fsa-accountants

Measuring the integrity of the ABR

From September, the Australian Business Register (‘ABR’) will contact a random sample of ABN holders across all entity types to:

  • confirm their business information;
  • discuss how they use the ABN, and check their understanding of how ABNs are used;
  • find out about their registration experience and ask for suggestions for how they can improve it; and
  • if applicable, confirm their entitlement to the ABN (although the ABR will not cancel ABNs unless requested).

 

The ABR is trying to understand and improve the experience for clients applying for, maintaining and cancelling an ABN, and will use the information to measure ABR data quality.

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Using the cents per kilometre method

The ‘cents per kilometre’ method broadly allows an individual taxpayer to claim up to a maximum of 5,000 business kilometres per car, per year without the need to keep any written evidence (e.g., receipts) of car expenses.

Importantly, taxpayers making a ‘cents per kilometre’ claim are required to demonstrate that they worked out the number of business kilometres they claimed on a reasonable basis.

Taxpayers claiming under this method will generally fall into one of two categories, being either those who undertake a regular or irregular pattern of work-related travel.

If a taxpayer has a regular pattern of work-related travel (e.g., a 60 kilometre round trip to the warehouse to pick up supplies twice a week, 40 weeks in the year), then this type of explanation would generally be sufficient to justify the claim.

However, if the taxpayer has an irregular pattern of work-related travel, then they would need to make a note (e.g., in a diary) of each trip.

Also, remember that, for the 2019 income year, the rate that is applied (up to the 5,000 business kilometre maximum) is 68 cents (up from 66 cents in 2018) per business kilometre travelled.

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ATO impersonation scam update

Editor: Unbelievably, scammers are still successfully bilking Australians out of tens of thousands of dollars, as a recent ATO scam report shows.

According to the July 2019 ATO impersonation scam report:

  • 6,179 online scam reports were received in the first month of their new online reporting form going live;
  • 6,645 phone scam reports were officially recorded, and 465 phishing scam emails were reported to reportemailfraud@ato.gov.au;
  • 520 taxpayers provided scammers with their personal identifying information including date of birth, tax file number, driver’s licence number and notice of assessment details; and
  • $197,057 was reported as being paid to scammers, mostly by iTunes and Google Play.
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Deductions for a company or trust home-based business

The ATO has reminded taxpayers that, if they run their home-based business as a company or trust, their business should have a genuine, market-rate rental contract (or similar agreement) with the owner of the property.

The agreement will determine which expenses the business pays for and can claim as a deduction.

If there isn’t a genuine rental contract, there may be tax implications for the homeowner and the business for providing benefits to any individuals.

If an individual earns PSI, they may not be able to deduct some occupancy expenses.

If the business pays for or reimburses an employee of the business for some of the expenses of running the business from home, the employee can’t claim a deduction for those expenses in their individual income tax return.

Also, the business may have to pay FBT if it pays or reimburses the individual for certain expenses as an employee (although exemptions and concessions may apply to reduce the FBT liability), and may need to keep additional records for FBT purposes.

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Federal Court provides clarification on the PSI rules

The Federal Court recently handed down two decisions relating to the personal services income (‘PSI’) rules.

Income is classified as PSI when more than 50% of the income received under a contract is for a taxpayer’s labour, skills or expertise.

The PSI rules are integrity provisions which ensure individuals cannot reduce or defer their income tax by (for example) diverting income for their personal services through companies, partnerships or trusts.  If the rules apply, the individual is taxed on the income directly.

The rules do not apply if at least 75% of the individual’s PSI is for producing a result, where the individual supplies all the required ‘tools of trade’ and is liable for rectifying defects in the work (this is known as the ‘results test’).

In the first case, the Federal Court confirmed that the taxpayer did not meet the ‘results test’.

The taxpayer argued that the ‘results test’ is still satisfied even if they do not get paid for achieving a result, provided they can show this is the custom or practice of independent contractors in their industry.

The Federal Court rejected this, agreeing with the ATO’s earlier determination to apply the PSI laws to tax the individual’s contract income as his own income, rather than income split through a partnership with his spouse (which also meant certain deductions were not allowable).

The Federal Court also affirmed the imposition of penalties for recklessness.

However, in the second case, the Federal Court allowed the taxpayer’s appeal from an earlier AAT decision, that he has failed the ‘unrelated clients test’ despite advertising his services on LinkedIn.

The Federal Court found the ATO and AAT had applied an exception for services provided through intermediaries (e.g., recruitment agencies) too broadly, and instead the Court preferred a narrow interpretation of the exception.

