Yearly Archives: 2016

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Thompsons Australia is moving to a new home

After many years at our current address, Thompsons Australia, as of Monday 5th December 2016 have a new home in Hurstville. We have moved to a new office at:

Shop 2, 313 Forest Road Hurstville, near Bridge Street (one intersection towards Hurstville from the corner of Forest Road and King Georges Road). Our new office is bright and airy and best of all, on the ground floor and with slightly easier parking.

Coinciding with our physical move are internal transformations which will give us the opportunity to better and more efficiently serve you.

With our new Sydney office, we look forward to a great start to 2017.

 

On behalf of the Thompsons Australia team, we wish you a very merry Christmas and a prosperous new year.

 

 

UPDATE 06/12/16

Our final move is done and we are happily in our new home.

 

 

 

 

 

 

 

 

 

UPDATE 02/12/16

Our new shopfront, and we’re pretty happy with it. Now for the big move.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UPDATE 01/12/16

Inspecting what has so far been a brilliant and efficient job done by the boys at Barracuda Building.  We are very excited for our signage to be put in tomorrow.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UPDATE- 30/11/16

Progress is looking exciting. Almost ready for the big move.

 

 

 

 

 

 

 

 

UPDATE –  23/11/16

The Thompsons Australia red carpet treatment.

 

 

 

 

 

 

 

 

 

 

 

 

UPDATE- 16/11/16
Progress at our new home is coming along well.

 

 

 

 

 

 

 

 

 

 

Newsletter: November 2016

Budget superannuation changes on the way

The Federal Government has been consulting on draft legislation to give effect to most of its 2016–2017 budget superannuation proposals. Here are some of the key changes.
Deducting personal contributions
All individuals up to age 75 will be able to deduct personal superannuation contributions, regardless of their employment circumstances. Of course, such deductible contributions would still effectively be limited by the concessional contributions cap of $25,000, proposed from 1 July 2017.
Pension $1.6 million transfer balance cap
The total amount of accumulated superannuation an individual can transfer into retirement phase (where earnings on assets are tax-exempt) will be capped at $1.6 million from 1 July 2017. Those with pension balances over $1.6 million at 1 July 2017 will be required to “roll back” the excess amount to accumulation phase by 1 July 2017 (where it will be subject to 15% tax on future earnings).
Concessional contributions cap
This cap is to be reduced to $25,000 for all individuals (regardless of age) from 1 July 2017. The concessional cap will be indexed in increments of $2,500 (down from $5,000 increments). Contributions to constitutionally protected funds and untaxed or unfunded defined benefit superannuation funds will be counted towards an individual’s concessional contributions cap. However, any excess concessional contributions in respect of such funds will not be subject to tax, but instead limit the individual’s ability to make further concessional contributions.

Note that the Government has decided to:

  • dump the proposed $500,000 lifetime cap on non-concessional contributions (which would have been backdated to 1 July 2007) – instead, the lifetime cap will be replaced by a reduced non-concessional cap of $100,000 per year for individuals with superannuation balances below $1.6 million;
  • not proceed with the proposal to remove the work test for making contributions between ages 65 and 74; and
  • defer to 1 July 2018 the start date for catch-up concessional contributions for superannuation balances of less than $500,000.

TIP: The government says it intends to introduce the proposed changes in Parliament “before the end of the year”. It remains to be seen if the changes will pass smoothly through Parliament. In any case, it would be prudent to check in with your professional adviser to see if and how the proposed changes would affect your retirement savings strategy.

 

Primary producer income tax averaging

Legislation has been introduced in Parliament that proposes to allow primary producers to access income tax averaging 10 income years after choosing to opt out, instead of the opt-out choice being permanent. The Federal Government says this will assist primary producers, as averaging only recommences when it is to their benefit (ie they receive a tax offset) and they can still opt out if averaging no longer suits their circumstances. The changes are proposed to apply for the 2016–2017 income year and later income years.
TIP: Primary producers have to meet basic conditions to be eligible for income averaging. Please contact our office for further information.

