A number of pieces of tax legislation have either been introduced into Parliament or have become law, including changes to the foreign resident withholding rules that were announced in the 2017-18 Federal Budget. These changes will significantly increase the number of transactions that are subject to the withholding system from 1 July 2017.
A new draft ruling also provides updated guidance on the tax treatment of travel expenses. Given the ATO’s recent focus on claims for travel expenses it would be worthwhile taking a look at the ATO’s updated comments and the examples provided in the draft ruling to understand the situations where tax payers will find it difficult to claim deductions for travel costs and the situations where the ATO’s approach appears to be more flexible than in previous guidance in this area.
If you have any questions regarding anything in our July tax essentials – please do not hesitate to get in touch with the Fortis Accounting Partners team on (02) 9267 0108, or via email at info@exemplary-financial.flywheelsites.com. We’re always ready to help smooth things out!
From Government
Simpler BAS from 1 July 2017
The ATO has been working on the development of a simpler BAS for certain small business taxpayers. From 1 July 2017 the simpler BAS will be the default GST reporting method for small businesses with a GST turnover of less than $10m.
These taxpayers will only need to report total sales, GST on sales and GST on purchases. The changes to GST reporting will not impact on the way that other taxes are reported on the BAS.
ATO warning on deductions
The ATO has released a guide called Don’t be a dummy with your deductions which is intended to serve as a warning to taxpayers as the 2017 income year comes to an end.
The guide sets out 11 items that are often claimed but probably shouldn’t be. Practitioners should be especially careful when assisting clients who want to claim deductions for any of the following items:
- Travel between home and work;
- Car expenses for transporting bulky tools and equipment;
- Salary packaged car expenses;
- Meal expenses while travelling;
- Travel that includes a private component;
- Clothing;
- Cleaning costs for work clothes;
- Self-education costs;
- Phone and internet expenses; and
- Tools and equipment.
Removal of 10% test for personal superannuation contributions
From 1 July 2017, an individual will no longer need to satisfy the 10% maximum earnings condition to claim a deduction for personal superannuation contributions. This is good news for individuals who earn income from a variety of sources, including from employment.
While individuals will still need to meet the existing age requirements and will need to notify the fund of their intention to claim a deduction for the contribution, it will no longer be necessary to determine how much of the individual’s income relates to employment activities which should enable a broader range of taxpayers to claim a deduction for personal super contributions from 1 July 2017 onwards.
ATO hit list
The ATO has updated its guide which sets out the types of behaviour and the tax issues that are likely to attract its attention.
The guide is specifically aimed at privately owned groups and sets out a range of specific areas that are likely to attract unwanted attention from the ATO.
Any practitioners who work with privately owned groups or high net wealth individuals should at least review the guide at a high level to ensure they are aware of the issues that are likely to come under ATO scrutiny and the clients who may be at higher risk of ATO review or audit activity.
Summary of recent changes
With so many amendments being made to the tax rules it can be easy to miss something when it comes to working through year-end processes for clients.
The ATO has produced a guide which provides a high level summary of some of the key changes and new measures which tx payers should keep in mind when preparing information for tax returns. This includes significant changes to the small business entity concessions, amendments to the rules impacting on primary producers and superannuation changes.
Rulings, IDs & determinations
Tax treatment of travel costs
TR 2017/D6
The ATO has released updated guidance on the tax treatment of travel expenses for individual taxpayers as well as employers who are seeking to apply the otherwise deductible rule to minimise FBT liabilities which relate to employee travel expenses. This draft ruling basically replaces a number of older tax rulings and determinations and consolidate much of the ATO’s guidance in this area into a single document.
The ruling deals with a wide range of situations including:
- Travel between home and a regular work location, including temporary alternative work locations;
- Travel undertaken by fly-in fly-out workers;
- Employees who might be required to travel to new locations every few weeks and who stay away from home during the projects;
- Ongoing travel to an alternative work location; and
- When someone would be regarded as living away from home.
As well as reviewing the draft ruling to identify clients who might be at risk of ATO review, there may also be clients who could seek to claim deductions that have not previously been claimed in the past. This is because in some instances the ATO has relaxed its approach to travel expenses, indicating that deductions can be claimed in situations which would previously have been treated as non-deductible.
For example, the ATO indicates that someone who has two normal work locations could potentially claim a deduction for travel costs incurred in travelling to and staying near an ongoing alternative place of work which is a considerable distance from their home and primary work location.
More information
New Division 7A interest rate
TD 2017/17
This tax determination confirms that the benchmark interest rate for complying Division 7A loan agreements for the year commencing 1 July 2017 is 5.30% per annum.
More information
Division 7A and indirect benefits
TD 2017/D3
Division 7A normally applies when a private company provides certain types of benefits to shareholders or their associates. However, section 109T ensures that a deemed dividend can also be triggered if a company makes a loan or payment to another entity (i.e., interposed entity), which then makes a loan or payment to someone who is a shareholder of the company or their associate.
