From the ATO
Foreign resident capital gains withholding
The new foreign resident capital gains withholding provisions now apply to certain transactions that are undertaken under contracts entered into from 1 July 2016.
While we have covered some of the key details of these new rules in previous Essential Tax Summaries, it is worth mentioning that the ATO has released online versions of the relevant forms that can be used to comply with different aspects of the rules.
Online forms are now available in relation to the following items:
Clearance certificate application form. No withholding is required if the vendor has received a clearance certificate from the ATO and this is provided to the purchaser before settlement occurs.
Variation application form. This is to be used when the vendor believes that the withholding rate should be less than the default rate of 10%.
Purchaser payment notification. When settlement occurs the purchaser is required to notify the ATO of certain details
Extended deadline for LRBA arrangements
The ATO has extended the deadline for trustees to 31 January 2017 to ensure that any LRBA’s that their fund has are on terms consistent with an arm’s length dealing, or alternatively are brought to an end.
On 6 April 2016, the ATO issued PCG 2016/5 which outlined the safe harbour terms upon which a trustee of a SMSF could choose to structure their Limited Recourse Borrowing Arrangement (LRBA) with related parties in order to show that it is consistent with an arm’s length dealing.
Broadly, the ATO accepts that a LRBA structured in accordance with the terms set out in the PCG will be treated as being consistent with an arm’s length dealing and the non-arm’s length income (NALI) provisions should not generally apply to income from the related asset.
Originally the ATO noted that trustees of SMSFs would have until 30 June 2016 to ensure that any LRBA was put under an arm’s length borrowing arrangement. However, it also became apparent that some superannuation funds would benefit from further guidance on the NALI rules.
The ATO says that, “In particular, taxpayers may benefit from further practical guidance clarifying
the circumstances in which an SMSF will be taken to receive a greater amount of ordinary or statutory income under a particular non-arm’s length arrangement, compared to the amount which it would have received under an arm’s length arrangement.”
Therefore, the deadline has been extended with the ATO also committing to provide further information and illustrative examples by 30 September 2016.
2016 tax return forms, instructions and guides
The ATO has issued 2016 tax returns and instructions for individuals, trusts, companies, partnerships and SMSFs. The ATO has also issued 2016 guides to several key areas for taxpayers (including CGT, the small business CGT concessions, franking accounts and losses).
One key change to the 2016 company tax return compared with previous tax years is that there is an additional reporting label that needs to be completed if the company qualifies as a small business entity (SBE) in the 2016 year. This would be disclosed at label F1 of item 3 on the 2016 company tax return. This is to ensure that the lower 28.5% tax rate will be applied to the taxable income of companies that qualify as SBEs.
It is important to note that:
In order for the company to be classified as a SBE it must carry on a business in its own right. Just because the company might be related to another entity that carries on a business is not sufficient for the company to be a SBE. For example, a company that only holds passive investments or merely receives distributions from a related trust would not generally be classified as a SBE regardless of its turnover.
You will need to consider the grouping rules when determining whether the company is a SBE. The turnover of connected entities and affiliates would generally need to be included when determining whether the company is a SBE.
Similarly, for individuals that are in receipt of small business income (e.g., as a sole trader, partner in a partnership or beneficiary of a trust that is a SBE) and may qualify for a small business tax offset, they are required to disclose their net small business income at label D of item 15 of their 2016 tax return.
ATO external collection agencies
The ATO has provided information regarding how it refers a debt to an external collection agency if the taxpayer does not make arrangements to pay their debt to the ATO on a timely manner.
The ATO notes that the debt collection agencies are authorised to negotiate payment arrangements on behalf of the ATO as well as being able to discuss the remission of general interest charge and penalties for failure to lodge on time.
The ATO has engaged four external collection agencies to assist in the collection of tax debts. The ATO will be responsible for dealing with any debts that have been formally disputed by the taxpayer, these will not generally be dealt with by external collection agencies.
SuperStream extension for SBE employers
SuperStream is the ATO’s electronic and standardised reporting of the superannuation payment process, which allows employers to use one online channel to make employer contributions to multiple superannuation funds.
The deadline for compliance with SuperStream requirements was 30 June 2016. However, the ATO is allowing some ‘compliance flexibility’ to small businesses (19 or fewer employees) that are not yet ready to implement the SuperStream requirements.
Basically this means that while all businesses are technically required to comply with the new rules, the ATO will delay taking any compliance action against small businesses until 28 October 2016.
Interim guidance on 2016 unit trust distribution statements
The ATO has provided some interim guidance to assist in the preparation of distribution statements for unit trusts so that the tax deferred components of the distributions can be calculated correctly. This is relevant for the unit holders as they would generally need to reduce the cost base of their units by the tax deferred component of the distribution The ATO has been consulting with industry bodies and plans to release a formal taxation determination on this area in due course. In the mean-time the ATO hopes that this guide will assist trustees and their advisers in calculating the tax deferred and CGT concessional components that are being distributed to unit holders.
