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ATO set to pounce on undisclosed income streams

The ATO has warned that it will be increasing efforts to identify taxpayers who leave out certain payments and foreign income streams, as new international reporting standards kick in this month.

         

 

The tax office said it will strive to recover an annual shortfall of nearly $1.4 billion caused by inpiduals who leave income out of their tax returns, as part of its broader plan to recoup the $8.7 billion inpidual tax gap it revealed earlier this year.

Foreign income sources will be scrutinised, with the Common Reporting Standard (CRS) seeing the first lot of data to be exchanged with over 100 foreign tax authorities on 30 September.

According to the ATO, AUSTRAC data shows that taxpayers most commonly receive foreign funds from countries including the UK, USA, China, Switzerland, Hong Kong, New Zealand and Singapore.

“It’s important that everyone pays their fair share of tax, regardless of whether they earned income in Australia or abroad,” said ATO assistant commissioner Kath Anderson.

“We understand that people make mistakes and can forget to include some of their income. But those who leave out income to avoid paying their fair share of tax should be aware that there can be penalties and interest. Penalties can range from 25 per cent up to 75 per cent of the shortfall, in addition to paying the money owed.

“The most common mistake we see is taxpayers leaving out cash wages. But we are also seeing taxpayers either deliberately or accidentally failing to include income from second jobs, capital gains on cryptocurrency, the sharing economy, the gig economy and foreign-sourced income.”

Speaking to Accountants Daily, BDO partner Mark Molesworth said the implementation of CRS and the notice from the tax office meant accountants should revisit questions around foreign income streams with their clients.

“It will be worth for accountants to specifically ask clients whether they do have any sources of income offshore, any investments offshore,” said Mr Molesworth.

“It would be worth mentioning to clients, without indicating that they disbelieve their clients, that the CRS is now coming in and the data is going to be provided to the tax office, and if there is something that needs to be disclosed, then now would be the time to do it.

“My view is they would be very wise to make a voluntary disclosure and talk to the tax office before the tax office starts talking to them because their powers are broad and can be applied quite harshly, and you tend to get a better hearing from the tax office if you are voluntarily disclosing something to them rather than waiting for them to talk to you.”

 

 

Jotham Lian
19 September 2018
accountantsdaily.com.au

 

Director Penalty Notices

If a company fails to comply with their obligations under the PAYG withholding system or the SGC provisions, company directors can be held personally liable for the amount the company should have paid.

       

 

The Australian Taxation Office can force directors of a company that is unwilling or unable to meet these obligations, to personally pay those debts by issuance of a director penalty notice (DPT), for an amount equal to these amounts.

The first type of DPNs are issued to company directors that have lodged its business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of the due date for lodgement, but the PAYG withholding and/or SGC debts remain unpaid.

Various solutions are possible.

The second type of DPNs are issued to company directors where a company has failed to lodge its business activity statements, instalment activity statements and/or superannuation guarantee statements within three months of their due lodgement date.

The only solution is paying the debt in full.

 

Source:  AcctWeb

Victorian Vacant Property Tax

Residential property tax of 1% of the property’s capital improved value is imposed on vacant properties.

       

 

Properties will be deemed vacant if they are left unoccupied for six months or more in a calendar year.  Exceptions include deceased estates, renovations and holiday homes. It is understood to be enforced by investors self-reporting, but could be checked by utility usage.

If there is no electricity or water consumed on a property, it is reasonable to assume that there is no occupant.  Records of both those utilities are readily available to the taxing authority (State Revenue Office).

The tax is intended to encourage investors to either put their property on the rental market or sell it.

About $2.6 million has been put aside in this year’s Victoria State budget for “implementation” to undertake additional compliance and monitoring activity.

 

Source:  AcctWeb

 

Senate passes $20,000 instant asset write-off extension

Despite months of delays, the Senate has today passed legislation to extend the $20,000 instant asset write-off to 30 June 2019.

