Monthly Archives: July 2014

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Non-profit News – missing charities could lose tax concessions

Some charities which were automatically registered with the Australian Charities and Not-for-profits Commission (ACNC) need to confirm they are still operating by 30 June 2014 because correspondence sent to them has been returned unopened.

 
Charities need to:

  • check that they are not on the ACNC’s list of missing charities
  • inform the ACNC if they are no longer operating
  • provide up-to-date contact details, if they are still operating.

 

If the ACNC does not hear from these charities by 30 June 2014, it will start a process of revoking their registration as charities.
If a charity is not registered with the ACNC, the charity will no longer be entitled to access their charity tax concessions. The Australian Taxation Office (ATO) will revoke their charity endorsement, and remove their endorsement as a charity from the Australian Business Register

Small business assist

Small business assist provides easy access to information for both new and established businesses on a range of topics. You simply type in a question and it will provide tailored information from a range of websites. The information is displayed in an easy-to-read format that allows you to get support at any time.

 
Information can be found on a range of topics including:

  • registering for an Australian business number
  • understanding and registering for GST
  • employer obligations
  • lodging activity statements.

 

Go to the ATO website and search for: Small business assist

Non-commercial losses: exception for primary producers

An exception to the non-commercial loss rules allows net losses from certain primary production business activities to be claimed in the year incurred.

 
If you have a loss from a primary production business and your assessable income from sources not related to that particular business activity is less than $40,000 in an income year, you can claim your loss in that income year. The $40,000 excludes any net capital gains.

 
You do not need to meet the $250,000 income requirement to claim your losses under this exception.

Transferring your super into one account

If you have more than one super account, you may want to consider combining them into one super fund so you pay only one set of fees and charges. It also means you can keep track of your money more easily.
You can register through the ATO online services at www.ato.gov.au and use SuperSeeker to check your super accounts and find any lost or ATO-held super. If you have more than one account and wish to consolidate them, you can also request a transfer from one account to another online.
Before making a decision to transfer your super, it is recommended that you:

 

  • ask your super fund if there are any fees or charges for, or benefits affected by, rolling your money over to another fund
  • speak with a qualified financial adviser.

You can transfer or roll over your super at any time, with some limited exceptions. Your old super fund will generally process your transfer request within three working days of receiving it.
Once your transfer request is completed, your old super fund will send you a rollover benefits statement. Check that it is correct and retain it for your records.

Refer to SuperSeeker for more information.

Using the Small Business Superannuation Clearing House

The Small Business Superannuation Clearing House is a free online super payments service that helps small businesses with 19 or fewer employees meet their super guarantee obligations.

 

Get it done

RegisterExternal Link to use the Small Business Superannuation Clearing House.
If you are already registered, logonExternal Link to use the Small Business Superannuation Clearing House.

 

Find out more

Phone 1300 660 048 for information about the Small Business Superannuation Clearing House.

Understanding tax and SMSFs

SMSFs are subject to income tax but receive concessional treatment if they are complying funds. A complying SMSF’s taxable income is generally taxed at a rate of 15%, compared with 45% for a non-complying fund.
The most common types of assessable income for complying SMSFs are:

However, certain types of SMSF income are taxed at different rates:

A complying SMSF is entitled to claim deductions for expenses, such as the supervisory levy and auditor fees, that are incurred in gaining or producing assessable income.
SMSFs must register for GST if they have a GST turnover of $75,000 or more. Most SMSFs don’t have this much GST turnover and so don’t need to register.

Record keeping in the primary production industry

This fact sheet produced by the ATO sets out what records you need to keep for your daily business transactions if you are a primary producer.

 

What does a typical primary production record keeping system look like?

