Working holiday maker visa holders
The Department of Agriculture and Water Resources has launched a review of issues affecting the supply and taxation of labour performed by working holiday maker visa holders. This includes the proposed ‘backpacker tax’ which was announced in the 2015 Budget, whereby holders of working holiday maker visas would be taxed as non-residents, regardless of their actual intention regarding their proposed stay in Australia. This would mean that these individuals would be taxed at non-resident rates and would not benefit from the tax-free threshold.
Many people have argued that this proposed tax change would reduce the incentives for backpackers to take on roles that are not currently being met by Australian workers.
ASIC cancels the registration SMSF auditors
ASIC sent a final warning at the end of July 2016 to 185 approved SMSF auditors regarding their outstanding annual statements, after having previously advised that their registration would be cancelled if their outstanding statements were not lodged and related fees paid. Approved SMSF auditors normally need to lodge an annual statement with ASIC within 30 days of the annual anniversary of their registration.
Of the SMSF auditors who received final warnings, 133 have had their registrations cancelled because they did not lodge their annual statements.
An unregistered auditor is not permitted to audit an SMSF. A SMSF trustee or member can verify whether their auditor is registered, or has been disqualified, by searching ASIC’s SMSF Auditor register.
From the ATO:
Phoenix Taskforce cracking down on dodgy business behaviour
As part of a cross agency investigation of phoenix activity on the Queensland Gold Coast involving the ATO and Australian Federal Police, six search warrants were executed on 28 July 2016 as part of a criminal investigation into unpaid superannuation, employee withholding, GST and income tax.
This is the latest development in the Government’s efforts to identify and crack down on illegal phoenix activity.
The term phoenix activity refers to the practice of liquidating a company to avoid paying creditors, tax and employment entitlements, but then starting the business again in another entity.
Low risk GST taxpayers
Responding to concerns from privately owned and wealthy group taxpayers who want certainty about their tax obligations as soon as possible, the ATO issued 7,500 assurance notifications to low risk taxpayers in May regarding their GST obligations for their March BAS as part of a pilot program.
The ATO has announced that it will be issuing assurance to 10,000 low risk taxpayers in relation to their GST obligations for the June 2016 quarter during August.
Taxpayers may receive notification if they lodged their BAS and pay on time, are not subject to any current compliance activity and have a low risk rating.
Tax agents should receive an email with a list of their clients who receive a notification from the ATO. No action would be required by the taxpayers or their tax agents in relation to these notifications.
Further assurance notifications will be issued for the September and December quarters.
Rulings, IDs & determinations Disclosure of information collected by the ABR
PS LA 2016/5 – The disclosure of information and documents collected by the Registrar of the Australian Business Register
This practice statement outlines the policy on when information and documentation collected by the Registrar of the Australian Business Register (ABR) can be disclosed and to whom.
Some of the information and documentation collected may be protected by secrecy provisions in the ABN Act and other information may not be.
The Registrar is able to publicly release certain information and once that has occurred, that information is no longer protected information and therefore not subject to the secrecy provisions of the ABN Act. However, there are limited circumstances under which the Registrar is authorised to disclose protected information.
Redemption payments for worker assessable
TD 2016/D1 – Income tax: is a redemption payment received by a worker under the Return to Work Act 2014 (SA) assessable income of the worker?
This draft TD, although specific to a South Australian law, confirms the ATO’s view that a redemption payment relating to weekly compensation payments for an injured worker is ordinary income of the worker and therefore assessable income.
Under the relevant legislation, injured workers are entitled to receive certain ongoing weekly payments. In some cases, a liability to make weekly payments can be redeemed by an agreement between the injured worker and the relevant body (e.g., ReturnToWorkSA). Rather than continuing to receive weekly payments the worker is basically agreeing to receive a lump payment.
The ATO’s view is that these payments are ordinary income of the worker, even though they are paid as a lump sum amount. They represent a recoupment, replacement or compensation for income that would otherwise be derived in the form of weekly payments.
The draft TD specifically states that in a series of private rulings, amounts substantially similar to those covered by this draft TD were accepted as not being assessable income. It is intended that when the final TD is issued, it would only apply to redemption payments made under agreements entered into on or after the date of issue of the draft TD.
Foreign resident partner
TD 2016/D2 – Income tax: can a foreign resident elect to treat their interest in a limited partnership as an interest in a foreign hybrid limited partnership under paragraph 830-10(2)(b) of the Income Tax Assessment Act 1997?
Limited partnerships are generally taxed like companies unless an exemption under Division 830 ITAA 1997 applies. This can result in an entity that qualifies as a ‘foreign hybrid’ being treated like a partnership instead of a company.
While this is a very technical and complex area of the tax law, this draft TD confirms that a foreign resident cannot make an election to treat the limited partnership as a foreign hybrid in relation to their partnership interest.
