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Dealing With The ATO: Simple Tips For Taxpayers

Being a smart taxpayer means knowing what resources are available to you and understanding how the ATO deals with individuals as tax problems arise. Here are three simple things all individuals can do to help keep their tax affairs as stress-free as possible this tax time.

 

Sometimes, the way we approach tax matters can end up making a big difference to our bottom line and stress levels. Here are three tips to help individual taxpayers achieve a better outcome when lodging and dealing with the ATO.

 

Tip one: Get help with debts early

 

If you’re experiencing financial difficulties, there are a number of ways the ATO can assist. If you can’t pay your tax bill, the ATO encourages you to contact them early to discuss your options. This might include:

Payment plans: In 2017–2018 the ATO negotiated 226,000 payment plans to allow taxpayers to pay in instalments. For tax bills under $100,000 you can set up a payment plan online through myGov, or through your tax agent. For bigger debts, contact the ATO to discuss a plan.

Debt relief: The ATO has power to release an individual from their tax bill (in part or in full) where paying the bill would leave them unable to afford food, clothing, accommodation, medical treatment, education or other necessities. In 2017–2018, the ATO granted 2,174 full or partial releases.

 

A good tip for anyone having trouble paying their tax bill is to stay on top of their lodgment obligations. Even if you can’t pay, you should still lodge your tax returns on time (and any business activity statements).

 

Not only will you show the ATO that you’re aware of your obligations and making an effort to comply, you’ll avoid penalties for non-lodgment.

 

Tip two: Stay off the ATO’s radar

 

No one wants to be audited, so it pays to know the “red flags” the ATO looks for when analysing its increasingly vast data sources. Understanding these risk areas can also help you self-identify any mistakes you might have accidentally made, or areas where it’s worth getting professional tax advice. For individuals, the ATO looks closely for:

-work-related expense claims that are unusually high or out of the ordinary, especially in relation to clothing, cars, travel and self-education;
-rental expenses, especially those inconsistent with rental income or other information the ATO holds about the property;
-undeclared capital gains from property sales, the Australian share market and cryptocurrency;
-undeclared income (eg cash payments or income from foreign sources); and
-taxpayers who don’t lodge returns on time.

 

Tip three: Manage disputes efficiently

 

There are many options for resolving tax disputes, ranging from lodging an objection, seeking external review, alternative dispute resolution and litigation. However, the ATO wants to resolve tax disputes quickly and fairly. It says in the last five years, there has been a 60% reduction in Administrative Appeals Tribunal applications made by taxpayers against its decisions.

 

To achieve an efficient resolution, individual taxpayers should consider taking advantage of the ATO’s “in-house” facilitation service. This gives individuals (and small businesses) free access to an impartial ATO mediator who will take the taxpayer and ATO case officers through the issues in dispute and attempt to reach a resolution. It’s a voluntary process and can be undertaken at any time from the early audit stage up to and including the litigation stage. If the mediation fails, your usual review and appeal rights aren’t affected at all. It may not solve the problem in every case, but if the facilitation is successful it could save you time, stress and money.

 

Need help with a tax problem?

We’re here to support you in all of your dealings with the ATO. Whether it’s an unpaid tax debt, a disputed assessment or a complicated deduction you’re just not sure about claiming, our experts will guide you every step of the way and help you achieve the best possible outcome.

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.

Working And Studying Part-Time: Can I Deduct My Course Fees?

If you’re working and also studying part-time in a work-related course of education, you may be able to deduct some expenses like tuition fees. However, to be eligible there must be a sufficient connection between the course and your current job. Make sure you understand the ATO’s criteria before making a claim.

 

Planning on going “back to school”? The costs can really add up, but the good news is that your course fees may be deductible if the course is sufficiently related to your current employment. In this first instalment of a two-part series, we explain when you can deduct your tuition fees for work-related education. Our second instalment will look at other expenses like textbooks, computers and travel.

 

What courses are eligible?

The first step is to work out whether the course you’re studying entitles you to claim self-education deductions. Not all courses you study while you’re working will be eligible.

