Tax cuts on the way soon

Tax cuts on the way soon, but it's only the tip of the iceberg

Feared tax reform failed to eventuate when Labor lost this month's election, and money minds now turn to tax cuts. Some will arrive in July but much bigger cuts are also in the pipeline.

The Morrison Government's surprise election victory sparked a sigh of relief last week from investors and retirees across Australia, and public attention now turns to tax cuts.

In just over a month, more than 10 million workers will be eligible to receive up to $1080 of tax rebates when they file their annual tax return.

It's the first stage of the Morrison Government's massive income tax reduction program, and there have been calls for it to bring forward future stages by several years.

Labor's election policies to change capital gains tax, negative gearing and franking credit refunds are now a memory. However, it and minor parties can still block future tax announcements in the Senate.

In the meantime, the only tax news is good news.

H&R Block director of tax communications Mark Chapman said the only significant tax-related election proposal remaining was the tax cuts.

"All those things Labor was proposing are off the table now," he said. "Everything stays as it was, and for the segment of people who were going to lose their franking credits there's a lot of relief.

"There aren't going to be any unpleasant changes coming to the tax system any time soon.

"As we head toward the end of financial year the election takes a back seat and people need to get ready to lodge their tax return, get receipts together, talk to their accountant and get ready for July 1 as they do every year."

BetaShares chief economist David Bassanese said this year's tax cuts alone were unlikely to be enough to spur a sluggish economy, and the next round of planned tax cuts in three years was "too long to wait".

The Coalition's long-term tax plan removes the 37 per cent tax bracket completely and all taxpayers earning between $45,000 and $200,000 will be on the 30 per cent tax rate. Stage two - in July 2022 - lifts the top threshold of the 32.5 per cent tax bracket from $90,000 to $120,000, while the final stage in 2024 flattens tax brackets further - delivering higher income earners thousands of extra dollars each year.

"It would be helpful if the newly elected Morrison Government seriously considered a bring forward of additional tax cuts that have been promised to take effect over the next few years," Mr Bassanese said.

"The sooner the better, it seems to me. If they are planning on sending legislation to parliament soon, why not amend it and bring in some other tax cuts now? It can be justified due to the weakening growth outlook."

Budget surpluses and rising income from a higher-than-forecast iron ore price could help pay for the cuts, he said.

WHAT YOU'LL GET FROM JULY 

• If you earn below $37,000 you'll receive up to $255.

 

• If you earn between $37,001 and $47,999 you receive between $255 and $1080.

 

• People earning between $48,000 and $90,000 get the full $1080 tax cut

 

• Tax relief then gradually reduces to zero for people earning above $126,000.

 

(Tax cuts will be paid through people's annual tax refunds)

How to avoid the common EOFY mistakes

The ATO is targeting five common mistakes this EOFY - here's how to avoid them



The tax office says it will be focused on addressing "common issues" with small-business tax returns this year and will be paying close attention to expense claims as end of financial year (EOFY) approaches.

Less than two months out from the end of the 2018-19 financial year, accounting professionals are advising businesses to start getting their affairs in order.

The Australian Taxation Office (ATO) has provided SmartCompany with a list of five common errors they'll be on the lookout for this year. 

  1. Claiming of private expenses in the business.
  2. Failing to properly attribute personal and business use.
  3. Misunderstanding how tax applies for different and often complex business structures.
  4. Omitting income, including coupon sales.
  5. Not providing the necessary records for substantiating expense claims.
 

"This tax time the ATO will be focused on supporting small businesses to get it right through a range of services and tools available to them," an ATO spokesperson said in a statement.

"We will also be focusing on addressing common issues we see when small business lodge their returns, and reinforcing our message around recordkeeping and claiming of expenses."

The ATO says it has three golden rules for businesses claiming expenses.

These include:

1.    Ensuring money has been spent on your business and not for personal use;

2.    Where there is a mix of business and personal use, only claim the business portion; and

3.    Ensure adequate records are provided to substantiate expense claims.

Clarke McEwan offers an EOFY tax planning so speak to us by 1 June to allow enough time to get organised.


