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Rental Property Deductions: What Can I Claim?

 

 

Rental property deductions have many rules, and the ATO is on the lookout for incorrect claims. Some expenses can be deducted immediately, while others will need to be claimed over time. Stay on top of the rules and avoid ATO headaches this tax time.

Did you know that a random audit by the ATO last year revealed nine out of ten rental property owners made a mistake with their rental deductions? In this first of a two-part series, we share some tips on what you can and can’t claim.

 

This series assumes you own a 100% rental property (with no private use) that is rented out, or genuinely available to rent, at commercial rates. You’ll generally only be able to claim a portion of your expenses if:

-you have a dual-use holiday home;

-you sometimes rent out your home on Airbnb;

-your property is leased at “mates’ rates” to friends and family; or

-your property is sometimes not available for rent.

 

Purchase expenses

Buying an investment property carries a host of upfront expenses, but not all of these are deductible straight away.

 

Stamp duty is not deductible, and neither are conveyancing or legal fees for the purchase.

 

Instead, these expenses will be included in the asset’s “cost base” for capital gains tax (CGT) purposes when you later sell the property, which effectively reduces the size of your capital gain.

 

On the other hand, ongoing land tax (and other charges like council and water rates) are deductible. Legal fees you incur later may also be deductible if they relate to things like evicting a tenant or suing for loss of rental income.

 

Another trap that can arise is initial repairs. If you need to remedy damage that already existed when you bought the property, the repair costs are not immediately deductible in the year you incur them. Instead, these can be claimed gradually over time as capital works deductions (or sometimes as depreciating assets).

 

You also can’t deduct costs associated with selling the property, like advertising and conveyancing expenses (which instead form part of the asset’s CGT cost base). You can, however, claim advertising costs for finding tenants while you own the property.

 

Repairs or improvements?

While initial repairs aren’t immediately deductible, ongoing repairs and maintenance costs for damage and wear that arises while the property is leased (or available for lease) are deductible in the year you incur them. This includes costs not only to remedy direct damage or deterioration, but also for preventative maintenance to keep the property tenantable, such as oiling a deck. Gardening, lawn-mowing, cleaning and pest control are also deductible.

 

It’s vital to distinguish between a repair and an improvement. This is because unlike ongoing repairs, improvement costs are not immediately deductible. The ATO says that if the work doesn’t relate directly to wear and tear (or other damage) from leasing the property, it’s not a repair. Examples of work that isn’t a “repair” but more likely an improvement include:

 

  • Replacing an entire structure when only part of it is damaged.
  • Replacing a damaged item with something that’s better and changes its character (eg replacing a broken plaster wall with a brick feature wall).
  • Renovations or additions to make the property more desirable or valuable.

Some improvement costs are claimed over time as capital works deductions (where they are structural improvements) and in other cases as capital allowances (where they involve a depreciating asset such as carpets, timber flooring and curtains). Note that new rules from 2017 restrict deductions for depreciating assets already used in second-hand residential investment properties at the time of purchase. Your tax adviser can help you navigate these and other complex rules about capital deductions.

 

Get help from the experts

With the ATO promising to double the number of audits of rental property claims this year, it’s important to get good advice. Contact us for expert assistance to ensure you maximise your deductions while staying within the rules.

ATO Clamping Down On Clothing Deductions

 

Planning to claim some clothing or laundry expenses this tax time? These deductions are on the ATO’s watch list again this year, and there are many traps for the unwary. For example, did you know that non-branded work uniforms are not deductible? Find out what categories are allowed and what records you need to keep.

 

Taxpayers who claim deductions for work-related clothing and laundry expenses may find themselves under the ATO’s microscope this tax time. Even if your claim is relatively small, penalties can apply for making incorrect claims.

 

What clothing is eligible?

If your work-related clothing falls into one of the following three categories, you can claim the purchase cost and the costs of laundering that clothing:

1. Uniforms. To qualify, your uniform must be both unique (designed only for your employer) and distinctive (with your employer’s logo attached, and it must not be available to the public). This means you can’t make claims for generic, non-branded uniforms. And if your uniform is compulsory, you may also be able to claim shoes, socks and stockings provided they’re an essential part of the uniform and their characteristics (such the required colour, style and type) are outlined in your employer’s uniform policy.

Non-compulsory uniforms have much tighter rules, so check with your adviser before claiming.

