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Taxable SMSF Assets Double: Is Your Fund Affected?

New research has shown the transfer balance cap and reduction of tax concessions for transition to retirement pensions have achieved their policy outcome and made more SMSF assets taxable. This may be considered bad news for the SMSF sector, however, one ray of sunshine to emerge from the research is the policies’ unintentional outcome of improving gender imbalance in SMSF assets and balances. Find out whether your SMSF has been affected and how strategies could be implemented minimise the impact.

 

It’s been a little over a year since the dual changes of the pension transfer balance cap and the reduction of tax concessions for transition to retirement pensions were implemented by the government. Recent research has indicated that these changes has achieved their policy outcome by making almost 25% of previously tax-free SMSF assets lose their status and become taxable.

 

To recap, a pension transfer balance cap of $1.6m applied from 1 July 2017 to limit the total amount of accumulated superannuation that can be transferred to the retirement phase, where the earnings on assets are tax-exempt. The transfer balance cap is indexed but adjustments are unlikely to occur until at least 2023-24.

 

The ATO uses the concept of a transfer balance account to track each person’s net pension amounts against their transfer balance cap. Where an individual’s transfer balance accounts exceed their transfer balance cap, the ATO will issue a determination requiring the excess amount to be removed from retirement phase.

 

In addition, these excess transfer balance amounts are subject to tax, initially at 15% but increasing to 30% for breaches in subsequent years.

 

Similarly, the tax exemption on earnings for pension assets supporting Transition to Retirement Income Streams (TRISs), also known as transition to retirement pensions (TTRs) was removed from 1 July 2017. From that date, earnings from assets supporting TRISs were taxed at 15% instead of 0%. TRISs have traditionally been used by individuals who have reached their preservation age but do not want to retire.

 

According to recent research, at June 2018, one year after the sweeping superannuation changes came in, SMSF asset value in accumulation phase was approximately $422bn. This was a 90% increase from March 2017 (before the changes) when asset value in accumulation was around $222bn.

 

Based on simple modelling (not taking into account of contributions tax, deductible expenses, and rebates), assuming a modest return of 5% on assets for the 2018 income year, this increase of SMSF asset value in accumulation phase would result in $3.2bn worth of tax on SMSF earnings. This equates to a $1.5bn increase from the 2017 year.

 

However, it’s not all doom and gloom for the SMSF sector after the changes, one ray of sunshine in the research is that the changes have led to new strategies being implemented which significantly improved gender imbalance in SMSF assets and balances. Two of the most notable strategies used include:

-contributions splitting which involve a member of an accumulation fund splitting superannuation contributions with his or her spouse to equalise their total superannuation balances to counter the $1.6m transfer balance cap.
-recontributions strategy which involve withdrawal and recontributions to a spouse’s superannuation account to equalise total superannuation balances up to $1.6m each (subject to the non-concessional contributions limits).

 

Are you affected?

Is your fund affected by this? Talk to us today, we may have a strategy to help you reduce the taxable proportion of your SMSF assets. Alternatively, if you’re thinking of commencing a TRIS we can help you navigate the tricky laws around this area and make sure you get the maximum benefit from your hard-earned superannuation.

Super Guaranteed

Paying the right amount of super to your employees can at times be a complex exercise, with the threshold changes in the recent years and the contribution base which changes every year according to indexation factors. With the rise of the gig economy there’s also a grey area as to whether a certain person working for you is actually an employee or a genuine contractor. Find out what your super obligations are this year.

 

Are you paying the right amount of super for your employees? It’s that time of the year again, where the Australian Bureau of Statistics (ABS) release the indexation factors that are critical in determining various superannuation thresholds. While the super guarantee is still frozen at 9.5%, the maximum contribution base will increase to $54,030 per quarter (or $216,120) for 2018-19. Employers are not required to provide the minimum super guarantee for the part of employees’ wages above the maximum contribution base.

 

Besides the part employees’ wages above $216,120, you as an employer, are required to make minimum contributions of 9.5% of an employee’s ordinary time earnings by quarterly due dates to their nominated superannuation funds if you pay the employee $450 or more (before tax) in a calendar month. This is irrespective of whether an employee is full-time, part-time, casual, a family member, company directors, those who receive a super pension or annuity while still working, or temporary residents.