Importantly, the course must lead to a formal qualification from a school, college, university or other educational institution. Courses offered by professional associations (as well as other work-related seminars, workshops and conferences) generally don’t come under “self-education” for tax return purposes, but these course fees will often be deductible as “other work-related expenses” in a separate part of your tax return. Your tax adviser can help you determine how to claim these.

Second, there must be a sufficient connection between your formal course of study and your current income-earning activities.

This 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.

 

Therefore, a course that directly enables you to:

-become more proficient in performing your current job;
-move up to a new pay scale; or
-be promoted to a higher-salary position with your current employer
is likely to be eligible.

 

However, the ATO says it’s not sufficient if a course is only generally related to your job, or if it will help you to get employment or get new employment. The ATO gives the following as examples of study that would not be eligible:

-An undergraduate student studying a course with the intention of working in that industry in future.
-A worker studying in order to change industries, or to get a new type of job within the same organisation.
-A professional like a general medical practitioner studying to become a specialist in a particular field of medicine.

 

When are course fees deductible?

If your course has the necessary connection to your current work as explained above, you can deduct course fees that are funded under the government’s “FEE-HELP” or “VET FEE-HELP” loan programs. However, you can’t deduct course fees funded under the “HECS-HELP” program.

You also can’t deduct any repayments you make under any government loan scheme. This is best illustrated by an example:Sarah is an employee who is also enrolled part-time in a course funded by a FEE-HELP loan. This course will help her improve skills needed in her current job. Her tuition fees for this financial year are $2,000. She can claim this $2,000 as a deduction in her tax return.

When she later makes repayments on her FEE-HELP loan (either compulsory or voluntary), those repayments will not be deductible.

If you’re paying course fees yourself without any government assistance, you can claim a deduction and you can also claim the interest expenses on any loan you’ve privately taken out to finance this (eg a bank loan).

In many cases, taxpayers are required to reduce their total claim for self-education expenses by $250. This depends on what other self-education expenses you incur in the financial year. Your tax adviser can perform the necessary calculations to finalise your claim.

 

Get it right before you claim

Tertiary course fees can involve some large deductions. Talk to us today for expert advice on your eligibility and to ensure your claim will stand up to ATO scrutiny.

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.

Whistle While You Work

 

Have you ever wanted to report financial or corporate misconduct, but been fearful of blowing the whistle? Currently, there is no whistleblower regime within Australia’s tax laws. To remedy this situation the Government has recently unveiled draft legislation with a view to create a single whistleblower protection regime.

 

To remove the barriers to whistleblowing, the Bill under consideration seeks to widen what constitutes an “eligible” whistleblower (ie, who can be a whistleblower) and offers civil compensation for whistleblowers.

 

Minister for Revenue and Financial Services Kelly O’Dwyer said “Breaking ranks and reporting wrongdoing can be a harrowing experience, so it is important people know that they will have access to redress if they are victimised as a result of blowing the whistle.”

 

What is proposed?

Designed to cover the corporate, financial and credit sectors and to protect those who expose tax misconduct, the proposed reforms include:

 

-expanding the protections to a broader class of people, set to include former officers, employees, contractors and suppliers as well as associates and family members of such individuals;

-expanding the types of disclosures that will be protected under the framework;

-allowing disclosures to parliamentarians and the media in certain circumstances, providing certain pre-conditions are satisfied;

-imposing new stringent obligations to maintain the confidentiality of a whistleblower’s identity;

-making it significantly easier for a whistleblower to bring a claim for compensation where he or she has been victimised;

-creating a new civil penalty offence so that law enforcement agencies will be able to take action against companies where the civil standard of proof can be met; and

-requiring all large companies to have a whistleblower policy in place, with penalties for failing to do so.