2. Occupation-specific clothing. This is clothing that is unique to your occupation, is not “everyday” in nature and allows the public to identify your occupation. Examples include a chef’s checked trousers or a barrister’s robes. In contrast, a bartender’s black trousers or a swimming instructor’s swimwear wouldn’t be allowable.

3. Protective clothing. To be eligible, the clothing must offer a sufficient level of protection against injury or illness in your work setting. Typical examples include high-visibility clothing, steel-capped boots, non-slip shoes, smocks/aprons and fire-resistant clothing.

 

The ATO is particularly concerned that many taxpayers incorrectly claim for ordinary clothing, like suits or black work trousers. It says the following are not valid reasons for deducting clothing:

 

-Your employer requires you to wear a certain colour (eg trousers must be black).
-You bought formal clothes to wear to work functions such as awards nights where you represented your employer.
-You bought clothes just to wear to work.

 

Record-keeping

 

For total clothing and laundry claims of up to $150, you aren’t required to keep detailed records. However, the ATO stresses that taxpayers aren’t “automatically” entitled to a $150 deduction – you must have actually incurred the expenses you claim. The ATO can still ask you to substantiate your claim, and can contact your employer to verify its clothing requirements.

 

If your total claim is under $150, you can calculate your laundry claim using a simple rate of $1 per load where all the clothing is work-related, and 50 cents per load where other clothes are part of the load.

If your total claim for clothing and laundry exceeds $150 (and your total claim for work-related expenses exceeds $300), you’ll need to keep receipts.

 

To prove your laundry costs, you’ll need to keep a diary for a representative one-month period. Your adviser can help you ensure you have the correct records in place.

 

Reimbursements and allowances

To claim a deduction, you must have incurred the expense yourself. So, if your employer reimburses you for an expense, you can’t deduct that amount.

On the other hand, if you receive a clothing allowance you must declare that allowance in your tax return. You can then deduct your costs for eligible clothing, but only the amount you actually spent.

 

Take the stress out of tax time

Talk to us for expert assistance with all of your work-related expense claims. We’ll help you claim everything you’re entitled to, while keeping the ATO happy.

“Ipso Facto” Escape Hatch Prohibited Under Insolvency Reforms

There was a time when, if a company got into financial difficulty the contracting party could terminate the contract, even if the company had been meeting all its obligations. The “ipso facto” clause was the contract’s device that allowed this termination to take place. A Latin term that means, rather unhelpfully, “by the fact itself”, the ipso facto clause acted like a trip switch in a fuse box that the contractor could flick at the occurrence of an insolvency event, pulling the plug on the contract and bringing an end to the business trading. Not so now.

 

As part of the sweeping insolvency reforms that came into operation on 1 July 2018, new legislation has prohibited ipso facto clauses that once provided for a contract to self-destruct in the event of insolvency.

 

An insolvency event can include voluntary administration, receivership and schemes of arrangement. These are all processes where the company is trying to work its way out of financial difficulty.

 

The activation of the clauses has been particularly prevalent in the construction industry where parties seek to withdraw the obligation to continue providing their services in what they consider to be a risky business environment.

 

Ipso facto and safe harbour share common purpose

The new ipso facto provisions and the safe harbour reforms (discussed in previous articles) share a common purpose – to discourage directors and contracting parties from bailing down the escape hatch, and to get them to keep trading.

 

This essence of the ipso facto reform, that only applies to contracts, agreements or arrangements entered into after 1 July 2018, is to provide for a “stay” against the enforcement of those ipso facto clauses.

 

In other words, any action taken by a party relying on that ipso facto clause to weasel its way out of a commitment to stay the distance of the contract, would be suspended to allow the company to continue trading for the benefit of its creditors and employees, until the administration ends or the company is wound up.

 

A contracting party can apply to the court for an order that a stay on enforcement rights be lifted if it is appropriate in the interests of justice or, in the case of a scheme of arrangement, if the scheme was not for the purpose of the company being wound up in insolvency.

 

The very positive side of the change for creditors and employees is that the company experiencing financial difficulty can continue to trade while it still meets its obligations under the contract – without the other party pulling the contractual rug from under its feet.

 

Help at a time of change

With all the changes taking place in insolvency, we can guide you through the opportunities provided by the complex reforms.

