We provide specialised taxation and accounting services for clients across Melbourne.
Fortunato Salce &
Principal & Associate
Keep up to date with the latest accounting news and announcements.
F Salce & Associates are public accountants providing specialised income tax, business advice, bookkeeping and superannuation tax advice to our professional clients, in a range of industries across Melbourne. Whether you're an individual or small to large scale business owner, we have the skill and experience to assist you in all aspects of your taxation.
We are committed to providing our clients with prompt, professional services and assistance.
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P r a c t i c e U p d a t e
Survey for SMSFs using LRBAs
The ATO has announced that it will be contacting some SMSF trustees in November 2016 to participate in a survey about the use of 'limited recourse borrowing arrangements' ('LRBAs') to acquire assets for their SMSF.
The ATO will email a sample of SMSFs that reported LRBA assets on their 2015 SMSF annual return to invite them to participate in the survey.
Participation is voluntary, and they assure trustees that responses will remain anonymous and the information gathered from the survey will not be used for compliance purposes.
The ATO encourages any trustees contacted to participate (the survey should only take five to seven minutes), as their feedback will help it to gain a better understanding about the SMSF community’s use of LRBAs.
Editor: The ATO has also issued a new Practical Compliance Guideline and a new Taxation Determination regarding SMSFs that enter into non-commercial LRBAs with related parties (e.g., where a member lends money to their SMSF but does not charge interest).
If you would like to discuss any of these SMSF issues, please contact our office.
ATO warning for the building and construction industry
The ATO has reported that the building and construction industry represents a disproportionate amount of its debt book, and has identified worrying trends that affect the industry.
Clients in the industry are encouraged to contact their tax agents regarding outstanding debts, as the ATO may be able to offer a range of payment options to help them get back on track sooner and reduce any interest they may be liable for.
Clients that fail to pay, or make arrangements to pay, may have their outstanding tax debts recovered through a garnishee notice.
Renting out a room is rental income
The ATO has issued an information sheet to let taxpayers know that money earned from renting out a room in a house is rental income.
This applies to rooms rented by traditional means or through a sharing economy website or app.
Also, taxpayers can only claim expenses related to the part of the house they rent out (so expenses will need to be apportioned accordingly).
The following example illustrates how the ATO would expect rental deductions to be calculated.
Example: renting out part of a unit or house
Jane has a two-bedroom unit with two bathrooms. She lives alone and only uses her spare room as an occasional home office, for storage and when she has guests.
Jane mainly uses the ensuite bathroom. The second bathroom is accessible from the main areas and mainly used by visitors.
Jane decides to rent out the spare room on a sharing economy website to earn extra income.
When paying guests come to stay, Jane removes all excess items from the room and does not access the area.
She also gives paying guests access to common areas including the second bathroom, kitchen, living area and balcony, and to her wi-fi. For the period guests are staying and have access to these, Jane can claim 50% of associated costs.
Jane had the room available and occupied 150 days in the year. When she is not renting out the room she uses it as storage and a home office.
Claiming Rental Deductions
Jane calculates what she can claim based on the following additional factors:
u The room is 10 square metres
u The house is 80 square metres
u The common areas are 50 square metres
She works out she can claim 17.97% of her general expenses (such as electricity, interest on her mortgage, internet expenses, rates and body corporate fees) after adding the following two calculations together:
n room occupancy:
– (10/80 x 150/365) x 100 = 5.13%
n common areas:
– ((50/80 x 150/365) x 50%) x 100 = 12.84%.
She can claim 100% of the expenses associated solely with renting out the room, such as the facilitator’s commission or administration fee.
Editor: Note that CGT may also apply if a property used to generate rental income is sold.
Living overseas but still taxable here
In a recent case, the AAT confirmed that a taxpayer was a resident of Australia for taxation purposes while he was living in Oman.
The taxpayer had left Australia in January 2008 to work in Oman, and he ended up working 21 months in Oman before returning to Australia permanently in September 2009.
Before leaving Australia, the taxpayer sold an investment property in Queensland, cancelled his Medicare card, cancelled his Australian private health insurance, and had his name removed from the electoral roll.
When he left Australia in January 2008, he completed an outgoing passenger card indicating that he was permanently departing Australia.
