client alert
tax news | views | clues
Commissioner’s statutory remedial
power on the way
Even though the Commissioner of Taxation
endeavours to interpret the law to give effect to its
purpose or object, there are instances where this is not
possible. To address this, the Government has
announced that it will provide the Commissioner with a
statutory remedial power to allow for a more timely
resolution of certain unforeseen or unintended
outcomes in taxation and superannuation law.
In announcing the Government’s plan, the Assistant
Treasurer Josh Frydenberg said the power will be
appropriately limited in its application and will apply to
the extent that it has a beneficial outcome for
taxpayers. It will only be available where the
modification is not inconsistent with the purpose or
object of the law and has no more than a negligible
revenue impact. The Commissioner will consult
publicly prior to any exercise of the power.
ATO ramps up face-to-face contact
with wealthy individuals
The ATO has released details of its new approach to
wealthy individuals and their private groups. The ATO
is focusing on a “prevention-before-correction”
approach and is ramping up its face-to-face interaction
with key taxpayers.
According to the ATO, about 30% of wealthy
individuals and their private groups are considered
“high risk”. Acting Second Commissioner Michael
Cranston said that if taxpayers are open and
transparent with the ATO, they can expect better
services and faster turnaround of key decisions.
Mr Cranston also noted the ATO “will sign-off on the
previous year’s tax returns of taxpayers who have
been open and transparent” about their affairs, have
good compliance records and are considered low-risk.
He said this will provide certainty for about 30,000
privately owned and wealthy groups that they will not
be subject to an audit for specific income years.
TIP: Some of the risk areas that attract the ATO’s
attention include individuals with unreported foreign
income or assets; certain types of remuneration
arrangements used by members of professional firms;
the egregious use of trusts; and mixing personal and
company expenditure.
Sale of business earn-out
arrangements – tax changes on the
way
The Government is looking to provide clarity in relation
to the capital gains tax (CGT) treatment of earn-out
arrangements in connection with a sale or purchase of
a business.
An earn-out arrangement is an arrangement whereby,
as part of the sale of a business, the buyer and seller
agree that subsequent financial benefits may be
provided based on the future performance of the
business. For example, two parties are negotiating the
sale of the business where a significant part of the
value of the business is tied to its customer base – that
is its goodwill. There is considerable uncertainty about
how the sale and other factors may impact upon this
goodwill. The parties could agree to an earn-out
arrangement under which part of the consideration for
the sale is linked to the future economic performance
of the business.
The proposed rules aim to provide “look-through” CGT
treatment to earn-out arrangements. That is, under the
changes, taxpayers may disregard capital gains or
losses that arise in relation to the qualifying right to
June 2015
financial benefits. Instead, taxpayers must include
financial benefits provided or received under or in
relation to such rights in determining the capital
proceeds of the disposal of the underlying asset (for
the seller) or the cost base and reduced cost base of
the underlying asset for the buyer.
It is proposed that the changes would apply from the
exposure draft legislation release date (ie 23 April
2015).
ATO data-matching eBay sellers
The ATO is collecting data from eBay Australia & New
Zealand Pty Ltd of sellers who had sold more than
$10,000 worth of goods and services on the eBay
online trading website during the 2013–2014 financial
year.
The ATO said the data will be electronically matched
with its records to identify possible non-compliance
with the tax law.
The data-matching program is designed to enable the
ATO to address the compliance behaviour of
individuals and businesses selling goods and services
via the online-selling site who may not be correctly
meeting their taxation obligations, particularly those
with undeclared income and incorrect lodgment and
reporting for GST.
It is expected that records relating to between 15,000
and 25,000 individuals will be matched.
TIP: If you sell products or services online, you need to
understand whether you are doing it as a hobby or
carrying on a business. The ATO said the ongoing
collection of online-selling data enables it to review
online sellers who are transitioning from hobby status
to potentially being “in business”. When selling online
becomes a business, the income you earn from it is
subject to tax. If this is the case, you may also be
eligible for tax deductions.
TIP: Companies should consider whether they have
undertaken research and development (R&D) activities
that may be eligible for the Government’s R&D Tax
Incentive. Eligible R&D activities are experimental
activities that are conducted in a scientific way for the
purpose of generating new knowledge or information.