 

You should note that the ATO considers certain contractors that are paid mainly for their labour to be employees for super guarantee purposes. This is the case even if the contractor quotes an ABN. According to the ATO, you as an employer must make super guarantee contributions of 9.5% on what you pay your contractors if they are paid:

 

-under a verbal or written contract that is wholly or principally for their labour;
-for their personal labour and skills which may include physical labour, mental effort or artistic effort; or
-to perform the contract work personally.

 

If you’re not paying the right amount of super for your employees and some contractors, beware, the ATO uses sophisticated data analytics to identify employers at high risk of non-compliance. 

 

It also takes a differentiated approach to compliance and penalties depending on the compliance history of the employer and how actively they engage to meet their superannuation obligations. Therefore, it pays to be in the good books of the ATO as they may take a more accommodating approach should your business have any discrepancies in super guarantee payment to your employees.

 

However, employers who are unwilling to meet their super guarantee obligations should expect the ATO to take firm compliance action including the imposition of penalties such as the super guarantee charge, a Part 7 penalty (up to 200%) for late lodgement of the super guarantee statement or failing to provide information when requested, and an administrative penalty (up to 75%) may also apply for an employer who makes a false and misleading statement.

 

Need help?

If you’re having issues with working out the right super amount to pay to your employees or if you would like to determine whether that person working for you is considered to be an employee or a genuine contractor, we can help.

Got Clearance To Sell Your Home?

 

Did you know that if you’re selling your home you may need a capital gains withholding clearance certificate from the ATO? If you don’t, you may find a chunk of the sales proceeds from your home going to the tax man. The online process to obtain the certificate is quick and simple. Make sure you don’t get stung and get the certificate early.

 

In the market to sell your house? Before you call in the real estate agents and home stylists, you probably know that you’ll need to have a contract of sale handy. Did you know that you may also need to get a capital gains withholding clearance certificate from the ATO? This certificate allows ATO to identify whether withholding is required from the sale of Australian property and applies to any property where the contract price is $750,000 or above.

 

In the current market conditions, the $750,000 threshold means the need to obtain the clearance certificate would apply to the majority of real estate sales in capital cities and some larger regional centres around Australia. If you’re an Australian resident selling your home or investment property, applying for a certificate means that the purchaser will not have to withhold 12.5% of the purchase price. The online application process with the ATO is simple and requires only a few personal details, such as name, DOB, address, and TFN, in the case of an individual applicant.

 

For company applicants, name, TFN and ABN information are usually required. For trusts and superannuation funds, if the entity that has legal title to the asset is the trustee (in its capacity as either a company or an individual), then the trustee should apply for the clearance certificate using their own TFN or ABN (ACN can also be included as an attachment to the application).

 

It should be noted that even though the clearance certificate does not have to be provided to the purchaser until on or before the date of settlement (to ensure no withholding occurs), the online form should be lodged as soon as possible as it can take up to 14 working days to process.

 

If you’re a foreign resident and you’re selling a property in Australia, you do not need to complete a capital gains withholding clearance certificate as it doesn’t apply to you and you will be subject to the 12.5% withholding. However, you can apply to the ATO for a variation of the withholding rate in certain circumstances or make a declaration that a membership interest is not an indirect Australian real property interest and therefore not subject to withholding.

 

Just signed a contract to purchase a property for over $750,000? You should check with your conveyancer or lawyer that the vendor has provided the capital gains withholding clearance certificate or a declaration specifying that withholding isn’t required before settlement. Otherwise you must withhold 12.5% of the contract price of the property and remit the amount to the ATO upon settlement of the property.

 

Confused?

If you are selling your property, we can help you obtain your clearance certificate as well as outline any CGT consequences of such a sale and whether any exemptions are available. We can also help you determine whether you are a foreign resident if you’re unsure. Before you embark on perhaps one of the biggest financial decisions of your life contact us to ensure everything is as safe as houses.

Downsize to Boost Your Super

From 1 July 2018, people aged 65 or over will be able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions. This is in addition to the concessional and non-concessional contribution caps. However, this measure may have unintended consequences if you plan on applying for the Age Pension, so wholistic retirement planning is needed to take advantage of the measure while minimising the downsides.

 

Now all the kids have all flown the coop and you’re left with an empty nest, it might be a good time to consider downsizing to pursue that ultimate retirement dream; fishing beside a river, surfing every morning, or getting up to that fresh country air. Your dream could be one step closer with the measure to allow people to make additional super contributions from the proceeds to selling their home.

