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Federal Budget 2022–23: cost of living relief

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On the evening of Tuesday 29 March 2022, the Treasurer handed down the Federal Budget 2022–23. The Budget documents are available here.

On 31 March 2022, the Treasury Laws Amendment (Cost of Living Support and Other Measures) Bill 2022 (the Bill) received Royal Assent. The Bill amended the Tax laws to implement a number of Budget announcements (as summarised below).

The Excise Tariff Amendment (Cost of Living Support) Bill 2022 and the Customs Tariff Amendment (Cost of Living Support) Bill 2022 (the Fuel Excise Bills), which contain amendments to temporarily reduce fuel excise, also received Royal Assent on 31 March 2022.

This pre-election Budget was positioned to assist individuals with the sharply rising cost of living. Australians have in particular experienced increasing bills at the supermarket and the bowser, the problem exacerbated by the worldwide COVID-19 pandemic, Australian floods and the Russia-Ukraine conflict all contributing to skyrocketing input and transport costs. National wage growth, forecasted to be 2.75 per cent for the 2022 financial year, is certainly not keeping up with the estimated CPI increase of 4.25 per cent for the year.

This cost of living relief will primarily come in the form of a $420 increase to the Low and Middle Income Tax Offset (LMITO) for this year, a one-off $250 bonus payment for social security support recipients and a six-month halving of the fuel excise. In addition, many soon-to-be new parents — including single parents — will benefit from the proposed enhancements to the Paid Parental Leave (PPL) scheme, which will broaden eligibility to more families and increase flexibility.

There are no big-ticket announcements for businesses, but eligible businesses may benefit from additional deductibility boosts for investments in technology and training, expanded access to employee share schemes, increased support for apprenticeships and a number of improvements to the tax compliance experience.

The key economic forecasts in the Budget papers include:

Budget measures which have been legislated

Measures to help Australians with the rising cost of living

The cost of living tax offset — a $420 increase to the LMITO

Schedule 6 to the Bill introduces amendments to increase the LMITO by $420 for the 2021–22 income year. This consequentially increases the maximum LMITO benefit to $1,500 (previously $1,080).

Unless the full offset is required to reduce a taxpayer’s tax liability to zero, all LMITO recipients will benefit from the full $420 increase. All other features of the LMITO remain unchanged, including the requirement that relevant income is below $126,000.

Consistent with current arrangements, the LMITO will be received on assessment after the individual lodges their 2022 tax return.

Note
The 2021–22 income year is the final year of the LMITO. All else being equal, recipients of the increased LMITO this year will face a higher tax bill for the 2022–23 income year. The Stage 3 tax cuts are legislated to begin in 2024–25.

Tax relief from the cost of living tax and LMITO

The $250 cost of living payment

Schedule 8 to the Bill introduces the new 2022 cost of living payment. Under this measure, the Government will provide eligible recipients with a one-off, tax-exempt support payment of $250 to assist with higher cost of living pressures.

The payment will be made to eligible concession card holders and recipients of the following payments:

  • Age Pension
  • Disability Support Pension
  • Parenting Payment
  • Carer Payment
  • Carer Allowance (if not in receipt of a primary income support payment)
  • Jobseeker Payment
  • Youth Allowance
  • Austudy and Abstudy Living Allowance
  • Double Orphan Pension
  • Special Benefit
  • Farm Household Allowance
  • Pensioner Concession Card (PCC) holders
  • Commonwealth Seniors Health Card holders
  • Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

Recipients must be residing in Australia, and have been receiving one of the qualifying payments or held or had clalimed and qualified for one of the qualifying concession cards on 29 March 2022.

The payments will not count as income support for the purposes of any income support payment. A person can only receive one economic support payment, even if qualify under multiple categories.

The $250 will be paid automatically to eligible recipients in April 2022.

Temporary reduction in fuel excise

The Fuel Excise Bills enable temporary relief from fuel price pressures by halving the excise and excise-equivalent customs duty rate that applies to petrol and diesel for six months.

The 50 per cent reduction will apply to the excise and excise-equivalent rates that apply to:

  • petrol and diesel;
  • all other fuel and petroleum-based products, except aviation fuels,

for six months from 12.01 am on 30 March 2022 until 11.59 pm on 28 September 2022.

The impact of the halving of the excise rates and excise equivalent goods customs duty rates is set out in the table below:

The impact of the halving of the excise rates and excise equivalent goods customs duty rates is set out in the table below:

Existing policy settings for fuel excise and excise-equivalent customs duty, including indexation in August, will continue but on the basis of the halved rates.

The excise and excise-equivalent customs duty rates will, at the end of the six-month period, revert to previous rates including indexation that would have occurred on those rates during the six-month period.

The Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on to Australians.

Household savings in excise and GST per tank of fuel are estimated to be as follows:

Implications for businesses

Eligible businesses receive fuel tax credits (FTC) for the excise that is included in the price of fuel. The rate of the FTC depends on the size of the vehicle and where it is used. Heavy vehicles travelling on public roads have their FTC reduced by the road user charge (RUC).

The Government is not changing the existing RUC arrangements for heavy vehicles travelling on public roads, but the temporary reduction in fuel excise will provide a net benefit for heavy vehicle operators of 4.3 cents per litre from 30 March 2022, compared to current settings.

Other measures affecting individuals

Tax deductibility of COVID-19 test expenses

In the Federal Budget, the Government announced that:

  • the costs of taking a COVID‑19 test to attend a place of work are tax deductible for individuals from 1 July 2021; and
  • FBT will not be incurred by businesses where COVID‑19 tests are provided to employees for this purpose.

Schedule 2 to the Bill introduces new s. 25-125 into the ITAA 1997. Under the new provision, an individual may deduct a loss or outgoing to the extent it is incurred in gaining or producing their assessable income if:

  • the loss or outgoing is incurred in respect of testing the individual for COVID-19 using a test covered by s. 25-125(3);
  • the purpose of testing the individual is to determine whether the individual may attend or remain at a place where they:
    • engage in activities to gain or produce their assessable income; or
    • engage in activities in the course of carrying on a business for the purpose of gaining or producing their assessable income;
  • it is not a loss or outgoing of capital, or of a capital nature.

Section 25-125(3) specifies a test covered by the provision is a test that is:

  • a Polymerase Chain Reaction (PCR) test; or
  • a therapeutic good that is included in the Australian Register of Therapeutic Goods and has an intended purpose that relates to the detection of COVID-19.

The Bill does not amend the FBTA Act to provide a separate FBT exemption for COVID-19 testing costs incurred by employers. Instead, from 1 July 2021 employers may apply the otherwise deductible rule to reduce the taxable value of fringe benefits related to the provision of COVID-19 tests for the benefit of employees, or the reimbursements of testing costs incurred by employees.

Implications

Ancillary costs of acquiring the tests, such as the cost of travelling and parking to purchase a test will not be deductible, however it is not the policy intention to exclude other incidental costs such as vendor credit card surcharge fees and postage and handling for online purchases.

Increasing the Medicare levy low-income thresholds

Schedule 1 to the Bill increases the Medicare levy low-income threshold for singles, families, and seniors and pensioners, and the Medicare levy surcharge low-income threshold, from 1 July 2021:

Measures affecting businesses

Employee share schemes — expanding access and reducing red tape

Schedule 4 to the Bill introduces legislative changes to ensure that participants of employee share schemes (ESS) in unlisted companies will be allowed to invest up to:

  • $30,000 per participant per year, accruable for unexercised options for up to five years, plus 70 per cent of dividends and cash bonuses; or
  • any amount, if it would allow them to immediately take advantage of a planned sale or listing of the company to sell their purchased interests at a profit.

Regulatory relief from the Corporations Act 2001 is also extended to offers to independent contractors, where they do not have to pay for the interests.

