Some movement on Div 7A … at last!

Posted on October 26, 2018 by thriveadmin

Some movement on Div 7A … at last!

On 22 October 2018, the Treasury released a consultation paper titled Targeted amendments to the Division 7A integrity rules. The paper sets out the Government’s proposed implementation of the amendments to improve the integrity and operation of Div 7A of Part III of the ITAA 1936 (‘Div 7A’), and seeks submissions from interested parties by 21 November 2018. The outcome of this consultation will assist in the development of legislation required to implement the measures.

Background

On 18 May 2012, the then Assistant Treasurer and Minister assisting for Deregulation, David Bradbury, announced that the Board of Taxation (‘the Board’) would undertake a post-implementation review of Div 7A.

The Board provided their final report to the Government on 12 November 2014, following the release of two interim discussion papers. The report, containing 15 recommendations, was released by the Government on 4 June 2015. But it wasn’t until 3 May 2016, as part of the 2016–17 Federal Budget, that the Government provided its response to that report.

Announcement in 2016–17 Federal Budget

In just a few paragraphs on page 42 of Budget Paper No. 2, under the heading Ten Year Enterprise Tax Plan — targeted amendments to Division 7A, the then Treasurer, Scott Morrison, announced that the Government would make targeted amendments to improve the operation and administration of Div 7A, drawing upon a number of recommendations from the Board’s post-implementation review of Div 7A.

The amendments were proposed to commence on 1 July 2018 and included:

a self-correction mechanism for inadvertent breaches of Div 7A;
appropriate safe harbour rules to provide certainty;
simplified Div 7A loan arrangements; and
a number of technical adjustments to improve the operation of Div 7A and provide increased certainty for taxpayers.

Announcement in 2018–19 Federal Budget

As we rapidly approached the proposed start date of 1 July 2018 earlier this year, there was still no sign of any detail on the proposed measures. So it was not unexpected that on 8 May 2018, as part of the 2018–19 Federal Budget, the then Treasurer, Scott Morrison, announced that the Government would defer the start date of the proposed targeted amendments to Div 7A that were announced in the 2016–17 Budget from 1 July 2018 to 1 July 2019.

In addition to the above four previously announced reforms, the Government also announced that unpaid present entitlements (UPEs) will come within the scope of Div 7A from 1 July 2019. This will apply where a related private company is made presently entitled to a share of trust income as a beneficiary but has not been paid that amount. This measure will require that the UPE is either repaid to the company, managed as a complying loan or subject to tax as a dividend.

This would enable all of the Div 7A amendments to be progressed as part of a consolidated package. It is noted in the consultation paper that the ATO will need to provide online tools and administrative guidance to educate taxpayers on the new rules.

So … this will be 7 years in the making, and that assumes that there is no further deferral of the start date beyond 1 July 2019 (which happens to fall right in the middle of an election year).

So, what is the detail of the new measures?

The proposed amendments can be categorised into the following five headings:

Simplified loan rules;
Unpaid present entitlements;
Reviewing breaches of Div 7A;
Safe harbours — provision of assets for use; and
Minor technical amendments.

Note

This article does not purport to be a substitute for comprehensive training materials or provide a comprehensive analysis of the proposed legislative changes. Rather, it provides an overview of the Government’s position and intended policy on Div 7A from 1 July 2019.

Further, this article presumes that readers are familiar with the current law, so the existing position on each measure is not set out for context.

1. Simplified loan rules

Under the proposed measures, a new 10-year loan model will be implemented for complying Div 7A loans. The key aspects of these new rules are set out in the table below.

Issue	Discussion
Single 10-year loan model	The current 7-year and 25-year loan models will be replaced by a single loan model with the following features: a maximum term of 10 years; an annual variable benchmark interest rate; no requirement for a formal written loan agreement, however written or electronic evidence showing that the loan was entered into must still exist showing the parties to the loan and its terms (i.e. the amount of the loan, the date of the loan, the requirement to repay the loan amount, the term of the loan and the interest rate payable); the minimum yearly repayment amount must consist of both principal and interest using the benchmark interest rate; where there is a failure to make a minimum yearly repayment in full, any shortfall will continue to give rise to a deemed dividend; and if the loan is repaid early, interest will not be charged for the remainder of the agreed loan term. This model is intended to be simpler than the current model for apportioning repayments between principal and interest and better aligned to commercial practice for principal and interest loans.
Transitional rules for existing loans	All complying 7-year loans that exist as at 30 June 2019 must comply with the proposed new loan model and benchmark interest rate to remain complying but will retain their existing outstanding term. Current loan agreements which refer to the benchmark interest rate should not require renegotiation. All complying 25-year loans that exist as at 30 June 2019 will be exempt from the majority of the changes until 30 June 2021, however the new benchmark interest rate will need to be applied. While the consultation paper states that a complying loan agreement will need to be put in place before lodgment of the company’s 2020–21 tax return, it is not clear whether the term under that agreement would be a new 10-year term or the remaining part of the existing 25-year term. All pre-4 December 1997 loans (i.e. loans which predate the commencement of Div 7A) will be taken to be financial accommodation as at 30 June 2021 (i.e. a two-year transitional period from 1 July 2019). The loan will need to be repaid in full or managed as a complying loan with a 10-year term by the lodgment day of the company’s 2020–21 tax return, otherwise the loan will be deemed a dividend in the 2020–21 income year. The first repayment under a complying loan arrangement would be due by 30 June 2022.
Distributable surplus	Instead of limiting the amount of a deemed dividend to an arbitrarily determined amount — and thereby limiting the amount taxed — the concept of ‘distributable surplus’ will be removed and the amount that can be deemed a dividend will be based on the entire value of the benefit that was extracted from the company. This measure will also align the tax treatment of Div 7A dividends with the corporations law which allows dividends to be paid out of profits and capital.

Note

There has been ongoing uncertainty about the application of Div 7A to non-resident private companies in certain circumstances, for example, whether it applies where the shareholder is also a non-resident, issues of ‘source’ and how Div 7A interacts with the transfer pricing rules and double tax treaties. The Government seeks feedback on the extent of any uncertainty and how best to remove any such uncertainty.

2. Unpaid present entitlements

Under the proposed measures, where a UPE remains unpaid at the lodgment day of the company’s tax return, broadly from 1 July 2019, the UPE will be a deemed dividend from the company to the trust. Alternatively, the UPE can be managed as a complying loan.