Income records

  • Use pre-numbered invoices. This helps keep track of all goods and services sold and monitor outstanding accounts.
  • Keep Recipient Created Tax Invoices (RCTIs) issued to you in a systematic manner ie by date order or in alphabetical order.
  • Regularly update and summarise income into a cash receipts book.
  • Maintain a filing system to keep track of paid and unpaid accounts.
  • Perform bank reconciliations between bank statements, invoices issued, RCTIs received and cash receipts book at least monthly.
  • Keep records of any elections or estimates made.
  • Expense records
  • Make payment of expenses by cheque or bank transfer. This helps keep track of allowable deductions.
  • Use separate bank accounts for business and personal use.
  • Use a petty cash system to keep track of minor cash expenses.
  • Record payments to contractors in a secondary record such as a cash payments book. You will need a valid tax invoice if the contractor is registered for goods and services tax (GST) and you wish to claim an input tax credit.
  • If a supplier (including a contractor) does not provide you with an Australian business number (ABN) you must withhold 46.5% from the payment. Otherwise you can ask for a Statement by a supplier (NAT 3346) and you should keep a copy for your records.
  • Maintain a filing system to keep track of paid and unpaid accounts.
  • Keep invoices and file in a systematic manner to keep track of paid and unpaid accounts.
  • Keep documentary evidence to substantiate business expenses. For example, you may need to show how you calculated the business use of your motor vehicle expenses by keeping a log book or other types of documentation depending upon what method you choose.
  • Update and summarise expenditure into cash payments book using cheque butts and invoices regularly.
  • Perform bank reconciliations between payments, bank statements and cash payments book at least monthly.
  • Keep records of any elections or estimates made, for example, private use of business assets.
  • Employee records
  • Ensure a Tax file number declaration (NAT 3092) is completed for each employee when they commence employment. One copy is retained for your records and the other copy forwarded to the Tax Office.
  • Make payments of wages by cheque or bank transfer. This helps keep track of your wages expenses.
  • Record payments to employees in a wages book on a regular basis.
  • The wages book should include such details as
  1. name of employee           hours worked
  2. pay rate                            gross payment
  3. net payment                     amount withheld
  • Superannuation contributions paid.
  • For superannuation guarantee payment purposes, records need to show for each employee/contractor
  1. name of superannuation provider
  2. amount of superannuation paid and how you worked out that amount (also keep records of any information that helped you work out the amount of superannuation you paid – this may include advice from trustees of superannuation funds to which you’re making payments)
  3. dates when contributions were made, and
  4. if you ever incur a superannuation guarantee charge, you also have to keep records of the amount you paid and how you worked out that amount.

The records you have to keep may differ depending on whether or not you pay superannuation under an award. This may include reporting your superannuation payments on your employees’ payslips. For more information, visit fairwork.gov.au

 

  • For choice of superannuation fund purposes, you need to maintain records that show you have offered your eligible employees a choice of superannuation fund. These records include
  1. evidence that shows you provided the Standard choice form to all your eligible employees
  2. the written information your employees provide when they nominate a fund
  3. receipts or other documents issued by the fund showing you have made superannuation payments for your employee to their chosen fund
  4. confirmation that your fund meets the insurance requirements, and
  5. details of employees who do not have to be offered a choice of superannuation fund.
  • For fringe benefits tax purposes, records need to show

 

  1. the taxable value of each fringe benefit provided to each employee
  2. the method of allocating the taxable value of a fringe benefit provided to two or more employees for reportable fringe benefits purposes, and
  3. that 100% of the taxable value of the benefits (other than excluded fringe benefits) has been allocated to employees in their payment summaries.

Information for primary producers 2014

Download a PDF from the ATO website www.ato.gov.au of the Information for primary producers 2014 (284 KB).
This information is to help you claim deductions on your 2014 tax return.

 

Who is a primary producer?

A primary producer is an individual, trust or company carrying on a primary production business alone or in partnership. You are a primary producer if you carry on a business of:

 

    • Cultivating or propagating plants, fungi or their products or parts (including seeds, spores, bulbs and similar things) in any physical environment
    • Maintaining animals for the purpose of selling them or their bodily produce, including natural increase
    • Manufacturing dairy produce from raw material that you produced
    • Conducting operations relating directly to taking or catching fish, turtles, dugong, bêche-de-mer, crustaceans or aquatic molluscs
    • Conducting operations relating directly to taking or culturing pearls or pearl shell
    • Planting or tending trees in a plantation or forest that are intended to be felled
    • Felling trees in a plantation or forest, or
    • Transporting trees or parts of trees that you felled in a plantation or forest to the place
    1. where they are first to be milled or processed, or
    2. from which they are to be transported to the place where they are first to be milled or processed.

 

You need to consider various indicators before you decide if an activity is a business of primary production.   Income tax: am I carrying on a business of primary production? gives a comprehensive explanation of the relevant indicators together with examples of the application of the indicators. You can get this at ato.gov.au

Newsletter: July 2014

Tax debt release on serious hardship grounds refused

In a recent case, the Administrative Appeals Tribunal (AAT) refused an individual’s application to be released from his tax debt of $58,000 on the grounds of serious hardship.
The AAT noted that no explanation was offered for the taxpayer’s failure to meet his tax liabilities as they arose. The AAT said that instead of paying what it considered to be manageable tax assessments, the taxpayer “largely ignored his tax liabilities over the last five or six years, and has allowed the amounts due to accumulate with interest”.
TIP: The Tax Commissioner has a discretion to release individuals from eligible tax debts. However, even if the Commissioner is satisfied that serious hardship would result from payment of the tax debt, he is not obliged to exercise the discretion in the taxpayer’s favour.
Broadly, serious hardship is said to exist when payment of a tax debt would leave an individual unable to provide basic living necessities for themselves and their dependants. Ultimately, it is a question of fact whether payment of an eligible tax liability would result in serious hardship – and the onus is on the taxpayer to prove their case before a tribunal.

