Tax News

Are you a business owner in the cafes and restaurants, real estate services or carpentry services industries?  The Australian Tax Office has named the "high risk" areas of superannuation defult. 

Despite the importance of super, some employers in these industries do not always get their super obligations right. Over the next six months, the ATO will provide information to you to better understand your super obligations. Later this year they will be undertaking audits of employers who continue to not meet their super obligations for their employees.

If you need assistance with an ATO audit, please contact us.

What’s ahead in the new year on the tax front  -  will you be getting any benefit out of the recent tax changes that have been announced?

Compared to recent years, the 2011 Federal Budget did not introduce any major changes, however, some new measures were outlined which will no doubt impact on how you manage your financial affairs and plan for your retirement.

In addition to the specific budget announcements, we now face the prospect of having to deal with the impact of the carbon tax which is expected to increase the cost to both individuals and businesses alike.  Cost increases will mean that you will need to factor these in any financial or business plan you put in place in the future.

If you have incorrectly classified yourself as a personal services business (PSB) instead of reporting personal services income (PSI) be on notice that the Tax Office will be conducting audits to ensure tax payers have correctly classifed themselves.   The Tax Office have advised tax agents that they intend to start audit activity in this area.  An extract of the notice states:

"we will write to some taxpayers who have reported personal services income (PSI) and may have incorrectly self-assessed themselves as conducting a personal services business. If one of your clients is selected for this mailout, you will receive a letter in advance that will include:

• a copy of the client letter
• a list of your clients affected

The Treasurer has released for comment the Business Tax Working Group's Interim Report on the Tax Treatment of Losses. The interim report is on the Treasury website.

The report sets out 4 possible reform elements, which could be pursued individually or in combination:

• Replacing the current integrity
• Allowing immediate loss refundability
• Allowing losses to be carried back and offset against previous years' profits.
• Allowing losses carried forward to be uplifted by a determined benchmark rate.

LAFH concessions provide tax-free benefits for housing and food costs of employees who are required to live away from home temporarily in order to perform their employment duties. From 1 July 2012, the Government is seeking to reform the rules by moving the current rules in the Fringe Benefits Tax (FBT) regime to the Income Tax regime.

LAFH allowances will only be accessible where the amounts are substantiated and where the temporary resident is living away from a maintained Australian home that is for their own use. This is similar to the rules applying to Australian employees. From 1 July 2012, temporary residents will be subject to personal taxation on these LAFH payments where they do not maintain an Australian home, effectively reducing their take home pay.

The adjusted basic resident  tax scale for 2011-2012 is as follows:

The adjusted basic resident tax scale for 2012-2013 is as follows:

*Plus Medicare Levy as applicable.

Government proposes more "robust" transfer pricing rules for multinationals

In media release No 2011/145, issued 1 November 2011, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, announced that the Government will reform the transfer pricing rules in the income tax law and Australia's future tax treaties to bring them into line with international best practice, improving the integrity and efficiency of the tax system.

At the same time, Mr Shorten announced the release of a consultation paper relating to the proposed changes. The closing date for submissions on the consultation paper is Wednesday, 30 November 2011

Commissioner of Taxation v Byrne Hotels Qld Pty Ltd concerned an appeal by the Commissioner against the decision of the Tribunal that a real estate agent’s commission and certain legal fees in relation to the sale by the taxpayer of a hotel business in the 2004 income year, and the sale by a connected entity of the land on which the business was conducted, were liabilities to be taken into account in determining the maximum net asset value (MNAV) of the taxpayer.

By majority (Greenwood J with whom Dowsett J agreed), the Full Federal Court held that the obligations to pay the commission on settlement of the contracts to dispose of the hotel business and land were liabilities in respect of the CGT assets of the taxpayer and its connected entity 'just before the CGT event', being the date of the contracts. As a result, they should be taken into account for the purposes of MNAV test in s152-15 of the Income Tax Assessment Act 1997.

In the 2009-10 Federal Budget, the Government announced that it would replace the existing research and development (R&D) tax concession with a new R&D tax incentive. The Government issued a consultation paper entitled The new research and development tax incentive in September 2009 and a first exposure draft of the legislation in December 2009. Following consultations with stakeholders, a second exposure draft was released in March 2010. The second exposure draft included changes to make the legislation clearer and to remove unintended consequences following consultation.

