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Real Budget Story In The Detail Says CPA Australia

The third Turnbull/Morrison budget has some big-ticket items but it’s the less headline grabbing proposals that are likely to attract the attention of the accounting and tax profession over the coming months and years.

This year’s budget has been framed against a backdrop of a strengthening economy, with the expected additional revenue being used in part to fund personal tax cuts and increased investment
in infrastructure and the ageing population.

CPA Australia Head of Policy, Paul Drum FCPA, said accountants will be keen to see the details of these announcements and be involved in shaping their design and implementation so that they best achieve the policy outcome.

“The Budget includes a raft of income tax, GST and superannuation changes that will impact individuals, businesses and super funds and therefore the provision of client-based business and
investment advisory services.

“The government’s seven-year personal income tax plan promises much over a new glide path similar to the ten-year Enterprise Tax Plan. But, like the company tax cuts, the question is whether this plan will garner the support it needs to get through the parliament.

“Further the ATO is to receive additional funding to focus and improve individual taxpayer compliance. No doubt some of this will be for education and enforcement initiatives to address the
overclaiming of certain work-related expense claims by individuals.

“For smaller businesses, the instant asset write-off has been extended for another year which is welcome, although it would be preferable that this measure be made a permanent feature of the tax system to help small businesses with their planning,” Drum said.

In measures that will also impact some SMEs, the Government announced a number of integrity measures including changes to circular trust arrangements, and a ‘clarification’ of unpaid present entitlement under Division 7A.

In the context of the government’s response to the black economy taskforce review, measures such as new compliance obligations for certain businesses are being introduced by further extending the taxable payment reporting system to security and investigation services, road freight transport and computer design and related services, and a new $10,000 cash payment limit to be introduced that will apply to business payments

“Related to the work of the black economy taskforce, there are to be tougher rules for illegal phoenixing activities, including increased liabilities for directors.

“Further the ATO will receive additional funding to ramp up its debt collection activities for both tax and super liabilities.

“Changes to the R&D tax incentive to eliminate abuse have also been announced with the rules differing depending on business turnover levels,” Drum added.

The big end of town is also in for some further tax changes, although they and their advisers will have to wait for the details of what those changes mean.

“At the top end of town there are changes regarding the taxation of financial arrangements, and extended definition of significant global entity (SGE) as well as changes to tax consolidation rules.

“Changes to the thin capitalisation rules will ensure tax values are in accord with accounting financial reports.

“There are also changes proposed to remove access to the capital gains tax (CGT) discount for managed investment trusts (MITs) and stapled structures to prevent the conversion of trading income into more favourably treated passive income.

“The government is also to engage on how digital businesses should be taxed,” Drum also added.

In the superannuation arena, a number of proposed changes include increasing the possible number of self-managed superannuation fund (SMSF) members from four to six, caps on passive
fees on small balance super funds, banning super fund exit fees, and changing the work test for those 65 to 74 years of age who make voluntary contributions to super.

The Treasurer also announced the government would stop super funds from forcing people under 25 with low balances to pay for life insurance policies they did not ask for or need.

The government also announced a three-year audit cycle for SMSFs that have a good compliance record.

“The Treasurer announced changes to enable the ATO to compulsorily acquire small balance super funds and reunite members with their lost funds through a supercharged data matching process
which is welcome,’ Drum stated.

Accountants will also need to be across a proposed clampdown on Everett assignments and CGT concessions from tonight, and proposed changes to eliminate fame and image licensing arrangements through a related entity.

Missed opportunities

Income tax savings discount

‘It’s regrettable the government has not taken the initiative to introduce measures that would encourage Australians to save outside the superannuation regime,’ Drum said.

‘CPA Australia supports the introduction of an income tax savings discount on savings earned/derived outside of the super regime as first proposed in the Australia’s Future Tax System report (the Henry Tax Review). Such a measure would provide improve overall household savings, encourage investment and make it easier for Australians to make larger capital purchases,’ he said.

