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Charities need to lodge Annual Statements

 

A warning from the ACNC about not doing the paper work.

             

 

The Australian Charities & Not-for-profits Commission (ACNC) was recently warned that charities that fail to complete two Annual Information Statements face immediate risk of losing their charity registration.

The ACNC says there are over 2,000 charities which have failed to provide both a 2014 and 2015 Annual Information Statement.  Each charity has been notified that their registration is at risk.  That assumes ACNC have received a current address.

This means they are probably putting at risk their Income Tax Exempt status or their DGR status.

 

AcctWeb

Got your car log book ready?

 

Failing to maintain a valid car log book can cost taxpayers dearly in an ATO audit. 

           

 

The car log book is an important piece of tax substantiation for those who use their vehicle in the course of performing their duties. Most will be familiar with the two main instances where a car log book is required.  

These include:  

  • where the individual is claiming a deduction in their personal tax return for work-related car expenses using the log book method, or 
  • where the individual or their associate has been provided with a car by their employer and is required to maintain a log for fringe benefit tax (FBT) purposes.

Why is a “good” log book important?

Over the last several years, the ATO has undertaken a motor vehicle registry data matching program to assess the overall taxation compliance of individuals and businesses involved in buying and selling motor vehicles.  

The program involves the ATO requesting details from the state and territory motor vehicle registering authorities where a vehicle has been transferred or newly registered and the purchase price or market value is equal to or exceeds $10,000.

FBT compliance under scrutiny

The initial appeal to some family businesses in acquiring a car through a company or trust is understandable. These entities are generally entitled to claim input tax credits under the GST regime, with the maximum credit capped for the GST inclusive cost of cars that exceed the current car limit.  

Notwithstanding this immediate cash flow benefit, the sting in the tail is that some businesses may not be fully aware of their FBT obligations and may be liable to FBT. Through its data matching process, the ATO has identified poor FBT compliance by family businesses that provide newly acquired vehicles to the business owner or their family members.   

Changes to car expense claims make log books critical

Not to long ago, the government recently changed the way that individuals claim their work-related car expenses. These changes include:

  • the cents per kilometre method will use a standard rate of 66 cents per kilometre rather than a rate based on the engine size of the car, and
  • the one-third of actual expenses method and the 12% of original value method were abolished because the ATO found that only 2% of taxpayers used these methods.

With the above changes, greater emphasis has been placed on individuals who travel more than 5,000 business kilometres to maintain a valid log book, if they opt for the log book method.  

The log book method will therefore benefit an individual if their estimated deduction exceeds the figure that would result from the 66 cents per kilometre method. The log book method does however require receipts and a log book to be kept. For some, this may require some diligence!   

There’s an app for that

The ATO’s smartphone app containing the myDeductions tool may solve the record keeping dilemma, as it enables the individual to capture receipts for work-related car expenses as well as to enter information for a log book. And there are other apps that can satisfy the requirements under FBT law.  Users should satisfy themselves that such apps fulfil the requirements under the tax law.

What are the requirements for a valid log book?

The purpose of the log book and accompanying odometer records is to determine the business use percentage of the vehicle. As a general rule, the higher the business-use percentage:

  • under income tax — the greater the deductions that may be claimed for work-related car expenses 
  • under FBT — the lesser the amount of FBT payable for car benefits.

The requirements for maintaining a log book for income tax and FBT purposes are mostly identical, although there are some small differences. The main one is that an FBT log book applies to the relevant FBT year (that is, ending March 31) while an income tax log book applies naturally to an income year (that is, ending June 30).
Things to be mindful of when using a log book include:

  • the log book is valid for five years – after the fifth year, a new log book will need to kept.  A new one can be started at any time (for example, if it no longer reflects the business use)
  • the log book must be kept for at least a continuous 12 week period – note that the year in which the log book is first kept is referred to as the “log book year”; otherwise it is referred to as a “non-log book year”
  • for two or more cars – for income tax, the log book for each car must cover the same period. For FBT, one log book must be maintained for each where multiple cars are provided by an employer
  • the log book must reflect the business use of the vehicle – this can be tricky where there is home to work travel, travel between workplaces, or if the individual’s work is itinerant in nature
  • odometer records must also be kept – this is crucial for working out the total distance travelled during the year and also for the relevant period that the log book is kept.