 

Research and development tax incentive rates change

The Federal Government has reduced the rates of the tax offset available under the research and development (R&D) tax incentive for the first $100 million of eligible expenditure by 1.5 percentage points. The higher (refundable) rate of the tax offset has been reduced from 45% to 43.5% and the lower (non-refundable) rate of the offset has been reduced from 40% to 38.5%. Here are some relevant points to note:

  • Eligible entities with annual turnover of less than $20 million, and which are not controlled by an exempt entity or entities, may obtain a refundable tax offset equal to 43.5% of their first $100 million of eligible R&D expenditure in an income year, and a further refundable tax offset equal to the amount by which their R&D expenditure exceeds $100 million multiplied by the company tax rate.
  • All other eligible entities may obtain a non-refundable tax offset equal to 38.5% of their eligible R&D expenditure and a further non-refundable tax offset equal to the amount by which their R&D expenditure exceeds $100 million multiplied by the company tax rate. The changes apply from 1 July 2016.

TIP: AusIndustry and the ATO manage the R&D tax incentive jointly. The R&D tax incentive aims to offset some of the costs of undertaking eligible R&D activities. A company must lodge an application to register within 10 months after the end of its income year. Please contact our office for further information.

 

SMSF related-party borrowing arrangements

The ATO has issued a taxation determination (TD 2016/16) concerning whether the ordinary or statutory income of a self managed super fund (SMSF) would be non-arm’s length income (NALI) under the tax law, and therefore attract 47% tax, when the parties to a scheme have entered into a limited recourse borrowing arrangement (LRBA) on terms which are not at arm’s length.

The ATO has also updated a practical compliance guideline (PCG 2016/5) which sets out the Commissioner’s “safe harbour” terms for LRBAs. If an LRBA is structured in accordance with the guideline, the ATO will accept that the LRBA is consistent with an arm’s length dealing and the NALI provisions (47% tax) will not apply. Trustees who do not meet the safe harbour terms will need to otherwise demonstrate that their LRBA was entered into and maintained consistent with arm’s length terms.
TIP: The ATO has allowed a grace period to 31 January 2017 for SMSFs to restructure LRBAs on terms consistent with the compliance guideline’s safe habour terms (or bring LRBAs to an end before that date). Please contact our office for further information.

 

Travel expense and transport of bulky tools claim denied

 
An individual has been unsuccessful before the Administrative Appeals Tribunal in a matter concerning certain deduction claims for work-related travel expenses. The individual was a sheet metal worker whose home was located some 60 km from his employer’s main work site. The individual made a number of work-related deduction claims. However, after various concessions made by both the individual and the Commissioner of Taxation, the remaining issue between the parties was whether the taxpayer was entitled to a deduction for work-related travel expenses.
The man argued that his employer required him to supply his own tools and that they were too bulky to be transported to work other than by car. He also questioned whether his employer provided secure storage facilities for his tools. In refusing the taxpayer’s claim, the Tribunal noted it was the taxpayer’s own admission that it was his own personal choice to transport his various hand tools out of security concerns. The Tribunal also said the taxpayer’s security concerns were “not supported by objective evidence”. The taxpayer’s claim was therefore refused.
TIP: The ATO reminds individuals to make sure they get their deductions right. In certain circumstances it will contact employers to verify employees’ claims. In this case, the ATO contacted the taxpayer’s employer to check his claims, including whether the employer supplied safe storage facilities.

Exposure draft — GST on low value imported goods

GST on low value imported goods. Exposure draft —Draft legislation and explanatory material

 

 

The government has released exposure draft legislation and explanatory material for the measure to levy GST on low value imported goods, as announced in the 2016/17 Federal Budget.

The draft legislation will amend the GST Act to ensure that GST is payable on certain supplies of low value goods that are purchased by consumers and are imported into Australia.

The amendments will have the effect that supplies of goods valued at $1,000 or less at the time of sale are connected with Australia if the goods are brought to Australia with the assistance of the supplier. That will ensure that such supplies are subject to GST, consistent with equivalent supplies made within Australia.