‘This budget was also the ideal opportunity for the government to commit to initiating a review of the Federal Government’s compensation for defective administration scheme, and include an increase in the compensation available to those affected.

ASIC funding

CPA Australia recommended the government not pursue its full cost recovery model for funding ASICs regulatory activities, and reinstate funding previously cut from the ASIC budget. ASIC funding has now become an even more pressing priority given the evidence currently being heard by the banking royal commission.

Contact: Karen Hellwig on 0407 332 447 or media@cpaaustralia.com.au

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What’s new in Tax for Individuals

Before you complete your tax return for 2018, there are some changes you should be aware of in case they affect you.

Annual Vacancy fee

In the 2017-18 Budget, an annual vacancy fee was announced as part of a comprehensive housing affordability plan, designed to improve outcomes across the housing spectrum.

The annual vacancy fee applies to foreign owners of residential property where the dwelling is not residentially occupied or genuinely available on the rental market for at least six months per year under an agreement(s) with a term of at least 30 days.

The annual vacancy fee will apply to foreign owners of residential property who submitted a foreign investment application for that dwelling after 7.30pm (AEST) on 9 May 2017 and have received approval.

The fee will also apply if the foreign owner of residential property purchased the dwelling with a New Dwelling Exemption Certificate that was applied for by a developer after 7.30pm (AEST) on 9 May 2017.

An annual vacancy fee return must be lodged with the Australian Taxation Office (ATO) after the end of the 12 month period (vacancy year) in which the foreign person may be liable for the annual vacancy fee for their dwelling.

The vacancy fee is an annual fee. The ATO will assess the annual vacancy fee amount that is payable following lodgment of the annual vacancy fee return by the foreign person.

A failure to submit the annual vacancy fee return will result in a deemed vacancy for that dwelling in the 12 month period (vacancy year).

The annual vacancy fee is equivalent to the Foreign Investment Review Board (FIRB) application fee that applied or would have applied to the dwelling in question. FIRB application fees are based on the value of the property at the time of purchase.

A new online form has been developed to enable foreign persons to fulfil their vacancy fee lodgment obligations.

Capital gains withholding

New rules for foreign residents were proposed in the 2017-18 Budget to take effect from 9 May 2017. Foreign tax residents may no longer be able to claim the main residence CGT exemption when they sell property in Australia. Foreign tax residents who already held property on May 2017 will be able to claim the main residence CGT exemption until 30 June 2019.

Existing rules apply to vendors when disposing of certain types of taxable Australian property under contracts entered into from 1 July 2016. From 1 July 2017 a 12.5% non-final withholding may be applied to these transactions at settlement. This is known as foreign resident capital gains withholding (FRCGW)

Purchases must withhold 12.5% of the purchase price and pay it to the ATO where they are satisfied the vendor is a foreign resident.

For contracts entered into on or after 1 July 2017, FRCGW applies for real property disposals where the contract price is $750,000 and above.

Cryptocurrency

Cryptocurrency, such as bitcoin, is considered an asset for capital gains tax purposes. It is not considered money or foreign currency.

If taxpayers are involved in acquiring or disposing of cryptocurrency they will need to keep records in relation to all cryptocurrency transactions.

Cryptocurrency is not a personal use asset if it is acquired, kept or used as an investment or in the course of carrying on a business in a profit-making scheme, or in the course of carrying on a business.

Cryptocurrency trading is increasing and we are monitoring and responding to the growing interest by communicating to those who are required to comply with certain obligations at tax time.

First Home Super Saver Scheme

From 1 July 2018 individuals are able to apply to withdraw voluntary contributions made to super after 1 July for a first home.

