ATO guidelines: profit allocation within professional firms
The ATO has become aware that its guidelines on Everett assignments and the allocation of profits within professional firms are being misinterpreted for some higher-risk arrangements, including the use of related-party financing and self managed superannuation funds (SMSFs).
The guidelines have been suspended from 14 December 2017 to allow the ATO to consult with stakeholders on replacement guidelines.
Anyone considering new arrangements beginning after the cut-off date should contact the ATO to discuss the arrangement risk profile and the possibility of a private ruling.
Arrangements beginning before the cut-off date that comply with the guidelines and do not exhibit high risk factors shouldn’t require action, but arrangements with high risk factors may be subject to ATO review.
TIP: The ATO encourages anyone who is uncertain about how the law applies to their existing circumstances “to engage with us as soon as possible”.
TIP: An exemption from meeting the FHSS Scheme “first home” requirement will be availablefor people suffering financial hardship. “Financial hardship” criteria are likely to include circumstances where someone has limited savings, is currently renting and had a past interest in a home that was in a cheaper real estate market or when theperson was in a relationship that has since broken down.
Fringe benefits tax: employees’ private use of vehicles
The ATO has issued guidance for employers on determining an employee’s private use of a vehicle.
Draft Practical Compliance Guideline PCG 2017/D14 should provide more certainty and transparency about the circumstances where the ATO won’t apply compliance resources to investigating whether private vehicle use meets the car-related FBT exemptions.
Eligible employers who rely on this guideline won’t need to keep records to prove that an employee’s private use of a vehicle is minor, infrequent and irregular.
TIP:The guideline includes specific eligibility conditions for employers and their employees’ vehicle use. Talk to us aboutwhether the new guidance applies to your FBT circumstances.
Tax consequences oftrust vesting
The ATO has issued a long-awaited ruling on trust vesting,including changing a trust’s vesting date and the CGT and income tax consequences of vesting.
TIP:A trust’s “vesting date” is the day when the beneficiaries’ interests in the trust property become fixed. The trust deed will specify the vesting date and the consequences of that date being reached. Vesting does not, of itself, ordinarily cause the trust to come to an end or cause a new trust to arise. In particular, the underlying trust relationship continuesafter vesting while the trustee still holds property for the takers.
The key points in the draft ruling are that:
•before vesting, it may be possible to extend the vesting date (by applying to a court or by the trustee exercising a power to nominate a new vesting date);
•it is too late to change the vesting date once it has passed (and the ATO says it is unlikely that a court would agree to do so); and
•continuing to administer a trust in a way that is inconsistent with the vesting terms can have significant CGT and income tax consequences.
Disclosing business tax debt information to credit agencies
The Federal Government has released draft legislation and a draft legislative instrument that, when passed, will authorise the ATO to disclose a business’s tax debt to registered credit reporting bureaus where the business has not effectively engaged with the ATO to manage the debt.
The draft legislation intends to place tax debts on a similar footing as other debts, to encourage timely payment or engagement with the ATO for businesses that want to avoid having their debt information affect their creditworthiness. Disclosure to credit reporting bureaus will only be permitted if the ATO has given the taxpayer at least 21 days’ notice beforehand.
Taxing employee share scheme dividend equivalent payments
The ATO has made a new determination that dividend equivalent payments made under an employee share scheme (ESS) are assessable to an employee as income when they receive the payment for or in connection with services they provide as an employee.
A“dividend equivalent payment”is a cash payment to an employee participant and beneficiary an ESS funded from dividends on which the trustee has been assessed in previous income years because no beneficiary of the trust was entitled to the income at the time.
A trustee that makesa dividend equivalent payment under an ESS must withhold an amount from the payment, even though the trustee is not the employee’s employer.
TIP: The ATO offers a safe harbour from such payments being treated as incomeunder specific circumstances. Get in touch with us to talk about whether your situation makes you eligible.
The new determination applies to dividend equivalent payments paid under the terms and conditions attached to ESS interests granted on or after 1January2018.
Superannuation integrity changes
The Government has released a consultation paper and exposure draft legislation to give effect to the following superannuation taxation integrity measures it announced in the 2017–2018 Federal Budget:
•the non-arm’s length income (NALI) rules in s295-550 of the Income Tax Assessment Act 1997 for related-party superannuation fund transactions will be expanded from 1 July 2018 to also include expenses not incurred that would normally be expected to apply in a commercial arm’s length transaction (eg reduced interest expenses, brokerage, accountancy fees or legal costs); and
•a member’s share of the outstanding balance of a limited recourse borrowing arrangement (LRBA) will be included in the member’s “total superannuation balance” for new LRBAs entered into on or after 1July2018.
The measures are designed to ensure that related-party transactions with super funds and LRBAs can’t be used to circumvent the reduced contribution caps that apply from 1July2017. The changes should generally not affect LRBAs entered into with unrelated third parties for commercial rates of interest (and other expenses).
Guidance for SMSFs on transfer balancereporting
The ATO has released further guidance on when SMSFs need to report events affecting their members’ transfer balance accounts (by making a transfer balance account report, or TBAR) for the purposes of the $1.6 million pension cap.
From 1 July 2018, SMSFs that have any members with a total superannuation balance of $1 million or more must report events impacting that member’s transfer balance account within 28 days after the end of the quarter in which the event occurs.