The amendments will commence six months after Royal Assent.

GDP uplift factor varied to two per cent

Schedule 5 to the Bill varies the GDP uplift factor for PAYG and GST instalments at two per cent in respect of instalments that relate to the 2022–23 income year. The lower uplift rate will provide cash flow support to small businesses including sole traders and other individuals with investment income.

The two per cent GDP uplift rate — rather than the statutory 10 per cent — will apply to small to medium enterprises which have aggregated turnover of up to:

  • $10 million — for GST instalments; and
  • $50 million — for PAYG instalments.

Other key Budget measures

Other Federal Budget announcements which have not yet been legislated include the following.

Other measures affecting individuals

Extension of temporary reduction in superannuation minimum drawdown rates

The Government will extend the 50 per cent temporary reduction of the superannuation minimum drawdown requirements for account-based pensions and similar products for a further year to 30 June 2023.

Expansion to the Home Guarantee Scheme

The Government will broaden the availability and scope of the existing Home Guarantee Scheme by:

  • expanding the First Home Guarantee (formerly the First Home Loan Deposit Scheme) — to increase the available guarantees from 10,000 to 35,000 each year to support eligible first homebuyers to purchase a new or existing home with a deposit as low as five per cent — from 1 July 2022;
  • establishing a new Regional Home Guarantee — to provide 10,000 guarantees each year to support eligible homebuyers, including non-first home buyers and permanent residents who have not owned a home for five years to purchase or construct a new home in regional areas— from 1 October 2022 to 30 June 2025; and
  • expanding the existing Family Home Guarantee — to provide 5,000 guarantees to support eligible single parents with children to buy their first home or to re-enter the housing market with a deposit of as little as two per cent — from 1 July 2022 to 30 June 2025.

Changes to the Paid Parental Leave scheme

The Government will introduce the Enhanced Paid Parental Leave (Enhanced PPL) scheme. Proposed changes to the current PPL scheme include:

  • integrating Dad and Partner Pay and Parental Leave Pay to provide eligible families access to up to 20 weeks leave to use in ways that suit their circumstances, reduce complexity and enable parents to share the full PPL entitlement between them;
  • enabling dads and partners to be able to access the Government’s scheme at the same time as any employer-funded leave;
  • enabling single parents to access the full 20 weeks of PPL; and
  • adjustments to the income test to include a household income threshold of $350,000 per year — currently, the income threshold of $151,350 applies to the mother only.

The Government intends to introduce the changes to the PPL no later than 1 March 2023.

This measure forms part of the $2.1 billion investment package in the Women’s Budget Statement.

Measures affecting businesses

Technology investment boost for small business

The Government announced that it is introducing a technology investment boost to support digital adoption by small businesses.

Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of expenditure incurred on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud‑based services.

An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.

The 20 per cent boost will be claimable as follows:

* This may not be the 2023 tax return if the business is a Substituted Accounting Period taxpayer.

Skills and training boost for small business

The Government announced that it is introducing a skills and training boost to support small businesses to train and upskill their employees.

Small businesses (with aggregated annual turnover of less than $50 million) will be able to deduct an additional 20 per cent of expenditure incurred on external training courses provided to their employees. The external training courses will need to be provided to employees in Australia or online and delivered by entities registered in Australia.

Some exclusions will apply, such as for in‑house or on‑the‑job training and expenditure on external training courses for persons other than employees.

The 20 per cent boost will be claimable as follows:

* This may not be the 2023 or 2024 tax return if the business is a Substituted Accounting Period taxpayer.

More COVID-19 business grants declared non-assessable non-exempt income

The Government announced that it will extend the measure which enables payments from certain state and territory COVID‑19 business support programs to be made non‑assessable non‑exempt (NANE) for income tax purposes until 30 June 2022 (extended from 30 June 2021). This extension was passed into law in June 2021.

In the Budget the Government announced that the following State grant programs have been declared eligible for NANE treatment since the 2021–22 MYEFO:

Insolvency reform — clarifying treatment of trusts with corporate trustees

The Government has announced that it will provide additional funding to further reform insolvency arrangements, including:

  • reforms to unfair preference rules;
  • clarifying the treatment of trusts with corporate trustees; and
  • implementing the Government’s response to the recommendations of the Independent Safe Harbour Review.

Patent Box expansion

The Government has announced that it will expand the Patent Box regime to:

  • update policy specifications for Australian medical and biotechnology innovations to allow for patents granted or issued after 11 May 2021, and various patents issued by the US and Europe, to be eligible for the regime;
  • support practical, technology-focused innovations in the Australian agricultural sector;
  • support commercialised patented technologies which have the potential to lower emissions.

For the agricultural sector and low emissions technology innovations, eligible corporate income will be subject to an effective tax rate of 17 per cent in relation to rights and patents granted after 29 March 2022 and for income years starting on or after 1 July 2023.

Skills development — apprenticeships

The Government will support employers to engage and retain new apprentices and reform the Australian Apprenticeships system by:

  • introducing a new Australian Apprenticeships Incentive System from 1 July 2022;
  • extending the Boosting Apprenticeship Commencements and Completing Apprenticeship Commencements wage subsidies by three months to 30 June 2022; and
  • increasing the apprenticeship In-Training Support by an additional 2,500 places for young Australians aged 15 to 20 years in the 2022–23 income year.

Various changes affecting tax administration and compliance

The Government has announced a suite of proposed measures intended to improve the tax compliance and administration experience for businesses:

Reportable taxable payments to go on same lodgment cycle as activity statements

The Government has announced that — subject to software providers being able to have systems in place — businesses will have the option to report Taxable Payments Reporting System data (via accounting software) on the same lodgment cycle as their activity statements.

It is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date.

Currently a Taxable Payments Annual Report must be lodged by 28 August each year.

Deferral of ABN measure

Currently, ABN holders are able to retain their ABN regardless of whether they are meeting their obligations to lodge income tax returns, or to update their ABN details on the Australian Business Register.

As part of the 2019–20 Federal Budget, the Government announced that it would strengthen the ABN system to disrupt Black Economy behaviour.

The Government has announced that it will defer the start date of this measure by 12 months to assist with integration into the Australian Business Registry Services.

As a result:

  • from 1 July 2022 — ABN holders, with an income tax return obligation, will be required to lodge their income tax return; and
  • from 1 July 2023 — ABN holders will be required to confirm the accuracy of their details on the Australian Business Register annually.
Modernisation of PAYG instalment systems

The Government will provide companies with the option of having their PAYG instalments calculated based on current financial performance, extracted from their business accounting software, subject to some tax adjustments.

The measure proposes to leverage from a company’s electronic reporting systems to improve the alignment between PAYG instalment liabilities and profitability. The measure should also reduce compliance costs, improve processing times and support cash flow management for SMEs (for example the measure may enable a company to automatically receive refunds of instalments paid if financial performance declines).

The measure is proposed to commence on 1 January 2024 for periods starting on or after that date — subject to software providers’ capacity to deliver operational systems by 31 December 2023.

Enhanced sharing of STP data and pre-filling of payroll tax returns

The Government will commit $6.6 million towards the development of IT infrastructure required to allow the ATO to share Single Touch Payroll (STP) data with State and Territory Revenue Offices on an ongoing basis, following further consideration of which States and Territories are able and willing to make investments in their own systems and administrative processes to pre-fill payroll tax returns with STP data, to reduce compliance costs for businesses.

Digitalising trust income reporting

The Government will digitalise trust and beneficiary income reporting and processing, by allowing all trust tax returns to be lodged electronically. This will allow greater pre-filling and automating of ATO assurance processes.

