New rules for immediate write-offs

Small business entity (‘SBE’) taxpayers who choose to depreciate their assets under the simplified depreciation rules are entitled to an immediate deduction with respect to low-cost assets in the year they are first used or installed ready for use for a taxable purpose.

Thanks to recent changes, SBE taxpayers may be entitled to an immediate deduction in the 2019 income year for acquiring certain depreciating assets costing up to $30,000 (net of entitlement to GST input tax credits) for assets used or installed ready for use from 7:30pm AEST on 2 April 2019 until 30 June 2019.

Assets acquired prior to 2 April 2019 may also be eligible for immediate write-off, although the thresholds may be lower (e.g., the threshold is $20,000 for assets used or installed ready for use from 1 July 2018 until 28 January 2019, and $25,000 for assets used or installed ready for use from 29 January 2019 until 7:30pm AEST on 2 April 2019).

On top of this, for the first time, medium sized businesses (with an aggregated turnover of less than $50 million) may also be eligible to claim an immediate deduction for acquiring assets from 2 April 2019.

Tax office to double audits of ‘dodgy’ rental deductions

Rental property owners are being warned to ensure their claims are correct this tax time, as the ATO has announced it will double the number of audits scrutinising rental deductions, with a specific focus on:

  • over-claimed interest;
  • capital works claimed as repairs;
  • incorrect apportionment of expenses for holiday homes let out to others; and
  • omitted income from accommodation sharing.

Assistant Commissioner Gavin Siebert said:

“A random sample of returns with rental deductions found that nine out of 10 contained an error.  We are concerned about the extent of non-compliance in this area and will be looking very closely at claims this year.”

“We use a range of third party information including data from financial institutions, property transactions and rental bonds from all states and territories, and online accommodation booking platforms, in combination with sophisticated analytics to scrutinise every tax return,” Mr Siebert said.

“Once our auditors begin, they may search through even more data including utilities, tolls, social media and other online content to determine whether the taxpayer was entitled to claims they’ve made”.

The number one cause of the ATO disallowing a claim is taxpayers being unable to produce receipts or other documents to support a claim.

Furnishing fraudulent or doctored records will attract higher penalties and may also result in prosecution.

The ATO has also reminded taxpayers that, since 1 July 2017, they can no longer claim travel expenses related to inspecting, maintaining or collecting rent for a residential rental property, unless they are an “excluded entity”.

Employees and payment summaries

The ATO has also reminded employees that how they get their end of financial year information from their employer, showing their earnings for the year, depends on how their employer reports their income, tax and super information to the ATO.

Specifically:

  • Employers that are not yet reporting through STP will continue to provide employees with a payment summary by 14 July.
  • Employers that report through STP are no longer required to give employees a payment summary; instead this information will be provided in an ‘income statement’, available via the employee’s myGov account by 31 July (i.e., when the employer marks it as ‘Tax Ready’).

Single Touch Payroll Update

Employers with 19 or fewer employees are required to start reporting through Single Touch Payroll (‘STP’) from 1 July 2019.

The ATO will be working with employers to support them as they transition to STP, including allowing small employers to start reporting any time from 1 July to 30 September (and the ATO will also be “generous” in granting deferrals to small employers who need more time to start STP reporting).

Note also that employers with 19 or less employees do not need to report ‘closely held payees’ in 2019/20 and can report closely held payees information quarterly from 1 July 2020.

FBT issues on the ATO’s radar

The ATO has updated its list of ‘What attracts our attention’, with six items that specifically relate to fringe benefits tax (‘FBT’), as follows:

  • Failing to report motor vehicle fringe benefits, incorrectly applying exemptions for vehicles or incorrectly claiming reductions for these benefits.
  • Incorrectly calculating car parking fringe benefits due to:

–     significantly discounting market valuations;

–     using non-commercial parking rates; or

–     parking rates not being supported by adequate evidence.

  • Mismatches between the amount reported as an employee contribution on an FBT return compared to the income amounts on an employer’s tax return.
  • Claiming entertainment expenses as a deduction but not correctly reporting them as a fringe benefit, or incorrectly classifying entertainment expenses as sponsorship or advertising.
  • Not reporting fringe benefits on business assets that are provided for the personal enjoyment of employees or associates.
  • Not lodging FBT returns (or lodging them late) to delay or avoid payment of tax.

 

FBT: Record-keeping exemption threshold

The exemption threshold for the FBT year commencing 1 April 2019 is $8,714 (up from the amount of $8,552 that applied in the previous year).

 

FBT: Benchmark interest rate

The benchmark interest rate for the FBT year commencing on 1 April 2019 is 5.37% per annum (up from the rate of 5.20% that applied for the previous FBT year).