This matter has now been referred back to the AAT to be reconsidered, and the ATO has said it will consider this decision and whether an appeal is appropriate.

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$30,000 instant asset write-off

The ATO is reminding businesses that are looking to expand or improve their business and thinking of buying new or second hand assets, that medium sized businesses with a turnover up to $50 million (but at least $10 million) are eligible for the instant asset write-off.

This now applies to assets that cost up to $30,000 and which were purchased and first used or installed ready for use from 7:30pm (AEDT) on 2 April 2019 to 30 June 2020.

Medium sized businesses may purchase and claim a deduction for each asset that costs less than the $30,000 threshold.

For assets over $30,000 the general depreciation rules apply (which may depend on the entity).

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Motor vehicle registries data matching program protocol

The ATO will match the data provided by the State and Territory motor vehicle registering authorities against the ATO’s taxpayer records with the objective of identifying those who may not be meeting their registration, reporting, lodgment and payment obligations.

Details will be requested where records indicate a vehicle has been transferred or newly registered during the 2016/17, 2017/18 and 2018/19 financial years where the purchase price or market value is equal to or exceeds $10,000 (approximately 2 million transactional records a year).

This data will allow compliance checks on luxury car tax, FBT and fuel schemes, as well as identifying higher risk taxpayers with outstanding taxation lodgments, and those with undeclared income or concealing the real accumulation of wealth.

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The ATO hits the road

The ATO plans to visit almost 10,000 businesses this financial year in all States and Territories, across a variety of industries, as part of their strategy to deal with the black economy (they visited nearly 9,000 businesses in the 2018/19 financial year).

According to Assistant Commissioner Peter Holt, there are a number of businesses in some areas not registered for GST or PAYG withholding, which can be a sign of the black economy, as well as a number of businesses with overdue tax returns.

Other black economy signs that the ATO looks out for are things like lifestyle and assets far exceeding reported business income, sham contracting, a failure to provide pay slips, reports that employers are paying their workers cash in hand and keeping them off the books, or a lack of merchant payment facilities like EFTPOS.

Some businesses are more likely than others to get a visit from the ATO, including:

  •     Residential building construction;
  •     Building completion and installation services, and other construction services;
  •     Building cleaning, pest control, and gardening services;
  •     Accommodation;
  •     Pharmaceutical and other store-based retailing;
  •     Automotive repair and maintenance;
  •     Cafes, restaurants, and takeaway food services;
  •     Personal care services;
  •     Legal and accounting services;
  •     Computer system design and related services; and
  •     Adult, community and other education services
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ATO watching for foreign income this Tax Time

The ATO is urging taxpayers who receive any foreign income from investments, family members or working overseas to make sure they report it this tax time.

New international data sharing agreements allow the ATO to track money across borders and identify individuals not meeting their obligations.

“This year, the ATO has received records relating to more than 1.6 million off-shore accounts holding over $100 billion and is now using data-matching and sophisticated analytics to identify foreign income that has not been reported,” Assistant Commissioner Karen Foat said.

The ATO has shared data on financial account information of foreign tax residents with over 65 foreign tax jurisdictions across the globe, including information on account holders, balances, interest and dividend payments, proceeds from the sale of assets, and other income.

In addition to a small number of individuals deliberately engaging in tax avoidance, the ATO is concerned about a large number that are unsure of how to meet their obligations.

“If you’re an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare all of your foreign income no matter how small the amount may be.  This may include income from offshore investments, employment, pensions, business and consulting, or capital gains on overseas assets,” Ms Foat said.

“Even if you have paid tax on the overseas income it must be reported to the ATO, however you may be able to claim a foreign income tax offset to account for any foreign tax paid.”

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ATO guidance regarding incorrect ENCC determinations

The ATO has acknowledged that an incorrect excess non-concessional contribution (‘ENCC’) determination may issue due to a known system issue with the calculation of some SMSF member’s total super balance (‘TSB’).

Editor: Recent super reforms have meant that individuals are restricted from making non-concessional contributions where their TSB equals or exceeds $1.6 million.

This is due to an individual’s pension being incorrectly ‘double counted’ in the calculation of their TSB (which may have occurred where the individual commenced a pension on 30 June 2017 and/or 1 July 2017).

If an incorrect ENCC determination does issue, the ATO advises that there is no need for the SMSF to amend its reporting — an amended determination should issue within 4 weeks.

Editor: If you get one of these, please contact our office and we’ll help sort it out.