As trust income reporting and assessment calculation processes have not been automated to the same extent as individual or company tax returns, there are longer processing times and limited pre‑filling opportunities. This measure, by facilitating the electronic lodgment for up to 30,000 trusts that currently lodge by paper, will reduce the compliance burdens on taxpayers, reduce processing times and enhance ATO processes.

Note

Currently trust tax returns for large managed investment trusts or public unit trusts are excluded from electronic lodgment.

2022-23 Budget infographic

You can view the full resolution/size here.

Further training and info 

A recording of our 2022-23 Federal Budget webinar can be purchased here.

Our upcoming Tax Updates will cover the recently passed Budget legislative package, as well as the yet to be legislated Budget announcements. You can view our upcoming April sessions through our Public Sessions page (face-to-face sessions – choose location, then month), or alternatively you can join our April Online Tax Update.

Have a group of 5 or more on your team? Check out our in-house training option, which is the most cost effective options for larger groups. One of our Senior Tax Trainers will come to your firm and deliver a tailored session specifically for your staff and client base.

Our mission is to offer flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.

TaxBanter & TaxBytes combine forces | An announcement from our General Manager

Posted on by thriveadmin

As of 1 April 2022, TaxBanter and TaxBytes have combined, creating Australia’s top choice for premium in-house training (official press release available here). TaxBytes and TaxBanter are known in their respective markets for the quality of their trainers and their capacity to bring a depth of knowledge to the teams they train. We love what we do.

Combining under one brand makes sense, particularly when you take the best of both companies and evolve those qualities into one. It gives the TaxBytes team the depth, spread and administrative support they need, and consolidates the TaxBanter brand as Australia’s market leader.

For current clients, it’s business as usual. They will continue to receive high-quality tax training from our Senior Trainers and receive the same level of customer service they expect from us. We pride ourselves on the relationships we build with our clients, and that will always be our top priority.

To fully reflect our position as a nationally-available training offering, we’re now contactable on 1300 TAX CPD (1300 829 273).

Refreshing the TaxBanter Brand

Over the coming months, we will roll out a new look for TaxBanter.

Our new brand identity will reflect our growth, and our position in the industry as Australia’s leading in-house training provider. It will also symbolise our inclusion in the Diverger group, of which the core value is creating positive change in the accounting and wealth industries.

The new brand identity will be rolled out across our website, training materials, communications, social media and more. We’ll keep you in the loop with these changes as they take place, but from a training perspective, nothing will change.

Questions or feedback? 

We’d love your feedback.  If you have any questions or concerns, please contact us on
03 9660 3500 or at enquiries@taxbanter.com.au.

All the best,

Craig McCormick
General Manager, TaxBanter

Tax Yak – Episode 60 – Fringe Benefits Tax

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In this episode of Tax Yak, Nicole Rowan chats with Michael Carruthers from Knowledge Shop and Lee-Ann Hayes from TaxBanter about Fringe Benefits Tax (FBT).

With the end of the FBT year approaching, we’re checking in on the tax and reporting obligations of employers when they provide fringe benefits to their employees and we’ll also be catching up on changes in the FBT space.

Host: Nicole Rowan

Guests:

Michael Carruthers, Tax Director, Knowledge Shop. Michael on LinkedIn

Lee-Ann Hayes, Senior Tax Trainer, TaxBanter.

Recorded: 7 March 2022

Now hiring: Tax Trainer position available [Victoria]

Posted on by thriveadmin

Work with TaxBanter.

We’re currently recruiting for a new Tax Trainer. Could this be you?

About the role

  • Our Tax Trainers are responsible for the delivery of technical taxation seminars, workshops and webinars.
  • The successful candidate will be given the training and resources to be able to deliver professional, engaging, practical sessions to a diverse range of clients across a broad geographical area.
  • The role is open to candidates located in Victoria and flexible working arrangements may be negotiated, including full time or part time.
  • This is a permanent position with remuneration based on relevant experience.

Qualifications

  • Relevant tertiary qualifications and at least 5 years of specialist tax experience
  • Excellent communication skills

About TaxBanter

Our mission is to offer flexible, practical and modern tax training across Australia – you can view our full range of training options here.

You can read about our current team of Tax Trainers here.

Applications

To apply for this role, please send a cover letter, along with your CV to craigm@taxbanter.com.au.

Tax treatment of online ‘side hustles’

Posted on by thriveadmin

[lwptoc]

Earning income from online ‘side hustles’

Online platforms provide a variety of ways for individuals to earn money or receive benefits. In many cases it is what is commonly known as a taxpayer’s ‘side hustle’, from which the taxpayer reaps some monetary benefit from a skill, passion or hobby separate to the income they earn in their ‘day job’ being their main employment or business.

Examples include:

  • an Instagram or TikTok ‘influencer’ paid (in cash or in kind) to promote products and brands;
  • a Youtuber making money from advertising on their popular channel;
  • a website blogger receiving commissions on sales of promoted products;
  • a family earning rental income from their granny flat listed on Airbnb or Stayz;
  • a tradesperson earning extra handyman fees on Airtasker;
  • a student earning money from ride-sharing or food delivery services;
  • a person selling old household items on eBay, Gumtree or Facebook Marketplace; and
  • a person who purchases wholesale quantities of a product and sells the product on eBay, Gumtree or Facebook Marketplace.

The Australian tax law does not contain a separate set of rules for dealing with income which is initiated by a web-based interaction. The general principles of determining whether a particular amount of money received in exchange for the provision of a good or service is assessable continue to apply in these circumstances. While this article focuses on online activities as a context for discussion, the principles equally apply to side hustles that are derived away from the computer, e.g. by advertising through leaflets, posters or word of mouth.

With the ATO’s data-matching capabilities greater than ever before, it is more important than ever to ensure that income that is properly characterised as assessable is reported in the taxpayer’s tax return.

General principles of assessability — business vs hobby

Assessable income for tax purposes includes ordinary income, which is defined simply as ‘income according to ordinary concepts’ (refer to ss. 6-5 and 995-1 of the ITAA 1997). The general principles underlying ordinary income have been determined by case law. Of relevance for present purposes:

TR 2005/1 provides a number of specific examples regarding various hobbies being treated as a business or otherwise.

Treatment of an activity as a hobby or as a business may give rise to the following taxation advantages and disadvantages.

What constitutes income from carrying on a business?

Amounts generated in the ordinary course of carrying on an online business will generally constitute ordinary income under s. 6-5. In the online space, this could potentially include:

  • an online retailer’s sales revenue;
  • fares earned by a driver on a ride-sharing platform like Uber;
  • rent received for accommodation provided by a host on accommodation platforms such as Airbnb;
  • service fees derived for delivery work sourced via Airtasker.

When is a taxpayer carrying on a business?

Under the s. 6(1) definition, the term ‘business’ takes its ordinary meaning, but specifically:

  • includes (but is not limited to) any profession, trade, employment, vocation or calling; and
  • excludes occupation as an employee.

Whether or not a taxpayer is carrying on a business is a question of fact and degree. With no legislative definition of ‘carrying on a business’ the Courts have looked to a number of factors to be considered when determining whether a taxpayer is carrying on a business, including the following:

Warning

The factors above should be considered in combination, not in isolation, and the Courts have found that no one indicator is decisive. For example, the smaller the scale of the activities, the more important the other factors become.

Website

The ATO has some guidance to assist taxpayers in determining whether online selling activities constitute a hobby or a business: ‘Online selling — hobby or business?’ (QC 28130).

Examples

Recent Tribunal decision — Airbnb hosts were not carrying on a business

The Tribunal decision in FFYS and FCT [2021] AATA 4844 concerned whether an Airbnb host was carrying on a business in the context of eligibility for JobKeeper payments.

Facts

Since 2016, the Taxpayer had used the Airbnb platform to source bookings from paying guests who wished to stay in her home on the Sunshine Coast.