However, the ATO was of the view that the taxpayer remained a resident of Australia. In particular, his wife remained in Australia at a jointly-owned dwelling in Mt Martha, he had returned to Australia for three holidays where he stayed at the Mt Martha home with his wife, he maintained an Australian bank account, and sent money to Australia to help pay his wife’s living expenses and to assist with repaying the mortgage on the home.
The AAT concluded the taxpayer had not severed his connections with Australia and had not established enduring and lasting ties in Oman (and so was still a resident of, and his income was taxable in, Australia).
Crucial issue to consider when buying a company
Where a buyer commences to hold all of the shares in a company (including a company acting as trustee of a trust), they are highly likely to be appointed as a director of that company.
Although being a director in itself does not make the director personally liable for the debts of the company, there are two types of tax debts that are major exceptions to this rule, being PAYG withholding (‘PAYGW’) and compulsory employee superannuation guarantee (‘SG’).
That is, directors can be made personally liable for any outstanding PAYGW or SG, even if they were not a director at the time the debt was incurred.
Therefore, a key component of the due diligence process undertaken by a potential purchaser should be an assessment of whether the company is up-to-date with its PAYGW and SG obligations (as part of this, a potential buyer should also consider whether any ‘contractors’ to whom payments were made would be seen as 'employees' in the eyes of the ATO).
The buyer will also ordinarily want the vendor to provide some kind of indemnity in relation to the buyer’s PAYGW and SG exposure.
Note also, however, that the ‘old’ directors do not cease to have exposure to unpaid PAYGW and SG. That is, both the ‘old’ and ‘new’ directors are all jointly and severally liable for these debts. This position does not alter even if a director resigns before the due date for payment of a relevant amount to the ATO.
P r a c t i c e U p d a t e
Government 'backflip' on superannuation changes
Following further consultation, the government has announced the following 'improvements' to the superannuation changes announced in the 2016/17 Budget:
n the $500,000 lifetime non-concessional cap will be replaced by a new measure to reduce the existing annual non-concessional contributions cap from $180,000 per year to $100,000 per year;
n individuals with a superannuation balance of more than $1.6 million will no longer be eligible to make non-concessional contributions from 1 July 2017; and
n the commencement date of the proposed 'catch-up' for concessional superannuation contributions will be deferred by 12 months to 1 July 2018.
Also, the government will now not change the contribution rules for those aged 65 to 74.
Editor: Clients who wish to discuss these superannuation changes should contact our office.
Fallout from 'Panama Papers' spreads
Editor: Earlier in the year, we reported that an unknown source had leaked 11.5 million documents from the Panamanian law firm of Mossack Fonseca – these are now referred to as the 'Panama Papers'.
Basically, the documents illustrated how many wealthy individuals are hiding their money and income from tax authorities around the world.
The Commissioner of Taxation, Chris Jordan, has announced that the ATO has made significant progress in dealing with those exposed in the Panama Papers who have tried to avoid their tax obligations.
He went on to say that, having commenced the assessment of the data, the ATO believes that some overseas structures and trusts are being used to:
u evade tax;
u avoid corporate responsibility;
u disguise and hide unexplained wealth; and
u facilitate criminal activity and launder the proceeds of crime.
The ATO has obtained information on offshore service providers who have established entities for Australians in secrecy jurisdictions to conceal their interests and wealth.
"Importantly, the sheer size of the information available to us for analysis should send a clear message to those who believe that their data is secure, hidden and beyond the reach of law enforcement and tax authorities – it is not."
Editor: In related news, the International Consortium of Investigative Journalists (ICIJ) has revealed that it has obtained a leaked Bahamian corporate registry which provides names of directors and owners of more than 175,000 Bahamian companies, trusts and foundations registered between 1990 and early 2016, which will also be made available to the public.
GST on low-value imports
Goods imported into Australia – often by consumers using the internet – which cost less than $1,000 are currently GST-free.
On May 3 2016, as part of its package of Budget Night announcements, the Federal government proposed that, as of 1 July 2017, this low-value threshold (‘LVT’) of $1,000 will be abolished.
The removal of the LVT will see many purchases made by individuals and businesses over the internet from an overseas vendor being subject to GST from 1 July 2017.
It is proposed that, as of 1 July 2017, overseas businesses with an Australian annual turnover of greater than $75,000 will be required to register for GST and collect GST on sales made to Australian customers.
