gpl_partners gpl_partners

August 2018

Understanding the evolution of blockchain and cryptocurrencies

While it’s unlikely that traditional accounting will be replaced by a blockchain method in the near future, accountants should keep a keen eye for any developments and be prepared to deal with new standards in accounting for cryptocurrencies.

         
 
While bitcoin is arguably the most famous cryptocurrency, it’s far from the only one. There are more than 1,500 cryptocurrencies around the world, and that number continues to grow. Bitcoin, along with many other cryptocurrencies, is based on the distributed ledger known as blockchain.
 
Originally, blockchain was exclusively used with cryptocurrencies, so the terms were commonly interchangeable. Now, blockchain has expanded to include various use cases that centre on validating identity and transactions.
 
This transformative technology has moved beyond buzzword status to become a realistic, viable business technology, so it’s important for accountants to understand how it works and how to account for it. Some even say the impact of distributed ledger technology could be as revolutionary as the internet itself.
 
To understand why, it’s important to define the blockchain. Essentially, it removes the need for intermediaries such as banks to verify transactions. Each ‘block’ in the chain contains a cryptographic hash of the previous block. Because each block depends on the one before it, the transactions can’t be changed retroactively without altering all the subsequent blocks. This makes it practically impossible to fraudulently alter the blockchain without the collusion of all other members.
 
While it’s unlikely that traditional accounting will be replaced by a blockchain method in the near future, the technology does have applications throughout business. Of more immediate interest and debate, however, is the volatility in the value of cryptocurrencies.
 
The value of a cryptocurrency has been proved to be highly susceptible to speculation. For example, one bitcoin is currently worth approximately AUSD$6,000, just six months ago it was valued as high as US$20,000. Having said that, some businesses continue accepting cryptocurrency payments and investing in digital currencies, despite their volatile value.
 
Another challenge regarding cryptocurrencies is in relation to the accounting, classification, and valuation of them for financial reporting purposes. The International Accounting Standards Board (IASB) has not yet issued a standard or clear guidance for accounting of cryptocurrencies. The best guidance available for Australian accountants is possibly the ASAF 2016 Meeting – Digital currency – A case for standard setting activity prepared by the Australian Accounting Standard Board (AASB). It presents a case for setting standards around digital currencies that concluded that digital currencies don’t meet the definition of most classes of assets in the accounting framework, including failing to represent cash, cash equivalents or financial assets.
 
Therefore, it seems likely that the only way to account for digital currencies is as intangible assets. They meet the identifiable criteria of an intangible asset, because they’re sold in units on an exchange. As mentioned above, because they don’t meet cash or cash equivalent definitions, they therefore meet the ‘non-monetary’ element of the criteria for intangible assets. They also have no physical substance, so they meet the criteria on that basis as well.
 
Despite this, the AASB concluded that entities trading with cryptocurrencies would be considered to hold those currencies for sale in the ordinary course of business. They would therefore be excluded from the scope of intangible assets and would have to account for them as inventory.
 
Businesses selling digital currency in the course of business may need to determine whether they’d be considered as a ‘commodity broker-trader’ under the standard. If so, they can’t account for digital currencies as inventory. Instead, they’d need to measure these assets at fair value less the cost to sell them, with changes in the fair value recognised as profit or loss.
 
This lack of clarity means entities will need to develop their own accounting policy to deal with how they recognise, classify, and value cryptocurrencies. That policy should provide guidance on how to account for the digital currencies, depending on the purpose of holding them.
 
For example, if an entity holds digital currencies for investment purposes, then they can be classified as an intangible asset measured at either the cost model or the fair value model (The fair value model could be the most useful way to communicate the value to a stakeholder).
 
Entities can also treat cryptocurrencies as intangible assets if they accept the cryptocurrency as payment for goods or services and will convert it to cash in the short term. However, if the entity holds digital currencies for trading, then they should be accounted for as inventory and measured at fair value less cost to sell, with changes in fair value recognised through profit or loss.
 
While this presents a logical interim approach for accounting for cryptocurrencies, future advancements in standards and definitions could provide a more concrete framework for businesses to adhere to. Accountants should, therefore, keep a watching brief on this area and be prepared to pivot to new standards.
 
 
 
By Rafael Morillo Maldonado
Principal, Audit and Assurance, RSM Australia
www.accountantsdaily.com.au

Salary sacrifice integrity

         

 

Legislation has also been introduced to prevent employers from using an employee’s salary sacrifice contributions to reduce the employer’s own minimum SG contributions.

Some employers who offer salary sacrifice into superannuation, calculate the minimum SG contribution on the “reduced” salary rather than the “package”.

This change would apply to working out employers’ SG shortfalls for quarters beginning on or after 1 July 2018.

 

 

AcctWeb                                                  

ATO issues alert on super, tax scams

Warning:  Identify theft scams 

       

 

The ATO expects to see another spike in scams this tax time, including those that aim to obtain personal data in order to access bank accounts and superannuation.