Moving Overseas? Three Options For Your SMSF

Taking an extended job posting overseas? If you currently have an SMSF, you’ll need a strategy for managing your super to ensure your fund doesn’t breach any residency rules. Know your options and plan before you go.

 

When SMSF trustees travel overseas for an extended period, there’s a risk their fund’s “central management and control” (CMC) will be considered to move outside Australia. This causes the SMSF to become non-resident, resulting in very hefty penalty taxes. It’s essential to plan for this before departing overseas.

 

The first step is to consider whether your absence will be significant enough to create a CMC risk. A temporaryabsence not exceeding two years isn’t a problem, but whether the ATO considers your absence temporary or permanent will depend on your particular case. Your adviser can take you through the ATO’s guidelines. If you think you’ll have a CMC problem, the next step is to consider possible solutions.

 

Option 1: Appoint an attorney

Usually, every SMSF member must be a trustee (or director of its corporate trustee). However, an SMSF member travelling overseas can avoid CMC problems by appointing a trusted Australian-based person to act as trustee (or director) for them, provided that person holds the member’s enduring power of attorney (EPOA).

 

Sounds simple? Just a word of caution: the SMSF member must resign as a trustee (or director) and be prepared to genuinely hand over control to their attorney.

 

If the member continues to effectively act like a trustee while overseas – for example, by sending significant instructions to their attorney or being involved in strategic decision-making – there’s a risk the CMC of the fund may really be outside Australia.

 

You’ll also need to comply with the separate “active member” test, which broadly requires that while the SMSF is receiving any contributions, at least 50% of the fund’s total asset value attributable to actively contributing members is attributable to resident contributing members. To illustrate this, in a Mum-and-Dad SMSF where both spouses are overseas, a single contribution from either spouse could cause the fund to fail this test and expose the fund to penalties. In other words, you may need to stop SMSF contributions entirely while overseas. Consider making any contributions into a separate public offer fund.

 

Option 2: Wind up

Not prepared to give control of your super to an acquaintance? You might consider rolling your super over to a public offer fund and winding up the SMSF. This option completely removes any CMC stress (as control lies with the professional Australian trustee), and you can make contributions into the large fund without worrying about the “active member” test.

However, you’ll need to sell or transfer out the SMSF’s assets first – real estate, shares and other investments – and this may trigger capital gains tax (CGT) liabilities. These asset disposals will be partly or even fully exempt from CGT if the fund is paying retirement phase pensions, so talk to your adviser about your SMSF’s expected CGT bill if you choose this wind-up option.

 

Option 3: Convert to a small APRA fund

Another option is converting the SMSF into a “small APRA fund” (SAF). Like SMSFs, SAFs have a maximum of four members but instead of being managed by the members they are run by a professional licensed trustee. This takes care of any CMC worries, and on conversion the fund won’t incur any CGT liabilities because the assets remain in the fund – only the trustee structure changes.

The downside is that an SAF may be expensive because you’ll be paying a professional trustee to run your fund. You’ll also need to comply with the “active member test” so, as in Option 1, you may need to stop all contributions into the SAF.

 

Let’s talk

If you’re moving overseas for a while, contact us to start your SMSF planning now. We can help you explore your options and implement a strategy to protect your superannuation against residency problems.

Tax Time 2019: Your Payment Summary Is Changing

Ready for tax time 2019? This year there’ll be some changes to how many employees access their tax information from their employer. The good news is this is part of a big switch to electronic reporting that will eventually make tax time easier. But as with all new systems, there are some new details to get your head around.

 

If you’re an employee, there are a few things you need to know this tax time about the ATO’s new “Single Touch Payroll” (STP) system. This system requires employers to report information like salaries, wages, allowances, PAYG withholding and superannuation contributions to the ATO electronically every time they pay their employees.

 

You’ve probably still been receiving payslips each cycle, but at tax time you’ll generally no longer receive a payment summary (sometimes known as a “group certificate”) from your employer.

 

Instead, you’ll be able to access a summary through the ATO’s online services. This will now be known as an “income statement”.

Because STP is new, we’re still in a transitional period. Here’s what you need to know:

-For businesses with 20 or more employees, STP became compulsory last year on 1 July 2018.

-For businesses with under 20 employees, STP applies from 1 July 2019, but these businesses still have a few months to get their systems working.

This means that for tax time 2019, some employers will still give their staff a payment summary while others will not because their reporting has already shifted online to the ATO. And if you have two employers, it’s possible you might receive a payment summary from one this year but not from the other.

