July 2014
The
'
Tax Advisers'
Voice

Edition No.238
Jul
'14
What's New This Edition
Practice Notes
–
GIC and SIC rates for the 2014 September quarter
–
Updated ATO services for registered agents
–
SuperStream has arrived
–
IGT – ATO debt collection & tax practitioner services
–
The ATO and debt collection issues
–
What is the Business Viability Assessment Tool?
–
ATO Div.7A benchmark interest rate
–
ATO warning: Get your work-related deductions right
–
ATO Advice: Home office expenses
–
Project DO IT update
–
ATO campaign warns of tax time scams
–
How to correct a mistake
–
SMSF compliance program changes – ACRs
–
Data matching: Medicare Levy Exemption Certificate
–
Tax (and other) Cases Update
–
Company loss carry-back repeal
–
Australian defence forces deployed to Afghanistan
–
2014/15 Luxury car tax and fuel efficient limit
–
Changing the makeup of a partnership
–
Tell the TPB if you're a tax (financial) adviser from 1 July
–
Reporting LRBAs on SMSF annual return
2
Monthly Tax Tip
15
Interpretative Decisions
16
Voice
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Voice
PRACTICE NOTES
GIC and SIC rates for the 2014
September quarter
include online options for using Standard
Business Reporting (SBR).
The ATO has released the 2014 September
quarter rates for the General Interest Charge
(GIC) and the Shortfall Interest Charge (SIC)
as follows:
GIC annual rate
9.69%
GIC daily rate
0.02654794%
SIC annual rate
5.69%
SIC daily rate
0.01558904%
It urges practitioners to ensure their practice
knows about these changes and starts using
the new versions of the guides, which are
available on the ATO website in News and
updates for tax professionals.
Ref: http://www.ato.gov.au/Tax-professionals/
News-and-updates/?Assoc-SG-16June.
SuperStream has arrived
Ref: ATO website – GIC and SIC rates
SuperStream is a government reform aimed at
improving the efficiency of the superannuation
system.
Updated ATO services for
registered agents
Under
SuperStream,
employers
must
make super contributions on behalf of their
employees by submitting data and payments
electronically in accordance with the
SuperStream standard*.
Editor: The ATO has asked us to pass along
the following update.
The ATO has updated the Tax agent services
guide and BAS agent services guide, to
(*)
Broadly, the SuperStream standard
specifies the minimum requirements for
dealing with payments and information
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DISCLAIMER
This publication has been prepared for the members of the National Tax & Accountants' Association Ltd. Many of the comments
contained in Voice are general in nature and anyone intending to apply the information to practical circumstances should independently
verify their interpretation and the information's applicability to their particular circumstances.
Page 2
July 2014
July 2014
relating to employer contributions (and other
superannuation transactions).
All superannuation funds, including SMSFs,
must receive contributions electronically in
accordance with this standard.
Employers with 20 or more employees
From 1 July 2014*, these employers should
start using the SuperStream standard to send
contribution data and payments electronically.
Note(*): The ATO is being flexible on the start
date provided the employer is doing their best
to implement SuperStream and has a firm plan
to do so no later than 30 June 2015.
New transitional rules were recently introduced
to allow these employers (between 1 July 2014
and 2 November 2014) to send contribution
messages to a fund using an electronic file
format that does not strictly conform to the
SuperStream standard (e.g., via a web portal
or email), provided the fund has advised it can
accept the format.
Employers with 19 or fewer employees
From 1 July 2015*, these employers will also
be required to send contributions data and
payments electronically. However, some may
choose to implement SuperStream sooner.
Note(*): The ATO is being flexible on this start
date as well, provided the employer is doing
their best to implement SuperStream and has
a firm plan to do so no later than 30 June 2016.
Please note: Contributions sent to an SMSF
from a related-party employer are exempt
from SuperStream and can be made using
existing processes.
Meeting SuperStream obligations
SMSF members
SMSF members must provide their employer
with:
u their SMSF's ABN;
u their SMSF's bank account details for
receipt of contribution payments; and
u an electronic service address for receipt
of a contribution data message.
If they work for an employer with 20 or
more employees, they will need to update
their details with their employer as soon as
Voice
possible. Alternatively, they can check with
their employer to confirm which date best
aligns with their implementation plan for
SuperStream.
SMSF trustees
All super funds (including SMSFs) must
receive any employer contributions sent to
their fund in accordance with the SuperStream
standard.
In particular, they will need to ensure the
SMSF's bank account is able to receive
electronic contribution payments and that the
SMSF can receive a contribution message
with information about these payments in the
SuperStream format.
An SMSF will need an electronic service
address to be able to receive data messages
associated with employer contributions sent
using SuperStream.
Depending on how they manage their SMSF,
trustees may choose to engage a service
provider, such as an SMSF administrator
or software provider, to obtain an electronic
service address.
Service Providers
The list of providers can be found at https://
www.ato.gov.au/Super/SuperStream/In-detail/
Contributions/SMSF-messaging-serviceproviders/.