#clarkemcewan #taxplanning #2019tax #2019taxplanning

 

Tax cuts new financial year cut-off



Australia's tax agency says it can retrospectively deliver tax cuts if the coalition's proposal doesn't pass through parliament before the end of the financial year.

But it remains to be seen if the tax cuts will pass parliament, with key crossbench senators still to pledge their support for the plan.

Government senator Zed Seselja is urging Labor to support the changes in order to give them a seamless course through parliament, avoiding the need for the crossbench votes.

Shadow treasurer Chris Bowen says Prime Minister Scott Morrison is already breaking election promises, after pledging Australians tax relief this financial year.

"If the Australian people have to wait another year for the tax cuts, I think it's an indictment on his government and the character of the prime minister," he told reporters in Sydney on Tuesday.

Greens leader Richard Di Natale says the minor party won't support the income tax cuts.

The party held onto all of its six Senate seats up for re-election, taking the Green's total to nine.

"We had millions of Australians voting for parties like the Greens in the Senate to hold this government to account, and we'll do that," he told ABC radio.

"We're not going to support tax cuts to people on half a million dollars … if any support is going to be given it needs to be targeted at people on low incomes."

The Australian Tax Office says it can retrospectively amend tax assessments to provide cuts if the laws pass after June.

The agency could also make administrative changes to provide tax cuts.

"If the Labor party agrees to support the coalition tax cuts as announced, then we would be able to update the tax withholding schedules, to allow the tax cuts to be reflected in people's take home pay," the ATO says on its website.

Treasurer Josh Frydenberg will meet with Treasury officials and the Australian Securities and Investments Commission in Canberra on Tuesday, before heading to Sydney to catch up with Mr Morrison.

He's expected to meet with Reserve Bank of Australia Governor Philip Lowe and the Australian Prudential Regulation Authority on Wednesday.

The meetings come as Dr Lowe prepares to deliver a major speech on the outlook for the Australian economy and interest rates in Brisbane on Tuesday.

A Labor Government on Tax & Super



Tax on investment property

In general, taxpayers are able to deduct from their assessable income any expenses they incur generating or producing that income. An investment is negatively geared when the cost of owning the asset is more than the return. Negative gearing is not limited to property but can apply to other assets such as shares. In 2016-17, Australians claimed $47.5 billion in rental deductions against gross rental income of around $44.1 billion.

 

A number of capital gains tax (CGT) exemptions potentially apply to investment property. For Australian resident individuals, a 50% CGT discount applies to net capital gains made on investments held for longer than 12 months.

 

In addition, a taxpayer's main residence is exempt from CGT. As part of this exemption, a taxpayer can be absent from their main residence for up to 6 years and still claim the property as their main residence (assuming they do not treat any other property as their main residence). So, the property can be used as an investment property for 6 years but then sold as the taxpayer's main residence.

 

Labor's plan seeks to:

·       Limit negative gearing to new housing from 1 January 2020. All investments made prior to this date will not be affected by the changes and will be fully grandfathered. The ALP states that the grandfathering element of the policy applies to property and assets purchased prior to the start date of the policy. "This means, for example, that if you own a property prior to 1 January 2020, you are able to negatively gear it after that date. The changes to the CGT discount will not apply to superannuation funds or to the 50 per cent active asset reduction concession that applies to small businesses."

·       Halve the capital gains tax discount for all assets purchased after 1 January 2020. This will reduce the CGT discount for assets held longer than 12 months from 50% to 25%. Once again, all investments made prior to the 1 January 2020 will be fully grandfathered.

 

There is no policy statement from the ALP on the main residence exemption.  The Morrison Government had introduced legislation to remove access to the main residence CGT exemption for non-resident taxpayers, but this Bill stalled in the Senate. Chris Bowen told the Australian Financial Review that it will be up to the ALP to work through outstanding tax measures and "iron out any unintended consequences" including the impact on expats and retrospectivity.  

