Retirement Plan Scheme: Please very careful

There are a number of schemes currently targeting Australians planning for retirement. Some current examples, the ATO is concerned about, include:

Dividend stripping – Where the shareholders in a private company transfer ownership of their shares to an SMSF so that the company can pay dividends to the SMSF. The purpose being to strip profits from the company in a tax-free form.

Non-arm's length limited recourse borrowing arrangements - When an SMSF trustee undertakes limited recourse borrowing arrangements (LRBA) established or maintained on terms that are not consistent with an arm's length dealing.

Personal services income - Where an individual (usually at pension phase) diverts income earned from personal services to a self-managed superannuation fund (SMSF) where it is concessionally taxed or treated as exempt from tax.

“The ATO wants to play its part in ensuring soon-to-be retiring taxpayers protect their nest eggs. That means working closely with the individuals but also with their trusted advisers. In order to put a stop to these schemes, we are encouraging people to come forward if they believe they are at risk, are already involved in a scheme or believe their clients are.”

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Multinational Company Tax Avoidance

The ATO has released a series of taxpayer alerts cautioning large companies and multinationals seeking to avoid their tax obligations through certain contrived arrangements.

These arrangements relate to offshore permanent establishments, GST and the operation of the Multinational Anti-Avoidance Law (MAAL), and incorrectly calculating debt capital for thin capitalisation purposes.

Deputy Commissioner Jeremy Hirschhorn said the first alert deals with arrangements where Australian consolidated groups use offshore permanent establishments that have entered into intra-group transactions.

“Through these arrangements groups may be understating their true Australian income and claiming deductions incorrectly. The end result is double non-taxation, and in some cases, groups are even claiming further tax relief they’re not entitled to,” Mr Hirschhorn said.

“Taxpayers need to ensure the taxable income returned properly reflects the economic substance and significance of operations carried on, consistent with the arm’s length principle.”

The ATO is already investigating cases using these contrived arrangements, some of which may attract the application of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936), also known as the general anti-avoidance rule.

The ATO is also reviewing structures developed by companies in response to the MAAL which are designed to reduce the amount of GST payable.

“We’re concerned some of these structures have been set up to avoid GST, which is clearly inconsistent with the underlying policy intent of MAAL and the GST Act,” Deputy Commissioner Mark Konza said.

“Companies found to have established these types of contrived arrangements will have to pay back liabilities and may face penalties of up to 75% of tax owed.

“We’re also looking closely at intermediaries who encouraged these arrangements and may consider them promoters of tax exploitation schemes.”

Mr Konza said the ATO is cautioning against the intentional miscalculation of debt capital for the purposes of thin capitalisation rules in a third taxpayer alert released today.

“In some cases, taxpayers are failing to include the value of a debt interest that’s been treated as equity for accounting purposes in their debt capital. As a result, the taxpayer’s adjusted average debt is understated, allowing them to claim more debt deductions than they’re entitled to,” Mr Konza said.

“Taxpayers need to consider the debt capital values used in thin capitalisation calculations carefully. If we think a taxpayer has undervalued debt capital then we will pursue compliance action. Taxpayers may be liable to penalties in addition to paying back any tax owed.

“While most large companies and multinationals do the right thing, some are sailing too close to the wind with these manufactured arrangements. Taxpayers need to ensure they meet the spirit and intent of the law and pay the right amount of tax on income they earn here,” Mr Konza said.

Any taxpayer who has, or is thinking of, entering into the above arrangements should seek independent advice, review their arrangement or discuss their situation with us by emailing PGIAdvice@ato.gov.au

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Avoid errors when completing PAYG instalments raised on the calculation statement for your client's company tax return

You must include the total of the company’s PAYG instalments for the income year at label K of the calculation statement. This is regardless of whether the instalments have actually been paid.

If your client used the instalment amounts worked out by us and did not vary them, use the amounts pre-printed at:

T7 on the company’s quarterly activity statement, or

T5 on its annual instalment activity statement.

If your client did not use the installment amounts worked out by us, use the amounts the company reported at 5A on its activity statements, reduced by any credits it claimed at 5B.

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$11.7 Billion sitting in lost super accounts

With new data revealing $11.7 billion is sitting in lost super accounts, the ATO is encouraging all Australians to reconnect with their super using its online services.

The ATO has today released its latest lost and unclaimed super data. Deputy Commissioner James O’Halloran said the postcode with the highest amount of lost super, totalling $49 million, is the 4740 postcode in Queensland, which covers Mackay and the surrounding suburbs.

“This figure is just a small slice of the lost super across Australia,” Mr O’Halloran said.

“One of our key goals is to reunite individuals with their super and in the past financial year $2.5 billion has been consolidated into active super accounts,” he said.

“You might be surprised. A lot of people who worked casually while they were studying or worked multiple part-time jobs find super they had completely forgotten about.

