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Tax Yak – Episode 55 – LCR 2021/2 Non Arms Length Expenses: The ATO Finalises its view

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In this episode of Tax Yak, Neil Jones yaks with Craig McCormick about the ATO finalised views on the amendments to the Non Arms Length Income rules and how non Arms length expenses can impact Superannuation Funds. Neil and Craig explore the ATO’s LCR 2021/2  and what it means for Super fund members and their advisers.

Host: Neil Jones, Managing Director & Senior Tax Trainer (TaxBanter) – Neil on LinkedIn

Guest: Craig McCormick, Senior Tax Trainer (TaxBanter) – Craig on LinkedIn

Recorded: 27 August 2021

Tax Yak – Episode 54 – WRE Mythbusting updated

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In this episode of Tax Yak, two of our Senior Tax Trainers gather to correct some of the misinformation around work-related expenses (WRE). They also discuss important changes to making WRE claims, and explain what can and cannot be claimed. A useful reminder for accountants and taxpayers alike!

Host: Lynne Gibson, Senior Tax Trainer (TaxBanter) – Lynne on LinkedIn

Guest: Lee-Ann Hayes, Senior Tax Trainer (TaxBanter) – Lee-Ann on LinkedIn

Recorded: 5 August 2021

Promoter penalties and the Rowntree case

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[lwptoc]

The ‘promoter penalty’ laws in Div 290 of Schedule 1 to the TAA are in place to deter the promotion of tax avoidance schemes. Earlier this year, the Federal Court imposed fines totalling $9.415 million on three professionals who together promoted a carbon credits scheme under which the investor paid only a 15 per cent deposit but purportedly could immediately deduct 100 per cent of the purchase price.

The promoter penalty laws

The key elements of the promoter penalty laws are that:

  • an entity must not engage in prohibited conduct;
  • the entity is not a promoter of a tax avoidance scheme.

Prohibited conduct is conduct that results in:

  • any entity being a promoter of a tax avoidance scheme; or
  • a scheme that has been implemented differently to the way it has been described in a product ruling.

A scheme is a tax avoidance scheme if, at the time of promotion, it has the sole or dominant purpose of an entity gaining a scheme benefit that would not be legally available otherwise.
An entity gets a scheme benefit from a scheme if:

  • a tax-related liability of the entity is, or could reasonably be expected to be, less than it would be apart from the scheme; or
  • a tax refund or credit due to the entity is, or could reasonably be expected to be, more than it would be apart from the scheme.

An entity is a promoter if:

  • it markets or encourages the scheme;
  • it directly or indirectly receives a benefit in respect of marketing or encouragement;
  • it causes another entity to be a promoter.

NoteNote

  • An entity can be a promoter regardless of whether the scheme is tailored and marketed to one client or to a broad population.
  • An entity that merely provides advice about the scheme, or an employee that merely distributes information or materials prepared by another, is not a promoter.

Exceptions to the promoter penalty laws include:

  • employees or other entities that have only minor involvement;
  • conduct that occurred by mistake or accident;
  • something outside an entity’s control.

Penalties

The maximum penalty the Federal Court can impose is the greater of:

  • 5,000 penalty units for an individual;
  • 25,000 penalty units for a body corporate;
  • twice the consideration received or receivable, directly or indirectly, by the entity or its associates in respect of the scheme.

One penalty unit is equal to $222.

Depending on the type or seriousness of the conduct, the ATO may also consider the following actions:

  • voluntary self-correction for less significant non-compliance;
  • applicants for rulings (including product rulings) providing additional promises or guarantees to mitigate taxation risks (including material differences in implementation of the relevant arrangement);
  • executing an enforceable voluntary undertaking (see the ATO’s voluntary undertaking template);
  • applying to the Federal Court to seek an injunction.

PS LA 2021/1

Practice Statement Law Administration PS LA 2021/1 sets out the processes the ATO will follow in administering the promoter penalty laws.

Factors that may indicate promoter behaviour include:

  • advisers who have encouraged taxpayers to seek a tax or superannuation benefit to which the are not entitled;
  • marketing for tax or superannuation schemes that seem ‘too good to be true’;
  • advisers offering tax savings in return for a large fee or a percentage of the tax saved;
  • advisers marketing a scheme that was developed by others;
  • multiple clients of the same adviser engaging in similar arrangements that are unnecessarily complex, or seem designed primarily to get a tax or superannuation benefit;
  • schemes where the ATO has applied anti-avoidance provisions (e.g. Part IVA) which were marketed by an adviser;
  • advisers offering or encouraging illegal early access to superannuation despite release criteria not being satisfied.

ATO officers can refer information to the internal Promoters Program. The objective of the program is to address the behaviours of intermediaries that promote tax avoidance, including consideration of remedies or sanctions. The Promoter Penalty Review Panel advises the on the application of the laws in particular circumstances.

A member of the public can call 1800 060 062, use the form at www.ato.gov.au/tipoffform or use the ATO app.

Factors that might weigh in favour of a civil penalty as the appropriate remedy include where the entity:

  • is knowingly engaging in conduct that is likely to be prohibited and evidence indicates that the entity is unwilling to modify its behaviour;
  • has a history of prohibited conduct as a major source of income;
  • has a large degree of control or influence over whether the prohibited conduct occurred;
  • deliberately frustrates the progression of the ATO investigation;
  • has engaged in prohibited conduct on a significant scale in terms of the number of entities or amounts involved;
  • has promoted a scheme for which participants that have implemented the scheme have or will become liable to administrative penalty.

Civil penalties cannot be imposed where the prohibited conduct was due to:

  • a reasonable mistake of fact;
  • another entity’s role or actions, an accident or some other cause which was beyond the entity’s control and where the entity took reasonable precautions and exercised due diligence to avoid the conduct; or
  • where the scheme in question treats the taxation law as applying in a way that agrees with:
    • advice given to the entity or the entity’s agent by or on behalf of the Commissioner; or
    • a statement in a publication approved in writing by the Commissioner.

The Practice Statement also covers how the ATO will administer the promoter penalty provision in s. 68B of the SIS Act which is designed to deter the promotion of a scheme that has resulted, or is likely to result, in a payment being made from a regulated superannuation fund (an illegal early release scheme).

The promoter penalty laws contain provisions governing the interaction between civil (promoter penalty) proceedings and criminal proceedings. A criminal proceeding can be started against an entity, irrespective of whether a civil penalty application or court order has been made in relation to substantially the same conduct.

The Bogiatto case

The Federal Court decision in FCT v Bogiatto, handed down in August 2020, held that Mr Bogiatto and his two companies were promoters of a tax exploitation scheme to obtain the benefit of an R&D tax offset in 13 alleged tax exploitation schemes.

Mr Bogiatto was a tax accountant whose services included the preparation and lodgment of R&D Tax Incentive Applications and R&D Tax Incentive Schedules. He and his controlled entities engaged in the following general conduct in relation to 20 R&D schemes involving 14 taxpayers in the 2012, 2013 and 2014 income years:

  • Mr Bogiatto would promote himself to the prospective client as an R&D specialist and send a letter of engagement which provided for a fee calculated as a percentage of any R&D tax offset that the client might obtain, typically 30 per cent.
  • Mr Bogiatto would then ask the client to send information about the business’s operations and finances which he would use to prepare an R&D Tax Incentive Application for submitting to AusIndustry.
  • Once registration was confirmed, Mr Bogiatto would prepare and R&D Schedule containing figures that he instructed or advised the client to incorporate in its tax return.
  • One of Mr Bogiatto’s companies would then send an invoice to the client and pursue payment.

If a client questioned Mr Bogiatto’s calculations or asked for an explanation as to the figures, Mr Bogiatto would typically responded by asserting that he would not disclose his methodology because it was his intellectual property, asserting that he was the expert, and stating that the client should not question him.

Two of the 14 taxpayers did not follow through with lodging R&D claims.

