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11th Mar, 2023
As a part of its ever-tightening compliance net, the ATO has recently announced it is targeting specific tax avoidance behaviour in the not-for-profits sector.
The first area of focus is private foundations used to operate businesses or income-producing activities on which no tax is paid. This type of tax-avoidance scheme using not-for-profit foundations first surfaced in the 2015–2016 income year. The basic premise is that an adviser or promoter helps individuals to set up a “private foundation” which is claimed to be exempt from all taxes. The “private foundation” is then used by individuals to operate businesses or for income-producing activities. Unlike genuine not-for-profit foundations, individuals stream their untaxed employment, contractor or business income through their sham foundations, pay no tax on the income and use the funds for their own benefit. In some cases, a small portion of the income made may be paid to humanitarian or social causes, such as through charities, which is used as justification for the foundation’s purported tax-free status. The ATO is taking this matter seriously and has already commenced investigations of potential promoters.
The second area of focus is registered public benevolent institutions (PBIs) using schemes to avoid or reduce FBT. The ATO is concerned with arrangements where employees of PBIs are used to undertake charitable or commercial work activities of other entities that are not themselves benevolent in nature. The ATO will be reviewing these arrangements to determine if any have the sole and dominant purpose of avoiding or reducing FBT.
11th Mar, 2023
In an attempt to repair the Federal Budget and lower the overall national debt, the government is seeking to introduce changes to the way superannuation in accumulation phase is taxed over the threshold of $3 million.
Currently, earnings from super in the accumulation phase are taxed at a concessional rate of 15% regardless of the super account balance. It is now proposed that from the 2025–2026 income year, the concessional tax rate applied to future earnings for those with super account balances above $3 million will be 30%. This change would not apply retrospectively to earnings in previous years, and would not impose a limit on the size of super account balances in the accumulation phase.
This measure would affect an estimated 0.5% of people who have money in Australian super accounts, or around 80,000 individuals, so the government considers it a “modest” adjustment which is in line with its proposed objective of superannuation – to deliver income for a dignified retirement in an equitable and sustainable way.
To illustrate just how little the change would affect ordinary Australians: in the latest ATO taxation statistics (relating to the 2019–2020 income year), the average super account balance for Australian individuals is around $145,388, with a median balance of only $49,374. In addition, according to ASFA (Association of Superannuation Funds of Australia) estimates, for a comfortable retirement, a single homeowner individual aged 67 at retirement will need $65,445 per year. If that individual lives to the ripe old age of 100, their required balance would only equate to an amount of $1.5 million in super – well below the $3 million threshold proposed.
With younger Australians increasingly facing cost of living pressures, astronomical house prices, slow wages growth and uncertain international headwinds, most have no hope of contributing up to the maximum concessional cap every year and attaining a super balance even close to $3 million, short of winning the lotto or receiving a lucky inheritance. This effect is amplified for women, who are usually more likely to take time away from work, or move to part-time opportunities, in order to raise children and take on caring responsibilities.
According to the latest Expenditure and Insights Statement released by the Treasury, government revenue foregone from super tax concessions amount to $50 billion per year, and the cost of these concessions is projected to exceed the cost of the Age Pension by 2050. With this single proposed change, the government estimates that around $2 billion in revenue will be generated in its first full year of implementation, which can be used to reduce government debt and ease spending pressures in health, aged care and the National Disability Insurance Scheme (NDIS).
According to Treasurer Jim Chalmers, the government will seek to introduce enabling legislation to implement this change as soon as practicable. Consultation will still be undertaken with the super industry and other relevant stakeholders to settle the implementation of the measure.
17th Feb, 2023
The ability of the Family Court to divide the assets owned personally by a couple – including superannuation – on a relationship breakdown is largely without question. A recent case has now shed further light on the ability of the Family Court to allocate responsibility for payment of the tax debts of either spouse.
A High Court decision in 2018, Commissioner of Taxation v Tomaras, confirmed that tax debts can be apportioned by the courts where a couple’s relationship has broken down. In that case, the wife had failed to pay her tax debts and was out of time to challenge the debt assessments. The husband had been declared bankrupt. As part of the property settlement proceedings, the wife asked the court to order that the husband should become the debtor who would have to pay the ATO.
