Tax & Super Newsletter - February 2019

ATO Data Matching: Share Transactions

The ATO has extended its data matching program, this time focusing on share data.

The latest data matching protocol will see the ATO continue to receive share data from ASIC, including details of the price, quantity and time of individual trades dating back to 2014, with more than 500 million records obtained.

The ATO will use the information to identify taxpayers who have not properly reported the sale or transfer of shares as income or capital gains in their income tax returns.

The ATO has stated that share transactions are high on its priority list given more than 5 million Australian adults (almost one-third of all Australian adults) now own shares.

The ATO intends to make the information obtained from this protocol available to taxpayers as part of its prefill service. Taxpayers contacted by the ATO will be given the opportunity to verify information collected from data providers before any compliance action is undertaken.

Business Cars and FBT

The ATO has advised that it will be contacting tax agents on behalf of clients that have been identified as having cars registered in their business name where they have not lodged a Fringe Benefits Tax (‘FBT’) return.

In particular, the ATO is requesting that clients may need to be reminded of their obligations and that:

  • a car fringe benefit occurs when a business owns or leases a car and makes it available for an employee’s private travel or use (including garaging the car at or near an employee’s home and making it available for private use); and
  • business directors are also employees for FBT purposes.

External Agencies to Enforce Lodgment Obligations

The ATO has finalised a trial relating to sending overdue taxpayer lodgment obligations to external collection agencies. As a result, it may now refer taxpayers to an external collection agency to secure tax return lodgment.

From November 2018, the ATO will notify tax agents of affected clients with overdue lodgment obligations (via a separate email) that it is referring the clients to an external collection agency if they do not lodge. Such letters will be sent directly to a relevant client’s nominated address, asking them to seek their tax agent’s help to either get their obligations up to date or contact the ATO.

The ATO has stated that it will only refer a taxpayer to an external collection agency where the taxpayer subsequently takes no action in response to these letters.

To prevent clients from being referred to an external collection agency, the ATO advises that tax agents can:

  • discuss any overdue lodgments with their clients;
  • help them lodge;
  • phone the ATO if they or their clients are having difficulties;
  • ensure all clients’ contact details are up to date; and
  • remove clients from their list if they no longer use the agent’s services.

Importantly, any referral to an external collection agency with respect to outstanding lodgments will only be taken as an act of ‘last resort’.

LCR 2018/9 – Downsizer Contributions

The ability to make downsizer contributions effectively commenced on 1 July 2018, prompting the ATO to release further guidance with respect to the implementation of this new superannuation contribution classification.

In short, this Law Companion Ruling focuses on the numerous conditions that must be satisfied for a contribution to qualify as a ‘downsizer contribution’, including the following:

  • the individual must be aged at least 65;
  • the contribution does not exceed the lesser of $300,000 and the proceeds received from the sale of an eligible Australian dwelling;
  • the contract of sale for the property was entered into on or after 1 July 2018;
  • there was consideration received for the disposal of the dwelling;
  • an ownership interest in the dwelling had been held for at least 10 years (usually by the individual making the contribution, or their spouse);
  • either a full or partial CGT main residence exemption applies to the disposal of the dwelling;
  • a choice to treat the contribution as a downsizer contribution is made in the approved form;
  • a contribution is generally made within 90 days of settlement; and
  • broadly speaking, it is the first downsizer contribution the taxpayer has made.

Single Touch Payroll

Single Touch Payroll (STP), the new government initiative aimed at streamlining employer payroll reporting obligations, revolutionised the way employers report payroll information to the ATO

STP is a new reporting mechanism, whereby each time an employer pays their employees, the employer will also send the ATO their STP data (such as salary, wages, allowances paid, and the PAYG withholding on these payments) from their payroll software. This is done through an “STP pay event” that captures each weekly, fortnightly etc pay cycle. If employers need to, they will be able to make corrections to employee year-to date amounts in the following STP pay event.

Parliament has passed legislation to extend STP reporting to all employers from 1 July 2019. The Treasury Laws Amendment (2018 Measures No. 4) Bill 2018 is yet to receive Royal Assent.

Talk to your software provider to find out what you need to do to update your software and start reporting.

Different STP reporting options will be available by 1 July 2019 to help smaller employers. However, employers with 19 or less employees won’t be forced to purchase payroll software if they don’t currently use it.

Software developers have been asked to build low-cost STP solutions at or below $10 per month for micro employers – including simple payroll software, mobile phone apps and portals. A register of providers who intend to build these solutions is available at Low-cost STP solutions.

Micro employers (1–4 employees) will also have a number of alternative options that are not available to employers with 20 or more employees – such as initially allowing your registered tax or BAS agent to report quarterly, rather than each time you run your payroll.

Exemptions to STP reporting will also be available if you have no internet or an unreliable connection.

ALP Franking Credit Refund Policy:
Get your message heard

SME has previously addressed the ALP’s proposed changes to franking credit refunds, and its likely negative affect on many SMSFs. As a result of the ensuing political fall-out, the government determined that this was an opportunity to make things difficult for the opposition. As such, the chair of the House of Representatives Standing Committee on Economics, Liberal MP Tim Wilson, established an Inquiry into the Implications of Removing Refundable Franking Credits.

When outlining the role of the committee, Wilson said of franking credit refunds:
“… the ability for investors, including individuals and superannuation funds, to claim their full credits is an established feature of our tax system and is core to the financial security of retirees. 