 

From 1 July 2018, people aged 65 or over will make able to make additional non-concessional contributions of up to $300,000 from downsizing their home subject to certain conditions:

-the principle place of residence must have been held for a minimum of 10 years and located in Australia;
-contribution must be an amount equal to all or part of the capital proceeds of sale of an interest in a qualifying dwelling in Australia;
-any capital gain or loss from the disposal of the dwelling must have qualified (or would have qualified) for the main residence CGT exemption in whole or part;
-contribution must be made within 90 days of disposing the dwelling (a longer time period may be allowed by the Commissioner);
-a choice is made to treat the contribution as a downsizer contribution and the complying superannuation fund is notified in the approved form of this choice either before or at the time the contribution is made; and
-the contributing individual has not previously made downsizer contributions or has had one made on their behalf, in relation to an earlier disposal.

 

The advantage with downsizer contributions is that the contribution is neither a concessional nor a non-concessional contribution, so if you have already reached your concessional or non-concessional contributions caps for the year, you are still able to make a contribution through the downsizer scheme, provided you meet all the conditions.

 

If you and your spouse jointly own a home, and decide to downsize, you can both benefit from this measure. For downsizing the same home, you and your spouse could potentially contribute a maximum of $600,000 into your individual super funds or SMSF. The other advantage with this measure is that the restrictions on non-concessional contributions for people with total superannuation balances above $1.6 million will not apply. Therefore, the total superannuation balance of the individual will also not affect their eligibility to make a downsizer contribution. However, any downsizer contributions will still be subject to the $1.6 million pension transfer balance cap.

 

Does this measure seem too good to be true? Well, there is also the Age Pension side you should be aware of. Currently, the family home is totally exempt from the Age Pension assets test, however, downsizer contribution may count towards the Age Pension asset test and any changes in your superannuation balance as a result of using this measure may also count towards the Age Pension Asset test.

 

Want the whole picture?
Need advice on how you could potentially take advantage of this measure and need to know what the downsides are? We can provide you wholistic advice for your planned retirement to make sure you realise your dreams.

 

 

 

Beware Of Clothing Deductions This Tax Time

Beware of work-related clothing and laundry expense claims this tax time, the ATO is cracking down on individuals making unsubstantiated and exaggerated claims. It has reminded taxpayers that only uniform, protective or occupation-specific clothing that you are required to wear to earn your income can be claimed as work-related clothing. In addition, laundry expenses can only be claimed in relation to the reasonable laundering (washing, drying and ironing) of work-related clothing and not normal clothing.

 

Have you previously claimed work-related clothing expenses and laundry expenses in your tax return? You should beware this tax time because the ATO is cracking down on clothing and laundry expenses. According to the ATO, clothing claims went up nearly 20% over the last 5 years and last year around 6 million people claimed expenses totalling nearly $1.8bn. In addition, around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records.

 

Assistant Commissioner Kath Anderson said: “[we] are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or ‘safe amount’, even if they don’t meet the clothing and laundry requirements…just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone”.

 

So what can you claim under work-related clothing and laundry expenses? First of all, work-related clothing must be for uniform, protective or occupation-specific clothing that you are required to wear to earn your income, and you must be able to show that you have spent the money. Normal clothing such as suits and dresses cannot be claimed as work-related clothing. This is the case even if you have been told by your boss to wear a certain colour (ie white shirt and/or black pants), or items from the latest fashion clothing line, or if you bought the item specifically for work and do not wear it anywhere else.

 

If you’re claiming expenses for laundry, you should note that you can only claim laundry expenses for work-related clothing (ie uniform, protective, or occupational specific clothing). Again, normal clothing does not count. To calculate the laundry expense (including washing, drying and ironing), the ATO uses the figure of $1 per load if the load is made up only of work-related clothing, and 50c per load if you include other laundry items. If you claim laundry expenses for work-related clothing, you may be required to show how often you wore the clothing including evidence of number of shifts and weeks worked per year.

 

To assist in weeding out dodgy work-related clothing expenses and laundry expenses this tax time, the ATO will be using sophisticated analytics on every tax return to identify unusual claims. This includes comparing taxpayers to others in similar occupations earning similar income. If a “red flag” is raised by the analytics, the ATO will investigate the amounts claimed, which may be as simple as checking whether you are required to wear uniforms, protective clothing, or occupation specific clothing with your employer. The ATO warns those taxpayers who are unable to substantiate their claims should expect to have them refused, and may be penalised for failing to take reasonable care.

