The secret sauce for accountants – July 2020 Tax tips, traps and updates
Monthly Tax update by Leo Hollestelle B Comm LLB CTA – Tax Specialist and Accountant – the secret Weapon for accountants – (the Tax Specialist for Accounting Firms) –
BUSINESS TAX – Instant asset write-off extension
The Federal Government has announced the instant asset write-off will be extended for 6 months to 31 January 2020.
The extended instant asset write-off will continue to apply to assets costing less than $150,000 and applies to Australian business with an annual turnover of less than $500 million.
The Federal Government has announced the instant asset write-off will be extended for 6 months to 31 January 2020.
The extended instant asset write-off will continue to apply to assets costing less than $150,000 and applies to Australian business with an annual turnover of less than $500 million.
The $150,000 threshold applies on a per asset basis.
The asset must be used or installed ready for use by 31 December 2020. Assets can be new or second hand.
Instant asset write-off cars
A car limit applies to passenger vehicles for the $150,000 instant asset write-off. The limit is $57,581 for the 2019–20 income tax year. For cars acquired before 12 March 2020, the general instant asset write-off limit of $30,000 applies.
If your asset, whether a car or other asset, is for business and private use, you can only claim the business portion
No indexation of tax instalments
The Federal Assistant Treasurer has announced the Government will legislate to suspend the indexation of tax instalment amounts for the 2020-21 financial year in response to COVID-19.
The change will affect instalments payable to the Australian Taxation Office (ATO) for an estimated 2.2 million taxpayers paying Pay As You Go (PAYG) income tax instalments, and around 81,000 taxpayers paying Goods and Services Tax (GST) instalments in 2020-21.
In addition to suspending indexation, taxpayers can still vary their instalment amounts if they believe they will pay too much tax for the year.
Other taxpayers who pay instalments based on their current income are not subject to indexation because their instalments already adjust to changes in income. While these taxpayers are not affected by the suspension of indexation, they have the same right to vary their instalments.
Single Touch Payroll Exemption
A Draft Legislative Instrument STP 2020/D3 has been released which provides for an exemption for closely held payees exemption for STP reporting for the 30 June 2020 and June 2021 years.
When commenced the exemption means no STP reporting will be required for closely held payees until 1 July 2021.
Environmental Protection Activities
Taxation Ruling TR 2020/2 has been released that provides for the tax treatment of environmental protection activities. The Ruling is not currently displayed on the ATO Legal Data Base.
Depreciating assets
The ATO has released Taxation Ruling TR 2020/3 on the effective life of depreciating assets.
The Ruling contains Tables A and B on the effective life of depreciating assets determined by the ATO. It also sets out the effective life of assets in Tables A and B. The rates are to apply from 1 July 2020.
The Commissioner makes the effective life determination having regard to the period the depreciating asset can be used for a purpose specified in subsection 40-100(5) (a specified purpose, one of which is use for a taxable purpose.
You may choose to use the Commissioner’s determination of the effective life of a depreciating asset or you may make your own estimate (see section 40-95). The Ruling’s explanation of the methodology used by the Commissioner to make a determination of effective life may assist taxpayers who make their own estimate of the effective life of a depreciating asset.
Car cents per km rate
The car cents per kilometre method:
• uses a set rate for each kilometre travelled for business
• allows you to claim a maximum of 5,000 business kilometres per car, per year
• doesn’t require written evidence to show exactly how many kilometres you travelled (but we may ask you to show how you worked out your business kilometres, for example diary records)
• uses a rate that takes all your vehicle running expenses (including registration, fuel, servicing and insurance) and depreciation into account.
Rates are reviewed regularly. The rate is:
• 72 cents per km for 2020–21
• 68 cents per km for 2018–19 and 2019–20
Withholding Schedules
Legislative Instrument OPS 2020/1 has been made to set out the Withholding amounts to apply from 1 July 2020 under the PAYG Withholding system.
The Instrument sets out a wide range of withholding amounts including salary and wages and Tax tables for 13 other items including actors, variety artists and other entertainers, return to work payments, back payments, unused leave payments, employment termination payments, superannuation payments and working holiday makers.
Taxable payment reports
Taxable payment annual reports (TPAR) are due to the ATO by 28 August.
For the 2019-20 year TPARs cover businesses that provide:
• building and construction services
• cleaning services
• courier or road freight services
• IT services
• security, investigation and surveillance services.
The reports cover payments made to contractors and sub-contractors.
EMPLOYEE AND INDIVIDUAL’S TAX
2019-20 Income tax statements
For the 2019-20 years and after PAYG summaries are no longer issued. Instead “income statements” are provided to employees in their myGov account.
No indexation of tax instalments
See under BUSINESS TAX.
Car cents per km rate
See under BUSINESS TAX.
