Monthly Archives: July 2015

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Issue of Shared Residency

Mr Shard worked overseas as an oilfield diver or supervisor on offshore platforms, barges and other vessels and derived income from foreign sources for that work.


From 1999 to August 2010, he worked various foreign companies overseas. He lodged an income tax return for 1999 in which he identified himself as a ‘non-resident’. He did not lodge income tax returns for 2000 to 2011.


In July 2011 he began working for an Australian company in Australia and applied for a TFN identifying himself as a resident.


In November 2011 he was sent a reminder to lodge his returns for 2000 to 2011, and was apparently advised of a review. He was sent a questionnaire in December 2011 that he returned in February 2012.


In the questionnaire he set out that he did not consider himself a resident between 2000 and 2011 as he had received a 1999 notice of assessment issued by a Deputy Commissioner which as additional information stated ‘ You have been deemed to be a non-resident of Australia for income tax purposes – no tax-free threshold is available to non-residents. If your residency status has changed, please read the information on residency in TaxPack.’ In addition to this, Mr Shard stated to the AAT that he had received written advice from a tax officer in 1998 that he was a non-resident for tax purposes. He was unable to provide evidence of this advice in the AAT and some of his evidence on this point was contradictory.


In the questionnaire he said that he considered his permanent home to be the UK, where he and his parents were born. He owned a house in Australia that his spouse lives in that he acquired in 1999, as well as a rental property that he acquired in 1991.


Mr Shard had married his current Australian wife in 1992 and he has been an Australian citizen since 2004.


When in Australia he resided at the property he owned with his wife. All his pay from his overseas employment was banked into his Australian home loan account. Mr Shard was able to provide no evidence of a home being maintained overseas, though he had some mail sent to UK addresses, being properties where he stayed while in the UK visiting family.


In October 2012 the ATO asked Mr Shard to lodge returns for 2006 – 2011 and while still under audit he did, but as a non-resident. The ATO in May 2013 issued amended assessments treating him as a resident. The tax, penalties and interest resulting from the amended assessments amounted to approximately $300,000. Penalties were imposed at the level of 50%.





Amongst the issues considered by the Tribunal were:


  1. Was he a resident of Australia according to ordinary concepts, and if no,
  2. Was his home in Australia, and if so, did he have a permanent place of residence overseas?
  3. Should the penalties and interest be remitted?





The Tribunal had little difficulty, given Mr Shard’s pattern of movements between 2005 and 2009 and in particular in 2010 and 2011 in treating him as a resident according to ordinary concepts. The Tribunal appears to have taken into account the fact that he had no offshore assets, that he transferred all of his employment income to Australia, that on outgoing passenger cards on trips to the UK he said he was going on ‘holiday’ (as opposed to back to a home there), outgoing and incoming passenger cards where he said he was a resident, that he maintained health insurance in Australia, and that he had a 23 year relationship with his wife, who he lived with when in Australia.


He was said to have maintained a ‘continuity of association’ with Australia throughout the relevant period and Mr Shard had claimed to have ‘let go’ of Australia in 1999, the relevant facts and evidence proved otherwise: Hafza v Director-General of Social Secur ty [1985] FCA 164.


The AAT also considered that Australia was Mr Shard’s ‘home of choice’ throughout the relevant period. He did not prove that any other home replaced Australia as his ‘home of choice’ at any time in the relevant period. With Australia as his home he could still be a non-resident if he had a permanent place of residence outside of Australia, but none of his places of work represented such a permanent place of residence, nor did the places he stayed while in the UK, on the balance of probabilities.


In relation to penalties the AAT was not satisfied that Mr Shard ever received advice from the ATO in 1998 that he was a non-resident, but that even if he had, it was reckless to rely on this advice some 8 to 13 years later and the penalties were maintained at their 50% level.


Citation Re Shard and FCT [2015] AATA 355 (Senior Member CR Walsh, Perth)


Thousands of not for profit organisations are struggling to keep the doors open following the tightening of funding, including the Federal Government’s decision to cut $271 million from the Department of Social Services (DSS) Discretionary Grants Program over the next four years.