From 1 July 2017, the law will require overseas vendors, electronic distribution platforms and goods forwarders — many of which are multinationals — to account for GST on sales of low value goods to consumers in Australia if they have GST turnover of $75,000 or more.

Australia will be the first country to apply GST to the importation of low value goods using a vendor collection model, with jurisdictions such as the European Union moving in the same direction.

The exposure draft Bill and explanatory materials are available on the Treasury website. Submissions will close on Friday, 2 December 2016.

Newsletter: September 2016

Share economy participants reminded of tax obligations

The ATO has reminded people who earn income in the share economy that they have tax obligations. The type of goods or services you provide, and how much you provide, will determine what you need to do for tax. Popular sharing economy services include:

  • providing “ride-sourcing” services for a fare;
  • renting out a room or a whole house or unit on a short-time basis;
  • renting out a car parking space; and
  • providing personal services, such as creative or professional services like graphic design and website creation, or doing odd jobs like deliveries and furniture assembly.

The ATO notes that you need to get an ABN if you are carrying on an enterprise providing goods and services through the sharing economy, and register for GST if:

  • your turnover is $75,000 or more per year; or
  • you are providing ride-sourcing services, regardless of how much you earn from doing so.

TIP: No matter how much you earn or your reasons for providing goods or services, it’s a good idea to maintain records of your income and expenses, so you can keep track of your activities and deal with tax obligations when they arise.Tax deductions may also be available in certain circumstances. Please contact our office for more information.

 

Itinerant worker claim denied, so travel deductions refused

An individual has been unsuccessful before the Administrative Appeals Tribunal (AAT), where he argued that he was an itinerant worker and was therefore entitled to claim tax deductions for travel expenses of some $38,000 for the 2011–2012 income year.
The taxpayer worked a number of short-term jobs in various country towns across New South Wales. He and his wife had a house, but they would travel to the work locations, taking their car and a motorhome to live in. The individual argued he was entitled to claim deductions for car expenses and travel expenses such as meals and accommodation.
The AAT found that he was not an itinerant worker and that the expenses were private in nature and therefore not tax deductible. Among other things, the AAT noted that his duties did not in fact require him to travel between and stay near the different workplace locations in the course of his employment.

 

ATO flags retirement planning schemes of concern

The ATO has launched the Super Scheme Smart initiative to inform people about retirement planning schemes that are of increasing concern. According to the ATO, people approaching retirement are most at risk of becoming involved in schemes that are “too good to be true”. While retirement planning schemes can vary, you should be aware of some common features of problematic schemes. These schemes generally:

  • are artificially contrived and complex, and usually connected with a self managed super fund (an SMSF);
  • involve a lot of paper shuffling;
  • are designed to leave you paying minimal or no tax, or even receiving a tax refund; and/or
  • aim to give you a present -day benefit.

The ATO has previously issued statements about concerning schemes that involve non-arm’s length limited borrowing arrangements, dividend stripping and diverting personal services income.
TIP: The ATO encourages people to report their involvement in such schemes early. In specific circumstances, penalties may be reduced. Please contact our office for more information.

 

Deductibility for gifts to clients and airport lounge membership fees

The ATO has recently released the following Taxation Determinations:

  • TD 2016/14 states that business taxpayers are entitled to a tax deduction for the outgoing incurred for a gift made to a former or current client, if the gift is made for the purpose of producing future assessable income. The gift is not deductible if the outgoing is capital, relates to gaining “non-assessable, non-exempt” income, or is non-deductible under another provision.
  • TD 2016/15 states that employer taxpayers are entitled to a tax deduction for annual fees incurred on an airport lounge membership for use by employees, if that membership is provided because of the employment relationship.