 

Want to find out more?

Are you required to wear work-related clothing and not sure how to calculate a claim? Or maybe you have laundry expenses for work-related clothing and are unsure what the reasonable amount to claim is? We can help you navigate the treacherous waters this tax time.

Starting a Small Business? Don’t Become a Statistic

There is something irresistible about starting a small business that has captured our collective imaginations, with small businesses making up 97% of all Australian businesses. But unfortunately, over half of these fail within the first three years. So how can you stop your business from becoming a statistic?

 

Regardless of what type of business you are planning – be it an online or home business, or a start-up with grand plans for expansion, it is easy for a fledging business to be swept up in the excitement of the early days, while neglecting some of the less compelling factors that are essential to success. We take a closer look at the essential financial and tax factors to get your business off the ground and keep it running.

 

The top reasons small businesses cease trading are due to under-capitalising, poor cash flow management, and failing to undertake adequate market research. Whilst there is a lot of helpful information online, nothing replaces getting expert advice on how all the facets of the business will interact – from financing, tax management, supply chain costs, and market fluctuations.

 

Before starting your business talk to us about the following:

Running a financial health check

Prior to seeking investment, taking out a loan, or redrawing against an existing mortgage or other loan, it is important to have a clear picture of your financial status. Do you have debts? What are your living expenses? What about personal spending? How much do you spend on eating out, travelling, and discretionary purchases? What are you prepared to go without to budget for a leaner life? We can help you take stock and then plan.

 

Researching financing options

There are a variety of finance sources available: such as bank loans, credit cards, public donation platforms – crowdfunding, angel investors, venture capitalists, lump sums for redundancy payments or inheritance, and borrowing from family or friends. All of these options have different pros and cons in relation to costs (eg, for a credit card) and risk (eg, putting your house up for security). It is wise to choose carefully as your choice of funding will have an impact on your personal finances now and down the track.

 

Up and running?

Once you have established the business we can help you to manage the following:

Taxes

There are a number of costs that are tax deductible when you set up a business, including a number of incentives to help small businesses, but these will vary depending on your circumstances.

 

Capital costs

A capital cost is incurred where you purchase an asset that allows you to produce income. It could take the form of buying equipment, but it could also be costs for creating an e-commerce platform. Such costs are not usually tax deductible, unless they can be depreciated over a number of years, or if you qualify for the simple depreciation rules for small business. For instance, if your business has a turnover of less than $10 million you can instantly write off assets costing less than $20,000 each, which means an instant boost to your cash flow.

 

If you purchase an asset worth more than $20,000, you are able to place the cost in the “small business general pool” to claim depreciation over time. Whilst you don’t get money back instantly, it can benefit you in that depreciation rates for the pool are generally higher than the rates for individual assets. And, if the value of the pool drops below $20,000 you can claim it as an instant write off.

 

Note: Capital costs of educational course fees are not eligible for deduction because the qualification was required to set up the business, eg, to train as a doctor, or to become a fitness instructor.

 

Fees and other costs

You can also claim the following:

-lawyer and accountant fees for professional advice on starting a new business;
-government fees paid in the formation of the business structure, ie ASIC;
insurance;
-borrowing fees and other costs associated with setting up the business structure, aside from government fees, can be claimed as a tax deduction over a five-year period.

 

If your business meets the annual turnover test of $20,000, and the start-up and the running costs are higher than your income, the loss may be deductible against other income you earned in the financial year.

 

GST and funding sources

Financing sources also have different indirect tax implications. For instance, crowdfunding – most commonly used by start-ups who need seed capital – is gaining popularity in Australia. The GST treatment of crowdfunding for a promoter operating in Australia may vary according to the following factors:

-the model adopted and what supplies (if any) are made to the funder;
-whether the promoter is registered for GST, or required to be registered;
-whether the promoter makes supplies that are connected with Australia; and
-whether the funder is in Australia.

 

Providing a service?

Are you running a personal service business (PSB), or earning personal service income (PSI), or both? These attract different tax rules and it’s essential that you know which rules apply, but identifying your PSI/PSB status accurately can be complex.

 

Hiring employees?