The court found that one spouse could indeed be substituted for the other in relation to a tax debt like this, but it also confirmed this isn’t always appropriate. Given that the husband was bankrupt and there was no time left to challenge the debt assessments, the court did not exercise its powers to make him liable for the tax debts that had been assessed to the wife.
More recently, the case of Cao & Trong in 2022 further explored the Family Court’s powers in relation to tax debts. In this case, allocation of an amount in the region of $3.1 million was in dispute between the former spouses, the ATO and the Child Support Register.
The ATO was owed more than $7 million in unpaid tax, and in the end the court found that it was entitled to 100% of the disputed amount. In making this finding, the court said that the parties had enjoyed an opulent lifestyle while the debt was due to the ATO, and in fact this lifestyle was mainly possible because they avoided paying the large amounts they owed.
This recent finding is a timely reminder that the ATO can and will intervene in family law disputes to protect the revenue due to the Commonwealth, and that the courts will actively ensure the rights of the ATO are protected and enforced.
17th Feb, 2023
As a part of the Federal Government’s strategy to combat the tax compliance risks posed by the sharing economy, it has passed into law new requirements for operators of electronic distribution platforms to provide information to the ATO on transactions made through their platforms.
An “electronic distribution platform” is one that delivers services through electronic communication (ie over the internet, including through applications, websites or other software) and allows entities to make supplies available to end-user consumers through the platform. A service isn’t considered an electronic distribution platform if it only advertises or creates awareness of possible supplies online, operates as a payment platform or serves a communication function.
Examples of sharing economy electronic platform operators include Uber, Airbnb, Car Next Door, Menulog, Airtasker and Freelancer.
Electronic platform operators will soon be required to regularly provide transaction information to the ATO through the Taxable Payments Reporting System (TPRS). The information obtained will be used in ATO data-matching to help identify entities that may not be meeting their tax obligations.
17th Feb, 2023
If you’re thinking of starting a self managed superannuation fund (an SMSF) in 2023, you need to be aware of the recent changes made by the ATO on fund registration, and the application of the Director ID regime to funds with corporate trustees.
Previously, after an SMSF was established and trustees were appointed, the trustees had 60 days to register the SMSF with the ATO by applying for an Australian Business Number through the Australian Business Register. That application included a section where bank account details of the SMSF could be added, along with other information such as the fund’s Tax File Number.
Due to the recent explosion in fraudulent schemes targeting SMSFs, this feature has been removed in a bid to protect the retirement savings of Australians. New SMSFs will now need to provide the ATO with their bank account details after the SMSF registration process, using the online portal for businesses, via phone, or through a registered tax agent.
If you’re contemplating starting an SMSF with a corporate trustee, you’ll also need to ensure the directors of the corporate trustee apply for Director IDs before their appointment is made through Australian Business Registry Services (ABRS). The Director ID is a unique 15-digit identifier that will follow each individual through their business life and was introduced as a part of a suite of measures to combat phoenixing and other illegal activities. The process is free, simple, online and only requires individuals to confirm their identity. Every individual must apply for their own Director ID, and no one else can apply on their behalf.
19th Dec, 2022
Taxpayers could soon be dealing with more paperwork at tax time, or facing the prospect of a lower tax deduction for work from home (WFH) expenses. The ATO has recently proposed a new revised fixed rate method of calculating WFH expenses for the purposes of claiming a tax deduction from 1 July 2022.
The proposed new rate of 67c per hour would replace the previous shortcut method of 80c per hour (which many people have been using during the COVID-19 pandemic) as well as the previous fixed rate method.
Before 1 July 2022, people working from home could use one of three methods for calculating a tax deduction for the expenses incurred:
Given the continual increase in energy bills and other inflationary pressures, this new proposed fixed rate method is likely to yield consistently lower deductions than if the actual cost method was used. Coupled with the abolition of the shortcut method, this seems to mean that taxpayers would either have to accept a lower WFH deduction in the coming years or deal with increased paperwork to be able to claim WFH deductions under the actual costs method.