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Taxation of income for an individual’s fame or image

The Government has released a consultation paper with respect to the implementation of the 2018/19 Federal Budget announcement relating to the direct taxation of an individual’s fame or image at their marginal tax rates.

The proposed reform aims to ensure that all remuneration (including both cash and non-cash benefits) provided for the commercial exploitation of a person’s fame or image will be included in their assessable income.

Editor: These reforms reflect the Government’s concern that high-profile individuals (including sportspersons, actors and other celebrities) have been ‘taking advantage’ of lower tax rates by licencing their fame or image to another (generally related) entity for the purpose of tax-effective income splitting. 

Following the Federal Budget announcement, the ATO withdrew its draft Practical Compliance Guideline PCG 2017/D11 (the ‘draft PCG’).

The draft PCG had set out a 10% safe harbour for apportioning lump sum payments for the provision of a professional sportsperson’s services and the use and exploitation of their ‘public fame’ or ‘image’ under licence.

In withdrawing the draft PCG, the ATO advised that for the period up to 1 July 2019, it will not seek to apply compliance resources to review an arrangement complying with the terms of the draft PCG if it was entered into prior to 24 August 2018 (i.e., being the date the draft PCG was withdrawn).

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MYEFO report

The Mid-Year Economic and Fiscal Outlook (‘MYEFO’) report was recently released.

It indicates that the underlying Budget deficit is expected to be $5.2 billion in 2019 (down from the $14.5 billion deficit estimated in the 2018/19 Federal Budget).

The substantial deficit reduction is reportedly a result of increased tax collections, with individual tax collections up $4.1 billion and company tax collections up $3.4 billion.

Additionally, the MYEFO report also provides a useful snapshot of what the Government is thinking when it comes to tax policy – particularly where previously announced reforms are still pending.

A few tax-related policy updates confirmed in the MYEFO worth mentioning include the following:

  • GST compliance program – The Government is looking to provide $467 million of ATO funding from 2020 to 2024 to fund additional GST-related audits and the development of analytical tools to combat emerging risks to the GST system.
  • $10,000 cash payment limit – The Government will delay the introduction of an economy-wide cash payment limit of $10,000 from the originally proposed 1 July 2019 start date, until 1 July 2020.
  • Abandonment of the proposed changes to intangible asset depreciation – The Government has announced it will not be proceeding with the current proposal to allow taxpayers to self-assess the effective lives of certain intangible depreciating assets.
  • Super access for victims of crimes – The Government proposes to introduce legislation to allow victims of certain crimes (i.e. serious violent crimes) access to their perpetrator’s superannuation to pay any outstanding compensation.
  • Increasing the integrity of limited recourse borrowing arrangements (‘LRBAs’) – The Government is making an adjustment to the previously announced reforms requiring outstanding balances of LRBAs to be included in a member’s total superannuation balance by extending the start date and limiting impacted taxpayers.
  • Superannuation guarantee (‘SG’) penalty increase – Where employers fail to come forward during the 12-month SG amnesty, the Government is proposing to increase the minimum penalty from 50% to 100% of the Superannuation Guarantee Charge.

Editor: Note the required legislative amendments needed to implement the tax concessions promoted by the ATO under the SG amnesty (at the time of writing) is yet to be passed by Parliament. This is despite the fact that the Government’s proposed SG Amnesty is meant to run from 24 May 2018 to 23 May 2019.

tax

Claims for home office expenses increased

The ATO has updated the hourly rate taxpayers can use to determine deductions for home office expenses from 45 cents to 52 cents per hour for individual taxpayers, effective 1 July 2018 (i.e. from the 2019 income year).

According to the ATO’s recently updated PS LA 2001/6, individual taxpayers who claim deductions for either work or business-related home office running expenses may either:

  • claim a deduction for the actual expenses incurred; or
  • calculate the running expenses at the rate of 52 cents per hour.

Taxpayers who use the rate per hour method to claim a deduction for home office running expenses only need to keep a record to show how many hours they work from home.

This reduced substantiation requirement can be recorded either:

  • during the course of the income year; or
  • they can keep a representative four-week diary (where their work from home hours are regular and constant).
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Division 293 assessments

The ATO has been issuing ‘Additional tax on concessional contributions (Division 293) assessments’ with respect to liabilities relating to the 2018 income year.

Division 293 imposes an additional 15% tax on certain concessional (i.e. taxable) superannuation contributions.

It applies to individuals with income and concessional superannuation contributions exceeding the relevant annual threshold.