Fringe benefits and adjusted taxable income

From 1 January 2017, reportable fringe benefits amounts (RFBA) will not be adjusted down for the purpose of calculating your entitlement to:

  • Net medical expenses tax offset
  • Dependent (invalid and invalid carer) tax offset
  • Dependent (non-student child under 21 or students) notional tax offset
  • Low income superannuation tax offset
  • Medicare levy reduction and exemption.

The change applies to your RFBA from employers that are not eligible for fringe benefits tax exemption under section 57A of the Fringe Benefits Tax Assessment Act 1986.

As a result, your entitlement to the above listed benefits may be reduced.

To complete the RFBA part of your tax return, you will need your and your spouse’s (if any) pay as you go (PAYG) payment summaries – ask your employer if you haven’t received yours.

Personal Income Tax Plan

The Government’s Personal Income Tax Plan, as announced in the 2018-19 Federal budget, has been passed by Parliament, which means up to 10 million individuals will receive a tax cut.

The Personal Income Tax Plan introduced in the 2018-19 budget is now law, which means up to 10 million individuals will receive a tax cut.

From 1 July 2018:

  • The top threshold for the 32.5 per cent bracket has increased from $87,000 to $90,000.
    • This will reduce the amount of tax withheld from your pay.
    • Individuals don’t need to do anything to receive this tax cut – the new amount will be withheld from your pay.
  • A new low and middle income tax offset is available to individuals with a taxable income less than $125,334.
    • Individuals don’t have to do anything to receive this offset – it will be calculated and applied when you lodge your income tax return next year.
    • It won’t reduce the amount of tax withheld from your pay – it will be a one off amount applied to your Notice Of Assessment.
    • If you are also eligible for the existing low income tax offset, you will receive this new offset in addition.

Rental Properties – Deductions for second hand assets are no longer deductible

Taxpayers can no longer claim a deduction for the depreciation of second hand assets for their rental property.

This applies to:

  • second hand assets acquired at or after 7.30pm on 9 May 2017, unless acquired under a contract entered into before this time
  • second hand assets acquired before 1 July 2017 but not used to earn income in the 16-17 year.

Investors who purchase new assets will continue to be able to claim a deduction over the effective life of the asset.

The changes do not affect deductions that arise in the course of carrying on a business, or for:

  • corporate tax entities
  • superannuation plans other than self-managed superannuation funds
  • public unit trusts
  • managed investment trusts
  • unit trusts or partnerships whose members are the above listed entities

Rental properties – Travel expenses no longer deductible

From 1 July 2017, travel expenses relating to a residential investment property are not deductible.

A residential investment property is land or a building that is:

  • occupied as a residence or for residential accommodation
  • intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation.

The changes do not affect deductions that arise in the course of carrying on a business of property investing or are an excluded entity.

The travel expenditure cannot be included in the cost base for calculating taxpayer’s capital gain or capital loss when they sell the property.

Reportable fringe benefits amounts

New laws have changed how we treat fringe benefits for certain tax concessions.

The changes apply to employees not exempt from fringe benefits tax under Section 57A of the Fringe Benefits Tax Assessment Act 1986 when including it in income tests for:

  • net medical expenses tax offset,
  • dependant (invalid and invalid carer) tax offset,
  • zone and overseas forces tax offset,
  • seniors and pensioners tax offset
  • low income superannuation tax offset and
  • whether the taxpayer’s child is considered a dependant for Medicare levy purposes,

Super contributions – changes to tax offset for spouse contributions

On 1 July 2017, the spouse income threshold increased, meaning more people are eligible to claim the tax offset for the 2017-18 and future financial years. Taxpayers are entitled to a tax offset of $540 a year if all of the following apply:

  • the total of their spouse’s assessable income, total reportable fringe benefits amounts and reportable employer super contributions is not more than $37,000 and the contributions were not deductible to the taxpayer
  • the contributions were made to a complying super fund for the income year in which the taxpayer made the contribution
  • both the taxpayer and their spouse were Australian residents when the contributions were made
  • when making the contributions the taxpayer and their spouse were not living separately and apart on a permanent basis
  • their spouse had not exceeded their non-concessional contributions cap for the relevant year or had a total superannuation balance equal to or exceeding the transfer balance cap immediately before the start of the financial year in which the contribution was made.