What information needs to be kept?

Each log book kept must contain the following information:

  • when the log book period begins and ends
  • the car’s odometer readings at the start and end of the log book period
  • the total number of kilometres the car travelled during the log book period
  • the number of kilometres travelled for each journey recorded in the log book (if two or more journeys are made in a row on the same day, this can be recorded as a single journey). The following will need to be recorded:
    • start and finishing times of the journey
    • odometer readings at the start and end of the journey
    • kilometres travelled
    • reason for the journey
  • the business-use percentage for the log book period.
Note: The business-use percentage broadly is the business kilometres for the year divided by the total kilometres travelled (obtained from odometer records).

In the ATO’s view, when recording the purpose of the journey, an entry stating “business” or “miscellaneous business” will not be enough. The entry should sufficiently describe the purpose of the journey so that it can be classified as a business journey. Private travel is not required to be shown, but it may help to include in the records to help with calculations.  

Generally, most odometer records will be kept as part of the log book, showing the starting and closing odometer records for the relevant period. 

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

Scams, fraudsters and viruses

 

Almost every Australian will be aware of the problems trying to complete the online Census on the 9th August 2016.

         

 

One of the excuses was that there was criminal activity to hack the government’s website. 

The Australian Taxation Office, the banks, Australian Securities and Investments Commission and consumer organisations are constantly warning us to be on our guard us to the dangers of unsuspecting criminal activity.

A few more illustrations:-

Your Hotmail account doesn’t work and you look up a help desk on Google.  The first Advertisement to come up has a 1300 number, you call it and there is an $11 charge for their assistance.  By the end of the day the withdrawals can be $2,000, $5,000, what is the limit of your account?  Money gone and now you have to fight with the bank over your naivety.

Are you insulted by this? I hope it means you will remember the illustration.

Consumers are constantly providing credit card details over the phone and every time you do so, you do so at your peril.

The risk is much greater if you have received the phone call, rather than calling a reliable source.

Whilst the victim above might blame Google for false advertising and participating in criminal activity, it reverts to you – be vigilant!!

The old technique was to have people draw cash from their bank, take it to the Australian Post to have it sent to Wells Fargo.  The new scam is even easier!  “We need $500 on an ITunes card.  You buy the ITunes card from the supermarket with your credit card”.  Who cares how you pay for it.  The ITunes card is as good as cash.

As reported in the earlier scam warnings, it almost is at the point where you shouldn’t answer the telephone, nor look up a phone number on any resource connected with the internet.

Another tip.  If you receive an e-mail that looks to be correct check the address it has been sent from before clicking.  It might say it comes from Australia Post, the ATO or the Australian Federal Police but the sending address is nothing like what these organisations might use.  Having said that, be aware of sender addresses that are close.  An example can be a similar name but only .com rather than .com.au.  

If in doubt ring the organisation in question but NEVER NEVER click before you're satisfied.

 

AcctWeb

SMEs at risk of ‘falling foul’ of ATO

 

Confusion this financial year regarding imminent compliance dates, including for SuperStream, is putting SME owners at risk of falling foul of the ATO, accounting software provider MYOB has warned.

             

 

MYOB is urging small business owners to be aware of and comply with the ATO’s October deadlines for withholding tax tables and SuperStream.

The first deadline for SMEs to be aware of falls on 1 October. SMEs that are affected are required to update their withholding tax tables by this date. These changes will not be back-dated, and any tax deducted from 1 July will be balanced out in the individual tax returns, MYOB noted. 

This is in addition to the ATO's regulations for SuperStream. The ATO has provided a deadline extension to 28 October 2016 for small businesses, with 19 or fewer employees, that are not yet SuperStream-ready. However, from 1 November 2016, the ATO will crack down on non-compliant small employers.

“The ATO has announced big changes for SMEs. SMEs are telling us they are confused and unaware of the deadlines set against them, and we encourage them to get clarification from their accountant or bookkeeper,” says James Scollay, general manager of SME solutions, MYOB.

Earlier this year, MYOB research revealed that one third of Australian SMEs were still running the risk of potentially not complying with SuperStream regulations, and one quarter were unaware of the deadline. SMEs now have just over four weeks to meet the ATO regulations.

KATARINA TAURIAN
Tuesday, 20 September 2016
accountantsdaily.com.au

Is there a problem with using your company’s assets for yourself?