To potentially claim the R&D Tax Incentive, the
company’s R&D activities need to be registered with
AusIndustry within 10 months of the end of the income
year. Companies are required to maintain records to
demonstrate, not only to AusIndustry, but also to the
ATO, that the activities carried out are eligible R&D
activities and that they incurred expenditure related to
the activities.
No jab, no pay for child benefits –
Government immunisation
requirement
The Government will end the conscientious objector
exemption on children’s vaccination for access to
taxpayer-funded Child Care Benefits, the Child Care
Rebate and the Family Tax Benefit Part A end-of-year
supplement from 1 January 2016.
Immunisation requirements for the payment of the FTB
Part A end-of-year supplement will also be extended to
include children of all ages. Currently, vaccination
status is only checked at 1, 2 and 5 years of age. The
Government will also end the exemption on religious
grounds, leaving only the existing exemption on
medical grounds.
Aggressive R&D claims under
scrutiny
The ATO and AusIndustry are working closely with
each other to identify taxpayers who may be involved
in aggressive research and development (R&D)
arrangements. In particular, the ATO and AusIndustry
are seeking arrangements that are inconsistent with
the requirements of the law, may have features of tax
avoidance, and may be fraudulent.
In this regard, the ATO and AusIndustry have asked
taxpayers to ensure that their claims for R&D
expenditure are attributed to activities that are
consistent with their AusIndustry registration – and,
importantly, that expenses (eg labour costs) were
actually incurred on R&D activities.
Important: Clients should not act solely on the basis of the material contained in Client Alert. Items herein are general comments only and do
not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be
sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should
be regarded as confidential and not be made available to any person without our prior approval.
federal budget
| June 2015
PERSONAL TAXATION
SMALL BUSINESS
Personal tax rates: budget deficit levy
not to be extended
Tax rate cut to 28.5%
The 2015–2016 Budget did not make any changes to
the current personal tax rates, although in the lead-up
to the Budget, the Treasurer indicated that the 2%
budget deficit levy (tax) on incomes over $180,000
would not be extended beyond its initial three years.
The levy was announced in last year's Budget and
applies for three years from 1 July 2014. It is due to
cease at the end of the 2016–2017 financial year.
Work-related car expenses simplified
The Budget confirmed that the 12% of original value
and one-third of actual expenses incurred methods
would be discontinued. That means only the cents per
km and logbook methods remain. The Government will
set 66 cents per kilometre as the rate for using the
cents per km method, irrespective of a car's engine
size. The changes will apply from the 2015–2016
income year.
Medicare levy low-income thresholds
for 2014–2015
From the 2014–2015 income year, the Medicare levy
low-income threshold for singles will be increased to
$20,896 (up from $20,542 for 2013–2014). For couples
with no children, the threshold will be increased to
$35,261 (up from $34,367 for 2013–2014). The
additional amount of threshold for each dependent
child or student will be increased to $3,238 (up from
$3,156).
For single seniors and pensioners, the Medicare levy
low-income threshold will be increased to $33,044 (up
from $32,279). This threshold applies to those entitled
to the seniors and pensioners tax offset (SAPTO).
The measure will apply from 1 July 2014.
Temporary working holiday makers –
tax residency rules to change
The Government will change the tax residency rules to
treat most people who are temporarily in Australia for a
working holiday as non-residents for tax purposes,
regardless of how long they are here. This means they
will be taxed at 32.5% from their first dollar of income.
This measure will apply from 1 July 2016.
The Government announced, with effect from the
2015–2016 income year (ie from 1 July 2015), a 1.5%
cut in the company tax rate applying to small
businesses (turnover less than $2 million), reducing
the tax rate to 28.5%. Companies with an aggregated
annual turnover of $2 million or above will continue to
be subject to the current 30% rate on all their taxable
income. The current maximum franking credit rate for a
distribution will remain unchanged at 30% for all
companies.
Tax discount for unincorporated small
businesses
The Government said that with effect from 1 July 2015
individual taxpayers with business income from an
unincorporated business that has an aggregated
annual turnover of less than $2 million will be eligible
for a small business tax discount. The discount will be
5% of the income tax payable on the business income
received from an unincorporated small business entity,
and will be capped at $1,000 per individual for each
income year.
Small business asset accelerated
depreciation write-off
Small businesses would be able to immediately write
off assets they start to use or install ready for use,
provided the asset costs less than $20,000. This will
apply for assets acquired and installed ready for use
between 7.30pm (AEST) 12 May 2015 and 30 June
2017. Assets valued at $20,000 or more (which cannot
be immediately deducted) can continue to be placed in
the small business simplified depreciation pool. The
Government will also suspend the current “lock out”
laws for the simplified depreciation rules until 30 June
2017.