Employers
Employers have two options for meeting
SuperStream; either (a) using software that
conforms to SuperStream, or (b) using a
service provider who can meet SuperStream
on their behalf. The ATO recommends that
they start investigating their options now.
Employer Checklist
1. Choose a service provider for making
SuperStream contributions. There are a
number of different solutions available,
including using their existing payroll
software provider, an outsourced service
provider, or a clearing house.
2. Collect superannuation fund
information from new and existing
employees, including:
– Unique superannuation identifier
(USI) for APRA-regulated funds;
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Voice
–
ABN for SMSFs;
–
Bank account details; and
–
Electronic service address.
3. Once the required information has
been collected, the employer will need
to update their payroll records. This
will include providing the employer’s
selected service provider the information.
Different service providers may have
different methods of collecting this
information, so employers should liaise
with the service provider in this regard.
4.Start making contributions through
a payment system that allows the
employer to:
–
send all data electronically (such as
employee details and the amount
of super being paid) in a standard
format*;
–
make super payments electronically;
–
link data and money with a unique
payment reference number;
–
send money and data on the same
day; and
–
respond to fund requests for further
information within 10 business days.
Note(*): As stated above, employers
with 20 or more employees may send
this data electronically in a format that
does not meet ALL of the final standard
requirements between 1 July 2014 and 2
November 2014, provided they are sent
in a format the super fund trustee has
advised it can accept.
Ref: ATO website – SuperStream
ATO approach to debt collection
Uncollected tax continues to grow and reached
$17.7 billion in 2012/13 with over 60% owed
by small businesses.
The ATO has stated that more recent increases
are a result of economic conditions and its
assistance to viable businesses to stay afloat.
“Despite the ATO’s debt assistance programs,
its approach to collecting taxes has been a
persistent source of taxpayer complaint,” Mr
Noroozi said.
Other aspects of the ATO’s debt management,
including its use of third party debt collectors,
have also been questioned.
Editor: Refer to the next article for some ATO
responses to practitioner concerns about this
issue.
ATO services and support for tax
practitioners
In 2012/13, over 70% of individual taxpayers
and 90% of business taxpayers used
registered tax practitioners to assist them with
their tax affairs.
Challenges in maintaining ATO services for tax
practitioners have strained the relationship,
with the level of tax practitioner satisfaction
falling from 72% in 2007 to 62% in 2012 (with
a low of 51% in 2011).
This review will investigate ATO services,
such as the Tax Agent Portal, relationship
managers, the lodgment program and tax
practitioner’s risk differentiation framework,
to identify improvements for the ATO, tax
practitioners and taxpayers.
Submissions to the IGT will be treated as
confidential and are due by 18 July 2014.
Ref: IGT media release 26 May 2014
IGT – ATO debt collection &
tax practitioner services
The ATO and debt collection
issues
On 26 May 2014, the Inspector-General of
Taxation (IGT) announced terms of reference
for two reviews into the ATO's approach to
debt collection, and ATO services and support
for tax practitioners.
The ATO says that it considers tax practitioners
Page 4
Editor: The following are drawn from minutes
that the ATO has issued from an April
meeting between the ATO and about 60 tax
practitioners from the Coffs Harbour region.
July 2014
July 2014
to be key intermediaries in helping taxpayers
with tax debt and preventing them falling into
debt in the first place.
To help clients and their agents evaluate their
financial circumstances, the ATO has created
an online business viability assessment tool
(BVAT).
Editor: See the next article on the following
page for more about the BVAT.
The ATO also responded to queries regarding
their use of external debt collection agencies
('mercantile agents').
Providing a client's personal information
Some practitioners advised they were
uncomfortable providing personal information
to mercantile agents with regard to their
client’s living expenses to support payment
arrangements.
Either they don’t know this information or, if
they do, some feel it’s too personal to divulge.
The ATO advised that practitioners should
either request additional time to obtain the
information or suggest the agency contacts
the taxpayer directly, presumably once the tax
agent has had time to forewarn the client.
To protect the privacy of taxpayers, external
collection agencies are subject to the same
confidentiality restrictions as ATO staff. Any information that is collected on behalf of
the ATO will not be used or be disclosed for
any other purpose.
Agency staff must also sign the ATO’s
declaration of privacy.
Identifying themselves as ATO staff
Practitioners stated that when mercantile
agents collect debt on behalf of the ATO they
often identify themselves as ATO officers
before asking personal information and other
questions.
The ATO stated that the protocol was that
external collection agencies must identify
themselves by providing their full name and
advise they are calling on behalf of the ATO
and should not identify themselves as ATO
officers.
Ref: ATO minutes – Coffs Harbour Open
Regional Forum – follow up
Voice
What is the Business Viability
Assessment Tool?
This tool has been designed by the ATO to
help businesses and tax agents determine
whether a business is viable.
Once the tax agent or client has answered a
series of questions, they will be provided with
a report that will contain an overall viability
assessment of their business based on the
information they have provided, consisting of:
q a summary of key financials and
business performance; and
q charts that provide a visual summary
of the trends of key financial results
generated by the business.