 

Dividend imputation and the impact on self-funded retirees

One of the more controversial measures announced by the ALP is the reforms to the dividend imputation credit system to remove refundable franking credits from shares. The measure, as announced, would apply to individuals and superannuation funds, and exclude Australian Government pension and allowance recipients, and tax-exempt bodies such as charities and universities. SMSFs with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes. The policy is intended to apply from 1 July 2019.

 

How does the system currently work?

A dividend is a shareholder's share of a company's earnings (profits). When a dividend is paid from an Australian company's after-tax profits, these are known as franked dividends and include a franking credit (imputation credit), which represents the amount of tax already paid by the company on the underlying profits that are being paid out in the form of a dividend.

 

An Australian resident shareholder pays tax on dividends they receive (as dividends are treated as income). If the dividend received is a franked dividend, the shareholder includes the franking credits in their income (i.e., a gross-up occurs) but they can then use the franking credit attached to the dividend to reduce their tax liability. If the credit exceeds their tax liability for the year then they receive a cash refund for the excess amount.

 

For example, an SMSF owns shares in a company. The company pays the SMSF a fully franked dividend of $7,000. The dividend statement says there is a franking credit of $3,000. The $3,000 represents the tax the company has already paid on its profits. This means the profit, before company tax was subtracted, would have been $10,000 ($7,000 + $3,000). The SMSF must declare $10,000 worth of income, and will receive the $3,000 as an offset.

 

The dividend imputation system was introduced in 1987 by the Hawke/Keating Government to remove the investment bias against shares which taxed interest income once but dividend income twice (once at the company level on profits and the second time at the taxpayer level on income). In 2001, the Howard Government amended the rules to enable franking credits to be paid as a cash refund where the taxpayer paid less tax than the company tax rate. In the absence of refundability, the taxpayer pays tax up to the company tax rate and any surplus franking credit is wasted.

 

The sensitivity of the issue

The sensitivity of this issue is how the dividend imputation system interacts with the way superannuation is taxed. Currently, income an SMSF earns from assets held to support retirement phase income streams (i.e., a pension), such as dividends from shares, is tax-free. That is, a self-funded retiree in some circumstances pays no tax on the income they earn from dividends. If they pay no tax, then any franking credits are paid as a cash refund. 

 

If the ALP policy comes to fruition, these self-funded retirees lose this cash payment unless they are also Australian Government pension and allowance recipients. The policy effectively unwinds the Howard reforms and returns the imputation system to its original Hawke/Keating design.

 

Who will be impacted by the change?

Based on information from Treasury, 85% of the value of franking credit refunds go to individuals with a taxable income below $87,000. That is, 97% of taxpayers receiving refunds have a taxable income below $87,000. And, more than half of those receiving a franking credit refund have a taxable income below the tax-free threshold of $18,200. Around 40% of SMSFs receive a franking credit refund.

 

Around 1.1 million individuals received a franking credit refund in 2014-15 with more than half of these over the age of 65. And, more than two thirds of refunds to SMSFs are to those whose fund balance per member is greater than $1 million. However, this figure is likely to be diminished by the 1 July 2017 reforms that imposed a $1.6m cap on retirement phase superannuation accounts and tax earnings on accumulation accounts.

 

The Parliamentary Budget Office has also outlined what behavioural changes they expect to see in the market as a result of making franking credits non-refundable. These include:

 

·       Individuals - shifting from shares to alternative investment arrangements (including to investments within superannuation), and couples shifting the ownership of shares from the lower income earner to the higher income earner such that the higher income earner can utilise the franking credits as a non-refundable tax offset.

·       Superannuation funds - rolling assets from a fund with negative net tax to a fund with positive net tax, changing funds' asset portfolio allocations, or changing the membership structure of the fund, in order to maximise the utilisation of franking credits.

·       Companies - changing the amount of dividends distributed (and profits withheld) or the level of dividend franking due to the decrease in the value of franking credits for some shareholders.