Date on which UPE arises	Discussion
On or after 16 December 2009, and on or before 30 June 2019	Those UPEs that have not already been put on complying loan terms or deemed to be a dividend will need to be put on complying loan terms by 30 June 2020 (the first repayment would be due in 2019–20). The amount of any outstanding UPEs that are not put on complying loan terms by 30 June 2020 will be deemed a dividend.
On or after 1 July 2019	These UPEs will need to be either paid to the company or put on complying loan terms under the new 10-year loan model prior to the company’s lodgment day, otherwise they will be deemed a dividend.
Existing UPEs that are already on complying loan terms	These UPEs will be treated in accordance with the relevant 7-year or 25-year loan transitional rules (see above).
Before 16 December 2009	The Government is seeking feedback on whether these UPEs should be brought within Div 7A. Interestingly, there is not a definite position to put quarantined UPEs on complying loan terms at this time.

3. Reviewing breaches of Div 7A

Self-correction mechanism

Taxpayers will be able to self-assess their eligibility for relief from Div 7A which will reverse the effect of a prior deemed dividend (replacing the current mechanism in s. 109R which requires taxpayers to apply for the Commissioner’s discretion to disregard a deemed dividend) without penalty. Only taxpayers who meet eligibility criteria will qualify for the self-correction relief.

Appropriate corrective steps must be taken within six months of identifying the error.

The current discretion in s. 109R will broadly be removed and will only be available where the taxpayer seeks the Commissioner’s discretion.

Period of review

Addressing concerns that taxpayers have claimed the Commissioner is out of time to amend the relevant return to include a deemed dividend that arose outside the amendment period, it is proposed that a new 14-year review period will apply to Div 7A transactions from 1 July 2019.

The review period will cover 14 years after the end of the income year in which a deemed dividend arises or would arise. It is expected that the new 14-year review period would apply to Div 7A transactions happening from 1 July 2019, but this is not explicitly stated in the consultation paper.

4. Safe harbours — provision of assets for use

Since the introduction of s. 109CA (about the use of company assets), it has been difficult to determine the arm’s length value of the use of an asset.

It is proposed that a safe harbour be introduced in the form of a legislative formula which would apply a benchmark interest rate to the value of the asset (as at 30 June for the year in which the asset was used). Taxpayers would still be able to calculate their own arm’s length value instead of applying the legislative formula. The safe harbour will apply for the exclusive use of all assets except motor vehicles.

5. Minor technical amendments

The consultation paper includes a number of proposed changes to improve the integrity and operation of Div 7A while increasing certainty.

These measures include:

new timing rules on the use of company assets in the case of non-exclusive rights (e.g. where the company maintains a right to use the asset);
modifying s. 109G(3) to ensure that the existing exclusion — that a forgiven debt will not be deemed a dividend if the loan that resulted in the debt gave rise to a deemed dividend under s. 109D — will only be available where the earlier dividend that the company was taken to have paid has been taken into account in the income tax assessment of an entity;
modifying s. 109M to ensure that the existing exclusion for loans made in the ordinary course of a business is limited to loans made in the ordinary course of a business of money-lending to third parties, rather than in the ordinary course of any business;
modifying s. 109T so that the interposed entity rule can apply even where the quantum or nature of the benefit provided to the taxpayer differs from the benefit provided to the interposed entity;
modifying s. 109Z to make it clear that a payment that is deemed to be a dividend under Div 7A is not deductible; and
amendments to improve the clarity and interaction between Div 7A and the FBT provisions.

Observations

It is disappointing that the ‘business income election’ model proposed by the Board of Taxation in its 2014 report — which would allow a trust to make a one-off election to distribute to a company or receive a loan from a company without a Div 7A consequence, but would forgo the CGT discount other than for goodwill as a recompense — is not mentioned in the Consultation Paper.

It is also disappointing that the Government has not taken the opportunity and sought to include an ‘otherwise deductible rule’ for loans made for genuine income-producing purposes, such as funds lent by a company to a trust to buy premises from which the company operates its business. This feature which exists in the FBT provisions is glaringly absent from the Div 7A provisions.

Further remarks by TaxBanter may be found in the following Accountants Daily article: Details on Division 7A changes released, welcomed

Where to from here?

Considerations for taxpayers

Taxpayers will need to consider:

their previously quarantined pre-4 December 1997 loans being freshened up;
whether they should enter into 25-year secured loans now, mindful of the falling property market;
the impact of the changes on their post-16 December 2009 UPEs;
the impact of the new 14-year amendment period;
that the calculations of loan repayments and the amount of a deemed dividend will change, particularly with the proposed removal of the concept of the distributable surplus; and
whether they would be eligible for self-correction relief where a deemed dividend has arisen.

Timing of policy development

Timing is critical: submissions are due by 21 November 2018, so it is unlikely we would see any draft legislation before Christmas. So that leaves around 5 months (ignoring January) for the Government to release draft legislation, further consult, introduce the amending Bill, secure the numbers in the Senate and enact the Bill before 1 July 2019 … and this is without factoring in the release of the Federal Budget and the next Federal Election. Although it is pleasing to see some detail on the new rules, until this is bedded down by way of enacted Bill, there will be ongoing uncertainty re: the impact of these proposed measures on taxpayers.

Submission

TaxBanter will be making a submission on the proposed changes to Div 7A. We invite you email us with any issues which should be considered for inclusion in our submission. Please email: enquiries@taxbanter.com.au by Wednesday 7 November 2018.

Consultation questions included in the paper

The consultation paper contains six consultation questions, comprising of 23 sub-questions. These are set out below.

