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Utopia Blogs
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The floods, the floods...
Editor: Our hearts, minds, thoughts and good wishes go out to all Australians who are suffering through this unprecedented time of natural disasters throughout the country.
The response by all Australians has been nothing less than remarkable and the glow of their generosity truly warms us all as a community (although it remains to be seen what effect the Government's proposed 'flood levy' will have on donations in the future).
The Tax Office (ATO) for its part has offered help to those in flood affected areas, and has introduced a range of support strategies, including the deferral of lodgment dates, and General Interest Charge (GIC) "stoppers" for businesses, taxpayers and tax practitioners.
Please call our office if you require any further information on the flood assistance measures provided by the ATO.
Claiming deductions for donations to flood relief
The ATO has approved ‘bucket donations’ for the 2011 Queensland, Northern New South Wales and Victorian floods, as it did for the large number of donations made after the Victorian bushfires in 2009.
People who give to ‘bucket appeals’ can claim a tax deduction for contributions up to $10 in their 2010/11 tax return without the usual need to keep a receipt.
Paid parental leave scheme
The Government’s Paid Parental Leave scheme started on 1 January 2011. Employees with a child born or adopted on or after 1 January 2011 can take 18 weeks of paid parental leave at the national minimum wage, which is currently $570 a week before tax.
Full-time, part-time, casual, seasonal, contract and self-employed workers may be eligible.
Editor: Employers' participation in the scheme is voluntary until 30 June 2011 (if an employer does not agree to participate, the employee will receive the payment from the Family Assistance Office (FAO)).
From 1 July 2011, employers must provide parental leave pay to their eligible employees who have been with their business for at least 12 months before the expected date of birth or adoption of their child.
The FAO will provide employers with funds to pay parental leave to their employees. They will also contact employers to start this process.
Employers just have to provide the parental leave pay to their employee with the usual tax deducted.
Employers will not need to make super contributions on parental leave pay. Also, it will not increase employers’:
- payroll tax liabilities; or
- workers compensation premium liabilities.
Editor: Clients requiring assistance should contact our office.
Tax Office data matching program – building industries
The Tax Office has commenced another data-matching program which will request and collect names and addresses of entities within the building, construction and ceiling insulation industries.
It will collect the information from a range of government departments, such as Departments of Education and Training, as well as the following businesses:
- Richard Crookes Constructions Pty Ltd;
- Abigroup Limited and Abigroup Contractors;
- Bovis Lend Lease;
- Brookfield Multiplex;
- Hansen Yuncken Pty. Ltd.;
- Laing O’Rourke; and
- The Reed Group.
These will be electronically matched with certain sections of ATO data holdings to identify non-compliance with lodgment and payment obligations.
Super Funds: ATO targets loans and in-house assets
In selecting cases for audit this year, the ATO will focus on superannuation funds with repeated contraventions of the rules regarding loans and in house assets (IHA) (i.e., related party assets).
Loans
The ATO has found that many members have viewed their super funds as a quick and easy source of temporary (or, in some cases, semi-permanent) funds, particularly during the global financial crisis.
Borrowing money from your super fund is a strict no-no, and is one of the contraventions that the ATO will be taking a long, hard look at this year.
Breaches of IHA rules
In relation to breaches of the IHA rules, the ATO has found that trustees have again been using their retirement benefits to support related businesses and are clearly exceeding the 5% limit.
Consequences
Trustees must be careful not to breach these rules as non complying funds lose access to concessional tax treatment: their income as well as their total assets (less any member contributions for which no tax deduction has been claimed) are taxed at the highest marginal tax rate, until the ATO reinstates their complying status.
ATO helps full-time students claim study deductions
The ATO has accepted that the High Court decision in the case of Anstis means that taxpayers may be eligible to claim a deduction for their study expenses if they received youth allowance to study full-time.
Tax Commissioner Michael D’Ascenzo said that the ATO will amend tax assessments of eligible taxpayers to include a tax deduction for study expenses for the 2007, 2008, 2009 and 2010 income years.
