Impact of recent tax & super changes Tony Greco FIPA Who - PDF document

Impact of recent tax & super changes Tony Greco FIPA Who should you trust? Institute of Public Accountants Relevant matters for Tax Practitioners • Work related expenses - update • Enterprise tax plan • Cash economy • ATO system outages • Superannuation Changes/ Pre 1 st July Checklist • Division 7A – UPE • Sharing economy • Whistle-blowers • Backpacker tax • Single Touch Payroll • Federal Budget

Work related expense claims Recent reform attempts • Henry review – standard deduction o The House of Representatives Standing Committee on Economics commenced a short term inquiry at the Treasurer’s request “the committee examine some options to simplify the personal and company income tax system, with a particular focus on options to broaden the base of these taxes in order to fund reductions in marginal rates o No report was tabled • ATO focus o WRE rising faster than inflation o Agent claims average higher than self preparers o Based on ATO validation process no discernible difference between rate of adjustment between TA lodged or self preparers o Data analytics to compare work-related expense claims made by the tax practitioner with a similar client base o Tax agents have been risk profiled o ATO checking with clients employer to confirm the expenses were required to earn their income and were not reimbursed – agents should also ask this question Enterprise Tax Plan Currently the following tax concessions that are available to small business entities: • Immediate deductibility for small business start-up expenses; • Simpler depreciation rules; • Simplified trading stock rules; • Roll-over for restructures of small businesses; • Deductions for certain prepaid business expenses immediately; • Accounting for goods and services tax (GST) on a cash basis; • Annual apportionment of input tax credits for acquisitions and importations that are partly creditable; • Paying GST by quarterly instalments; • Fringe benefits tax (FBT) car-parking exemption; and • Pay-As-You-Go (PAYG) instalments based on gross domestic product (GDP)-adjusted notional tax • Access to the lower corporate tax rate – currently 28.5%

Enterprise Tax Plan • 2007 when the $2 million turnover threshold was introduced • Increasing the threshold would also assist businesses with a higher aggregated turnover, but low margins to access the concessions. o It is estimated that increasing the threshold would allow an additional 90,000 to 100,000 businesses access to the small business tax concessions • Of particular interest to entities with turnover above the existing threshold limit is access to simpler depreciation rules, lower corporate tax rate and also the newly enacted small business roll-over restructure relief. o Small business can immediately write-off and deduct most depreciating assets that cost less than $20,000. Depreciating assets costing $20,000 or more can be placed in a small business asset pool and the entity can claim − a 15% deduction in the first year (regardless of when you purchased or acquired them during the year) − a 30% deduction each year after the first year o The small business restructure rollover (SBRR) Small Business Income Tax Offset Income year/s Rate of small business Corporate tax rate applying income tax offset to small businesses 2015-16 5 per cent 28.5 per cent 2016-17 to 2023-24 8 per cent 27.5 per cent 2024-25 10 per cent 27 per cent* 2025-26 13 per cent 26 per cent* 2026-27 16 per cent 25 per cent* and later income years

Cash & Black Economy Government has taken significant action against multinationals (MAAL & DPT) • Next in line cash economy those who operate entirely outside of the tax system or those in the tax system who understate income or overstate their expenses • Size of cash economy – 10 to 15 per cent of GDP Reviews in progress • Board of Tax – sharing economy & cash economy • Minister for Revenue an Financial Services – Black economy taskforce • Senate Committee Tax and Revenue Cash & Black Economy • France – Cash payments over 1000 euros banned • Denmark – Goal of eradicating cash by 2030 • Spain – Bonuses for tax staff for meeting tax fraud detection targets, cash payment limits • Sweden – Certified cash register for businesses dealing in cash which provides real-time information on business activities • Norway – Individual tax returns are posted online and are available for public inspection • Hong Kong – Octopus contactless smart card • Portugal – Government lottery for people who demanded receipts • India – Policies to encourage non-cash payments • UK – Publicity campaigns to encourage people to report undeclared income/data from payment providers to identify hidden economy

ATO system outages • Major hardware failure in December 2016 • More outages in January 2017 • Adversely impacted stakeholders • PwC to prepare independent report – what caused hardware to fail • Internal ATO review of impacts on stakeholders • Impact on rollout of improved tax practitioner systems • ELS to PLS • Portal to online portal services • Digital strategy Superannuation Changes • Superannuation is a financial product hence be careful not to offer advice unless suitably licenced under FOFA • How the AFS licensing regime applies to SMSF services provided by accountants http://asic.gov.au/for-finance-professionals/afs- licensees/applying-for-and-managing-an-afs-licence/limited- financial-services/afs-licensing-requirements-for-accountants- who-provide-smsf-services/ • Consider limits of professional indemnity insurance • Changes impact almost everyone • Not just those with balances > $1.6M • 10 per cent rule, lower concessional caps, Div 293, Spouse contribution rebate, LISTO, TTR

Superannuation Changes • Cart before the horse • Instead of starting by defining the long term purpose of superannuation, the Government decided to proceed with wholesale changes • Short term revenue versus long term social and economic policy • Super not to be used for estate planning • Changes are retrospective • Make no mistake these changes are complex • RBL’s all over again • Need to engage with affected clients Superannuation Changes Estate planning using super for HWI turned on its head • Other options become viable depending on circumstances o Family trust – Income splitting/CGT discount o Investment bonds – tax free after 10 years o Property o Transfer balance cap per person (Rebalancing between Husband/Wife) − $1.6M Cap per person which could disadvantage certain couples − Beneficiary of death benefit counts towards transfer balance cap o Also depends on level of assets held outside of super as individuals benefit from tax free threshold Funds held in accumulation account subject to 15% tax rate so still concessionary taxed and benefit from imputation credits. o No limit on amounts in accumulation account

Superannuation Changes Re-contribution strategy – minimise taxable components to save tax when death benefits paid to non financial beneficiary • Withdraw money from super if you over 60 years of age, retired/over preservation age and recontribute as a non concessional contribution • If you are under 65 three year bring forward rule for non-concessional contribution allows recontribution of $540,000 • After 1st July the transfer cap will restrict making non-concessional contributions unless superannuation balance is less than $1.6 • Strategy will only benefit those with balances less than $1.6M after 1st July 2017 A pre-30 June superannuation checklist Reduced non-concessional contribution (NCC) caps The 2017 financial year is the last chance to contribute up to $540,000 before changes to caps, bring-forward provisions and loss of eligibility to contribute for those with balances in excess of $1.6 million • Ensure bring-forward provisions have not already been triggered in the past two years o Members must be under 64 at some time during the current financial year to be eligible to access bring-forward provisions and if aged 65 or over at the time of the contribution, the work test must be satisfied as well o If the full $540,000 is not contributed this financial year transitional NCC cap apply from 1 July 2017

Super Changes – Non-Concessional Contributions • Reduction in NCC caps 2011 - 2014 2015 - 2017 2017/18 Age < 65 years at 1 July - Annual cap $150,000 $180,000 $100,000 - 3 year cap $450,000 $540,000 $300,000 Age > 65 years at 1 July - Annual cap $150,000 $180,000 $100,000 o If TSB > $1.6m unable to make NCCs Super Changes – Non-Concessional Contributions • NCC Cap