Issue	Question
Discussion Question 1
Proposed loan model	a.	Is there an aspect of the proposed loan model that could be refined?
Transitional rules	b.	Do the proposed transitional rules result in any unintended outcomes?
Application to non-resident private companies	c.	In what circumstances (if any) is the application of Div 7A to non-resident private companies unclear?
	d.	Would the application of Div 7A to non-resident private companies benefit from additional public guidance material?
	e.	Are legislative amendments required to clarify the application of Div 7A to non-resident private companies?
Distributable surplus	f.	Does the removal of the concept of distributable surplus result in any unintended outcomes?
Distributable surplus	g.	If this concept is removed, are there any interactions with other provisions of Div 7A that might become relevant?
Discussion Question 2
Unpaid present entitlements	a.	Are transitional rules required for UPEs arising on, or after, 16 December 2009 and on or before, 30 June 2019 where the funds in the sub-trust are invested in the main trust using one of the investment options in PSLA 2010/4 and therefore the UPE is considered to be held for the sole benefit of the private company beneficiary? If so, what kind of transitional rules might be required?
Unpaid present entitlements	b.	Should UPEs arising prior to 16 December 2009 be brought within Div 7A?
Discussion Question 3
Self-correction mechanism	a.	Are the eligibility criteria clear and concise?
	b.	Are additional objective factors necessary to include in determining a taxpayer’s eligibility?
	c.	What guidance should be provided to assist taxpayers in using the self-correction mechanism?
Period of review	d.	Will the period of review cause any unintended outcomes?
Period of review	e.	Are there any alternative options to a 14-year review period that would ensure the integrity of the revised Div 7A?
Discussion Question 4
Safe harbours – provision of assets for use	a.	Is there an alternative formula which could be used?
	b.	Should taxpayers have the option to elect between the statutory formula and providing their own arm’s length usage charge or should the statutory formula be the only option?
	c.	Is a 5 per cent uplift interest rate as part of the usage charge appropriate? Or should another rate (e.g. the benchmark interest rate) be used?
	d.	Should there be a ‘reasonableness’ test included in the statutory formula or alternatively, are multiple formulas needed?
Discussion Question 5
Minor technical amendments	a.	Are any changes required to the interposed entity rules, apart from s. 109T? For example, should ss. 109V and 109W be amended?
	b.	For the purposes of applying s. 109M, is it necessary to have objective criteria to determine whether a loan is made in the ordinary course of a business of lending money? If so, what should be included in the criteria?
	c.	Do similar changes need to be made to other paragraphs of the definition of ‘fringe benefit’ in s. 136(1) of the FBTAA 1986 to clarify the interaction of FBT and Div 7A?
Discussion Question 6
Other issues	a.	Would the insertion of an objects clause in the legislation, consistent with the ‘Policy intent’ outlined on page 2 of this paper, be useful in clarifying the intent of the provisions?
Other issues	b.	Are there any other issues relevant to the amendments canvassed in this paper that have not been considered?

Tax Yak – Episode 5: Catching up on cases

Posted on October 22, 2018November 2, 2022 by thriveadmin

In this episode of Tax Yak, host Robyn Jacobson yaks with Webb Martin Consulting Director Graeme Prowse about some recent cases.

They discuss the recent Full Federal Court decision in Aussiegolfa, which considered the operation of the in-house asset rules and the sole purpose test for a self managed fund which had an interest in a trust that held a property which housed the SMSF member’s daughter. So were they successful?

Then they consider the implications of the Full Federal Court’s decision in Sharpcan which considered yet again the revenue–capital dichotomy.

Finally, there continues to be uncertainty around the operation of s. 100A, and what is an ’ordinary family or commercial dealing’. Find out where this is at.

Host: Robyn Jacobson

Guest: Graeme Prowse

Recorded: 19 October 2018

Tax Yak – Episode 4: Payroll tax – the state of play

Posted on October 22, 2018November 2, 2022 by thriveadmin

Raise the subject of payroll tax in a conversation with an employer and they will tell you it’s one of the most unpopular taxes in the country.

Host Robyn Jacobson yaks with TaxBanter and Webb Martin Consulting Director Michael Doran about why employers still need to pay close attention to their payroll tax obligations.

Michael explains how the harmonisation of payroll tax across the states and territories has improved things, and comments on the key issues that attract litigation. And the Tax Yak crew discuss the impact of Single Touch Payroll on payroll tax.

And find out why Michael is fond of payroll tax!

Host: Robyn Jacobson

Guest: Michael Doran

Recorded: 19 October 2018

Tax Yak – Episode 3: Company tax rates (some certainty at last)

Posted on October 17, 2018November 2, 2022 by thriveadmin

Now that there is at least a bit of certainty on the corporate tax cuts, the Tax Yak crew are raring to yak about the new base rate entity rules! A topic that has been in limbo for a long time.

So what certainty do we have and what do the new rules mean for corporate taxpayers and their shareholders?

Host: Robyn Jacobson

Guest: Neil Jones

Recorded: 5 September 2018

Tax Yak – Episode 2: Unenacted measures in a time of flux

Posted on October 17, 2018November 2, 2022 by thriveadmin

There were lots of unenacted measures floating around at the time we recorded this episode.

What should taxpayers do? Should they anticipate proposed measures when there is so much Parliamentary uncertainty at the moment?

Host: Robyn Jacobson

Guest: Neil Jones

Recorded: 5 September 2018

Tax Yak – Episode 1: State of the nation

Posted on October 17, 2018November 2, 2022 by thriveadmin

In this, our inaugural, episode of Tax Yak, what better place to start than the state of the nation tax-wise!

Host Robyn Jacobson yaks with TaxBanter Director Neil Jones about the Australian tax landscape – What’s coming? What might we see?

In this time of political unrest, we consider the Federal Opposition’s plan for the tax system and discuss the implications should they gain power at the next Election.

Host: Robyn Jacobson

Guest: Neil Jones

Recorded: 5 September 2018

New annual registered agent authorisations for Single Touch Payroll

Posted on October 9, 2018 by thriveadmin

The Single Touch Payroll (STP) reporting regime commenced on 1 July 2018 for ‘substantial employers’ (businesses with at least 20 employees).

Since 1 July 2018, many registered tax and BAS agents have been assisting their clients by lodging STP reports on their behalf. However, the agent is required to obtain an authorisation from the client every time they lodge an STP report — which could be as frequently as weekly. This impractical obligation has caused much consternation and frustration over the past few months for both employers and their agents.

The ATO has addressed this problem by recently announcing a streamlined authorisation process which allows the client to submit an annual authorisation to cover all STP reports lodged by their tax or BAS agent during that year.

This is a welcome move to reduce an unnecessary administrative burden, and it will be even more critical from 1 July 2019 when STP reporting extends to smaller employers (legislation to extend STP reporting to smaller employers is currently before the Senate).

Note

For more information about STP reporting, read our previous Banter Blog articles on STP from 20 December 2017 and 9 May 2018, and the ATO’s webpage dedicated to STP.

Previous authorisation requirements

Under STP, an employer is required to report information relating to a ‘payroll event’ at the time that the ‘event’ (e.g. a payment of salary or wages on which there is a PAYG withholding obligation) happens.

Apart from regular payroll events (e.g. monthly, fortnightly or weekly pay-runs), an employer may also report an ‘out-of-cycle’ payment made to an employee outside of the employee’s regular pay cycle. For example, this may occur where the employee is paid a commission, bonus or back payment.

Further, the employer may choose (there are alternative means) to use a one-off ‘update event’ to:

correct an error made in a previous report; or
report reportable employer superannuation contribution amounts and reportable fringe benefit amounts.

Prior to the recently announced annual authority, the ATO required a written declaration to be provided to the Commissioner each time that an STP report was lodged by the employer’s authorised agent on their behalf. The written declaration had to contain the following:

a declaration that the information contained in the approved form (the STP pay event or update event) is ‘true and correct’; and
that the declarer is authorised to lodge the approved form.