“While some people purposefully maintain a number of accounts, a lot of Australians are unaware their hard earned super is unnecessarily being eroded away by fees.”

Mr O’Halloran said that super is considered ‘lost’ when a fund is unable to contact the individual and hasn’t received a contribution to an account for five years.

“Members often lose contact with their super funds when they change jobs, move house, or forget to update their details.

“We know that when it comes to big life events, updating your details with your super fund is one of the last things on your mind. One thing you can do is make sure your super fund has your tax file number. It helps us reunite you with your super down the track,” he said.

“You might choose to keep multiple accounts, but to save on fees and charges consider consolidating your multiple super accounts online into the one you prefer.”

“All small lost member accounts with balances of $4,000 or less are transferred to the ATO and become what is called ‘unclaimed super’. Just like lost super, unclaimed and other ATO-held super can be claimed at any time.”

Mr O’Halloran said the ATO was working hard to make it easier for Australians to find their super and has seen excellent results.

“Unlike missing car keys, lost super isn’t hard to find. Over the past couple of years, we have made a lot of changes to our online services that make finding and consolidating your super simpler than ever.

“Once you have linked your myGov account to ATO online services, you will be able to view all your super account details, including any that has been lost or forgotten about.”

“It’s a great time for Australians to check up on their super, particularly if they plan on logging-in to lodge their own tax return using myTax.”

For information on how to manage your super and view all your super accounts including lost and unclaimed super, visit Keeping track of your super

To find out how much lost super is in your postcode and to see other superannuation statistics visit Lost and unclaimed super by postcode

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Tax Help centres open across Australia

Tax Time 2016 is well underway and the ATO’s Tax Help service is once again assisting low-income earners to meet their tax obligations.

Assistant Commissioner Graham Whyte said that 835 volunteers across Australia will be supporting people who need assistance completing their tax returns this year.

“We know that for many Australians doing their own tax return can be a bit difficult, that’s why we have Tax Help,” Mr Whyte said.

Mr Whyte said that Tax Help is a free and confidential service provided by ATO-trained and accredited local volunteers. It is available to individuals with straightforward tax affairs who earned around $50,000 or less for the year.

“Tax Help volunteers can help you complete a simple tax return online with myTax, claim a refund of franking credits, or notify the ATO if you don’t need to lodge a tax return at all.”

Mr Whyte said the Tax Help program is a community service the ATO has provided for many years.

“The Tax Help program was first available in 1988, and has served just over 1.25 million people since,” Mr Whyte said.

“Last year, our volunteers assisted over 37,000 people. So far in 2016, they have helped over 8,700.”

Mr Whyte said that people who are interested in preparing their own tax return can also try out myTax themselves before heading to a Tax Help centre.

“Tax Help is a great service, but you can always try myTax for yourself before making an appointment. In both cases, you will need a myGov account linked to the ATO. Our volunteers will help you create a myGov account if you don’t already have one.

“The great thing about myTax is the personalised experience. It only asks questions that are relevant to you, and pre-fills a lot of information for you.”

Tax Help is available each year until 31 October in all capital cities and many regional areas across Australia. To find out if you are eligible, go to http://ato.gov.au/taxhelp.To find out your nearest Tax Help centre, phone 13 28 61

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Superannuation- The answer is Here

Helping My clients understand their super entitlements can help them secure a better future.

We have three new tools you can use or refer to my clients to work out if they are eligible to be paid super contributions from their employer, and how much. There is also a tool to report employers failing to pay super contributions.

The eligibility tool works out if you are entitled to super guarantee contributions.

The estimate tool calculates your estimated superannuation guarantee amount, based on quarterly earnings.

The complaint tool can be used to report employers who are not paying super contributions correctly.

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Certificate of coverage for super contributions

Do you have business clients who send their employees to work temporarily overseas? Remind them they still need to make super contributions in Australia for those employees.

Your clients or their employees may also have to pay super or social security in the foreign country. A certificate of coverage exempts them from those obligations in countries we have bilateral agreements with.

You can use the automated form on the Tax Agent Portal to request a certificate of coverage on your client's behalf. However, your client needs to grant you access to their certificate of coverage account first. They can do this via Access Manager in the Business Portal.

Once you have access, you can view, change, extend or cancel your clients' submitted applications at any time.

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Find out if your overseas business clients are subject to the transitional rule for GST when supplying digital products and services to Australian consumers

If you have overseas business that supply digital products and services to Australian consumers, let them know they may be subject to the transitional rule for GST.

Products and services include movies, music, apps, games, ebooks, architectural or legal services and more.

The transitional rule applies to your clients who:

meet the registration turnover threshold of A$75,000

supply digital products and services before 1 July 2017 and continue after this date. The portion after 1 July 2017 is subject to GST.