In total, R&D tax offset refunds of $45.5 million were paid to Mr Bogiatto’s clients.

His Honour, Thawley J was satisfied that Mr Bogiatto and his companies marketed and encouraged interest in the schemes and were promoters of tax exploitation schemes in 13 out of the 14 taxpayers. The 14th taxpayer’s claims were found to be genuine, and did not amount to tax exploitation due to the scheme benefits being available at law.

In each case the scheme consisted of Mr Bogiatto advising the taxpayers that they were eligible for an R&D tax offset, the collation of information and the lodgment of the application with AusIndustry, and preparation and lodgment of an R&D Schedule for the relevant years.

The Court’s reasoning is summarised as follows.

  • It was reasonable to conclude that Mr Bogiatto entered into or carried out the schemes with the sole or dominant purpose of the taxpayers receiving a tax benefit (the R&D claim benefits).
  • In each case, it was not reasonable arguable that the scheme benefits were available at law, for at least one of the following reasons:
    • the expenditure was not incurred on eligible R&D activities;
    • the amounts were incurred by another entity which was not an R&D entity and therefore the taxpayers were not entitled to the benefits;
    • where some of the benefits were available, the amount of R&D expenditure claimed was either inflated or excessive.

The Court held that each of the relevant implemented schemes involved tax evasion, save for the exception where the claim was found to be genuine. The claims were grossly exaggerated or wholly unavailable. Mr Bogiatto deliberately put forward claims which he knew were wholly or partly unjustifiable and engaged in evasion. Mr Bogiatto avoided regulators when investigated and never looked to redress any amount of loss or damage incurred by scheme participants.

In February 2021, the Court imposed civil penalties totalling $22.68 million on Mr Bogiatto and his three companies. The size of the penalty is the highest ever seen in Australia.

The ATO reported that, as a result of the decision, Mr Bogiatto was also investigated and de-registered as a tax agent in October 2017, and forfeited his membership of the Institute of Public Accountants. He had his Chartered Accountants membership terminated in 2018.

The Rowntree case

In September 2020 the Federal Court in FCT v Rowntree held that three individuals were promoters of tax exploitation schemes.

Dr Rowntree, a solicitor and a qualified tax specialist, Mr Donkin, a chartered accountant and tax agent, and Mr Manietta, a financial planner (the Promoters) promoted investments in emissions reductions purchase agreements (ERPAs).

ERPAs were contracts with an offshore entity to purportedly purchase offshore carbon credits generated through offshore carbon reduction activities, and to acquire a licence to use a logo owned by the offshore entity. Investors could also acquire an option which, if exercised, required the offshore entity to purportedly purchase the number of offshore carbon credits contracted for by the participant for approximately the same amount as the balance payable by the investor.

Upon entering the arrangement, investors were obliged to pay a non-refundable first instalment equal to 15 per cent of the purchase price. The balance of the purchase price was not payable until the Investors received a notice of delivery. The investors would claim to deduct the entire purchase price of the offshore carbon credits in the income year that they entered the arrangement.

Each of the Promoters directly — or indirectly though his associates — received the following from more than 200 investors over the 2009 to 2012 tax years:

  • Dr Rowntree for the four tax years — $6,408,911;
  • Mr Donkin for the 2010, 2011 and 2012 tax years — $194,320;
  • Mr Manietta for the four tax years — $1,152,863.

In 2010, the ATO began querying an investor’s 2009 tax returns, on which the investor had claimed a 100 per cent deduction for the purchase price.

The Federal Court was satisfied that Dr Rowntree and Mr Manietta were promoters of each of the 2009, 2010, 2011 and 2012 tax exploitation schemes Mr Donkin was a promoter of the 2011 and 2012 schemes.

Rares J was satisfied that the Promoters entered into the scheme for the sole or dominant purpose of obtaining tax benefits, and that it was not reasonably arguable that the scheme benefits were available at law. Therefore, the schemes amounted to tax exploitation.

The schemes were entered into for the sole or dominant purpose of obtaining tax benefits as there was no evidence that there were arrangements to actually deliver any carbon credits under the ERPAs, or that it had taken any steps to ensure that the project was in a position to deliver a product. Further, the contracts for carbon credits were uncommercial and the ERPAs did not give the investors any right to compel delivery of the carbon credits for which they had paid a 15 per cent deposit.

The Promoters’ primary market for ERPAs consisted of health professionals, accounting firms and real estate agents — taxpayers that would have no bona fide use for carbon credits in their businesses or operations. The scheme benefit was the use of the full purchase price as a deduction from the investor’s taxable income that, if allowed, would result in its tax-related liability being less than it would have been apart from the scheme.

The purpose of each Promoter was to make money for himself or his associates from sales of contract lots through inducing investors to enter into the ERPAs and with the dominant purpose that each investor would pay only the 15 per cent deposit and get the scheme benefit of an immediate deduction of the full purchase price of each contract lot in the tax year, worth about twice the expenditure on the deposit.

It was not reasonably arguable that the scheme benefit is available at law. The full purchase price of a contract lot was not a loss or outgoing incurred in gaining or producing the investor’s assessable income within the meaning of s. 8-1(a) because the investor had not completely subjected itself to its payment. In addition, there was no apparent nexus between the loss or outgoing for the ERPA, or the 15 per cent deposit, and the production of any of the investor’s assessable income.

His Honour held that the schemes involved tax evasion. Critically, when the ATO commenced investigating investors’ tax returns, Dr Rowntree and his associates requested that the investors withhold contractual documents from the ATO on the basis that ‘the investment vendors are considering the ATO defence strategy’. This evasive behaviour was designed to ‘keep the ATO in the dark’.

More recently, in March, the Federal Court, taking into account each of the relevant factors, imposed civil penalties on the Promoters as follows:

The Promoters have lodged a notice of appeal to the Full Federal Court against the penalty decision.

Further info and training

Further info and training

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at 18 locations across Australia. Click here to find a location near you.

Here are a few of our upcoming sessions:

Online training

Face to face sessions

These are only a few of our Public Session options. Click here to find a location near you.

*These sessions will be moved to an online format in the case of COVID-19 restrictions or safety issues.

Tailored in-house training

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.

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

 

Company loss carry back offset claims for 2021

Posted on by thriveadmin

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About the company loss carry back tax offset

Schedule 2 of Treasury Laws Amendment (A Tax Plan for the COVID-19 Economic Recovery) Act 2020 — which received Royal Assent on 14 October 2020 — inserted Div 160 into the ITAA 1997 which contains the company loss carry back tax offset rules. An eligible corporate entity can choose to ‘carry back’ a tax loss it incurs in the 2019–20, 2020–21 or 2021–22 income years and offset it against the income tax liability of earlier income years as far back as the 2018–19 income year to generate a refundable tax offset. The rules are temporary — they apply in relation to assessments for the 2020–21 or 2021–22 income year and will cease to apply after the 2021–22 income year.

NOT YET LAW

As part of the 2021–22 Federal Budget, the Government announced that it will extend for one year the temporary loss carry-back measure.  At the time of writing, this announcement has not been passed into law.

The limited nature of the concession is summarised below:

The choice to claim a loss carry back tax offset is an alternative to carrying tax losses forward as a deduction for future income years. The ability to carry back losses is useful for companies that have allowable deductions under, for example, the instant asset write-off, because it means that the company does not have to wait until it has a taxable income in order to benefit from the deductions. The significant tax losses which the instant asset write-off can generate can be carried back to generate cash refunds for eligible businesses.

How does the loss carry back tax offset work?

The entity gets a refundable tax offset for 2020–21 or 2021–22 that is a proxy for the tax the entity would save if it deducted the loss in the income year to which the loss is carried back. The refundable tax offset is:

  • capped at the entity’s franking account balance at the end of the year in which the entity files its tax return claiming the loss carry back tax offset; and
  • only available for losses for years for which the entity’s turnover was less than $5 billion.