 

Assets that belong to your business but that are being used for your own benefit or enjoyment can potentially trigger a tax issue known as “Division 7A”. 

           

 

You have set up running your business in a company to get all the “asset protection” advantages with a corporate veil.  However, being a private company with most of the directors and shareholders being family or friends, company decisions can easily be skewed to benefit individuals.  This may not be intentional as many of you would think of company assets as your own.  However, considering that the corporate tax rate is 30% (or 28.5% in specific circumstances), and the highest individual margin rate is 49%, you can gain some tax relief from this arbitrage. Division 7A is a designed to prevent this tax mischief.  

What’s Division 7A?

Division 7A treats a payment or other benefit provided by a private company to a shareholder (or their associate) as a payment for income tax purposes. This integrity measure can apply even if the recipient treats the transaction as a gift, or a loan, or the waiving of a debt.

The Division 7A net is wide, and may potentially catch many transactions that, in substance, do not involve a distribution of profits, such as using a company’s assets for private enjoyment. This is especially the case since the definition of “payment” was expanded to include the provision of assets.

Division 7A can happen if I use company assets for personal use?

That’s right. Real tangible company assets are usually the biggest exposure that you may have to Division 7A without realising it, and may unintentionally fall out of any discussions you may have with us. 

An example would be a holiday house that is owned by a company but is used by a shareholder of that company. The value of this use, under Division 7A, can be deemed to be a dividend and form part of the shareholder’s assessable income.  There are certain exemptions that can apply however – for example, if the house was being used as a main residence.

Watch out for motor vehicles

Another fairly common example concerns motor vehicles, but they are most likely caught by fringe benefits tax (FBT) rather than Division 7A because those vehicles are typically provided to directors in their capacity as employees despite those directors being shareholders.

One of the results from the ATO’s recent ramping up of its data matching activities has been an increased triggering of both Division 7A and FBT provisions after vehicles registered to businesses were found to be used privately by, respectively, shareholders or employees. 

Other issues to consider when using business assets

If your transactions are subject to Division 7A, you may also need to consider some other areas of tax, such as FBT, issues related to share dividends or family law. 

FBT

Division 7A does not apply to payments made to shareholders or their associates in their capacity as an employee or as an associate of an employee of a private company. However, such payments may be subject to FBT.

On the other hand, Division 7A does apply to loans and debt forgiveness provided to shareholders or their associates, even where such benefits are provided in their capacity as an employee or as an associate of an employee. To avoid double taxation, such benefits are not subject to FBT.

Dividend imputation, franking credits

Payments and other benefits taken to be Division 7A dividends are generally unfrankable distributions unless they are provided under a family law obligation. However the ATO has a general discretion to allow a Division 7A dividend to be frankable if it arises because of an honest mistake or inadvertent omission.

Family law

Payments and other benefits provided by a private company to shareholders or their associates as a result of divorce or other relationship breakdowns may be treated as Division 7A dividends and are assessable income of the recipient.  However such payments or other benefits are treated as frankable dividends if provided under a family law obligation, such as a court order, a maintenance agreement approved by a court under the family law act or court orders relating to a de facto marriage breakdown.

Tax & Super Australia 
www.taxandsuperaustralia.com.au

Domestic (non-marital) Relationships

 

As a generalisation and without wanting to venture into legal areas, a domestic partnership is ….

…. a relationship between two adults who are not married to each other, but who are a couple (irrespective of gender or whether they live under the same roof) where one or both provided personal or financial commitment and support of a domestic nature for the material benefit of the other.  

           

 

Each State has its own rules.  In Victoria the Relationships Act 2008 says all of the circumstances of the relationship need to be examined.

  • The duration of the relationship
  • The nature and extent of a common residence
  • The degree of financial dependence or interdependence
  • The degree of mutual commitment to a shared life
  • Whether or not a sexual relationship exists
  • The ownership, used and acquisition of property
  • The care and support of children
  • The public view and reputation of the relationship

Paid carers are not included.

Proving or not providing a Domestic Relationship is time consuming and expensive.  There is no express requirement that the relationship is exclusive.  This has become important for financial planners and lawyers and testators because a deceased person owes their domestic partner a responsibility to make adequate and proper provision of them in the Wills.

