There are two changes affecting SMSF’s which have recently occurred:
Non-Arm’s Length Income (NALI) Changes
The definition of Non-arm's length income (NALI) has been expanded to now apply to non-arm’s length expenditure and outgoings, not just income.
The definition now states that the ordinary or statutory income of a super fund will be NALI and taxed at the top marginal rate where there is a scheme in which the parties are not dealing with each other at arm's length and the fund incurs:
• a loss, outgoing or expenditure (including a nil amount), in gaining or producing the income, that is less than what would be expected had the parties dealt with each other at arm's length in relation to the scheme; or
• a loss, outgoing or expenditure (including a nil amount) to acquire a fixed entitlement to the income of a trust or in gaining or producing the income from a fixed entitlement that is less than would be expected had the parties dealt with each other at arm's length in relation to the scheme.
This is a significant change to encompass expenses and outgoings, not just income with related parties! It applies from the 2018-19 income year onwards.
Total Super Balance Changes
The calculation of an individual’s total superannuation balance will include, in certain circumstances the outstanding Limited recourse borrowing arrangement (LRBA) amount attributable to each member’s interest where the SMSF has an LRBA that was made under a contact entered into on or after 1 July 2018.
This occurs if:
• the LRBA is with an associate of the SMSF
• a member of the fund met a condition of release with a nil cashing restriction
This change doesn’t include the refinancing of an LRBA that was made before 1 July 2018 where both the following apply:
• the new borrowing is secured by the same asset or assets as the old borrowing
• the refinanced amount is the same or less than the existing LRBA.
For more information please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au
AUSkey is being replaced by myGovID – ACT NOW
MyGovID and Relationship Authorisation Manager (RAM) will be replacing AUSkey at the end of March 2020.
MyGovID is an app that can prove your digital identity from your smart device. RAM is a new Australian Government authorisation service that allows you to authorise who acts on your behalf.
There are a few steps to setup your MyGovID and RAM:
1. Check your ABN details are up to date from the Australian Business Register and your authorised users are correct in the AUSkey Manager.
2. Download the myGovID app onto your smart device and use your identity documents to set up your account.
3. Use your myGovID to login to RAM and link your ABN.
4. When your ABN is linked, you start to set up and manage authorisations. Once you authorise someone, the person will be sent a request via email to act on your behalf.
You should act now to set up the new authorisation service before the deadline.
For more information please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au
Cash rate on hold as economy reaches a “gentle turning point” (December 2019)
At its monthly meeting on Tuesday, the Reserve Bank Board decided to leave the cash rate unchanged at 0.75 per cent. This follows the 3 recent decreases of 0.25% in June, July, and October.
The RBA believes the Australian economy has reached what it has termed a “gentle turning point” and it believes growth will gradually pick up to around 3 per cent in 2021.
The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and an improved outlook for the resources sector should all support this forecast increase in growth.
The downward pressure on the exchange rate from the lowered cash rate has also supported activity in various industries, and boosted asset prices which, together with lower mortgage rates leaving more disposal income for households, should flow through to increased spending.
In summary the Board will give the previous rate cuts more time to work given the lead time for the reductions to take effect and will continue to monitor developments, including in the labour market. It acknowledges that given global and domestic factors, an extended period of low interest rates will reasonably be required to reach full employment and achieve the inflation target. However, it is prepared to reduce the cash rate further to achieve these goals and support sustained growth.
The full statement supporting the decision by Philip Lowe, Governor of the RBA, can be found here.
For more information please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au
ATO Disclosure of Business Tax Debts
Legislation has recently been passed, with effect from 28 October 2019, allowing the ATO to disclose tax debt information of businesses to registered credit reporting bureaus (CRBs).
This will only be permissible where certain criteria are met including:
• The business has an Australian business number (ABN), and is not an excluded entity
• it has one or more tax debts, of which at least $100,000 is overdue by more than 90 days
• it is not effectively engaging with the ATO to manage its tax debt, and
• the Inspector-General of Taxation is not considering an ongoing complaint about the proposed reporting of the entity's tax debt information.
The ATO will notify a business in writing if they meet the reporting criteria and give them 28 days to engage with the ATO and take action to avoid having its tax debt information reported.
The ATO does of course have various other methods of enforcing payment of tax debts.
The message however is clear, engage with the ATO if your business is in a situation where it has tax debts and adhere to any negotiated payment arrangements.
Given this new additional compliance tool the ATO has at it’s disposal, and the potential commercial implications for obtaining finance in the future should a debt be reported to a CRB, this only reiterates the imperative need to engage and adhere to arrangements.