Eligible corporate entities

An entity will be eligible to claim a loss carry back tax offset if it:

  • is a corporate tax entity;
  • has incurred a loss in the 2019–20, 2020–21 or 2021–22 income year;
  • incurred an income tax liability in the 2018–19 or 2019–20 income year, OR
    • if the current year is the 2021–22 income year and the 2021–22 income year was a loss year — the 2020–21 income year;
  • is up to date with its income tax lodgment obligations;
  • chooses to claim the loss carry back offset.

The tax losses which can be carried back to an earlier income year (i.e. to the 2018–19, 2019–20 or 2020–21 income years) only if the entity had an income tax liability in that year. A tax loss can only be used once.

An entity cannot carry back:

    • capital losses;
    • certain tax losses arising from the conversion of excess franking offsets;
    • transferred losses relating to either:
      • foreign banking groups;
      • head companies of consolidated groups.

Calculating the amount of the tax offset

The ATO has provided a four step process to calculate the amount of the loss carry back tax offset:

Examples — Calculating the loss carry back tax offset

The following examples demonstrate the above four step methodology:

Example 1

A company, a base rate entity (BRE), has a tax loss of $30,000 in the 2020–21 income year and an income tax rate of 26 per cent. Its turnover is $1 million.

At the end of its 2020–21 income year, it has a franking account balance of $12,000 and chooses to carry back all its tax loss from the 2020–21 income year to the 2019–20 income year.

In the 2019–20 income year, the company had an income tax liability of $16,000 and no exempt income.

The company calculates the amount of its tax offset for the 2020–21 income year as follows:

The company’s refundable tax offset from loss carry back is therefore calculated as $7,800.

Example 2

A company (a BRE) has a tax loss of $500,000 in the 2020–21 income year and an income tax rate of
26 per cent. Its turnover is $2 million. It chooses to carry back the entirety of this loss to the 2019–20 and 2018–19 income years.

At the end of its 2020–21 income year, it has a franking account balance of $100,000.

The company had the following income tax liabilities in previous years:

  • 2018–19 — $25,000, with $2,000 exempt income
  • 2019–20 — $200,000, and no exempt income.

The company calculates the amount of its tax offset for the 2020–21 income year as follows:

The company’s refundable tax offset from loss carry back is therefore calculated as $100,000.

Choice — $384,615 × $25,000 ÷ $100,000 = $96,154 loss carried back to 2018–19

Choice — $384,615 × $75,000 ÷ $100,000 = $288,461 loss carried back to 2019–20

On this basis, the company has a loss to be carried forward.  $29,480 x 100/26 = $113,385. That is, the company has effectively carried back $498,000 – $113,385 = $384,615 to create the refund of $100,000 (at 26%).

Claiming the loss carry back offset

A company claiming the loss carry back tax offset must complete additional labels in the Company tax return 2021 (NAT 0656-6.2021) to make the choice to carry back losses.

Entities with an early balancer substituted accounting period (SAP) and entities lodging a company tax return for part of the 2020–21 income year will be required to complete a ‘Loss carry back claim form — 2020–21 Early balancer substituted accounting period or lodging a company tax return for part year’ form (NAT 75344) in order to claim the tax offset.

Useful Resources

Further info and training

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at locations across Australia. Click here to find a location near you.

Did you know?

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.

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

Tax Time 2021 stationery has been released [updated]

Posted on by thriveadmin

[lwptoc]

Editor’s note: This blog article was updated on 27 August 2021 to include the ATO’s Tax Help Program – for more details, see below.

Forms and instructions 2021

The ATO has now released its Tax Time 2021 stationery.

Tax Time 2021 publications will be available here as they are released.

The key publications are here:

The ATO has also prepared a suite of Tax Time Toolkits which provide information for various occupations.

Tax Time 2021 timelines

The ATO will start full processing of 2020–21 tax returns on 7 July 2021 and expects to start paying refunds from 16 July 2021.

The ATO aims to finalise most electronically lodged 2021 returns within 12 business days.

The ATO has not yet updated its lodgment program due dates on its website for 2021 tax return obligations. The lodgment due dates for clients’ 2021 tax returns will be available in Online services for agents by the end of July. Generally, agent-lodged returns for 30 June balancers are due by 15 May of the following year (i.e. 15 May 2022), with an agent extension to 5 June, unless the lodgment program requires earlier lodgment. Where the client has one or more prior year tax returns overdue as at 30 June 2021, their 2021 return due date will be 31 October 2021.

Key changes affecting 2021 tax returns

Individuals

Stage 2 of the Personal Income Tax Plan (tax cuts)

  • Upper threshold of the 19 per cent tax bracket raised from $37,000 to $45,000.
  • Upper threshold of the 32.5 per cent tax bracket was raised from $90,000 to $120,000.

Optional shortcut method for calculating working from home deductions

  • 80 cents per hour to cover all working from home expenses.
  • Cannot claim any other expenses for working from home.

Low income tax offset

  • Maximum low income tax offset increased to $700 from 1 July 2020 (brought forward from 1 July 2022).

CGT discount for affordable housing

  • Resident individuals who provide affordable rental housing to people earning low to moderate income, from 1 January 2018 for an aggregated to three years, can claim an additional affordable housing capital gains discount of up to 10 per cent.

Early access to superannuation — not assessable income

  • Eligible individuals could withdraw between $1,000 and $10,000 from their superannuation between 1 July 2020 and 31 December 2020.
  • Not assessable income.

The ATO’s Tax Help program for individual self-lodgers

The ATO offers a free Tax Help program from July until 31 October 2021 through which volunteers help eligibile individuals to lodge their tax returns online. The program is available to individuals whose income is $60,000 or less, who did not:

  • work as a contractor;
    • note — new ‘gig economy’ workers who may be reporting that income for the first time may be classified as employees or contractors depending on their circumstances and they may need to seek professional advice in this regard;
  • run a business, including as a sole trader;
  • have partnership or trust matters;
  • sell shares or an investment property;
  • own a rental property;
  • have a CGT event happen during the year;
  • receive royalties;
  • receive trust distributions, other than from a managed fund; or
  • receive foreign income, that is not a foreign pension or annuity.

Taxpayers whose tax affairs include one or more of these matters that are ineligible for the Tax Help program should consider seeking assistance from a registered tax agent in lodging their return.

The program is currently experiencing a downturn in part attributable to COVID-19 restrictions affecting taxpayers’ ability to attend face to face sessions at Tax Help centres across Australia. Tax Help is also available online or by phone.

Businesses

Cash flow boost credits

  • Eligible businesses received between $20,000 and $100,000 in cash flow boost amounts upon lodging their activity statements.
  • Non-assessable non-exempt income.

JobKeeper Payments — assessable income

  • Eligible employers received a wage subsidy per fortnight per eligible employee (the payment rate changed over time) until the scheme ceased on 28 March 2021.
  • Assessable income.
  • Overpaid JobKeeper payments which have been repaid are not assessable.

Companies

Loss carry back tax offset

  • Eligible companies can carry back losses as far back as 2019 for a refundable tax offset.

Corporate tax rate for base rate entities

  • Reduced to 26 per cent.

Small businesses

Uncapped instant asset write-off

  • $150,000 threshold up until 7.30 pm AEDT on 6 October 2020; uncapped from that time.

Write-off of closing pool balance

  • Entire closing balance of the general small business pool as at 30 June 2021.

Backing business investment

  • Can claim 57.5 per cent of the cost of eligible assets in the first year the asset is added to the pool.

Turnover threshold increased from $10 million to $50 million from 1 July 2020 for certain concessions.

  • Immediate deduction for professional expenses for start-ups, including professional, legal and accounting advice, and government fees and charges.
  • Immediate deduction for prepaid expenses which cover a period of 12 months or less that ends in the next income year.