ESS – a right to acquire beneficial interest
TD 2016/D3 – Income tax: in what circumstances does a contractual right, which is subject to the satisfaction of a condition, become a right to acquire a beneficial interest in a share for the purposes of subsection 83A340(1) of the Income Tax Assessment Act 1997?
This draft determination outlines the Commissioner’s view on the timing of when a taxpayer acquires a right that can potentially be subject to the employee share scheme (ESS) rules.
The ESS rules can apply when an employee acquires shares or a right to acquire shares. This is because the definition of ESS interest includes a right to acquire a beneficial interest in a share in a company. In addition, there are special rules to ensure the ESS provisions are triggered if someone acquires a right which later becomes a right to acquire shares (these are referred to as indeterminate rights).
The focus of this TD is determining the point in time when someone has acquired an interest that could be subject to the ESS rules. The ATO is basically looking for the point in time when the taxpayer has a binding and enforceable contractual right under the relevant arrangement. This will depend on the circumstances and the way the employee share scheme has been structured.
PCG 2016/14 – Discount to the valuation of housing fringe benefits provided by retirement village operators
This PCG confirms that a retirement village operator can apply a 10% valuation discount when calculating the statutory annual value of a live-inmanager’s annual current housing right for the purpose of calculating the taxable value of the housing fringe benefit that has been provided.
The discount value has been determined in consultation with industry to ensure that the taxable value of the benefit reflects the physical characteristics of a live-in manager’s accommodation and the location of that accommodation within a retirement village.
Capital growth payments by retirement village operators
PCG 2016/15 – Effects of the Addendum to Taxation Ruling 2002/14
TR 2002/14 deals with taxation of retirement village operators. On 26 November 2014 an addendum was added to the ruling in connection with the tax treatment of capital growth payments made by retirement village operators to an outgoing resident. The ATO had previously taken the view that these payments were capital in nature. However, the ruling was updated to reflect the decisions in some AAT cases to confirm that the payments are deductible under section 8-1.
This PCG provides guidance to taxpayers who made this type of payment before 26 November 2014. The ATO confirms that taxpayers can choose to either:
- Continue to treat the payments as capital in nature and include them in the cost base of the relevant units / apartments; or
- Treat the payments are deductible and ensure they are not included in the cost base of the relevant units / apartments.
If taxpayers wish to treat payments in prior years as deductible they would need to request an amendment to their tax returns or object to the original assessments. If the time period for doing this has expired, the taxpayers can still lodge an ‘out of time’ objection with the Commissioner, together with a written request asking the
Commissioner to deal with the objection as if it had been lodged on time (refer to PS LA 2003/7 for further guidance on this process).
Cases
SMSF trustee penalised for serious contravention
Deputy Commissioner of Taxation (Taxation) v Rodriguez [2016] FCA 860
The Federal Court has determined that the respondent, a trustee of a SMSF, was in serious contravention of the SIS Act 1993 when he made loans and gave financial assistance, made payments to a member who was not otherwise entitled to payment, withdrew funds from the SMSF for his personal benefit and deprived the fund of significant funds.
Although some funds were later repaid, the respondent failed to ensure that the SMSF was maintained solely for one or more of the specified “core purposes” and one or more of specified “ancillary purposes”.
In addition, he had not prepared the required written plan specifying the amount by which the inhouse assets of the fund exceeded the market value ratio of 5% at the end of each tax year and how he planned to dispose of the in-house assets equal to or greater than the excess amount.
As a result, he was required to pay a penalty of $40,000 to the Commonwealth. In determining the amount of the penalty, the court took the deliberateness and seriousness of the contravention into account, but also the high degree of cooperation given by the respondent, who has been barred from acting as a trustee.
PAYG withholding penalties
T T Lam and HT Ngo and Commissioner of Taxation (Taxation) [2016] AATA 552
The taxpayer, a partnership of two individuals, was subject to an administrative penalty for failure to withhold PAYG amounts under a labour hire agreement during the 2004/2005 to 2008/2009 tax years.
The taxpayer argued that the PAYG withholding rules for labour hire arrangements should not apply because the taxpayer was merely acting as an agent for a farmer who employed the workers.
The AAT was not convinced by this argument, finding that the arrangement fell within the scope of the PAYG withholding rules for labour hire arrangements because:
- The taxpayer was carrying on a business of arranging for workers to perform work for clients of the taxpayer (i.e., a farmer); and
- The payments were made under an arrangement which involved the performance of work or services by the workers directly for a client of the taxpayer.
The penalty for failing to withhold an amount under the PAYG withholding rules is the amount that should have been withheld.
Having concluded that a PAYG withholding obligation arose and was not satisfied by the taxpayer, the AAT considered whether the penalty
should be subject to further remission. The Tribunal held that there was no basis for remitting the penalty further than what had already been done by the Commissioner. Some of the factors which led to this conclusion were:
- The taxpayer’s poor recollection of events;
- A lack of corroborating evidence; and
- The failure to call a former accountant to give evidence.