HomeBuilder program
The Federal Treasurer has announced a new HomeBuilder program. The program will apply from 4 June 2020 until 31 December 2020, HomeBuilder will provide all eligible owner-occupiers (not just first home buyers) with a grant of $25,000 to build a new home or substantially renovate an existing home. Construction must be contracted to commence within three months of the contract date.
HomeBuilder applicants will be subject to eligibility criteria, including income caps of $125,000 for singles and $200,000 for couples based on their latest assessable income. A national dwelling price cap of $750,000 will apply for new home builds, and a renovation price range of $150,000 up to $750,000 will apply to renovating an existing home with a current value of no more than $1.5 million.
HomeBuilder complements existing state and territory First Home Owner Grant programs, stamp duty concessions and other grant schemes, as well as the Commonwealth’s First Home Loan Deposit Scheme and First Home Super Saver Scheme.
GST
Financial Supplies
The ATO has published Draft consolidation Practical Compliance Guideline PCG 2019/8DC1 on their compliance approach to GST apportionment of acquisitions that relate to certain financial supplies.
In essence, paragraph 25 provides an ATO risk assessment framework for suppliers of 5 zones, white, green, blue, yellow and red which provides for risk levels and the form of ATO engagement with each level.
For example, white is no review other than to confirm ongoing consistency with the agreed/determined approach. Red is High Risk with High priority for review, reviews are likely to be commenced as a matter of priority.
You are able to self-assess your risk rating on an annual basis if there have been no changes in your apportionment methodology during the year. For Schedules that commence on 1 January 2020, the ATO would expect you to self-assess your risk rating for the period 1 January 2020 to 31 December 2020. For Schedules that commence on 1 October 2020, we would expect you to self-assess your risk rating for the period 1 October 2020 to 31 December 2020, and then to continue to do so on an annual basis.
The ATO may ask you to tell it in writing whether you have reviewed your risk rating under this Guideline and which risk zone your arrangements fall within. If you are in an annual compliance arrangement, it will expect you to notify it of your risk rating on an annual basis. We will also ask you to tell us your ECP rate relevant to applicable Schedules and whether there have been changes to your methodology during the year.
LEGISLATION
No 3 Tax Measurers Bill
The Treasury Laws Amendment (2019 Measures No 3) Bill 2019 Passed all stagesof Federal Parliament on 17 June 2020.
It passed without amendment and effectively awaits Royal Assent. The Bill:
• Amends the ITAA 1936 to ensure the tax concessions available to minors in relation to income from a testamentary trust only apply in respect of income generated from assets of the deceased estate that are transferred to the testamentary trust.
• Defers the start date for the new training requirements for financial advisers.
• Amends the FBT definition of a “taxi” so that the FBT exemption for taxi travel extends to ride-sourcing services (such as Uber) from 1 April 2019.
• Contains minor amendments across a range of Treasury laws including tax, superannuation, market-linked pensions and corporations.
Business registries and DIN
The Federal Government’s 5-Bill package to create a new Commonwealth business registry regime and introduce a ‘director identification number’ (DIN) requirement, have passed all stages without amendment by the Senate on 12 June 2020, and await Royal Assent.
The DIN is intended to help regulators and external administrators investigate a director’s involvement in unlawful conduct including illegal phoenix activity.
The Bills include the Commonwealth Registers Bill 2019 and the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019.
APRA levies
The package of supervisory levy imposition amendment Bills was passed without amendment by the House of Reps on 12 June 2020. The Bills propose to increase the statutory upper limit of the levies APRA can collect from prudentially regulated entities (including super funds), from $1.5m to $10m.
TAX AGENTS
Tax agent banned
The Tax Practitioners Board (TPB) announced that the registration of Christopher Phillip Allenby, a former partner of KPMG from Sydney has been terminated.
Mr. Allenby had been associated with a client’s scheme to underpay millions in taxes and penalties. He was banned from practice for three years.
Following investigations by the ATO and the TPB, it was found that Mr. Allenby was associated with a client’s scheme to avoid $3.1 million in taxes and penalties.
BAS agent services
The Tax Practitioners Board (TPB) has released a draft instrument and explanatory statement proposing to expand the scope of BAS services to include additional services relating to the superannuation guarantee charge (SGC). The changes will apply to registered BAS agents.
Board of Taxation
The Board of Taxation (the Board) has acknowledged the passing of its Chair, Michael Andrew AO, on Sunday 23 June.
Michael was a highly respected member of the business and tax community as is reflected in the statement made by the Treasurer, the Hon Josh Frydenberg MP, acknowledging both Michael’s distinguished career and the significant contribution that he made to improve the design of the tax system.
SUPERANNUATION
Transfer Balances
The ATO has provided compliance guidanceon its website on the new way of calculating a debit for an individual’s pension transfer balance account when a member commutes certain market linked pensions.