This TD confirms that the rules in section 109T can apply even if the payment or loan made by the company to the interposed entity is an ordinary commercial transaction.
For example, this section could still apply if a private company pays a dividend to a trust that holds shares in the company, with the trust then providing a loan to a shareholder of the company if a reasonable person would conclude that the dividend was paid to the trust solely or mainly as part of an arrangement involving a payment or loan to a shareholder or shareholder’s associate.
The TD provides a number of other examples where the ATO considers that a deemed dividend could be triggered under section 109T in situations where the normal Division 7A rules would not generally apply.
More information
Cross border supplies to Australian residents
GSTR 2017/1
From 1 July 2017 the GST system will be expanded to ensure that certain supplies of services, digital products or rights made to Australian consumers will be captured, even if the supplier does not have any physical presence in Australia.
In very broad terms, supplies can only trigger GST if they are connected with Australia. The new rules operate by expanding on the definition of ‘connected with Australia’ to cover situations where supplies of services, digital products or rights are made to an Australian resident who is either not registered for GST or has not acquired the thing in connection with their enterprise.
The ruling provides guidance to suppliers on how to determine if the recipient of a supply is an Australian resident and whether they are a consumer or not.
The GST rules allow a supplier to assume that a supply has not been made to an Australian consumer if they have satisfied certain evidentiary requirements and they reasonably believe that the recipient is not an Australian consumer.
The ATO sets out the types of evidence that might be relevant in making these determinations.
More information
Notional distributions to someone who is not a beneficiary of a trust
TD 2017/D1
When a trust makes a family trust election or interposed entity election this means that any distributions made to an individual or entity outside the family group will trigger a family trust distribution tax (FTDT) liability at penalty rates. Similar rules apply to companies or partnerships that have made an interposed entity election.
This TD confirm that for the purpose of the FTDT rules the rules can be triggered when benefits are provided to an individual or entity even if they are not a beneficiary of the trust that provides the benefit. However, the rules should not be triggered if the transaction occurs on arm’s length terms and is an ordinary incident of the business being carried on by the trust.
The ATO provides the example of a trust which holds a holiday home. The trust has made a family trust election (FTE) with a particular individual as the test individual in the FTE. The holiday home is used by friends of the test individual for no consideration. The ATO’s view is that the use of the holiday home can be treated as a distribution – the value of the use of the property is exposed to family trust distribution tax.
More information
CGT improvement threshold
TD 2017/16
The CGT improvement threshold for the 2017-18 income year is $147,582.
When someone sells an asset that was acquired pre-CGT any capital gain or loss made in relation to the asset would normally be disregarded. However, this is subject to the potential application of some special rules in Division 108 ITAA 1997.
Section 108-70 is triggered if post-CGT improvements are made to an asset and the cost base of the improvements is more than both of the following:
- 5% of the capital proceeds; and
- The improvement threshold for the year of the CGT event ($147,582 for the 2018 income year).
More information
GST on low value goods imported to Australia
LCG 2017/D5
As noted below, the Government has introduced new rules which are aimed at ensuring that GST can apply to the importation of goods into Australia, even if they have a value of $1,000 or less. The rules will apply from 1 July 2018.
The new rules can apply to a ‘redeliverer’ who assists in bringing goods to Australia by providing an offshore mailbox service or a personal shopping service.
This draft law companion guideline provides ATO guidance on the application of these new rules to redeliverers, including how to determine whether someone is a redeliverer, when a redeliverer will be responsible for GST on supplies of low value goods and how the rules apply when there are multiple redeliverers.
More information
GST and electronic distribution platforms
LCG 2017/D4
As mentioned above, the Government has recently made two significant amendments to the operation of the GST rules where goods, services or other rights are made to Australian consumers. The rules dealing with supplies of services and digital rights apply from 1 July 2017 while the rules dealing with imports of low value goods apply from 1 July 2018.
Both sets of rules can potentially capture supplies made through an electronic distribution platform (EDP).
This draft law companion guideline explains whether a supply is being made through an EDP, whether the supply is subject to the special rules dealing with EDPs and which EDP operator is responsible for the GST if multiple EDPs are involved.
More information
Luxury car thresholds
TD 2017/18, LCTD 2017/1
The luxury car limit for tax depreciation purposes for the 2017-18 income year is $57,581. This limit also applies for the purpose of capping GST credits.
The luxury car tax threshold for the 2017-18 financial year is $65,094. The higher threshold that applies to fuel-efficient cars is $75,526.
More information
Effective life of depreciating assets
TR 2017/2
The Commissioner has released a new ruling which sets out the effective lives of depreciating assets from 1 July 2017. 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.
More information
Cases
Work related expenses disallowed
Hamilton v Commissioner of Taxation [2017] AATA 734
The Tribunal has confirmed the Commissioner’s objection decision in relation to certain work-related expenses claimed by an employee working on Curtis Island.
The ATO has previously raised concerns about deductions being claimed by workers employed to work on the Bechtel Queensland LNG Project on Curtis Island. This case dealt with deductions claimed by an employee in relation to tool expenses, mobile phone costs and overtime meal expenses.