 

To be protected as a whistleblower in relation to an entity, you must be eligible and the disclosure must be made to:

 

-the ATO and as a discloser you must consider that your information will assist the ATO in performing its duties; or

-an eligible recipient (which includes the auditor of an entity and a registered tax agent (who provides tax agent services to the entity)) and as the discloser you have reasonable grounds to suspect that your information indicates misconduct, or an improper state of affairs or circumstances, in relation to the tax affairs of an entity or an associate of an entity.

 

Protections provided to any eligible whistleblower include:

-immunity from civil or criminal proceedings for making a disclosure;
-protection against an action for breach of contract (including protection against termination of employment);
-protection against victimisation; and
-protection against disclosure of the whistleblower’s identity.

It will become mandatory for public companies and large propriety companies to have a procedure for whistleblowing and those who fail to do so will face a penalty.

 

Do the measures go far enough?

There has been criticism that the new proposed measures do not go far enough. Again, in response to this the Government has formed an Expert Advisory Panel to ensure new measures answer some of the recommendations made by a recent Parliamentary Joint Committee on Corporations and Financial Services into Whistleblower Protections in the corporate, public and not-for-profit sectors (PJC Report). Advice from the Expert Panel and feedback from consultation will be considered before finalising the legislation for introduction to Parliament in the last sitting week of this year.

The Government will respond to the parliamentary inquiry’s recommendations to create a reward system or bounty for whistleblowers and a whistleblower protection authority.

 

What is the timing?

The proposed date of effect will commence on the day the Bill receive Royal Assent and would apply to whistleblower disclosures made on or after 1 July 2018, including disclosures about events before this date. To allow sufficient time for public companies and large proprietary companies to comply with the requirement to have a whistleblowing policy, those amendments will apply on and after 1 January 2019, or not later than six months after a proprietary company first becomes a large proprietary company.

 

Next steps

We will keep you updated on this area. Do you currently have a whistleblowing procedure and is this promoted openly within your organisation? Given the coming changes, now might be a good time to start thinking about how to put this in place. If you own a company, you will need to keep abreast of the coming reforms. If you have something to report you can start by talking to us as your tax agent.

Black Economy Taskforce: Who Could Be Included

 

In a bid to crack down on tax evasion, the Government has proposed to extend the taxable payment reporting system to two new high risk sectors identified by the Black Economy Taskforce: cleaning services and couriers. The Government cited the improved tax compliance in the building and construction industry as a model of what can be achieved in newly targeted sectors. We will keep you up to date with developments in this area as legislation is enacted.

 

The proposed new laws will require entities that provide courier or cleaning services to report to ATO details of transactions involving contractors. According to ATO guidance, contractors include sole traders (individuals), companies, partnerships, or trusts.

 

For couriers, the proposal captures any service where an entity collects goods (ie, packages, letters, food, flowers, or any other goods) and delivers them to another location.

 

The Government is hoping the imposition of additional compliance will encourage tax compliance, particularly in the food delivery market, which is gaining in popularity.

 

Similarly, cleaning services have also been broadly defined in the proposal to refer to any service where a structure, vehicle, place, surface, machinery or equipment has been subject to a process in which dirt or similar material has been removed from it.

 

What will you need to declare?

If you employ couriers or cleaners

Entities captured by this measure will need to lodge an annual report to the ATO detailing each contractor’s ABN, name, address, gross amount paid for the financial year (including GST) and the total GST included in the gross amount that was paid. If this applies to you and you employ couriers or cleaners you may also be required to provide additional information, such as the contractor’s phone number, email address and bank account details. In essence, companies such as deliveroo, ubereats, foodora, as well as a host of other players, could face the increased compliance costs of having to lodge hundreds, if not thousands, of these reports to the ATO each year.

 

If you contract as a courier or cleaner

If you are a courier or a cleaner (and you provide contract services), the data collected about you will be used in data-matching programs to ensure that all of your income is reported correctly to the ATO. If you are contracted to a delivery company or a cleaning company you will need to keep careful records of what you are being paid. This is particularly important if you only work for these companies on an occasional or part-time basis.

 

How about the timing?

Should this proposal pass as law, the first annual report will be for the 2018–2019 financial year.