If their spouse’s income is between $37,000 and $40,000 you may be eligible to a part offset.

Single touch payroll employers to send payment summaries to myGov

From 1 July this year employers with 20 or more employees will report to the ATO in real time from their payroll software. This is a gradual change, and some employers may start reporting later.

Employers will be able to see the Single touch payroll (STP) information they report through the Business Portal. This will give them a better picture of their tax position. The ATO will be able to offer help and support earlier to those businesses who may be struggling to meet their tax obligations – such as offering payment plans. From 2019, the ATO will pre-fill parts of the activity statements of small to medium withholders with STP data.

STP reporting will also mean changes for employees. When an employer reports through STP their employees will see their year-to-date tax and super information in myGov. This information will be called an Income statement and will be updated each time their employer runs their payroll.

Employers are no longer required to give their employees payment summaries for the information they report through STP. Payment summary information will be available in myGov at the end of the financial year on the employee’s employment Income statement (some people may still refer to it as a group certificate). We’ll let employees know when will be advised when their employment Income statement is ‘tax ready’ so they or a registered tax agent can complete their tax return. This will generally be after 15 August when an employer has finalised their STP report. Taxpayers can also contact the ATO on 132861 after 15 August for a copy of their employment Income statement if they do not have a myGov account.

myGov is not compulsory. However, employees will need a myGov account to see their tax and super information online. myGov is easy to set up using an email address or mobile phone number to login. Visit myGovExternal Link

The sharing economy

The sharing economy is a way of connecting buyers and sellers, usually via an app or website.

If you earn money from odd jobs, such as transporting passengers or renting out a room or house, that money is assessable income and you need to declare it on your tax return.

No matter what you are doing in the sharing economy it’s important to consider your tax obligations.

Updates to FIRB online application form

In the 2017-18 Budget, reforms were announced to clarify and simplify the legislation underlying Australia’s Foreign Investment Framework. This has necessitated changes to the existing online FIRB application form:

  • There is new functionality to support the implementation of new ‘exemption certificates’. Exemption certificates provide eligible applicants with approval to purchase a property from a range of approved property types (as set out in the exemption certificate).
  • There is new functionality to support developers to obtain a Near New Dwelling Exemption Certificate

Find out about:

Working holiday makers (Backpacker tax)

On 1 January 2017, a new rate of tax commenced for people in Australia on a working holiday (417 or 462 visa holders). As a consequence, two different tax rates will apply to income earned by working holiday makers during the 2017 income year.

Ordinary marginal tax rates apply to income earned between 1 July 2016 and 31 December 2016. In the majority of cases the non-resident tax rate of 32.5 per cent will apply.

of the new rate is 15 per cent on the first dollar of income earned up to $37,000. Ordinary marginal tax rates apply from $37,001.

Payment summaries will identify payments subject to the working holiday maker tax rate.

Labels on the Income tax return will identify the income subject to the working holiday tax rate and enable the correct tax treatment to be applied.

Tax deductions for personal super contributions – changes to eligibility rules

From 1 July 2017, personal super contributions are no longer subject to the 10% income test. All individuals under 75 years old (including people aged 65 to 74 years who meet the work test) are now eligible to claim a deduction for personal super contributions made to an eligible super fund.

A deduction can’t be claimed for personal super contributions made to:

  • constitutionally protected funds or other untaxed funds that would not include the contribution in its assessable income
  • commonwealth public sector superannuation schemes in which the taxpayer have a defined benefit interest
  • super funds that notified the ATO before the start of the income year that they elected to treat all member contributions to the
    • super fund as non-deductible
    • defined benefit interest within the fund as non-deductible.
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