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October 2018 Tax tips, trapsand update Employee share schemes – private companies

Thanks to 

Leo Hollestelle –  Com LLB CTA – Tax Specialist

        

Employee share schemes (ESS) are common for public companies. However, they may also be useful for private companies who wish to give equity to employees to retain valuable employees and motivate their employees to achieve company goals for revenue and profitability. Careful setting of the terms of employee share scheme is required to make EES commercially effective.


Tax effective employee share schemes can be implemented by private companies. The ATO allows a private company to set up an ESS trust and to make tax-deductible contributions to the ESS trust without fringe benefits tax (FBT) applying. The ESS trust buys existing shares or subscribes for shares in the employer company for the benefit of the employee ESS trust beneficiary.


The employee tax on ESS shares acquiredby the ESS trust can be deferred in a number of ways for potentially up to 15 years by have appropriate terms regarding the real risk of forfeiture of the ESS shares. The ESS shares would generally be taxed at the market value of the shares, so company valuations of shares are required.


There are also concessions for private company ESS shares where the company has been incorporated for less than 10 years, the aggregated turnover of the company is less than $50m and the company is not listed on the ASX.


Small business accelerated depreciation

Legislation for the extension to 30 June 2019 of the small business accelerated depreciation received Royal Assent on 21 September 2018.

The accelerated depreciation concession allows businesses with an aggregated turnover of less than $10m to claim an “instant asset write-off” for assets costing less than $20,000 provided they opt to use the small business simplified depreciation concessions.


Fodder storage assets

The Treasury Laws Amendment (Supporting Australian Farmers) Bill 2018 is before the House of Representatives. When passed the bill will amend the Income Tax Assessment Act 1997 to allow primary producers to immediately deduct (rather than depreciate over three years) the cost of fodder storage assets, such as silos and hay sheds, used to store grain and other animal feed. This will assist primary producers by making it easier to invest in and stockpile fodder.

 

 

Refundable franking credits

The House of Representatives Standing Committee on Economics has announced an inquiry into the implications of removing refundable franking credits.

The Terms of Reference for the inquiry are for the committee to inquire into and report on the use of refundable franking credits, their benefits and the implications of their removals, including:

• analysis of who receives refundable franking credits, the opportunities it provides to offer alternative savings and investment vehicles to low and middle income earners, and the impact it has on lowering tax bills

 

• consideration of how refundable franking credits support tax principles, particularly implications for tax neutrality, removal of double taxation and fairness

 

• if refundable franking credits are removed; who it would impact and how and the implications from expected behavioural change by investors, including for:

 

increased dependence on the pension
stress and complexity it will cause for Australians, including older Australians to adjust their investments
if there are carve outs applied, what this might mean for additional complexity, uncertainty and fairness
reduced incentives to save and distortions to which asset classes are invested in and funds are used, and
the reliability of providing a sustainable revenue base over the longer term.

Submissions are being sought by Friday 2 November 2018. Submissions can be made online or by emailing economics.reps@aph.gov.au.


GSTR 2018/2 supplies of goods connected with the indirect tax zone

GSTR 2018/2 was finalised on 19 September 2018. The Ruling deals with the supplies of goods connected with the indirect tax zone (Australia). It does not deal with the supply of services, intangible personal property such as intellectual personal property, e.g. copyright, or the supply of land or an interest in land.

The Ruling deals with the distinction made in the GST Act between supplies made wholly in Australia, supplies made from Australia, supplies made to Australia and the exceptions to the connected with Australia rule for goods.

GSTR 2018/2 explains and provides examples in each type of supply to show how the provisions work, including goods delivered in Australia, supplies of imported goods wholly within Australia, goods supplied outside Australia and imported by the recipient, goods supplied by way of lease, goods removed from Australia, the supply of goods connected with Australia and taxable importations and the supply of goods involving installation or assembly services.

 

ATO Decision impact statement: C of T v Hacon Pty Ltd

The matter was a judicial review of the Commissioner’s decision to decline to make a private ruling.

The decision concerned the ability of the Commissioner to exercise his discretion to decline to make a private ruling where the correctness of the ruling would depend on assumptions about future events or other matters. The decision also concerns the interaction between the Commissioner’s discretion to so decline and the statutory obligation imposed on the Commissioner to request further information from the ruling applicant.

The decision confirms the Commissioner’s view that he is entitled to decline to make a private ruling where the correctness of the ruling would depend on assumptions about future events or other matters, and that the Commissioner is not obligated to first request that information from the taxpayer in those circumstances.


Special leave application: Hart v C of T

The High Court refused the taxpayer’s application for special leave to appeal the Full Federal Court’s decision in Hart v Commissioner of Taxation [2018] FCAFC 61.

The issue in this case involved a Part IVA assessment against the taxpayer in respect of income from his law firm, which was distributed to him by a discretionary trust through a New Venture Income Scheme to avoid tax. Penalties were imposed pursuant to s 226 of the ITAA36 at the rate of 50%. Justice Bromwich’s decision at first instance found that there was no reasonable argument that Part IVA did not apply, and no proper basis to remit the penalties imposed.

The Full Court found that Justice Bromwich’s decision at first instance disclosed no discernible error. They found that even had Mr Hart been able to show the Commissioner’s counterfactual was unreasonable (which on the evidence he did not), this would have been insufficient to discharge his onus, as he did not sufficiently identify and evidence his own counterfactual.


ATO’s increased efforts to identify taxpayers who fail to report all income

The ATO is increasing its efforts to identify taxpayers who fail to report all their income this tax time, as it strives to recover an annual tax shortfall of nearly $1.4 billion caused by individuals who leave income out of their return. 

Assistant Commissioner Kath Anderson said that the ATO prefills as much information as possible to help taxpayers to get their income right, but warned that those who deliberately leave out income could face consequences. 

“The most common mistake we see is taxpayers leaving out cash wages. But we are also seeing taxpayers either deliberately or accidentally failing to include income from second jobs, capital gains on cryptocurrency, the sharing economy, the gig economy, and foreign-sourced income,” Ms Anderson said.

 

OECD multilateral instrument 

The Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018 received Royal Assent on 24 August 2018. The Act gives the Multilateral Convention (the MLI) the force of law in Australia.

The Multilateral Convention will add a further layer of legislation to Australia’s double tax agreements dealing with international transactions.

Foreign residential investment in Australia

If you’re a foreign person (including a temporary resident or foreign non-resident) and you have invested in, or plan to invest in Australian residential real estate, you may need to: 

• lodge a Residential real estate application form and wait for your approval before you buy

 

• register your purchase using the Land and Water Registration form after settlement

 

• lodge an Annual vacancy fee return and make a declaration each year on the occupancy of your residential property.

Pension age to remain at 67

On 5 September 2018, the Government announced that the pension age will remain at 67 and will not be raised to 70. The increase to age 67 was legislated by the previous Labour Government.


 

Posted on October 4, 2018

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