A tax agent often asks whether there is a joint health insurance policy to prompt taxpayers to think about this examination.

AcctWeb

What does the new withholding tax mean for your clients?

 

It's important to be across the new “non-final withholding tax regime” came into effect on 1 July 2016, potentially impacting anyone buying or selling property.

             

 

The new regime is aimed at foreign residents who sell Australian property, requiring 10 percent of the sale price to be withheld. 

It is a significant change in tax law and applies to real estate; interests in Australian entities whose majority assets consist of real estate; and options or rights to acquire such interests.

Perhaps the key aspect of the new tax is that it effectively shifts the tax collection and remittance of the 10 percent withholding tax to purchasers of property.

While it does not apply to the sale of properties with a market value under $2 million or shares listed on an approved stock exchange, it still has a number of implications for both Australian and foreign vendors and purchasers of real estate if not managed appropriately.

Purchasers

Anyone who purchases property from foreign residents will potentially be obliged to act as “tax collector” on behalf of the Australian government.

Accordingly, we expect many purchasers to demand a “clearance certificate” from vendors prior to settlement, to prove the vendor is an Australian resident, or else an approved ATO variation notice if the vendor is a foreign resident but believes the withholding tax is inappropriate in their situation.

If the 10 percent withholding tax is applicable, purchasers will be required to complete an online ‘Purchaser Payment Notification’ form to provide details of the vendor, purchaser and the asset being remitted to the ATO.

Purchasers must pay the withheld amount on or before settlement.

Vendors

Australian residents

Australian residents may need to provide proof to a purchaser that they are not a foreign resident and therefore not liable for the withholding tax.

The ATO can provide a ‘clearance certificate’ which vendors can give to prospective purchasers to confirm their Australian residency status.

Clearance certificates are valid for 12 months and people can apply for one at any time they are considering selling their property, including prior to listing for sale. With sufficient planning, we would recommend this as the preferred approach.

Foreign residents

Foreign residents subject to the new withholding tax requirements can apply for a variation to reduce the amount of the tax if they believe that 10 percent is inappropriate (for example because the property will be sold at a capital loss). This variation can be done via an on-line form from the ATO.

It is important the notice of variation is provided to the purchaser before settlement to ensure the reduced withholding rate applies.

In addition, this new regime operates as a “non–final withholding tax.” This means foreign residents are still required to submit an Australian tax return reflecting the sale of the property and the 10 percent amount withheld will be factored into the final tax payable (or refundable) to vendors.

 

Josh Chye, HLB Mann Judd
Tuesday, 13 September 2016
Accountantsdaily.com.au

Change to salary sacrifice

 

Changes to salary sacrificed “meal entertainment” benefits

         

 

Changes will apply from 1 April 2016 for non-for-profit employees who salary sacrifice “meal entertainment” and “entertainment facility leasing expenses”.

The new law limits the amount that employees can salary sacrifice by introducing a single grossed-up cap of $5,000.

Until 31st March 2016, employees of eligible not-for-profit organisations were entitled to salary sacrifice meal entertainment benefits with no FBT payable by the employer and without it being reported.  Employees of rebatable not-for-profit organisations can also salary sacrifice meal entertainment benefits, but such employers only receive a partial FBT rebate.  If an employee has not scaled back their meal entertainment expenditure since April 2016, speak to your employer immediately.

Is the hype around the new super changes warranted or simply codswallop?

 

There has been a lot of media coverage regarding the superannuation law changes proposed in the recent federal Budget. 

There is even the suggestion that the government was “punished” in the recent election as a result of these proposed changes. But is all the hype warranted or is it based on ignorance?

           

 

In my view, much of the media coverage has been based on emotional hype, tugging on the heart strings that the government is somehow taking money off struggling pensioners. But if we delve into exactly what is being proposed, that’s not entirely the case. 

The $1.6m cap

Much has been made of the move to limit the amount of money a retiree can have in superannuation to $1.6m and pay no tax when in pension phase. The hype around this, in my opinion, is absolute codswallop.

According to ATO statistics, the average size of a self-managed super fund (SMSF) is around $1m and consists of two members – usually this is your average “mum and dad” super fund. This means the average individual SMSF balance is around $500k – a long way short of $1.6m.

One point that has been lost in all the media hype is the fact that the $1.6m limit is per member, not per fund, meaning an average “mum and dad” joint fund could have $3.2m in it before this change becomes an issue.