 

The most significant behavioural change is expected to be from SMSF trustees: "The assumed behavioural response for SMSFs in 2019-20 is equivalent to these funds, in aggregate, moving around a quarter of the value of their listed Australian shares into APRA-regulated funds that are in a net tax-paying position."

 

The alternative, of course, is for SMSFs to change their composition of Australian shares to reduce their holding. The Parliamentary Budget Office also notes that one potential outcome is that SMSFs will increase the number of taxpaying members. "For instance, a couple with an SMSF in the pension phase could invite two additional working-aged children into their fund, allowing them to use their excess franking credits to offset the contributions and earnings tax payable on the assets owned by their children."

 

More information

·       ALP - Ending cash refunds for excess imputation

·       Treasury – FOI 2292 Refundability of franking credits

 

Minimum 30% tax on discretionary trust distributions

There are around more than 690,500 discretionary trusts, also known as family trusts, in Australia. Discretionary trusts are popular as the trustee has the discretion on how to pay the income or capital of the trust to the beneficiaries – beneficiaries do not have an interest in the trust. Income can be apportioned by the trust to the beneficiaries on a discretionary basis, for example, to beneficiaries on a lower income tax bracket. As a result, discretionary trusts are often used to protect assets within family groups, manage succession, and to distribute income tax effectively within that group. 

 

From 1 July 1979, laws were introduced to ensure that distributions to minors were taxed at the top marginal tax rate to prevent trusts distributing funds to children at minimum tax rates.

 

The proposed reforms

The ALP reforms address the ability for distributions to be channelled to beneficiaries in low income tax brackets. Instead, a new standard minimum rate of tax for discretionary trust distributions to mature beneficiaries (aged over 18) of 30% will apply.

  



Tax cuts, incentives for business investment and spending on health and welfare: tonight's Federal Budget was crafted with Australia's May election in mind. Read on for CPA Australia's verdict on Budget 2019.

A stronger economy and a secure future were the promise of Federal Treasurer Josh Frydenberg in announcing a A$7.1 billion surplus, tax cuts and extra funding for infrastructure and services to regional Australia in the 2019/20 budget.

Frydenberg stressed several times that expenditure would be achieved without increasing taxes, while announcing lower taxes for 10 million people and three million small businesses.

The Treasurer delivered the first budget surplus in 12 years and announced investments in education that he said would invest in the jobs of tomorrow.

With a Federal election looming in May, pollsters are tipping that the government will be unseated by Bill Shorten's Australian Labor Party, in which case many budget announcements will not be implemented.

Labor has said, however, that it will support one-off cash payments and tax cuts for low and middle-income earners but, if elected, will deliver its own major economic statement in the second half of the year.

CPA Australia head of external affairs Paul Drum FCPA said the budget made a strong election pitch but "their biggest test is whether they can get re-elected in the coming months to enable them to deliver on these budget commitments."

The budget assumes real growth in gross domestic product (GDP) of 2.75 per cent in the 2019/20 and 2020/21, unemployment at 5 per cent over the same period and the consumer price index (inflation) at 2.25 per cent in 2019/20.

CPA Australia head of external affairs Paul Drum FCPA said the budget made a strong election pitch but "their biggest test is whether they can get re-elected in the coming months to enable them to deliver on these budget commitments."

The budget assumes real growth in gross domestic product (GDP) of 2.75 per cent in the 2019/20 and 2020/21, unemployment at 5 per cent over the same period and the consumer price index (inflation) at 2.25 per cent in 2019/20.

WINNERS

Wage and salary earners 

The Treasurer announced A$158 billion in personal income tax cuts through more than doubling the low and middle-income tax offset from 2018/19.  This will benefit more than 10 million people earning up to A$126,000 a year.

From July 2024, Frydenberg says the government will cut the 32.5 per cent marginal tax rate to 30 per cent, applying to all taxpayers earning between A$45,000 and A$200,000.  He says the top 5 per cent of taxpayers will pay one third of all income tax collected.