The Taxpayer and her husband remained in the house when guests stayed. In accordance with the Airbnb listing, guests had limited access to the kitchen, and some parts of the house (including the garage) were off-limits. Guest rooms could be locked from the inside but the Taxpayer might access a guest room to service it as required even when it was allocated to a guest.

The Taxpayer estimated she spent up to 18 hours a week on activities associated with the Airbnb guests such as cleaning, gardening, attending to the pool, and actively attending to the Airbnb site.

She reported the modest amount of money she made from the Airbnb listing in her income tax returns as ‘rental income’, and claimed deductions relating to the property against that rental income. The Taxpayer relied on the records built into the Airbnb site, as well as Paypal, the ATO app and her bank statements (i.e. she did not keep separate business records).

Decision

The Tribunal found that the acceptance of paying guests into the Taxpayer’s home through the Airbnb website was not carrying on a business for the purposes of the JobKeeper Rules.

The Tribunal listed the following indicia that provided the most weight in support of the Taxpayer undertaking a business:

  • the repetition and regularity of the bookings (and the high occupancy rates);
  • the regularity and intensity of the cleaning and preparation work that had to be carried out every time guests came and went;
  • the focused and deliberate attention that went into making each guest’s stay pleasant, which included the provision of carefully laundered towels and linen and chocolates on the guests’ pillows; and
  • the deliberate efforts made to engage with the demands and quirks of the AirBnB platform, which included responding diligently to reviews and engaging in other activities that were designed to elicit positive reviews and earn the title ‘Superhost’.

The Tribunal also accepted that the Taxpayer had a profit-making purpose, however did not give this factor a lot of weight, given the Taxpayer’s unsophisticated approach. The Taxpayer’s rudimentary record keeping was indicative of her not carrying on a business, the Tribunal noting that while good record keeping is a hallmark of a well-run business, a lack of record keeping does not preclude activities from being a business.

Despite indicia pointing both ways, on balance, the Tribunal was not satisfied that the Taxpayer had established that she was carrying on a business at the relevant time. Ultimately, the Tribunal concluded that the Taxpayer was merely repurposing a spare room, and providing mostly conventional domestic services to make some extra money on the side — i.e. the guests were treated as guests in the Taxpayer’s private home.

Implications

This decision has the impact that the Taxpayer was not carrying on a business for the purposes of the JobKeeper rules. It does not have the implication that the income is not assessable income for the Taxpayer.

Other examples

Example 1 — Selling online as a hobby

This example is broadly based on an example in the ATO fact sheet Online selling — hobby or business?

Carson is moving house soon and he wishes to clear excess tools and car parts from the shed and garage, so he lists various individual items onto Gumtree and Facebook Marketplace. Some of the items sell for more than her buying price, some for less.

He charges buyers postage and receives a total of $3,050.

Carson is not carrying on a business because he:

  • did nothing to improve the value of the items;
  • does not sell any more items for a long time — i.e. it is not on-going;
  • does not pay the online auction site for a ‘shop’ space;
  • generally receives less than the original purchase price of the items;
  • has no intention to sell tools and car parts online as a business.

Example 2 — Selling online — carrying on a business

This example is broadly based on an example in the ATO fact sheet Online selling — hobby or business?

Jo works full time as a landscape gardener. She has always enjoyed making things and, has developed an interest in jewellery-making. She makes pins, neck pieces and earrings in a variety of materials and incorporating found objects. At first she gave away the things she made to friends and family as gifts. However, this year she has established a store online to sell her wares. This cost her $500.

Jo’s jewellery begins to garner a bit of a cult following, and she can hardly keep up with demand. She increases her prices, and in the current income year her sales amount to around $9,375.

Jo still considers this is a hobby, as she only goes out foraging for materials on the weekend and makes jewellery outside of her full-time job as a landscape gardener.

Jo has an Instagram page she has set up, where she posts photos and details about the items for sale. Recently, many influencers have been wearing her jewellery which has made it quite fashionable. Although she doesn’t pay to advertise, she has had more than she has more than a thousand visits per month to her website.

After taking into account the cost of materials, Jo has made a profit of $8,002, from 225 items sold throughout the year.

Is Jo carrying on a business?

Based on a consideration of relevant factors, it is likely that Jo is carrying on a business because:

  • she has a specific online store to sell her jewellery;
  • she advertises her jewellery (although at no cost) through Instagram;
  • she spends a significant amount of time foraging for materials, and making the jewellery, despite her full time job;
  • she makes a profit from her activities;
  • makes repeated sales over an extended period of time.

Where it is concluded that Jo is carrying on a business, she will be required to report the income from the online sales as business income and she can claim relevant business expenses as deductions.

Example 3 — Taxpayer not carrying on a business

This example is adapted from Private Binding Ruling no. 1051892869509.

Question

Is the money received by a Taxpayer from selling off their private collection of plants online considered assessable income under s. 6-5 of the ITAA 1997?

Facts

The Taxpayer had a hobby of collecting plants for their own personal enjoyment. The plants were primarily acquired as a gift from their grandparents. Prior to 20XX the Taxpayer had never sold any of the plants.

The Taxpayer made the decision in mid-20XX to start to sell the plant collection as they were unable to continue to look after the plants. The plants are stored in a greenhouse on a property that the Taxpayer previously owned. The Taxpayer does not have an intention of making a profit, the intention was to dispose of the plants.

The plants are primarily sold on eBay via auction. The PBR notes the following additional facts:

  • the value of the plants is unknown;
  • the Taxpayer does not have a business plan;
  • the Taxpayer does not have a business bank account;
  • the Taxpayer does not keep any records;
  • the Taxpayer does not advertise;
  • the Taxpayer has never run a plant nursery business, nor do they have any intentions to do so.
  • the Taxpayer does not have any qualifications in regards to horticulture.
ATO conclusion

No, the money received is not part of the Taxpayer’s assessable income under s. 6-5 of the ITAA 1997 as it does not have the characteristics of a business.

ATO’s data matching programs for online income

How will the ATO know about this online income? If the ATO do not know about the online income they cannot assess the taxpayer on it right?

The ATO has vast data-matching powers, and it is highly likely that the ATO will already have a taxpayer’s online income information at their disposal.

The ATO collect information from a wide range of third party sources, with more than 600 million transactions reported to the ATO annually. Examples of third-party sources from whom the ATO currently receive information:

  • online selling platforms — i.e. eBay Australia and Amazon Commercial Services;
  • cryptocurrency designated service providers (i.e. trading platforms);
  • sharing economy facilitators — i.e. ride-sourcing and accommodation, including Uber and Airbnb;
  • banks, financial institutions and investment bodies.

The ATO also has powers to collect information for data-matching projects designed to address specific industries, issues or risks.

The list of the ATO’s currrent data-matching protocols is found here.

Further info and training

Need to catch up on the current tax landscape? Join us for an upcoming session!

Tax Fundamentals
Training intended for juniors, trainees and those returning to the accounting industry.
Melbourne | 2-3 March 2022 | more info >
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Tax Fundamentals Online training

Tailored in-house training

We can also present general tax updates and specialised topics at your firm (or through a private online session) with content tailored to your client base – please contact us here to submit an expression of interest or visit our In-house training page for more information.

You can view all of our upcoming online training here. Need to catch up on your CPD? Our recordings page hosts all of our past sessions.

Our mission is to offer flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.

The ATO’s Next 5,000 program

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About the Next 5,000 program

The ATO’s ‘Next 5,000’ tax performance program is designed to give the community confidence that the privately owned and wealthy groups are paying the right amount of tax.

The Next 5,000 program is funded by the Tax Avoidance Taskforce. It began on 1 July 2019. To date it has focused on engaging with clients on a one-to-one basis. This has been generally through streamlined assurance reviews that are based on the ATO’s justified trust methodology.