Capital allowances (other than simplified depreciation)

Temporary full expensing of depreciating assets

  • Eligible businesses can deduct the full business portion of the cost of eligible new depreciating assets first held, and first used or installed ready for use for a taxable purpose, between 7.30 pm AEDT on 6 October 2020 to 30 June 2022.

Enhanced instant asset write off

  • Eligible businesses other than SBEs can immediately deduct the taxable proportion of the cost of eligible depreciating assets up to a threshold of $150,000.

Backing business investment

  • Eligible businesses can claim a deduction of 50 per cent of the cost of an eligible depreciating asset.

New disclosures in tax returns

New items in the Company tax return 2021

Item 8 Financial and other information — 3 new labels

  • P — Opening franking account balance
  • X — Select your aggregated turnover range
  • Y — Aggregated turnover

Item 9 Capital allowances — 12 new labels (P to N)

  • See the excerpt from the tax return below

Item 13 Losses information — 11 new labels (A to S)

  • See the excerpt from the tax return below

New items in the Trust tax return 2021

Item 49 Aggregated turnover

  • P — Select your aggregated turnover range
  • Q — Aggregated turnover

Item 50 Capital allowances 11 new labels (P to O)

  • Similar to the new labels in the Company tax return (see the excerpt below)

New items in the Partnership tax return 2021

Item 48 Aggregated turnover

  • U — Select your aggregated turnover range
  • V — Aggregated turnover

Item 49 Capital allowances 11 new labels (P to N)

  • Similar to the new labels in the Company tax return (see the excerpt below)

Company tax return disclosures for new incentives

For more information about the capital allowances changes which may affect 2021 tax returns and planning for 2022, check out our upcoming presentation, Capital allowances revisited, taking place on 7 July. You can also register for the recording so you can review it at a time convenient to you.

Further info and training

Each month, TaxBanter’s Tax Updates will keep you informed of the latest developments in this space. We present Tax Updates online, in cities across Australia and offer private tailored training sessions to firms of all sizes.

Brush up for the EOFY by training with us! Our next Online Tax Update takes place Tuesday, 6 July. You can register for it here. New clients can take 50% off the session with the code EOFY50.

To learn more about our various training options, click here.

Has COVID-19 affected your ability to make Div 7A repayments by year end?

Posted on by thriveadmin

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Overview

The ATO understands that as a result of the COVID-19 situation, some Div 7A borrowers are facing problems in making minimum repayments for 2020–21 due to circumstances beyond their control. The ATO will support these taxpayers by allowing an extension of the repayment deadline in eligible circumstances. A similar extension was provided to taxpayers in respect of minimum repayments for the 2019–20 income year.

This article will outline the legislative requirements to make Div 7A minimum yearly repayments (MYRs) and the conditions for the ATO repayment extension.

The requirement to make minimum yearly repayments

Under Div 7A of the ITAA 1936, certain loans and payments made, and loans forgiven, by a company (or certain interposed entities) to a shareholder or an associate of a shareholder of the company in an income year constitutes a deemed unfranked dividend assessable to the shareholder for that income year unless a complying loan agreement is put in place in accordance with the requirements in s. 109N. The requirements include that the agreement must specify an interest rate that is equal to or greater than the benchmark interest rate for the year, and a loan term that does not exceed the maximum allowable term (i.e. 25 years for loans secured over real property and seven years otherwise).

The borrower (taxpayer) must make the MYR by the end of the private company’s income year. If this amount is not paid, the taxpayer will be considered to have received an unfranked dividend, generally equal to the amount of any MYR shortfall.

Requesting the ATO extension

Taxpayers who are unable to make their 2020–21 MYR by 30 June 2021 may apply for an extension. It is not an automatic extension. The taxpayer must make the request by completing a ‘streamlined’ online application and the ATO will advise if the application is approved.

In the application the taxpayer will need to disclose the shortfall amount, that the COVID-19 situation has affected them and that they are unable to pay the MYR as a result. It is not necessary to submit further evidence with the application.

If the application is approved, the taxpayer will not be considered to have received an unfranked dividend in 2020–21. The shortfall is due to be paid by 30 June 2022 — i.e. it is a 12-month extension.

The streamlined application only applies to applications for an extension for the 2020–21 income year of up to 12 months.

The application form

The application form is available here. An excerpt is reproduced below.

Tips for making an application

The ATO instructions for filling out the form include the following information:

Taxpayer unable to pay

‘Unable to pay’ is about cash flow, not whether there is an excess of assets over liabilities. It is a question of fact to be determined in a practical business environment and taking into account all of the circumstances. In general, the ATO’s view is that:

  • a business needs to consider whether it can pay its way in carrying on business, e.g. it is unable to pay if it needs to sell its trading stock outside the course of its business to obtain the funds;
  • an individual is unable to pay where they need to use the assets necessary to maintain an adequate living standard for themselves and their family to make a payment;
  • a partnership is unable to pay if each of the partners are unable to pay.
Realising assets or using assets as security

A taxpayer is able to pay an amount if they can readily sell their assets or use them as security to obtain finance. Whether they can readily realise assets in time to make the payment depends on factors including the availability of a market, commercial costs of realisation in a short time, time required to sell the asset or use it as security, and the interest of joint owners.

Money for business or living expenses

A business taxpayer is unable to pay if they have to use the money and assets to maintain existing activities. However, this does not extend to other expenses, such as a future expansion. For an individual, the test extends to others they are responsible for, e.g. payment of children’s school fees.

Payments required under a previous extension for the 2019–20 income year would be taken into account in determining whether a taxpayer is able to pay their 2020–21 MYR.

Unable to pay due to COVID-19

The taxpayer needs to confirm that their inability to pay is a result of the COVID-19 situation, either because it directly affected the taxpayer, or it affected another person with a flow-on effect for the taxpayer. The taxpayer must also confirm that their inability to pay has not been caused by another reason.

Other repayment relief options

Section 109RD allows the Commissioner to extend the period for repayments. It is under this power that the ATO created the streamlined process specifically for taxpayers whose repayment ability has been affected by COVID-19.

COVID-19 affected taxpayers may also apply under the same provision, outside of the streamlined process, to obtain an extension of time for longer than 12 months, i.e. beyond 30 June 2022.

In addition, any eligible taxpayer, regardless of the reason that they cannot make their MYR on time (i.e. whether COVID-19 related or not), may:

  • apply for an extension under s. 109RD, outside of the streamlined process — COVID-19 affected taxpayers should do this if they want an extension beyond 30 June 2022;
  • apply for relief from repayment on the grounds of undue hardship under 109Q(1)(b);
  • apply for the Commissioner to disregard the operation of Div 7A or allow a deemed dividend to be franked where the dividend arises because of an honest mistake or inadvertent omission under 109RB.

Repayments for 2020 extensions now due

The streamlined process was also made available last year for eligible taxpayers affected by COVID-19 to delay their 2019–20 MYRs until 30 June 2021. Taxpayers who obtained this extension need to ensure that they repay their 2019–20 shortfall by the due date to avoid an unfranked dividend.

If the taxpayer is unable to make the repayment, they cannot apply through the currently available streamlined process for 2020–21. Their available options are to:

  1. apply for a longer extension via the permanent mechanisms outlined in the ‘Other repayment relief options’ above; or
  2. amend their 2019–20 tax return to include an unfranked dividend under Div 7A in relation to the shortfall.

      Implications

If a taxpayer who obtains the 2020–21 extension does not make their deferred repayment by 30 June 2022, at that time they will have to similarly either obtain another extension or other relief, or amend their 2020–21 tax return to include a Div 7A dividend.

Worked example

This example is based the example in the ATO fact sheet.

Dorothy’s minimum yearly repayments

Oz Land Pty Ltd (Oz Land) lent its shareholder Dorothy $1,000 under a s. 109N complying loan agreement during its 2018 income year. The term of the loan is seven years and the loan agreement does not provide for the capitalisation of interest (at the benchmark interest rate) that is not paid by the due date.