What is needed to complete the
assessment
The following documents are required for the
year to date and the two preceding financial
years:
q profit and loss statement;
q balance sheet;
q aged creditors listing;
q aged debtors listing; and
q total monthly repayment amount for
all debt commitments including bank
overdraft and any loan facilities.
Ref:
ATO website – Business Viability
Assessment Tool
ATO Div.7A benchmark
interest rate
The benchmark interest rate for 2014/15,
for the purposes of the deemed dividend
provisions of Div.7A, can now be calculated as
5.95% (down from 6.20% for 2013/14).
The ATO will presumably confirm the rate in
a Taxation Determination, as is its normal
practice.
Ref: Reserve Bank Indicator Lending Rates
– Standard Bank Variable Housing Loans
Interest Rate – May 2014
Page 5
Voice
ATO warning: Get your workrelated deductions right
This tax time the ATO says that, in relation to
work-related expenses, it will not be limiting its
attention to certain occupations.
Instead, particular attention will be paid to
work-related expense claims relating to:
u overnight travel;
u transporting bulky tools and equipment;
and
u the work-related proportion of use for
computers, phones or other electronic
devices.
Common mistakes
q Making claims for home office, mobile
phone and computer expenses without
any evidence supporting how the claims
were apportioned between private
expenses and work-related expenses.
q Incorrectly claiming travel between home
and work as a work-related expense.
q Receiving a travel allowance and
claiming the full amount without actually
having spent that much.
Work-related expenses videos
The ATO has also released the following
online videos on work-related expenses:
n claiming a computer, phone or other
electronic device;
n transporting bulky tools and equipment;
n overnight work-related expenses; and
n 'get your deductions right'.
Ref: ATO media release 16 June 2014
ATO Advice: Home office
expenses
Editor: The ATO has also put out a video on
its website that explains the ins and outs of
claiming home office expenses, and the CGT
implications (whether occupancy expenses
are claimed or not).
The video:
Page 6
q explains the differences between
claiming deductions for occupancy
expenses and running expenses;
q discusses basing occupancy expenses
on a proportion of the floor area of the
whole home; and
q states that CGT may apply when a
taxpayer sells their home, and may
apply even though they haven’t claimed
mortgage interest as a deduction.
Ref: Video transcript – Business deductions –
Home office expenses
Project DO IT update
The ATO says that its voluntary disclosure
initiative – Project DO IT – is receiving a strong
response with a number of people having
already come forward to make a disclosure.
"Project DO IT provides an effective way to
get their offshore tax issues in order, and the
Australian community will see the benefits of
bringing these funds back into the system for
many years to come", said Michael Cranston,
ATO Deputy Commissioner, Private Groups.
Unprecedented cooperation between tax
authorities and increased ATO capability in
detecting and dealing with tax evasion have
helped create an environment where there
are high risks for taxpayers that don’t disclose
offshore income.
Response so far
u Over 350 inquiries.
u Almost 100 disclosures lodged.
u Strong indication that many others will
make a disclosure in the near future.
Who is coming forward?
u Taxpayers with bank accounts
established overseas.
u Taxpayers who have moved to Australia
and failed to disclose income from
property and other assets they continue
to hold overseas.
u Taxpayers who have inherited offshore
arrangements originally established by
parents or other relatives.
July 2014
July 2014
u Taxpayers who have established
investment entities overseas and failed
to disclose the income from these
entities.
u Taxpayers who have incorrectly claimed
deductions for offshore arrangements.
Ref: Targeting tax crime special edition:
Project DO IT update
ATO campaign warns of tax
time scams
The ATO is reminding taxpayers to be wary
of scams this tax time as fraudsters become
more ambitious in their efforts to dupe the
public of their personal information.
Since 1 March 2014 the ATO has seen a spike
in reports from the public of email and phishing
scams from 9,368 to 11,344, compared with
the same period last year.
“Your personal information is the key to your
identity. Protecting it is as important as locking
your front door each day,” the ATO's Chief
Technology Officer Todd Heather said.
To increase community awareness of scams,
the ATO is launching a new video campaign
on ato.gov.au/identitycrime with helpful tips to
protect personal information.
Some of the tips for taxpayers include:
q Never put your tax file number (TFN)
on your resume. Only give it to your
employer after you have started your job.
q Never share personal information, such
as your TFN, myGov or bank account
details on social media.
q Change any passwords that may have
been shared with family or friends.
To view the video, and for more tips on how
taxpayers and their families can protect
themselves, they should visit ato.gov.au/
identitycrime.
If they think their TFN has been stolen or
misused, they can call the ATO on 1800 467
033 (8.00am–6.00pm, Monday to Friday).
Ref: ATO media release 23 June 2014
Voice
How to correct a mistake
The ATO has put out a checklist outlining
the process that tax agents should follow to
request a change to tax returns, business
activity statements, claims for grants and
benefits, and other reports and statements.
The BAS checklist looks at correction methods
for:
n Fuel tax credits;
nGST;
n Luxury car tax (LCT);
n PAYG withholding;
n PAYG instalments; and
n Wine equalisation tax (WET).