The program focuses on prevention rather than correction by letting taxpayers know about potential tax risks specific to their business and providing public advice and guidance on relevant issues.

The Next 5,000 program runs for four years from 2019 onwards.

The Next 5,000 report (5 November 2021)

The Findings report for the Next 5,000 program, current at 5 November 2021 and published in early December, gives the ATO’s observations and insights into what it has seen through the program so far. The findings and data in this report are as of 5 November 2021.

If a taxpayer or tax professional operates or represents a Next 5,000 private group, they can use these findings to:

  • review the group’s tax affairs and tax governance;
  • increase awareness of common tax issues;
  • understand how the ATO is working with taxpayers to resolve issues; and
  • prepare for a review under the Next 5,000 program.

The report findings

The ATO has reviewed more than 1,800 transactions, activities and events of Next 5,000 private groups that were worth nearly $7 billion, through over 250 streamlined assurance reviews.

The ATO’s key observations are that:

  • a high percentage have governance processes and procedures, but most are not documented;
  • clearly documented roles and responsibilities lead to good tax governance;
  • documentation of the tax return preparation, review process and identification of material transactions helps groups to recognise tax risk and avoid errors;
  • private groups that seek tax advice for material risks and issues are more likely to make correct disclosures and adopt correct tax treatments.

The ATO has confirmed that private groups have correctly reported amounts relating to significant activities, events and transactions totalling nearly $5.8 billion. This amount is made up of:

  • $2.75 billion in verified income;
  • $1.77 billion in verified deductions; and
  • $1.26 billion in other verified items, including:
  • $619 million in loans to shareholders and their associates;
  • $122 million in additional balance sheet items;
  • $373 million in tax reconciliation items;
  • $88 million in tax losses, both deducted and carried forward;
  • $48 million in capital losses, both applied and carried forward; and
  • $10 million in tax offsets, rebates and credits.

Common tax issues

Common tax issues the ATO has observed include:

  • loans or payments to shareholders and their associates not complying with the requirements of Div 7A;
  • using tax losses and capital losses incorrectly, including reclassifying capital losses as revenue losses;
  • lack of record keeping in relation to carry forward tax losses and capital losses from prior years;
  • non-arm’s length arrangements involving family members or related parties that are designed to reduce or avoid tax that would otherwise be payable;
  • tax treatment of disposals — incorrect characterisation of property sales on capital account when they should be treated as sales arising from a property development business;
  • significant variances, discrepancies and errors in reporting of income and expenses revealed between tax returns and business activity statements;
  • incorrect GST treatment of face-value vouchers and deposits; and
  • incorrect calculation of reduced input tax credit entitlements from acquisitions related to restructures, investments, and merger and acquisition activity.

Since the program began, the ATO has received over 30 voluntary disclosures from private groups that total over $16.7 million in tax, penalties and interest from streamlined assurance reviews.

Next 5,000 demographics

Who is covered by the program

There are about 5,000 private groups in Australia that are part of this program as they have net wealth of over $50 million. These groups hold around $825 billion in wealth and contribute more than $9.8 billion in tax revenue each year.

A typical Next 5,000 group can contain up to 16 entities, including a mix of:

  • companies;
  • trusts; and
  • SMSFs.

Some Next 5,000 groups have philanthropic interests and include an ancillary fund or charity. Approximately 6.3 per cent of Next 5,000 groups have a private ancillary fund.

Most are well established, multigenerational businesses that have been operating for many years. Many are family businesses or closely controlled groups.

How participants are selected

The ATO uses data matching and analytic models to identify Australian resident individuals who, together with their associates, control wealth of more than $50 million. The ATO then looks at the whole group of entities.

The Next 5,000 program does not include private groups in the Top 500 private groups tax performance program.

Key demographic data

A typical Next 5,000 group includes:

  • 16 entities made up of 7 companies and 4 trusts;
  • a group head aged 65 years old;
  • 39 employees;
  • total income of $9.4 million;
  • net wealth of $80.3 million;
  • income tax of $700,500;
  • net GST of $138,600; and
  • PAYG withholding of $353,300.

Financial data

The Next 5,000 population:

  • own over $825 billion in net assets;
  • earn $237 billion in total income;
  • pay over $9.8 billion in income tax;
  • pay over $3.7 billion in net GST; and
  • employ 690,235 people, paying $7.1 billion in PAYG withholding.

The ATO’s engagement with next 5,000 groups

The ATO tailors its approach, based on the group’s:

  • size of operations;
  • structural complexity;
  • consequence of tax issues; and
  • risk of non-compliance.

For groups that are large, have complex structures or multiple potential tax issues, the ATO engages with them through streamlined assurance reviews — which are conducted one-to-one with representatives of the group. The ATO aims to complete 800 to 1,000 streamlined assurance reviews each year. They are generally completed over a four-month period.

For other groups, the ATO engages with them through:

  • specific risk reviews;
  • one-to-many communication; and
  • targeted guidance on significant risks.

The ATO may send the taxpayer information specific to their business risks, or provide certainty on significant commercial deals through early engagement and pre-lodgment agreements.

Where appropriate, audits may be undertaken.

Resolving issues

When the ATO identifies issues, it prefers to work with the taxpayer collaboratively rather than resorting to a traditional audit.

Where the ATO is unable to obtain assurance, it may:

  • recommend corrective actions;
  • allow the client to self-review or self-mitigate the risk; or
  • extend the review to allow resolution in a single interaction.

What’s next?

This year the ATO:

  • has started broader engagement on a one-to-one basis through specific reviews to address potential one-off tax issues;
  • is considering other strategies such as letter campaigns and targeted advice and guidance; and
  • is having preliminary discussions with taxpayers in streamlined assurance reviews about their eligibility to claim under the loss carry back (LCB) and temporary full expensing (TFE) measures and will review future high-risk claims under these measures.

In relation to TFE and LCB, the ATO may want to:

  • discuss how these measures may impact future lodgments; and
  • review any past claims.

When reviewing TFE and LCB claims, the ATO may request information outside of the usual two-year time period for streamlined assurance reviews.

The ATO will also undertake a limited number of GST-integrated reviews.

Reference
Also see the ATO’s guide What attracts our attention.

Parliament resumes for 2022: Status of 2021 tax and superannuation bills

Posted on by thriveadmin

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Parliament is about to resume on 8 February 2022. This article lists some key tax and superannuation proposed measures which were introduced into Parliament during 2021 and are awaiting passage through Parliament. The article also lists key tax and superannuation bills which were enacted in 2021.

Parliament last sat on 2 December 2021. During 2021, 181 bills were initiated in the House of Representatives (including 20 received from the Senate).

The scheduled 2022 Parliamentary sitting dates are available here.