The taxpayer had claimed a deduction of $945 for tool expenses but admitted that the claim was really about $240. The taxpayer produced credit card statements showing items were purchased from a hardware store, but no receipts were produced to support or explain any of the purchases. The Tribunal did not allow any deduction for expenses in relation to tools.
The taxpayer claimed a deduction of $519 for mobile phone costs on the basis that he was required to continually use his phone for work purposes. The Commissioner was only prepared to allow a $50 deduction for some minor use. The only evidence to support the taxpayer’s claim was the accounts from the phone company. However, there was no breakdown showing calls or other usage. As a result, the AAT only allowed the $50 deduction.
The final item was the overtime meal expenses claim. The taxpayer was paid a meal allowance of $10.20 per day and claimed $4,986 as a deduction (around $27 per day). The Commissioner only allowed a deduction for $1,876, representing $10.20 per day.
The taxpayer could not produce any documentary evidence to support his claim and the AAT was not satisfied that he did incur expenses on overtime meals as he claimed. While the Commissioner had published a reasonable amount of $27.10 for overtime meals for the relevant income year, the AAT noted that someone seeking to rely on the Commissioner’s reasonable rates may still be required to show that the expense claimed was actually incurred. As the taxpayer could not produce such evidence, the AAT affirmed the Commissioner’s objection decision.
This case serves as yet another reminder of the importance of gathering and retaining documentation to support deductions that are being claimed. As the ATO increases it focus on travel related expenses in particular it is important for practitioners to understand the limitations associated with relying on the Commissioner’s reasonable rates for travel allowance and overtime meal allowance expenses and the steps that clients need to take to support their claims.
Legislation
Extension of foreign resident CGT withholding rules
Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017
Following announcements made by the Government in the 2017-18 Federal Budget this Bill extends the current application of the withholding system that applies to certain property transactions.
The Bill lowers the de minimis threshold from $2m to $750,000 and increases the withholding rate from 10% to 12.5%. The new rules apply to CGT events that occur from 1 July 2017 onwards.
The Bill has passed through Parliament and has received Royal Assent.
GST on low value goods imported into Australia
Treasury Laws Amendment (GST Low Value Goods) Bill 2017
Parliament has finally passed the Bill which seeks to capture GST on low value goods being imported into Australia.
The new rules are intended to apply to situations which are not captured by the existing GST importation rules because the goods are worth $1,000 or less. The rules are designed to only apply when goods are delivered to Australian consumers who are either not registered for GST in Australia or where the goods do not relate to an enterprise or business being carried on in Australia.
While the rules were originally intended to start from 1 July 2017, the start date has been deferred until 1 July 2018. This should allow businesses affected by the change to consider how the rules will impact on them and how best to manage any new compliance obligations.
GST treatment of precious metals
Treasury Laws Amendment (GST Integrity) Bill 2017
This Bill introduces a reverse charge mechanism for business to business transactions relating to gold, silver and platinum. The rules are intended to reduce the opportunities for suppliers to avoid paying GST on these supplies by liquidating and to prevent exploitation of the special rules dealing with notional GST credits that can apply to certain second hand goods.
The Bill has passed through both Houses of Parliament and is just awaiting Royal Assent.
Wine equalisation tax changes
Treasury Laws Amendment (2017 Measures No. 4) Bill 2017
This Bill introduces a number of changes to the wine equalisation tax (WET) system which are designed to improve the integrity of the rules and concessions that are available. One of the main changes is a reduction in the WET producer rebate cap from $500,000 to $350,000.
The Bill has been introduced to the House of Representatives but has not progressed to the Senate as yet.
Similar business test and self-assessing intangible asset effective lives
Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017
The Bill containing the introduction of a ‘similar business test’ for company losses and provisions to allow taxpayers the ability a choice to self-assess the effective life of certain intangible depreciating assets has passed through the House of Representatives and is now with the Senate.
Extension of $20k threshold for SBEs
Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2017
The Bill, which extends the $20,000 threshold within the simplified depreciation rules to 30 June 2018, has passed through Parliament and has received Royal Assent.
The $20,000 threshold was originally due to drop back to $1,000 from 1 July 2017 but will now be extended for another 12 months.
Medicare levy and surcharge thresholds
Treasury Laws Amendment (Medicare Levy and Medicare Levy Surcharge) Bill 2017
The Bill which increases the Medicare levy and Medicare levy surcharge low-income threshold amounts as well as increasing the phase-in limits for the 2017 income year and later income years has passed through Parliament and has received Royal Assent.
Bank levy
Major Bank Levy Bill 2017
Treasury Laws Amendment (Major Bank Levy) Bill 2017
These Bills relate to the introduction of a new levy that will apply to a limited number of Australian banks from 1 July 2017. This was one of the major changes announced by the Government in the 2017-18 Federal Budget.
The Bills have passed through both Houses of Parliament and are just awaiting Royal Assent.