 

Changes to $500,000 lifetime super cap confirmed

The Federal Treasurer has confirmed that there will be some changes to the Government’s proposal for a lifetime cap of $500,000 on non-concessional superannuation contributions. A number of exemptions will be available.
Scott Morrison said in a radio interview that he had previously spoken about the changes and that draft legislation on the measures, to be released soon, will contain a number of changes. He said if someone gets a pay-out “as a result of an accident or something like that, then that is exempted from the $500,000 cap”. He also said that if someone had entered into a contract before Budget night to settle on a property asset out of their SMSF and they use after-tax contributions to settle that contract, “that won’t be included” in the $500,000 cap. Mr Morrison said there also would be “other measures” in the exposure draft legislation.
He effectively ruled out lifting the $500,000 cap amount, saying “the only people that would benefit are people who […] already on average have $2 million in their superannuation scheme, have already put $700,000 in after tax contributions”.
TIP: The ATO can only calculate the amount of your non-concessional contributions available based on the information it has. You may wish to review your own history of contributions. Please contact our office for more information.

 

Home exempt from land tax for “world-traveller”

An individual has been successful before the Victorian Civil and Administrative Tribunal (VCAT) in seeking the principal place of residence land tax exemption for his home located in Shoreham, Victoria, despite being a “world-traveller” whose wife lives overseas.
In 2003, the taxpayer was left the property in Shoreham in his mother’s will. After moving into the property, he continued his interest of overseas travel, meeting and marrying his now wife, who continues to live in Canada. Broadly, for each of the five tax years in question, the taxpayer spent a couple of months in Australia at the property, with the balance spent mostly in Canada and other overseas destinations. He submitted that he considered the Shoreham property his “home”, where he kept “all his personal treasures”, among other things. He also noted “significant and communal family ties” in Victoria (including his three children and eight grandchildren in Melbourne) and “financial ties” to Australia.
In finding in favour of the taxpayer, VCAT said that in this day and age people are far more mobile than in the past, and it is not unreasonable that someone would have a base at a particular place to which they intend to return and resume occupation. In this regard, the Tribunal was of the view that the land tax exemption applied to the taxpayer’s circumstances.
TIP: Land tax regimes differ from state to state. Please contact our office for assistance or more information.

Commissioner clarifies tax arrangements for working holiday makers

With a number of media reports circulating in relation to the tax treatment for working holiday makers and the tax that they pay, the ATO wants to make clear the tax arrangements in place.

Tax Commissioner Chris Jordan said “the amount of tax that a working holiday maker may pay will depend on their residency status for tax purposes, and we consider the individual circumstances that apply to each working holiday maker.

“The reality is, what we see is that most working holiday makers are transient – they move around and do not establish residency in Australia during their stay.

“Therefore, as a non-resident for tax purposes, they will be taxed only on their Australian-sourced income, such as money they earn working in Australia, and they will commence paying tax on the first dollar of income they earn – at 32.5c in the dollar”.

If the Bills currently before Parliament are not passed, the ATO will continue to apply the current law.

Answers to common questions

What is the ATO’s approach to working holiday makers if the Bill is not passed?

The ATO will apply the current law. Working holiday makers who are travelling and working in various locations around Australia will be non- residents for tax purposes, meaning they will commence paying 32.5% tax from the first dollar for income earned in Australia.

We consider that most working holiday makers are non-residents due to their pattern of working and holidaying while in Australia.

We will help working holiday makers understand Australia’s self-assessment tax system, so that they correctly advise their employers of their residency status and have correct tax withheld. We will also work to ensure that working holiday makers correctly prepare their tax returns. This will include working with tax agents so that their advice is consistent with the ATO view, as confirmed by recent Tribunal decisions. It will also include some checking of returns.

How will working holiday makers be treated?

Residency status turns on the circumstances applying to each individual working holiday maker.

If working holiday makers do establish residency for tax purposes, they will be taxed on their worldwide income from all sources, including wages from working in Australia. Residents are currently entitled to a tax free threshold of $18200, after which marginal rates of tax apply starting at 19c in the dollar.

Most working holiday makers will not establish residency. Non-residents are taxed only on their Australian-sourced income, such as money they earn working in Australia. Non-residents commence paying tax on the first dollar of income at 32.5c in the dollar.