“We will issue amended assessments to include a deduction of $550 for each year you are eligible. These deductions represent amounts that people who receive youth allowance would reasonably have incurred.”
Where students believe they have incurred expenses of more than $800 (the first $250 of education expenses is not deductible), they can seek an amendment for that higher amount, if they have records to support their claim.
Editor: The ATO will be writing to eligible taxpayers between 1 March 2011 and 30 April 2011. If you don't get a letter by 30 April when you think you should, contact us and we'll try to sort it out.
Changes to Trust Laws
The Assistant Treasurer has announced that the Government will update Australia's trust taxation laws as a result of the recent High Court decision in the case of Bamford, which highlighted ongoing discrepancies between the treatment of trust income by trust laws, on the one hand, and by the tax system on the other.
A public consultation process will be the first step towards updating the trust income tax provisions and any options will seek to ensure that net taxable income of a trust is assessed primarily to beneficiaries.
The options will not include the taxation of trusts as companies, which would be a major departure from the current law.
Changes for farmers with trusts
The Government also announced that it plans to introduce amendments before 30 June 2011 so that beneficiaries of trusts carrying on primary production activities can continue to use the primary production averaging and farm management deposits provisions in a loss year.
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ATO starts major credit and debit card Data Matching Program
The Tax Office (ATO) is undertaking a major compliance program which will involve electronically matching transactions of approximately 200,000 businesses with certain sections of ATO data holdings to identify non-compliance with registration, reporting, lodgment and payment obligations under taxation law.
To do so it has received data from banks that identifies credit and debit card sales made by Australian businesses.
This data is matched against taxpayer records to identify those participating in the cash economy and who are potentially skimming some or all of their cash takings or in other ways not reporting all of their income.
This project uses data relating to transactions conducted between 1 July 2009 to 30 June 2010.
How the ATO uses the data
The Tax Office says that bank data is used to improve compliance with tax obligations by allowing the ATO to:
- identify businesses that are operating underground and not participating in the tax system;
- identify businesses that are potentially skimming some or all of their cash takings or in other ways not reporting all their income;
- identify businesses that are reporting sales outside the benchmark ratio of cash sales to total sales for their industry segment; and
- establish benchmark ratios for cash sales to total sales for particular industry segments.
Where appropriate, the data obtained will be used to support default assessments of a business's tax liabilities.
For the period 1 July 2009 to 30 June 2010, the ATO will request and electronically match data relating to credit and debit card sales of entities within various industries from the following sources:
- Commonwealth Bank of Australia;
- Westpac Banking Corporation;
- ANZ Banking Group Limited;
- National Australia Bank Limited;
- Bendigo and Adelaide Bank Limited;
- Bank of Queensland Limited; and
- BWA Merchant Services Pty Ltd.
The ATO is urging businesses that have under-reported their income to contact them to make a voluntary disclosure of any under-reported amounts.
Tips to help keep track of super contributions
Below are some tips the ATO has provided to help taxpayers keep their super contributions below the contribution caps, so they do not pay extra tax.
Editor: This year, the cap on concessional (deductible) contributions is $25,000 p.a. (except for taxpayers aged 50 and over, for whom the cap is $50,000).
The cap for contributions made from after-tax dollars is $150,000 p.a, although taxpayers under 65 years of age may be eligible to 'bring forward' the next two years of contributions for a total of $450,000.
Contributions in excess of the caps are subject to excess contributions tax so clients must be careful not to inadvertently exceed any of the above.
- If a taxpayer thinks they may exceed the contributions cap in the current year, they should consider stopping or reducing any voluntary contributions (such as salary sacrifice), and/or delaying making any deductible personal contributions to the next year.
- Check when their contributions are received by their super fund (generally, the contribution counts towards a cap in the year in which the super fund actually receives the money).
- If the taxpayer has more than one job or pays money into more than one super fund, they should include all these when they work out their annual contributions (remembering that compulsory super guarantee amounts are concessional contributions).
- If a taxpayer exceeds the concessional contributions cap, the excess contributions count towards their non-concessional contributions cap.