Editor: It has been reported that the Federal government could use powers it has under the Telecommunications Act to force internet service providers to block websites of overseas businesses that do not meet their Australian GST obligations (although it remains to be seen if they would go that far . . . )
Record keeping is always key to taking on the ATO
In a recent case before the Administrative Appeals Tribunal (AAT), amended assessments issued to a taxpayer by the ATO, which were based on the amounts of unexplained deposits to the taxpayer's bank accounts (in some years, in the hundreds of thousands of dollars, in others, millions), have been largely upheld.
The total further tax claimed by the ATO was almost $4 million, and, on top of that, they imposed an administrative penalty of almost $2 million (imposed at the rate of 50% for recklessness).
The taxpayer was partially successful in proving that some of the amounts deposited into bank accounts held in his name were not assessable income.
In particular, the taxpayer was able to demonstrate that some of the deposits were reimbursements of amounts he paid in relation to a group of companies of which he was an investor, and some were transfers from one of his bank accounts to another.
However, in relation to many of the deposits to his bank accounts, he had no corroborative evidence as to what they represented.
Therefore, he failed to discharge his onus to prove the amounts should not have been included in his assessable income.
Editor: Yet again the AAT has provided taxpayers with another reminder as to the importance of documentation and good record-keeping.
DHS – Data matching project
The Department of Human Services (DHS) (which operates Centrelink) has launched its 'Non Employment Income Data Matching project', matching income data it collects from "customers" with tax return related data reported to the ATO.
This project will assist the DHS to identify social welfare recipients who may not have disclosed income and assets to the Department, including welfare recipients who have lodged a Tax Return with the ATO during 2011 to 2014.
16 forced sales of properties illegally held by foreigners
The Treasurer has ordered the sale of a further 16 Australian residential properties that have been held by foreign nationals in breach of the foreign investment framework.
“The 16 properties were purchased in Victoria, New South Wales, Queensland and Western Australia, with prices ranging from approximately $200,000 to $2 million.
"The individuals involved come from a range of countries including the United Kingdom, Malaysia, China and Canada.
“Illegal real estate purchases by foreign citizens attract criminal penalties of up to $135,000 or three years' imprisonment, or both for individuals; and up to $675,000 for companies. The new rules also allow capital gains made on illegal investments to be forfeited."
Singapore and ATO to share data to reduce tax evasion
The Inland Revenue Authority of Singapore and the ATO have entered into an agreement on the automatic exchange of financial account information (based on the 'Common Reporting Standard').
This automatic exchange of financial information will commence by September 2018.
P r a c t i c e U p d a t e
Pre-retirees: Avoid 'too good to be true' tax schemes
The ATO has launched a new project called 'Super Scheme Smart', an initiative aimed at educating individuals about the potential pitfalls of 'retirement planning schemes', to keep them safe from risking their retirement nest egg.
According to the ATO, individuals most at risk are those approaching retirement, including anyone aged 50 or over, looking to put significant amounts of money into retirement, particularly SMSF trustees, self-funded retirees, small business owners, company directors, and individuals involved in property investment.
While retirement planning schemes can vary, there are some common features that people should be aware of.
Usually these schemes:
u are artificially contrived and complex, usually connected with a SMSF;
u involve a lot of paper shuffling;
u are designed to leave the taxpayer with minimal or zero tax, or even a tax refund; and/or
u aim to give a present day tax benefit by adopting the arrangement.
Individuals caught using an illegal scheme identified by the ATO may incur severe penalties under tax laws, which includes risking the loss of their retirement nest egg and also their rights as a trustee to manage and operate a SMSF:
"Retirement planning makes good sense provided it is carried out within the tax and superannuation laws. Make sure you are receiving ethical professional advice when undertaking retirement planning, and if in doubt, seek a second opinion from an independent, trusted and reputable expert".
For more information about the specific schemes, they can visit their website at www.ato.gov.au/superschemesmart.
ATO assistance with the pending $500,000 lifetime super cap
In the 2016/2017 Federal Budget, it was announced that, from 7:30pm (AEST) on 3 May 2016, there will be a lifetime cap of $500,000 on non-concessional (i.e., non-deductible) superannuation contributions.
This new lifetime cap is proposed to take into account all non-concessional contributions an individual has made on or after 1 July 2007.