         

 

Today, the Senate passed legislation to further extend the threshold for the instant asset write-off to $20,000 for a further 12 months to 30 June 2019, after it was first announced in the federal budget in May.

The announcement by new Treasurer Josh Frydenberg comes after a number of tax measures have been delayed, including notable measures such as the extension of the Single Touch Payroll regime to employers with 19 or fewer employees and the proposed Superannuation Guarantee Amnesty.

Today's announcement comes three months later than the announcement to extend the write-off for FY18 last year.

While the extension would be welcome news to small business owners, there have been calls in the industry to consider broadening the parameters of the measure, including increasing the $20,000 limit or the $10 million turnover threshold, as well as to consider changes such as Labor’s proposed Australian Investment Guarantee.

The Institute of Public Accountants has long advocated for the instant asset write-off to become a permanent feature of the tax regime, noting that small businesses need certainty to reinvest in assets that aid their productivity.

“What should be kept in focus is the positive impact that this initiative has on the broader economy as it incentivises small businesses to reinvest in their future, making way for growth, employment and prosperity,” said IPA chief executive Andrew Conway.

“We fully support a higher instant asset write-off becoming a permanent feature of our tax system going forward. The Henry Review into Australia’s tax system recommended that a higher threshold should apply.

“The need for this initiative to be set in stone, particularly for small businesses, is paramount as it brings an injection of economic growth, giving small businesses the confidence to buy new equipment, reinvest in their operations and grow.”

 

Jotham Lian
12 September 2018
accountantsdaily.com.au

 

ATO zones in on hundreds of newly created reserves

ATO deputy commissioner James O’Halloran

         

 

As part of its ongoing compliance focus on the use of reserves by SMSFs, the ATO will be paying close attention to reserves that were created in the last financial year totalling $65 million.

ATO deputy commissioner James O’Halloran said the ATO estimated that there are approximately 1,900 SMSFs with reserves with an average value of $192,000.

“Of these funds, 35 per cent or 690 have not previously reported reserves. To date, new reserve amounts equate to approximately $65 million, with the average value of these new reserve amounts equalling $95,000,” he said.

Mr O’Halloran said the ATO is closely scrutinizing any unexplained increase in new reserves, increases in the balances of existing reserves, or allocation of amounts from a reserve directly into the retirement phase.

“Our work in the coming year will focus on examining new or increased reserves in the 2016–17 income year, where the facts and circumstances indicate the reserve was used as a means of circumventing the 2016 reforms,” he said.

“Where SMSFs implement strategies using reserves designed to circumvent restrictions in the super and income tax legislation, thereby weakening the integrity of these measures, we will consider the potential application of the sole-purpose test under section 62 of the Superannuation Industry (Supervision) Act 1993 (SISA) and Part IVA of the Income Tax Assessment Act 1936,” he said.

Where an SMSF does have reserves, he said the ATO will be looking to see whether they’re being maintained by a trustee in line with the sole-purpose test.

“Section 62 of SISA requires the trustee of an SMSF to ensure the fund is maintained solely for legislated core or ancillary purposes, most commonly the provision of retirement benefits,” he explained.

Before establishing a reserving strategy, Mr O’Halloran said it was important that SMSF professionals and their clients have carefully reviewed the SMSF’s trust deed to ensure it has the ability to create and manage the limited type of reserves identified as being appropriate in an SMSF.

“In any event, where reserves are kept, the trustee must formulate and put in place a strategy for their prudential management. These must be consistent with the entity’s investment strategy and its ability to discharge its liabilities as and when they fall due as required by paragraph 52B(2)(g) of SISA,” he said.

 

 

Miranda Brownlee
27 September 2018
smsfadviser.com

 

ATO updates crypto guidance

The ATO has updated its guidelines on the tax treatment of cryptocurrencies, including issues on exchanging one cryptocurrency for another and record-keeping requirements.

           

 

In an update on the ATO website following its earlier guidance in July, the tax office has advised that if you carry on a business that involves transacting with cryptocurrency, then trading stock rules apply, rather than capital gains tax (CGT) rules.