The tax return and other statements and
claims checklist looks at:
n
Income tax;
nFBT;
nExcise;
n
PAYG withholding payment summaries;
n
Fuel tax credit claims (non-BAS); and
n
Energy grants credit claims (alternative
fuels), Cleaner fuels grant claims, and
Product stewardship for oil program
claims.
Editor: This checklist may be important,
as it sets out the time limits that can apply
to correcting GST and fuel tax credits on a
current BAS.
The advantage of correcting a mistake on a
current BAS is that, if the correction increases
a taxpayer's tax or reduces their credits, they
avoid incurring interest dating back to the due
date of the activity statement on which the
mistake was made.
For example, most people and organisations
have up to 18 months to identify and correct
an error that increases their GST or reduces
their fuel tax credit.
If they are within the 18 month time limit, they
can correct the mistake on their current BAS.
Unclaimed refunds and credits
Unclaimed refunds and credits – whether for
GST, LCT, WET or fuel tax – are not considered
Page 7
Voice
mistakes and therefore claiming them later is
not considered a correction.
There is, however, a four-year time limit for
claiming most credits.
Ref: ATO fact sheet – Correct a mistake or
dispute a decision
SMSF compliance program
changes – ACRs
The ATO has announced that it has developed
a new approach to dealing with auditor
contravention reports (ACRs) based on the
overall risk posed by the SMSF.
Using new risk models, it analyses multiple
indicators of non-compliance, including
regulatory and income tax matters, drawing
information from the SMSF annual return,
ACRs and other data, including trustee and
members’ records.
weeks of the ACR lodgment.
In the majority of cases, if the trustee can
assure the ATO that they understand their
obligations, the issues reported in the ACR will
be closed and no penalties applied.
Through this treatment, it aims to intervene
before more serious comprehensive audits
are required.
Lower-risk SMSFs
The ATO will issue tailored correspondence
to SMSFs that it assesses as lower risk,
reminding trustees of their obligations and
encouraging compliance in future.
The issue reported in the ACR will be closed
with the issuing of this letter which will usually
occur within 6 to 8 weeks of lodgment of the
ACR.
Ref: ATO SMSF News – Edition 30 – 29 May
2014
This new approach will mean it will deal with
all ACRs it receives with an audit, phone call
or letter, shortly after lodgment.
Data matching: Medicare Levy
Exemption Certificate
High-risk SMSFs
These SMSFs will be selected for
comprehensive audits that will scrutinise all
regulatory and income tax risks displayed
by the fund, with particular focus on repeat
offenders.
The ATO has announced that it will acquire
data from the Department of Human Services –
Medicare where individuals have been granted
an exemption from paying the Medicare Levy
for the 2013, 2014 and 2015 financial years.
This program will also involve an increasing
number of field visits to engage high-risk
SMSFs and their tax agents.
SMSF administrative penalties will apply
when the breach is confirmed.
Editor:
The ATO can impose SMSF
administrative penalties on SMSF trustees
from 1 July 2014.
Medium-risk SMSFs
The ATO will take less intrusive action on
SMSFs assessed as medium risk.
As trustees are responsible for their fund’s
behaviour, it will engage directly with trustees
to discuss the reported contravention, remind
trustees of their obligations and encourage
compliance in future.
This action will usually occur within 6 to 8
Page 8
Records for approximately 130,000 individuals
will be obtained each year and electronically
matched against ATO data to identify noncompliance with registration, lodgment,
reporting and payment obligations.
This program will ensure taxpayers are not
unfairly avoiding their obligations with paying
the Medicare levy, and/or the Medicare levy
surcharge. Its objectives are to:
u ensure taxpayers who are exempt from
the Medicare levy are receiving their
exemption;
u ensure taxpayers not entitled to the
exemption are not unfairly avoiding their
taxation obligations; and
u provide possible opportunities in view of
the ATO’s wider compliance activities.
Ref: Commonwealth Gazette – C2014G00930
July 2014
July 2014
Tax (and other) Cases Update
Editor: The following are summaries of the
latest tax and other cases we believe are
relevant to our members. The links to the
cases can be found on our website.
Plumbers not employees – super
guarantee not payable
The AAT agreed with a head contractor that the
plumbers working for him were not employees
for the purposes of the superannuation
guarantee charge (SGC).
Facts
The taxpayer, Mr Ashley, who was a licensed
plumbing contractor, carried out maintenance
duties for a government housing authority.
To do so, he employed licensed subcontractors, as well as some employee
plumbers on wages, and apprentices. The
wages personnel were paid an hourly rate,
while the contractors in question were paid on
a piece rate.
Mr Ashley stated that the system worked as
follows:
– Tenants of the housing authority would
contact a call centre with a problem.
–
A job order would issue and be allocated
to an appropriate worker who would be
likely to get 10 to 15 such jobs in a day.
–
There are no written contracts.
–
There is a schedule of rates published
by the taxpayer applicable to the work.
The worker will get his section of profit
minus the materials that are taken out
and then there is the profit left over for
the taxpayer. There is no hourly rate:
each item has a price. This means that
the harder a worker carries out work,
the more revenue they can create for
themselves and the taxpayer.
