TAX NEWS | VIEWS | CLUESWelcome to the July edition of the Spry Roughley Report This is a bumper issue of important developments in tax, however, there are two items in particular which deserve comment - Directors Liabilities and changes to Living Away From Home Allowances (LAFHA). 1. Directors Liabilities I have previously referred to the Government's intention to extend the liability for company directors to personally meet the liability for amounts deducted from employee wages which were not then remitted to the Tax Office, and to extend directors liabilities to cover unpaid superannuation. These measures have now been passed by Parliament and are only awaiting Royal Assent before becoming law. As explained in the Explanatory Memorandum to the Bill, the new law strengthens directors' obligations to cause their company to comply with its existing Pay As You Go (PAYG) withholding and superannuation guarantee requirements. These amendments reduce the scope for companies to engage in fraudulent Phoenix activity or escape liabilities and payments of employee entitlements by:
These changes were intended to target Phoenix activity where the company is fraudulently used to intentionally accumulate debts and then placed into voluntary administration or liquidation to avoid paying those debts. This was achieved where the directors extinguish their personal liability by placing the company into voluntary administration or liquidation within the 21 day notice period the Tax Office has to give to directors before the Commissioner is able to commence proceedings to recover the liabilities. This often meant that the full amount of PAYG withholding liabilities was never recovered. Compounding these problems is the ability of directors to continue to claim PAYG withholding credits (for amounts withheld from payments to them by the company) in their individual tax returns, even when the company has failed to pay some or all of its PAYG withholding liability to the commissioner, and the fact that the director penalty regime is restricted to PAYG withholding obligations. The new law addresses all these situations however, it will apply to all companies, regardless of the intention the directors. Further company directors and their associates who are entitled to a credit attributable to a payment made by a company that has failed to pay amounts withheld under PAYG withholding to the Commissioner, can be liable to pay PAYG withholding non-compliance tax to compensate for the company's failure to remit. There are however a range of specific defences available that may protect the individual in certain cases. All in all, this is another significant exposure to personal liability for all company directors (and sometimes their close associates) where their company is in default of meeting statutory obligations. 2. LAFHA We provide the details of the LAFHA changes that were supposed to apply from 1st July 2012. As an update, the Bill (draft legislation) was introduced into Parliament on 29 June 2012 and was referred to the House of Representatives Standing Committee on Economics for further examination. At this stage it is proposed the amendments will now apply from 1 October 2012 and not 1 July. No further details on any changes have emerged to date. To read the other key tax changes, click on the links below or scroll down for a summary version of the newsletter. You may also click here to access the full explanatory memorandum of topics.
As usual, please do not hesitate to call us on (02) 9891 6100 should you wish to discuss how any of the points raised in the report specifically affect you, or click here to send us an email. Warm regards, Martin __________________________________________________________________________ |
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Following recent compliance activities that have been conducted, the ATO says many Australian resident taxpayers may not be aware of their Australian taxation obligations in relation to their worldwide income. The ATO has reminded taxpayers to correctly report foreign sources of income when required. Examples of foreign sources of income can include:
The ATO has announced that for taxpayers who make full voluntary disclosure of their foreign source income, any applicable penalties may be reduced by 80%. The ATO has released a Taxation Determination that provides the Commissioner’s views in respect of certain “investment loan interest payment arrangements”. According to the Commissioner, the general anti-avoidance provisions in the tax law can apply to deny a deduction for some, or all, of the interest expenses incurred in respect of these arrangements. The type of arrangements discussed in the Determination broadly involve outstanding loans on a residential home, an investment property and a line of credit. The ATO says a key feature of these arrangements is the use of the line of credit to pay the interest on the investment loan. This results in all (or most) of the interest on the investment loan being, in effect, capitalised. That is, the payment of the investment loan interest is deferred. According to the ATO, the deferral has the economic effect of allowing the taxpayer to repay the home loan at a faster