Without core Government funding, Australia’s capacity to support the charitable services sector will be severely impacted while the need for these services remains unchanged, if not increasing.


Family, health, emergency relief, sport and housing services, as well as policy and advocacy are just some of the areas where not for profit organisations try to meet the community need.


With the State Governments unable to make up the funding shortfall; not for profits seeking funding from other avenues must stand out from the crowd. To achieve this requires a shift in mind-set.


NFPs need to think and behave more like a commercial business to compete for public support and funding. Commercial businesses know that they need to strike a balance between short term results and long-term sustainability.


Working with community based not for profits, we have seen the benefits of adopting a commercially focused approach within an NFP.


An important lesson from the commercial world is the need to become more nimble and customer orientated.


The Government grant application process is traditionally very academic. NFPs prepare a substantial treatise with multiple references to legislative and economic impacts. What a grant application often lacks however is a clear value proposition for the end user.


In today’s environment, NFPs need the ability to package up their value proposition very quickly and succinctly as often they are looking for funding from multiple small donors. Most NFPs do not have the corporate marketing skill set to deal with this.


Five key principles from the commercial sector that NFPs should consider in their business model:
1. Demonstrate value to community funders
Commercial organisations that rely on continued shareholder support tend to have very astute corporate affairs teams. NFPs need to communicate their value through all channels, including annual reports. Step away from a focus on costs and minimum disclosures and demonstrate the value the organisation brings to the wider community. Real life examples and data supporting where funding is spent can help achieve this.


2. De-risk income streams
Look for ways to reduce dependence on one or two key income sources. For example, a women’s refuge may secure a corporate sponsorship to fund their everyday back office function, allowing 100% of funds raised from the public to go directly to helping vulnerable Australians.


3. Take advantage of partnerships
Corporate mergers can offer a number of benefits including economies of scale, greater market reach and security of funding. While a merger may be off the table for an NFP – the benefits are not. NFPs can reap these benefits by partnering with a complementary organisation.


4. Plan for the long term
Corporations plan for the long term. All too often, NFPs focus on the next grant funding cycle or annual membership drive. NFPs need to start thinking about what sort of organisation they need to be to respond to competitive and social pressures over the next 5-10 years.


5. Make use of new technologies
NFPs generally make good use of new tools, such as social media to communicate with stakeholders. However, they often lag behind their corporate counterparts when it comes to embracing technologies that enhance efficiencies. These could include cloud accounting software, client relationship management (CRM) systems or supply chain management.

Newsletter: July 2015

Small business company tax rate cut

Parliament has passed legislation which will implement a 2015 Budget measure to reduce the company tax rate from 30% to 28.5% for companies that are small business entities with an aggregated turnover of less than $2 million. The company tax rate for corporate unit trusts and public trading trusts that are small business entities will also be reduced to 28.5%. For all other companies that are not small business entities, the corporate tax rate will remain at 30%. Importantly, and also announced in the Budget, the maximum franking credit that can be allocated to a frankable distribution will be unchanged, so the same rate of 30% will continue to apply to all companies.The amendments will apply for the first income year beginning on or after 1 July 2015 and for subsequent income years.



Accelerated depreciation write-off for SMEs


Legislative amendments to implement a 2015 Budget measure to support small businesses have made their way through Parliament. The legislative amendments will allow a short-term accelerated depreciation write-off up to $20,000 (up from the $1,000 threshold) for assets acquired by small businesses. The increased threshold of $20,000 will apply only to assets first acquired at or after 7.30 pm, legal time in the ACT on 12 May 2015, and first used or installed ready for use on or before 30 June 2017. From 1 July 2017, the threshold will revert to the $1,000 threshold.

The rules around asset eligibility do not change. That is, if an asset was eligible for immediate deductibility under the $1,000 threshold it will continue to be deductible under the new $20,000 threshold.

