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.
The ATO has published some of the most unusual claims that they disallowed last financial year.
Nearly 700,000 taxpayers claimed almost $2 billion of ‘other’ expenses, but the ATO’s systematic review of claims had found, and disallowed, some very unusual expenses, including:
- claims for Lego sets bought as gifts for children, and sporting equipment or membership fees for their child athletes;
- claims for dental expenses (“believing a nice smile was essential to finding a job”);
- some taxpayers tried to claim the purchase of a brand new car (in excess of $20,000 each!), with one “particularly charitable” taxpayer trying to claim for a car purchased as a gift for their mother;
- one taxpayer made a claim for “the cost of raising twins”, while another claimed for the “cost of raising three children” (and another taxpayer was obviously shocked at the cost of having children, simply stating “New born baby expensive” when making their claim);
- other taxpayers claimed child support payments, private school fees, school uniforms, before school care and other school expenses, as well as health insurance costs and medical expenses; and
- one taxpayer decided to claim the cost of their wedding reception.
The ‘other’ deductions section of the tax return is for expenses incurred in earning income that don’t appear elsewhere on the return — such as income protection and sickness insurance premiums.
The ATO is reminding taxpayers that, in order to claim an ‘other’ deduction, the expenses must be directly related to earning income and they need to have a receipt or record of the expense.
Small business entity (‘SBE’) taxpayers who choose to depreciate their assets under the simplified depreciation rules are entitled to an immediate deduction with respect to low-cost assets in the year they are first used or installed ready for use for a taxable purpose.
Thanks to recent changes, SBE taxpayers may be entitled to an immediate deduction in the 2019 income year for acquiring certain depreciating assets costing up to $30,000 (net of entitlement to GST input tax credits) for assets used or installed ready for use from 7:30pm AEST on 2 April 2019 until 30 June 2019.
Assets acquired prior to 2 April 2019 may also be eligible for immediate write-off, although the thresholds may be lower (e.g., the threshold is $20,000 for assets used or installed ready for use from 1 July 2018 until 28 January 2019, and $25,000 for assets used or installed ready for use from 29 January 2019 until 7:30pm AEST on 2 April 2019).
On top of this, for the first time, medium sized businesses (with an aggregated turnover of less than $50 million) may also be eligible to claim an immediate deduction for acquiring assets from 2 April 2019.
Editor: While helpful, these changes have complicated matters for the 2019 year, so please contact us if you need any help.
The ATO has issued the following reminders to employers, that backpackers on working holidays:
- are considered temporary residents, and are entitled to superannuation guarantee if they are paid $450 or more before tax in a calendar month; and
- who leave Australia can claim the super paid to them as a Departing Australia superannuation payment (‘DASP’), providing all requirements are met.
- Anyone employing backpackers should:
- check they hold a valid visa using the Visa Entitlement Verification Online (‘VEVO’) service;
- use the ATO’s Super guarantee eligibility decision tool to determine if they are eligible for super;
- offer them a choice of super fund if requested, and follow the same steps as for any other worker before they start working for the employer; and
- advise them that they can start their DASP application using the ATO’s free online application system while they are in Australia.
Rental property owners are being warned to ensure their claims are correct this tax time, as the ATO has announced it will double the number of audits scrutinising rental deductions, with a specific focus on:
- over-claimed interest;
- capital works claimed as repairs;
- incorrect apportionment of expenses for holiday homes let out to others; and
- omitted income from accommodation sharing.
Assistant Commissioner Gavin Siebert said:
“A random sample of returns with rental deductions found that nine out of 10 contained an error. We are concerned about the extent of non-compliance in this area and will be looking very closely at claims this year.”
“We use a range of third party information including data from financial institutions, property transactions and rental bonds from all states and territories, and online accommodation booking platforms, in combination with sophisticated analytics to scrutinise every tax return,” Mr Siebert said.
“Once our auditors begin, they may search through even more data including utilities, tolls, social media and other online content to determine whether the taxpayer was entitled to claims they’ve made”.
The number one cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim.
Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.
The ATO has also reminded taxpayers that, since 1 July 2017, they can no longer claim travel expenses related to inspecting, maintaining or collecting rent for a residential rental property, unless they are an “excluded entity”.
The ATO is collecting bulk records from Australian cryptocurrency designated service providers (‘DSPs’) as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax, and correctly meeting their tax (and superannuation) obligations.
The ATO will collect data from cryptocurrency DSPs to identify individuals or businesses who have or may be engaged in buying, selling or transferring cryptocurrency during the 2014/15 to 2019/20 financial years (the ATO estimates that there are between 500,000 to one million Australians that have invested in crypto-assets, including SMSF trustees).
Editor: The ATO has also noted that cryptocurrency can be considered a “high risk, volatile investment”, and they have already seen incidences of SMSFs losing significant amounts of their retirement savings.
They strongly recommend all trustees undertake their own investigation and appropriate due diligence before investing with any organisation investing super assets into cryptocurrency holdings.
The ATO has also reminded employees that how they get their end of financial year information from their employer, showing their earnings for the year, depends on how their employer reports their income, tax and super information to the ATO.
- Employers that are not yet reporting through STP will continue to provide employees with a payment summary by 14 July.
- Employers that report through STP are no longer required to give employees a payment summary; instead this information will be provided in an ‘income statement’, available via the employee’s myGov account by 31 July (i.e., when the employer marks it as ‘Tax Ready’).
Editor: We will be able to access employee clients’ payment summaries or income statement information through our connections with the ATO (this has not changed).
Please contact our office if you have any queries about STP (whether as an employer or employee).
Employers with 19 or fewer employees are required to start reporting through Single Touch Payroll (‘STP’) from 1 July 2019.
The ATO will be working with employers to support them as they transition to STP, including allowing small employers to start reporting any time from 1 July to 30 September (and the ATO will also be “generous” in granting deferrals to small employers who need more time to start STP reporting).
Note also that employers with 19 or less employees do not need to report ‘closely held payees’ in 2019/20 and can report closely held payees information quarterly from 1 July 2020.
Record-keeping exemption threshold
The exemption threshold for the FBT year commencing 1 April 2019 is $8,714 (up from the amount of $8,552 that applied in the previous year).
Benchmark interest rate
The benchmark interest rate for the FBT year commencing on 1 April 2019 is 5.37% per annum (up from the rate of 5.20% that applied for the previous FBT year).
This rate is used to calculate the taxable value of:
n a fringe benefit provided by way of a loan; and
n a car fringe benefit where an employer chooses to value the benefit using the operating cost method.
On 1 April 2019 an employer lends an employee $50,000 for five years at an interest rate of 5% p.a. with interest charged and paid six-monthly, and no principal being repaid until the end of the loan.
The actual interest payable by the employee for the current year is $2,500 (i.e., $50,000 x 5%).
However, the notional interest, with a 5.37% benchmark rate, is $2,685, so the taxable value is $185 (i.e., $2,685 – $2,500).
The ATO has updated its list of ‘What attracts our attention’, with six items that specifically relate to fringe benefits tax (‘FBT’), as follows:
- Failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits.
- Incorrectly calculating car parking fringe benefits due to:
- significantly discounting market valuations;
- using non-commercial parking rates; or
- parking rates not being supported by adequate evidence.
- Mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return.
- Claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising.
- Not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates.
- Not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.