“The committee is examining what impacts the removal of refundable franking credits would have, particularly on retirees who have made long-term retirement saving decisions based on their ability to claim refunds on their franking credits, and whether it will compromise their financial security.”

The committee will inquire into and report on the use of refundable franking credits, the benefits of them and the implications of their removal. Its stated terms of reference will include:

  • analysis of who receives refundable franking credits, the opportunities this provides to offer alternative savings and investment vehicles to low and middle-
  • income earners, and the impact it has on reducing tax bills
  • consideration of how refundable franking credits support tax principles, particularly implications for tax neutrality, removal of double taxation and fairness
  • if refundable franking credits are removed, who this would affect and how, and the implications from expected behavioural changes by investors. These could include;

– increased dependence on the pension

– stress and complexity it will cause for all investors, including older Australians, to adjust their investments

– if there are carve-outs applied, what this might mean for additional complexity, uncertainty and fairness

– reduced incentives to save, and possible distortions to investment in certain asset classes

– the reliability of providing a sustainable revenue base over the longer term.

The committee’s terms of reference make it clear that this inquiry is designed to draw out as much pain as possible for the ALP. Given that the majority on the committee are also Liberal MPs, it is likely that the committee’s final report will call for retention of refundable franking credits, while a minority report is likely to argue in favour of the proposed changes.

What is the ALP proposal again?
Initially, the ALP proposed to abolish all excess franking credit refunds if elected. After an initial backlash, it modified these proposals. The main amendment to the original proposal was to exclude all pensioners from the proposal, which applied not just to those on a full government pension, but also part-pensioners (around 280,000 in total) and any non-aged pensioners on other allowances, such as a carer pensions, unemployment and disability pensions (around another 30,000).

To placate the SMSF sector, the ALP also suggests removing around 13,000 SMSFs that had at least one pensioner or another allowance recipient as at 28 March 2019 from the proposed reforms.

Opposition to Alp Proposal Intensifies
Despite changes to the ALP proposal, there is still significant opposition to it. The Alliance for a Fairer Retirement System was specifically formed to oppose it, and is comprised of the SMSF Association, Australian Shareholders’ Association, Self-Managed Independent Superannuation Funds Association and National Seniors Australia. There are other groups similarly opposed.

The Alliance’s focus is to explore options to fix problems with existing superannuation taxation measures, Age Pension means testing and broader retirement income systems. In its fight against the proposal, it has set up a pro-forma letter that can be downloaded at the link below and amended to suit individuals’ responses to the inquiry: news/2018/6/22/take-action-use-our-lettertemplate

Looking Ahead
There has certainly been strong opposition to the ALP proposal and there is still time for retirees to raise their concern. With a likely May election fast approaching, and if the ALP remain ahead in the polls, an ALP victory is more than a distinct possibility, and its franking credit policy is more likely to become a reality.

Correctly Applying the $300 Minor Benefit Exemption

With the festive season over, understanding the various FBT exemptions can help reduce the cost for employers who played Santa. Arguably the minor benefit exemption is the most valuable FBT exemption and broadly applies if:

  • the ‘notional taxable value’ of the benefit is under $300; and
  • having regard to certain criteria such as frequency, regularity, associated benefits and valuation issues, it would be unreasonable to treat the benefit as a fringe benefit.

Where the minor benefit exemption applies, no FBT is payable in respect of the benefit provided.

Consequently, no tax deduction and no GST input tax credits can be claimed for the cost of the benefit if that benefit constitutes the provision of entertainment.

For many employers, however, avoiding a 47% FBT liability will outweigh the forgone tax deductions and GST credits. Unfortunately, the application of the minor benefit exemption is often misunderstood.

Notably, it can only apply if the actual method is used. That is, the exemption cannot apply if either the 50/50 split or 12-week register methods are used to value meal entertainment benefits. Furthermore, there is no safe harbour or guidance on the number of times benefits can be provided for the exemption to apply.

On the plus side, the $300 threshold is applied per person, per benefit which means that multiple benefits provided to an employee (e.g., a gift voucher and Christmas lunch) are not added together in determining if the $300 is exceeded.

However, a word of caution! If the less than $300 threshold is exceeded (even by $1), the entire cost of the benefit will be subject to FBT – making for an expensive festive season!

Proposed Increase in Instant Asset Write-Off Threshold (to 25k)

The government has proposed to increase the threshold for the instant asset write-off to $25,000 as it looks to entice the small business sector ahead of a federal election.

Prime Minister Scott Morrison has pledged to increase the small business instant asset write-off to $25,000 from $20,000.

The write-off will be available for small business with an annual turnover of less than $10 million and will apply until 30 June 2020.

The government will be seeking to legislate the change when Parliament resumes in February.

This measure is estimated to have a cost to revenue of $750 million over the forward estimates period, with an estimated 3 million small businesses eligible to access the write-off.

“The $25,000 instant asset write-off will improve cash flow by bringing forward tax deductions, providing a boost to small business activity and encouraging more small businesses to reinvest in their operations and replace or upgrade their assets”.

The government’s decision to raise the threshold comes after Labor announced that it would introduce the Australian Investment Guarantee, a permanent feature which will allow businesses to immediately deduct 20 per cent of any new eligible asset worth more than $20,000.

Labor has also pledged to introduce a dedicated small business minister in cabinet if it forms government.

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