–
–
The workers can decide for whom they
wish to work. It happens regularly that
workers will decline to accept work from
the taxpayer on the basis that they have
their own jobs to do.
If a job goes wrong or has not been done
correctly, it is usually given to the worker
Voice
who had the job to rectify at their own
cost.
–
The workers do not have any signage,
do not wear a uniform or have a
business card.
–
The jobs are done as the worker sees fit. Workers may delegate all or part of the
job. How they choose to finish a job is
up to them.
Decision
Editor: The AAT Member gave quite a lengthy
summation which is best summarised by the
following:
"Having regard in particular to the evidence in
relation to control, to the non-representation
of the employer by the worker, to the results
character of the oral contract for engagement
of the worker, to the capacity of a worker to
delegate, to the assumption of risk by the
worker and to the significant ownership by the
worker of tools and equipment, I conclude that
the workers were not employees within the
usual meaning of that word."
Ref: XVQY v. FCT [2014] AATA 319
Unlicensed person providing tax
agent services
The Federal Court has slammed a $43,000
fine on to an unlicensed accountant providing
tax agent services.
Editor: This was not such a good deal for her
as she had only earned $17,370. However,
she did dodge a bigger financial bullet, as the
penalty could have been $2,365,000.
Facts
Ms Dedic was a practising accountant who
had applied for registration with the Tax
Practitioners Board, but been refused.
She admitted that she prepared and lodged
the 86 tax returns in question and admitted that
she charged a fee for 55 of the 86 tax returns
but not for the remaining 31 tax returns.
Her claim was not accepted by the Court,
which found that she had charged fees for all
86 tax returns.
The overall financial benefit derived by her
was approximately $17,370.
Page 9
Voice
Decision
As the taxpayer was on Centrelink benefits
and did not have very many assets, the Court
limited the pecuniary penalty to $500 per
contravention, i.e., $43,000.
When Mrs McIntosh applied to each of the
superannuation funds for the monies to be
paid to her personally, rather than to the
estate, she was preferring her own interests
to her duty as legal personal representative.
Editor: It could have imposed a penalty of
$27,500 for each contravention. That may
hopefully give food for thought to other
recalcitrants considering preparing returns
without a licence.
She must therefore account to the estate for
the benefit which she gained for herself in
breaching that duty.
Ref: TPB v Dedic [2014] FCA 511
Mother tries to hang on to all of her
deceased son's super
The Supreme Court of Queensland has
handed down a decision that a mother had
breached her fiduciary duties by applying for
her deceased son's superannuation benefits
to be paid to her personally, and then not
transferring them to his estate.
Facts
Elizabeth McIntosh's son James died intestate
on 14 July 2013. He was not married. The net assets of his estate amounted to about
$80,000 – the majority being the proceeds of
a life insurance policy. In addition, he had
$453,748 in superannuation benefits.
Mrs McIntosh and her husband were divorced
and had a continuing acrimonious relationship.
In November 2013, the Court granted her
Letters of Administration over her son's estate.
She applied to three superannuation funds to
have the death benefits paid to her personally,
and after much correspondence, all three
funds paid them out to her.
As the administrator of the estate, she was
aware of her obligations under the rules of
intestacy to pay the monies to her son's estate.
However, she apparently had no intention of
transferring the monies to the estate, as they
would then have to be split into equal shares
between her and her ex.
Decision
The Court found that, in this case, there was a
clear conflict of duty, and interest, contrary to
her fiduciary duties as administrator. Page 10
In this case, that meant transferring
the payments received from the three
superannuation funds from herself to the
estate of James McIntosh.
Ref: McIntosh v McIntosh [2014] QSC 99
Another taxpayer falls foul of excess
super contributions
In a very expensive tax lesson, a taxpayer has
lost her appeal to the Administrative Appeals
Tribunal (AAT) and ended up with a tax bill for
almost $61,000.
She had claimed that "special circumstances"
existed in her case because she had
contributed an amount, withdrew a sizeable
sum and then basically re-contributed it again
taking her over the $450,000 contribution limit.
In her words, the excess contribution should
be disregarded because they were part of the
"same money . . . rolling around in the tin".
Editor: Obviously the AAT member would also
not have been swayed by the "vibe" argument
put forward in the classic Aussie movie "The
Castle".
Facts
The taxpayer made a non-concessional
contribution of $400,000 into a super fund
in May 2009, triggering the 'bring forward'
provisions of the $450,000 super cap.
In July 2009, she withdrew just over $200,000
from the super fund and deposited into a term
deposit.
She subsequently established an SMSF
and in February 2010 contributed $205,000
– $23,905 deductible and $181,095 nonconcessional.
In May 2012, the ATO advised her that she had
exceeded the non-concessional contributions
cap by $131,095, and, after dismissing her
July 2014
July 2014
objection, issued an assessment for $60,959.
Decision
The AAT member said that no special
circumstances existed.
"In cashing in $200,589 of her superannuation
benefits, the taxpayer was free at that point to
do whatever she chose to do with that money."
"The fact that she chose to reinvest what
appears to be that amount plus some other
funds into her SMSF is a matter for her."