Going forward, the ATO’s new STP engagement authority allows eligible employers to provide a signed authorisation only once a year instead of at each reporting event.

STP engagement authority

An STP engagement authority will evidence a registered agent’s authorisation to prepare STP reports for pay events on behalf of a client employer. It will allow the registered agent to make the relevant declaration to the Commissioner at the time of lodging an STP report each pay event.

Eligibility for the authority

To be eligible to provide a registered agent with the STP engagement authority, the employer must not:

have any overdue activity statement lodgments;
have any outstanding debts, unless they are covered by a payment arrangement or subject to review; or
currently be, or have been, the subject of ATO compliance activity for PAYG withholding in the last two years.

Where the employer is a company, its directors must not have been issued with a Director Penalty Notice in relation to the company or any other company where they are, or have been, a director.

Validity timeframe

An authority must be reviewed and signed by an employer and their registered agent:

every 12 months; or
any time there has been a significant change in the industrial relations, taxation or payroll process.

What to include in the authority

The STP engagement authority should:

outline the responsibilities of both parties; and
include the agreed terms of the employer’s:

collation of payroll related inputs;
process for calculating and paying their employees; and
taxation and superannuation obligations.

This approach may be applied where a registered agent prepares and lodges STP reports on behalf of the employer.

The ATO expects the declaration will, at a minimum, include the following:

The STP engagement authority may only apply for a period of no longer than 12 months. This is to ensure the employer and the registered agent have reviewed and agreed on the terms of the arrangement in line with industrial, taxation and business changes impacting the payroll.

Both the employer and registered agent should co-sign the agreement and keep a copy for their records. Neither party needs to provide a copy to the ATO.

Note

The ATO has not released a pro forma STP engagement authority. Registered agents and their clients will need to draft their own.

Exclusions

The STP engagement authority does not apply to the STP finalisation declaration.

Background

For each income year, the employer (or their authorised agent) is required to make a ‘finalisation declaration’ for a specific employee by providing a finalisation indicator by 14 July after the end of the income year. This is done on an employee-by-employee basis.

An automatic deferral is in place for:

the 2017–18 income year — 14 August 2018 (this applied to employers which voluntarily commenced STP early); and
the 2018–19 income year — 31 July 2019 (this will apply to substantial employers, and any small employers which voluntarily adopted STP early).

A registered agent must still obtain a signed declaration in writing from an employer before making the finalisation declaration on behalf of the employer.

The STP engagement authority also does not apply to any other obligations (e.g. activity statements, income tax returns and FBT returns) where the registered agent is required to obtain a signed declaration each time they lodge on behalf of their client.

Certainty at last for base rate entities … or not?

Posted on October 3, 2018 by thriveadmin

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After a long period of uncertainty, and in the midst of the recent Liberal Party leadership spill, the Senate on 23 August 2018 unexpectedly passed without amendment the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018 (‘the BRE Act’). The Bill was enacted on 31 August 2018.

The measures in the BRE Act — which take effect from 1 July 2017 — aim to improve the law by setting a ‘bright line’ test to determine which companies are eligible for the lower tax rate.

Our Banter blog on the changes to the Base rate entity rules (written in November 2017 when the BRE Act was still a Bill) details the new measures. But the long period that it remained before the Parliament (from 18 October 2017 to 23 August 2018) — together with further draft guidance from the ATO — has caused extensive confusion about the status of the measures, their start date, how to complete 2018 company tax returns and at what rate companies should be franking their distributions.

This Blog examines the effect of the new measures now that the dust has finally started to settle. But a question remains: do we finally have certainty on the tax law regarding which companies are entitled to the lower tax rate?

Note

This article does not consider the measures contained in the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 which proposed to extend the corporate tax cuts to companies with an aggregated turnover of $50 million or more from 1 July 2019. This Bill was defeated in the Senate on 22 August 2018, and the Government has stated that it will not be taking this policy to the next election.

What is the new law?

The core purpose of the BRE Act is to ensure that ‘passive investment companies’ cannot access the lower tax rate in an income year; instead, they will be taxed at 30 per cent. As a fair corollary, these companies can frank distributions made in the following year at 30 per cent.

The Government’s term ‘passive investment company’ referred to in its Media release of 4 July 2017 does not appear in the BRE Act but the concept is represented by a ‘bright line’ test. This test deems a company to be ‘passive’ for a particular income year if more than 80 per cent of its assessable income comprises specific types of ‘passive’ income. The ‘bright line’ test has no regard for actual activity, intention, assets or profitability. Further, the Commissioner of Taxation has no discretion to grant an exception.

Date of effect

The new measures have retrospective effect from 1 July 2017 (or the first day of a company’s 2017–18 income year if the company is a substituted accounting period taxpayer).

The definition of ‘base rate entity’ from 1 July 2017

Previously legislated definition of ‘base rate entity’

The Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 (enacted on 19 May 2017) introduced the concept of Base rate entity (BRE) and inserted s. 23AA into the Income Tax Rates Act 1986 (the ITR Act).

Former s. 23AA of the ITR Act provided that a company is a BRE for an income year if:

it carries on a business (within the meaning of the ITAA 1997) in the income year; and
its aggregated turnover (within the meaning of that Act) for the income year, worked out as at the end of that year, is less than $25 million.

Note

The BRE aggregated turnover threshold for 2017–18 is $25 million.
The BRE aggregated turnover threshold increased to $50 million from 1 July 2018.
The aggregated turnover threshold is $10 million for the purposes of the concessions available to small business entities (SBEs), other than the small business income tax offset (which is $5 million) and the small business CGT concessions (which is $2 million).

Aggregated turnover

The meaning of ‘aggregated turnover’ is defined in s. 328-115 of the ITAA 1997 to be the total of the ‘annual turnovers’ of the taxpayer and any entity that is connected with (as defined in s. 328-125), or is an affiliate of (as defined in s. 328-130), the taxpayer at any time during the income year.

‘Annual turnover’ is defined in s. 328-120 to be the total ordinary income that the entity derives in the income year in the ordinary course of carrying on a business.

It excludes amounts:

of statutory income such as capital gains and franking credits;
relating to GST;
derived from retail fuel sales and;
derived from dealings with/between the entities mentioned above.

Adjustments are also made where the business is carried on for part of an income year only.

Carries on a business

The ATO’s draft ruling TR 2017/D7 explains when a company carries on a business within the meaning of former s. 23AA of the ITR Act. This crucial ruling, albeit in draft, takes a very broad position of what constitutes ‘carrying on a business’ by a company, and contains examples whose tax outcomes have surprised many readers of the ruling.