SMSFs where all members have total super balances of less than $1 million can choose to report events which impact their members’ transfer balances at the same time that the fund lodges its annual return.
The guidance also covers reporting requirements for retirement phase income streams and commutations (including commutation authorities).
Further ‘affordable housing’ measures passed
Parliament has passed the legislation allowing first home buyers to save for a deposit inside superannuation through the First Home Super Saver Scheme (FHSSS), and also allowing older Australians to ‘downsize’ and then contribute the proceeds of the sale of their family home into superannuation.
From 1 July 2018, a first home buyer will be able to withdraw voluntary superannuation contributions they have made since 1 July 2017 (up to $30,000 each, with individuals being able to contribute up to $15,000 a year withinexisting caps), along with a deemed rate of earnings, to help buy their home.
Also from 1 July 2018, when Australians aged 65 and over sell a home they have owned for at least 10 years, they may contribute up to $300,000 from the proceeds into their superannuation accounts. Both members of a couple may take advantage of this measure, together contributing up to $600,000 from the proceeds of the sale into superannuation.
Consultation on ‘protecting superannuation entitlements’
Following the recommendations of the Superannuation Guarantee Cross-Agency Working Group, the Government has released draft legislation “to protect workers’ superannuation entitlements and modernise the enforcement of the superannuation guarantee’.
The draft laws extend Single Touch Payroll to all employers from 1 July 2019, and will require superannuation funds to commence ‘event-based’ reporting to the ATO of payments they receive for employees from their employer from 1 July 2018.
Combined, these measures (if passed as drafted) should provide the ATO with more timely information to support earlier detection and proactive prevention of non-payment of superannuation owed to employees.
The ATO will have a suite of enforcement and collections tools for employers who break the law, including
- strengthened arrangements for director penalty notices and security deposits for superannuation and other tax-related liabilities;
- the ability (for the first time) to apply for court-ordered penalties, including up to 12 months imprisonment; and
- the ability to require employers to undertake training.
The Government’s commitment to a Director Identification Number will also help identify those directors who are robbing their employees of their superannuation.
Note: The Government introduced legislation last year to implement another recommendation by the Working Group to close a loophole that could be used by unscrupulous employers to short-change employees who use salary sacrifice arrangements, and will progress that legislation along with this broader compliance Bill.
ATO warning regarding small business record-keeping
According to the ATO, of all of the things that can cause small businesses to fold, “high on that list is poor record keeping”.
More than half of the businesses they visited in their Protecting honest business campaign needed to improve their record keeping.
Issues they found include businesses:
- estimating their sales and income;
- using the ‘no sale’ and ‘void’ button on cash registers when taking cash payments;
- no keeping cash register tapes and not reconciling at the end of the day; and
- paying their employees cash-in-hand.
They are writing to these businesses to recommend they attend on the ATO’s record keeping workshops, which cover why good record keeping is important and how it will same them time.
ATO data matching program – Visa Holders
The ATO will acquire information on holders of a Visa from the Department of Immigration and Border Protection for the 2017/18, 2018/19 and 2019/20 financial years.
It is estimated that records of 20 million individuals will be obtained over the course of the three year period.
These records will be electronically matched with ATO data holdings to identify non-compliance with obligations under taxation and superannuation laws, as well as (for example) support compliance activities under Australia’s foreign investment rules.
Review of rules for early release of superannuation
The Government has announced that Treasury will review the current rules governing early release of superannuation on grounds of severe financial hardship and compassionate grounds.
It will also review whether, and the circumstances in which, a perpetrator’s superannuation should be available to pay compensation or restitution to victims of crime.
The review will not examine other general conditions of release for superannuation.
The Government also announced that it will transfer the regulatory role of administering the early release of superannuation benefits on compassionate grounds from the Department of Human Services to the ATO in 2018, to enable the ATO to provide a more streamlined service to members.
ATO extends due date for 2016/17 SMSF returns
The ATO will extend the due date for lodgement of self-managed superannuation fund (SMSF) annual returns for 2016/17 to 30 June 2018.
The Deputy Commissioner James O’Halloran said “We recognise there are some major new considerations and decisions for SMSFs and their advisers to make in this first financial year of operation of the superannuation reforms that came into effect from 1 July 2017.
“We have therefore decided to extend the lodgement date for 2016/17 SMSF annual returns so that SMSF trustees and their advisors can focus on these important matters”.
Taskforce to help digitise small business
The Government has established a Small Business Digital Taskforce, to be headed by entrepreneur Mark Bouis AM, to ensure more Australian small businesses can thrive in an increasingly digital economy.
Mark Bouris said: “When a business begins to digitise and use digital tools, it opens up new opportunities to grow, diversify revenue streams, find talent, access finance, work smarter and enhance the value of the business when it is time to sell. If you’re not going digital, you should be.”
Deloitte research has found that small businesses with advanced levels of digital engagement are 1.5 times more likely to be growing revenue, 8 times more likely to be creating jobs and 14 times more likely to be innovating.
The Taskforce will conduct a series of meetings, workshops and ‘hackathons’ with businesses over the coming months to explore impediments for business in engaging with digital technologies and how these impediments might be addressed.