The 2010 contribution was simply a new
non-concessional contribution made by the
taxpayer and could not be described as the
same amount as that which originally went into
superannuation.
Editor: The government has proposed that,
from 1 July 2013, taxpayers will have the option
of withdrawing excess contributions (and any
associated earnings) so that such inadvertent
breaches are not punished so harshly.
Ref: Thompson v FCT [2014] AATA 339
$200,000 settlement was not a
taxable supply for GST purposes
The AAT has knocked back a taxpayer who
tried to argue that a settlement payment
represented the 'surrender of the right to sue'
and was therefore a taxable supply for GST
purposes.
Facts
In August 2005, Michael Hogue was employed
under an agreement as a senior financial
planner by Dalle Cort Financial Services.
Under the agreement, should Mr Hogue be
terminated from his employment, he was not
permitted to canvass, solicit, or compete for
the custom of any of Dalle Cort’s clients for
twelve months.
In September 2010, his employment was
terminated and he set up a company,
Lighthouse, to conduct his own financial
services business.
Dalle Cort commenced legal action against
Mr Hogue and Lighthouse on the grounds that
he, either directly or through Lighthouse, had
provided and continued to provide, financial
planning services to 25 named clients of Dalle
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Cort, and had competed and continued to
compete for the custom of those and other
Dalle Cort clients.
In March 2012, following a mediation, the
defendants agreed to pay $200,000 in
damages.
The settlement sum was paid by Lighthouse
which then applied to the ATO for a private
ruling on whether the $200,000 settlement was
a taxable supply for GST, whereby it would be
entitled to claim the GST back.
Decision
The AAT Member stated that the claims
against Mr Hogue and Lighthouse were for
breach of contract and tort seeking damages.
"I do not accept that the “substance” of the
settlement was the surrender of contractual
rights as Lighthouse contends, or that this was
the underlying supply for the payment of the
settlement sum."
Ref:
Lighthouse Financial Advisers
(Townsville) Pty Ltd [2014] AATA 301
Company loss carry-back
repeal
From the 2012/13 income year, the government
provided tax relief for companies by allowing
them to carry-back tax losses to receive a
refund against previously paid tax.
However, the loss carry-back tax offset is
expected to be repealed from the 2013/14
income year.
Administrative treatment
The ATO has advised that taxpayers, including
those who use early balancing substituted
accounting periods, who lodge a company tax
return for the 2013/14 income year, can selfassess under the existing law.
Once the repealing law is enacted, the ATO
will amend the company tax return to disallow
the claim for the loss carry-back tax offset for
the 2013/14 income year.
This will result in an increase in the taxpayer’s
tax liability.
No tax shortfall penalties will apply and any
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interest attributable to the shortfall will be
remitted to nil.
Ref: ATO website – Company loss carry-back
repeal
Australian defence forces
deployed to Afghanistan
The ATO has advised that members of the
Australian Defence Forces (ADF) who served
on Operation Slipper and Operation Palate II
in Afghanistan do not have to pay income tax
on the salary and allowances they received
while on that deployment.
Their pay and allowances are exempt from tax
if they are a member on 'eligible duty'.
Ref: ATO website – Australian defence forces
deployed in Afghanistan
2014/15 Luxury car tax and
fuel efficient limit
Luxury car tax (LCT) threshold
The LCT threshold for the 2014/15 financial
year is $61,884 (increasing the previous year's
LCT threshold of $60,316 by an indexation
factor of 1.026).
Fuel efficient car limit
The fuel-efficient car limit for the 2014/15
financial year remains at $75,375 (as the
indexation factor is less than 1).
Ref: Tax determination LCTD2014/2
Changing the makeup of a
partnership
Editor: The ATO has posted the following fact
sheet on its website. We have more or less
reproduced it in full for members' reference.
If the composition of a partnership changes
– for example, a partner retires or dies, or a
new partner is admitted – the partnership is
dissolved and a new partnership is formed.
The new partnership needs a new tax file
number (TFN), Australian business number
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(ABN), and GST registration.
Both partnerships will need to lodge a separate
partnership tax return – lodge one tax return
for the old partnership from the beginning of
the income year to the date of its dissolution;
and lodge another tax return for the new
partnership from the date of its formation to
the end of the income year.
Technical dissolution – reconstituted
partnership
If the change in the composition amounts only
to a technical dissolution of the partnership,
the partnership may be able to continue as a
reconstituted continuing entity.
As such, the reconstituted partnership does
not need a new TFN and ABN, and only one
partnership tax return is required covering the
full income year.
For the purposes of the GST, the reconstituted
partnership does not need a new GST
registration (where the partnership was
already required to register).
A dissolution that does not result in the winding
up of a partnership is called a technical
dissolution.
A technical dissolution occurs where the
assets and liabilities of the partnership are
taken over by the continuing partners (and any
new partners) and the partnership business is
continued without any apparent break.