Proposed measures before Parliament — tax

Proposed measure Proposed start date Bill Status
Extend TPRS to the sharing economy (incl. ride-sourcing and short-term accommodation) 1 July 2022 for ride sourcing and accommodation; 1 July 2023 for all other reportable transactions Treasury Laws Amendment (2021 Measures No. 7) Bill 2021 Before the Senate
Remove the $250
non-deductible threshold for work-related self-education expenses		 From the 2022–23 income year (and the FBT year commencing 1 April 2023)
Extend loss carry back by 12 months Up to the 2022–23 income year Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 Before the House of Representatives

Proposed measures before Parliament — superannuation

Proposed measure Proposed start date Bill Status
Superannuation guarantee — remove the $450 threshold 1 July 2022

 

 Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2021 Before the House of Representatives
Downsizer contributions age reduced to 60 1 July 2022
Work test change for individuals between 67 and 75 1 July 2022

 
Choice of method to calculate exempt current pension income From the 2021–22 income year
Extend temporary full expensing regime to 30 June 2023 Until 30 June 2023

Measures enacted in 2021 — tax

Enacted measure Start date Act Royal Assent
Disclosure of JobKeeper payments by listed entities Within 60 days of 14 September 2021 or lodgment of financial reports Treasury Laws Amendment (2021 Measures No. 2) Act 2021 13 September 2021
Increase Medicare levy and Medicare levy surcharge income thresholds 2020–21 income year Treasury Laws Amendment (2021 Measures No. 3) Act 2021 29 June 2021
FBT exemption for redundant employees Benefits provided on or after 2 October 2020 Treasury Laws Amendment (2021 Measures No. 4) Act 2021 30 June 2021
CGT exemption for granny flats CGT events on or after 1 July 2021
LMITO extended to 2021–22 2021–22 income year
Tax-free treatment of certain COVID-19 small business grants extended to 2021–22 Eligible grants in 2020–21 or 2021–22 income years Treasury Laws Amendment (COVID-19 Economic Response) Act 2021 30 June 2021
COVID-19 payments received by eligible businesses are NANE income Income years ending on or after 1 July 2021 Treasury Laws Amendment (COVID-19 Economic Response No. 2) Act 2021 10 August 2021
COVID-19 disaster payments to individuals are NANE income 2020–21 and later income years

Measures enacted in 2021 — superannuation

Enacted measure Start date Act Royal Assent
Choice of fund — single default account Employment starting on or after 1 July 2021 Treasury Laws Amendment (Your Future, Your Super) Bill 2021 22 June 2021
Bring forward non-concessional contributions cap cut-off age to 67 years Contributions on or after 1 July 2020 Treasury Laws Amendment (More Flexible Superannuation) Act 2021 22 June 2021
Excess concessional contributions (ECC) charge repealed 1 July 2021
Allow re-contributions of COVID-19 early release amounts Re-contributions between 1 July 2021 and 30 June 2030
Increases the SMSF membership limit from four to six 1 July 2021 Treasury Laws Amendment (Self Managed Superannuation Funds) Act 2021 22 June 2021

Further info and training

For up to date information about the status of the proposed measures, and bills to be introduced in 2022, join us for a Tax Update training session.

We hold regular Online Tax Updates the first Tuesday of each month – group discounts are available and all registrants receive a recording of the session. Click here for further info or to view our 2022 schedule.

You can also join us at one of our 16 nationally-presented Public Sessions. Each 2 hour Public Session consists of a general tax update, along with a specialty topic. Click here to find the session closest to you and to register.

 

Our mission is to offer flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.

Tax Yak – Episode 59 – STP Phase 2

Posted on by thriveadmin

In this episode of Tax Yak, Nicole Rowan chats with Haydon Green, Director of Single Touch Payroll, Policy & Content at the Australian Taxation Office, about the implementation of STP Phase 2.

Haydon is a director at the ATO and his extensive experience in tax administration and policy development has seen him involved in Single Touch Payroll from the very beginning. In his current role, Haydon is responsible for the management of legislative and policy issues relating to Single Touch Payroll and the delivery of guidance material to support employers and industry transition to Single Touch Payroll Phase 2.

Host: Nicole Rowan

Guest: Haydon Green

Recorded: 13 January 2022

Airline-provided car parking fringe benefits near ‘home base’

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Editor’s note: This article has been updated to incorporate the recent Full Court decision which allowed the Commissioner’s appeal, and the finalisation of TR 2021/2.

On 22 November 2021, the Full Federal Court handed down its decision in FCT v Virgin Australia Regional Airlines Pty Ltd [2021] FCAFC 209. The Full Court — overturning the decision of the primary judge — held that Virgin Australia Airlines Pty Ltd and Virgin Australia Regional Airlines Pty Ltd (collectively, the Taxpayers) had provided car parking benefits under s. 39A of the FBTA Act in respect of parking for their flight and cabin crew employees (the FCC employees).

Each employee’s home base airport was their ‘primary place of employment’ for the purposes of the FBT legislation.

This article will revisit the general legislative definition of a car parking fringe benefit before considering the judicial decisions. Further the article will look at the Commissioner’s views in relation to car parking fringe benefits.

What is a ‘car parking fringe benefit’?

Section 39A of the FBTA Act sets out when a ‘car parking fringe benefit’ has been provided.

In summary, an employer provides a ‘car parking benefit’ on a particular day when, in relation to one or more daylight periods:

  1. a car is parked at a work car park for the minimum parking period;
  2. an employee uses the car in connection with travel between their place of residence and primary place of employment at least once on that day;
  3. the work car park is located at or in the vicinity of the primary place of employment, on that day;
  4. a commercial parking station is located within a one kilometre radius of the work car park used by the employee;
  5. the lowest representative fee charged by any commercial parking station for all-day parking within a one kilometre radius of the work car park exceeds the car parking threshold;
  6. the parking is provided to the employee in respect of their employment; and
  7. the parking is not excluded by the regulations (for example, a car space provided to eligible disabled employees).

What is the primary place of employment

Section 136(1) defines an employee’s primary place of employment in relation to a day as meaning business premises, or associated premises, of the employer or an associate of the employer, where:

  • if the employee performed employment duties on that day — on that day; or
  • in any other case — on the most recent day before that day on which the employee performed employment duties,

those premises are or were:

  • the sole or primary place of employment of the employee; or
  • otherwise the sole or primary place from which or at which the employee performs employment duties.

The Virgin decision considers an employee’s primary place of employment in circumstances where the employee performs employment duties in multiple locations, including a mode of transportation, on a particular day.

Other definitions

The following are relevant definitions contained in the FBT Act or the ITAA 1997.

All-day parking means parking of a car for a continunous period of six hours or more during the ‘daylight period’ — i.e. after 7.00 am to before 7.00 pm — on that day.

Car means a motor-powered road vehicle (including a motor car, sports utility vehicle, van or utility, but not a motor cycle) designed to carry a load of less than one tonne and fewer than nine passengers. The car must be:

  • owned by, or leased to, an employee or their associate;
  • made available to an employee or their associate; or
  • related to a car benefit provided on that day.

Car space refers to a space in which a car can reasonably be parked, and does not need to be on bitumen or a paved surface or marked as a parking bay.

Commercial parking station, in relation to a particular day, means a permanent commercial car parking facility where any or all of the car parking spaces are available in the ordinary course of business to members of the public for all-day parking on that day on payment of a fee, but does not include a parking facility on a public street, road, lane, thoroughfare or footpath paid for by inserting money in a meter or by obtaining a voucher. See Taxation Ruling TR 2021/2 for the Commissioner’s updated views on what constitutes a commercial parking station (see below).

Daylight period in relation to a day is the period after 7 a.m. and before 7 p.m. on that day.

Minimum parking period is a combined parking period of more than four hours (the four hours do not need to be continuous).

On-street parking is parking on a street, road, lane, thoroughfare or footpath paid for by inserting money in a meter or by obtaining a voucher.

Place of residence is a place where a person resides or has sleeping accommodation. It does not need to be the employee’s usual or normal residence. It could be a place at which the employee sleeps on a temporary basis — e.g. a hotel or serviced apartment.

Work car park is a business premises or associated premises of the provider, where cars are parked in a car space on that day. It does not need to be a commercial parking station and includes an area where pool cars or fleet cars available for employees to use are parked. A business may have multiple locations where car spaces are provided to employees — each is considered to be a work car park. (See TR 2000/4 for the Commissioner’s views on business premises and associated premises.)

The car parking threshold for each income year is published by the ATO here. It is $9.25 for the 2021–22 FBT year.

Virgin Australia — car parking fringe benefits not provided

The facts of the case

The Taxpayers were Virgin Australia Airlines Pty Ltd and Virgin Australia Regional Airlines Pty Ltd.