If you are considering hiring staff you will be responsible for meeting a number of obligations, such as:

-withholding of taxes from wages and reporting and paying these amounts to the ATO;
-pay superannuation for eligible employees (including contractors in some circumstances);
-register, report and pay fringe benefits tax (FBT) if you provide your employee with fringe benefits, (eg, car, travel, or meal expenses) which are paid to employees as part of, or in addition to, their wages.

There are naturally many other factors to consider when starting your own business, but we can help you to build a sustainable enterprise by taking care of those, less exciting but critical elements, leaving you to focus on future plans.

Choose the Right Valuation Method for Your Business

 

If you’re looking to sell your company, to attract investors or simply to find out your net worth, it’s important to obtain an accurate valuation of your business. There are several ways to do this, each with its own advantages and risks. Here’s a look at how to conduct a business valuation, and the biggest pitfalls to avoid.

 

Gather all of the information you need
For an objective and accurate valuation, start by gathering as much information about your business as possible. The type of information you need will depend on which valuation method you choose.

 

If your valuation will be based on assets, you need to do a complete audit of both tangible assets (such as buildings, employees, cash and machinery) and non-tangible assets (such as goodwill or intellectual property). You must also list any liabilities – that is, anything that subtracts from the business’s value, such as debts or legal rulings.

 

For a valuation based on business earnings, you need detailed financial information such as cash flow statements, debts, annual turnover and profit and loss statements – ideally dating back at least three to five years.

 

Potential buyers or investors will want to know whether your business will make money in the future. Including all information, such as sales reports and forecasts, customer profiles, marketing plans and competitor analyses, will make the process more transparent.

 

Consider the valuation method
As with a valuation of any asset, the big challenge in valuing a business is reconciling what you think the business is worth and what a buyer may believe it’s worth.

The true value of your business is the amount someone is willing to pay for it.

 

Let’s look at the two most common ways that experts determine a business’s value.

 

Asset-based valuation
This method adds up the value of the business’s assets and subtracts its liabilities. It takes into account tangible assets such as cash, equipment and property. It should also include any intangible assets – that is, non-physical items that also generate revenue, such as goodwill and intellectual property.

 

Goodwill can include anything from the location of the business to brand recognition, staff performance and the number and quality of customer relationships. Liabilities are items such as bank debts and payments due.

 

An asset-based valuation is often used when the business has underperformed and goodwill is low. Whatever the case, it’s important that your valuation doesn’t overvalue your business assets, as it can bring unwanted attention from government regulators. The Australian Securities and Investments Commission (ASIC) is now publicising audit results that uncovered irregularities in financial reporting. This has resulted in asset write-downs across a number of high-profile companies.

 

Valuing business assets is often a complicated process, guided by the valuer’s past experience in selling and evaluating businesses in the same industry.

 

Earnings-based valuation
If your business is expected to grow, a prospective buyer will be interested in both its existing assets and any profits it will generate. There are two popular methods for valuing a business in this context:

-Return on investment (ROI): also referred to as capitalised future earnings, this considers the annual ROI a buyer can expect from the business after purchasing it. For example, if the business is generating profits of $100,000 per year and is offered for sale at $500,000, the ROI associated with the sale is 20 per cent.

-Earnings before interest and tax (EBIT): This is where the business’s annual earnings before interest and tax are multiplied by a number based on its expected future profitability and growth potential. For well-established businesses that have shown consistent solid performance, this multiple might go as high as six – so a business with an EBIT of $200,000 might sell for as high as $1.2 million.
Every industry has its own formulas and rules of thumb for calculating a business’s current market value. The Australian Bureau of Statistics (ABS) can be a valuable source of information for checking the reliability of these valuation methods.

 

Cash flow and other considerations
It’s important to remember that income and cash flow are not the same. How quickly do your customers pay their bills, relative to outgoing expenses? If your earnings look good on paper but cash flow is a problem, this must be factored in.

Another consideration is the impact of change of ownership. If you left the business tomorrow, could a new owner maintain the critical customer relationships and processes? In other words, how much of the business is inseparable from its current owner? This could apply to any number of key people who work in the business.

Finally, does technological disruption have the potential to affect your business’s value? Most companies can update their systems and processes to keep up with the latest technologies. In some cases, however, losses are inevitable – cloud computing, for example, has affected many traditional hardware and software businesses.

 

Want to know more?
No business valuation method is perfect, and it’s worth remembering that your business is worth whatever someone is prepared to pay for it. Whatever you decide, getting expert advice is essential – and that’s where we can help. Speak to us today to clarify your situation and make sure you’re working from up-to-date advice and information.

