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

Who should you trust?

Impact of recent tax & super changes

Tony Greco FIPA Institute of Public Accountants

Relevant matters for Tax Practitioners

• Work related expenses - update
• Enterprise tax plan
• Cash economy
• ATO system outages
• Superannuation Changes/ Pre 1st 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
• 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

• No report was tabled
• ATO focus
• WRE rising faster than inflation
• Agent claims average higher than self preparers
• Based on ATO validation process no discernible difference between rate of adjustment

between TA lodged or self preparers

• Data analytics to compare work-related expense claims made by the tax practitioner with a

similar client base

• Tax agents have been risk profiled
• 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.

• 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.

• 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

• The small business restructure rollover (SBRR)

Small Business Income Tax Offset

Income year/s Rate of small business income tax offset Corporate tax rate applying 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 and later income years 16 per cent 25 per cent*

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

• verstate 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
• Family trust – Income splitting/CGT discount
• Investment bonds – tax free after 10 years
• Property
• 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

• 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.

• 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

• 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

• 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
• If TSB > $1.6m unable to make NCCs

2011 - 2014 2015 - 2017 2017/18 Age < 65 years at 1 July

• Annual cap
• 3 year cap

$150,000 $450,000 $180,000 $540,000 $100,000 $300,000 Age > 65 years at 1 July

• Annual cap

$150,000 $180,000 $100,000

Super Changes – Non-Concessional Contributions

• NCC Cap

Super Changes – Non-Concessional Contributions

• NCC Cap

Total Super Balance Maximum NCCs Bring forward years Less than $1.4m $300k 3 $1.4m – $1.5m $200k 2 $1.5m - $1.6m $100k n/a Greater than $1.6m $nil n/a

A pre-30 June superannuation checklist

Existing income streams

• transfer balance cap Individuals with pension accounts in excess of

$1.6 million will need to commute amounts in excess of this balance back to accumulation accounts

• If you have multiple super accounts, ensure the transfer balance cap

is not exceeded in total as penalties can apply

• Where income streams are being received from a defined benefit

fund or a constitutionally protected fund or where the income stream is a market-linked (term allocated) pension, a notional transfer balance cap will need to be calculated using a set formula.

• While these notional amounts will not of themselves result in a breach of

the transfer balance cap, the notional balance will be necessary to determine how much can be used for a pension with other super accounts.

A pre-30 June superannuation checklist

Capital gains tax relief

Capital gains tax (CGT) relief is only available to those with income streams already in place on 9 November 2016 that are either transition-to-retirement income streams (TRIS) or have underlying balances above $1.6 million. In both cases, an amount will be required to be transferred out of the pension back to accumulation to comply with the new laws Different methodologies for calculating CGT relief are available depending on whether assets are segregated or unsegregated. The date that can be used for calculating CGT can also differ

• Irrevocable elections need to be made in order to access CGT relief, including

whether to use the relief available and whether to defer any tax liability

• One third CGT discount more valuable than the cost base reset if asset likely

to be sold before 30th June 2018

A pre-30 June superannuation checklist

• Anyone undertaking salary sacrificing arrangements for

additional super contributions may need to adjust these to ensure they stay under the new, reduced $25,000 CC cap

• Tax offsets for spouse contributions will be more widely

available with the eligibility threshold increasing from $13,800 to $40,000

GST-light - offer for new small businesses

ATO are reducing the amount of GST information required for the business activity statement (BAS). Businesses will be able to more easily classify transactions and prepare and lodge their BAS. From January 19, 2017, newly registered small businesses will be provided with the option to report less GST information on a simpler BAS. To take advantage of this option, your small business clients that register for GST from January 19 will need to do the following:

• If a quarterly GST reporting cycle is selected when registering for GST, they will need to select
• Option 2: Calculate GST quarterly and report annually” on their first BAS.
• The ATO says it will not be seeking the additional GST information or lodgement of the “annual GST information report”.
• If a monthly GST reporting cycle is selected at registration, you can insert “0” at G2, G3, G10 and G11 on your client’s BAS.
• If an annual GST reporting cycle is selected, you can leave G2, G3, G10 and G11 blank on your client’s annual GST return.

Note also that from July 1, 2017 small businesses will only need to report the following GST information on their BAS:

• GST on sales (1A)
• GST on purchases (1B)
• Total sales (G1)

The requirement to report export sales (G2), other GST free sales (G3), capital purchases (G10) and non-capital purchases (G11) will also be removed.

Professional Standards Council

• Member survey on claims as part of the new Professional

Standards Council Scheme application

• Cap liability for IPA PPC holders
• As part of the survey 2.8% of members had claims
• CGT SB Concessions ( 2 highest claims $900k and $1.1M)

ATO to disclose tax debts credit agencies

The MYEFO included an announcement that from 1 July 2017 the ATO can disclose to Credit Reporting Bureaus the tax debt information of businesses that have not effectively engaged with the ATO to manage those debts. This will be a new and unprecedented power for the ATO.

• This measure is part of the Government’s strategy to reign in overdue tax and improve transparency of taxation debts, and

will initially only apply to businesses with an A B N and tax debt of more than $10,000 that is at least 90 days overdue

• The MYEFO confirms the ATO is owed $19b in overdue tax, approximately two thirds of which is owed by small businesses

with a turnover under $2m. The rising level of debt, particularly in small business, presents a growing challenge for the ATO

• Balance of collecting tax arrears without (where possible) suffocating the cash flow of the business
• ATO debt is often pushed to the back of the queue, and will be allowed to accumulate—often until the ATO pursue legal

proceedings

• That landscape is about to change, as defaults being recorded on a taxpayer’s commercial credit file will have immediate and

lasting consequences for a defaulting taxpayer

• A credit default is a black mark that lasts for five years, and creates an environment where support from financiers may be withdrawn

and supplier credit stopped.