For more information please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au
Reserve Bank leaves the cash rate on hold – September 2019
At its monthly meeting yesterday, the Reserve Bank Board decided to leave the cash rate unchanged at 1.00 per cent. This follows the two 0.25% decreases to the cash rate in June and July.
In short, while the global economic outlook remains positive, there are several downside risks to world economic growth including trade and technology disputes. Inflation is subdued with many central banks also decreasing interest rates this year.
Locally, Australia’s inflation rate is below the target band of the Reserve Bank, and is expected to be for some time. The unemployment rate of 5.2% is higher than preferred despite record increases in employment, which have been due to more supply of labour. Wages growth has also been subdued.
Increased wage growth would be welcome, and there is cautious optimism about the housing market stabilising.
The Board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time
The full statement supporting the decision by Philip Lowe, Governor of the RBA, can be found here https://www.rba.gov.au/media-releases/2019/mr-19-23.html
For more information please contact Infinite Accounting Solutions on 02 9899 4730 or via the contact page at www.ias-ca.com.au
Non-compliant payments to workers no longer tax deductible
Business taxpayers can no longer claim deductions for payments to workers if they have not met their Pay As You Go (PAYG) withholding obligations.
This applies to income tax returns lodged for the 2020 income year onwards.
If PAYG withholding rules require an amount to be withheld, a business must:
withhold the amount from the payment before they pay their worker
report that amount to the ATO.
The deduction will not be lost however if you withhold:
an incorrect amount by mistake (this needs to be rectified though)
the correct amount but make a mistake when reporting (this should also be rectified)
The deduction will be lost however, if no amount is withheld or reported to the ATO, unless this is voluntarily disclosed to the ATO before they examine your affairs.
Message is clear – do the right thing and comply with the requirements of the PAYG withholding system.
This is part of the government’s response to recommendations from the Black Economy Taskforce with the aim to level the playing field for honest businesses doing the right thing by their workers.
If you require further information on this measure, or anything else, please contact us on 02 9899 4730 or via www.ias-ca.com.au
Business Tax Tips for 2019
End of Financial Year Tax Update!
Reserve Bank leaves the cash rate on hold
At its meeting today, the Reserve Bank Board decided to leave the cash rate unchanged at 1.50 per cent.
The full statement supporting the decision by Philip Lowe, Governor of the RBA, can be found here
https://www.rba.gov.au/media-releases/2019/mr-19-11.html
The summary comments though are below, and state that the Bank will be paying close attention to the labour market for decisions in coming months. This would suggest they see the labour market as the key to shifts in the broader economy.
“The Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. In doing so, it recognised that there was still spare capacity in the economy and that a further improvement in the labour market was likely to be needed for inflation to be consistent with the target. Given this assessment, the Board will be paying close attention to developments in the labour market at its upcoming meetings“
Single Touch Payroll (STP) - changes from 1 July 2019
Single Touch Payroll (STP) is a change to the way you report payroll information to the ATO.
STP will be extended to Employers with 19 or less employees from 1 July 2019.
This will mean all employers will need to have payroll software which facilitates STP reporting.
If you don’t have compatible software, you will need to subscribe to some.
There are a number of low cost options available. We are recommending, where possible, to have compatible accounting software which simply includes this as a feature. In that way all your accounts and payroll are in one system.
What is Single Touch Payroll
Each time you pay your employees you will also be sending your employee salary and wage information, pay as you go (PAYG) withholding and super information to the ATO. These will be year-to-date amounts.
You will need to make sure your current payroll software is updated by your digital service provider (DSP) to offer STP reporting, or choose payroll software that is STP-enabled.
Mandatory reporting items are covered in more detail below.
What the changes mean for you
Each time you run your payroll and pay your employees, you will also send STP data from your payroll software to the ATO. This will be done through a pay event.
If you need to, you will be able to make corrections to your employees' year-to-date (YTD) amounts in your next pay event, or through an update event.
Payment summaries
You will not be required to provide payment summaries (including part-year payment summaries) to your employees for the payments you report and finalise through STP.
The ATO will make this information directly available to your employees online through myGov. This information will be called an employment income statement. It is the equivalent of a payment summary.
Once you make a finalisation declaration, the ATO will notify your employees that their employment income statement is 'tax ready' in myGov and they can use it to complete their tax returns.
Reporting superannuation information
You will continue to report and pay your employees' superannuation entitlements through your existing SuperStream solution (including the Small Business Superannuation Clearing House). This does not change as a result of STP.
What will change is the requirement to report your employees' super liability or ordinary time earnings (OTE) each pay day. This is based on the amounts you currently provide on an employees' payslip.
Super funds will report to the ATO when you make the payment to your employees' super fund.
This will provide the ATO with visibility of an employer's super obligations and payments.