- Any amount that is cashed out and re-contributed into the taxpayer's super fund is a personal contribution.
Editor: Any clients who are concerned with any of the above or who would like to discuss their superannuation requirements should contact us.
Co-owner of rental property can claim rental property expenses
The ATO has issued a formal guideline that where two taxpayers jointly own a property (on say a 50/50 basis), and one pays rent to the other to occupy the entire property, that 'lessor' is entitled to claim their share of rental property expenses against the rental income they receive from their co-owner who lives in the property.
Example
A taxpayer owns a property as tenant in common with another person, with a 50% legal interest.
The taxpayer's co-owner lives in the property, but the taxpayer does not live in the property.
The taxpayer's co-owner pays $70 per week to the taxpayer to live in the property (commercial rent in the area is $140 per week).
In such a case, the rent (reflecting an arm's-length agreement) would be assessable income in the hands of the recipient, so the taxpayer may deduct any losses or outgoings incurred in gaining or producing the rental income.
High-risk industries not paying super
To help employers understand and meet their super obligations, the ATO is running an education and compliance campaign targeting industries at high risk of not paying super to their workers.
One of the major mistakes made by employers is not understanding that in some circumstances they may have to pay super for contractors, even if the contractor quotes an ABN.
The high-risk industries identified include:
- accommodation (e.g., housekeepers, receptionists and hotel staff); and
- computer system design and related services (e.g., software and applications programmers and managers).
Tax return blitz continues for separated parents
The Child Support Agency (CSA) has recently signed a new agreement with the ATO, continuing a blitz on separated parents who fail to lodge tax returns.
Under the old agreement, the CSA collected $82 million over four years by intercepting the tax returns from separated parents with a child support debt.
During this period, the ATO also referred 4,438 separated parents for prosecution for failing to lodge tax returns, resulting in 2,193 convictions.
The enforcement process begins with a letter from the ATO to the person required to lodge a tax return outlining their responsibilities.
Failure to lodge may result in fines or referral for prosecution.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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P r a c t i c e U p d a t e
November 2010
Year-end break-up parties
The December/January break is on the way, and many employers and businesses will be planning their annual year-end break-up party.
However, an important issue for clients to consider is the possible FBT and income tax implications of providing 'entertainment' (including Christmas parties) to staff and clients.
Under the Tax Act, employers must choose how they calculate their FBT entertainment liability and most use either the actual method or the 50/50 method.
Under the actual method, entertainment is normally split up between employees (and their family) and non-employees (e.g., clients/suppliers).
Expenditure on employees is liable to FBT and deductible. Expenditure on non-employees is not liable to FBT, and is not tax deductible.
Using the 50/50 method instead?
Rather than apportion entertainment expenditure between staff, associates and business clients, etc., many employers choose to use the simpler 50/50 method.
Under this method, where food and drink is provided (irrespective of where the party is held or who is attending) – 50% of the total expenditure is subject to FBT and 50% is tax deductible.
However, the following traps must be considered:
- even if the function is held on the employer's premises – food and drink provided to employees is not exempt from FBT;
- the minor benefit exemption* cannot apply; and
- the taxi travel exemption cannot apply.
(*) Minor benefit exemption
The minor benefit exemption provides an exemption from FBT for benefits of 'less than $300' which are provided to employees (and their associates) and which are infrequent and irregular.
The Tax Office accepts that different benefits provided at (or about) the same time are not added together when applying this threshold.
Basically, this means that a Christmas party and gift may be exempt from FBT, even if provided at the same time, as long as the cost of each benefit is less than $300.
Editor: And that's 'less than' $300, i.e., no more than $299.99. A $300 gift to an employee will be caught for FBT whereas a $299 gift is exempt. That's the wonderful world of tax!
Example: FBT, Tax and a Christmas party
An employer holds an external Christmas party for employees and their spouses.
The cost of food and drink per person is $250, and no other benefits are provided.
If the actual method is adopted:
- For employees attending on their own or with their spouse – no FBT is payable (i.e., the per head cost is less than $300) and no tax deduction will be allowed.