• Need to consider the potential ramifications for small businesses to avoid potentially imposing irreversible

damage on thousands of small businesses from 1 July 2017

• Clearly, there has never been a more important time to engage with the ATO to manage unpaid tax

Compulsory Super

• SG System broken
• Employers have to make SG contributions within 28 days end qtr
• Employees do not know if an employer has or hasn’t made their SG

contributions

• Contractor versus employee issues
• SG penalty regime unduly harsh
• Employers have to make SG contributions within 28 days end qtr
• Employees do not know if an employer has or hasn’t made their

SG contributions

• Contractor versus employee issues
• SG penalty regime unduly harsh

Unfinished business - Division 7A unpaid present entitlements

ATO to commence consultation process on Division 7A unpaid present entitlements and maturity of “Option 1” safe harbour in PS LA 2010/4 (7 year interest only loans)

Specifically, this consultation process will focus on:

• unpaid present entitlements (UPE) owing from a trust to a private company in the same family group where the

trustee holds the funds representing the UPE on sub-trust for the sole benefit of the private company beneficiary, and

• that sub-trust has come about because the funds were invested in the main trust using the “Option 1” safe

harbour outlined in PS LA 2010/4 – that is, the funds representing the UPE were invested as an interest only 7- year loan (see paragraphs 40 to 58, and 62 to 73 of the practice statement)

• Investments falling into this “Option 1” safe harbour are likely to mature in the income year ending 30 June 2018,

although there may be some that may mature in the income year ending 30 June 2017

• The ATO is conscious of the time sensitivity for taxpayers who have availed themselves of this “Option 1” safe

harbour and expects to complete this consultation process in March 2017

Sharing Economy

Air tasker, Uber, Airbnb, Stayz, Go Catch, Mad Paws, Park Hound, Spacer

Clarifying confusion over the sharing economy – ATO factsheet

• Is Airbnb a problem for my tax?
• I don’t have to put it in my tax return right?
• I’m sure we’ve all had similar conversations with our clients and friends, and of

course the answer is yes, plus you need to keep some records.

• What’s more, putting a main residence on Airbnb will limit capital gains tax (CGT)

exemption on that residence

• Reaction - Wide eyes and uncomfortable silence tend to follow this answer

Sharing Economy

The ATO’s published view is that renting out a property via the sharing economy is no different to more traditional methods - the income needs to go in your client’s tax return

• The only exception the ATO sees is if the property is offered below

market value, say as a favour to family or a friend, and the client seeks to claim a loss for tax purposes

• The only other circumstance that could potentially fall outside this

interpretation is where rooms in a share house are on Airbnb just to recover costs while their regular occupants are on holidays etc.

Whistle Blowers

Whistle-blower reforms overseas have resulted in increase disclosures, prosecutions and revenue collections

• Extended definition of whistle blower proposed to include

accountants and other advisers

• Strengthen Compensation remedies caused as a result of disclosures
• Whistle blower rewards – financial incentives

Backpacker Tax

• How the change to the backpacker tax rate will affect you

From the 1st of January 2017 employers who employ, and those who intended to employ, backpackers are required to register with the ATO and are subject to withholding a new tax rate

• f 15 per cent from first dollar earned

Specifically, this backpacker tax covers individuals with the Working Holiday visa (subclass 417) or Work and Holiday visa (subclass 462), which gives them the right to work in Australia. All payments made to employees before 1 January 2017 are not subject to this new tax rate. If you fail to register, you must use the foreign resident withholding rate, which starts at 32.5 per cent for the first $37,000

• All salary and wages paid before 1 January 2017 to all non-resident backpackers are subject

to a 32.5 per cent tax rate from the first dollar earned You must register to withhold tax at the working holiday maker tax rate before making your first payment to them. Also, it is advised that employers check the visa status of their employees before deciding on a tax-withholding rate using the ‘Visa Entitlement Verification Online’ service. Employers who fail to register with the ATO open themselves up to administrative penalties

FBT Notable Changes

Electronic devices

FBT treatment of portable electronic devices. Previously, the FBT exemption applied generally to only one work-related device per employee per FBT year

• For the 2017 year (that is, from April 1, 2016), limit of one has been lifted. Now,

employees can be provided with multiple electronic devices, which will also be FBT exempt, regardless of whether these have substantially similar functions

Meal entertainment

A single grossed-up cap of $5,000 applies to any salary packaged meal entertainment (and entertainment facility leasing expenses) for the 2017 FBT

• year. Exceeding the cap will see FBT applied
• The 50/50 method and 12-week register cannot be used

FBT – Work Horse vehicles

• Currently exempt when private use (other than home

to work travel) is minor , infrequent and irregular is limited

• More helpful guidelines and possibly safe harbour
• Private use of less than 10% of total use or private use

below say 2,000 kilometres will not jeopardise exemption

Loo

• omin

ing Fed eder eral Bud udget

• Kite flying season well underway
• First term budget after election
• Government facing difficulty getting saving measures

through senate

• Housing affordability measures
• Tax mix will come back to haunt us
• Tax reform mothballed ?