Case study example – Working holiday maker who would be taxed as a non- resident

Lars lives in Munich and is granted a 12 month working holiday visa. He plans to return to Munich, and resume his career as a carpenter, after his 12 month working holiday in Australia.

Lars arrives in August 2015 and has five different jobs while he travels around Australia, visiting every capital city during his 12 month stay. He stays in no place for longer than two months.

Lars only works for seven of the 12 months he is in Australia as he is primarily here to see as much as he can, picking up carpentry work to supplement his funds as he travels.

Lars is not an Australian resident for tax purposes. Although he is in Australia for more than six months in the year ended 30 June 2016, he is considered a non-resident for tax purposes as his usual home is outside Australia.

STATE TAXES – NSW STATE BUDGET 2016

NSW: Purchaser declaration when acquiring any land in NSW

 
From 18 July 2016, all purchasers and transferees must complete a purchaser’s declaration when acquiring land in NSW.
The purchaser declaration must be lodged with any document assessed for duty dated on or after 21 June 2016.
The purpose of the declaration is to assist in determining liability in relation to, and gather information on:

  • 4% surcharge purchaser duty on the purchase of residential real estate by foreign person from 21 June 2016;
  • Identifying foreign persons for surcharge land tax liability;
  • Commonwealth reporting requirement – to report information to the ATO from 1 July 2016 on transfers of land in NSW.

The OSR notified that an amendment to the Conveyancing (Sale of Land) Regulation 2010 requires the vendor under a
contract for sale of land to provide a current Land Tax Certificate to the purchaser. This applies to all contracts entered into on
or after the 1 July 2016. The taxpayers must use a Client Service Provider to apply a clearance certificate.

SMSF borrowing arm’s-length terms deadline extended

SMSF borrowing arm’s-length terms deadline extended

 
Deadline extended until 31 January 2017 for trustees of (SMSFs) to get any related-party limited recourse borrowing arrangements (LRBAs) onto arm’s-length terms.

 
The ATO has extended until 31 January 2017 the deadline for trustees of self managed super funds (SMSFs) to ensure that any related-party limited recourse borrowing arrangements (LRBAs) are on terms consistent with an arm’s-length dealing. The ATO had previously announced a grace period whereby it would not select an SMSF for review for the 2014–2015 year or earlier years, provided that arm’s-length terms for LRBAs were implemented by 30 June 2016 (or non-compliant LRBAs were brought to an end before that date).

 
The deadline extension to 31 January 2017 follows the ATO’s release of Practical Compliance Guideline PCG 2016/5, which sets out “safe harbour” terms for LRBAs. If an LRBA is structured in accordance with PCG 2016/5, the ATO will accept that the LRBA is consistent with an arm’s-length dealing and the non-arm’s length income (NALI) rules (47% tax) will not apply.

 
TIP:The ATO requires arm’s-length payments of principal and interest for the year ended 30 June 2016 to be made under LRBA terms consistent with an arm’s-length dealing by 31 January 2017.

Medibank 2016 tax statement delays

We understand that Medibank has advised their customers that member statements may not be available until after 15 July and that they will be in contact with affected customers.

If you have clients who are Medibank customers, we recommend that they visit the Medibank website to see if they are affected by the delay. If your client is affected, they should wait until they receive their statement after 15 July to ensure they have all the information they need to complete their tax return correctly.

Medibank will keep us updated about this situation and we will provide relevant updates through the Tax professionals newsletter.