Business

The instant asset write-off will be extended to June 2020 and increased from A$25,000 to A$30,000. The write-off allows small business with a turnover of less than A$10 million to claim an immediate deduction for a purchase below that amount but will be expanded to businesses with turnover of up to A$50 million, or another 22,000 businesses. 

Businesses will also be able to claim the deduction every time they make a purchase under the cap.

The write-off remains an annual deduction. CPA Australia has called for the write-off to be made permanent rather than extended budget to budget, to give business owners greater certainty when planning.

The government will defer to July 2020 the start date of the proposed amendment to Division 7A of the Tax Act, to allow further consultation. 

CPA Australia has argued  the Treasury-proposed changes to how business owners can make loans from private companies will discourage investment. 

Building and transport industries

The government announced increased investment in infrastructure spending, to improve rail links and address road black spots, with the Treasurer naming several projects in major state capital cities and also rural and regional Australia.

The budget includes increasing the Urban Congestion Fund to A$4 billion from A $1 billion, to cut travel times in Australia's rapidly-growing cities.

A A$500 million Commuter Car Park Fund would improve access to public transport hubs.

He promised A$2.2 billion for roads, A$1 billion to improve freight routes and access to ports and A$100 million for regional airports.

Education

A A$525 million skills package would create 80,000 new apprenticeships in industries with skills shortages and double to A$8,000 the incentive payments to employers per apprenticeship
placement. 

There were also announcements to create new training hubs, give new apprentices a A$2,000 incentive payment, and invest in science, technology and research.

Rural areas

The budget papers commit to major spending in regional and rural areas to expand water infrastructure, provide drought relief and upgrade regional airports. 

Older Australians 

Frydenberg announced A$725 million for aged care, with 10,000 new home care packages and capital works focused on regional Australia.  Single pensioners will get a A$75 one-off cash payment for their energy bills, while couple pensioners will get A$125. The ALP is expected to support the measure.

Health sector

Australians suffering from cancer, heart disease, epilepsy and who live in rural areas are likely to benefit from several major investments in assistance programs and medication. The budget also contains A$461 million for youth mental health and suicide prevention.

Superannuation industry and older Australians

People approaching retirement will be able to boost their superannuation balances, with those aged 65 and 66 years able to make voluntary contributions without satisfying the work test, from July 1 2020. Currently, people aged 65 and older must work a minimum 40 hours over a 30-day period.  Frydenberg said the measure will align the work test with the eligibility age for the Age Pension, due to rise to 67 years from July 1, 2023. About 55,000 people will benefit from the reform.

People aged 65 and 66 will also be able to access the "bring forward arrangements" to make three years' worth of non-concessional contributions (capped at A$100,000) to their super in a single year. This currently stops at 65 years.  The age limit for spouse contributions will be increased from 69 years to 74 years.

CPA Australia's Paul Drum said that a fairer and more flexible solution would be to introduce lifetime caps and "revisit" abolishing the work test.

LOSERS

Business

There were few measures for corporate Australia, although many of the largest companies would benefit from spending in infrastructure, either as providers or users of improved services.

Regulatory burden on business

Business will pay more fees to regulators, through the industry funding model for the Australian Securities and Investments Commission (ASIC) and higher levies to the Australian Prudential Regulation Authority (APRA).  As part of a response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, there will be extra funding to ASIC of A$38.5 million in 2019/20 and A$118 million in 2020/21, possibly funded by extra fees to business.  APRA will get A$16.9 million and A$19 million over the same period. 

The budget allocates the Australian Taxation Office an extra A$1 billion over four years to expand its Tax Avoidance Taskforce.  Frydenberg announced the Australian Financial Complaints Authority will receive additional funding to establish a historical redress scheme for financial complaints dating back to 1 January 2008.

CPA Australia welcomed additional funding for APRA, ASIC and the Federal Court given the findings of the royal commission.

"But unfortunately, the significant cost increases that the ASIC user pays funding model places on our members and others delivering services regulated by ASIC have not been addressed in this budget," said Paul Drum.  "This government-imposed cost pressure will not only negatively impact smaller accounting practices and others providing financial services, but also consumers in the future."