Compensation From The ATO

With all the media attention around the ATO’s alleged rough treatment of the small business segment. Many of these small business owners may think that they have a case for compensation from the ATO for everything that they have been through. Although is getting compensation from the ATO even possible? The answer it turns out is yes, but it is very limited in scope.

 

Since the ABC Four Corners program aired allegations of misconduct in some of ATO’s dealings with small businesses, the Inspector-General of Taxation has revealed that complaints to his office has increased significantly. For many of these small business owners, thoughts of justice and compensation may be at the front of their minds. Although getting compensation from the ATO is technically possible, in reality, it is limited in scope and a great deal of supporting information is required for any claim.

 

To apply for compensation, businesses will need to complete the “Applying for compensation form” on the ATO website. The form requires some basic information (such as business name, TFN, address) as well as questions relating to why you think you’re entitled to compensation from the ATO. Once the form is received, the ATO’s service standards indicates that it will be acknowledged in writing within 7 business days of receipt, and initial claims should be processed within 56 days.

 

Broadly, claims for compensation is assessed in two ways, either compensation for legal liability (eg negligence) or compensation under the scheme for detriment caused by defective administration (CDDA Scheme). 

 

The claims are considered by officers in the ATO’s General Counsel and the decision makers are independent of the area which originally dealt with the taxation matter. If it is determined that compensation of either type (ie legal liability or CDDA) is not appropriate, small businesses may still be eligible for an “act of grace” payment.

 

If you’re intending to apply for compensation, you should know that the compensation scheme is very narrow and only financial losses with a direct connection to ATO’s actions will be allowed. This includes for example, reasonable professional fees, interest for delays in providing funds in some cases, and bank or other administrative fees incurred due to the ATO’s actions. Losses relating to the following will not be considered:

 

-claims for personal time spent resolving an issue;
-claims for stress, anxiety, inconvenience;
-claims for delay in receiving funds from the ATO where statutory interest was paid;
-claims for costs associated with complying with the tax system including costs associated with audits, objections and appeals, even where it is found you complied with your obligations;
-costs of putting in a claim or conducting a claim for compensation; and
-claims for taxation or other Commonwealth liabilities with substantive review rights that can be or could have been pursued.

 

Further limiting the scheme is the need to provide concise details of the actions of the ATO that you consider have caused your loss supported by evidence. The ATO considers that a claim or allegation that is expressed too “generally or broadly” is difficult to assess and that an allegation no matter how serious or how strongly it is expressed is not evidence itself. Therefore, to be successful at the limited range of compensation available, you will need to provide documentary evidence to support your allegations and detail the financial losses that were suffered (such as invoices or statement of accounts from professional advisers or banks).

 

If you’re unsuccessful in your compensation claim you can apply for an internal review in cases where you can provide new or relevant information in support of your claim. Otherwise, you may also apply to the Inspector-General of Taxation to investigate the ATO’s handling of your compensation claim. Whilst the Inspector-General does not have power to overturn or vary an ATO decision, they may make recommendations to the ATO about how the claim was handled.

 

Ready to pursue a compensation claim?

If you think you have a legitimate compensation claim that qualifies under the scheme, contact us today, we can help you sort out what information you need and make an application to the ATO on your behalf.

Taking Tax For A Ride

  • July 24, 2018
  • by:  DSV 
  • note:  0 Comments 

The ATO recently released figures on the gap estimates for a number of taxes, including goods and services tax (GST). For GST, the 2015–2016 trends showed a slight increase in the theoretical GST liability estimate. And while compliance levels are quite stable, there are a number of taxpayers who remain under scrutiny. We take a look at who the ATO is watching.

 

Ride-sharing drivers make up a large portion of what is sometimes referred to as the “platform economy”, or “share economy” and if you are part of this, there are a number of tax obligations you need to understand. For example, if you are an Uber driver you have the same GST liabilities as any other taxi driver. This means regardless of whether you reach the $75,000 income threshold, you are required to register for GST. If you’ve just signed up for a ride-sharing gig, and you already have a GST registration, then speak to us about whether you will need to set up any additional registration.

 

The ATO is reminding ride-sharing drivers of the importance of complying with the tax laws. Assistant Commissioner, Tom Wheeler, said the ATO is, “still working to educate ride-sourcing drivers, but now focus is shifting to drivers who are ignoring their obligations.”