The key issue covered in the guide is how to classify the various components when a unit trust has applied capital losses against its own direct capital gains. The ATO’s view is that the portion of the gains that have been sheltered by capital losses should be classified as a tax deferred component rather than a CGT concessional amount.
Rulings, IDs & determinations
TD 2016/8 – Income tax: what is the car limit under section 40-230 of the Income Tax Assessment Act 1997 for the 2016-17 financial year?
The Commissioner has issued a Taxation Determination confirming that the luxury car limit which applies for the 2016/17 tax year is $57,581.
This represents an increase in the limit from the 2015/16 income year (and several preceding tax years) of $57,466.
This limit should be used by taxpayers when seeking to claim depreciation deductions for cars and determining whether a lease arrangement should
Be be treated as a notional sale transaction for income tax purposes.
Goods taken from stock
TD 2016/9 – Income tax: value of goods taken from stock for private use for the 2015-16 income year
This TD updates the amounts that will be accepted as estimates of the value of goods taken from trading stock for private use by taxpayers in the industries named within the TD (e.g. baker, delicatessen) for the 2015-16 income year.
Division 7A benchmark rate
TD 2016/11 – Income tax: what is the benchmark interest rate applicable for the year of income that commenced on 1 July 2016 for the purpose of Division 7A and how is it used?
The ATO confirms that the benchmark interest rate for the 2017 income year for Division 7A purposes is 5.40% per annum.
CGT improvement threshold
TD 2016/12 – Income tax: capital gains: what is the improvement threshold for the 2016-17 income year under section 108-85 ITAA 1997?
The CGT improvement threshold for the 2017 income year is $145,401. This is relevant in determining whether improvements carried out in relation to pre-CGT property and other assets need to be treated as separate post-CGT assets.
Maintenance of the ABR
PS LA 2016/3 – The cancellation of registrations in the Australian Business Register
PS LA 2016/4 – Maintaining the Australian Business Register
PS LA 2016/3 provides guidance to ATO staff regarding the cancellation of registrations in the Australian Business Register (ABR).
The document notes the importance of information on the ABR being correct and up to date as many parties rely on the register being accurate. This practice statement sets out the procedures that should be followed in determining whether an entity should no longer be registered on the ABR including when there is sufficient evidence to suggest that the entity is no longer carrying on an enterprise.
In some cases it may be appropriate for the registration to be reinstated if it becomes apparent that the registration should not have been cancelled.
PA LA 2016/4 sets out details on the procedures that should be followed when it comes to maintaining the ABR and ensuring that the details recorded on the ABR are current.
Effective life of depreciating assets
Effective Life Determination 2016/1
The ATO has released the latest version of its determination of the effective life of various assets for the purpose of the depreciation provisions in Division 40.
Taxpayers can basically use the effective lives determined by the Commissioner to provide certainty on the deductions being claimed rather than self-assessing the effective life of the relevant assets and risk this being challenged by the ATO.
Foreign resident capital gains withholding tax provisions
LCG 2016/5 – Foreign resident capital gains withholding regime: the Commissioner’s variation power
LCG 2016/6 – Foreign resident capital gains withholding regime: amount payable to the Commissioner
LCG 2016/7 – Foreign resident capital gains withholding regime: options
The ATO has issued three new LCGs which provide further guidance on the new foreign resident capital gains withholding provisions that apply to certain contracts entered into from 1 July 2016.
LCG 2016/5 discusses the Commissioner’s power to vary the withholding rate to something less than the default rate of 10%. The document sets out some of the circumstances in which the Commissioner would generally consider varying the rate such as where the vendor expects to make a capital loss on the sale, CGT rollover relief is available or the vendor does not expect to have an overall tax liability for the year.
LCG 2016/6 provides guidance in relation to determining the amount that must be withheld under the rules including situations where the market value substitution rules might apply and where the contract relates to the disposal of multiples assets where only some of the assets would be subject to the withholding rules.
LCG 2016/7 deals with the application of the withholding rules to transactions involving options including when someone acquires an option
relating to taxable Australian property and where options are exercised.
Can body corporates be treated as non-profit entities for GST purposes?
ATO ID 2016/1 – GST and registration turnover threshold for a body corporate
The ATO has confirmed that a body corporate entity that will not make distributions to its members is classified as a non-profit body for GST purposes.
As a result, these entities should qualify for the higher registration turnover threshold of $150,000 which may mean that certain body corporate entities would not be required to register for GST.
The ATO ID suggests that a body corporate could be treated as a non-profit body for GST purposes if either:
The body corporate is prevented from distributing its profits or assets amongst its members (both while the body is functional and on its winding-up) by its constituent documents or by operation of law (e.g., a statute governing the body’s activities), or
Where the law or the constituent documents do not prohibit such distributions, it is clear from the objects, policy statements, history, intention, activities and proposed future directions of the body corporate that there will be no such distributions to its members
