Archive for the ‘ATO’ Category

Foreign equity distributions to corporate entities

Friday, November 3rd, 2017

Two recent taxation determinations from the ATO deal with how the foreign equity distribution rules in the Income Tax Assessment Act 1997 apply where the distribution recipient is a corporate partner in a partnership or a corporate beneficiary of a trust.

Under the rules, a foreign equity distribution is treated as non-assessable, non-exempt income if the recipient is an Australian corporate tax entity that holds a participation interest of at least 10% in the foreign company making the distribution.

The ATO’s view is that a partnership or trust can hold a direct control interest in a foreign company for the purposes of the rules, so that an Australian corporate tax entity can have an indirect participation interest in the foreign company via the partnership or trust.

Tax treatment of long-term construction contracts

Friday, November 3rd, 2017

In new Draft Taxation Ruling TR 2017/D8, the ATO explains the methods that taxpayers can use to return income derived and recognise expenses incurred in long-term construction projects. A construction project is considered long-term if it straddles two or more income years.

Two methods of accounting are available: the basic approach (essentially the accruals method) and the estimated profits approach.

Once a particular method is chosen, the ATO expects the taxpayer to apply it consistently for the entire contract. The same method should also be applied to all of the taxpayer’s similar contracts.

The draft ruling also deals with several accounting methods that the ATO does not consider acceptable for long-term construction contracts, including the completed contracts method (bringing profits and losses to account when the contract is completed).

Fringe benefits tax: should an Uber be treated as a taxi?

Friday, November 3rd, 2017

Earlier in 2017, the Federal Court ruled that UberX drivers must be registered for GST, because they supply “taxi travel”. There has been much discussion of this finding since, and the ATO is now examining whether Uber trips should be eligible for the “taxi travel” FBT exemption.

The FBT exemption, introduced in 1995, currently only applies to travel in a vehicle that is state or territory licensed to operate as a taxi. However, with the Federal Court’s decision on GST for Uber, and some recent state and territory moves towards licensing changes, the ATO has decided to review its interpretation of the definition of “taxi” in the FBT law.

TIP: Any benefit arising from taxi travel by an employee is exempt from FBT if the travel is a single trip that begins or ends at the employee’s workplace.

In a discussion paper open for comment until late October, the ATO has asked questions such as, “Should the FBT definition of ‘taxi’ be interpreted to include not just vehicles licensed to provide taxi services … [but also] ride-sourcing vehicles and other vehicles for hire?”

TIP: Any benefit arising from an employee’s taxi travel is also exempt from FBT if the travel is a result of the employee’s sickness or injury and the journey is between the employee’s workplace, residence and/or another place appropriate because of the sickness or injury.

Total superannuation balances and pension transfer balance account reports

Friday, November 3rd, 2017

The concept of a person’s “total superannuation balance” is now being used to determine whether you are eligible for various super concessions, including the $1.6 million balance limit for non-concessional contributions, Federal Government co-contributions, the spouse contributions tax offset, carrying forward unused concessional contributions and self managed superannuation fund (SMSF) segregation.

The ATO has recently agreed to modify the reporting obligation for total superannuation balances, recognising that some funds are not in a position to correctly report their correct accumulation phase value for 30 June 2017.

The ATO has also set out when superannuation providers and life insurance companies must lodge transfer balance account reports. The ATO will use the reports to determine if individuals have exceeded their pension transfer balance cap.

An administrative concession will be provided for self managed superannuation funds (SMSFs), allowing later reporting to help the funds transition to event-based transfer balance cap reporting.

TIP: Super shouldn’t be a “set and forget” arrangement. It’s important to revisit your strategy and consider it carefully, especially in light of the wide range of super changes announced in this year’s Federal Budget.

ATO guidance: what is “carrying on a business”?

Friday, November 3rd, 2017

The ATO has issued a draft taxation ruling to explain the factors it will consider when deciding whether a company (incorporated under the Corporations Act 2001) is “carrying on a business”. This is one of the tests companies and small businesses must pass to be eligible for the lower corporate tax rate.

It’s not possible to definitively state whether a company carries on a business, but the draft ruling says that ATO will consider a range of indicating factors. Specifically, a company is likely to be carrying on a business if it:
• is established and maintained to make a profit for its shareholders; and
• invests its assets in gainful activities that have both a purpose and prospect of profit.

TIP: Wondering whether you can access the reduced corporate tax rate? Talk to us today to find out more about how the passive income and carrying on a business tests apply to your situation.

Superannuation guarantee

Friday, October 6th, 2017

Crackdown on employer non-compliance
The Government has announced a package of reforms to give the ATO near-real-time visibility over employers’ superannuation guarantee (SG) compliance. The package includes measures to:
• require super funds to report contributions at least monthly to the ATO;
• roll out Single Touch Payroll (STP); and
• give the ATO the ability to seek court-ordered penalties in severe cases of non-payment.

Salary sacrifice integrity
Legislation has also been introduced to prevent employersfrom using an employee’s salary sacrifice contributions to reduce the employer’s own minimum SG contributions. This change would apply to working out employers’ SG shortfalls for quarters beginning on or after 1 July 2018

Legislation for First Home Super Saver scheme and downsizer super contributions

Friday, October 6th, 2017

A Bill has been introduced into Parliament to establish the First Home Super Saver (FHSS) scheme and allow people aged 65 or over to make “downsizer contributions” to their super.
The FHSS scheme will allow people to make voluntary contributions into super, take advantage of the associated tax concessions, and later withdraw the contributions and associated earnings to buy their first home.
The downsizer contribution changes will allow older Australians who sell their main residence from 1 July 2018 to make non-deductible contributions of up to $300,000 to their superannuation from the sale proceeds.

Tax cut closed off for passive investment companies

Friday, October 6th, 2017

The Government has released exposure draft legislation to deny access to the lower corporate tax rate of 27.5% (down from 30%) for companies with predominantly passive income. Under the changes, companies will qualify for the lower tax rate only if:
• their passive income is less than 80% of their assessable income for the year;
• they “carry on a business” in that year; and
• they come below the aggregated turnover threshold for the year ($25 million for 2017–2018).

Small business restructure rollover: changes

Friday, October 6th, 2017

The ATO is proposing to modify how the small business restructure rollover (SBRR) operates.
The SBRR means that small businesses can restructure from one legal entity to another – for example, from a company to a trust – and transfer the business’s assets to the new structure without immediately causing a capital gains tax liability.
The ATO’s latest proposed changes address the fact that the transferred business assets in this type of restructure could still give rise to a dividend for the transferee.
TIP: Are you thinking about changing how your small business operates? Talk to us for more information about the options and tax implications.

Compensation for ATO systems outages

Friday, October 6th, 2017

After the ATO’s unplanned systems outages, it provided lodgment deferrals, and remitted interest and penalties where the outages affected practitioners and their clients’ lodgments.
The ATO has also advised that it assesses claims for compensation in two ways:
• compensation for legal liability (eg negligence); and
• compensation under the Compensation for Detriment caused by Defective Administration (CDDA) scheme, which allows the ATO to consider claims and pay compensation for disadvantage or loss because of defective administration.
The ATO considers claims in accordance with guidelines issued by the Department of Finance.
TIP: If your tax affairs were affected by the ATO systems outages, contact us to find out if you’re eligible to seek compensation.