 

What to do next

Any relevant business that is required to report will need to collect relevant information from 1 July 2018, with the report due by 28 August 2019. Information from the reports (which will be data matched with information provided by contractors) will apply on tax returns for the 2018–2019 income year. Speak to us if you think this could be relevant to you.

Reverse Mortgage Lending And Retirement

Since the global financial crisis, demand for reverse mortgages have grown steadily. It allows older individuals, perhaps retirees, to unlock the equity in their homes while they continue to live in the property. However, reverse mortgages may not be all it’s cracked up to be. A recent review by ASIC found that borrowers had a poor understanding of the risks and future costs of their loan, inadequately documented long-term financial objectives, and lack of protection for non-borrowers who live in the property. When it comes to reverse mortgages, it may be a case of buyer beware.

 

Reverse mortgages are a credit product that allows older individuals to achieve their immediate financial goals by using the equity in their home to borrow amounts. The loan typically does not need to be repaid until a later time (ie when the borrower has vacated the property or has passed away). For older individuals who own their home but few other assets, the advantage of reverse mortgages is that it allows them to draw on the wealth locked up in their homes while they continue to live in the property. As good as it sounds, reverse mortgages may not be all it’s cracked up to be.

 

ASIC recently reviewed data on 17,000 reverse mortgages, 111 consumer loan files, lender policies, procedures and complaints, along with in-depth interviews with 30 borrowers and 30 industry and consumer stakeholders. The review evaluated the effectiveness of enhanced responsible lending obligations and examined 5 brands who collectively lent 99% of the dollar value of approved reverse mortgage loans from 2013 to 2017.

 

The average size of a reverse mortgage loan was found to be around $118,627 with an average home value of $632,598 (average loan-to-value ratio 26%). Borrowers typically took out reverse mortgages to pay for daily expenses, bills and debts, home improvements and car expenses. Unlike other loans, reverse mortgage borrowers had limited choices due to a lack of competition, with 2 credit licensees writing 80% of the dollar value of new loans from 2013 to 2017.

 

The review also found that borrowers had a poor understanding of the risks and future costs of their loan, and generally failed to consider how their loan could impact their ability to afford their possible future needs. In addition, it found reverse mortgages were a more expensive form of credit compared to standard variable owner occupier home loans with the interest rates typically being 2% higher and as no repayments are required, the interest compounds.

 

According to ASIC, lenders have a clear role to play and in nearly all the loan files reviewed, the borrower’s long-term needs or financial objectives were not adequately documented. 

 

This is important as borrowers can never owe the bank more than the value of their property, however, depending on when a borrower obtains their loan, how much they borrow, and economic conditions (eg property prices and interest rates), they may not have enough equity remaining in the home for longer term needs such as aged care.

 

The other concerning finding by ASIC is that some reverse mortgages may not protect other residents in the home. For example, if a borrower vacates the property or passes away, the borrower or their estate can often only afford to pay off the loan balance of a reverse mortgage by selling the property. This can require non-borrowers still living in the home (ie a spouse, relative, or adult children) to move out unless the contract contains a “tenancy protection” provision allowing them to remain in the home for a period of time.

 

Only one lender in the review offered a limited option to include a tenancy protection provision in their loan contract which lasted for one year after the death of the borrower with certain conditions. Other lenders in the review would only protect non-borrower residents if they added their name to the loan contract. ASIC notes that under enhanced consumer protections, lenders must give potential borrowers a prescribed tenancy protection warning, which did not occur in a majority of the cases.

 

Thinking of getting a reverse mortgage?

If you think a reverse mortgage would suit your retirement needs, come and speak to us today to ensure that you get the full picture before you sign up to anything. We can help you understand all the terms and protections to make the most out of your retirement.

Budget 2019: Superannuation Measures For Over-60s

If you’re in your 60s, this year’s federal Budget brings some good news: the Coalition is relaxing some of the contributions rules for your age group, giving you more time and opportunities to put away funds for retirement. Changes to the work test, “bring-forward” rules and spouse contributions are all on the cards. Find out what these proposals mean for you.