Online employee commencement forms
Some digital service providers will offer online employee commencement forms through their software, including the Tax file number declaration, Superannuation (super) standard choice and Withholding declaration forms.
If this is available you will have the option to invite your employees to complete the forms online through your STP-enabled software. The employee information captured within the online form will also be collected by your payroll software.
Online employee commencement forms are not compulsory through STP.
Even if your software offers these services, you can continue to provide these forms as you do now (for example, as papers forms).
Mandatory reporting
These withholding payments are required to be reported under STP. They are generally paid through a payroll process by employers to your employees.
If you report these payments (and amounts withheld from them) throughout the year and complete a finalisation declaration you will not need to provide the corresponding payment summaries to your employees or a PAYG Withholding payment summary annual report to the ATO.
A finalisation declaration is a declaration in the approved form given to the Commissioner of Taxation by 14 July stating you have fully reported for the financial year and for each of your employees using Single Touch Payroll. You are then not obliged to give payment summaries to your employees (although you may still choose to) or a payment summary annual report to the Commissioner.
If you do not report and finalise these amounts through STP you will continue to be required to give a payment summary to your employees and a payment summary annual report to the Commissioner.
Mandatory reporting labels
Please contact us if you require assistance or more information.
Fringe Benefits Tax – ATO “Radar” items – Year ending 31 March 2019
The ATO has released their annual list of Fringe Benefits Tax (FBT) 'What attracts our attention' items for the FBT year ending 31 March 2019.
This year there are six items that are being targeted more specifically, including
failing to report car fringe benefits, incorrectly applying exemptions for vehicles, or incorrectly claiming reductions for these benefits
mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer's tax return
claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising
incorrectly calculating car parking fringe benefits due to:
significantly discounted market valuations
using non-commercial parking rates
not having adequate evidence to supported the calculated rates
not applying FBT to the personal use of business assets provided for the personal enjoyment of employees or associates
not lodging FBT returns (or lodging them late) to avoid or delay payment of tax.
They are reminding all employers to be mindful of FBT matters, in particular the items that attract their attention, and to make sure they identify fringe benefits correctly. This will help employers stay off their radar!
Federal Budget 2019-20 Summary
Last night, April 2, the Federal Treasurer Josh Frydenberg released the Coalition’s budget, earlier than usual ahead of the impending Federal Election, which is set to be held some time in May.
Below is a summary of some of the key elements of the Budget:
More than doubling of the low and middle income tax offset to $1,080 from 2018-19. Taxpayers earning up to $126,000 a year will receive this tax cut.
Forecast budget surplus of $7.1 Billion for 2019-20 and further surpluses in the following 3 years (a total of $45 Billion over 4 years)
Economy is forecast to grow by 2.75% in 2019-20 and 2020-21
Lowering the 32.5% tax rate to 30% from 1 July 2024. This will cover all taxpayers earning between $45,000 and $200,000 and would mean that 94% of taxpayers will pay no more than 30 cents in the dollar
From 2024-25, there would only be 3 personal income tax rates – 19%, 30% and 45%
Increasing the instant asset write-off from $25,000 to $30,000, with effect from 7:30pm (AEDT) on 2 April 2019. The write-off threshold will also be extended to apply to businesses with a turnover of up to $50 million - this will only apply to 30 June 2020.
$100 billion on infrastructure over the next decade to reduce congestion and improve links between Australia's cities and regional towns (a lot of which has already been announced)
An immediate one-off rebate on energy costs to pensioners, of $75 for an individual or $125 for couples.
Changes to Work test for Super contributions for those aged 66 and 67
EMDG scheme - extra $60 million in funding over the next 3 years to help more businesses export their products and services around the world.
For further information, please see our more detailed analysis paper here
Personal Income Tax Changes
The Government's Personal Income Tax Plan, as announced in the 2018-19 Federal budget, has been passed by Parliament.
There will be:
changes to income tax rate thresholds in the 2018-19, 2022-23 and 2024-25 income years
a new low and middle income tax offset to reduce the tax payable by low and middle income earners in the 2018-19, 2019-20, 2020-21 and 2021-22 income years
a new low income tax offset from the 2022-23 income year (to replace both the new low and middle income tax offset and the current Low Income Tax Offset ).
The following table outlines the updated rates and thresholds along with the updated offset entitlements linked to these changes.
Detail of these changes
Increase to income tax rate thresholds
2018-19, 2019-20, 2020-21 and 2021-22 income years
Increase the top threshold of the 32.5% tax bracket from $87,000 to $90,000
2022-23 and 2023-24 income years
Increase the top threshold of the 19% tax bracket from $37,000 to $41,000.
Increase the top threshold of the 32.5% bracket from $90,000 to $120,000.