Reconstituted continuing entity
Generally, the ATO will treat a changed
partnership as a reconstituted continuing
entity if the original partnership agreement
incorporated a provision for a change in
membership or shares and the following
factors apply:
l
The partnership is a general law
partnership.
l
At least one of the partners is common
to the partnership before and after
reconstitution.
l
The partnership agreement includes an
express or implied continuity clause.
l
There is no break in the continuity of
the enterprise or firm (the partnership's
assets remain with the continuing
July 2014
July 2014
partnership and there are no changes to
the nature of the business, the customer
or customer base, the business name or
name of the firm).
l
l
any changes to persons authorised to
act on behalf of the partnership;
l
a statement that:
There is no period where there is only
one partner (e.g., in a two-person
partnership, there is a direct transfer of
interest from the outgoing partner to a
new partner).
A two-person partnership can be reconstituted.
This may occur where a partner dies, and the
partnership agreement allows for continuity
of the partnership with either the executor,
trustee or beneficiary of the deceased
partner's estate.
–
the partnership is a general law
partnership;
–
at least one of the partners is
common to the partnership before
and after reconstitution;
–
there is no period where there is
only one 'partner' (that is, in a twoperson partnership, there is a direct
transfer of interest);
–
the partnership agreement contains
a continuity clause, or in absence
of written partnership agreement,
the conduct of partners is consistent
with continuity; and
–
there is no break in the continuance
of the enterprise.
The continuity clause may be express, or
implied by way of conduct.
Where this happens, and the firm continues
without any break in the continuity of the
enterprise, the ATO considers there is a
change in members and a reconstituted
partnership.
Procedures for the continued use of the
partnership's TFN
To apply for continued use of the partnership's
TFN, the partners or a partner, or an authorised
contact (who states they are authorised to
notify the ATO of the changes) must inform
the ATO within 28 days of the change of
registration. Write to:
Operations Registrations
PO Box 3373
PENRITH NSW 2740
The authorised person must supply the
following information:
l
a clear statement by an authorised
continuing partner that all new,
continuing and retiring partners agree to
the continuity and reconstitution of the
partnership;
l
the date of the reconstitution;
l
the names of the new, continuing and
retiring partners;
l
the TFN or address and date of birth of
all new partners;
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Lodging the tax return
At the end of the financial year, a reconstituted
continuing partnership needs to lodge only
one partnership tax return covering the full
financial year.
The tax return must include the distributions
made to every person who was a partner at
any time during the financial year, including
those who left the partnership during the year.
When lodging the partnership tax return,
supply the following details via a schedule of
additional information:
l
the date of dissolution;
l
the date of the reconstitution;
l
the names of the new, continuing and
retiring partners;
l
the TFN or address and date of birth of
all new partners; and
l
details of the changes, if the persons
authorised to act on behalf of the
partnership have changed.
Ref: ATO website – Changing the makeup of
a partnership
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Tell the TPB if you're a tax
(financial) adviser from 1 July
From 1 July 2014, financial advisers who
provide tax advice will be able to notify the
Tax Practitioners Board (TPB) and become
registered as a tax (financial) adviser.
The notification period begins on 1 July 2014
and ends on 31 December 2015.
During this notification period, Australian
financial services licensees (AFSLs) and their
authorised representatives who provide tax
(financial) advice services will need to either:
n notify the TPB to become registered as a
tax (financial) adviser; or
n use a relevant disclaimer when they
provide tax (financial) advice services for
a fee or other reward.
AFSLs will soon receive a letter from the
TPB with login details to access the online
notification form. AFSLs will be able to notify
for registration on behalf of their authorised
representatives.
Ref: TPB media release 1 June 2014
Reporting LRBAs on SMSF
annual return
The ATO has said that it has noticed some
misreporting of limited recourse borrowing
arrangements (LRBAs) at the additional labels
on the 2013 SMSF annual return. For Section
H: Assets and liabilities, the ATO advises
return preparers to:
u Show at J1 to J6 the value of all assets
held in trusts as security for loans under
LRBAs.
u Show at J the sum of all values shown at
J1 to J6.
u Show at V Borrowings item 16 the value
of outstanding borrowings under an
SMSF’s LRBAs.
u Do not report again values included in J1
to J6 at any other asset label in Section
H.
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u An instalment warrant is an LRBA (show
it at the appropriate label J1 to J6).
u Do not include derivatives at J1 to J6.
Show them at O Other assets.
For example, if a residential real property
worth $200,000 is held in a trust as security
for a loan of $100,000 under an LRBA, the
SMSF would report $200,000 at J1 Australian
residential real property. The value of the loan
($100,000) is included at V Borrowings item
16.
Reporting member information correctly
after a rollover
The ATO also advised that the rollover benefits
statement and SMSF annual return have
changed to simplify reporting requirements
after a rollover.
A super fund that receives a contribution during
a financial year is always the super fund with
the obligation to report the contribution to the
ATO, even if it has been rolled out or paid to a
member before the end of that year.
SMSF trustees must ensure that they report
in sections F and G of the 2014 SMSF annual
return:
q all members and former members who
held a superannuation interest in the
fund during the year, including any
members who have rolled out during the
year; and
q all contributions received for those
members and former members before
a rollover or other benefit payment
occurred.