For example, if your client supplied a 12 month subscription in September 2016, they must pay GST on the portion of the sale for July and August 2017.

A simplified system will be available on our website from 1 April 2017 for you or your clients to electronically register, lodge and pay GST.

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Work-related expenses risk profiles

Last year 8.4 million taxpayers claimed a total of $21.3 billion in work-related expenses (WREs). This amount continues to grow.

We know this is an area where taxpayers make mistakes, given that complex rules and individual circumstances make WRE entitlements difficult to understand. While the amounts at an individual level are relatively small, collectively the overall impact is significant.

Improvements in data analytics and modelling allow us to create a risk profile for your practice based on a comparison of your clients’ WRE claims with those made by similar taxpayers.

Over the next few months, we will share these risk profiles with some tax professionals where their clients’ claims appear higher than expected. We recognise that larger than usual claims may be legitimate due to the individualised nature of deductions. By trialling the sharing of risk profiles, we will increase our understanding of practices and gain feedback on the usefulness and accuracy of the risk profile so we can continue to improve it.

Being more transparent about our view of risk is one way we’re working with you to ensure your clients claim the WREs they are entitled to.

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When fencing is damaged or destroyed by bushfire or as a result of back-burning activities, you can claim an immediate deduction for the repair or replacement of the fence.

Amounts you can deduct

Fencing assets

If you incurred capital expenditure on a fencing asset:

from 7.30pm AEST, 12 May 2015 (except if the expenditure relates to a stockyard, pen or portable fence) – deduct the whole amount in the income year in which you incurred the expenditure.

before 7.30pm AEST, 12 May 2015 (or if the expenditure relates to a stockyard, pen or portable fence) – deduct an amount for its decline in value based on its effective life.

Fodder storage assets

If you incurred capital expenditure on a fodder storage asset:

from 7.30pm AEST 12 May 2015 – deduct one-third of the amount in the income year in which you incurred the expenditure, and one-third in each of the following two income years

before 7.30pm AEST 12 May 2015 – deduct an amount for its decline in value based on its effective life.

Partnership expenditure

These deductions are not available to a partnership. Costs incurred by a partnership are allocated to each partner, who can then claim the relevant deduction in respect of their share of the expenditure.

You must reduce your deduction if the asset was not wholly used to carry on a primary production business or for a taxable purpose.

Recouped expenditure

Any expenditure you recoup is included in your assessable income. As the expenditure on fodder storage assets is deductible over three income years, special rules apply to determine the amount of recoupment to include in your assessable income in the year of recoupment, and in later income years.

Second-hand assets

Rules apply on second-hand assets for depreciation and claiming under other provisions.

Depreciating second-hand assets

You can only claim a deduction under the primary production accelerated depreciation rules if no-one else has deducted, or can deduct, an amount for the asset under these rules.

This means that you generally can't claim a deduction for a second-hand fencing asset or fodder storage asset. That is unless you can prove that no one else has deducted (or can deduct) an amount for the asset under these rules.

See also:

Accelerated depreciation for primary producers

Claiming under other provisions

Primary producers who are considered a small business entity may choose to use the small business simplified depreciation rules to claim a deduction for a second-hand fencing asset or fodder storage asset.

If you are not a small business entity and believe you are eligible to claim for second-hand items (including components in otherwise new items), you should apply for a private ruling.

If you aren't eligible to claim a deduction for the second-hand asset under the primary production or small business rules, you can't claim a deduction for the asset at all.

See also:

Small business entity concessions

Private rulings

When you sell an asset

If you sell an asset for which you can claim a deduction under the primary production accelerated depreciation rules, you can continue to claim the deduction if the buyer uses the asset wholly to produce assessable income. This includes any deduction you would be entitled to claim in subsequent years.

You must apportion your deduction if the buyer does not use the asset to produce assessable income. For example, if it is used in a hobby farm or for domestic purposes or if you sell it to a dealer.

When the proceeds are assessable

If you sell an asset for which you have deducted (or can deduct) an amount under the primary production accelerated depreciation rules, the proceeds of the sale are assessable as a capital gain.

The cost base of the asset for capital gains tax purposes does not include any amount that you deducted (or can deduct) under those rules.

Definitions

Fencing asset

The term 'fence' takes its ordinary meaning and includes an enclosure or barrier, usually made of metal or wood, as around or along a field or paddock. A fencing asset includes a structural improvement, a repair of a capital nature, or an alteration, addition or extension, to a fence.

A fencing asset extends to parts or components of a fence including:

posts

rails

wire

droppers

gates

fittings

anchor assemblies.

Fodder storage asset

A fodder storage asset is an asset that is primarily and principally for the purpose of storing fodder.

A fodder storage asset is also a structural improvement, a repair of a capital nature, or an alteration, addition or extension, to an asset or structural improvement, that is primarily and principally for the purpose of storing fodder.