2024-25 income year onwards
Increase the top threshold of the 32.5% tax bracket from $120,000 to $200,000.
New low and middle income tax offset
2018-19, 2019-20, 2020-21 and 2021-22 income years
Australian resident individuals (and certain trustees) whose income does not exceed $125,333 are entitled to the new low and middle income tax offset. Entitlement to the new offset is in addition to the existing Low Income Tax Offset.
If your income:
does not exceed $37,000 you are entitled to $200
exceeds $37,000 but does not exceed $48,000 you are entitled to $200 plus 3% of the amount of the income that exceeds $37,000
exceeds $48,000 but not $90,000, you are entitled to $530
exceeds $90,000 you are entitled to $530 less 1.5% of the amount of the income that exceeds $90,000.
New low income tax offset
2022-23 and later income years
A new low income tax offset replaces both the current Low Income Tax Offset and the low and middle income tax offset.
Consistent with the current Low Income Tax Offset, individuals with taxable income that does not exceed $66,667 (as well as certain trustees taxed on behalf of individuals) will be entitled to the new low income tax offset.
The amount of the new low income tax offset is $645 reduced by:
6.5% of the amount by which your income exceeds $37,000 but does not exceed $41,000 and
a further 1.5% of the amount by which your relevant income exceeds $41,000.
New industries entering the taxable payments reporting system : Road freight, information technology (IT), security, investigation, and surveillance services
From 1 July 2019, businesses that provide road freight, information technology (IT), security, investigation, or surveillance services, will need to lodge a Taxable payments annual report (TPAR) each year to advise the ATO of payments made to contractors.
This is necessary even if these services are only part of the business’s activities.
The first TPAR will be due by 28 August 2020 for payments made from 1 July 2019 to 30 June 2020.
The information required to be compiled and reported is as follows:
ABN (if known)
name
address
total amounts paid during the financial year (including GST).
It is important to make sure appropriate systems are put in place to capture this information as payments are made. Most commercial accounting packages have the required functionality to capture, and then report this information.
Please contact us if you require further information or assistance.
Exemptions from lodging monthly activity statements electronically have ended
The ATO previously granted some of our clients a temporary exemption from lodging their monthly activity statements electronically.
This exemption was for taxpayers who were lodging monthly activity statements by paper and having us lodge quarterly activity statements electronically on their behalf.
The exemption was given to allow these clients to transition to lodging online.
The temporary exemption has now been removed and therefore paper activity statements will no longer be received.
Action to take
Register for an AusKey and lodge monthly activity statements electronically. Alternatively, we can lodge these on your behalf.
The ATO app has a key dates reminder feature also, so you can keep an eye on due dates.
Single Touch Payroll for Small Employers
Parliament passed legislation on 12 February to extend Single Touch Payroll (STP) reporting to include all small employers (those with fewer than 20 employees) from 1 July 2019.
STP is pay day reporting by employers to the ATO as it happens. This reporting already started on 1 July 2018 for large employers (20 or more employees).
This is a big change and will generally be much easier to comply with if using some kind of accounting or payroll software.
The ATO Commissioner Chris Jordan has announced that the ATO wants to help with the transition and has outlined the following :
“The ATO will offer micro employers (1 to 4 employees) help to transition to STP and a number of alternative options – such as allowing those who rely on a registered tax or BAS agent to report quarterly for the first two years, rather than each time payroll is run.
Small employers can start reporting any time from the 1 July start date to 30 September 2019. We will grant deferrals to any small employer who requests additional time to start STP reporting.
There will be no penalties for mistakes, missed or late reports for the first year.
We will provide exemptions from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.”
For more information please contact our office.
Vacancy Fee for foreign owners
Foreign owners of residential dwellings in Australia are required to pay an annual vacancy fee if their dwelling is not residentially occupied or rented out for more than 183 days (six months) in a year.
The vacancy fee return must be lodged by foreign owners of residential dwellings who:
made a foreign investment application for residential property after 7.30pm AEST on 9 May 2017
purchased under a New Dwelling Exemption Certificate that a developer applied for after 7:30pm AEST on 9 May 2017.
The vacancy fee may also apply where a foreign person failed to submit a foreign investment application but purchased a residential property before 9 May 2017.
Foreign owners of vacant land do not have to lodge a vacancy fee return until a dwelling has been constructed on the land. Returns need to be lodged even when the dwelling has been occupied or made available for rent.
For the purpose of applying the vacancy fee rules, a vacancy year is each successive period of 12 months starting on the occupation day for the dwelling during which you have continuously held an interest in the dwelling.
Vacancy fee returns must be lodged within 30 days of the end of each vacancy year.
The vacancy fee will generally be the same amount as the foreign investment application fee paid at the time you submitted your foreign investment application.