- If the 50/50 method is adopted:
- 50% of the total expenditure is subject to FBT and is tax deductible.
Christmas and other gifts
In addition, many businesses will be considering what gifts, if any, they will provide to clients, suppliers, employees and possibly their family members.
The following sets out the FBT and income tax consequences.
Gifts which ARE NOT considered to be entertainment
These generally include, for example:
- a Christmas hamper, a bottle of whisky, wine, etc.; and
- gift vouchers, a bottle of perfume, flowers, a pen set, etc.
Briefly, the FBT and tax consequences for these gifts are as follows:
- gifts to employees and family members of less than $300 – no FBT and a tax deduction is allowed;
- gifts to employees and family members of $300 or more – FBT is payable and a tax deduction is allowed; and
- gifts to clients, suppliers, etc. – no FBT and a tax deduction is allowed.
Gifts which ARE considered to be entertainment
These generally include, for example:
- tickets to attend a theatre, live play, sporting event, movie or the like; and
- a holiday airline ticket or admission ticket to an amusement centre.
Briefly, the general FBT and income tax consequences for these gifts are as follows:
- gifts to employees and family members – FBT is payable and a tax deduction is allowed (except where the minor benefit exemption applies); and
- gifts to clients, suppliers, etc. – no FBT and no tax deduction.
Editor: While we have tried to simplify the rules, we understand that it can get complicated, so give us a call if you would like a hand.
ATO benchmarking small business
The ATO's new benchmarking process (which sets out average income and other benchmarks for 100 industries) means that, for small businesses, the detail and the quality of taxpayers' record-keeping is about to take the spotlight.
The message from the ATO is clear: keep good records and the taxpayer has nothing to fear.
Fail to keep good records and the onus will be on the taxpayer to prove the ATO wrong, if and when they apply the benchmark and issue a default assessment.
What the ATO has to say
The ATO says that in dealing with the cash economy it isn't their intention to issue arbitrary default assessments, and that there is a robust process they follow in relation to benchmarking audits.
The ATO has every intention of ensuring that taxpayers who report figures that do not line up with the benchmarks become aware that their record keeping is the only thing that will keep them safe from having the benchmarks applied.
There may be other compelling reasons, such as sickness or extended breaks from work which the ATO will take into account, but the bottom line is being able to prove the income and expenses that are reported. If not, the benchmarks will be applied.
Tax Office warns of cheque scam
The Tax Office has warned taxpayers to be aware of counterfeit ATO cheques supposedly issued by the ATO and drawn on the Reserve Bank of Australia.
“The counterfeit cheques are realistic in look and feel authentic; only after being put through a fluorescent scanner are they revealed to be fakes,” the Tax Commissioner said.
The counterfeit cheques are often being sent from overseas as advance payment for accommodation, quite often around or near universities.
The cheques are made out for a few thousand dollars more than the asking rent, and there is an accompanying letter requesting the balance of the overpayment be returned to the sender via Western Union transfer.
If taxpayers are contacted by someone claiming to be from the government or a financial institution, they should verify who they are by independently finding their contact details and contacting them directly.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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New super clearing house for small business
A free (and optional) super clearing house service is now available to small businesses with less than 20 employees to help them meet their super guarantee obligations.
The Small Business Superannuation Clearing House is administered by Medicare Australia and lets employers pay their super contributions to a single location in one simple electronic transaction.
Small businesses that register to use the service will have their super guarantee obligation discharged, as long as all of the following apply:
they pay the correct amount;
they pay by the super payment cut-off date;
the payment is accepted by the clearing house; and
the payment is not rejected by the super fund.
Employers who receive an employee's choice of fund nomination will have their choice obligation discharged if they pass the information to the clearing house within 21 days of receiving the choice of fund nomination.
Small businesses can register online for the service by:
visiting the Medicare website at www.medicareaustralia.gov.au/super; or
phoning Medicare Australia on 1300 660 048.
The Tax Office, the cash economy and benchmarks
One of the Tax Office’s new weapons against the cash economy is its industry benchmarks.