Assume:

  • the benchmark interest rate remains at 4.52 per cent for the remaining term of the loan from the 2022 income year onwards;
  • Dorothy pays her MYR on 30 June of each year and has paid her 2019–20 MYR of $175, resulting in a loan balance of $750 on 30 June 2020.

Dorothy would expect her 2021, 2022 and 2023 MYRs to be:

Dorothy is unable to pay any of the 2021 MYR due to the COVID-19 situation. The Commissioner makes a decision under s. 109RD to disregard the dividend Oz Land is taken to have paid Dorothy in the 2021 income year, provided Dorothy pays the amount of the shortfall ($171) to Oz Land by 30 June 2022.

Payment obligations by 30 June 2022

To avoid Div 7A dividend consequences, Dorothy will need to pay by 30 June 2022:

  • the amount of the 2021 shortfall (s. 109RD);
  • the 2022 MYR amount (s. 109E).

Calculation of the 2022 MYR

The 2022 MYR that Dorothy will need to pay is calculated under the formula in s. 109E(6).

Dorothy did not pay the 2021 MYR by 30 June 2021. As the loan agreement does not provide for the capitalisation of interest, the unpaid interest on the loan was not capitalised but Dorothy will still be required to pay that interest under the terms of the loan agreement.

Dorothy’s 2022 MYR is calculated as:

The 2022 payment

On 30 June 2022, Dorothy will need to pay $348 comprising:

The required payment of $348 can also be explained this way:

Failure to make the payments by 30 June 2022

If the shortfall amount is not paid by 30 June 2022, the Commissioner’s decision will cease to apply and Dorothy will need to include a dividend in the 2021 income year. If Dorothy does not make at least the 2022 MYR of $209 there could be a dividend in that year.

Dorothy could at any time apply, outside the streamlined process, for a further extension of time under s. 109RD to pay the 2021 and 2022 shortfall amounts to have the dividends disregarded.

Alternatively, she could apply to have the dividends disregarded under s. 109Q, the reason being that they would cause undue hardship.

Calculation of the 2023 MYR

Dorothy has paid the shortfall. For calculating the 2023 MYR, the loan balance as at 30 June 2022 will be $470:

$750 less payments made on 30 June 2022 not attributed to interest ($348 – $68 = $280)

Based on the original repayment schedule, Dorothy was due to pay principal of $137 in 2021 and $143 in 2022. $137 + $143 = $280.

The 2023 MYR will return to the normal schedule of payments:

Further info and training

Each month, TaxBanter’s Tax Updates will keep you informed of the latest developments in this space. We present Tax Updates online, in cities across Australia and offer private tailored training sessions to firms of all sizes.

Brush up for the EOFY by training with us! Our next Online Tax Update takes place Tuesday, 6 July. You can register for it here. New clients can take 50% off the session with the code EOFY50.

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Director Identification Number process in private beta testing

Posted on by thriveadmin

[lwptoc]

The Registrar’s information collection powers in relation to the new Director Identification Number (Director ID) requirement is set out in the Legislative Instrument titled Corporations Identification Number Data Standard 2021 (the Instrument), registered on 15 April 2021.

About the Director ID

The Director ID requirement was introduced by Schedule 2 to the Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020, which received Royal Assent on 22 June 2020.

New Part 9.1A of the Corporations Act 2001 (the CA) requires directors to apply to the Registrar — also the Commissioner of Taxation — for a Director ID within 28 days of their appointment (exemptions and extensions may be applicable). The Registrar will be required to provide the director with a Director ID if satisfied that the director’s identity has been established. An individual with a Director ID may request the Registrar to update their details in accordance with their obligations under the CA.

Civil and/or criminal penalties will apply for directors who fail to meet their obligations.

The Director ID will require all directors to confirm their identity and it will be a unique identifier for each individual who consents to being appointed a director. The individual will keep that unique identifier permanently, even if they cease to be a director. An individual’s Director ID will not be re-issued to someone else and generally only one Director ID will be issued to an individual.

The Director ID requirement was introduced partly to deter and penalise illegal phoenixing behaviour. Illegal phoenixing is when the controllers of a company deliberately avoid paying liabilities — to creditors, employees and governments — by shutting down an indebted company and transferring its assets to another company. The total cost of illegal phoenixing to the Australian economy is estimated to be between $2.9 billion and $5.1 billion annually.

The Director ID will provide traceability of a director’s relationships across companies, enabling better tracking of directors and preventing the use of fictitious identities. This will assist regulators and external administrators to investigate a director’s involvement in unlawful activity.

In addition, the new Director ID regime is intended to provide other benefits beyond combatting illegal phoenixing, including:

  • allowing shareholders, employees, creditors and consumers to be confident they know who the directors of a company are;
  • improving the efficiency of the insolvency process by providing a simpler, more effective tracking of directors and their corporate history, which will reduce time and cost for administrators and liquidators;
  • improving data integrity and security.

No commencement date set

The Director ID requirement will apply from a date to be fixed by proclamation. This is to ensure that a commencement date can be set when administrative arrangements are in place. If it does not commence by 22 June 2022 it will automatically commence on 23 June 2022.

Under transitional arrangements, persons who are directors at the time the new requirement starts will have to apply for a Director ID within the period specified in a legislative instrument made by the Minster, and there is no requirement to apply for a Director ID until this instrument is made. In addition, a director will have an extra 28 days to apply for a Director ID during the first year of operation of the new requirement.

The Corporations (Transitional) Director Identification Number Extended Application Period 2021, registered on 29 April 2021, provides that new directors appointed between the commencement of the Director ID requirement and 31 October 2021 have until 30 November 2022 to obtain a Director ID.

The ATO roll-out

The Director ID roll-out is administered by the ATO. The Director ID scheme forms part of the Modernising Business Registers (MBR) program, which the Registrar is responsible for implementing. The MBR program, to be rolled out between 2021 and 2024, implements a number of initiatives to streamline and improve how business information is maintained, including establishing a new central registry service, the Australian Business Registry Services (ABRS), to unify 32 existing registries.

Directors currently do not need to do anything. The ATO is testing the new application process in a private beta.

When it is time to apply for a Director ID, directors will be able to use the new ABRS online services and will sign in using the myGovID app.

Existing laws to combat phoenixing

The introduction of the Director ID requirement is one of the most recent legislative changes designed to deter phoenixing practices. The corporate law and tax law currently include rules which:

  • impose personal liability on directors for their companies’ unpaid PAYG, superannuation, GST, luxury car tax and wine equalisation tax debts;
  • allow the ATO to disclose to credit reporting agencies information about overdue business tax debts of over $100,000;
  • prohibit a director from allowing their company to trade if it is or will become insolvent;
  • prohibit the avoidance of paying employee entitlements;
  • prohibit creditor-defeating dispositions of company property and allow liquidators and ASIC to recover such property;
  • prevent directors from backdating resignations or leaving a company with no directors.

The Registrar’s information collection powers

The Instrument, which sets out the Registrar’s powers to collect information, applies to individuals applying for a Director ID under the CA. A separate instrument will be issued to detail the requirements for an application for a Director ID under the Corporations (Aboriginal and Torres Strait Islander) Act 2006.

What information can be collected

For the purposes of establishing an individual’s identity and providing the individual with a Director ID or to update their details, the Registrar may require and collect the individual’s:

  • names and former names;
  • addresses and former addresses;
  • contact details;
  • date and place of birth;
  • identity documents or information evidencing identity.

The Registrar may also request, but not compel, the individual’s tax file number.

There may be considerable variation in the information required to uniquely identify an individual. In order to ensure flexibility in allowing individuals to confirm their identity, it is not possible to provide an exhaustive list of information that may be requested.

How the Registrar may collect information

Individuals applying for a Director ID  through the electronic platform will be required to verify their identity digitally. This will require a digital identity credential. Individuals will need to provide Australian identity documents to apply for a digital identity credential (if they do not already have one).