 

No major reforms to superannuation were announced in this year’s federal Budget. But with an election around the corner, the Coalition has pledged to help Australians aged over 60 save for retirement by extending the age limits for a number of existing contributions measures. These changes are proposed to take effect from 1 July 2020.

 

Work test pushed out

A returned Coalition government would give retirees an extra two years to make contributions without having to meet the “work test”. Under current rules, anyone aged 65 or over must satisfy this test in order to make voluntary contributions (essentially, any contributions other than compulsory employer contributions or “downsizer” contributions).

 

The test requires that the person is “gainfully employed” for at least 40 hours in any 30-day consecutive period during the financial year in which the contributions are made. The Coalition now proposes that this test will only apply from age 67 – welcome news for retirees and people with irregular work patterns.

 

From 1 July 2019, there will be a 12-month exemption from the work test for recent retirees aged between 65 and 74 years with a total superannuation balance below $300,000. This is already legislated. It is not yet known whether the Coalition would scrap the exemption beyond 1 July 2020 or retain it to supplement the new work test age of 67. People in this age group should consult their adviser to stay informed of changes following the upcoming election.

 

 

More time to “bring forward” contributions

The Coalition will also give Australians an extra two years to make large contributions into super. The annual cap on non-concessional contributions (NCCs) is $100,000, but individuals aged under 65 at any point in a financial year may “bring forward” up to two additional years’ worth of NCCs (depending on the size of their total superannuation balance) to make a contribution of up to $300,000. The Coalition now wants to extend the scheme to anyone under 67 years, benefitting older Australians who wish to contribute a large amount from, for example, an inheritance, proceeds from the sale of an asset or another source of funds.

 

Take care as you approach age 67 as some timing traps may arise. This is due to the interaction of the bring-forward rules with the work test (and whether the 12-month exemption from the work test will be retained in future). Sounds complicated? With expert advice it needn’t be, so the key is to carefully plan your contributions in advance with your professional adviser.

 

Spouse contributions extended

The age limit for receiving spouse contributions (contributions made by your spouse on your behalf directly to your superannuation fund member account) is proposed to increase from 69 to 74.

 

Making a spouse contribution is a great way to boost your spouse’s super and potentially save tax. If your spouse earns $37,000 or less, you may claim a maximum tax offset of $540 when you make a $3,000 contribution on their behalf during the income year. (The amount of offset reduces for spouse incomes above $37,000, before tapering off at $40,000.) The Budget proposal to extend the age limit for receiving a spouse contribution gives couples an extra five years to take advantage of this tax offset.

 

Help is at hand

With all the age limits and rules that apply, planning a contributions strategy for your 60s is essential. Talk to us today to start your planning. We’ll help you navigate any rule changes following the upcoming federal election to make sure you maximise the opportunities available to you.

Garnishee Orders May Bring Home The Bacon

A garnish is an enhancer, something to dress up a plate – think of a sprig of parsley. A garnishee is something entirely different, although it can enhance an otherwise dire situation for a creditor and bring home the bacon. It’s a third party who is ordered by the court to release money to remedy a personal debt owed to the creditor by the debtor. This could be the debtor’s bank, their employer or their own creditor.

 

Issuing a garnishee order is a cheap and easy way to claw back some of your debt, but there are a few matters to consider first.

 

Bypass your debtor and go straight to the source of their funds

Once the court has given you a judgment against your judgment debtor, and they have failed to satisfy the judgment, you can apply to the court for a garnishee order. This allows you to bypass the recalcitrant debtor and it sets up a relationship in the form of a triangle between you as creditor, the debtor and the third party.

 

This third-party garnishee acts as a kind of proxy for the debtor and the order will require them to pay the debt to you in a lump sum or in instalments.

 

A garnishee order can be directed straight to the debtor’s bank or their employer. In the latter case, you will be able to access the debtor’s pay packet before they do. You do not have to tell the debtor you have applied for a garnishee order and they may only find out when they see their bank statement or pay slip. However, the local and district courts instruct that the amounts claimed in total under the garnishee orders must not reduce the judgment debtor’s net weekly wage or salary received to less than $500.60.

