Did you know?
The Melbourne Cup was first run on a Tuesday in 1875
Fashions on the field was first held in 1962
Race Record Kingston Rule (1993) won in a time of 3 minutes 16.30 seconds
The inaugural winner Archer (1861) has the slowest winning time with 3 minutes 52 seconds
CGT and the family home: expats and foreigners targeted again
The Government has resurrected its plan to remove access to the main residence exemption for non-residents – a move that will impact on expats and foreign residents.
Back in the 2017-18 Federal Budget, the Government announced that it would remove the ability for non-resident taxpayers to claim the main residence exemption. The unpopular measures were introduced into Parliament but stymied. An election later, a recomposition of Parliament, and the Government has again introduced the reforms but in a modified form.
The proposed changes would apply from the original Budget announcement date back on 9 May 2017, so could impact on properties that have already been sold. However, a transitional rule would allow CGT events happening up to 30 June 2020 to be dealt with under the existing rules as long as the property was held continuously from before 9 May 2017 until the CGT event.
If the measures pass Parliament, a non-resident taxpayer would be prevented from applying the main residence exemption to the sale of a property, regardless of whether they were a resident of Australia for some or most of the ownership period.
The main residence exemption is currently available to individuals who are residents, non-residents, and temporary residents for tax purposes.
Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019 is currently before the House of Representatives and is not yet law.
While you should plan for change, do not act specifically on these impending changes until they have passed Parliament.
If you are concerned about how these impending changes may impact you, please contact us.
Reporting asset disposals for CGT
As the ATO's data-matching capabilities increase, they are paying close attention to capital gains made on shares, property and cryptocurrency.
CAS: Therefore, it's important to let us know about any asset disposals (which can include an asset's sale, loss or destruction) and to keep records relating to CGT events, including asset disposals, for at least five years after the year in which the event occurred (and maybe longer if you make a capital loss). Good records will also help to work out a capital gain or loss correctly.
Vacant land deduction changes hit ‘Mum & Dad’ property developments
Legislation that passed through Parliament last month prevents taxpayers from claiming a deduction for expenses incurred for holding vacant land. The amendments are not only retrospective but go beyond purely vacant land.
Previously, if you bought vacant land with the intent to build a rental property on it, you may have been able to claim tax deductions for expenses incurred in holding the land such as loan interest, council rates and other ongoing holding costs.
The new laws, aimed predominantly at Mum & Dads (individuals, closely held trusts and SMSFs), prevent these deductions from being claimed. Since the new laws apply retrospectively to losses or outgoings incurred on or after 1 July 2019 regardless of whether the land was first held prior to this date, and with no grandfathering in place, the amendments will not only impact those intending to develop vacant land but those who have already acquired land to develop. This is the same target as previous tax changes that denied travel claims to visit residential rental properties and depreciation claims on plant and equipment in some residential rental properties.
The changes however, go beyond purely vacant land for residential purposes. Deductions could also be denied for land with a building on it, if that building is not ‘substantial’. The only problem is, the legislation does not clearly define what ‘substantial’ means. The Bill suggests that a silo or shearing shed would be substantial but a residential garage for example, would not meet the test.
If the new measures prevent holding costs from being claimed as a deduction, then they will generally be added to the cost base of the asset for capital gains tax (CGT) purposes. This means that they can potentially reduce any capital gain made when you dispose of the property in the future. However, holding costs for CGT assets acquired before 21 August 1991 cannot be added to the cost base and these costs cannot increase or create a capital loss on sale of a property.
The amendments do not apply if you (or certain related parties) carry on a business on the land or where the land is owned by companies, superannuation funds (other than SMSFs), managed investment trusts or certain public trusts.
Government passes superannuation legislation
The Government has recently passed legislation requiring insurance in superannuation for new members under 25, and members with low balance accounts, to only be offered on an opt-in basis from 1 April 2020.
Importantly, low balance account holders and young members will still be able to opt in if they want to take out insurance.
Additionally, a targeted exemption will allow trustees to elect to provide insurance on an opt-out basis to members employed in emergency services, such as police, ambulance officers or firefighters, or other workers employed in the top 20% riskiest occupations.
Super Lookup 'status' will change if SMSF annual returns are late
The ATO considers the lodgment of an SMSF's annual return on time to be a fundamental part of an SMSF trustee's obligations.
