The impending relaxation of the company loss recoupment tests, the case that’s set to expand the marriage breakdown rollover relief, and why the Tax Office is targeting lump sum inducements made to medical practitioners from healthcare centres.
If you have any questions about how any of the information contained in the Tax Round Up 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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From Government
Review of GST refunds
The Inspector-General of Taxation (IGT) will conduct a review into the ATO’s administration of the GST refund process following concerns raised by various stakeholders. Following the Full Federal Court’s decision in the Multiflex case back in 2011 the ATO cannot generally hold GST refunds for longer than is needed to process the GST return. However, legislation was introduced to allow the ATO to retain refunds for a longer period of time as long as there were reasonable grounds to do so and the taxpayer is notified.
The IGT’s review in this area will specifically consider the following concerns:
- A lack of clarity on the scope and nature of verification activities, including information requests.
- Inadequate engagement with taxpayers and their representatives.
- Inaccurate risk identification processes and inappropriate administration of the retention provisions including unexpected offsetting of GST refunds against future liabilities.
- The adverse financial and emotional impact on taxpayers, particularly where the ATO does not fully appreciate their commercial arrangements as well as cash flow, working capital and profit margin implications.
The IGT is seeking submissions by 17 May 2017. The IGT is specifically seeking details of prior experience in dealing with the ATO on this issue as well as ideas for improving the current system.
More information regarding GST refunds
Review of PAYG instalment system
The IGT is also conducting a review into the operation of the PAYG instalment system. The review will focus on the application of the system to individual taxpayers as a number of concerns have Knowledge Shop 2017 5 been raised in relation to the way the ATO administers the system in respect of individuals.
Some of the concerns relate to taxpayers feeling that they have been entered into the PAYG instalment system unnecessarily because of a oneoff spike in income in a particular year. Also, there are concerns that communication and guidance from the ATO is not clear and that it can be difficult for individual taxpayers to vary the instalment amounts or lodgement frequency.
While the time period for lodging submissions in connection with this review ended on 30 April 2017, it will be interesting to see whether the IGT makes any practical recommendations for improving the practical application of the system.
More information regarding aspects of the PAYG instalment system
Tightening of the WET rebate rules
In December 2016 the Government announced that it would be placing further restrictions on the ability of taxpayers to claim the wine equalisation tax (WET) rebate. This was to address concerns that the rebate had encouraged artificial business restructuring and distortions in the wine market.
Treasury has released draft legislation relating to the proposed changes. Under the draft law, producers will have to own at least 85% of the grapes used to make the wine throughout the wine-making process in order to access the rebate. The change is expected to apply from 1 July 2018.
Other changes that are proposed include:
- The rebate will only be available in relation to wine that is branded with a registered trademark and packaged in a container that does not exceed 5 litres for domestic retail sale.
- The rebate cap will be reduced from $500,000 to $350,000.
While the changes are not intended to apply for another 12 months or so, clients operating in the wine industry who currently claim the rebate should start to consider the potential impact of these changes on their continued ability to access the rebate and the cash flow implications that these changes might trigger.
More information regarding wine equalisation tax rebate
From The ATO
Lump sum payments received by medical practitioners
The ATO has released a guide dealing with the tax treatment of payments made to healthcare practitioners.
The Commissioner has noticed that it is increasingly common for medical practitioners to operate from healthcare centres that are operated by a third party. It is often reasonably common for these third parties to offer a lump sum payment to medical practitioners to encourage practitioners to begin or continue working from the centres.
The ATO notes that some practitioners are treating these payments as being on capital account on the basis that they are described as being consideration for a restraint imposed, for goodwill, for other terms and conditions or a combination of these. Some practitioners have then used the CGT discount and small business CGT concessions to reduce the capital gain, potentially to nil.
The ATO’s view is that these payments should generally be treated as ordinary income and taxed on revenue account. This is because the payments represent an inducement for the practitioners to enter into an agreement to provide services from the centre and the payment is closely connected with the provision of these services.