CPA Australia previously recommended the government not pursue its full cost recovery model for funding ASIC's regulatory activities, and that it reinstate funding previously cut from the ASIC budget.  "The government can expect to hear more from us on this," Drum added.

Savers

The government has not introduced measures that would encourage Australians to save outside the superannuation regime.

Sport Integrity  

The Government will establish a new body, Sport Integrity Australia, to carry out anti-doping and integrity functions, and a National Sports Tribunal to hear and resolve rule violations. The Government has also signed up to the Council of Europe Convention on the Manipulation of Sports Competitions.



A standard deduction for work-related expenses should be examined with a view to eradicating the need for millions of Australians to lodge tax returns, the nation's tax watchdog has recommended. 

The Inspector-General of Taxation's (IGT) review into the Future of the Tax Profession said such a move would make it easier for millions of Australians who claim billions of dollars in work-related expense deductions each year.

ATO Taxation Statistics show that in 2016-17 there were more than 8.84 million people claiming $21.98 billion in work-related expense deductions.

The IGT has also raised concerns that the Australian Taxation Office's current online tools aimed at nudging taxpayers to amend their returns if they are out of sync with their nearest neighbour, could be possibly resulting in people under-claiming on their tax returns.

Why a standard deduction has not been introduced

Both major parties have considered the idea of a standard tax deduction in the past, but it has never been legislated due to the high cost.

Following the 2010 Henry tax review recommendation that it be considered, former treasurer Wayne Swan announced that the Rudd Government would grant a standard tax deduction and this would end in a bigger tax return for 6.4 million Australians. But the proposed legislation was never introduced into Parliament.

Then, when Scott Morrison was Treasurer, he asked a parliamentary inquiry to look into the possibility of introducing a standard deduction for all taxpayers or doing away with certain deductions in favour of lower personal tax rates.

But the 2017 Standing Committee on Economics report of its Inquiry into Tax Deductibility found the cost of such a scheme would be significant.

It found that if a standard deduction of $500 was granted, there would be an additional cost of $2.3 billion, and if the standard deduction was increased to $1,000, then the additional cost would be $4.6 billion.

Acting inspector-general of taxation Andrew McLoughlin said, while there was presently little appetite for change, a change should still be considered as there could be compliance cost savings for individuals and reduced administrative costs for the ATO. He called for a cost-benefit analysis to progress the debate.

In his response to the IGT review, Assistant Treasurer Stuart Robert said a long-standing principle of the Australian tax system was to tax an individual on their income "after accounting for legitimate costs incurred in earning that income".

But he but noted the ATO had taken steps to make compliance easier for individuals with work-related expenses, such the myDeductions app.

Looming tax bills for expatriates



Australians who work or retire abroad face higher – and possibly retrospective – tax bills if they sell their Australian homes. Accountants may need to warn clients.

Is it still worth taking a foreign posting? Australian employers wanting to send staffers abroad are already getting push-back following proposed measures to retrospectively tax expatriates who sell their home in Australia.

A measure intended to improve local housing affordability runs the risk of penalising Australians taking postings abroad and migrants who return to their countries of origin, by stripping from them the main residence exemption (MRE) from capital gains tax (CGT).

A bill before the Senate seeks to retrospectively remove the main residence exemption from CGT for non-residents from the time the property became the taxpayer's main residence, instead of from the time they became a non-resident.

Expatriates caught in housing affordability net

The Senate is still considering Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No.2) Bill 2018.

"The government's position is that if you're from overseas and you buy property in Australia, but you remain a non-resident for tax purposes, you won't get the CGT MRE," says Robyn Jacobson FCPA, senior tax trainer at TaxBanter. "They're trying to make it less attractive for foreigners to buy houses here, trying to make more houses available to Australians, and trying to improve housing affordability.

"I get that. But as the proposed legislation stands, it also applies to Australian expatriates who have taken a job posting overseas and are non-residents for tax purposes, as well as Australian citizens who have chosen to retire overseas," says Jacobson.