Further, following 799 pieces of inpidual feedback and submissions, the ATO has provided additional guidance on the practical issues of exchanging one cryptocurrency for another and the record-keeping requirements.

Some of the issues raised included difficulties in keeping records due to high-volume trades or accessing data required for proper record keeping.

“As part of our research, we discovered low-cost software solutions that would be able to both record each cryptocurrency transaction (including cryptocurrency to cryptocurrency transactions) and convert the value of the proceeds into Australian dollars,” said the ATO in response.

“The software can take information directly from the exchange or a digital wallet and do the calculations, which helps alleviate the issues with recording trades and accessing data.”

According to the tax office, where you exchange one cryptocurrency for another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset.

Taxpayers must compare the CGT cost base of the cryptocurrency item disposed of with the market value of the new cryptocurrency item obtained for all exchange transactions.

The ATO will continue to monitor community feedback and provide updates on new and emerging cryptocurrency risks.

 

Tax&Compliance Reporter
18 September 2018
ccountantsdaily.com.au

 

 

Work-Related Expenses

       

 

This year, the Australian Taxation Office is paying close attention to what people are claiming as ‘other’ work-related expense deductions.

The expectations are:-

  • they spent the money themselves and were not reimbursed
  • the expense was directly related to earning their income
  • they have a record to prove it

If an item (e.g. phone) may be for work and private use, the taxpayer can only claim a deduction for the work-related portion.

Taxpayers are not automatically entitled to claim standard deductions, so need to keep records when incurring expenses or able to provide evidence on how they calculated the claim.

Apps for smartphones are available to keep track of deductions, which can then be emailed for inclusion in the income tax returns.

 

 

Source:  AcctWeb

$20m boost for SME clients looking to exporting

Accountants with SME clients looking for export opportunities have been given a leg up with the launch of a government-funded $20 million program.

         

 

The Small and Medium Enterprises (SME) Export Hubs Initiative, announced in the Budget 2018–19, will fund successful applicants to develop local and regional hubs that will help local firms begin to export.

The initiative will provide matched funding from $150,000 to $1.5 million for up to four years from 2018–19 to 2020–21. Matched funding can come from sources other than the Commonwealth, such as state and local governments and industry.

The grant opportunity will support the establishment and operation of SME export hubs in the six growth centre sectors including, advanced manufacturing; cyber security; food and agribusiness; medical technologies and pharmaceuticals; mining equipment, technology and services; and oil, gas and energy resources.

Minister for Industry, Science and Technology Karen Andrews said the grant would help small and medium local businesses cross certain barriers to export.

“Beginning to export can be challenging but there are massive opportunities for Australian firms to take their products, processes and services to big markets in our region and around the world, increasing revenue and creating new jobs,” Ms Andrews said.

“The hubs will help businesses team up with other firms, and through activities such as developing collective brands, [will] take advantage of local infrastructure to boost business operations and position regional businesses to participate in global supply chains.

“We know that this sort of practical assistance can be invaluable for local businesses.”

Interested businesses can apply by 15 October 2018, with selection delivered through a two-stage competitive selection process. You can view the eligibility criteria here.

 

Jotham Lian
21 September 2018
accountantsdaily.com.au

 

ATO’s corporate residency guidance cops backlash

The tax office’s new approach to determining whether entities are resident under the central management and control test has drawn flak from industry bodies, noting technical issues with the guidance and disagreeing with the interpretation of the law.

         

 

Earlier, Taxation Ruling TR2018/5 was released in its final form, setting the Commissioner of Taxation’s position and the principles governing when a foreign incorporated company will be considered a resident in Australia for tax purposes.

The ruling sets out how to apply the central management and control test of corporate residency, with draft Practical Compliance Guideline PCG 2018/D3 also released to apply the principles set out in the ruling.