 

How does it all work online?

Taxpayers with STP-compliant employers will access their new income statements through the “myGov” online portal. This is a central government portal where you can also access services like Centrelink, Medicare and others. To use this online service to view your income statement, you first need to have a myGov account, and then link your account up to ATO services.

 

Once your employer is using STP and your myGov account is linked to the ATO, you can access your information as follows:

-Throughout the income year, you can log on to check your year-to-date income, tax and superannuation information at any time. Each time your employer pays you, this data will be updated (although it may take a few days for updated amounts to appear).

-After the end of the income year, the ATO will send a message to your myGov inbox to let you know your annual income statement is finalised and ready.

 

If you log on in July to access your income statement, you should wait until your employer has marked your statement as “tax ready” before you lodge your tax return. Employers have until 31 July to do this. The data from your income statement will be pre-filled into the “myTax” online tax return system even if your income statement isn’t “tax ready” yet, so be careful when lodging.

 

It’s not compulsory to have a myGov account and you don’t need one to lodge your tax return. Your tax agent can access your income statement for you. However, not having a myGov account means you can’t check your information online yourself.

 

The ATO has recently reminded taxpayers that your tax agent can also view communications the ATO has sent you from within their own tax agent portal, so they don’t need to access your personal myGov account. Your tax agent can also tell whether your employer is using STP.

 

Let us do the hard work

Not sure whether your employer is using STP, or just want to keep tax time as stress-free as possible? Talk to us for expert assistance and advice this tax time for all of your lodgment needs.

Working And Studying Part-Time: Have You Considered All Your Deductions?

 

Will you need to buy textbooks for your work-related study, or perhaps invest in a new computer? You can claim deductions for these expenses, and others, if your course of study has the necessary connection to your current employment. Find out what rules apply when claiming for books, equipment, accommodation and travel, and ensure you’re claiming everything you’re entitled to.

 

Undertaking further study is a great way to enhance your skills on the job, but on top of tuition fees you may be facing a range of additional costs. In the previous instalment of our series on work-related study expenses, we explained when you can deduct your course fees. In this instalment, we look at other expenses like textbooks, computers and travel.

An important rule to remember is that in order to deduct any of the expenses discussed in this article, there must be a sufficient connection between your course of study and your current income-earning activities. This generally means the course must either maintain or improve the skills or knowledge you need for your current employment or result in (or be likely to result in) an increase in your income from your current employment.

 

Books and equipment

Textbooks are notoriously expensive! The good news is that you can generally deduct the cost of textbooks, as well as stationery and photocopying expenses, in the year of purchase.

Computers and other equipment are a little more complicated. If you buy a computer, calculator, technical instrument or tool or furniture (eg a desk or filing cabinet) to help you complete your studies, you may claim the interest expenses on any loan you’ve taken out to fund the purchase, and you may also claim equipment repair costs as they arise. However, you can’t initially deduct the purchase price. Instead, these are depreciating assets for which you can claim a deduction for decline in value. Your tax adviser can help you determine how the depreciation rules apply to your purchases.

If you use equipment such as a computer for both study and private purposes, you can only claim for the study-related proportion of your use. For example, if you use the computer for study purposes 60% of the time, you can deduct 60% of the interest expenses, repair costs and decline in value.

 

Meals, accommodation and travel

Generally, meals and accommodation are considered private expenses and therefore aren’t deductible. However, you can deduct these expenses if your study requires you to temporarilysleep away from home for at least one night. You can also claim your travel expenses in these circumstances.

 

What about day-to-day travel? You can usually deduct your costs for travel between home and the place of education (and back again) and between your workplace and the place of education (and back again).

 

 

However, if you’re making a double-leg journey, your deductions are restricted. If you’re travelling from home to your place of education and then on to work, the second leg of that journey is not claimable. (Similarly, when travelling from work to your place of education and then home, the second leg is not claimable.)

 

For public transport travel, you can claim the relevant fares you paid. For car travel, you can choose between the “cents per kilometre” method and the “logbook” method. Your tax adviser can help you determine which method is more appropriate for your situation. If you’re claiming car expenses for both study-related travel and ordinary work-related travel, you’ll need to account for these separately in your tax return.