If someone from either of these groups sells the dwelling that was their home for many years, and they happen to be a non-resident at the time of the CGT event – that is, when they sign a contract to sell the property – they will not be entitled to the MRE for the entire period they owned the home.

Retrospective laws on expat homes

Moreover, the loss of the MRE for these groups is retrospective, says Jacobson.

"When you change tax policy, it should start from the date it is announced or a future date. But as this proposed amendment currently stands, the loss of the MRE potentially goes all the way back to the date from which CGT has applied, which is 20 September 1985," she says.

Jacobsen believes the retrospectivity is unfair.

People were not to know when they bought their home that when they sold it, as a non-resident, they would have a taxable capital gain going back to when they bought it.

The proposed measures do not allow for any pro-rating of the period during which the person was a tax resident and lived in the home.

They cannot use the market value of the home on the date they became a non-resident, and confine the taxable capital gain to that which arose since that date, nor can they apply the six-year absence rule.

Tax laws currently allow people to maintain the CGT exemption on their main residence if they have a temporary absence of up to six years, as long as they are not claiming another property as their main residence at the same time."

Thousands of expats affected by tax on homes

Inadvertently or not, the Bill affects "hundreds of thousands of Australians living and working offshore," says Jacinta Reddan, chief executive of the Australian Chamber of Commerce in Hong Kong and Macau.

"This simply has not been thought through. Firstly, we're living in an increasingly globalised world, and the expatriate diaspora is both an enormous benefit to the Australian economy, because people return bringing with them increased skills, and to the nation's engagement with the world."

Secondly, she says, being an expatriate does not mean immunity from unexpected life events such as divorce or loss of a job, illness or death.

"These can hit us all regardless of where we live, and we often don't have a choice about when to sell our homes. Making all of the gains from a property sale taxable just because the person is a non-resident at the time of disposal is penalising Australians for living and working offshore, which is manifestly unfair," says Reddan.

The Chamber is seeing a backlash from corporate members who report resistance from staff offered critical offshore postings.

New tax rules hit estate administration

Ian Raspin FCPA, director at estate taxation advice specialist BNR Partners, says the amendment "opens up Pandora's box" in terms of estate administration.

"It certainly can catch a property that's been left in a will to adult children, if they inherit it from a non-tax resident. It's bad legislation, not only because it's retrospective, but because it becomes highly subjective as to whether a person is a tax resident or not. There is a lot of case law in Australia whereby it's just not clear," he says.

While various groups continue to lobby the government against the Bill, Jacobson says there are two strategies available to people who believe they might be affected by the new measures.

"First, the rules start for property sales after 9 May 2017. But a transitional rule says that if you held the property at that date and you sell it before 1 July 2019 – in other words, sell it by 30 June next year – the new rules don't apply to you. You would have had to have held the property in May last year, and you have to enter into a contract to sell it, by 30 June."

Expat homes for sale

Jacobson expects such selling to intensify over 2018 and 2019.

"It might not be the best time to sell the property but if they're going to save millions of dollars in tax, in some cases, they may want to. These will be people who are overseas and have no intention of coming back."

Another strategy may suit non-residents who don't want to sell before 30 June 2019. "They would need to genuinely re-establish their tax residency back in Australia, before they sell," she says.

This is where Raspin's concerns on subjectivity come into play. "We're concerned that this could potentially bring Part IVA (of the Income Tax Assessment Act) into consideration, where it is at least open to the Tax Commissioner to say that a person, in trying to re-establish tax residency in Australia, only moved back here to try to avoid income tax," he says."

If you are presently working abroad and you think you may need your current situation reviewed, get in touch with us.

#mainresidenceexemption #ex-pats #overseasposting #retireoverseas #internationalcitizen #capitalgains #CGTexemption #MRE #workoverseas #aussiesoverseas #australianexpats

Fringe benefits tax (FBT) is payable on certain benefits you provide to your employees or their associates. These benefits are in addition to, or part of, your employees' salary or wages package.