The Taxpayers, whose principal business activity was the transportation of passengers on aircraft, had contracted with commercial car park operators at Sydney, Brisbane and Perth airports for the provision of car parking spaces at those airports. The Taxpayers provided the car parking facilities to the flight and cabin crew employees (the employees) by giving them access cards to the car park at the airport nearest to the location where the employees lived (the origin airport).

During their rostered shifts, the employees performed their duties at both airport terminals and on the aircraft. The type of duties undertaken prior to departure and following arrival of the aircraft were central to the question of whether the airport terminal was the ‘primary place of employment’ of the FCC employees.

The flight crew employees undertook a number of duties at airport terminals, including:

  • signing on at the crew room at least 60 minutes prior to their first scheduled domestic flight (90 minutes for international flights);
  • reviewing various pre-flight operational information (approximately 15-20 minutes);
  • performing pre-flight procedures once onboard the aircraft (30 minutes);
  • completing a post-flight administrative checklist upon arrival;
  • remaining onboard for the next flight or changing aircraft if required (the flight crew waited in the terminal if they needed to change aircraft during the day);
  • after their final rostered flight of the day — performing post-flight checks and signing off at the crew room in the terminal (which may or may not be the terminal at the origin airport).

The duties of cabin crew employees included:

  • attending a pre-flight briefing (approximately eight minutes);
  • boarding passengers (approximately 20 minutes);
  • upon arrival, disembarking passengers from the flight and cleaning the aircraft (approximately 30 minutes);
  • remaining on-board for the next flight or changing aircraft if required (in which case they would wait in the terminal in between)
  • signing on and off their shifts at the crew room in the relevant terminal (which may or may not be the origin terminal).

FBT liability dispute

In calculating their FBT liabilities for the 2012–13 to the 2015–16 FBT years, the Taxpayers treated the provision of all car parking spaces at the origin airport to the employees as a car parking fringe benefit pursuant to s. 39A of the FBTA Act.

The Commissioner assessed the Taxpayers to FBT on the basis that the employees’ ‘primary place of employment’ was their home base airport terminal in Sydney, Brisbane or Perth. The taxpayer objected to the assessment and the objection was disallowed.

In the Commissioner’s reasons for disallowing the objection, the Commissioner stated that it was understood that ‘the [employees] spend most of their time on the aircraft and are rostered for various routes and differing time schedules’.

The Federal Court decision

In May, the Federal Court handed down its decision in Virgin Australia Airlines Pty Ltd v FCT [2021] FCA 523. The Court, allowing the Taxpayers’ appeal against the Commissioner’s objection decisions, held that the Taxpayers did not provide car parking fringe benefits to the employees.

The Court established that for the purposes of determining whether an employer has provided a ‘car parking fringe benefit’, either:

  • the primary place of employment of the flight and cabin crew is on the aircraft, and not in the airport terminals; or
  • there was no primary place of employment on a particular day.

Accordingly, the Court held that the provision of car parking spaces at the airport did not constitute the provision of a car parking fringe benefit.

In cases of domestic flights where the employees worked only on one aircraft on a particular day, as well as on international flights, the employees’ primary place of employment on that day was the aircraft which, for the purposes of s. 39A(1)(f), was not within the vicinity of any of the car parks.

In cases of domestic rosters involving multiple sectors using different aircraft on a particular day, there was no primary place of employment and s. 39A(1)(f) did not arise.

The ‘primary place of employment’

The employees did not have a ‘sole’ place of employment but performed their duties of employment in several places. The question was which of the following locations was their ‘primary’ place of their employment:

  • the airport terminal where they commenced duty and attended to pre-flight matters;
  • the one or more aircraft on which they were located for the particular day;
  • the destination airport terminal or terminals where the aircraft landed;
  • the airport terminal where they finished their duty (which was not necessarily their origin airport or the terminal where they commenced duty).

The ordinary meaning of the word ‘primary’ required a determination as to which place of employment was the first or highest in rank or importance. This requires undertaking a qualitative and quantitative exercise to compare the duties performed at each place.

For domestic flights where the employees worked on only one aircraft during the day, their primary place of employment on that day was that aircraft. Most of the relevant employees’ time was spent performing their duties onboard the aircraft and while it was in flight.

This argument was even stronger for international flights, where the time spent onboard the aircraft was likely to be longer.

In both cases, the duties performed by the employees at airport terminals were ancillary to the principal duties which were performed onboard the aircraft. In a quantitative sense, such duties were of a short duration. In a qualitative sense, they were still ancillary to the onboard duties.

Where employees worked on different aircraft on a particular day, the fact that different aircraft were used did not mean that the ‘home base’ airport, nor the terminal where the employees signed on, was the primary place of employment. The amount of time spent performing duties at airport terminals was far outweighed by the time spent performing duties on the aircrafts. Under these rosters, there was no primary place of employment.

Parked at, or in the vicinity of the primary place of employment

Where the employees operated on only one aircraft on a particular day, that was their primary place of employment, which was plainly not within the vicinity of any of the car parks.

Where more than one aircraft was involved on a particular day, there was no primary place of employment and the vicinity question did not arise.

The Full Federal Court decision

The Full Federal Court allowed the Commissioner’s appeal against the decision of the single judge, and held that the primary judge had erred in finding that the Taxpayers had not provided car parking benefits.

In relation to each of the relevant days, the employee’s home base airport was their ‘primary place of employment’ within the meaning of the definition in s. 136(1)(c), when read with s. 136(2).

Accordingly, the primary judge should have found, in relation to each relevant day, that the employees had a primary place of employment, being each employee’s home base, and that the condition in s. 39A(1)(e) was therefore satisfied. It was common ground that the relevant parking facilities were provided ‘in the vicinity of’ the relevant home base, so it followed that the condition in s. 39A(1)(f) was also satisfied.

In coming to its decision the Full Federal Court considered that:

  • The primary judge did not treat s. 136(1)(c) and s. 136(1)(d) in the definition of ‘primary place of employment’ as posing different tests or requiring differing analyses. The primary judge treated both sections as involving the same ‘qualitative and quantitative exercise’ namely a comparison of the duties performed by employees at their different places of employment during the course of a particular day. This approach involved error, because the two paragraphs contain different tests.
  • Section 136(1)(d) required focus on the place of performance of duties, s. 136(1)(c) did not. That is not to say that the location from which or at which duties are performed is irrelevant in determining whether or how s. 136(1)(c) applies; however, the test is broad and is not limited or exhausted by an inquiry into the places from which or at which the employee undertakes his or her duties.

The Court considered that it was not strictly necessary in the circumstances to reach a concluded view about the application of s. 136(1)(d) to the facts. The terms of s. 136(1)(d) direct attention to the place or places from which or at which the duties were performed on each particular day in order to determine the location of the ‘primary place’.

The Full Federal Court agreed with the Commissioner’s contentions that the FCC employees performed duties ‘from’ the relevant home base, especially on a day that the employee commenced a ‘Tour of Duty’ from that home base. It was more strained, but still possible, to say that duties were performed ‘from’ the relevant home base even on a particular day of a ‘Tour of Duty’ on which the employee does not set foot in the home base. However, the ‘primary place from which or at which’ the duties of the FCC were performed ‘on the particular day’ (s. 39A(1)) was the aircraft from which or at which those duties were performed. This was demonstrated by the primary judge’s thorough analysis and comparison of the duties which were performed at the various different locations, which showed (unsurprisingly) that the predominant location from which or at which flight and cabin duties were performed was on the relevant aircraft.

