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April 2017

Report tips housing price spikes to wipe out super savings

Declining outright home ownership will effectively wipe out superannuation savings of some Australians, leading to a higher reliance on the government and taxpayers in retirement, according to a recent report.

         

 

The AIST report shows the declining home ownership due to deteriorating affordability will expose the inadequacy of Australia’s retirement income system, should the trend continue. 

Economist Saul Eslake said there is little to suggest the trend will stop, leaving retirees in the next three or four decades in a precarious position.

“An increasing proportion of Australians will reach retirement age having either never attained home ownership or still having at least some mortgage debt outstanding on their homes, which they will then rationally pay off using some or all of their superannuation savings,” Mr Eslake said.

“Failure to address the ongoing deterioration in housing affordability will condemn future generations of Australians to poorer standards of living in retirement, and ultimately result in increased demands for higher levels of financial assistance to retirees, leading in turn to a higher burden of taxation on the diminishing proportion of the Australian population who will still be working.”

Statistics from the ABS show that overall home ownership rates have dipped by 5.5 points since 1966, with nearly half of the drop occurring from 2001.

A more disturbing trend follows those who have ‘outright’ home ownership – those who have paid off their mortgages – from a peak of 61.7 per cent in 1996 to 46.7 per cent in 2014, a drop of 15 points.

“These prospects should encourage Australia’s current generation of political leaders to give more thought to what can and should be done to ameliorate or reverse the long-term decline in home ownership rates among people currently aged between their mid-20s and their mid-50s,” Mr Eslake said.

 

JOTHAM LIAN
Thursday, 30 March 2017
www.smsfadviser.com

New law sheds light on global tax issues

Yesterday, the government passed the Diverted Profits Tax through the Senate, however one of the major accounting bodies has highlighted that multinational tax avoidance is an issue that needs to be dealt with globally.

           

 

The Diverted Profits Tax, which passed through the Senate on Monday, will commence on 1 July 2017 and is expected to raise $100 million in revenue a year from 2018-19.

The Diverted Profits Tax, which was announced in the 2016-17 Budget, targets multinationals that enter into arrangements to divert their Australian profits to offshore-related parties in order to avoid paying Australian tax.

General manager of technical policy at the IPA, Tony Greco, told Accountants Daily that this latest tax is part of a wider crackdown on multinationals.

“This profits diversion tax is one of two or three things done recently. The first was Multinational Anti-Avoidance Law (MAAL), and then there's the Diverted Profits Tax and country-by-country reporting,” Mr Greco said.

“These measures are quite broad, extensive and complex, so one would have to argue that it is a move in the right direction as far as the Australian government is concerned.”

While this is positive, Mr Greco said that this is a global issue that should be dealt with from an Organisation for Economic Co-operation and Development (OECD) level.

“It's what we're going to end up with if every country implements their own rules, then there's potentially going to be problems where a multinational is taxed twice as much in multiple countries under different rules,” he said.

“Ideally we need to fix this on a global basis, but we can't wait for the OECD to finalise its action plans when money's tight and Australia's been running deceits. Everyone's been calling on the government to act, so it has to be done sooner rather than later.”

While waiting for the OECD to make progress, Mr Greco said that Australia is taking these steps to soften the blow.

“While the OECD tries to finalise measures, countries like Australia have decided to preempt some of those base erosion and profit shifting announcements and effectively address the leakage. We all know it’s here,” he said.

“Effectively, they're tightening the net on multinationals because they're structured in such a way where they can avoid tax on their activities. These measures are trying to address that leakage ahead of the BEPS Action Plan coming to fruition.”

 

LARA BULLOCK
Wednesday, 29 March 2017
www.accountantsdaily.com.au

Travel expense and transport of bulky tools claim denied

An individual has been unsuccessful before the Administrative Appeals Tribunal claiming work-related travel expenses. 

           

 

The individual was a sheet metal worker whose home was located some 60 km from his employer’s main work site.  

The worker argued that his employer required him to supply his own tools and that they were too bulky to be transported to work other than by car.  He also submitted that his employer did not provide adequate secure storage facilities for his tools.  In refusing the taxpayer’s claim, the Tribunal noted it was the taxpayer’s own admission that it was his own personal choice to transport his various hand tools out of security concerns.  The Tribunal also said the taxpayer’s security concerns were “not supported by objective evidence”.  The taxpayer’s claim was therefore refused.

The Australian Taxation Office (ATO) reminds individuals that in certain circumstances it will contact employers to verify employees’ claims.  In this case, the ATO contacted the taxpayer’s employer to check his claims, including whether the employer supplied safe storage facilities.

An employer might consider their obligations under workplace agreements or union claims before replying to ATO.  Hence the answer is not what the taxpayers hopes for.

 

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Government to ‘put to bed’ uncertainties with TRIS

As part of its raft of slated changes, the government has foreshadowed a legislative change that will confirm …. 

         

 

…. what the classification of a transition to retirement income stream is where a member has satisfied a full condition of release, says a technical expert.