The ATO guide indicates that the Commissioner is taking active steps to identify practitioners who might have received lump sum payments in these circumstances to ensure that they have applied the correct tax treatment to the payments.
Medical practitioners should consider whether they have received payments that could fall within this category and review the way these payments have been treated for tax purposes.
More information regarding lump sum payments received by healthcare practitioners
New small business benchmarks
The ATO has updated its small business benchmarks with information from the 2015 income year. The benchmarks cover more than 100 different industries.
The ATO’s benchmarks can be useful from both a tax compliance perspective (eg, identify the risk of the ATO undertaking a review or audit of a particular client) and a commercial perspective.
If a particular client falls outside the average range for their industry this does not necessarily mean that there is a problem, but it is worth identifying the reasons for this as it could be an indicator that there is a problem within the business that could be improved.
More information regarding small business benchmarks updated with the latest data
Single touch payroll is coming
The ATO has begun to release more details on the operation of Single Touch Payroll (STP). While the compulsory start date is more than a year away, this is something to start discussing with clients who will be forced into the system in advance to ensure they are aware of their obligations and any changes that will need to be made in order to comply.
In very broad terms, when a business reports through STP this means that when they complete their normal payroll process, the PAYG withholding and superannuation guarantee information for employees will be sent directly to the ATO.
STP will be compulsory from 1 July 2018 for businesses with 20 or more employees. Businesses will need to perform a headcount on 1 April 2018 to determine whether they are required to adopt STP.
Employers who report through STP will no longer need to provide employees with a payment summary at the end of the financial year. Businesses using STP will need to finalise their reporting and notify the ATO by 14 July each year. The ATO will then make the information available to employees and tax agents from ATO Online and will pre-fill employee tax returns.
The ATO is continuing with work with payroll solution providers to ensure that appropriate packages are available to businesses.
More information regarding streamlined reported with Single Touch Payroll
Cyclone Debbie assistance
The ATO has confirmed that refunds will be processed faster for people affected by flooding and other extreme weather caused by cyclone Debbie and ex-cyclone Debbie. Extended lodgement deadlines will also be available for affected taxpayers as well as their agents.
The Commissioner has indicated that there is no need to apply for faster refunds or extended deadlines as the ATO will do this automatically based on postcode information.
The ATO will also suspend debt recovery action until the end of May 2017.
More information regarding tax assistance for people affected by Cyclone debit and ex-cyclone Debbie
Rulings, IDs & determinations
Who is taxed on interest income?
Taxation Determination 2017/11
The ATO has provided updated guidance on the taxation of interest income in situations where funds are held in joint names and also where accounts are operated on behalf of children.
The ATO confirms that the interest income should be taxed in the hands of the person who beneficially owns the money in the account.
When it comes to joint accounts the ATO approach is to split the interest in proportion to the beneficial ownership of the funds in the account. The ATO will assume that joint account holders have an equal share of the money in the account. However, in some cases it may be possible for the parties involved to prove that the funds are not owned in equal shares or that a trust arrangement exists.
If a parent operates an account on behalf of a child this can be shown in the child’s tax return as long as the Commissioner is satisfied that the child beneficially owns the money in the account. There is no need to lodge a separate trust tax return in this case.
More information regarding Taxation Determination 2017/11
Travel costs to visit tax agent
Taxation Determination 2017/8
The ATO has confirmed that it is possible to claim a deduction for the cost of travelling to have a tax return prepared by a registered tax agent. However, the costs need to be apportioned to the extent that the travel relates to another purpose (unless it is merely incidental).
Where the preparation of the tax return is only incidental to another main purpose of the trip, only expenses that are directly attributable to the preparation of the tax return are deductible.
More information regarding Taxation Determination 2017/8
Costs incurred after CGT event
Taxation Determination 2017/10
This TD confirms the ATO’s view that costs incurred after the CGT event occurs can still be taken into account in determining the capital gain or loss on disposal of an asset.