ATO assistant commissioner Kath Anderson said last year more than 37,000 scam attempts were reported to the ATO during tax time.

“While many people were alert and didn’t fall for the scams, hundreds handed over a total of more than $630,000 and thousands handed over their personal details,” said Ms Anderson.

Ms Anderson said organised crime groups use a range of tactics to trick taxpayers that include asking them to click on a link to divulge their login, personal or financial information or to download a file or open an attachment which enables them to access data.

“Once they have your data, they can either sell it or use it to impersonate you for financial gain,” she said.

“Besides selling it to organised crime groups, identity thieves can use your data to do things like getting a loan or commit fraud in your name, access your bank account and shop using your credit card, access your myGov account, steal your superannuation or sell your house.”

While the most common scam continues to be the ‘fake tax debt’ phone scam, she said, the ATO is seeing an increase in fake refund or refund-for-a-fee scams, and email and SMS scams enticing people to click a hyperlink, download a file or open an attachment.

“While handing over money is a concern, we are just as concerned about people handing over personal or financial information,” she said.

 

Miranda Brownlee
19 July 2018
www.smsfadviser.com

 

Guidance for SMSFs on transfer balance reporting

       

 

The Australian Taxation Office has released further guidance on when SMSFs need to report events affecting their members’ transfer balance accounts (by making a transfer balance account report, or TBAR) for the purposes of the $1.6 million pension cap.

From 1 July 2018, SMSFs that have any members with a total superannuation balance of $1 million or more must report events impacting that member’s transfer balance account within 28 days after the end of the quarter in which the event occurs.

SMSFs where all members have total super balances of less than $1 million can choose to report events which impact their members’ transfer balances at the same time that the fund lodges its annual return.

The guidance also covers reporting requirements for retirement phase income streams and commutations (including commutation authorities).

 

 

AcctWeb

 

ATO dispels top tax time myths to clients as clampdown rolls out

Ahead of one of its biggest deductions crackdowns, the tax office has released a series of common mistakes and misunderstandings taxpayers make at tax time.

       

 

The ATO has identified the top 10 tax myths and misunderstandings it says are causing incorrect claims, off the back of its landmark individuals not in business tax gap report, which purported that 78 per cent of agent-prepared returns required adjustments, contributing to an $8.7-billion tax gap.

Accordingly, one of the myths encountered by the ATO is that tax agents will take responsibility for their clients’ claims.

“Whether you prepare your own return or you use an agent, you are ultimately responsible for ensuring your claims are correct,” ATO assistant commissioner Kath Anderson told taxpayers.

“Even if you use a tax agent, you are ultimately responsible for ensuring the information in your return, including the deductions you claim, is correct. You cannot transfer that responsibility to your agent so make sure you give them complete and accurate information.”

H&R Block director of tax communication Mark Chapman had earlier told Accountants Daily that the ATO needed to adjust its messaging to ensure they were not placing all tax agents in the same basket of ‘bad eggs’.

“The ATO knows the vast majority of tax agents are reliable and low risk and that has not come through in the messaging they’ve put out and I think that messaging needs to be rebalanced.”

Likewise, Change Accountants & Advisors managing director Timothy Munro believes the ATO should reconsider its approach before it risks damaging the reputation of the entire industry.

“Why would the ATO want to come out and denigrate a group of people that's working its hardest on its own behalf,” Mr Munro said.

“The ATO in doing that, will alienate accountants, make them upset and it goes towards ruining the trust that clients have with accountants.”

Top myths

Top of the list is the myth that everyone is entitled to claim a “standard deduction” of $150 for laundry, 5,000 kilometres for cars or $300 for work-related expenses.

“While you don’t need receipts for claims under $300 for work related expenses, $150 for laundry and 5000 kilometres, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim,” said the ATO.

Another popular myth is that bank or credit card statements can be used in place of a receipt , but are unfortunately insufficient in providing enough detail to support the claim.

According to Ms Anderson, some items are claimable for a small number of taxpayers but it’s a myth that the majority can claim.

“There are only a handful of taxpayers with special circumstances who can claim things like gym memberships or makeup containing sunscreen. For most, there isn’t a link to earning their income,” she said.

With more people working from home, Ms Anderson says the ATO is becoming concerned about taxpayers claiming their entire Foxtel or Netflix subscriptions, or their whole phone bill, on the basis that some part relates to earning their income.

Other myths in the top 10 include believing you can claim normal home to work trips; that you can claim plain clothes you wear to work, or claiming hair, clothes and makeup because you have to look good at events; or claiming all holiday travel expenses when only a few days are in relation to a conference or work.

This time last year, mid-tiers like Moore Stephens and HLB Mann Judd shared common client misconceptions to watch out for. You can read more about them here.

 

Jotham Lian
31 July 2018
www.accountantsdaily.com.au