Colin Walker
Assistant Commissioner
Tax Practitioner, Lodgment Strategy and Engagement Support

Newsletter: July 2016

Tax Time 2016: take care with work and rental property claims

The ATO encourages people to check which work and rental property-related expenses they are entitled to claim this tax time, and to understand what records they need to keep.
Assistant Commissioner Graham Whyte has reminded taxpayers that there has been a change in the rules for calculating car expenses this year, and people need to use a logbook or the cents-per-kilometre method to support their claims.
“It’s important to remember that you can only claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee”, Mr Whyte said.
The ATO will pay extra attention to people whose deduction claims are higher than expected, in particular those claiming car expenses (including for transporting bulky tools), and deductions for travel; internet and mobile phones; and self-education. Mr Whyte also noted that “the ATO will take a closer look at any unusual deductions and contact employers to validate these claims”.
The ATO also encourages rental property owners to better understand their obligations and get their claims right. Mr Whyte said the ATO would pay close attention to excessive interest expense claims and incorrect apportionment of rental income and expenses between owners. “We are also looking at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties”, Mr Whyte said.
TIP: The ATO says advances in technology and data-matching have enhanced its ability to cross-check the legitimacy of various claims.
The ATO also reminds people engaged in the share economy (eg ride-sourcing) to include income and deductions from those enterprises in their tax returns.
TIP: Ride-sourcing drivers are likely to be carrying on a business and be eligible for deductions and concessions in their tax returns. This could include depreciation deductions and GST input credits.

 

Tax Time 2016: take care with work and rental property claims

The ATO encourages people to check which work and rental property-related expenses they are entitled to claim this tax time, and to understand what records they need to keep.
Assistant Commissioner Graham Whyte has reminded taxpayers that there has been a change in the rules for calculating car expenses this year, and people need to use a logbook or the cents-per-kilometre method to support their claims.
“It’s important to remember that you can only claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee”, Mr Whyte said.
The ATO will pay extra attention to people whose deduction claims are higher than expected, in particular those claiming car expenses (including for transporting bulky tools), and deductions for travel; internet and mobile phones; and self-education. Mr Whyte also noted that “the ATO will take a closer look at any unusual deductions and contact employers to validate these claims”.
The ATO also encourages rental property owners to better understand their obligations and get their claims right. Mr Whyte said the ATO would pay close attention to excessive interest expense claims and incorrect apportionment of rental income and expenses between owners. “We are also looking at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties”, Mr Whyte said.
TIP: The ATO says advances in technology and data-matching have enhanced its ability to cross-check the legitimacy of various claims.
The ATO also reminds people engaged in the share economy (eg ride-sourcing) to include income and deductions from those enterprises in their tax returns.
TIP: Ride-sourcing drivers are likely to be carrying on a business and be eligible for deductions and concessions in their tax returns. This could include depreciation deductions and GST input credits.

 

Lifetime $500,000 non-concessional superannuation cap

As announced in the 2016–2017 Federal Budget, the Government has proposed a lifetime non-concessional superannuation contributions cap of $500,000 to apply
from Budget night (3 May 2016). This means that people who are planning to make non-concessional contributions now need to check their historical non-concessional contributions data back to 1 July 2007 (which will be counted against the $500,000 lifetime limit). To this end, the ATO can calculate non-concessional contribution amounts for the period 1 July 2007 to 30 June 2015, provided that the individuals and funds have met their lodgment obligations.
TIP: The ATO can only calculate the amount of non-concessional contributions based on the information it has. It may be prudent to review your own history of contributions. Please contact our office for further information.

 

ATO clearance certificates for property disposals

A new foreign resident capital gains withholding tax regime has been introduced. The new rules will apply where real property contracts are entered into on or after 1 July 2016, but will only apply to sales of residential property where it has a market value of $2 million or more. Where the new rules apply, the transaction will incur a 10% non-final withholding amount at settlement.
Withholding does not apply to sales by Australian resident sellers, but these sellers will need to obtain a clearance certificate from the ATO and provide it to the purchaser. Note that Australian resident vendors will need to obtain this clearance certificate before settlement to ensure they do not incur the 10% non-final withholding amount. Vendors can also apply for a variation if they are not entitled to a clearance certificate, if a vendor’s declaration is not appropriate or if 10% withholding is too high compared to the actual Australian tax liability on the sale of the asset.
TIP: The ATO has talked to real estate agents, conveyancers and legal practitioners to ensure the industry is prepared to help its clients meet their withholding obligations.