Taxation Ruling on car parking fringe benefits

Taxation Ruling TR 2021/2 titled Fringe benefits tax: car parking benefits (the Ruling), finalised on 16 June 2021, sets out the Commissioner’s preliminary views on when the provision of car parking is a ‘car parking benefit’ for the purposes of the FBTA Act. It replaces TR 96/26 (withdrawn on 13 November 2019).

The Ruling will apply to car parking benefits provided in FBT years commencing both before and after its date of issue. However, the Commissioner’s revised view on the meaning of the term ‘commercial parking station’ will apply in respect of car parking benefits provided on or after 1 April 2022.

Chapter 16 in the Fringe benefits tax — a guide for employers was updated on 1 July 2021.

In particular, the Ruling provides guidance on what constitutes a ‘commercial parking station’. The Ruling differs from TR 96/26 by recognising that a car park, which satisfies all other requirements, can still be considered a ‘commercial parking station’ even if:

  • its contractual terms restrict who may use the car park, provided any member of the public that accepts these restrictions can use the car park;
  • its fee structure discourages all-day parking with higher fees.

For a ‘car parking benefit’ to arise, the commercial parking station must be located within a one kilometre radius of the work car park — this will be the case if:

  • the closest car entrance to the commercial parking station is within one kilometre of the closest car entrance to the work car park (see 39B);
  • to be measured by the ‘shortest practicable route’, which can be travelled by foot, car, train and boat (but not including illegal or impractical shortcuts).

The Ruling also takes into account significant Court decisions handed down after TR 96/26 was issued.

The Full Federal Court in Virgin Blue Airlines Pty Ltd v FCT [2010] FCAFC 137 held that:

  • For the purposes of determining whether the car park and the primary place of employment are ‘in the vicinity of’ each other, it is the spatial and geographical separation that is significant.
  • Geographical ‘encompasses geographical features such as rivers, railway lines, freeways and other physical obstacles which might render a car park and an employee’s primary place of employment near or close as the crow flied but not so in terms of the distance of the shortest practicable route between them’.

The principles set out by the Full Court in FCT v Qantas Airways Ltd [2014] FCAFC 168, and the Tribunal in the earlier decision Re Qantas Airways Limited v FCT [2014] AATA 316, include that:

  • A car park is offered to the public where car spaces are available to any member of the public.
  • A car park may be a commercial parking station on a particular day even if employees used or could use the parking on that day, or the car park was intended to be used by employees commuting between their place of residence and their primary place of employment.
  • A car park may be a commercial parking station on a particular day even if conditions imposed on its use meant employees did not or could not use it.
  • A fee must be charged to access all-day parking.
  • The lowest representative fee charged cannot be worked out from fees for longer-term parking if users are prevented from entering and exiting the car park on a daily basis during that period.

NoteNote:
The Ruling does not address the concept of ‘primary place of employment’ in light of the Federal Court decision in Virgin Australia Airlines. The Ruling states that it will be amended to include further guidance on this point in due course. Presumably the future updated guidance will also address the recent Full Court decision, which was handed down subsequent to the finalisation of the Ruling.

Further info and training

Need to catch up on the current tax landscape? We offer online tax training on a monthly basis – join us for a general Tax Update or a more in-depth special topic or presentation. Our online training is an excellent and cost effective way to keep yourself up-to-date while earning CPD.

Online options

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We can also present these Updates at your firm (or through a private online session) with content tailored to your client base – please contact us here to submit an expression of interest or visit our In-house training page for more information.

You can view all of our upcoming online training here. Need to catch up on your CPD? Our recordings page hosts all of our past sessions.

Our mission is to offer flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.

Small business CGT concessions – What attracts ATO attention?

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[lwptoc]

Small business CGT concessions — the basic rules

Division 152 of the ITAA 1997 provides four CGT concessions for taxpayers who have realised capital gains on the disposal of a CGT asset used in carrying on a business. To be eligible, certain basic conditions and additional conditions for eligibility must be satisfied

Broadly, the basic conditions in Subdiv 152-A require:

  • the taxpayer to either:
  • be a CGT small business entity (CGT SBE) — which requires the taxpayer to satisfy the $2 million turnover test set out in s. 328-110 as modified by s. 152-10(1AA); or
  • satisfy the maximum net asset value (MNAV) test set out in 152-15; and
  • the CGT asset to satisfy the active asset test in 152-35.

The concessions are the:

  1. Small business 15-year exemption (Subdiv 152-B) — a capital gain is disregarded if a CGT asset has been continuously owned for a 15 year period just prior to disposal, and the individual (or a ‘significant individual’ in the case of a company or trust) is age 55 or more (or permanently incapacitated) at the time of the CGT event and the event happens in connection with retirement.
  2. Small business 50 per cent reduction (Subdiv 152-C) — an optional 50 per cent reduction of the amount of a capital gain. The reduction is in addition to any reduction for discount capital gains, and may be used in combination with the small business retirement exemption or small business roll-over.
  3. Small business retirement exemption (Subdiv 152-D) — a capital gain is disregarded if the capital proceeds from the CGT event are used in connection with retirement. A lifetime limit of $500,000 applies.
  4. Small business roll-over (Subdiv 152-E) — a capital gain is deferred to the extent that the taxpayer incurs expenditure on a replacement asset, or improves an existing asset, within a certain time period.

Further specific eligibility requirements may apply in respect of the concessions.

Important

The CGT concessions:

  • do not operate to reduce or deny a capital loss; and
  • are not applicable to depreciable assets (a gain or loss on a depreciating asset is calculated under the Div 40 balancing adjustment rules).

What attracts the ATO’s attention

Given the generous nature of these concession they are always a focus point of the ATO. However, recently the ATO announced that they are increasing their attention to taxpayers who have claimed the concessions in recent tax returns. They are sending tax agents letters requesting them to check client claims and to ensure that the basic eligibility conditions were satisfied. The ATO also requests tax agents check they have records to substantiate any client claims.

Situations that attract the ATO attention include:

  • entities that fail the small business entity test (for example, fail to carry on a business or have an aggregated turnover greater than $2 million);
  • entities that fail the $6 million MNAV test — noting that net assets include not only assets of the entity, but also connected entities and affiliates;
  • the asset disposed is not an active asset;
  • entities that do not meet the additional conditions where the CGT asset is a share or trust interest;
  • entities that fail to correctly identify significant individuals and CGT concession stakeholders;
  • entities that restructure for the primary purpose of enabling access to small business CGT concessions;
  • entities that claim the small business rollover, but do not report a CGT event J5 at the end of the replacement asset period when they fail to acquire a replacement asset;
  • entities that do not meet the additional conditions applicable to the type of small business CGT concession claimed such as exceeding the small business CGT retirement exemption limit of $500,000;
  • entities that fail to correctly report or apply the 15-year exemption.

What to do if you identify a mistake

The ATO is encouraging tax agents to check that all clients’ recent or planned future small business CGT concession claims are accurate. Contact the ATO if an error is identified.

The ATO also advises that to ensure small business CGT concession eligibility and to avoid administrative time to correct a mistake a tax agent can:

  • reach out for an early engagement discussion to seek advice on the client’s small business complex transaction;
  • seek a pre-lodgment compliance agreement for the client’s commercial deals and restructure events;
  • apply for a private ruling to attain certainty on the client’s application of small business CGT concessions.

Further info and training

The small business CGT concessions are arguably some of the most generous provisions in the ITAA. The concessions are targeted to small business and consist of:

  • the small business 15-year exemption;
  • the small business 50 per cent reduction;
  • the small business retirement exemption; and
  • the small business roll-over.

Depending on which concession (or concessions) applies, a taxpayer can defer, reduce or even disregard a capital gain.

Check out our recent webinars for further training:

Click here to download both sessions.

These sessions are hosted on our Past Recordings page, which is an excellent resource for catching up on your CPD and expanding your knowledge.

 

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