The TD focuses on incidental costs which are included in the second element of cost base. In order for most incidental costs to be taken into account they need to be incurred to acquire a CGT asset or they must relate to a CGT event.
The ATO confirms that just because a cost is incurred after a CGT event has been triggered does not necessarily mean that it hasn’t been incurred in relation to the CGT event.
More information regarding Taxation Determination 2017/10
New FBT thresholds and rates
The ATO has released new thresholds and rates that will apply for the FBT year that began on 1 April 2017. This includes:
- The record keeping exemption, with the threshold now being $8,393;
- The benchmark interest rate for loan benefits and when calculating car fringe benefits using the operating cost method, which is now 5.25%;
- The cents per kilometre rates for motor vehicles that are not cars;
- The reasonable food and drink amounts for living away from home allowance situations; and
- The indexation factors for non-remote housing benefits.
More information
- TD 2017/2 – record keeping exemption
- TD 2017/3 – benchmark interest rate
- TD 2017/4 – cents per kilometre rates
- TD 2017/5 – reasonable food and drink amounts
- TD 2017/6 – indexation factors for housing benefits
Cases
Possible expansion of marriage breakdown rollover relief
Sandini Pty Ltd v Commissioner of Taxation [2017] FCA 287
The Federal Court decision in this case appears to extend the operation of the CGT rollover provisions that can apply in marriage breakdown situations.
The case involved a transfer of shares from a company (acting as trustee of a trust) in accordance with orders made by the Family Court in connection with the breakdown in the marriage between Mr and Ms Ellison. The family Court had basically ordered the trustee to transfer the shares to Ms Ellison.
Following those orders by the Family Court, Ms Ellison directed the shares to be transferred to her family trust. This occurred and the trust which disposed of the shares applied CGT rollover relief under the provisions in Subdivision 126-A ITAA 1997.
The Commissioner took the view that the rollover relief was not available because the shares had not been transferred to an individual who was one of the spouses or former spouses. The rollover relief cannot apply when assets are transferred to another company or trust.
However, the Federal Court held that the rollover relief could apply because:
- Beneficial ownership in the shares passed to Ms Ellison;
- She was a spouse or former spouse; and
- The shares were dealt with for her benefit and in accordance with her directions.
The Court held that the Family Court orders had the effect of triggering CGT event A1 because the making of the Family Court order caused Ms Ellison to become the equitable / beneficial owner of the shares.
While the court held that the rollover relief could apply to the taxpayer trust, there would presumably be a separate CGT event which Ms Ellison would need to take into account when the shares were transferred from her into her family trust.
Legislation
Similar business test and self-assessing intangible asset effective lives
Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017
This Bill contains further measures relating to the Government’s National Innovation and Science Agenda.
Firstly, the Government is introducing a ‘similar business test’ which will operate alongside the existing same business test. The Government is trying to increase access to prior year losses for companies that have changed ownership. The rules are intended to provide companies with the scope to seek opportunities to innovate and grow without losing access to their tax losses. The amendments will apply to income years starting on or after 1 July 2015.
Also, the Bill amends tax provisions to allow taxpayers the ability to a choice to self-assess the effective life of certain intangible depreciating assets that are acquired on or after 1 July 2016. This would include assets such as patents, copyright and registered designs.
Amendments to early stage investor concessions
Treasury Laws Amendment (2017 Measures No. 1) Bill 2017
This Bill has received Royal Assent and is now law.
In broad terms, the Bill ensures that investors who invest through an interposed trust are able to access the CGT concessions provided by the tax incentives for early stage investors and venture capital investment measures.
This change is particularly relevant for those investing in projects through an interposed unit trust. The amendments are designed to ensure that cost base adjustments do not arise under CGT event E4 in the hands of unit holders when they receive a distribution through the trust that is tax-free because of the CGT concessions contained within these rules.
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.