The preferred means of applying for a Director ID is electronically. If an individual is unable to do so, the Registrar may consider accepting a paper or other form of application.

Foreign directors or directors unable to obtain a digital identity credential will follow the existing ATO proof-of-identity process, which is predominantly paper-based and may include certified copies of identity documents, assistance through Shop Fronts, use of an apostille and Australian Consulates.

An individual who wishes to apply for a Director ID will visit the proposed website. When they click on the button to apply, they will be directed to an accredited digital identity provider for authentication.

If the individual does not have a digital identity credential, they can apply at this stage, and prove their identity using key Australian identity documents. The currently accepted documents are a driver’s licence or learner’s permit, passport, birth certificate, Australian visa, and Medicare card. Additional documents may be accepted sometime in the future.

The accredited digital identity provider will collect and verify some personal information and this will be passed to the Registrar’s secure platform. This information will be displayed to the individual to indicate that this information has been collected/shared from their digital identity.

Individuals will be informed about the collection of their personal information through a privacy notification at the time of application.

How to apply for a Director ID

An application for a Director ID must be made in the form approved by the Registrar. The form will usually be an electronic form, unless the individual cannot use the electronic form.

For digital applications an accredited digital identity provider will be the main proof-of-identity solution used for Director ID. Currently, individuals applying for a digital identity credential through myGovID are required to prove their identity using key Australian identity documents.

Individuals are responsible for completing the Director ID application form themselves, and an agent or other third party cannot apply for a director ID on behalf of a director unless the Registrar is satisfied that an exception applies (e.g. due to disability, injury or illiteracy).

How the Registrar uses the information

The Registrar may use the collected information for the purpose of giving the individual a Director ID and maintaining the accuracy of Director ID information. The Registrar may make a record of information collected or generated in the course of processing the individual’s application, including any updates or corrections.

Where possible the Registrar will validate information provided by the director in real‑time, such as email, mobile and addresses using data validation software. If the information provided is not validated, the form will prompt the individual to re-enter the correct information in the field. If information is not validated, the form cannot be submitted.

The Registrar may also authenticate the information provided by an individual against third party information (e.g. driver’s licence information and ASIC registries) and ATO records.

Collected information is protected information and subject to the secrecy and disclosure provisions in Part 9.1 of the CA. The Registrar may disclose the information to other government agencies as permitted by law. Amongst other things, the Registrar may provide a TFN to the Commissioner for verification purposes, and may also request from the Commissioner the TFN of an applicant.

The Registrar must record and store information obtained by the Registrar. The data from the Director ID application will be stored in a secure platform controlled and maintained by the Registrar. The Registrar will apply security methods and technologies to protect the information.

How the Registrar may update information

The Registrar may update the Director ID information of an individual if the Registrar reasonably believes the information is incorrect, e.g. where there is a change of details of a director.

An individual will be able to request updates to their details electronically. A paper or telephone option may be provided.

Communication

The Registrar anticipates that the number of directors who will be required to have a Director ID is approximately 10 per cent of the Australian population.

The Registrar will communicate with holders of and applicants for a Director ID electronically unless they cannot be contacted by electronic means.

Declaration

An applicant for a Director ID will be required to complete a declaration confirming that:

  • the individual is the applicant identified in the application;
  • any information provided in the application is true and correct;
  • they meet the requirements to apply for a director ID, that is:
    • they are an eligible officer or they intend to become an eligible officer within 12 months after they have applied;
    • they do not already have a Director ID or have been directed by the Registrar to apply or apply again.

Review of decisions

An individual adversely affected by a decision of the Registrar may be able to apply for review of the decision.

Stay up to date

To keep up to date with the progress of the Director ID roll-out and when it may affect your clients, visit the ATO webpage Moderning Business Registers.

Each month, TaxBanter’s Tax Updates will keep you informed of the latest developments in this space. We present Tax Updates online, in cities across Australia and offer private tailored training sessions to firms of all sizes.

Our next Online Tax Update takes place Tuesday, 6 July. You can register for it here. New clients can take 50% off the session with the code EOFY50.

To learn more about our various training options, click here.

 

Car parking near home depot may not be subject to FBT

Posted on by thriveadmin

[lwptoc]

In May, the Federal Court handed down its decision in Virgin Australia Airlines Pty Ltd v FCT [2021] FCA 523. It 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 provision of car parking spaces at the airport does not constitute the provision of a car parking fringe benefit.

This article will revisit the general legislative definition of a car parking fringe benefit before considering the Court’s interpretation in the Virgin decision. Further the article will look at the Commissioner’s draft views in relation to car parking fringe benefits which the ATO anticipates it will soon finalise.

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 FBTA Act or the ITAA 1997.

All-day parking means parking of a car for a continuous 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 draft Ruling TR 2019/D5 for the Commissioner’s preliminary views on what constitutes a commercial parking station.

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 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 contentions

The Taxpayers contended that the employees’ primary place of employment was the aircraft on which they carried out their duties, and that the duties performed at terminals were ancillary to the principal duties performed onboard the aircraft. Therefore their cars were not parked at, or in the vicinity of, their primary place of employment.

The Commissioner contended that the employees’ primary place of employment on each working day was the home base airport terminal at which they signed on for a shift. An employee’s car was parked ‘at, or in the vicinity of’ their primary place of employment on each day the employee used the car park at their home base.

Alternatively, their employees’ primary place of employment was the airport at which they commenced their shift if it was other than the home base terminal. In this case, an employee’s car was parked ‘at, or in the vicinity of’ their primary place of employment on each day the employee used the car park at the airport where they commenced their shift.

The Federal Court decision

The Federal 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.

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.

Implications

The outcome of this case may potentially have implications for employers in other industries whose employees perform most of their duties on a mode of transportation — these may include delivery trucks; passenger and freight trains; buses; cargo ships and passenger vessels; hire car drivers; ambulances and similar.

The question to be answered is whether the duties performed at a home depot or home base — where the employer has provided car parking facilities — are merely ancillary to the duties performed elsewhere; that is, where is the primary place of employment?

The Court decision cannot be taken to mean that all employees who work on moving vehicles or other transport have that as their primary place of employment. In each case it must be assessed as to which of the employment duties are principal and ancillary duties and where they are performed. For example, where an employee who does most of their work on aircraft but only when they are stationary and not in flight, the conclusion as to their primary place of employment may be different to that for flight crew.

Of course, a car parking fringe benefit can only exist if all other conditions are met, and no exemption applies.

The ATO anticipates that it will soon finalise its ruling setting out the Commissioner’s views in relation to these conditions. Additionally, from 1 April 2021, the exemption in relation to small business car parking is extended to entities with aggregated turnover up to $50 million.

Draft ruling on car parking fringe benefits

Draft Ruling TR 2019/D5 titled Fringe benefits tax: car parking benefits (the draft Ruling) was issued on 13 November 2019. It 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.

The ATO expects to finalise the Ruling this month (June 2021). When the Ruling is finalised, it will replace TR 96/26 (withdrawn on 13 November 2019).

When the final Ruling is published, the Commissioner’s revised view on the meaning of the term ‘commercial parking station’ will apply from 1 April 2022.

An updated version of Chapter 16 in the Fringe benefits tax — a guide for employers to reflect the changes will also be published. A draft update for comment was published on 27 November 2019 pending consultation.

In particular, TR 2019/D5 provides guidance on what constitutes a ‘commercial parking station’. The draft 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 draft 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.

Further info and training

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at locations across Australia. Click here to find a location near you.

Our upcoming July Tax Update will cover this topic and what it means for you and your clients. Click here to register for the Online session, or click here to find a public session close to you.

If you’re a current in-house client and interested in this topic, we can tailor your next session to include further coverage of this – just contact your regular trainer or our friendly training operations team through enquiries@taxbanter.com.au.

If you’re not a current client, 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 email us for more information.

