A deal has been struck to pass the Enterprise Tax Bill containing the corporate tax rate reduction, increase to the tax discount for unincorporated small businesses, and the increase to the small business entity threshold (see Legislation). Also of interest is the series of cases testing work related travel expenses. This is clearly an area of focus for the ATO at present and highlights the need for advisers to discuss these issues with clients, particularly those seeking to claim significant travel expense deductions.
If you have any questions about how any of the information contained in the Essential Tax Summary might affect you, please feel free to get in touch with one of our friendly and experienced accountants on 02 9267 0108, or by emailing info@exemplary-financial.flywheelsites.com.
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Legislation
Deal struck on Enterprise Tax Bill
A last minute deal has been struck between the government and Senator Nick Xenophon to pass the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016.
The revised Bill enables:
- An increase to the aggregated turnover threshold to $10 million for access to small business tax concessions from 2016-17.
- Note that the current aggregated turnover threshold of $2 million will be retained for the small business CGT concessions.
- Progressive reductions in the corporate tax rate for base rate entities (corporate tax entities that carry on a business with an aggregated turnover of less than $50m) to:
| Corporate tax rate |
Less than $10m |
Less than $25m |
Less than $50m |
| 2016-17 |
27.5% |
30% |
30% |
| 2017-18 |
27.5% |
27.5% |
30% |
| 2018-19 to
2023-24 |
27.5% |
27.5% |
27.5% |
| 2024-25 |
27% |
27% |
27% |
| 2025-26 |
26% |
26% |
26% |
| 2026-27 |
25% |
25% |
25% |
- An increase to the aggregated turnover threshold to $5 million for access to the small business income tax offset from 2016-17.
- An increase to the unincorporated small business tax discount to 8% from 2016-17. The offset will be capped at $1,000.
The final amendments exclude businesses with an aggregated turnover of $50 million or more from the tax cuts. These entities will continue to pay a corporate tax rate of 30%.
The Bill has passed the Senate with amendment and will now go back to the House of Representatives where the Government holds a majority. The next sitting day to formally pass this Bill is 9 May.
More information
- Media Release – Turnbull Government introduces Ten Year Enterprise Tax Plan
- Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 – see the Supplementary explanatory memorandum
Superannuation income stream regulations
Treasury Laws Amendment (Innovated Superannuation Income Streams) Regulations 2017 – Explanatory Statement
Draft superannuation income stream regulations and an explanatory statement have been released for public consultation, with interested parties invited to make a submission by 12 April 2017.
The regulations introduce a new set of design rules for lifetime superannuation income stream products intended to enable retirees to better manage consumption and longevity risk in retirement.
From Government
Bolstering the Commissioner’s remedial power
Effective from 1 March 2017, the Commissioner of Taxation has the power to modify the operation of a provision of a taxation law in limited circumstances.
This is intended to allow for a timely resolution of certain unforeseen or unintended outcomes in taxation and superannuation law, and can also be used to reduce the impact of disproportionate compliance costs.
More information
From The ATO
Lodging early 2017 tax returns for working holiday makers
Following the changing of the tax rates applying to working holiday maker visa holders from 1 January 2017, any early tax returns for those taxpayers will need to include a schedule which includes the following details:
- Income earned from 1 July to 31 December 2016;
- Income earned from 1 January to 30 June 2017; and
- Any deductions that the taxpayer wishes to claim related to either income period.
Early tax returns (i.e. lodgement of the tax return before the end of the tax year) can only generally be lodged if the taxpayer is:
- A foreign resident for tax purposes who is either leaving Australia permanently or will no longer derive Australian sourced income (other than interest, dividend and royalty income); or
- An Australia resident for tax purposes who is leaving Australia permanently, is ceasing to be an Australian resident for tax purposes and will no longer derive Australian sourced income (other than interest, dividend and royalty income).
More information
Deceased estates checklist released
The ATO has provided additional guidance for those responsible for managing a deceased estate and their advisers. This includes the release of an updated checklist for those involved in managing the Australian tax affairs of someone who has died.
The checklist includes steps to follow including identifying whether the deceased individual had a will, notification of their death to the ATO and lodging final individual and estate tax returns.
More information
June 2017 quarter GIC rate released
The ATO has released the general interest charge (GIC) rates for the June 2017 quarter, which has increased slightly from the March 2017 quarter to 8.78% (annual rate).