On 24 August 2011, Tax Laws Amendment (Research and Development) Bill 2010 and Income Tax Rates Amendment (Research and Development) Bill 2010 were passed by the Senate with amendments. The operative rules for the new R&D tax incentive are primarily contained in a new Division 355 of the Income Tax Assessment Act 1997 (lTAA97). The Bills received Royal Assent on 8 September 2011 and apply from 1 July 2011.

Changes to the tax consolidation treatment of rights to future income and associated residual cost setting rules announced today 25th November by Treasury. Below is an extract from Treasury of the changes.

The Government will introduce changes to income tax law affecting consolidated groups as part of its continued commitment to maintaining the integrity, equity and fairness of the tax system.

Examples of “Rights to Future Income” assets (or RTFI assets) may include:

• work in progress
• contracts to supply goods or services
• construction contracts
• right to trailing commission
• right to deferred management fee

We are adding a feature to our website.  We understand that it can be difficult to find a local tax accountant. As a result we will be building a directory of accounting firms in Australia.  The directory can be found here www.accountant.com.au/accountants.

If you would like to add your firm to our directory listing please send your details to info@accountant.com.au.  We will add your firm to the relevant suburb.  Be sure to provide us with:

 - name of your firm

 - address, contact and email details

 - description of services

The Australian Taxation Office (ATO) on Monday ruled that taxpayers can no longer presume asset sales made by trusts will be eligible for the 50% CGT discount.

This Tax Determination (TD 2011/21) flags the intention of the Tax Office to target trusts and capital gains.   http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD201121/NAT/ATO/00001

Now is the time to appoint a tax agent to prepare your income tax return.  If you appoint a tax agent before October you may be eligible for an extension of time (up to May 2012) to lodge and pay your income tax.  Sydney Accountants and Tax Agents can be found by contacting 02 8264 0755.

This concession is generally only available where you have a registered tax agent prepare your tax return.  There are many other reasons you may want to consider having a tax agent and Chartered Accountant prepare your return, such as specific tax expertise.

Given the complex nature of the Australian Tax law, it is almost vital to have an experienced tax advisor assist with the preparation of your tax return.

Last financial year:

• 28 people were prosecuted for over $17 million worth of GST-related fraud offences
• The ATO's verification checks of taxpayers Business Activity Statements resulted in over 30,000 statements being adjusted to reflect correct circumstances
• The ATO received over 44,000 'contacts' including calls, letters, faxes and emails from the community relating to those who may be doing the wrong thing towards their obligations via ATO Tax Evasion Referral Centre
• The ATO increased scrutiny of businesses deliberately not reporting cash income, with over 1.4 million small businesses evaluated against our sophisticated risk detection systems.

On 13 July 2011, the ATO issued Taxation Determination TD 2011/20 entitled "Income tax: what is the benchmark interest rate applicable for the year of income that commenced on 1 July 2011 for the purposes of Division 7A of Part III of ITAA 1936 and how is it used?"

For the income year that commenced on 1 July 2011, the benchmark interest rate for the purposes of ss109N and 109E of ITAA 1936 1 is 7.80 % per annum (up from 7.40% per annum for 2010-11).

Assistant Treasurer Bill Shorten today released a discussion paper outlining the Government’s proposed approach to introducing a 50 per cent tax discount for interest income, as announced in the 2010-11 Budget.

"The introduction of the discount will benefit more than five million taxpayers, with particular benefits for low- and middle-income savers who are more likely to put their savings into banks, credit unions or building societies, rather than investments," Mr Shorten said.

"A tax discount for interest income is an important step towards a more consistent taxation regime for savings."

In 2012-13, individuals will be entitled to a tax discount equal to 50 per cent on up to $500 of interest income received.

The Prime Minister today released details of the Government's plans to put a price on carbon. From 1 July 2012, the scheme proposes to set a price of $23 for each tonne of carbon pollution released into the atmosphere by Australia's biggest polluters. The price will rise by 2.5% a year in real terms during a 3-year fixed price period until 1 July 2015.

Small Business (a business with turnover of less than $2m) will benefit with an immediate tax deduction for assets costing up to $6,500.  This is an increase of $1,500 on the election promise of $5,000.

In addition to small business incentives there are also incentives to householders.  These changes include an increase in the tax free threshold and family tax benefit changes.

The Jobs Action Plan is designed to give businesses an incentive to employ new workers and expand their enterprises, Under the plan, businesses that increase the number of full -time equivalent (FTE) employees for a period of at least two years, will receive a payroll tax rebate following the employment of each additional employee in a position that is a new job .