Important

Now that a company no longer has to ‘carry on a business’ to be a BRE, the question is: what is the purpose now of TR 2017/D7? It is not directly relevant to s. 23AA (although it may still be indirectly relevant because the meaning of ‘aggregated turnover’ is based on ‘ordinary income that the entity derives … in the ordinary course of carrying on a business’).

Further, the ATO has indicated that TR 2017/D7, when finalised, will also more broadly to SBEs which, under s. 328-110, are required to carry on a business.

The Treasury heeded the tax community’s concern over the inherent uncertainty of the requirement to ‘carry on a business’ to access the lower tax rate. In response, the BRE Act removes that uncertainty — by repealing the requirement in its entirety from the definition of a BRE. Instead, the ‘carrying on a business’ test has now been replaced with a passive income test.

New definition of ‘base rate entity’

The BRE Act amends the meaning of a BRE from 1 July 2017 so that, under the new law, a company is a BRE under s. 23AA of the ITR Act if it satisfies two requirements:

no more than 80 per cent of its assessable income is ‘base rate entity passive income’ (BREPI) [new condition]; and
its aggregated turnover is less than the turnover threshold for the income year [existing condition].

What is ‘base rate entity’ passive income?

Under new s. 23AB of the ITR Act, the following types of income are BREPI:

a company dividend — other than a non-portfolio dividend (which is a dividend paid to a company where that company has a voting interest of at least 10 per cent in the company paying the dividend); and
a franking credit attached to a dividend covered by (a);
a non-share dividend;
interest income, royalties and rent;
a gain on qualifying securities;
a net capital gain; and
assessable partnership and trust distributions to the extent that they are referable (either directly or indirectly through one or more interposed partnerships or trust estates) to an amount that is BREPI under any of paras. (a) to (f).

Note

The ATO has issued a draft Law Companion Ruling LCR 2018/D7 which explains the meaning of these terms.

Implications of the new passive income (BREPI) test

The following table sets out some of the key points in relation to the new BREPI test.

Issue	Discussion
Do grouping rules apply?	No grouping rules apply for the BREPI test — the company’s BREPI and assessable income are measured on a standalone basis. Amounts derived by connected entities and affiliates are not taken into account. In contrast, when determining whether the company’s aggregated turnover exceeds the threshold, grouping rules apply — that is, the annual turnovers of entities that are connected with, or are affiliates of, the company are aggregated with the company’s annual turnover.
Which year?	When working out a company’s aggregated turnover: for SBE purposes (i.e. eligibility for other small business tax concessions) — the aggregated turnover for either the previous income year or the current income year may be used; and for BRE purposes (i.e. eligibility for the lower company tax rate) — only the aggregated turnover for the current income year may be used.
What income is included?	‘Aggregated turnover’ includes only ordinary income derived in the ordinary course of carrying on a business, with certain adjustments. ‘Assessable income’ is the company’s gross assessable income and includes both ordinary income and statutory income. ‘BREPI’ comprises the seven categories of passive income listed above (see s. 23AB of the ITR Act).
Non-portfolio dividends: para. (a)	The ATO has confirmed in draft Law Companion Ruling LCR 2018/D7 that a trust cannot receive a non-portfolio dividend. This is because the definition of a non-portfolio dividend in s. 317 of the ITAA 1936 requires a company to have a voting interest in another company of at least 10 per cent. This means that where the shares in a company are held by a trust, which distributes the dividend income to a corporate beneficiary (CorpBen) (assume CorpBen has no other income), the income will be taxed in the hands of CorpBen at the rate of 30 per cent, because its income will be passive in nature.
Interest: para. (d)	Interest is not treated as BREPI if it is derived by: a financial institution; a registered entity that carries on a general business of providing finance on a commercial basis; an entity that holds an ‘Australian credit licence’ (or is a ‘credit representative’ of another entity that holds such an Australian credit licence); or an entity that is a ‘financial services licensee’ whose licence covers dealings in securities (or is an ‘authorised representative’ of such a financial services licensee). All other interest income, including that received on overdue debtors, loan accounts, bank accounts, term deposits etc. is treated as BREPI. It does not matter if the interest is derived in the ordinary course of business.
Royalties: para. (d)	‘Royalties’ has the meaning given by s. 6(1) of the ITAA 1936 which extends the ordinary meaning of royalties to include specified payments, such as the right to use industrial, commercial or scientific equipment. Certain licence fees can constitute royalties, so it will be important to correctly characterise the nature of these payments. See the following ATO rulings for further guidance on the meaning of royalties: IT 2660 — Income tax: definition of royalties TR 2008/7 — Income tax: royalty withholding tax and the assignment of copyright TR 93/12 — Income tax: computer software TR 95/6 — Income tax: primary production and forestry
Rent: para. (d)	‘Rent’ means the consideration payable by a tenant to a landlord for the exclusive possession and use of land or premises. As rent takes its ordinary meaning, there are no statutory income tax law exceptions that apply in contrast to the definition for interest (or payments in the nature of interest). The Commissioner’s view and examples on when consideration paid for the use of land or premises will be rent for this purpose are set out in TD 2006/78. All rental income is taken to be BREPI. There is no carve-out for companies that derive rental income in the course of carrying on a business of renting properties. This is similar to the active asset test in s. 152-40(4)(e) of the ITAA 1997 which prevents assets whose main use is to derive rent from being an active asset. Reimbursement of outgoings Reimbursement by tenants of outgoings incurred by landlords would generally not be considered rent, so it will be important to correctly characterise the nature of payments received from tenants as rent (which constitutes BREPI) or reimbursement of outgoings so that the BREPI of the company can be correctly calculated. Regard should also be had to the Retail Leases Act 2003 (Vic) (at least in Victoria) or the applicable interstate equivalent in relation to restrictions which may apply to landlords seeking reimbursement from their retail lease tenants of certain outgoings.
Net capital gains: para. (f)	Net capital gains (after applying capital losses and the small business concessions: see below), are included as BREPI, regardless of whether the asset giving rise to the capital gain was an active asset or used in carrying on a business.
Distributions from partnerships and trusts: para. (g)	A question often asked is: What tax rate applies to a corporate beneficiary? This discussion is confined to trust distributions but the principles apply equally to distributions from partnerships. Broadly, the answer lies in the character of income received from the trust. Under the new rules, the character of income derived by a trust flows through the trust for this purpose. So if the distribution from the trust comprises at least 20 per cent business income, then assuming the distribution is the only income of the corporate beneficiary, the company will not have BREPI that is more than 80 per cent of its assessable income, so it will be taxed at 27.5 per cent. However, if the trust distribution instead comprises rent, interest, dividends, royalties, capital gains etc. then the company’s BREPI will exceed 80 per cent of its assessable income, so the company will be taxed at 30 per cent. Under the new BREPI test, a trust distribution received by a corporate beneficiary must be dissected into its: BREPI component (i.e. that part of the distribution which is attributable to the trust’s BREPI such as rental income); and non-BREPI component (i.e. that part of the distribution which is attributable to the trust’s trading or business income). The BRE Act explicitly clarifies that income will retain its BREPI/non-BREPI character when it flows through a chain of trusts or partnerships. (See the example below)
Gross or net income?	Where the BREPI derived directly by a company is: a company dividend (other than a non-portfolio dividend); a franking credit attached to a dividend covered by (a); a non-share dividend; interest income, royalties and rent; or a gain on qualifying securities, the gross amount should be included in the BREPI test. However, where the BREPI derived by a company is: a net capital gain — the net amount after applying capital losses and the small business concessions is included in the BREPI test; and a partnership or trust distribution — the net amount of the distribution, after applying expenses and losses in a fair and reasonable way at the partnership or trust level, is included in the BREPI test. This is because, in the case of capital gains and distributions, it is the net amount that is included in the company’s assessable income, not the gross amount.
What tax rate applies if both types of income are derived?	The new BREPI test is one of the two mandatory eligibility requirements for the lower tax rate. The company’s entire taxable income will be taxed at one rate, whether that be 27.5 per cent or 30 per cent. A company will never have its BREPI taxed at 30 per cent and its business income taxed at 27.5 per cent.