More information
Rulings, IDs & determinations
Superannuation reform transitional CGT relief guidance
Further guidance from the ATO has been released in law companion guides 2016/8 and 2016/9 (finalisation of draft guidance) in relation to the transfer balance cap and transition to retirement reforms commencing on 1 July 2017, and the related transitional CGT relief for superannuation funds.
More information
Superannuation reform – Total superannuation balance guidance
LCG 2017/12 – Superannuation reform: total superannuation balance
Amongst the superannuation reforms commencing on 1 July 2017 is the concept of an individual’s total superannuation balance, which would be used to value that individual’s total superannuation interests.
This LCG provides guidance on how that total superannuation balance would be calculated, which can impact on the individual’s eligibility for unused concessional contributions cap carried forward, the bring forward of the individual’s non-concessional contributions cap, govtatornment co-contributions and the tax offset for a spouse contribution.
It would also be relevant for SMSFs and small APRA superannuation funds in determining whether they would be eligible to use the segregated assets method to determine their exempt current pension income.
Draft RCTI determinations
The ATO has issued four draft Recipient Created Tax Invoice (RCTI) determinations applying to specific industries – road transport operators, food and grocery manufactures or retailers, ceding insurers or reinsurers and education fund providers.
The relevant taxpayer may issue a RCTI for the receipt of the relevant taxable supply if they establish the value of that taxable supply (not the supplier in RCTI 2007/D3 and D4) and satisfy the other requirements set out in the determination.
More information
- RCTI 2017/D1 – for Road Transport Operators.
- RCTI 2017/D2 – for Food and Grocery Manufacturers and Retailers
- RCTI 2017/D3 – for Ceding Insurers or Reinsurers
- RCTI 2017/D4 – for Education Fund Providers
GST attribution rules where total consideration not known
The ATO has issued a determination that contains special attribution rules for GST purposes when the total consideration for a supply is not known. The determination only applies to taxpayers that do not account for GST on a cash basis.
The point of the determination is to provide a practical solution to the problem that can arise under the GST system when the attribution rules might be triggered for the entire transaction but the final consideration is not known.
The determination can apply to either taxable supplies or creditable acquisitions where:
- The total consideration is not known when any part of the consideration is paid or received, or where an invoice is issued in relation to the supply or acquisition; and
- The ascertainment of the total consideration depends on a future event or events which is not within the taxpayer’s control and either:
- An invoice is issued relating to the supply or acquisition; or
- Any consideration is received or paid for the supply or acquisition.
More information
Central management and control of companies
TR 2017/D2 – Income tax: Foreign Incorporated Companies: Central Management and Control test of residency
The ATO has released draft guidance regarding the application of the central management and control test of company residency.
When a company is incorporated overseas it can still be treated as a resident of Australia if it carries on business in Australia and either has its central management and control in Australia or has its voting power controlled by Australian residents.
This ruling replaces TR 2004/15 and has been issued in light of the High Court’s decision in Bywater Investments Limited & Ors v Commissioner of Taxation; Hue Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45.
The ruling confirms that central management and control refers to the high level decisions that set the company’s general policies and determine the direction of its operations and the type of transactions it will enter. This does not include the mere implementation or rubberstamping of decisions made by others.
Also, the fact that someone has the legal power or authority to control and direct a company does not mean that they exercise central management and control if they do not actually use that power or authority.
The ruling sets out a number of practical factors that need to be taken into account in determining the place where central management and control is exercised.
Cases
Share trading losses disallowed
Spence v Commissioner of Taxation [2017] AATA 307
In this case the taxpayer was issued with default notices of assessments by the ATO for the 2007 to 2010 tax years as no returns had been lodged for those years. The taxpayer lodged an objection to the notices of assessment.
As the hearing the taxpayer claimed that he had lodged a 2006 tax return claiming a share trading loss that should be carried forward to future years.
The taxpayer was not able to produce evidence to prove that a tax return had actually been lodged for the 2006 year. The AAT concluded that no return had been lodged for that year.
Also, the documentation provided by the taxpayer to support his share trading losses during the years in question was not consistent with the records provided to the ATO by third parties that dealt with the share trading. There was insufficient evidence to support him carrying on a share trader business for the 2009 and 2010 tax years and he was not able to respond to specific queries from the ATO about the transactions.