 

Hotel owner liable to GST for accommodation supply

A hotel owner has been unsuccessful before the Administrative Appeals Tribunal (AAT) in seeking a GST refund of $476,610.

The hotel owner had a management agreement with a hotel operator. Under the agreement, the operator was to “act solely as the agent” for the owner. The ATO ruled that the owner was making a taxable supply of accommodation in commercial residential premises for the purposes of the GST Act. The owner objected, arguing that it had incorrectly accounted for GST.
The AAT said the only issue it was required to determine was whether the supply of accommodation in the hotel by the owner was correctly described as a supply of accommodation in commercial residential premises, provided to an individual by the entity that owns or controls the commercial residential premises. If it was so, then the hotel owner could not claim that the supply was input taxed under the GST law.
The AAT concluded that the supply in this case was made by the hotel owner through its agent, the operator. Accordingly, the AAT affirmed the Commissioner’s decision that GST was payable on the supply of the accommodation.

 

ATO to make new decision on superannuation death benefit

The Administrative Appeals Tribunal (AAT) has ordered the Commissioner to request that a couple make an application for another private ruling in relation to a life insurance payout they received after the death of their adult son.
In 2013, the couple’s’ son died in a motorbike accident. He was employed as a pilot and up to the time of his death had lived at home with his parents. As administrators of their son’s estate, the couple received a lump sum payment of $500,000 under their son’s life insurance policy, which was part of his employer’s super scheme.
The couple applied for a private ruling that the $500,000 was a superannuation lump sum that was not assessable under the tax law. The Commissioner issued a private ruling to each taxpayer ruling that they were not death benefit dependants.
Although the AAT held that the Commissioner’s ruling was correct, it noted the couple had provided “additional information” asserting they had a close personal relationship with their son. The AAT said that had the Commissioner been provided with that information earlier, he would have asked the couple to make an application for another private ruling. Accordingly, the AAT ordered the Commissioner to request that the couple make another private ruling application.

Newsletter: June / July 2016

Tax Time 2016: take care with work and rental property claims

The ATO encourages people to check which work and rental property-related expenses they are entitled to claim this tax time, and to understand what records they need to keep.
Assistant Commissioner Graham Whyte has reminded taxpayers that there has been a change in the rules for calculating car expenses this year, and people need to use a logbook or the cents-per-kilometre method to support their claims.
“It’s important to remember that you can only claim a deduction for work-related car expenses if you use your own car in the course of performing your job as an employee”, Mr Whyte said.
The ATO will pay extra attention to people whose deduction claims are higher than expected, in particular those claiming car expenses (including for transporting bulky tools), and deductions for travel; internet and mobile phones; and self-education. Mr Whyte also noted that “the ATO will take a closer look at any unusual deductions and contact employers to validate these claims”.
The ATO also encourages rental property owners to better understand their obligations and get their claims right. Mr Whyte said the ATO would pay close attention to excessive interest expense claims and incorrect apportionment of rental income and expenses between owners. “We are also looking at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties”, Mr Whyte said.
TIP: The ATO says advances in technology and data-matching have enhanced its ability to cross-check the legitimacy of various claims.
The ATO also reminds people engaged in the share economy (eg ride-sourcing) to include income and deductions from those enterprises in their tax returns.
TIP: Ride-sourcing drivers are likely to be carrying on a business and be eligible for deductions and concessions in their tax returns. This could include depreciation deductions and GST input credits.
SMSF borrowing arm’s-length terms deadline extended
The ATO has extended until 31 January 2017 the deadline for trustees of self managed super funds (SMSFs) to ensure that any related-party limited recourse borrowing arrangements (LRBAs) are on terms consistent with an arm’s-length dealing. The ATO had previously announced a grace period whereby it would not select an SMSF for review for the 2014–2015 year or earlier years, provided that arm’s-length terms for LRBAs were implemented by 30 June 2016 (or non-compliant LRBAs were brought to an end before that date).
The deadline extension to 31 January 2017 follows the ATO’s release of Practical Compliance Guideline PCG 2016/5, which sets out “safe harbour” terms for LRBAs. If an LRBA is structured in accordance with PCG 2016/5, the ATO will accept that the LRBA is consistent with an arm’s-length dealing and the non-arm’s length income (NALI) rules (47% tax) will not apply.
TIP:The ATO requires arm’s-length payments of principal and interest for the year ended 30 June 2016 to be made under LRBA terms consistent with an arm’s-length dealing by 31 January 2017.