The changes made to sections F and G of the
2014 SMSF annual return and instructions to
allow this to happen include:
q Label P has been renamed ‘Inward
rollovers and transfers’.
q Label Q is now ‘Outward rollovers and
transfers’.
Rolled in contributions are no longer reported
at contribution labels A to M.
Ref: ATO SMSF News – Edition 30 – 29 May
2014
July 2014
July 2014
MONTHLY TAX TIP – Claiming deductions for attending property seminars
In recent years, the ATO has become increasingly concerned about the rise in claims for
costs associated with attending property seminars. These costs are not just limited to
seminar fees, but may also include travel costs (e.g., car travel and airfares) and the costs
of accommodation.
A property seminar will normally focus on a range of aspects associated with investing in and/
or creating wealth from rental properties, and will involve any one or more of the following
topics:
n
Developing rental property investment business plans;
n
Strategies on how to deal with financiers, real estate agents and developers;
n
How to maximise opportunities for increasing rental property ownership; and
n
How to maximise the returns on existing properties by focusing on the management of
existing properties and maximising rental income.
The following general guidelines should be considered when claiming deductions for the
cost of attending a property seminar:
When property seminar costs are deductible – the costs associated with attending a
property seminar will be deductible to the extent that the seminar deals with how to manage
a taxpayer’s existing rental properties (e.g., advertising for tenants and selecting the right
tenants) and/or how to maximise rental income from these properties (e.g., strategies on
how to make the taxpayer’s property more attractive to tenants).
In this regard, the relevant seminar would need to include topics on:
n
improving rental returns;
n
selecting better tenants;
n
protecting the property against bad tenants;
n
rewarding good long tenants;
n
how to select the right managing agents;
n
how to deal with a managing agent and what to expect;
n
carrying out repairs to the property, including how to choose and manage the right
tradespeople; and/or
n
any other issue associated with generating, maintaining and improving rental income
from the property.
When property seminar costs are NOT deductible – the costs associated with attending
a property seminar will not be deductible to the extent that the seminar deals with how to
maximise opportunities for future property ownership (e.g., how to deal with developers and
real estate agents in the course of buying a property).
TAX WARNING – “First-time” investors
Where a taxpayer does not have existing property investments, it is unlikely the ATO would
allow a deduction for the costs of attending a property seminar. This is because a taxpayer
in these circumstances would normally be treated as attending the seminar with a view to
earning income from future property investments (i.e., to set-up a structure for making future
investments) rather than managing existing rental property investments.
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Interpretative Decisions
ID 2014/17 – FBT: Redemption of
voucher by a retail store employee
When a retail store employer provides an
employee with a voucher/coupon, entitling the
employee to merchandise from a participating
retail store of the employer, the employer has
not yet provided the employee with an 'inhouse property fringe benefit'.
Facts
The employer operates retail stores and
provides the employee with a voucher/coupon
at regular intervals during the year.
The voucher/coupon arrangement has the
following characteristics:
n
no monetary value is specified, nor
loaded, onto it;
n
it can be redeemed at participating
stores operated by the employer;
n
it can be redeemed for a specified type
of merchandise up to a specified number
of items for a certain time after its issue
date;
n
if it is not redeemed by the expiry date; it
will be forfeited;
n
the employee does not pay for it nor for
the merchandise;
n
each one is individually numbered
and the number is recorded as being
provided to that particular employee;
n
each one is surrendered upon
redemption and the redeemed voucher
number is recorded in the employer's
sales system;
n
it is reconciled against the identity of the
employee before the merchandise can
be obtained; and
n
the merchandise is exactly the same as
that sold to the general public.
Reasons for Decision
Where the employer
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has
provided
an
employee with a voucher/coupon, which the
employee can redeem for merchandise from
a participating retail store of the employer,
the employer provides the employee with an
'in-house property fringe benefit' when the
employee redeems the voucher/coupon for
the merchandise, not when it is issued.
ID 2014/18 – FBT: Cost of map update
of in-built satellite navigation system
The cost of a map update of an in-built satellite
navigation system is a 'car expense' for FBT
purposes as the expense is incurred in respect
of repairs to, or maintenance of, the car.
Facts
An employee is provided with a car benefit
by his employer for the purposes of S.7 of
the Fringe Benefit Tax Assessment Act 1986
(FBTAA).
The car has an in-built satellite navigation
system that is part of the car.
During the FBT year, as part of a service of the
car, a map update of the satellite navigation
system was installed allowing the employee to
navigate to locations along roads constructed
or altered after the system was installed.
Reasons for Decision
In applying the meaning of the terms 'repairs'
and 'maintenance' to the map update,
the update involves a restoration of the
functionality of the satellite navigation system
and does not change its character.
The map update also preserves and keeps the
satellite navigation system unimpaired and in
good condition and operation.
The cost of the map update of the in-built
satellite navigation system can be seen as
both a repair to, and maintenance of, the car.
Therefore, the cost of the map update of the
in-built satellite navigation system is a 'car
expense' within the meaning in S.136(1) of the
FBTAA as the expense is incurred in respect
of repairs to, or maintenance of, the car.
July 2014