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

Transfer balance cap indexed to $1.7m from 1 July 2021

Posted on by thriveadmin

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Indexation of the general transfer balance cap

The superannuation general transfer balance cap (transfer balance cap) of $1.6 million will be indexed to $1.7 million from 1 July 2021. The ATO’s available information includes the fact sheet Indexation of the general transfer balance cap.

Currently, up to 30 June 2021, all individuals have a transfer balance cap of $1.6 million. In contrast, from 1 July 2021, the transfer balance cap varies between $1.6 million and $1.7 million depending on the individual’s circumstances:

The ATO states that it will calculate the individual’s entitlement to indexation and their personal transfer balance cap after indexation, based on the information reported to the ATO. If the individual’s superannuation fund subsequently reports information that affects the highest ever balance prior to 1 July 2021, the ATO will re-calculate the individual’s entitlement to indexation and new personal transfer balance cap.

All transfer balance cap information for a taxpayer is available on ATO Online, before and from 1 July 2021. Before 1 July 2021, individuals and their advisers will be able to see the highest ever balance in the transfer balance account, and if their personal transfer balance cap will be proportionally indexed.

Proportional indexation

A proportional indexation of the transfer balance cap based on the highest ever balance of the individual’s transfer balance account is calculated by:

  • Identifying the highest ever balance.
  • Using that to work out the unused cap percentage of the transfer balance account.
  • Multiplying the unused cap percentage by $100,000.

To calculate the individual’s unused cap percentage:

  1. Divide the highest ever balance by the individual’s transfer balance cap on the first day they had that balance (prior to 1 July 2021, this will be $1.6 million for all taxpayers).
  2. Express that as a percentage, rounded down to the nearest whole number.
  3. Subtract the result from 100.

Other implications of indexation of the transfer balance cap

The indexation of the transfer balance cap will affect other superannuation caps from 1 July 2021 as follows:

The ATO fact sheet sets out other implications of the indexation, including for child death benefit income streams, capped defined benefit income streams, government co-contributions and spouse contributions.

The implications

The difficulty that may arise for an adviser is knowing how much is in their client’s transfer balance account. Ensuring that the highest balance in any APRA based funds, defined benefits funds and SMSF funds that the client is a member of is captured will be imperative. This section provides several general examples of the practical outcomes of the indexation.

Important
Advisers can only give general advice about superannuation caps and contributions to their clients unless you have an Australian Financial Services (AFS) licence. Superannuation is a financial product. All accountants who provide specific advice on SMSFs must hold an AFS licence.

Examples

Example 1 — Non-concessional superannuation contribution

Mary is 58 years old and has a $1.45 million Total Superannuation Balance (TSB). She has just inherited $400,000 and wishes to put as much into superannuation as soon as possible.

The following is the difference between making a non-concessional superannuation contribution by 30 June 2021 and making one on 1 July 2021 or after.

Example 2 — No increase in the transfer balance cap

Sandra retired on 15 July 2017. Her personal transfer balance cap is $1.6 million.

She transferred $1.6 million into her transfer balance account on 15 July 2017. Besides taking out the minimum pension amount each year over the next two years, she needed to renovate her house so commuted $200,000 from her pension account. As at 1 July 2021 the amount in her transfer balance account is $1.4 million.

Since the space between Sandra’s highest balance in her TBA and the general TBC is nil there will be no increase in Sandra’s TBA cap.

Example 3 — Increase in the transfer balance cap

Steven retired on 31 August 2018. His personal transfer balance cap is $1.6 million.

He transferred $1.2 million into his TBA on 31 August 2018. He then paid out the minimum pension amount and did not commute any funds. As at 1 July 2021 the amount in his TBA $1.2 million.

The space between Steven’s highest balance and the general transfer balance cap is $400,000 is used to calculate the percentage increase in Steven’s transfer balance cap. This percentage is applied to the index amount to create the new cap (see the method statement outlined above).

Example 4 — Retirement after 1 July 2021

Narelle retires on 1 November 2021. Her personal transfer balance cap is $1.7 million.

Superannuation guarantee charge

Since the JobKeeper assistance finished in March 2021, some employers may be having difficulty paying their superannuation guarantee (SG) amounts by the due date. If this is the case, they should ensure that they pay the SG charge to the Commissioner once the assessment has been issued. If they instead pay the outstanding amount to the fund they will not be able to offset the amount paid against the SG charge.

In general once the due date has been missed the amount of SG charge payable to the ATO is calculated as follows:

Section 23A of the SGA Act allows an employer to elect to offset a contribution made to a fund against an SGC if:

  1. the contribution is made:
    1. after the end of the period of 28 days after the end of a quarter; and
    2. before the employer’s original assessment for that quarter is made; and
  2. the employer elects, in the approved form, that the contribution be offset.

If the employer pays the outstanding SG to the fund after the assessment of SGC for the quarter, then it will not be able to offset this payment against the outstanding SGC. The Commissioner has no discretion to allow the offset to happen.

In a case from last July, Jordyn Properties Pty Ltd and FCT [2020] AATA 3805 the Tribunal found that the Commissioner was correct to refuse to issue amended assessments to the Taxpayer under the SGA Act to take into account late superannuation contributions as an offset against the SG charge assessed to the Taxpayer.

Since the late SG contributions were not capable of being offset against the SG charge, they could not be the subject of a valid election under s. 23A of the SGA Act — i.e. the employer could not choose to offset the contribution against the SG charge, and the SG charge was thereby not discharged.

This can be a disadvantage to any employer especially if they are trying to clean up their books after the business has ceased because the SG will have to be paid twice and there will be no ability to claim the deductions as there are no employees to whom to allocate the SG amounts paid directly to the fund.

Minimum SG to rise to 10 per cent from 1 July 2021

Employers are reminded that the rate of compulsory SG will rise from 9.5 per cent to 10 per cent on 1 July 2021. Between now and year end, employers will need to ensure that their SG arrangements for each employee from 1 July will satisfy the new minimum requirement as well as any applicable employment agreement in place. If the SG increase is not appropriately prepared for, the employer may end up with unpaid SG amounts and SG charges down the track even if the employer did not intend to underpay SG. At time of writing, the ATO has not announced how it intends to administer the transition to the 10 per cent rate.

Further info and training

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at locations across Australia. Click here to find a location near you.

Our upcoming Superannuation Online training will cover these changes in full. You can learn about the changes via our quarterly Superannuation Update. We also delve into specialty areas of tax law specific to superannuation in our Superannuation Special Topic series.

If you’re a current in-house client and interested in this topic, we can tailor your next session to include further coverage of this – just contact your regular trainer or our friendly training operations team through enquiries@taxbanter.com.au.

If you’re not a current client, 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 email us for more information.

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

Do I have to charge GST when I provide tax services to overseas clients?

Posted on by thriveadmin

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Before the COVID-19 pandemic significantly changed international travel, Australians moved overseas every year for a wide variety of reasons, such as career, business, study, family and travel. Pre-pandemic, government estimates were that there was around one million Australians living and working overseas at a given time. Australian Bureau of Statistics data show that in 2018–19, approximately 128,800 Australian citizens and permanent residents (and 190,600 temporary visa holders) moved overseas to live.

While not always the case, many of these outbound Australians become non-residents for Australian tax purposes and retain Australian sources of income — such as rental properties, businesses and investments in Australian entities — after they leave Australia.

Every year, these expatriates seek the services of Australian tax accountants, lawyers and other advisers to provide advice in relation to their tax residency, their Australian and foreign tax obligations in relation to their income and assets, and to assist with fulfilling their Australian tax compliance obligations such as tax returns and activity statements.

In addition there are also foreign nationals who have never been Australian tax residents who also seek the services of Australian advisers in relation to their Australian investments or business income (whether existing or proposed).

The Australian advisers need to consider whether they are liable for GST in relation to the fees received for these services provided to overseas clients — that is, whether the supply of the service is a taxable supply.