Example:

* ignoring deductions

In this illustration, the corporate beneficiary is taxed at the lower 27.5 per cent tax rate for 2017–18 as it satisfies both of the eligibility criteria to be a BRE:

BREPI test

BREPI = 25 per cent of the company’s assessable income:

BREPI = $100,000 (i.e. attributable to rental income distributed from Trust 1 via Trust 2)

Assessable income = $400,000 (i.e. Trust 2 distribution)

The BREPI test is satisfied as 25 per cent is not greater than 80 per cent.

Aggregated turnover test

It is assumed that the corporate beneficiary’s aggregated turnover — including the turnovers of any connected entities and affiliates — is less than $25 million in 2017–18.

Implications

In relation to trust distributions, the tax law only recognises the streaming of net capital gains and franked distributions to beneficiaries. Other classes of income cannot be separated and distributed to different beneficiaries. However, the manner in which capital gains and franked distributions are distributed to beneficiaries may affect whether a corporate beneficiary satisfies the new 80 per cent passive income test.

Further, the corporate beneficiary will need to trace up through a chain of one or more interposed partnerships or trust estates to determine the extent to which the distribution is attributable or not to BREPI. We have suggested to the ATO that new labels which identify the amount of BREPI included in a partnership or trust distribution should be included in tax returns so that the ultimate corporate beneficiary can calculate its BREPI as a proportion of its total assessable income for an income year. However, there are no such labels in the 2018 tax returns.

New label on 2018 company tax return

2017 company tax return form

In the 2017 company return form, label F1 determined the tax rate that applied to the company’s taxable income in the calculation statement. If the company was an SBE in 2016–17 (based on the company carrying on a business and having an aggregated turnover in 2015–16 or 2016–17 of less than $10 million), label F1 should have been marked × — this would calculate the tax at the rate of 27.5 per cent.

If label F1 was left blank, the tax rate was 30 per cent.

2018 company tax return form

The 2018 company return form contains a new label: F2.

Label F1 should still be marked × if the company is an SBE in 2017–18 (which enables it to access a range of small business tax concessions such as the instant asset write off for assets that cost less than $20,000).

However, label F1 no longer determines the company’s tax rate. This is determined by label F2 which should be marked × if the company is a BRE under s. 23AA of the ITR Act. This will calculate the tax at the rate of 27.5 per cent. If label F2 is left blank, the tax rate will calculate at 30 per cent.

Note

We understand that tax practitioners’ tax return software does not produce a validation error if label F2 is crossed incorrectly. For example, if turnover of $50 million is reported at item 6 (income) and label F2 is marked ×, the tax still calculates at the rate of 27.5 per cent which is clearly incorrect. The taxpayer/agent needs to determine whether a company satisfies the conditions to be a BRE and correctly indicate this at label F2.

Additional assumptions for maximum franking rate calculation

The way in which a company’s maximum franking rate is determined changed on 1 July 2016 and has changed again from 1 July 2017.

Position before 1 July 2016

Up to and including the 2015–16 income year, a company’s maximum franking rate for a franked distribution paid in 2015–16 was 30 per cent, regardless of whether the company was an SBE (i.e. regardless of whether its corporate tax rate was 28.5 per cent or 30 per cent).

The franking credit attaching to a distribution was calculated as simply:

the amount of the frankable distribution × ³⁰/₇₀

Position for 2016–17

The law changed from 1 July 2016. For franked distributions paid in the 2016–17 income year, a company’s maximum franking rate is determined by its corporate tax rate for imputation purposes (CTR for imputation purposes) which is taken to be the company’s corporate tax rate for that income year, worked out on the assumption that its aggregated turnover for 2016–17 is equal to its aggregated turnover for 2015–16.

Practically, this means that the company will frank a distribution paid in 2016–17 using the rate of:

27.5 per cent if its aggregated turnover for 2015–16 was less than $10 million (the aggregated turnover threshold for 2016–17); or
30 per cent if its aggregated turnover for 2015–16 was $10 million or more.

Position from 1 July 2017

The BRE Act changed the law again from 1 July 2017.

For distributions paid in the 2017–18 income year, a company’s maximum franking rate is still determined by its CTR for imputation purposes which is taken to be the company’s corporate tax rate for that income year, but now worked out on the following three assumptions:

that its aggregated turnover for 2017–18 is equal to its aggregated turnover for 2016–17;
that its BREPI for 2017–18 is equal to its BREPI for 2016–17; and
that its assessable income for 2017–18 is equal to its assessable income for 2016–17.

Practically, this means that company’s maximum franking rate for a franked distribution paid in 2017–18 is 27.5 per cent if:

its aggregated turnover for 2016–17 was less than $25 million (the aggregated turnover threshold for 2017–18); and
its BREPI for 2016–17 was not more than 80 per cent of its assessable income for 2016–17.

The company’s maximum franking rate for a franked distribution paid in 2017–18 is 30 per cent if either or both of the following apply:

its aggregated turnover for 2016–17 was $25 million or more; and/or
its BREPI for 2016–17 was more than 80 per cent of its assessable income for 2016–17.

ATO compliance and administrative approach

On 25 July 2018, the ATO released draft Practical Compliance Guideline PCG 2018/D5 which provides guidance on the ATO’s compliance and administrative approach for companies that have faced practical difficulties and uncertainty in determining their franking rate for the 2016–17 and 2017–18 income years.