Consequently, from 1 October 2019, if an SMSF is more than two weeks overdue on any annual return lodgment due date and hasn't requested a lodgment deferral, the ATO will change their status on Super Fund Lookup ('SFLU') to 'Regulation details removed' until any overdue lodgments have been brought up to date.
CAS: We can request a lodgment deferral on your behalf to ensure the SMSF's status remains ‘complying’ (unless the fund does not meet the agreed date of referral).
Having a status of ‘Regulation details removed’ means APRA funds won't roll over any member benefits to the SMSF and employers won't make any super guarantee ('SG') contribution payments for members to the SMSF.
The ATO says it is taking this approach because "non-lodgment combined with disengagement indicates that retirement savings may be at risk".
While the fund's status is 'Regulation details removed', members should alert their employer to make any SG payments into the employer's default super fund or a fund of the member's choice until the SFLU status of the SMSF has been updated to 'complying'.
Can the tax office take money out of your account?
The ATO’s principal purpose is to collect the majority of the Federal Government’s revenue. According to an Inspector-General of Taxation’s report earlier this year, in 2016-17:
88% of tax payments owing were made by the due date
7% ($33.4bn) was paid within 90 days after the due date
1.3% ($6.1bn) was paid within a year after the due date, and
$15 billion was left unpaid after a year.
At the end of the 2016-17 financial year, the total of undisputed collectable tax debt was $20.9 billion.
Here are just a few of the ATO’s powers to ensure that tax owing is collected:
Issue a garnishee notice to someone holding money on your behalf – for example a bank. For salary and wage earners, the ATO can require your employer to take part of your salary and pay it to them until your tax debt is paid. This is generally limited to a maximum of 30% of your salary. If you are a business, the ATO can go as far as accessing your merchant facility if you have credit owing.
Director penalty notice – Directors can personally incur penalties equal to their company's unpaid PAYG withholding liabilities or superannuation guarantee charge. The Government wants to expand this to cover unpaid GST liabilities as well. If this debt is not paid, the ATO may issue a director penalty notice to start legal proceedings (and withhold any refunds due to the director).
Direction to pay super guarantee – if employers receive a direction to pay superannuation guarantee, any outstanding Superannuation Guarantee Charge must be paid within the period specified. It’s a criminal offence not to comply with this notice and may result in enforced penalties and/or imprisonment.
Impose a freezing order – for example, on your bank accounts. That is, without notice the ATO can freeze and then if required strip your accounts, particularly where they believe you have alternative sources of income. This freezing order cannot be initiated by the ATO but must be granted by a court.
Issue writs or warrants of execution, or warrants of seizure and sale. For example, they can force you to sell certain assets to pay your tax debts.
Winding up - liquidate your company or bankrupt you. Most taxpayers don’t believe how strongly the ATO will act. The ATO can commence winding up procedures before any dispute is decided. In 2017-18 the ATO bankrupted 470 taxpayers and wound up 1,282 entities. The ATO would argue that in many cases the wind up forces the inevitable and prevents further debt being incurred either to the ATO or other parties.
The message is, make sure you are on top of your paperwork. If the ATO has queries or suspects something is not right, you need to be able to respond. The longer you take, or a lack of evidence, will only escalate the situation.
So, can the ATO take money out of your account without advising you first? With the support of the courts, absolutely and a whole lot more.
Are you paying your staff correctly? Woolworths $200m plus remediation
Woolworths is the latest company to facing a fallout from the underpayment of staff. In what is believed to be the largest remediation of its kind, Woolworths have stated that they have underpaid 5,700 salaried team members with remediation expected to be in the range of $200m to $300m (before tax).
The discovery was made as part of a 2 year review following the implementation of a new enterprise agreement but could have been occurring since the implementation of the modern award in 2010.
We cannot stress the importance of ensuring that staff are paid at the correct rates. If staff are underpaid, it is not simply a matter of making a catch-up remediation payment. Underpayment of superannuation entitlements in particular will incur significant penalties and charges.
To ensure that your staff are paid at the correct rate, check the Fair Work Ombudsman’s pay and conditions tool and see their guide to audit your pay rates.
Quote of the month
What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, give Adrian and the team @ Clear Accounting Solutions a call.