 

People earn income from ride-sharing through a range of providers. This enterprise differs from a traditional taxi service because it is run through a facilitator via an app or a website, but it is considered to be taxi-travel for GST purposes. The ATO’s message to you as a taxpayer is that if you have a ride-sourcing enterprise, you must get an ABN and register for GST as soon as you start driving. Of course, you also need to include any income on your tax return.

The ATO’s ability to cross-match data from a range of sources and to make industry comparisons, means there is nowhere to hide. Mr Wheeler warned:

 

“We are getting data from financial institutions and directly from facilitators, so we know who you are, and we know if you aren’t correctly meeting your obligations.”

 

If you’ve been ignoring ATO prompts and haven’t applied for ABN and GST registration, the repercussions could be harsh. The ATO will register you for GST and backdate that registration to the date you received your first ride-sharing payment. You will be required to lodge and pay all outstanding tax obligations, including penalties and interest.

 

Common mistakes for ride-sharing tax disclosure

The ATO has revealed that some of the common mistakes made by taxpayers are:

-not apportioning expenses between private and business use;
-claiming GST credits over the luxury car tax thresholds; and
-claiming for fuel tax credits to which ride-sharing drivers are not entitled.

 

Taxable fringe benefits for ride-sharing services are also coming under the ATO’s gaze. -Employers are now using Uber and other ride-sharing services for employees travel, in lieu of taxis. As Uber drivers are not lawfully required to hold a licence to operate as a taxi, the exemption under of the Fringe Benefits Tax Act, section 58Z cannot apply.

 

If you provide ride-sharing services or are considering doing so, get in touch with us first for advice on how to meet all of your tax obligations and make the most of your ride-sharing income.

Independent ATO Review For Small Businesses

 

The ATO has started a 12-month pilot program for independent ATO review for small business disputes in response to the recent negative media attention it has received. While the pilot only encompasses income tax audits in two States (Victoria and South Australia), the ATO will have the option to expand the program to all areas of tax and businesses depending on the pilot’s success.

 

In response to the media attention around ATO’s alleged harsh treatment of small businesses, the ATO has responded by extending its independent review function regarding tax disputes to certain small businesses via a pilot program from 1 July 2018. Prior to the pilot program, the opportunity for such a review only applied to companies with an annual review of more than $250m.

 

The idea of the pilot program was first floated by the Commissioner of Taxation at a Senate Estimates hearing as a means of restoring confidence in the system and the ATO.

 

“With the intention over time that businesses, regardless of size, have access and rights to a fit-for-purpose review prior to finalisation of audit”.

 

With that in mind, from 1 July 2018, the ATO has started a 12-month pilot limited to small business disputes involving income tax audits in Victoria and South Australia. Small businesses in other states and territories will have to wait for the outcome of the pilot to see whether the system will be implemented nationally.

 

The pilot only concerns disputes involving income tax audits and will not consider GST, superannuation, FBT, fraud and evasion findings, and penalties and interest. It will also not apply to small businesses that do not complete a consent to extend amendment period to allow the review to take place, or in cases where the relevant notice of assessment or amended assessment has already been issued.

 

Eligible small businesses with an audit in progress in the participating States will be contacted directly by their case officer and offered the opportunity to participate in the pilot. An offer of independent review will also be included in any audit finalisation letter issued if the small business is eligible. If your small business would like to take up the offer of an independent review, you will need to email the ATO within 30 days of the date of the audit finalisation letter, and clearly outline the specific issues you dispute from the audit decision.

 

Once your request has been submitted, an officer from the Review and Dispute Resolution area will contact you to discuss your request and other options available for the issues raised. Should you decide to proceed with the independent review, it will be conducted by an officer from the Review and Dispute Resolution area that has not had any involvement in your audit. They will consider the documents setting out both parties’ positions and schedule a case conference with the audit officer and yourself within a month of receiving your review request.

 

The conference will allow all parties to assist the reviewer in understanding the facts and contentions. The reviewer will then consider the positions of each party and prepare recommendations as to the outcome. The outcome will be communicated to both the taxpayer and the audit officer, and the audit team will finalise the audit according to the independent reviewer’s recommendations.

 

Want to know more?

If you run an eligible small business and would like to participate in the pilot, we can help you prepare an outline of specific issues disputed from the audit decision and guide you through the process. We can also help you review the other options available to you to see whether they may suit your business better. Contact us today.

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