I suspect the number of joint funds with more than $3.2m in them will not be that high but even for those in that category; the earnings on the $3.2m will still be exempt from tax when in pension phase. It is only the income earned on the excess above the $3.2m fund balance that is taxable and even then it is only taxable at 15 per cent (or 10 per cent for capital gains). Even low income taxpayers earning over $18,200 pay a marginal tax rate of 19 per cent, which is higher than the 15 per cent that someone would pay on a fund balance of over $3.2m.

Given that the broad intent of compulsory super is to reduce dependence on the government to fund the age pension, in my opinion, the above mentioned change is not unreasonable. And according to the government’s budget papers, this change should impact only 1 per cent of super fund members.

That is not to say that I don’t think the proposed changes will result in some retrospective tax implications. There are bound to be some and those who will be affected will need to obtain professional advice in order to manage this.

Reducing the super contribution cap

The move to limit the maximum deductible super contribution limit to $25,000 – down from $35,000 (for those over 50) and $30,000 (for those under 50) is of serious concern to me, primarily because it appears to ignore business owners. Most business owners that I have worked with over the last thirty years invariably reinvest all their available cash back into growing their business; this is in addition to paying off their home loan and educating their children. For most people, the financial pressure of paying off mortgages and Uni fees doesn’t ease until well into their forties. Often, business owners don’t draw a full salary so don’t get the benefit of the 9.5 per cent compulsory superannuation guarantee levy (SGC).

It is only by the time they reach their fifties that they are in a financial position to contribute significantly into super and make up for the lack of opportunity in earlier years. The budget papers argue that this change will affect only 3 per cent of super fund members, however, I believe it will impact a significant number of business owners. After all, if the government is going to impose a $1.6m cap on the amount that can be concessionally taxed, why does it matter what the contribution limit is?

On the other side of the fence, I applaud the proposed changes to allow “catch up” contributions for unused caps over five years for those with a fund balance of less than $500k.

The $500k non-concessional contribution cap

Another proposed change is to limit the maximum amount a member can contribute to the fund and not obtain a tax deduction for. Previously, this was $180k per annum with no cap over your lifetime. In addition, you could “bring forward” up to three years contributions and make one contribution of $540k and repeat this every three years.

It is now proposed that there be a lifetime cap of $500k and that this includes all such contributions made, backdated to 2007. There will be no adverse consequences if contributions in excess of the $500k cap have already been made prior to budget night. However, if you have already exceeded the $500k contribution cap prior to budget night, then no further contributions will be allowed. This could result in unforeseen consequences (e.g. if future contributions were to be made in order to clear debt in the super fund). Hopefully the government will consider these implications as part of their “transitional measures”.
The government budget papers argue that less than 1% of super fund members will be affected by the change. Once again, I believe the business community has been forgotten about and that a significantly higher number of business owners will be affected.

For the reasons mentioned earlier, business owners often reinvest most of their wealth back into growing their business. Over the years I have seen a number of business owners with minimal wealth inside super, albeit that they may have accumulated some wealth outside of super. They will now be denied the opportunity to shift this into super to fund their retirement.

To conclude

In my opinion, much of the hype around the proposed changes has more to do with emotion than logic due to a lack of understanding of the proposed changes. None of the proposed changes in super will affect your average Joe, your average parents or grandparents; however, there could be serious consequences for small business owners. Considering 99.7% of actively trading businesses in Australia are classified as SMEs*, these changes could affect over 2 million business owners, so the media hype is warranted, it’s just directed at the wrong people.

 

GRANT FIELD
Wednesday, 03 August 2016
accountantsdaily.com.au

 

Locking Up Bank Accounts

 

It seems that banks are being drawn in into financial disputes with couples.  And they are responding somewhat predictability.

         

 

If any joint account holder tells the bank, or the bank find out that the joint account holders are in dispute, they may ‘block’ access to the account.

This means that no-one will be able to withdraw funds from the account.  That means that no expenses can be paid from that account – not even joint household costs.

Deposits to the account may continue. 

The bank will continue to pay interest on the credit balance in the account.  The bank will only ‘unblock’ access to the account when they receive authorisation from all account holders.

Turmoil results.  And in a protracted divorce or dispute funds would be locked up for a very long period.

 

 

 

 

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