The Jobs Action Plan:

• provides a payroll tax rebate of up to $4000 per employee for the first 100 000 new payroll tax paying jobs created in NSW 40 000 of the new jobs will be prioritised for non-metropolitan areas of NSW with the remaining 60 000 in metropolitan areas,

• provides for payment of the rebate in two equal parts, on the first and second anniversary of the employment of an additional employee in a new job

• applies to the first 100 000 new jobs created on or after 1 July 2011

The Australian tax office released today an overview of the trust streaming measures. 

These changes have been introduced pending a broader review of the taxation of trusts - including a rewrite of Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).

The amendments enable the streaming of capital gains and franked distributions to beneficiaries for tax purposes and introduce targeted anti-avoidance rules.

Tax Laws Amendment (2011 Measures No. 5) Act 2011 became law on 29 June 2011, giving effect to these changes.

Employee share schemes

Some companies encourage employees to participate in employee share schemes by offering employees shares, stapled securities or rights (including options) to acquire them (ESS interests) at a discount. Employee share scheme (ESS) income tax rules apply to this discount.

Shares and rights acquired before 1 July 2009

The ESS tax rules contained in Division 13A of Part III of the Income Tax Assessment Act 1936 that applied to shares and rights acquired before 1 July 2009 have been repealed. However these rules will continue to apply to any shares or rights acquired before 1 July 2009 on which tax has already been paid or was due to be paid.

ESS interests acquired after 30 June 2009

For ESS interests acquired after 30 June 2009, the ESS tax rules contained in Division 83A of the Income Tax Assessment Act 1997 apply.

The following occupation specific guide was released by the Australian Tax Office on 6th July 2011.  It provides some useful information for building construction workers when claiming work related expenses.   If you are not sure of your situation you should speak with a qualified chartered accountant.  If you require assistance please contact us.

When you can make a claim

In most situations you can claim tax deductions for work-related expenses as long as your claim meets the following conditions:

• you incurred the expense in doing your job
• the expense is not private (personal)
• you can show you incurred the expense by producing receipts or other written evidence.

The following occupation specific guide was released by the Australian Tax Office on 6th July 2011.  It provides some useful information for real estate agent employees when claiming work related expenses.   If you are not sure of your situation you should speak with a qualified chartered accountant.  If you require assistance please contact us.

If your total claims add up to more than $300 (excluding claims for car, meal allowance, award transport payment allowance and travel allowance expenses), you must keep written evidence, such as receipts. Your written evidence must show you have incurred the full amount of your claim, not just the amount over the first $300.

If the total amount you are claiming is $300 or less, you do not need to keep receipts, but you must be able to show how you worked out your claims.

The following occupation specific guide was released by the Australian Tax Office on 6th July 2011.  It provides some useful information for flight attendants when claiming work related expenses.   If you are not sure of your situation you should speak with a qualified chartered accountant.  If you require assistance please contact us.

When you can make a claim

In most situations you can claim tax deductions for work-related expenses as long as your claim meets the following conditions:

• you incurred the expense in doing your job
• the expense is not private (personal)
• you can show you incurred the expense by producing receipts or other written evidence.

The following extract is from the Australian Tax Office and details when various tax returns are due for lodgement and payment.

Note, if you registered with a tax return, the due date can be extended from 31 October 2011 to 15 May 2012.  If you need to register with a tax agent please contact us.

The Lodgment Program 2011-12 provides details of when, within the 2011-12 financial year, you need to lodge documents with us. The program is structured so you can progressively lodge 2011 income tax returns and other documents throughout the year.

The lodgment program focuses on lodgment requirements and also details when payment is required. The payment due date for an income tax return depends on the following:

• the lodgment due date
• when the return is lodged
• the type of taxpayer.

An important announcement from the Australian Taxation Office (ATO). The announcement concerns the administrative treatment that the ATO will be adopting for trustees that intend to stream franked distributions to certain beneficiaries for the 2011 income year (in accordance with the new rules contained in Tax Laws Amendment (2011 Measures No. 5 ) Act which received Royal Assent on 29 June 2011).

The ATO will not be selecting cases for review or audit in respect of the 2011 income year for the sole purpose of determining whether the purported streaming of capital gains or franked distributions by a trustee is effective. However, the ATO will be taking compliance action in cases where there has been a deliberate attempt to exploit weaknesses or deficiencies in the law.  

The Australian Tax Office publish detailed guides that are industry specific to help individuals determine what type of tax deductions the may be entitled to.  The guides not only cover occupations but also include common deductions in the industry you are likely to be able to claim.  Generally the guides are released each year.