 

In many cases, taxpayers are required to reduce their total claim for work-related education expenses by $250. This is a complex calculation that depends on what other education expenses you incur in the financial year. Your tax adviser can assist with performing this calculation.

 

Maximise your return

Work-related study deductions like depreciating assets and car travel can be tricky. Take the stress out of your claim and talk to us for expert assistance. We’ll help you substantiate your deductions and make sure you’re claiming everything you’re entitled to.

How Illegal Phoenixing Affects You

Every year, illegal phoenix activity costs the Australian economy billions of dollars not to mention the direct costs to businesses, employees, and the government. Just how much has been quantified by a recent report commissioned by three government agencies. Overall, the direct cost to businesses, employees, and the government has been calculated to around $2.85bn to $5.13bn, while the total impact to the Australia economy is around $1.8bn to $3.5bn in lost gross domestic product.

 

According to the Australian Bureau of Statistics, at the end of 2016-17 the number of businesses that ceased operating in Australia amounted to 261,450, an increase of 0.5% from the previous year. While most of these are likely to be honest commercial failures, after all, there are statistics that indicate that around 60% of Australian small businesses fail within the first 3 years, a percentage of these yearly failures may be attributable to illegal phoenixing.

 

Illegal phoenixing is the deliberate liquidation of a company to avoid liabilities while simultaneously commencing similar operations in another company or trading entity. This type of illegal activity leaves behind not only outstanding payment to tax authorities, but also unpaid creditors, unfulfilled customer orders and unpaid employee entitlements.

 

“[Illegal phoenixing] can occur in any industry or location. However illegal phoenix activity is particularly prevalent in major centres in building and construction, labour hire, payroll services, security services, cleaning, computer consulting, cafés and restaurants, and childcare services. [it is also seen] in regional Australia in mining, agriculture, horticulture and transport. There is an emerging trend in intermediaries who promote or facilitate illegal phoenix behaviour.”

 

To tackle this issue on a national level, the Inter-Agency Phoenix Taskforce has been established to identify, manage and monitor suspect illegal phoenix activity. This task has been made significantly easier with the development of the ATO Phoenix Risk Model (PRM) which allows for the identification of potential illegal phoenix population which can be more closely monitored by the taskforce. As at June 2018, the taskforce comprises of 29 government agencies including all State and Territory Revenue Offices.

 

A recent report commissioned by three Phoenix Taskforce member agencies (ATO, ASIC and the Fair Work Ombudsman) into the economic impacts of illegal phoenixing activity shows a sobering picture of how this illegal activity affects all of us, either directly, or through broader economic impacts:

-direct cost to businesses in the form of unpaid trade creditors is $1,162-$3,171m;
-direct cost to employees in the form of unpaid entitlements is $31-$298m;
-direct cost to the government in the form of unpaid taxes and compliance cost is $1,660m; and
-the net effect to the Australian economy is $1.8bn-$3.5bn lost gross domestic product.

 

As the figures show, illegal phoenix activity has deep financial impact on the Australian economy. Not to mention the costs unable to be captured by the report such as employee stress related to losing their jobs, discouragement effect on labour supply due to people not getting their full entitlements, increased social welfare burden through increased government support, and distortionary competition effects on lawful businesses.

 

How to protect yourself

As an employee, you should ensure that you receive a payslip and regularly review your entitlements and superannuation. As a business owner, look out for warning signs such as a company offering lower than market value quotes, or changes to a company name with the same management or staff. If you think you may be dealing with a company the is involved in illegal phoenixing, we can help with the due diligence before you enter into any business arrangements.

 

How Much Tax Is Taken Out Of My Super Withdrawals?

You’ve worked hard for your super, so make sure you access your benefits in the most tax-effective way possible. Members aged under 60 years will pay tax on their withdrawals, but if you’re over 60 you generally will not pay any tax. But there are always exceptions! Find out what taxes apply before you jump in.

 

If you’re aged 60 or over, you usually won’t pay any tax on super benefits you withdraw. However, if you’re under 60 your benefits will be taxed.

To understand how much tax you’ll pay, it helps to remember that your super benefits are split into two components:

-The “tax free” component of your benefits is not taxed when you make a withdrawal, even if you’re under 60. This component is the part of your super balance made up of things like non-concessional (after-tax) contributions.

-The “taxable” component is taxed. This component reflects things like compulsory superannuation guarantee contributions, salary-sacrifice contributions and personal contributions for which you claimed a tax deduction, as well as investment earnings.