SuperConcepts general manager of technical services and education Peter Burgess says it looks likely that a legislative change will be made to “ensure a TRIS, which has automatically been converted to an account-based pension because the member has satisfied a full condition of release, will no longer be classified as a TRIS”. 

“This is a common sense move and will ensure these pensions continue to be entitled to an earnings tax exemption post 30 June 2017,” he said.

Mr Burgess said if this change is implemented, it will “put to bed once and for all the argument that once a TRIS always a TRIS”.

Other slated changes in relation to the CGT relief rules for transition to retirement income streams appear consistent with the ATO’s law companion guides.

“In other words, it appears likely that a legislative change will be made so that a segregated TRIS will not be required to transfer amounts to the accumulation phase in order to be eligible for CGT relief,” Mr Burgess said.

As reported by SMSF Adviser last week, Minister for Revenue and Financial Services Kelly O’Dwyer said in a letter that the government intends to “make a number of minor and technical changes to the legislation to ensure that the legislation operates as was intended”.

Ms O’Dwyer said the government plans to legislate the various changes in the winter sittings of Parliament to ensure they are enacted by 1 July 2017.

 

MIRANDA BROWNLEE
Monday, 03 April 2017
www.smsfadviser.com

Troublesome tax system overhaul picks up speed

The Inspector-General of Taxation has revealed the scope of his review into the way taxpayers pay tax on their business or investment income, following a spate of complaints about the inefficiencies with the current system.

           

 

The Inspector-General of Taxation (IGT), Ali Noroozi, announced yesterday terms of reference for his review into the administration of the Pay As You Go (PAYG) instalments system with respect to individual taxpayers. 

The PAYG instalments system requires periodic reporting and prepayment of certain tax liabilities. Individual taxpayers reporting $4,000 or more of gross business and/or investment income are automatically entered into the system.

This system has been the subject of widespread complaints from taxpayers, many of which simply didn’t realise they had been automatically entered into it. These taxpayers had subsequently received tax bills they did not expect.

The volume of complaints directed to this area of the tax system suggests the presence of a systemic issue, which the IGT is charged with identifying. Many have called for a complete overhaul of how the system is administered and communicated. 

One of the likely reasons for this is “relatively poor communication” from the ATO, according to H&R Block’s tax communications director, Mark Chapman.

“A lot of people had ended up in this system and didn’t realise they were in it, so I think there have been issues around the quality and quantity of the ATO’s communications, as well as just a general lack of understanding that this exists,” Mr Chapman said.

This issue has intensified with the advent of the sharing economy, with taxpayers taking on casual work with services such as Uber.

The IGT’s review will focus on the experience of the PAYG instalments system as it applies to individual taxpayers, which makes up 71 per cent of all taxpayers in this system.

In particular, the IGT’s review will address concerns that individual taxpayers are being unnecessarily entered into the PAYG instalments system due to one-off spikes in income, in a particular income year.

The review will also explore the fact that many taxpayers are unaware of automatic entry into the system, having not received appropriate correspondence which may, for example, explain reasons for entry into the system and receiving unexpected tax debts.

Many taxpayers also experience difficulties in varying instalment amounts or lodgement frequency, making payments or exiting the system, all of which may result in tax debt errors or refund delays, which is a matter the IGT will explore.

Finally, the review will look into concerns that taxpayers are receiving unclear ATO communications and guidance on reporting and payment obligations, including how PAYG instalment debts are applied against income tax return assessments as well as how to vary instalment amounts and reporting frequency requirements.

Submissions to the review are open until 30 April 2017. Following that, the IGT will hand down a report outlining his conclusions and a list of recommendations which will be presented to the ATO.

 

KATARINA TAURIAN
Thursday, 30 March 2017
www.accountantsdaily.com.au

Tax debt release applications refused

The Administrative Appeals Tribunal (AAT) has recently refused the applications of two individuals who sought to be released from their tax debts under the tax law.

         

 

Case 1

An individual suffering from Parkinson’s disease had received income protection policy payments and sought to be relieved from the related tax debts, which totaled $130,416. He said he was unable to dispose of his home or an investment property to pay the debts, as there were mortgages over the properties in favour of his wife. The individual also argued that selling the properties would compound his illness and make it more difficult to meet his living needs. The AAT said the taxpayer did not make proper provisions to meet his tax liabilities and preferred to pay his other debts. Accordingly, relief was not granted.

Case 2
A Sunshine Coast real estate agent sought to be relieved from his tax debts, which totalled $437,681. He argued he had an outstanding compliance history and that his circumstances were the result of a catastrophic financial event in 2005.  The Commissioner pointed to the taxpayer’s “unusually high level of discretionary spending, including on holidays, dining out and entertainment, which could be reduced”. The AAT said the taxpayer had a “poor compliance history” and agreed with the Commissioner’s description of his discretionary spending. The AAT was of the view that the taxpayer “simply gave priority to other matters and ignored his tax obligations”. The AAT accordingly refused the application for relief.