Corporate tax rate for 2015–16 and 2016–17

Given the uncertainty around what constitutes ‘carrying on a business’ prior to the release of TR 2017/D7, the Commissioner will not allocate compliance resources specifically to conduct reviews of whether companies have applied the correct tax rate in the 2015–16 and 2016–17 income years.

Franking rate for 2016–17 and 2017–18

The Commissioner will not impose penalties on the company for giving a member an incorrect distribution statement provided it gives written notice to each of its members clearly showing the correct amount of the franking credit. The notice should be provided in the same way as the distribution statement was provided (this may be electronically by email).

The company can provide this notice to their members without seeking an exercise of the Commissioner’s discretion to allow the distribution statement to be amended (which is ordinarily required).

Summary tables — tax rates and franking rates

The corporate tax rates and franking rates for 2017–18 are summarised in the tables below.

NEW LAW — Corporate tax rate for 2017–18

Aggregated turnover	BREPI for 2017–18 ≤ 80% of assessable income for 2017–18	BREPI for 2017–18 > 80% of assessable income for 2017–18
Less than $25 million in 2017–18	Tax rate: 27.5%	Tax rate: 30%
$25 million or more in 2017–18	Tax rate: 30%	Tax rate: 30%

NEW LAW — Maximum franking rate for a distribution paid in 2017–18

Aggregated turnover

BREPI for 2016–17 ≤ 80% of assessable income for 2016–17

BREPI for 2016–17 > 80% of assessable income for 2016–17

Less than $25 million in 2016–17

Maximum franking rate: 27.5%

(The maximum franking rate of a dormant company is 27.5%)

Tax rate: 30%

$25 million or more in 2016–17

Maximum franking rate: 30%

The SG Amnesty: What should employers do?

Posted on September 14, 2018 by thriveadmin

There is much confusion among tax practitioners and their clients regarding the proposed Superannuation Guarantee (SG) Amnesty, which is intended to run for 12 months from 24 May 2018 to 23 May 2019.

However, the SG Amnesty measures are not legislated yet (the Bill is currently before the Senate and may still be defeated) … more than 3 months since it was announced and nearly one-third of the way through the 12-month Amnesty period.

Note

This article will refer to the proposed measures contained in Schedule 1 to the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 as ‘the new law’.

The ATO advises on their website: ‘Until the legislation is enacted, we are required to apply the existing law.’

This has led to practitioners trying to decide whether they should advise their clients to make disclosures to the ATO, even though the Amnesty is not yet law, mindful of NOCLAR (Non-compliance with Laws and Regulations) which provides a framework for all professional accountants on how best to act in the public interest when they become aware of non-compliance or suspected non-compliance with laws and regulations.

Note

Our previous blogs on the SG Amnesty are The new Superannuation Guarantee amnesty (13 June 2018) and SG Amnesty: Q&A (14 August 2018).

Should I disclose now or hold off?

Many practitioners are wondering whether they should advise their clients to hold off until the Amnesty becomes law. It is important to understand that the current law applies until the new law is passed (and if passed, it will have retrospective effect from 24 May 2018).

If an employer makes a voluntary disclosure now

If an employer makes a voluntary disclosure to the ATO now (i.e. before the new law is passed), and the new law is:

passed — then they will be afforded the protection under the Amnesty; or
not passed — the ATO has advised that the current law applies and:

any contributions and payments made under the Amnesty will not be tax-deductible;
any self-assessments that anticipated the new law will need to be amended to include the ($20 per employee per quarter) administration component, and employers will be required to pay the administration component; and
Part 7 penalties will be imposed and may be remitted in accordance with the ATO’s existing remission policies. In determining any remission of the penalty, the ATO will take into account the employer’s ability to access the Amnesty.

If the new law does not pass, an employer who discloses now would surely receive a better outcome from the ATO regarding penalties than if they do not voluntarily disclose and the ATO later determines that the employer has an SG shortfall from an earlier quarter. While the Commissioner must consider the particular circumstances of each case, generally, a minimum penalty of 50 per cent of the SG charge payable will be applied to employers who could have come forward during the Amnesty but did not.

If an employer does not make a voluntary disclosure now

If an employer does not make a voluntary disclosure to the ATO now (i.e. before the new law is passed), and the new law is:

passed — then they will be afforded the protection under the Amnesty if they disclose and pay within the Amnesty period; or
not passed — the current law applies (see above).

Further risks of not disclosing now

Unfortunately, announced tax and super policy doesn’t always eventuate to law; or if it does, it may be altered before it becomes law or there may be a long delay before it becomes law.

What is not in doubt regarding an employer with an SG shortfall from an earlier quarter is that they have not complied with the current law as they have always had an obligation to report this to the ATO and pay the SG charge.

What about NOCLAR?

Section 10 in Part B of Amendments to APES 110 Code of Ethics for Professional Accountants due to revisions to IESBA’s^[1] Code of Ethics for Professional Accountants sets out how members of professional bodies (comprising Chartered Accountants Australia and New Zealand, CPA Australia and the Institute of Public Accountants) — i.e. professional accountants — should respond to NOCLAR.

Section 225.5 of APES 110 sets out the approach to be taken by professional accountants who encounter or are made aware of non-compliance or suspected non-compliance with

laws and regulations generally recognised to have a direct effect on the determination of material amounts and disclosures in the client’s financial statements; and
other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the client’s financial statements, but compliance with which may be fundamental to the operating aspects of the client’s business, to its ability to continue its business, or to avoid material penalties.

The CPA Australia website^[2] contains the following information for their members:

ARE MEMBERS REQUIRED TO DISCLOSE NOCLAR TO AN APPROPRIATE AUTHORITY?

NOCLAR does not impose an obligation to members to disclose a non-compliance, or suspected non-compliance to an authority, when there is no legal obligation to do so.

However, members must comply with the relevant NOCLAR requirements and consider whether disclosure to an appropriate authority is an appropriate course of action in the circumstances. These vary depending on the role and specific characteristics of each case, but there are requirements for members to respond to NOCLAR and not turn a blind eye.

If a member decides that disclosure of NOCLAR to an appropriate authority is the right course of action in the circumstances, then such a disclosure will not be considered a breach of confidentiality.

Members are required to act in good faith and exercise caution.

Members cannot disclose NOCLAR to an appropriate authority if doing so would be contrary to law or regulation.

NOCLAR doesn’t require professional accountants to disclose non-compliance with the law to the authorities. Under NOCLAR, professional accountants must determine whether disclosure of the non-compliance or suspected non-compliance to an appropriate authority is an appropriate course of action in the circumstances. It requires professional judgment.