This follows The Treasury Laws Amendment (2019 Measures No 3) Bill recently passing the Senate. The ATO has outlined the new way of calculating the debit which arises in an individual’s transfer balance account when a member commutes a market linked pension.
No work test
The Superannuation Legislation Amendment (2020 Measures No 1) Regulations 2020was registered on 29 May 2020.
It amends the SIS Regulations to allow 65 and 66 year-olds to make voluntary superannuation contributions (both concessional and non-concessional) without meeting the work test of carrying out at least 40 hours in any 30-day period in the financial year in which the contributions are made.
SG Jobkeeper
The Superannuation Guarantee (Administration) Amendment (Jobkeeper Payment) Regulations 2020 was registered on 2 June 2020.
It confirms employers are not obliged to make Superannuation Guarantee (SG)contributions in relation to salary or wages, which do not relate to the performance of work, and are only paid to an employee to satisfy the wage condition for getting a JobKeeper payment.
SBSCH contributions
The ATO has release Practical Compliance Guideline PCG 2020/6 on the timing of deductibility of super contributions made to the Small Business Superannuation Clearing House.
The Guideline provides the ATO will not apply compliance resources to consider whether the contribution you made was received by the trustee of the super fund or RSA in the same income year in which you made the payment to the SBSCH, provided you made the payment to the SBSCH before close of business on the last business day on or before 30 June.
As a consequence of this compliance approach, where the conditions in paragraph 8 of this Guideline are satisfied, you do not need to check with your employees’ super funds to determine in which income year the contributions were received from the SBSCH prior to claiming an income tax deduction in the income year the payment was made to the SBSCH.
The Guidelines in paragraph 8 are:
• you, as an employer, or your nominated representative on your behalf, made payments to the SBSCH on behalf of your employee before close of business on the last business day of the income year in which you deduct the contribution
• at the time of making the payments, you provided all relevant information to enable the SBSCH to process the payment to the employees’ super fund accounts or RSA
• the payment has not been dishonoured by the super fund or RSA or returned to you by the SBSCH
• you would otherwise be entitled to the income tax deduction.
Note that EFT (electronic fund transfers) may take one or two days to be processed and will show on the bank statement on the later day of transfer rather than on the earlier day when the transfer was instructed. It is better then to make a transfer no later than a few days before 30 June.
NALI
The ATO has released Practical Compliance Guideline PCG 2020/5 on it transitional compliance approach in applying the non-arm’s length income (NALI) provisions to ‘non arm’s length expenditure’.
It applies to all complying superannuation entities including a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust starting for 1 July 20198.
The ATO will not allocate compliance resources to determine whether the NALI provisions apply to a complying superannuation fund for the 2018-19; 2019-20 and 2020-21 income years where the fund incurred non-arm’s length expenditure of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the fund in those respective income years (for example, non-arm’s length expenditure on accounting services).
This transitional compliance approach does not apply where the fund incurred non-arm’s length expenditure that directly related to the fund deriving particular ordinary or statutory income.
The ATO recognises that trustees of complying superannuation funds may not have realised that the amendments will apply to non-arm’s length expenditure of a general nature that has a sufficient nexus to all ordinary and/or statutory income derived by the fund in an income year, noting that it was not explicitly stated in LCR 2018/D10. It is also recognised that the amendments apply in relation to the 2018-19 and later income years which may result in all income derived by a fund during the 2018-19 and 2019-20 income years being classified as NALI where it has incurred non-arm’s length expenditure of a general nature.
The Guideline should be read in conjunction with draft Law Companion Ruling LCR 2019/D3 Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement.
TBAR lodgment
A transfer balance account report (TBAR) may be due 28 July 2020, if a transfer balance event has occurred in your member’s SMSF between 1 April and 30 June 2020.
OTHER
Luxury car tax
The ATO has published on its website the formula and details for working out luxury car tax (LCT).
To work out the luxury car tax (LCT) amount you must pay if you sell a car, use the following formula:
(LCT value − LCT threshold) × 10 ÷ 11 × 33%.
The LCT value is the retail price of the car, including:
• GST and any customs duty
• dealer delivery charges
• standard and statutory warranties
• additional items, such as accessories, modifications and treatments to the car before delivery or under an arrangement with the supplier or an associate of the supplier. These inclusions may be made at or before the time of delivery (unless made solely for the purpose of adapting it for driving by, or transporting, a person with a disability)
• fleet rebates, run-out model support incentive payments and any other motor vehicle incentive payments that are third-party consideration.
The LCT value does not include:
• LCT included in the sale
• other Australian taxes, fees or charges such as stamp duty, transfer fees and registration
• compulsory third-party insurance (CTPI)
• extended warranties
• costs associated with financing the purchase of the car
• service plans.
If LCT has already been paid on the car, you can reduce the amount you pay by the amount of LCT already paid.
The LCT Threshold for 2020-21 is $77,565 for fuel efficient vehicles and $68,740 for other vehicles.
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