 

Lifetime $500,000 non-concessional superannuation cap

As announced in the 2016–2017 Federal Budget, the Government has proposed a lifetime non-concessional superannuation contributions cap of $500,000 to apply from Budget night (3 May 2016). This means that people who are planning to make non-concessional contributions now need to check their historical non-concessional contributions data back to 1 July 2007 (which will be counted against the $500,000 lifetime limit). To this end, the ATO can calculate non-concessional contribution amounts for the period 1 July 2007 to 30 June 2015, provided that the individuals and funds have met their lodgment obligations.
TIP: The ATO can only calculate the amount of non-concessional contributions based on the information it has. It may be prudent to review your own history of contributions.

 

ATO clearance certificates for property disposals

A new foreign resident capital gains withholding tax regime has been introduced. The new rules will apply where real property contracts are entered into on or after 1 July 2016, but will only apply to sales of residential property where it has a market value of $2 million or more. Where the new rules apply, the transaction will incur a 10% non-final withholding amount at settlement.
Withholding does not apply to sales by Australian resident sellers, but these sellers will need to obtain a clearance certificate from the ATO and provide it to the purchaser. Note that Australian resident vendors will need to obtain this clearance certificate before settlement to ensure they do not incur the 10% non-final withholding amount. Vendors can also apply for a variation if they are not entitled to a clearance certificate, if a vendor’s declaration is not appropriate or if 10% withholding is too high compared to the actual Australian tax liability on the sale of the asset.
TIP: The ATO has talked to real estate agents, conveyancers and legal practitioners to ensure the industry is prepared to help its clients meet their withholding obligations.

 

Hotel owner liable to GST for accommodation supply

A hotel owner has been unsuccessful before the Administrative Appeals Tribunal (AAT) in seeking a GST refund of $476,610. The hotel owner had a management agreement with a hotel operator. Under the agreement, the operator was to “act solely as the agent” for the owner. The ATO ruled that the owner was making a taxable supply of accommodation in commercial residential premises for the purposes of the GST Act. The owner objected, arguing that it had incorrectly accounted for GST.
The AAT said the only issue it was required to determine was whether the supply of accommodation in the hotel by the owner was correctly described as a supply of accommodation in commercial residential premises, provided to an individual by the entity that owns or controls the commercial residential premises. If it was so, then the hotel owner could not claim that the supply was input taxed under the GST law.
The AAT concluded that the supply in this case was made by the hotel owner through its agent, the operator. Accordingly, the AAT affirmed the Commissioner’s decision that GST was payable on the supply of the accommodation.

 

ATO to make new decision on superannuation death benefit

The Administrative Appeals Tribunal (AAT) has ordered the Commissioner to request that a couple make an application for another private ruling in relation to a life insurance payout they received after the death of their adult son.
In 2013, the couple’s’ son died in a motorbike accident. He was employed as a pilot and up to the time of his death had lived at home with his parents. As administrators of their son’s estate, the couple received a lump sum payment of $500,000 under their son’s life insurance policy, which was part of his employer’s super scheme.
The couple applied for a private ruling that the $500,000 was a superannuation lump sum that was not assessable under the tax law. The Commissioner issued a private ruling to each taxpayer ruling that they were not death benefit dependants.
Although the AAT held that the Commissioner’s ruling was correct, it noted the couple had provided “additional information” asserting they had a close personal relationship with their son. The AAT said that had the Commissioner been provided with that information earlier, he would have asked the couple to make an application for another private ruling. Accordingly, the AAT ordered the Commissioner to request that the couple make another private ruling application.