NOCLAR and the SG Amnesty

The problem is if the employer hasn’t met their SG obligations in a previous quarter(s) or reported this to the ATO by way of lodging an SG statement by the 28^th day of the second month following the end of the quarter for which the employer had an SG obligation, there is already non-compliance with the law that could lead to material penalties.

NOCLAR applies only to current law, not proposed law, so delaying making a disclosure to the ATO under the Amnesty until the new law is passed on the basis that the employer was waiting until they had certainty doesn’t relieve the professional accountant from having to consider whether a NOCLAR disclosure based on the employer’s non-compliance with the current law is appropriate.

Query

It is an interesting question whether, from a NOCLAR point of view, an employer’s failure to pay the SG shortfall and/or report that shortfall to the ATO would have a material impact on their financial statements or give rise to material penalties. Is a failure to pay the shortfall more serious than failing to report it to the ATO? Could it be argued that not reporting the shortfall to the ATO may not necessarily have a material impact and may not be reportable, whereas, the non-payment of the shortfall is likely to have a material impact?

What about the Tax Agent Services Act 2009?

The Code of Professional Conduct in s. 30-10 of the Tax Agent Services Act 2009 imposes the following relevant obligations on registered tax agents:

1. You must act honestly and with integrity.

…

4. You must act lawfully in the best interests of your client.

…

9. You must take reasonable care in ascertaining the state of those affairs, to the extent that ascertaining the state of those affairs is relevant to a statement you are making or a thing you are doing on behalf of a client.

10. You must take reasonable care to ensure that taxation laws are applied correctly to the circumstances in relation to which you are providing advice to a client.

11. You must not knowingly obstruct the proper administration of the taxation laws.

12. You must advise your client of the client’s rights and obligations under the taxation laws that are materially related to the tax agent services you provide.

…

The obligations imposed by the Code of Professional Conduct are another consideration of tax agents who are contemplating advising their clients to defer making any disclosures under the Amnesty until the new law is passed. Would such advice fall foul of the Code of Professional Conduct? On one hand, discouraging clients to utilise an Amnesty until it is law could be considered prudent advice; on the other hand, the fact that they are contemplating using the Amnesty means that the client has not complied with the current law, and disregarding that in the interim could result in the tax agent breaching a number of aspects of the Code of Professional Conduct.

Section 30-10(6) of the Tax Agent Services Act 2009 provides that:

Unless you have a legal duty to do so, you must not disclose any information relating to a client’s affairs to a third party without your client’s permission.

NOCLAR is an ethical standard but it does not impose a legal duty on registered tax agents within the meaning of s. 30-10(6) to disclose a client’s non-compliance with the SG laws. Accordingly, a registered tax agent will not be able to disclose non-compliance with the SG laws without breaching s. 30-10(6). However, a professional accountant who is not a registered tax agent will still need to consider their obligations under NOCLAR.

What about directors’ liabilities?

To avoid director penalties, the company needs to pay its SG to employees’ superannuation funds by the due date or, if that doesn’t occur, lodge an SG statement and pay the resulting SG charge liability to the ATO.

If a company fails to meet its SG charge liability in full by the due date, each director of the company will become personally liable for director penalties equal to the unpaid amounts. (The same rules apply to PAYG withholding but that is not relevant to this article.)

Obligation reported within three months

If the unpaid amount of the SG charge obligation is reported within three months of the original due date (or, in the case of new directors, within three months after the date of their appointment), the penalty can be remitted by one of the following:

paying the debt;
appointing an administrator under ss. 436A, 436B or 436C of the Corporations Act 2001; or
the company begins to be wound up (within the meaning of the Corporations Act 2001).

Obligation reported outside three months or remains unreported

If the unpaid amount of the SG charge obligation is reported more than three months after the due date (or, in the case of new directors, more than three months after the date of their appointment), the only way to remit the penalty is to pay the debt.

For any portion of the underlying liability that is reported outside of three months or remains unreported, the director penalty for that portion can only be remitted by payment by the director.

Proposed removal of 3-month rule

Schedule 5 to the Treasury Laws Amendment (2018 Measures No. 4) Bill 2018, which is currently before the Senate, proposes to remove the three-month period before a director penalty is ‘locked down’ and cannot be remitted if a company is placed into voluntary administration or insolvency. This change is restricted to SG charges and estimates of SG charge.

So what should I do?

In this environment (e.g. media coverage on the Amnesty, employers may be discussing calculations with their employees etc.) there is an increased chance that an employee will become aware of their employer’s non-compliance and approach the ATO directly. Importantly, if an employee does a
‘dob-in’, a subsequent ATO review or audit of the employer will render the employer ineligible for the Amnesty.

The employer will always be better off disclosing than not disclosing because they will either:

get a better deal on penalties if the new law doesn’t pass (although the amount won’t be deductible, but that is the current law anyway); or
be protected under the Amnesty if it does pass.

Ultimately, employers need to decide whether to disclose now, and they need to understand the implications of their decision if they don’t; and professional accountants need to be aware of the NOCLAR-related consequences of their clients’ delayed disclosure or non-disclosure.

International Ethics Standards Board for Accountants. ↑
Cited here with the express permission of CPA Australia. ↑

The Superannuation Legislative Landscape

Posted on September 12, 2018 by thriveadmin

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The Government’s Fair and Sustainable Superannuation Reforms have now been in place for over a year and the measures announced in this year’s Federal Budget continue to make changes to the superannuation environment.

It is with some challenge that we attempt to keep pace with the current status of these reforms and the administration of our superannuation system.

What is the status of legislative changes; have they progressed beyond the announcement; have we seen an Exposure Draft yet; have Bills been introduced; is it law yet? Trying to keep abreast of the progress of Government reforms is proving to be a time-consuming challenge. As an example, what about the Objective of Superannuation legislation, which has been before the Senate since November 2016 — where are we at in late 2018? What is happening to this law change?

Superannuation Update webinar

TaxBanter’s next Superannuation Update Webinar on 19 September 2018 run by our superannuation expert and director, Neil Jones, will assist you in understanding the status of many of these Government reforms. This month’s special topic for the Super update is “Getting Money out of Super“, which takes place on 20 September 2018. We will also discuss any significant cases including two recent decisions involving the independence of SMSF auditors, and a recent Federal Court ruling which considered the sole purpose test.

We will cover the Government’s measures to protect the low balances of members. These measures were announced as part of this year’s Federal Budget and have now progressed to a Bill before Parliament.

It is vitally important for superannuation advisers and practitioners to keep themselves up to date and we offer the opportunity to do so from the comfort of your own desk.

Online Tax Training

Face-to-face Tax Training

Author: thriveadmin