Fodder

Fodder refers to food for livestock, such as grain, hay or silage. It can include liquid feed and supplements, or any feed that could fit into the ordinary meaning of fodder.

'Primarily and principally'

For a fodder storage asset to satisfy the 'primarily and principally' test, its main purpose must be to store fodder.

For example, a shed that is originally built for the purpose of storing hay but is occasionally used to store a neighbour's tractor that is borrowed twice a year may still meet the 'primarily and principally' test. This is because its main purpose is to store fodder. Occasionally storing the neighbour's tractor is insufficient to displace the shed's purpose as primarily and principally to store fodder.

However, if a cotton farmer purchases a silo which is used to store seed not intended for animal consumption, the silo does not meet the 'primarily and principally' test. This is because the main purpose of the silo is not to store fodder.

Where expenditure is incurred for several purposes, the 'primarily and principally' test requires an examination of the primary and principal function of what is produced by incurring the expenditure.

For example, a shed that is originally built for the purpose of storing a tractor but is, in practice, mainly used to store hay may still meet the 'primarily and principally' test. This is because its main purpose is to store fodder.

For dual purpose assets with integrated but separate functions, the primary and principal purpose of the asset must be to store fodder. For example, if an asset is used for both storing fodder and feeding animals, the animal-feeding component must be merely incidental to the asset's primary and principal purpose of storing fodder. It will not meet the requirements of a fodder storage asset if its primary and principal purpose is for feeding animals.

Typical fodder storage assets

Typical examples of fodder storage assets include:

silos

liquid feed supplement storage tanks

bins for storing dried grain

hay sheds

grain storage sheds

above-ground bunkers.

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Superannuation Transfer balance cap

As part of the 2016 Budget, some changes were introduced to make superannuation fairer and more sustainable.

The transfer balance cap applies to the total amount of superannuation that has been transferred into the retirement phase. It does not matter how many accounts you hold these balances in.

The amount of the cap will start at $1.6 million, and will be indexed periodically in $100,000 increments in line with CPI. The amount of indexation you will be entitled to will be calculated proportionally based on the amount of your available cap space. If, at any time, you meet or exceed your cap, you will not be entitled to indexation.

You will be able to make multiple transfers into the retirement phase as long as you have available cap space.

Each individual with superannuation interests in the retirement phase has a personal transfer balance cap. The cap cannot be shared with any other person. To determine your position with respect to the transfer balance cap, you have a transfer balance account. This tracks the net amounts you have transferred to the retirement phase.

The transfer balance account works in a similar way to a bank account. Amounts you transfer to, or are otherwise entitled to receive, from the retirement phase give rise to a credit (increase) in you transfer balance account. Certain transfers out of the retirement phase give rise to a debit (decrease) in your transfer balance account.

The transfer balance cap will affect you if you are currently receiving a pension or annuity income stream that is close to or in excess of the cap, or start a retirement phase income stream after 1 July 2017.

If you are currently receiving a pension or annuity, you will need to speak to your superannuation providers about the likely value of your income stream as at 30 June 2017. Check how you can reduce the value of your income stream before 1 July 2017 to ensure you do not have an excess.

If you will commence a retirement phase income stream after 1 July 2017, you will need to:

ensure that your account based pensions and annuities do not exceed the $1.6 million transfer balance cap

include income from certain lifetime pensions (usually paid from a defined benefit fund) in your income tax return if you are over 60, and may need to pay more tax

ensure that if you have a mix of pension types, with a total value exceeding $1.6 million, you reduce any account based pensions to reduce the total value of all your pensions below the transfer balance cap.

Although there is now a limit on the amount of assets you can transfer into a tax-free retirement phase account, this does not affect the amount of money that you can have in the accumulation phase of a superannuation fund. Any amount of superannuation you have in your fund above the $1.6 million amount can be retained in the accumulation phase and/or be taken as lump sum payments.

About Authors : Swan Partners is a progressive service provider dedicated in providing high quality tax consultancy, accountant in victoria park, bookkeeping service in perth, BAS lodgement service in perth and accounting services to individuals, sole-traders, partnerships, trusts, and companies.

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Practical tips for tax professionals

We have a range of practical tips to help you avoid common errors and get quick and easy explanations on topics of interest.

Tips include:

where to find help using the portals

how to reduce fraud and spot a scam

when to lodge an original tax return or an amendment

how to vary, revise and get activity statements right

what to consider for deceased estates

steps for closing or selling a business.

Some tips detail changes to processes and all link to more detailed information on our website.

About Authors : Swan Partners is a progressive service provider dedicated in providing high quality tax consultancy, accountant in victoria park, bookkeeping service in perth, BAS lodgement service in perth and accounting services to individuals, sole-traders, partnerships, trusts, and companies.

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