 

You can’t “cherry pick” which component you would like to fund your withdrawal. This means, for example, that if your accumulation account is 80% taxable and 20% tax-free at a particular point in time, any lump sum you withdraw at that time would also reflect this 80/20 split for tax purposes. Similarly, any pension you start at that time would have this 80/20 split locked in from the commencement day of the pension.

 

Therefore, the bigger your “taxable” component as a percentage of your account balance, the more tax you’ll pay when you withdraw benefits. The applicable tax rates are as follows:

Pensions: the taxable part of your pension payments is taxed at your marginal rate, less a 15% tax offset.

Lump sums: the taxable part of a lump sum withdrawal is tax-free up to your “low rate cap” of $205,000 (for 2018–2019; set to increase to $210,000 for 2019–2020). This is a lifetime cap that you gradually utilise each time you withdraw a lump sum. Once you have fully utilised your cap, the remaining taxable part of any lump sum is then taxed at 17% (or your marginal rate, whichever is lower).

 

Several exceptions apply to these rules. First, if you’re receiving certain “disability superannuation benefits” or accessing super before you’ve reached preservation age (eg on “compassionate” grounds), different tax treatment applies. Second, some people such as members of public sector or government superannuation funds are subject to special rules that mean they will pay some tax even if they’re aged over 60.

 

Planning ahead

It’s worth talking to your adviser to plan the best strategy for your super withdrawals. For example, if you’re under 60, a lump sum may be more tax effective than a pension because of the “low rate cap” discussed above.

 

However, to access a lump sum before age 65 you must meet a relevant condition of release such as “retirement”, whereas you only need to reach your preservation age in order to access a transition to retirement income stream (TRIS).

 

Your adviser can also help you explore the possible tax benefit of starting a full account-based pension (ABP). Unlike a TRIS, an ABP requires that you’ve met a relevant condition of release such as retirement, but the advantage is that it attracts a partial or possibly a full exemption from income tax on investment earnings inside the fund. So, as you can see, the decision to access your benefits is best made with professional advice that takes into account a range of factors including:

-your age;
-employment status and income;
-lifestyle/cashflow needs;
-tax efficiency of running a pension;
-eligibility for the Aged Pension; and
-special planning required if you hold more than $1.6 million in super (the current limit on the amount you can hold in full pensions like ABPs).

 

Need to access your super?

Talk to us today for expert advice tailored to your individual circumstances. We’ll help you navigate through the tax rules to get the most out of your retirement savings.

Government Tenders And Tax Compliance

Bidding on Commonwealth government tenders could soon be more complex, with the government seeking to exclude businesses that do not have a satisfactory tax record from the tender process. It would apply from 1 July 2019 to all tenders with an estimated value of over $4m (including GST) and includes construction services. Businesses that wish to tender must generally be up-to-date with their tax obligations including both registration and lodgement requirements and not have any outstanding debt.

 

Do you run a business that would like to bid on lucrative Commonwealth government contracts or is likely to do so in the future? From 1 July 2019, the government is seeking to exclude from the tender process those businesses that do not have a “satisfactory tax record (STR)” as a part of its measures to tackle the black economy. The initiative would apply to all tenders with an estimated value of over $4m (including GST) for all goods and/or services including for construction services.

 

Those companies wishing to tender must either provide a satisfactory STR that is valid for at least 2 months or more at the time of the tender closing, or in circumstances where a satisfactory STR has not been issued, provide an STR receipt demonstrating that an STR has been requested from the ATO and then provide the STR no later than 4 business days from the close of tender and before the awarding of the contract.

 

To obtain a satisfactory STR from the ATO, the business must:

-be up-to-date with registration requirements (ie ABN, GST, TFN etc);
-have lodged at least 90% of all income tax returns, FBT returns and BASs that were due in the last 4 years or the period of operation if less than 4 years;
-not have $10,000 or greater in outstanding debt due to the ATO on the date the STR is issued. Note this does not include debt subject to a taxation objection, review or appeal or debt that is a part of a payment plan with the ATO.

 

When an STR is issued, it will usually be valid for 12 months from the time of issue. However, those businesses that do not hold an Australian tax record with the ATO of at least 4 years will generally receive STRs that are only valid for 6 months.