Timing of GST on barter scheme
Taxology Pty Ltd and Commissioner of Taxation (Taxation) [2016] AATA 565
This case dealt with the timing of GST liabilities in connection with barter scheme arrangements. Broadly, the AAT confirmed that the taxpayer was liable for GST at the time its trade account under the barter scheme was credited and they could not defer the GST liability until a later point in time.
The taxpayer provided professional services to the general public and joined a business membership based barter scheme. The taxpayer wanted to attribute the GST payable on its taxable supplies made under a barter scheme at the time it redeemed its barter trade credits for goods and services.
However, the AAT upheld the Commissioner’s view that the taxpayer was liable for GST in the tax period in which its trade account was credited for the services that were provided. The Tribunal confirmed that the credits represented consideration for the supplies that had been made by the taxpayer.
This is consistent with the ATO’s existing approach in GSTR 2003/14.
Budget Measures
The first two Bills of interest were introduced at the end of August:
Budget Savings (Omnibus) Bill 2016
As the name suggests, this Bill introduces a series of measures announced in the Federal Budget – saving $298.1 million over the forward estimates:
- Minimum repayment income for HELP debts – establishes a new minimum repayment threshold for HELP debts of 2 per cent when a person’s income reaches $51,957 in the 2018-19 income year.
- Indexation of higher education support amounts – changes the annual index used from the Higher Education Grants Index (HEGI) to the CPI, with effect from 1 January 2018.
- Removal of HECS-HELP benefit – discontinues the HECS-HELP benefit from 1 July 2017.
- Removal of the Job commitment bonus.
- Australian Renewable Energy Agency’s finance changes.
- Indexation of private health insurance thresholds – pauses the income thresholds that determine the tiers for the Medicare Levy Surcharge and the Australian Government Rebate on private health insurance at the 2014-15 rates until 202021.
- Abolishing the National Health Performance Authority.
- Aged care – series of changes to how aged care is administered by providers and introduces penalty units.
- Dental services – closes the Child Dental Benefits Schedule and introduces a new scheme.
- Newly arrived resident’s waiting period – aligns the social security waiting period for working age payments for all newly arrived migrants to Australia, except for refugees, former refugees and their family members.
- Student start-up scholarships – repeals the student start-up scholarship payment, from 1 July 2017.
- Interest charge – introduces an interest charge to social security, family assistance (including child care), paid parental leave and student assistance debts.
- Debt recovery – measures to prevent welfare debtors from leaving the country.
- Parental leave payments – includes parental leave payments and dad and partner pay payments in the income test for income support payments.
- Fringe benefits – adjusts the meaning of ‘adjusted fringe benefits total’ for family assistance for income tests.
- Carer allowance – removes backdating.
- Indexation of family tax benefit and parental leave thresholds – maintains the higher income free area for family tax benefit A and the primary earner income limit for FTB Part B for a further three years.
- Pension means testing for aged care residents – aligns the pension means testing arrangements with residential aged care arrangements.
- Employment income – removes the exemption from the income test for a range of benefits.
- Psychiatric confinement – prevents social security payments to someone charged with a serious offense.
- Closing carbon tax compensation to new welfare recipients.
- Rates of R&D tax offset – reduces the rates of the tax offset available under the R&D tax incentive for the first $100 million of eligible expenditure by 1.5%. The higher (refundable) rate of the tax offset will be reduced from 45% to 43.5% and the lower (non-refundable) rates of the tax offset will be reduced from 40% to 38.5%.
- Single touch payroll reporting – a new reporting framework for substantial employers to automatically provide payroll and superannuation information.
- Single appeal path under the Military Rehabilitation and Compensation Act.
Excise Tariff Amendment (Tobacco) Bill 2016
The second Bill introduces four annual increases in tobacco excise duty of 12.5% each, commencing on 1 September 2017. The measure is expected to raise $4,590 million.
Anticipated Bills
It is expected that the following Bills will be introduced to Parliament in the current sitting:
- Treasury Laws Amendment (Enterprise Tax Plan) Bill – to increase the SBE turnover threshold, the unincorporated small business tax discount and the turnover threshold to qualify for the lower company tax rate and an ongoing reduction in the company tax rate over 11 years to 25% in 2026-27
- Treasury Laws Amendment (Income Tax Relief) Bill – to increase the 32.5% personal income tax threshold from $80,000 to $87,000 from 1 July 2016
- Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill – to enable public museums and art galleries to import or acquire cars for public display free of luxury car tax, to allow primary producers to re-enter income averaging ten years after they chose to opt out and to provide the Commissioner with a statutory remedial power to allow for a more timely resolution of certain unforeseen or unintended outcomes in taxation and superannuation law.
If you would like any further information on any of these topics, please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