Once again this decision shows the importance of maintaining record to substantiate claims being made. The taxpayer was unable to produce evidence to support the losses that were claimed.
Targeting work related travel expenses
Three cases highlight the ATO’s continued focus on travel expense claims. This is clearly an area of concentration at the moment and advisers should ensure they work with clients to ensure compliance, especially for those clients seeking to claim significant travel expense deductions.
Walker and Commissioner of Taxation [2017] AATA 324
The taxpayer claimed work related deductions for the 2013 and 2014 tax years, which were disallowed upon audit.
The taxpayer’s first submission was he was an itinerant farm work, with travel being an inherent part of his work. The taxpayer claimed that he should therefore be entitled to deductions for travel, accommodation, etc.
The taxpayer’s second submission was that even if he was found not to be an itinerant worker, the meals and accommodation expenses should be deductible as he was living away from home temporarily for work purposes and travelling between work places.
The case covered indicators of itinerancy in employment, and it was held that the taxpayer was not an itinerant worker. The AAT found that the taxpayer’s places of work should be regarded as fixed or regular places of employment and that the travel expenses were not incurred in the performance of his duties. The travel between work locations was not a requirement of this employment, but a result of his personal choice to work in those particular locations.
It was also held that he was not temporarily living away from his home during a particular period of time because his caravan was his home during this period.
The AAT also disallowed deductions for phone and internet costs because the evidence suggested that they were used mainly to arrange employment, rather than in the course of earning assessable income.
The ATO does seem to be targeting travel expense claims at the moment. It is important for advisers to consider whether there is actually a sufficient connection between travel expenses and income earning activities as well as ensuring that clients maintain sufficient documentation to support their claims.
The Trustee for the Whitby Trust and Commissioner of Taxation [2017] AATA 343
This case dealt with the consideration to be used when calculating GST liabilities under the margin scheme.
The taxpayer entered into an option with the owner of a property, subsequently exercised that option and purchased the property. They developed the land and subdivided it into residential lots which were sold to third parties. The taxpayer applied the margin scheme to reduce the GST liability that was triggered on sale of the lots.
The taxpayer held that the option fee paid in relation to the acquisition of the property should be included in the acquisition cost when applying the margin scheme. However, the Commissioner disagreed and concluded that there were two separate taxable supplies – the acquisition of the option and the acquisition land itself.
The Tribunal agreed with the Commissioner and raised that “a right or option to acquire a thing” is one of the specific exclusions from the definition of consideration under the GST Act 1999. Therefore it held that the supply of the option was a separate and distinct supply to the supply of the land. As a result, the option fee should not form part of the consideration for the land when applying the margin scheme.
Davy and Commissioner of Taxation [2017] AATA 376
The taxpayer was a truck driver that claimed work related travel expense deductions for the 2011 and 2012 tax years. However, the travel allowances received in these years were not included in the tax returns.
The Commissioner amended the taxpayer’s income for each of the tax years to include travel allowances received from his employer. The taxpayer initiated a further amendment by increasing his claim for work related travel expenses.
The Tribunal held that the taxpayer had not discharged the onus of proving that the amended assessments made by the Commissioner for the two tax years were excessive, mainly due to the lack of record keeping by the taxpayer. Therefore, the amount allowed as a deduction by the Commissioner was reasonable, and the imposition of a 50% shortfall amount administrative penalty was appropriate.
A number of important points were made in the AAT’s decision, including:
- Just because someone receives a bona fide travel allowance does not automatically mean that travel expenses can be claimed, they still need to qualify for a deduction under section 8-1 or another specific provision.
- Where the taxpayer starts travelling after breakfast on day 1 of a trip, they would not be eligible to claim a deduction for their breakfast on that day, but would be eligible to claim a deduction for meals later in the day, to the extent that they actually incurred the expenses.
- Even if the taxpayer can rely on the substantiation exception, they may still be required to show the basis for determining the amount of the claim, that the expense was actually incurred and they were for work related purposes.
If you feel that the any part of the above changes may be relevant to your current, or future financial situation – and you’d like to discuss matters with an experienced accountant; please get in touch with the team at Fortis Accounting Partners via info@exemplary-financial.flywheelsites.com, or by calling on 02 9267 0108.