Therefore, taxpayers currently planning to make non-concessional contributions may need to check their historical non-concessional contributions, back to 1 July 2007. Fortunately, the ATO has stated that, where individuals and funds have met their lodgement obligations, the ATO will be able to calculate and report these amounts for the period from 1 July 2007 to 30 June 2015.
Editor: If you are considering making such contributions but are unsure of your past non-concessional contributions, let us know, as we can expedite getting the ATO to make these calculations.
Deductibility of gifts provided to clients
The ATO has confirmed that a taxpayer carrying on business is generally entitled to a deduction for expenses incurred on a gift made to a former or current client, if the gift is characterised as being made for the purpose of producing future assessable income.
However, the expense may not always be deductible (e.g., if the gift constitutes the provision of entertainment that is not deductible).
The ATO’s recent determination also highlights that a deduction will be denied where expenditure on gifts is more accurately described as being 'private' in nature (for example, where a gift is provided to a relative outside a business’ usual practice of providing client gifts).
Deductibility of airport lounge memberships
The ATO has also confirmed that the cost to a business taxpayer of a yearly airport lounge membership (e.g., Qantas Club, Virgin Lounge) that will be used by its employees is ordinarily deductible, and should not give rise to any FBT liability for the employer (even if the majority of (or indeed only) use of the airport lounge membership is for private purposes).
Phoenix Taskforce swoops on dodgy businesses
The ATO’s stance against phoenix activity has continued with multiple search warrants issued, and many business and residential sites accessed without notice across Victoria and Queensland, as part of a criminal investigation into unpaid superannuation, employee withholding, GST, and income tax.
Editor: 'Phoenix activity' refers to a business that shuts down whilst still owing creditors, employees and the ATO lots of money, and then starts up again perhaps somewhere else or under a new name.
Deputy Commissioner Michael Cranston said “By showing up unannounced we’re able to access records that we might otherwise never have seen. This information is then used to take further compliance action, and shared among our partner agencies to better inform our strategies targeting the 50 highest-risk phoenix operators.”
What employees of these companies should be looking out for
Mr Cranston stated that there are a number of signs that a business someone is working for may be involved in phoenix behaviour:
“Employees may be pressured to take leave or have their employment status changed from permanent to casual. They may also notice that there are frequent changes in the identity of the company that is paying their wages, or that their superannuation entitlements are not paid."
Employees who suspect that a company they are dealing with is exhibiting any of these signs should get in touch with the ATO by reporting it online or by calling 1800 060 062. Editor: Or contact us!
ATO exposes dodgy deductions
With over eight million Australians claiming work-related expenses each year, the ATO is reminding people to make sure they get their deductions right this tax time.
Assistant Commissioner Graham Whyte said that, in 2014/15, the ATO conducted around 450,000 reviews and audits of individual taxpayers, leading to revenue adjustments of over $1.1 billion in income tax.
“Every tax return is scrutinised using increasingly sophisticated tools and data analytics developed (by) the ATO. This means we can identify and review income tax returns that may omit information or contain unreasonable deductions," Mr Whyte said.
The ATO also set out some case studies, which provide a fascinating insight into the ATO's methods, including:
q A medical professional who made a claim for attending a conference in America, and provided an invoice for the expense, but when the ATO checked, it found that the taxpayer was still in Australia at the time of the conference (the claims were disallowed and the taxpayer received a substantial penalty); and
q A taxpayer who claimed deductions for car expenses, but the ATO found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further inquiries identified that the taxpayer was out of the country. Their claims were also disallowed.
P r a c t i c e U p d a t e
Update on the government's superannuation program
Editor: Now that the government has been re-elected, it seems they are committed to proceeding with their superannuation policy, including the controversial measure to impose a 'lifetime cap' of $500,000 on the amount of non-concessional (i.e., undeducted) contributions that can be made into superannuation (calculated from all contributions made since 1 July 2007).
The Treasurer Scott Morrison has also indicated that transitional relief provisions will be introduced in relation to the lifetime non-concessional contributions cap of $500,000.
It is proposed that transitional provisions will allow for non-concessional contributions to be made under the rules and limits that existed prior to Budget Night where a superannuation fund has entered into a contract before 3 May 2016 to acquire an asset, and the contract settles after 3 May 2016.
Furthermore, there will be transitional relief for self-managed superannuation funds (SMSFs) that had a Limited Recourse Borrowing Arrangement in place before 3 May 2016, and additional non-concessional contributions are to be made up to 31 January 2017 (so that the borrowing will comply with the ATO's new guidelines).