These benchmarks set out the expected income and expenses of small, medium and large businesses, most of which operate in the cash economy. The ATO now has over 100 benchmarks and this year is ramping up its attack against the cash economy by issuing about 100,000 letters.
The letters basically question why the figures returned by taxpayers in their income tax returns do not fit the industry average.
The ATO expects that after the 100,000 questionnaires are issued, about 3,000 – 4,000 audits will be conducted.
Editor: Should you receive any queries from the Tax Office on benchmarks or any other matter, please contact our office immediately.
No deduction for swimwear
The Tax Office has confirmed that expenditure incurred by a swimming instructor in purchasing swimwear was not an allowable deduction. He worked as a part-time swimming instructor and purchased swimsuits every six to eight weeks as a result of the damaging effect of the chlorine.
The Tax Office advised that although the clothing was specialised, it was still conventional clothing, indistinguishable from any swimsuit used for private purposes.
Editor: Many taxpayers fall foul of these rules and try to claim deductions for expenditure for ordinary clothing. Unless the clothing is protective, such as safety boots, etc., or certain uniforms, the expenditure is generally not deductible.
Use of assets in private companies
The Tax Office has advised that from 1 July 2009 (i.e., from the 2009/10 financial year just passed), where an asset is provided for the use of a private company shareholder (or associate), it will generally be treated as a 'payment' if the company provides them for:
free; or
less than their market value.
Example
Marina is a shareholder of a private company that owns a city apartment. The apartment is generally available for rent.
However, Marina asks the company not to rent the apartment out for a week so that she and her family can use it (for free) over a long weekend. Marina's use of the apartment is a 'payment' for the purposes of the deemed dividend rules.
The amount of any deemed dividend will be the amount the company normally charges for one week's rent.
Editor: There are a number of exceptions to these rules so please contact our office if you would like to know more about the operation of these new rules or the exceptions.
ATO looks at car and property sales
The ATO is about to start a new data matching program on car sales and property sales.
Motor vehicle data match
Details will be requested from the state and territory motor vehicle registering bodies where a motor vehicle was sold, transferred or newly registered between 1 July 2009 and 30 June 2010 and the transfer and/or market value of the vehicle is $10,000 or greater.
The ATO is basically using the data matching program to catch:
those who are not in the system;
businesses that are not reporting the sales of motor vehicles; and
taxpayers in business whose reported income was not sufficient to support the purchase of the vehicle.
Real property data match
State and territory authorities will be asked to provide updated identity and transaction details relating to property title transfers between 1 July 1999 and 30 June 2010.
Personal fraud and tax scams
The ATO reports that scammers take almost a billion dollars from more than 800,000 Australians every year. Scams involving tax are common, and victims will often find that their identities have been misused or sold to commit fraud.
Tax scam example
Patrick received an email claiming to be from the ATO, stating that his income tax refund had been ‘recalculated’ and that he was entitled to an additional $250. All he had to do was click on a link in the email, provide some details, and he could expect the extra money in a few days.
He clicked on the link in the email, which took him to a website that for all purposes looked authentic. All he had to do was complete the form online, then click the print button and send the printed form to the ATO in Canberra.
When he clicked the ‘print’ button, not only did he print out the ‘claim form’ but he also unknowingly sent his full identity and credit card details electronically to an organised criminal syndicate in the Ukraine.
His identity was then sold on the black market. His credit card was used fraudulently to make $10,000 in purchases from online merchants. The syndicate also lodged a false income tax return in his name.
Suspect tax returns try to claim $millions in refunds
The Tax Office has advised that since 1 July 2010, more than 7,000 suspect income tax returns have been stopped for review. The returns which have been stopped and reviewed are making claims for refunds of around $30 million.
Last year, the ATO detected around 26,000 suspect income tax lodgments worth about $120 million in refund claims. Over 90% of returns reviewed included invalid claims.
Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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DID YOU KNOW
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Utopia Financial Services Administrator - Post Date: 16/09/2010 1:45:21 PM
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If you want to deposit money in to your Macquarie CMA you can do it by electronic deposit or at any Nation Bank Branch.
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