NoteNote:
An entity makes a taxable supply if it meets all the conditions in s. 9-5 of the GST Act — including that the supply is ‘connected with the indirect tax zone’. The indirect tax zone broadly means Australia, subject to certain exclusions. This article refers to the indirect tax zone as ‘Australia’.

The GST status of the export of services

In deciding whether GST is payable on particular tax services provided to overseas clients, firstly the general rules in the GST Act about the export of services need to be considered.

The policy underlying GST is that it is intended to be a tax on consumption in Australia; and therefore, goods and services which are not consumed in Australia should not be subject to GST.

One of the requirements of a taxable supply in s. 9-5 is that it cannot be a GST-free supply. Section 38-190(1) of the GST Act sets out a table of items of various circumstances in which the export of services and intangibles is GST-free:

There are exceptions to the GST-free treatment:

  • a supply covered by any of the items 1 to 5 if it is the supply of a right or option to acquire something the supply of which would be connected with Australia and would not be GST-free — s. 38-190(2);
  • a supply covered by any of items 2 to 4 if the acquisition relates (whether directly or indirectly, or wholly or partly) to the making of a supply of real property situated in Australia that would be wholly or partly input taxed (see following Note) — s. 38-190(2A);
  • a supply covered by item 2 made under an agreement entered into with a non-resident which requires the supply to be provided to another entity in Australia (other than to ‘Australian-based business recipients’) — s. 38-190(3).

NoteNote:

Input taxed supplies relating to real property are supplies of residential rent (Subdiv 40-B), and sale of residential premises and supplies of residential premises by way of long-term lease (Subdiv 40-C).

Application of the general rules to the provision of tax agent services

In determining whether a supply of tax services is subject to GST, the facts and issues that an adviser will need to consider include whether:

  • the client is located in Australia or outside Australia when the services are provided;
  • the client is a resident or non-resident of Australia for tax purposes;
  • the client’s GST-registration status including whether they are acquiring the services in relation to an enterprise carried on in Australia; and
  • the services provided relate to real property — and if so, the type of real property.

What are the Commissioner’s views?

A number of substantial ATO rulings set out the Commissioner’s interpretation of the GST law which are relevant to the question at hand — i.e. whether the particular supply of tax services is a GST-free supply. If the answer is no, then the supply is a taxable supply as long as the other requirements of s. 9-5 are satisfied.

The Commissioner’s views include the following:

  • GSTR 2003/7 — accounting services in preparation of a tax return that includes rental income or CGT in relation to a property is not directly connected to Australia — i.e. it is a GST-free supply under item 2.
  • GSTR 2003/8 — tax return services relating to reporting assessable income produced from the exercise of rights do not constitute ‘a supply that is made in relation to rights’ for the purposes of item 4. That is, such tax return services cannot be GST-free under item 4.
  • GSTD 2007/3 — a ‘mixed’ supply relating to Australian input taxed rental supplies and tax return preparation services is not GST-free.

Apportionment where supply partly relates to real property

There is no apportionment available under s. 38-190(2A) — relating to a supply covered by any of items 2 to 4 if the acquisition relates (whether directly or indirectly, or wholly or partly) to the making of a wholly or partly input taxed supply of real property situated in Australia. Even if the acquisition of tax services partly relates to the making of supplies that are input taxed supplies of real property, the supply will not be GST-free. For example, if where tax return preparation services relate to income returned from other sources such as employment, or advice includes other matters such as share investments. The supply by the Australian accountant to the non-resident will be wholly taxable if the requirements of s. 9-5 are met.

Implications
In practice an Australian accountant may make:

    • a single supply comprising advice and tax return preparation services; or
    • two separate supplies being a supply of advice and a supply of tax return preparation services.

The GST status of the supply/ies may differ depending on the subjects of the services, and the Australian adviser should consider the GST implications in the course of entering into an engagement agreement with a client located outside Australia.

Some ATO examples

Tax advice regarding real property

Lucy, a UK resident, engaged Paul, a lawyer in Australia, to advise about potential income tax and land tax liabilities arising from her ownership of a commercial rental property in Australia. Lucy is in the UK when Paul prepares the advice.

The supply is GST-free under item 2. The supply of advice is not directly connected with real property situated in Australia. Instead, it is directly connected with the application of Australian tax laws. It is only indirectly connected with real property in Australia.

Source: Based on Example 18 in GSTR 2003/7

NoteNote:
A supply covered by item 2 is not GST-free if the acquisition of the supply related (whether directly or indirectly, and wholly or partly) to the making of a supply of real property situated in Australia that would be — wholly or partly — input taxed as residential rent (Subdiv 40-B) or residential premises (Subdiv 40-C) — s. 38-190(2A).

Tax return services relating to taxable and input taxed supplies

John is a non-resident who lives outside Australia. He owns a two-storey rental property in Australia. The ground floor is leased as a shop — i.e. commercial premises — and the top floor is leased as residential premises.

John engages an Australian tax agent to prepare his tax return. John is not in Australia when the services are performed.

GST implications

John’s acquisition of the tax return preparation services is related to the making of a supply of real property situated in Australia, as the services are performed to return income, deductions or other matters in respect of that property. However, it is only indirectly related to his Australian real property.

Accordingly, the supply of the tax return preparation services satisfies the requirements of item 2.

However, as the acquisition of the services relates to the making of a supply of real property that is partly input taxed under Subdiv 40-B — i.e. the top floor residential premises — s. 38-190(2A) negates the GST-free status of the entire supply. The supply will be taxable if the other taxable supply requirements are met.

John may be entitled to an input tax credit to the extent that the acquisition of the tax return preparation services relates to the leasing of the commercial premises and is a creditable acquisition.

Source: Based on Example 2 in GSTD 2007/3

CGT advice to non-resident regarding overseas property

Jamie, an Australian resident, owns real property in the UK.

Jamie engages Terry, an accountant in Australia, to provide advice on the UK and Australian CGT implications if he sells his UK property.

Jamie is in Australia when Terry prepares the advice.

GST implications

Terry’s supply of advice is not directly connected with Jamie’s property in the UK. It is instead directly connected with the application of the Australian and UK tax laws. Accordingly, Terry’s supply is not GST free. The supply will be taxable if the other taxable supply requirements in s. 9-5 are met.

Source: Based on Example 17 in GSTR 2003/7

No ‘look through’ rule

Mary, a non-resident, has shares in an Australian company the only assets of which are residential rental apartments in Australia. Mary acquires advice from an Australian accountant about her share investment and withholding tax. The acquisition of advice by Mary does not relate to the making of supplies of real property but relates to the holding of shares by Mary. If the supply of advice by the accountant to Mary is GST-free under item 2, s. 38-190(2A) does not negate the GST-free status of that supply.

Source: Based on Example 4 in GSTD 2007/3

NoteNote:
The outcome may differ if the company that owns Australian residential rental properties is a non-resident company, and it is the company — and not the shareholder — that seeks the tax advice. The outcome will depend on whether the advice directly relates to the real property or whether it directly relates to something else — for example, the tax implications for its shareholder.

Further info and training

Broadly, imports are subject to GST and exports are GST-free – but is it really that easy?

Join us on 1 June as we delve into GST imports and exports during a 90 minute webinar. We’ll cover:

  • Importing goods
  • Exporting goods
  • Supplying services or intangibles to non-residents
  • Acquiring services or intangibles from offshore

Particular attention will be paid to the rules relating to supplying services or intangibles to non-residents.   We will address the following common questions:

  • Is there GST when I import a computer?
  • Can I export wine GST-free?
  • Is tax return preparation for a non-resident GST-free? What about for tax advice provided to the non-resident?
  • Does GST apply when I download software? Or a movie?

Click below for more info on our upcoming webinar. We hope you join in live – you can also purchase the recording to view at a time convenient to you.

 

 

 

 

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