Editor: There have also been reports that the government may also allow 'carve-outs' for extraordinary 'life events' (e.g., divorce).
The government is apparently going to release draft legislation for their superannuation changes some time in August 2016.
Tax time is prime time for scams
The ATO is reminding Australians to be on the lookout for tax-related scams during tax time, as scammers are particularly active because of the large number of people lodging their tax returns.
Assistant Commissioner Graham Whyte said that, while most people were able to identify scams, it is important to remain alert during tax time.
For example, although the ATO makes thousands of outbound calls to taxpayers a week, there are some key differences between a legitimate call from the ATO and a call from a potential scammer:
“We would never cold call you about a debt; we would never threaten jail or arrest, and our staff certainly wouldn’t behave in an aggressive manner. If you’re not sure, hang up and call us back on 1800 008 540”.
ATO also warns against identity theft
The ATO is also reminding Australians to protect themselves against identify theft this tax time. Highly organised crime networks use a range of methods to steal personal information in order to commit refund fraud.
The ATO recommends following a few easy steps for taxpayers to protect themselves against identity theft:
u Put a padlock on their letterbox;
u Shred documents containing personal details (especially their tax file number (TFN)) before throwing them away;
u Use legitimate and up-to-date antivirus, firewall and anti-spyware software; and
u Make sure passwords are strong, using a combination of letters, numbers and symbols, don't share them with anyone, and ensure they are changed regularly.
The ATO also says that taxpayers should report the loss or theft of their TFN without delay, if they can’t find their TFN, and/or think their TFN has been stolen or misused.
The 'sharing economy' in the ATO's sights
The ATO is concerned that those earning money from the 'sharing economy' may not realise they have to declare these amounts on their tax return.
In the sharing economy, buyers and sellers are connected through a facilitator who usually operates an app or website.
Assistant Commissioner Graham Whyte said:
“If you earn money from doing odd jobs or providing a service like task sharing, transporting passengers through things like ride-sourcing, or renting out a room or house, you need to declare it because it counts as assessable income. If you are running a business through the sharing economy you also need to declare this income.
“It’s a bit different if the goods you provide or the activity you complete through a sharing economy website or platform is done as a hobby or recreational activity. The amount you are paid may not be assessable income."
Editor: We can help you with this distinction.
Mr Whyte said ATO technology was keeping up with the sharing economy, and, thanks to their data collection and data matching activities, the ATO would know if taxpayers have left out a significant amount of income.
In addition, some taxpayers may need to register for, and pay, GST (especially those earning an income from carrying on an enterprise of ride-sourcing services, regardless of how much money they earn).
Latest ATO benchmarks released
The ATO has released the latest benchmarks for small business based on the data from 2014 income tax returns and business activity statements, covering over 1.3 million small businesses.
Assistant Commissioner Matthew Bambrick said that, if a small business is inside the benchmark range for their industry and the ATO hasn't received any extra information that may cause concern, they can be confident that they probably won't hear from the ATO.
Mr Bambrick said the benchmarks were also a helpful guide for small businesses to see how they stack up against others in their industry.
"For example, one business told us how their accountant used the tailored benchmarks to work out that their expense to turnover ratio was higher than other businesses with a similar turnover. Using this information the business adjusted some of their inputs and how they were pricing their products. These changes resulted in an overall improvement in their performance."
While the benchmarks are a helpful guide for small business, Mr Bambrick said it was also one of a number of tools the ATO uses to ensure a level playing field.
Cents per km deduction rate for motor vehicle expenses
The ATO has determined that the rate at which work-related motor vehicle expense deductions may be calculated using the cents per kilometre method is 66 cents per kilometre for the income year commencing 1 July 2016.
Overtime Meal Allowance Amounts
The reasonable amount for overtime meal allowance expenses for 2016/17, where an allowance is paid under an award, order, determination, industrial agreement or a Commonwealth, State or Territory law, is $29.40 per meal.
Div.7A benchmark interest rate
The benchmark interest rate for 2016/17, for the purposes of the deemed dividend provisions of Div.7A, is 5.40% (down from 5.45% for 2015/16).
CGT: 2016/17 Improvement threshold
The CGT improvement threshold is $145,401 for the 2016/17 income year, up from $143,392 for 2015/16.