 

GST credits for property development project managers denied

Two taxpayers have been denied GST input tax credits they had claimed in respect of purported acquisitions made in relation to property developments. The Commissioner had refused the taxpayers’ claims for input tax credits on the basis that neither taxpayer carried on an enterprise.
The AAT heard from the taxpayers that they were “principal contractors” in relation to the property developments. However, the AAT said that exactly what the “principal contractors” did in respect of the properties remained the subject of “quite profound mystery”.
It said that an entity is not a “project manager” simply because someone says it is. Further, the AAT said that to carry on an enterprise, an entity must “do” something, and that in this case, the AAT was unable to identify the activity that the taxpayers were doing in respect of the properties.
TIP: This case demonstrates the need for multiple parties, and in particular related parties, who are involved in large property development projects to clearly articulate and document the role of each party and the agreements they have with each other, particularly if one party intends to seek GST input tax credits.

 

Individual working overseas not a tax resident

An individual has been successful before the AAT in arguing that he was not a “resident” of Australia for tax purposes for the 2009 and 2010 income years. This was despite being an Australian citizen, maintaining an Australian bank account for his salary, and retaining his house in Queensland.
During the years in question, the taxpayer had signed up with a company to work on a project in Saudi Arabia. The project was expected to last three years and the taxpayer had an expectation that upon completion of the project, he would move on to another project located in Saudi Arabia.
In making various findings of fact, the AAT largely accepted the taxpayer’s evidence. It said that the taxpayer’s presence in Saudi Arabia “was hardly casual or passing”. The AAT accepted that the taxpayer had formed an intention to make Saudi Arabia his home for the duration of the project and beyond.
TIP: This case demonstrates that proving tax residency requires a detailed examination of various facts, and the weighing up of those facts, to come to a conclusion that an individual is (or is not) a tax resident. It also demonstrates the importance of having corroborating evidence to prove the taxpayer’s case.

 

ATO debt collection approach under review

The Inspector-General of Taxation, Mr Ali Noroozi, has announced that he will review the ATO’s approach to debt collection. To facilitate his review, Mr Noroozi has called for interested parties to submit comments. Public consultation closes on 18 July 2014.
“Despite the ATO’s debt assistance programs, its approach to collecting taxes has been a persistent source of taxpayer complaint”, Mr Noroozi said. He noted that the ATO’s approach to collecting debts accounted for 23% of all ATO-related complaints received by the Commonwealth Ombudsman in 2012–2013.
Furthermore, Mr Noroozi said some stakeholders believe that the ATO has recently taken a firmer approach to debt collection despite continuing economic pressures, while others are of the view that the ATO allows debts to accumulate for too long before taking action.

 

New ATO approach to identifying SMSF risks

Trustees of self managed superannuation funds (SMSFs) need to be aware of how the ATO gathers information about them in order for the ATO to assess whether their SMSF poses a tax compliance risk, and how the ATO may respond if it perceives a risk.
The ATO has recently announced that it will take a new risk-based approach to how it treats auditor contravention reports (ACRs). This approach will be based on the overall risk posed by the SMSF. Using new risk models, the ATO will analyse multiple indicators of possible non-compliance, including regulatory and income tax matters, information from the SMSF annual return, ACRs and other data such as trustee and member records. The ATO will then use this information to determine appropriate actions to take regarding each SMSF.
The ATO has also reminded SMSF trustees that from 1 July 2014 it will have more flexibility in how it deals with SMSFs that breach the super law – including new powers to issue penalties. The ATO says that SMSF trustees should therefore rectify any contraventions of the law as soon as possible, or have plans in place by 1 July 2014 to do so.
TIP: While the new SMSF trustee penalties start from 1 July 2014, the ATO has noted that contraventions of the law (such as loans to members or relatives) that exist on 1 July 2014 will come under the new penalty regime.

 

New integrity rule targeting dividend washing

The government has proposed to amend the law to introduce an integrity rule that will curtail taxpayers’ ability to obtain a tax benefit from “dividend washing”.
Broadly, “dividend washing” is a scheme that allows a taxpayer to obtain multiple franking credits in respect of a single economic interest by selling the interest after an entitlement to a franked dividend has accrued and then immediately purchasing an equivalent interest with a further entitlement to a corresponding franked dividend. The amendments, once formally enacted, are proposed to apply with effect from 1 July 2013.

 

Administrator of deceased estate breached duty

 
The Supreme Court of Queensland has ruled that an administrator of a deceased estate breached her fiduciary duty by applying for her deceased son’s superannuation benefits to be paid to her personally, rather than on behalf of his estate.
The Court had granted the woman Letters of Administration over her son’s estate after he died, aged 40, intestate and without a spouse or children. However, she applied to her deceased son’s superannuation funds for any death benefits to be paid to her personally.
The deceased’s father (the woman’s ex-husband) submitted that she had allowed a conflict of interest to occur by seeking the superannuation death benefits for herself personally. In finding against the woman, the Court ordered that she transfer all of the superannuation death benefits in dispute (approximately $450,000) to the son’s estate, where it would be shared equally with her former spouse under the rules of intestacy.