be a non-resident for tax purposes.
However, on appeal from the taxpayer the Full Federal Court disagreed on this point, stating that the fact the accommodation of the taxpayer was of a temporary nature did not necessarily mean that the taxpayer had not established the overseas location as a “permanent” place of abode.
Broadly, the Court considered that restricting the meaning of ‘permanent place of abode’ to mean specific premises was too narrow a construction of the legislation, and that the phrase ‘place of abode’ in these circumstances can be extended to mean a town or country. In the taxpayer’s case, the fact that he had established the clear intention to make Bahrain his permanent home, and established a place of abode there, was enough for the Court to be convinced that his permanent place of abode was not in Australia.
In the judgement, the Court also made reference to the fact that the taxpayer had resided in temporary accommodation and that this may strengthen the argument that the permanent place of abode was overseas, noting that “It is relatively commonplace for Australians who seek to make their life in another country to rent accommodation on a temporary basis, sometimes for several years, whilst they seek a more permanent home.”
While this decision should prove helpful for expatriates seeking to argue that they are no longer residents of Australia, it is important to remember that each situation depends on the facts and all four residency tests need to be carefully analysed.
It is also worth remembering that the Board of Taxation has recently undertaken some work in relation to the possible reform of the residency rules for individuals. A report was provided to the Government in November 2018 although the Government has asked the Board of Taxation to carry out some further work before any possible changes will be considered.
Legislation
Similar business test introduced
After a number of delays, the Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 has now been passed by Parliament to become law.
The Bill introduces a new similar business test that applies in determining whether a company can claim tax losses and capital losses and which supplements the existing continuity of ownership test and same business test. The new test applies in respect of income years commencing on or after 1 July 2015.
Prior to the introduction of the similar business test a company would normally need to pass either the continuity of ownership test (COT) or same business test to utilise tax losses and capital losses. When applying the same business test there are actually three elements which all need to be passed:
- The same business test: it is necessary to conclude that the same business was being carried on at the relevant times;
- The new business test: it is necessary to show that the company did not derive any income during the income year from a business of a kind that it did not carry on immediately before the COT was failed; and
- The new transactions test: it is necessary to show that the company did not derive any income during the income year from transaction of a kind that it did carry on immediately before the COT was failed.
At a very high level, the similar business test operates in a reasonably similar manner to the same business test, but doesn’t contain the negative limbs. That is, when applying the similar business test the company does not need to satisfy the “new business test” or the “new transactions test”. The new test should allow companies which have broadened their operations by the incorporation of slightly different business operations or transactions to still utilise prior year losses.
LCR 2017/D6 provides guidance on the operation of the new law and indicates that there is an emphasis on the change in the business activities being driven by innovative changes to the way the business operates, and that it could be more difficult for a company whose activities have changed due to other factors. It will still be necessary to carefully work through the rules and ensure that appropriate documentation is maintained to support the position that is being taken.
While the Government had initially planned to make changes to the depreciation rules to enable taxpayers to self-assess the effective life of intangible assets, amendments were made to the Bill to remove this proposed change. As a result, it is still not possible to self-assess the effective life of intangible assets.
More information