This means that impacted individuals may ultimately pay 30% tax (when the Division 293 tax is combined with the existing 15% contributions tax) with respect to:

  • superannuation contributions made on their behalf as a result of employer super guarantee obligations or effective salary packaging arrangements; or
  • personal deductible contributions.

The ATO reportedly expects to issue about 90,000 assessments during the first two months of 2019.

Payment needs to be made by the due date to avoid any additional interest charges, although alternative payment methods are available (including the ability to release money from any existing super balances).

Editor: More individuals will receive Division 293 assessments (and be required to pay the additional 15% tax) for the 2018 financial year due to a drop in the applicable threshold from $300,000 to $250,000.

Additionally, one of the key ALP tax policies for the upcoming Federal Election includes a further reduction of this Division 293 threshold from $250,000 to $200,000.

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ATO guidance regarding ‘downsizer contributions’

The ability to make ‘downsizer contributions’ effectively commenced on 1 July 2018, prompting the ATO to release further guidance with respect to this new superannuation contribution classification.

Editor: This new measure will be of most assistance for individuals approaching retirement, where they dispose of their family home in an effort to ‘downsize’ and they want to contribute part or all of the proceeds to superannuation.

Basically, these measures allow older Australians to make a downsizer contribution where:

  • they are aged at least 65;
  • there was consideration received for the disposal of an eligible Australian dwelling;
  • the contract of sale for the property was entered into on or after 1 July 2018;
  • a superannuation contribution is generally made within 90 days of settlement;
  • the contribution does not exceed the lesser of $300,000 and the proceeds received from the sale of the dwelling;
  • an ownership interest in the dwelling had been held for at least 10 years (usually by the individual making the contribution or their spouse);
  • either a full or partial CGT main residence exemption applies to the disposal of the dwelling;
  • a choice to treat the contribution as a downsizer contribution is made in the approved form; and
  • broadly speaking, it is the first downsizer contribution the taxpayer has made.
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Improvements to employee share schemes announced

The Government has announced it intends to introduce legislation to improve the ability of small businesses to offer employee share schemes by simplifying the current regulatory framework, and reducing the time and cost burden for businesses by (amongst other things):

  • increasing the value limit of eligible financial products that can be offered in a 12-month period from $5,000 per employee to $10,000 per employee;
  • creating an exemption for disclosure, licensing, advertising and on-sale obligations in the Corporations Act; and
  • allowing small businesses to offer (in most instances) employee share schemes without publicly disclosing commercially sensitive financial information.
tax

ATO data matching and share transactions

The ATO has extended its data matching program, this time focusing on share data.

The ATO will continue to receive share data from ASIC, including details of the price, quantity and time of individual trades dating back to 2014, with more than 500 million records obtained.

The ATO will use the information to identify taxpayers who have not properly reported the sale or transfer of shares as income or capital gains in their income tax returns.

It seems share transactions are high on the ATO’s priority list, given more than 5 million Australian adults (almost one-third) now own

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External collection agencies to enforce ATO lodgment obligations

The ATO has finalised a trial relating to sending overdue taxpayer lodgment obligations to external collection agencies.

As a result, it may now refer taxpayers to an external collection agency to secure tax return lodgment.

The ATO has stated that it will only refer a taxpayer to an external collection agency where the taxpayer takes no action in response to its initial correspondence letters.

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ATO contact regarding business cars and Fringe Benefits Tax (‘FBT’)

The ATO has recently advised that it will be contacting taxpayers (and tax agents on behalf of their clients) that have been identified as having cars registered in their business name who have not lodged an FBT return.

The ATO has reminded businesses that:

  • a car fringe benefit will occur when a business owns or leases a car and makes it available for an employee’s private travel or use (including garaging the car at or near an employee’s home and making it available for private use); and that
  • business directors are also ’employees’ for FBT purposes.
news-40

ATO to send text messages if bank account details incorrect

The ATO has advised that it will send SMS text messages directly to taxpayers where incorrect bank account details were included in their tax returns and they were entitled to a refund.

The SMS will advise impacted taxpayers that:

  • their refund cannot be processed due to incorrect bank account details; and
  • they should phone the ATO on 13 28 61 to correct their details.

If impacted taxpayers contact the ATO with their correct details within seven days, any refund due will be issued electronically.

Editor: In the wake of an increase in recent tax fraud attempts, it is clear that taxpayers need to exercise additional caution when dealing with electronic messaging from (or purportedly from) the ATO.

The authenticity of ATO correspondence can be verified by calling the ATO on 1800 008 540; however, if you are ever unsure about any correspondence received, please contact our office.