 

This is known as the weekly compensation amount and is adjusted in April and October each year. When issuing a garnishee order, it must include an instruction to the garnishee about the amount that a judgment debtor is entitled to keep.

 

Garnishee orders can also be made against those who owe money to the debtor, for example a real estate agent who is collecting the rent from the debtor’s tenanted property.

 

Benefits galore of a garnishee order

One of the benefits of a garnishee order is that there is no filing fee, although a service fee may be payable. There is also no extensive research on the debtor required before the order is issued, the debtor’s name may be enough. And if the order fails to recover all or some of the money, the order can be reissued on the same garnishee several times.

There is also little the garnishee can do to stop the order unless they apply to the court or they repay the debt.

 

Guidance on garnishing

If you have received a judgment and have an outstanding debt you are trying to recover from your judgment debtor, we can help take the lead on it for you and take you straight to the debtor’s funds.

 

 

Corporate Tax Rates: Recent Changes Give Certainty

 

There’s finally some certainty about the corporate tax rate(s). Legislation has recently passed Parliament and the fate of other proposed changes has also been finalised. The law is settled, so it’s a good time to remind ourselves what the final state of play is concerning the dual rates of 27.5% and 30%.

 

There are two categories of companies when it comes to the corporate tax rate. The two categories are determined by turnover and business activity.The rate of 27.5% applies to corporate tax entities known as “base rate entities”. What is a base rate entity? Put simply, it is a company which carries on a business and has an aggregated turnover of less than $50 million. This is up from $25 million in the last financial year (ie 2017-18), but will stay at $50 million until 2023-24. The ALP has confirmed that it will not change the rules for base rate entities if elected – so there we have our first certainty.

 

The rate for base rate entities is locked in at 27.5% until 2023-24. The tax rate for all other companies remains at 30%, ie the standard corporate tax rate. This will not change.

 

There had been legislation before Parliament that proposed to progressively extend the 27.5% corporate tax rate to all companies regardless of turnover. However, the legislation did not make it through the Senate and the Government has since announced that it would not proceed with this proposal. This provides us with our second certainty – there will be no changes to the standard corporate tax rate.

 

The tax rate for base rate entities is scheduled to reduce after 2023-24, as this has already been legislated. It is reasonable to state this as the third certainty – that the tax rate for base rate entities will decline progressively to 25% by 2026-27.

 

Now, this is all perfectly straightforward if your company is carrying on what may be termed a trading business, eg providing services, buying and selling trading stock, importing/exporting etc. But if the activities of the company wholly or partly consist of receiving returns on investments – such as rent, interest and dividends (which are termed “passive income”) – then it can get a bit tricky.

 

The Government never intended that companies receiving passive income should benefit from the lower tax rate. It recently changed the rules for base rate entities to ensure this does not happen.

 

A base rate entity will only qualify for the lower 27.5% rate for a particular year if its passive income is less than 80% of its assessable income (and of course its aggregated turnover is less than $50m). Put the other way, companies that receive more than 80% of their income in passive forms will pay tax at the standard corporate tax rate, regardless of turnover.

 

The passive income is termed “base rate entity passive income” in the amending legislation. And what qualifies? Well, dividends and the associated franking credits to start with. Interest (or a payment in the nature of interest) also qualifies – but not if the entity is a financier – as well as royalties and rent. Another key area that qualifies as base rate entity passive income is net capital gains. This could be important for smaller companies – in that the sale of a substantial asset could shake the income mix and possibly put access to the lower rate at risk.

 

Does your company derive investment income?

If you are not sure of the implications of the new company tax rates, we can help. For example, if your business operates via a company, it may be worthwhile using the CGT rollover provisions to transfer assets into a separate entity, to ensure that the 80% rule is not breached. The split 27.5% / 30% rate also has implications for the imputation system and franking credits, which we would be happy to discuss.

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