The ATO has confirmed that both new and old/second-hand assets remain eligible.

If the entity is registered for GST, then the GST exclusive amount is taken to be the cost of the asset. Where the entity is not registered for GST, the GST inclusive amount is taken to be the cost of the asset.

An eligible small business can claim an immediate deduction for any software costing less than $20,000, purchased off the shelf, that is used exclusively in the business. An eligible small business can also claim an immediate deduction for the cost of developing software for use exclusively in its business, where that cost is less than $20,000. An exception applies if the entity has previously chosen to claim deductions for in-house software under the software development pool rules. In this case the costs need to continue to be allocated to that pool.

TIP: Remember to keep records of purchases to substantiate claims. The ATO will monitor the use of the accelerated depreciation. In this regard, the ATO has said, if “small businesses exhibit behaviours that indicate a high level of risk, they can expect a higher level of interaction from the ATO”.

The legislative amendments also allow primary producers to claim an immediate deduction for capital expenditure on water facilities and fencing assets, and to deduct capital expenditure on fodder storage assets over three years. The accelerated depreciation write-off for primary producers will apply to assets that an entity starts to hold, or to expenditure an entity incurs, at or after 7:30 pm, by legal time in the ACT, on 12 May 2015.

TIP: The ATO has confirmed that eligible farmers will be able to choose whichever rules benefit them the most, and that this can be decided on an asset-by-asset basis.


R&D tax incentive rate reductionback in spotlight

In the 2015 Budget, the Government reiterated its intention to change the rates of assistance under theR&D tax incentive to 43.5% (down from 45%) for eligible entities with a turnover under $20 million per annum and not controlled by a tax exempt entity, and to 38.5% (down from 40%) for all other eligible entities. This would apply from 1 July 2014. The Government has introduced legislation proposing to make the necessary changes.

Registration is a critical first step in accessing the R&D tax incentive. The deadline for lodging an application for registration is 10 months after the end of a company’s income year.

With effect from 1 July 2014, a $100 million threshold applies to the R&D expenditure for which companies can claim a concessional tax offset under the R&D Tax Incentive. For any R&D expenditure amounts above $100 million, companies will still be able to claim a tax offset at the company tax rate.

TIP: The ATO is working closely with AusIndustry to identify taxpayers who may be involved in aggressive R&D tax arrangements. Taxpayers should make sure their claims are attributed to activities consistent with their AusIndustry registrations, and expenses (eg labour costs) were actually incurred on R&D activities.


Dependent spouse tax offset to be abolished

The Government has proposed legislative amendments to abolish the dependent spouse tax offset (DSTO) and expand the dependent (invalid and carer) tax offset (DICTO). Under the changes:

  • a taxpayer who has a spouse who is genuinely unable to work due to invalidity or carer obligations is eligible for DICTO (worth up to $2,471 (indexed)) if the taxpayer contributes to the maintenance of their spouse and meets certain income tests and other eligibility criteria; and
  • taxpayers eligible for the zone tax offset (ZTO), overseas forces tax offset (OFTO) or overseas civilians tax offset (OCTO) can receive a further entitlement of 50% or 20% of their DICTO entitlement as a component of ZTO, OFTO or OCTO, depending on where they reside.The amendments are proposed to generally apply to the 2014–2015 income year and to all later income years.


Age Pension changes on the way

The Government has proposed legislation to give effect to several changes affecting the Age Pension. The assets test free areas will be increased to $250,000 for a single homeowner and $375,000 for a homeowner couple. The assets test threshold for non-homeowners will be increased to $200,000 more than homeowner pensioners, ie $450,000 (single) and $575,000 (couple). However, the assets test taper rate at which the Age Pension begins to phase out will be increased from $1.50 of pension per fortnight to $3.00 of pension for each $1,000 of assets over the relevant assets test threshold. Those whose pension is cancelled will automatically be issued with a Commonwealth Seniors Health Card (CSHC) or a Health Care Card. The changes are proposed to take effect from 1 January 2017.