From 1 July 2017, the thresholds for the immediate
depreciation of assets and the value of the pool will
revert to existing arrangements.
Immediate deductibility for professional
expenses re start-ups
The Government will allow businesses to immediately
deduct a range of professional expenses associated
with starting a new business, such as professional,
legal and accounting advice. The measure will be
available to businesses from the 2015–2016 income
year.
June 2015
CGT rollover relief for change to entity
structure
The Government has confirmed that it will allow small
businesses with an aggregated annual turnover of less
than $2 million to change legal structure without
attracting a CGT liability at that point.
The measure recognises that new small businesses
might choose an initial legal structure that they later
find does not suit them when the business is more
established, for example a sole trader changing its
business structure to a trust. The measure will be
available from the 2016–2017 income year.
No FBT on work-related electronic
devices
From 1 April 2016, ie the start of the 2016–2017 FBT
year, the Government will allow an FBT exemption for
small businesses that provide employees with more
than one qualifying work-related portable electronic
device, even where the items have substantially similar
functions.
Further ESS changes
Significant changes to the employee share schemes
(ESS) rules were announced in October 2014.
Additional changes announced in the Budget will:
• exclude eligible venture capital investments from
the aggregated turnover test and grouping rules
(for the start-up concession);
• provide the CGT discount to employee share
scheme interests that are subject to the start-up
concession, where options are converted into
shares and the resulting shares are sold within
12 months of exercise; and
• allow the Commissioner to exercise a discretion in
relation to the minimum three-year holding period
where there are circumstances outside the
employee's control that make it impossible for
them to meet this criterion.
These changes will take effect from 1 July 2015.
GST
“Netflix tax” to start 1 July 2017
The Government has announced that it will impose
GST on offshore intangible supplies to Australian
consumers with effect from 1 July 2017. The measure
has been cited in the media as the “Netflix” tax. The
Government released draft legislation which contains
the details of the changes.
The key concept in determining if a supply is made to
an Australian consumer is determining if the entity is
an Australian resident. Broadly, for individuals, the
term takes its ordinary meaning. Similarly, a company
will be an Australian resident if the company is
incorporated in Australia or if it is effectively owned or
controlled by Australian residents.
CHILD CARE AND
PENSION/WELFARE MEASURES
Major childcare payments revamp
The Government announced it will establish a new and
simpler mainstream Child Care Subsidy from 1 July
2017. Key points include the following:
•
Abolition of the current Child Care Benefit, Child
Care Rebate and Jobs, Education and Training
Child Care Fee Assistance programmes.
• A single means tested Child Care Subsidy for all
families, subject to a new activity test, for up to 100
hours of subsidised care per child per fortnight.
Child care subsidies will remain linked to immunisation
requirements strengthened, from 1 January 2016,
under the Government's “no jab, no pay” policy.
Paid parental leave – no double-dipping
The Treasurer said the Government will stop people
from claiming parental leave payments from both the
Government and their employers – he said this was
effectively double dipping. This would apply from
1 July 2016.
Age Pension assets test: threshold
increased, taper rate tightened
The Government confirmed that the Age Pension
assets test threshold for a single homeowner will be
increased to $250,000 (up from $202,000) and
$375,000 for a homeowner couple (up from $286,500)
from January 2017. The assets test threshold (or
assets free area) for non-homeowners will be
increased to $450,000 (single) and $575,000 (couple).
The assets test taper rate at which the Age Pension
begins to phase out will be increased from $1.50 of
pension per fortnight to $3.00 of pension for each
$1,000 of assets over the relevant assets test
threshold. The measures will commence from
1 January 2017.
The Government will also be dropping its 2014 Budget
proposal to index the Age Pension to CPI.
SUPERANNUATION
Defined benefit super schemes:
Government to close loophole
The Government confirmed that a 10% cap will apply
to the “deductible amount” for pension income
received from a defined benefit superannuation
scheme for the purposes of the social security income
test. Recipients of Veterans' Affairs pensions and
defined benefit income streams paid by military
superannuation funds are exempt from this measure.
In addition, the measure will not affect the means test
treatment of income streams purchased for retail
providers of these products. The measure will apply
from 1 January 2016.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general
comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that
our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private
information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.