This rate is used to calculate the taxable value of:

  • a fringe benefit provided by way of a loan; and
  • a car fringe benefit where an employer chooses to value the benefit using the operating cost method.

Example

On 1 April 2019 an employer lends an employee $50,000 for five years at an interest rate of 5% p.a. with interest charged and paid six-monthly, and no principal being repaid until the end of the loan.

The actual interest payable by the employee for the current year is $2,500 (i.e., $50,000 x 5%).

However, the notional interest, with a 5.37% benchmark rate, is $2,685, so the taxable value is $185 (i.e., $2,685 – $2,500).

2019/20 Budget Update

The Government handed down the 2019/20 Federal Budget on Tuesday 2 April 2019.

Some of the important proposals include:

  • Increasing and expanding access to the instant asset write-off from 7:30 pm (AEDT) on 2 April 2019 (i.e., ‘Budget night’) until 30 June 2020, as follows:

–     Increasing the instant asset write-off threshold from $25,000 to $30,000.

–     Making the instant asset write-off available to medium sized businesses (with aggregated annual turnover of $10 million or more, but less than $50 million).

 

  • Allowing individuals aged 65 and 66 years to:

–     make voluntary superannuation contributions (both concessional and non-concessional) without meeting the work test from 1 July 2020; and

–     make up to three years of non-concessional contributions under the bring-forward rule (without satisfying the work test).

  • Increasing the upper threshold of the 19% personal income tax bracket to $45,000 from 1 July 2022, and reducing the 32.5% marginal tax rate to 30% from 1 July 2024 (in addition to changes already legislated).
  • Increasing the Low and Middle Income Tax Offset (‘LAMITO’), with effect from the 2019 income year, to provide tax relief of up to $1,080 per annum, as well as an increased base amount of $255 per annum.

Other GST News

The Government has released draft legislation on “improving the integrity of GST on property transactions”, as announced in the 2017/18 Federal Budget.

They intend to amend the GST law so that, from 1 July 2018, purchasers will withhold the GST on the purchase price of new residential premises and new residential subdivisions, and remit the GST directly to the ATO as part of settlement.

This is to address tax evasion through “phoenixing arrangements”, where developers collect GST from their customers but dissolve their company to avoid paying it to the ATO.

To provide certainty for contracts that have already been entered into, the draft legislation provides a two-year transitional arrangement – contracts entered into before 1 July 2018 will not be affected as long as the transaction settles before 1 July 2020.

Editor: In addition, the GST Act has been amended to ensure that supplies of digital currency receive equivalent GST treatment to supplies of money (particularly foreign currency).

Tool for applying the margin scheme to a property sale

The ATO is recommending that taxpayers use their recently updated GST property decision tool to work out if GST applies to their property sales.

The tool can be used to determine GST on the sale, lease or purchase of real property, and was recently updated for easier use on mobile devices.

In particular, after providing the relevant information, the tool will generate a GST decision that:

  • advises whether GST is payable on a sale;
  • estimates the amount of GST payable when applying the margin scheme; and
  • advises whether the taxpayer is eligible to claim input tax credits.

Note that the ATO does not record any personal information and users will remain anonymous.

ATO’s focus on work-related expenses

This year, the ATO is paying close attention to what people are claiming as ‘other’ work-related expense deductions, so it’s important when taxpayers claim these expenses that they have records to show:

  •     they spent the money themselves and were not reimbursed;
  •     the expense was directly related to earning their income; and
  •     they have a record to prove it.

If the expense is for work and private use, the taxpayer can only claim a deduction for the work-related portion.

Importantly, taxpayers are not automatically entitled to claim standard deductions, but need to be able to show how they worked out their claims.

Editor: ‘Other’ work related expenses are expenses incurred by employees in relation to their work that are not for travel, clothing or self-education, such as home office expenses.

Continued ATO focus on holiday home rentals

The ATO has recently advised that they are “setting their sights on the large number of mistakes, errors and false claims made by rental property owners who use their own property for personal holidays”.

While it confirms that the private use of holiday homes by friends and family is entirely legitimate, the ATO states that such use reduces a taxpayer’s ability to earn income from the property, and therefore impacts on (i.e., reduces) the amount of claimable deductions.

As a result, the ATO has reminded holiday home owners that:

  •     They can only claim deductions for a holiday home with respect to periods it is genuinely available for rent.
  •     They cannot place unreasonable conditions on prospective tenants/renters, set rental rates above market value, or fail to advertise a holiday home in a manner that targets people who would be interested in it and still claim that the property was genuinely available for rent.
  •    Where a property is rented to friends or relatives at ‘mates rates’, they can only claim deductions for expenses up to the amount of the income received.
  •          Property owners whose claims are disproportionate to the income received can expect greater scrutiny from the ATO.