 

 

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More ATO downtime looms ahead of tax time

One national accounting network has accepted the need for additional downtime in the wake of the ATO's massive digital crash, but is demanding that the ATO ensures a “robust IT platform” for accountants as we move in to tax time.

             

 

Earlier this month the ATO announced additional system maintenance in order to install its new storage area network, replacing the system that was the cause of the unplanned outages in December 2016 and February 2017. 

The extra downtime includes this weekend, Easter weekend and the first weekend of May.

H&R Block tax communications director Mark Chapman said that while weekend downtime is nothing out of the ordinary, some accountants will feel the impact of these extra outages.

“The ATO is normally very careful to schedule downtime over weekends and also over public holidays, and they do it pretty regularly all throughout the year, so it’s not something that's unusual,” he said.

“Obviously there will be accountants working over the weekend who would be affected by that, but I think it’s fair to say that for the vast majority of accountants, who tend not to work on weekends or holidays, they actually would welcome the ATO going offline at that time because it’s a great deal, more attractive than going down during the working week.”

Mr Chapman said that while the downtime will inconvenience some accountants, the extra maintenance is necessary in the long run.

“We have to recognise that what they're going to do offline is to fix the issues that caused those outages in December and February,” he said.

“That's an absolutely top priority piece of work and if that means that the ATO has to put up the closed sign for a few days over Easter and over a couple of other weekends, then that's a price well worth paying if it means that we'll have stability going forward.”

Moving forward, Mr Chapman said the industry wants the ATO to be able to guarantee that outages such as those in December 2016 and February 2017 won’t happen again.

“The one thing that we want from the ATO now is to see a stable, robust IT platform as we go into tax time,” he said.

“It would've been an absolute disaster if this had happened in July or August, so we just hope that the action that the ATO is taking now will fix the problem once and for all and that we can then look forward to a stress-free tax season.”

 

LARA BULLOCK
Friday, 31 March 2017
www.accountantsdaily.com.au

ATO on ‘aggressive’ debt recovery hunt

The ATO is showing no signs of easing up on its crackdown on companies owing money and pushing them into insolvency if required, with one mid-tier firm citing a recent spike in insolvencies. 

         

 

Last week, solvency and forensic accounting firm Worrells released The Worrells Insolvency Report 2015-16. 

Looking back over the last 10 years, the report showed that the total number of insolvencies in Australia spiked in 2008-09 as a result of the GFC. After remaining steadily high through to 2012-13, the number of insolvencies dropped in 2014-15.

Now, interestingly, the numbers are beginning to spike again, and this is because of the ATO’s crackdown on debt according to Worrells partner Chris Cook.

“There are businesses out there that, if left to their own devices, just sit there in no man’s land with debt owing. So there are businesses, as unfortunate as it is, that sometimes need to look at liquidation as an alternative,” Mr Cook told Accountants Daily.

“The ATO is certainly a lot more aggressive than they used to be, they're a more active debt collector than they used to be. I don't see that necessarily as a bad thing, as long as they are compassionate to the businesses.”

The report showed that the number of applications the ATO lodged with the Federal Court of Australia to wind up a company increased dramatically in May 2015, signalling the beginning of their crackdown.

“The number goes up from April to May [2015] from around 100 up to about 550,” Mr Cook said.

“From there it stays fairly high for six months, then it goes up and down a little bit, and then in June last year, which is where our data finishes for the purposes of this report, it finishes at about 300.”

While the data from June 2016 isn’t available yet, Mr Cook said that the ATO is far from done with its crackdown.

“The ATO is not slowing down at this stage and to be fair, sometimes that needs to happen,” he said.

“I don’t think this is a short term thing. I think the ATO is going to continue with this aggressive debt collection campaign, and I don’t believe that's a bad thing, as long as it’s done properly.”

 

LARA BULLOCK
Wednesday, 22 March 2017
www.accountantsdaily.com.au

FBT Reminder – Odometer Reading

 

Anybody who has a FBT obligation should take an odometer reading of motor vehicles.

           

 

This reading is one of the annual requirements of the logbook method of fringe benefits calculations for the Fringe Benefits Tax period ending 31st March 2017.

Remember also that there are quite a few types of FBT and that Fringe Benefits Tax (FBT) law includes various categories of fringe benefits and specific valuation rules for each category. The list below outlines what needs to be considered.

You will need to pay FBT even if the benefit is provided to an associate of your employee or by a third party under an arrangement with you.

Benefits that attract FBT are:

  • Car fringe benefits
  • Car parking fringe benefits
  • Entertainment and fringe benefits
  • Expense payment fringe benefits
  • Loan fringe benefits
  • Debt waiver fringe benefits
  • Housing fringe benefits
  • Board fringe benefits
  • Living away from home allowance fringe benefits
  • Property fringe benefits (including property, goods or shares)
  • Residual fringe benefits (benefits not covered by the above categories)

 

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