rate than would otherwise be possible. The Government has introduced regulations that require certain businesses in the building and construction industry to report annually to the ATO details of payments made to contractors in the industry. The new requirements essentially mean that purchasers must report certain transactions for which they have been issued an invoice. The reporting requirements will commence on 1 July 2012. In a recent decision, the Administrative Appeals Tribunal (AAT) denied a taxpayer’s claim for a deduction for various expenses incurred in buying, renovating and selling properties. Among various issues, the AAT noted that the taxpayer was unable to produce documentary evidence in relation to stamp duty, legal expenses, renovations, wages and director fees, interest and legal expenses. All documents supporting deductions must be kept for five years from the due date or actual date of lodgment of the return for the year to which the expense relates, whichever is the later. If an objection, a review or appeal arising from an objection, or a request for an amendment of an assessment, is outstanding when the five-year period ends, records must be kept until the matter is resolved. A taxpayer has been unsuccessful before the AAT in arguing that the Commissioner should exercise his discretion and reallocate excess super contributions to a previous financial year. The taxpayer had used an electronic funds transfer on 30 June 2007 to transfer the funds, but they were not credited to the super fund’s account by the bank until 2 July 2007, thereby pushing the transfer into the next financial year. The excess concessional contributions for the 2008 financial year amounted to almost $54,000 and the Commissioner imposed excess contributions tax of around $17,000. In rejecting the taxpayer’s arguments, the AAT noted the Commissioner’s practice to deem contributions as having been made “when the funds are credited to the superannuation provider’s account”. The AAT also disagreed that there were “special circumstances” that would allow the Commissioner to exercise his discretion. It noted that the taxpayer was in the same situation as every other taxpayer and that it was incumbent upon the taxpayer to ensure that the electronic funds transfer was effective and completed at the right time. Amounts contributed and counted in the “wrong” financial year, causing an investor to exceed the relevant superannuation contributions cap, could lead to an excess contributions tax bill. Investors should consider planning any extra contributions early and should not leave transfers to the “last minute”. Note that this year, 30 June 2012 falls on a Saturday. The Commissioner may only exercise his discretion to reallocate or disregard excess contributions if “special circumstances” exist and the making of a determination is consistent with the object of the superannuation law. Please contact our office for more information. In a recent decision, the AAT held that a medical doctor was engaged in a share trading business not only in relation to listed shares she acquired, but also in relation to units she acquired in a listed aged care property trust that she had purchased from her family trust (albeit, for more than their market value at the time). Moreover, it was these units that generated an unrealised loss of over $1 million and which, as a result, enabled to her to reduce her other taxable income for the year ended 30 June 2009 below nil. In arriving at its decision that the taxpayer was carrying on a share trading business, the AAT took into account the following factors:
If the taxpayer is a share trader, losses may be deductible against other income. If the taxpayer is not carrying on a business of share trading, capital losses can only be applied to reduce capital gains. The ATO has announced important FBT rates and thresholds for the 2012–13 FBT year (which commenced on 1 April 2012). Some of the key rates and thresholds include:
The Government has announced the “cents per kilometre” rates for calculating tax deductions for car expenses for the 2011–12 income year. Note that these are unchanged from 2010–11 and are as follows:
Income testing of the 30% private health insurance rebate starts on 1 July 2012. Essentially, singles earning over $84,000 per annum and families earning over $168,000 per annum will receive a reduced rebate that is less than the current 30% rebate. The ATO says that it will calculate a taxpayer’s private health insurance rebate entitlement after they have lodged their income tax return for the 2012–2013 year. If a taxpayer has claimed too much of the rebate, the ATO says it will “recover the amount” as a tax liability by adding the amount to the tax bill. However, if the full entitlement was not claimed, the ATO says it will credit the amount to the taxpayer as a refundable tax offset. You may want to carefully consider your personal circumstances in response to the changes. Please contact our office if you have any questions. A recent case before the Administrative Appeals Tribunal (AAT) has demonstrated the need for great care when structuring arrangements to ensure a taxpayer’s eligibility for the small business capital gains tax (CGT) concessions. The Tribunal held that the taxpayer had not passed the “maximum net asset value” test for the purposes of the CGT small business concessions in respect of a capital gain made on selling shares to his family trust. The taxpayer was a director and shareholder of a series of interlocking companies. The issue turned on whether a bank loan to the family trust was a liability that could be taken into account in applying the “maximum net asset value” test. However, the Tribunal held the loan could not be taken into account for various reasons. One of the conditions for accessing the CGT small business concessions is that the taxpayer (other than those who qualify as small business entities) must satisfy the “maximum net asset value” test. To pass this test, the net value of all the CGT assets of taxpayer (including affiliates and connected entities) must not exceed $6 million (previously $5 million). The rules are complex. The AAT decision highlights the importance of careful planning when structuring transactions. Please contact our office if you have any questions. The Government has reintroduced legislation into Parliament to extend the director penalty regime. This will, among other things, make directors personally liable for their company’s unpaid superannuation guarantee amounts. The changes also aim to ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation while PAYG withholding or superannuation guarantee remains unpaid and unreported for three months after the due date. The changes also propose a new “PAYG withholding non-compliance tax” that arises when a company has failed to pay amounts withheld to the Commissioner of Taxation. This tax will be levied on directors or associates of directors, provided certain criteria are met. In 2011 the Government withdrew its original legislation from Parliament following calls for more consultation after a Parliamentary committee noted that innocent directors could be caught by the proposed rules. The Government has introduced legislation to implement its 2011 Budget announcement to bring an end to the ability of minors (children under 18 years of age) to access the low income tax offset (LITO) to reduce tax payable on their “unearned income” such as dividends, interest, rent, royalties and other income from property. The changes are designed to discourage income splitting between adults and children, including through the use of trusts. Once formally enacted, the changes will apply to assessments from the 2011–2012 income year onwards. Under the new rules, a trustee who is assessed on the income of a minor will not have access to the LITO in circumstances where the income is considered to be unearned income of that minor. Legislation has been introduced into Parliament to amend the income tax rates for non-residents from 1 July 2012. The changes, pending formal enactment, will essentially increase the non-resident tax rates from the 2012–2013 year onwards. Changes have also been made to the tax rates applicable to non-resident minors. Please contact our office for further details. Legislation is making its way through Parliament to give the Commissioner of Taxation a new power to withhold “high risk” refunds pending integrity checks of a taxpayer’s claim. The changes are being introduced in response to court proceedings in which the Commissioner was ordered to pay a GST refund to a taxpayer, despite the fact that the outcome of an ATO audit was still pending. The proposed legislation is designed to address this by providing the Commissioner with a new legislative power to retain refunds in such circumstances. It should be noted that the Commissioner’s power will apply to all refunds and claims arising under the tax law – not just GST. Some commentators have warned that the proposed measures are very broad and provide the Commissioner with the widest of discretions to withhold refunds. The Government has proposed a raft of changes concerning living-away-from-home allowances (LAFHAs) and benefits. Essentially, the Government is restricting access to the concessions. Employers and employees who may be affected need to take note. Broadly, the following will apply:
In order to obtain a deduction, the proposed new regime will also create requirements for employees to provide written evidence of their expenditure in some circumstances. The proposed changes are set to take effect on 1 July 2012. However, there will be grandfathering provisions to preserve tax concessions for up to two years for some arrangements that were in place prior to Budget night (8 May 2012). The proposed changes are complex and will raise significant issues for affected employers and employees. Following these developments and before the enactment of the legislation, it will be critical to identify how the changes may apply to your circumstances. If you have any questions, please contact our office. This is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Spry Roughley Report is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval. The ATO has revealed details of two new data-matching programs aimed at identifying tax non-compliance. These will affect individual taxpayers
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