We have attached direct links to the Australian Tax Office to assist.

Occupations include:

Airline Employees

Building Workers

Lawyers

School Teachers

Police Officers

Real Estate Employees

Truck Drivers

and more...

The Tax Office have relaeased on their website the following details in relation to the preparation of income tax returns. If you require electronic lodgement of your tax return for a speedy refund, please contact us.

From the ATO "In line with our service standards, we plan to process 94% of individual electronic returns within 14 days. Our experience shows that most of the remainder are processed within 30 days. Returns lodged on paper do take longer to process, however we plan to process 80% of these within 42 days.

It is important to note that some income tax returns will take longer to process. For example returns where:

• we require more information from you or need to cross-check information with Centrelink (for example if you have received family tax benefits) or the Child Support Agency
• items on the return need to be manually checked by a tax officer (for example if the name and address on your return does not match our records), or
• the return is identified as being potentially fraudulent or includes overstated claims"

The list of top 100 accounting firms is compiled each year by the BRW.  The list is current as at 2010.  There have been a few changes in the middle of the rankings mainly due to mergers and acquisitions, however the big end of town appear to remain constant.  The ranking is not an indication of which firm is the 'best' firm, rather it gives you an indication which is the largest.

The list includes:

PricewaterhouseCoopers
KPMG
Ernst & YOung
Deloitte
WHK Group
PKF
BDO
Grant Thornton
PKF
Pitcher Partners

The Commissioner [Tue 14.6.2011] announced the ATO will be paying close attention to the deductions made by people employed in particular occupations, including:

• earthmovers; flight attendants;
• carpenters and joiners (including apprentices and trainees); and
• real estate employees. 

The Commissioner said in the past the ATO found the individuals working in the targeted occupations more frequently claimed deductions such as motor vehicle and travel expenses incorrectly.

As a result, the Commissioner said from 1 July 2011, the ATO will be sending letters to around 116,000 individuals in these industries to inform them of the deductibility of various expenses.

The ATO has reminded private companies who received UPEs from a related trust between 16 December 2009 and 30 June 2010 that the UPE amounts may be treated as dividends paid to the trust. To avoid this, the ATO says, the trustee can hold the funds in a sub-trust for the sole benefit of the company and invest the funds into the main trust.

The ATO says the investment agreement between the main trust and the sub-trust must be in place by 30 June 2011. Further, the ATO provides an example agreement and says that regard should be had to PS LA 2010/4 (Div 7A: trust entitlements).

Annually the ATO provide a guide as to the areas of focus they will have for the coming year.  They do this to provide taxpayers the opportunity to get their affairs in order and achieve compliance.

This year's compliance program focuses on a broad community cross section. Its features include:

• use new risk filters and upgraded risk models to detect incorrect or fraudulent refund claims including business activity statement (BAS) credits
• continue an empathetic approach to taxpayers and viable businesses experiencing financial difficulty
• focus on the timely lodgment of BASs and the correct payment of employer obligations including superannuation guarantee and pay as you go withholding obligations and to ensure appropriate superannuation payments are made and claimed
• use data matching of 500 million transactions to identify non-lodgers and people who have under reported income or over claimed entitlements
• benchmark over 100 industries to deal with under reported or omitted income and cash transactions used to hide or evade tax obligations

Tax planning is considered to be a vital element of any business enterprise to ensure that no more tax is paid than is strictly necessary.  This, of course, is on the basis that any tax strategy that is employed is consistent with the law and, where necessary, backed up by proper tax advice to ensure that if there is a challenge by the ATO, that a reasonably arguable position is in place to defend the position taken.  Although the following tax planning strategies are primarily focussed on business taxpayers, it must be kept in mind that even individual taxpayers can benefit from tax planning strategies, for example, in considering timing opportunities for the disposal of CGT assets.

Importantly, year end tax planning will be effective only where the proposed course of action is in fact carried out as planned and backed up by proper commercial considerations.  Also, even if a proposed course of conduct meets the specific tax laws, the general anti-avoidance provisions of Part IVA must be considered to ensure they do not  impact on the effectiveness of the arrangements.

On 10 May 2011, Deputy Prime Minister and Treasurer Wayne Swan MP announced the Federal Budget for 2011-12. The Budget contained a number of items that apply to superannuation, in particular excess contribution tax.

Eligible individuals will be provided with the option to have excess concessional contributions refunded out of their superannuation funds. Refunded amounts will be taxed at the individual’s marginal tax rate, rather than paying excess contributions tax.