However, Chartered Accountants Australia and New Zealand, the Tax Institute, Corporate Tax Association, the Group of 100 and the Business Law Section of the Law Council of Australia have all raised concerns about the draft PCG, with the five bodies banding together to make a submission to the ATO.

Accordingly, the joint bodies disagree with the ATO’s expression of the corporate residency test, noting how it conflates with both the expression in the draft PCG and TR 2018/5.

“The Joint Bodies consider that the test is a two-limb test and that it should be expressed that way in both TR 2018/5 and the Draft PCG.

“The fact that a company has its central management and control in Australia does not necessarily mean it is carrying on business in Australia, although in some factual scenarios it is possible that the very activities of central management and control can be the carrying on of business in Australia.

“The Joint Bodies believe that the interpretation of the corporate residency test adopted by the ATO in both TR 2018/5 and the Draft PCG are incongruous with the policy objectives of the corporate residency test and create uncertainty.”

Further, it notes several technical issues with the draft PCG, including the fact that some foreign incorporated companies may inadvertently meet the residency test, potentially leading to double-taxation if they pay an unfranked dividend.

The joint bodies also note concern over the approach to which the different forms of communication articulated in the draft PCG might ultimate increase red tape and limit business efficiency.

“Distinguishing between video conference, circular resolutions, teleconference and physical presence will tend to create inefficiency and artificiality,” the submission said.

“It may promote situations where an Australian resident director is required to physically travel to the foreign board meeting to avoid central management and control being at least partly in Australia.

“Requiring a minority Australian resident director, or indeed, a number of Australian resident directors to travel overseas to attend board meetings to avoid having a substantial degree of central management and control in Australia is not consistent with a desire to limit ‘red tape’ and to promote business efficiency.”

The joint bodies believe further review of the corporate residency test by the Board of Taxation 12 months after carries “significant merit” and could potentially warrant legislative change.

 

 

Jotham Lian  
08 August 2018
accountantsdaily.com.au

ATO speaks on risk factors, surveillance triggers for FY19

The ATO has outlined key risk factors, behavioural triggers and paper trails that will draw its attention to your client’s SMSF this financial year.

         

 

For the tax office, the SMSF sector has been largely compliant since its birth in the 1990s. However, there are new and ongoing areas marked for surveillance each financial year, which acting assistant commissioner Tara McLachlan ran through earlier this month.

SMSF set-up

The ATO has found some taxpayers continue to see SMSFs as vehicle for early access to their superannuation funds for short-term gain, such as to pay bills or purchase a car. They are often spurred on by promoters who prey on vulnerable pockets of taxpayers.

“These individuals never had any intention of managing their own super and established an SMSF to gain illegal early access to their benefits,” said Ms McLachlan.

There are also schemes in the market which target taxpayers looking to enter the housing market by purchasing a property in their SMSF.

“[Those] schemes operate by pulling on the heartstrings of average Australians struggling to enter the housing market. Retirement savings are targeted by promoting the buying of the property through an SMSF, often with a complicated limited recourse borrowing attached, with no regard to the size of the SMSF or its ability to grow retirement savings,” said Ms McLachlan.

The ATO recently warned professionals and trustees alike of a scam concentrated in Sydney’s western suburbs, targeting those with limited knowledge of the superannuation system to facilitate illegal early access to benefits.

Red flags

There are several factors which could trigger an ATO review in your client’s SMSF registration. They include the behavioural and financial history of each taxpayer, and also the history of their service providers and tax agents.

For the individual, red flags are raised in the ATO’s system where there is bankruptcy, outstanding debts, and whether the taxpayer has links with other problem funds.

As always, the ATO is also concerned by poor lodgment and compliance history, which it heralded on several occasions last financial year during a post-reform clean up.

The ATO is similarly concerned by service providers or tax agents with outstanding debts and a poor lodgment record for its client base. SMSFs associated with these problem professionals are at higher risk of surveillance and compliance activity.

 

Katarina Taurian
30 August 2018
smsfadviser.com

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