 

There may also be additional requirements in relation to obtaining STRs for subcontractors, foreign companies, partnerships, trusts, joint ventures and tax consolidated groups tendering for Commonwealth government contracts from 1 July 2019.

 

Depending on how well the policy runs in its first year, the government is open to introducing further criteria to determine an STR, such as whether the business:

-meets its superannuation law requirements and PAYG withholding obligations;
-discloses information about its tax affairs under the voluntary tax transparency code;
-has had court order penalties imposed on its directors; and
-its related parties have had convictions for phoenixing behaviour, bribery or corruption.

 

Note this initiative is not designed to replace existing due diligence and checks that are already undertaken, including those relating to business practices that are dishonest, unethical or unsafe, not entering into contracts with businesses that have had a judicial decision against them relating to employee entitlements and who have not satisfied any resulting order (not including decisions under appeal).

 

Want to get your tax obligations in order?

Get on the front foot with your business by getting all your tax obligations in order. Contact us today for all your income tax, FBT and GST needs, we have the expertise to help you with any tax issue, no matter how complex. If you’re planning to expand your business, we can help you map out a plan for a smooth evolution.

Alternative Dispute Resolution Process

 

Alternative dispute resolution (ADR) is not only used to resolve substantive disputes, and can be used to clarify or limit issues, and remove barriers created by relationship issues between you and the ATO. Usually, if your dispute is not very complex, in-house facilitation may be used. More complex issues will usually be outsourced to an external practitioner. Working out if the ADR process is right for you can save you time, money and heartache in any dispute or potential dispute.

 

If you’re involved in a dispute with the ATO, going straight to the Court or Tribunals may not be the most time or cost-effective way to proceed. As a taxpayer, you can access the alternative dispute resolution (ADR) process in any dispute with the ATO, which used appropriately may be the most cost-effective and efficient way to resolve disputes. Basically, it involves using an impartial person to help resolve the dispute or at least narrow the issues between the parties.

 

Broadly, the ADR processes encompass 4 branches, facilitative, advisory, determinative, and blended dispute resolution.

 

Facilitative

In this branch, independent ADR practitioners assists the parties to identify the issues, formulate solutions, and consider any alternatives with the goal of reaching an agreement either about the entire dispute or some issues within the dispute. Examples of the facilitative processes include:

*Mediation – an external practitioner is engaged to facilitate the process. The parties usually split the costs involved where mediation is voluntarily entered into. Note that mediators do not normally give advice, unless the parties have requested an advisory/evaluative mediation or conciliation.

 

*In-house facilitation – a trained independent ATO officer facilitates the process. There are no costs involved in the process. However, the facilitator will not establish facts, give advice, decide on who is “right or wrong”. The facilitator’s function is to guide the parties through the process and assist them to ensure where are open lines of communication and that messages are correctly received.
Advisory

 

This process may also be referred to a neutral evaluation (or early neutral evaluation) and involves the parties presenting their arguments to an independent practitioner who provides advice on some or all of the facts of the dispute, the law, and possible or beneficial outcomes.

 

In tax and superannuation disputes, the practitioner will usually have substantial experience in tax law so they can give an insight into a decision a Court or Tribunal may make if the dispute proceeds to litigation. Once the practitioner gives the advice, it is up to each party whether they accept the advice and how they will use that information. For example, if both parties hear from the independent practitioner that they will not be completely successful in their case before the Tribunal or Court, they may decide to enter into a negotiated agreement to resolve the dispute rather than going through the costly legal proceedings.

 

Determinative

In this process, an independent practitioner evaluates the dispute and makes a determination, an example of this includes arbitration. However, the ATO notes that determinative processes are not generally appropriate for ATO disputes as it can incur similar costs and delays as litigation, but lack the openness and transparency of Court of Tribunal decisions.

 

Blended dispute resolution

This is where an independent practitioner plays multiple roles such as conciliation and conferencing, and may also facilitate discussions and provide advice on the merits of the dispute. The facilitator will usually have qualifications in the area of the dispute. This process is usually used by the Administrative Appeals Tribunal in tax and superannuation disputes in the early stages of the proceedings.

 

I have a dispute, what should I do?

Certainly, in any dispute or potential dispute emotions will be running high, and rash decisions may be made; but keep a cool head to work out which option best suits your circumstances will save you lots of time, money, and heartache. If you’re not sure if the ADR process is right for you, we can help you work out your options.

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