FBT is separate from income tax and is calculated on the taxable value of the benefits provided to employees.

Examples include providing your employee (or someone close to them) with:

  • vehicles for private use
  • holiday accommodation
  • concert tickets
  • memberships.

Some benefits are exempt or receive concessional treatment, so it's good to brush up on what benefits attract FBT.

When to report?

The FBT year ends on 31 March.

If you've provided any fringe benefits since 1 April 2018, you need to:

  • calculate your fringe benefits taxable amounts
  • lodge and pay your FBT return by 21 May (or lodgment may be later if you use a tax agent).

Remember, we can assist you with fringe benefits tax requirements and as a complicated area of taxation it is best to get advice from a professional.

#FBT2019 #trustaprofessional #CPAs #clarkemcewan #fringebenefitsaccounting #bookkeepingforsbes

A snapshot of the ALP key tax policies

The Federal Election will be the primary focus over the next few months, with many commentators predicting a possible change in Government. 
As usual, tax policy is a focal point of the political debate.  The table below outlines some of the key ALP tax policies of interest.

#federalelection #alptaxreforms #laborpartytaxreforms #coalitiontaxpolicies #taxpolicies #2019election
#2019federalelection #federalelection  #fasttracksuperguaranteeincrease #clarkemcewan #keytaxpolicies
 #treasurermediarelease #limitnegativegearing #reduceCGTdiscount  #australianinvestmentguarantee
#lowerdivision293tax

INCOME TAX REFORMS

 

Key ALP Tax Policies              Comparable Coalition

                                                             Tax Policies

1. Restrict deductions on personal tax-related expenses to a $3,000 cap per individual, per year

Ref: Shadow Treasurer's and Assistant Shadow Treasurer's joint media release, 13 May 2018

No cap on personal tax-related expenses has been proposed, although the ATO has made adjustments to Item D10 – Managing tax affairs to obtain a more detailed breakdown of what is being claimed by taxpayers at this label from the 2018 'I' returns.

2. Reduce the maximum general CGT discount from 50% to 25%, with exceptions for:

*  grandfathered investments;

*  investments made by
  superannuation
funds   (which are effectively taxed
  at 10% after the CGT 
  discount); and

*  assets of small business
   owners

Ref: 'A fair go for Australia', paragraph 135 and ALP website: Labor factsheet, 'Positive plan to help housing affordability'

The Coalition has not indicated a desire to change the current maximum general CGT discount from 50% for eligible taxpayers

3. Limit negative gearing to investments in new housing, with grandfathering for pre-existing investments.

Labor has proposed any losses from new investments in shares and existing properties (which we assume includes commercial property) will still be permitted to be used to offset investment income tax liabilities (but not against salary and wages).

Any deferred losses can then be carried forward to offset the final capital gain on the investment.

Ref: 'A fair go for Australia', paragraph 135 and ALP website: Labor factsheet, 'Positive plan to help housing affordability'

The Coalition has not indicated a desire to change the current negative gearing rules.

 

 

INCOME TAX REFORMS

 

Key ALP Tax Policies                  Comparable Coalition

                                                            Tax Policies

4. Remove the ability for certain taxpayers to claim excess imputation credits as cash refunds

Ref: Leader of the Opposition's media release, 13 March 2018

The Coalition has not indicated a desire to change the current ability for eligible taxpayers (including individuals and SMSFs) to receive cash refunds for excess imputation credits

5. Apply a minimum tax rate of 30% to all distributions from discretionary trusts (non-fixed trusts) to mature individual beneficiaries (i.e., those over 18)

Ref: 'A fair go for Australia', paragraph 131 and

Leader of the Opposition's media release, 30 July 2017

The Coalition has not indicated a desire to change the current rules in relation to the taxation of discretionary trust beneficiaries at their applicable marginal tax rate

6. Introduction of an Australian Investment Guarantee from 1 July 2020

This accelerated depreciation for business proposes to immediately allow a 20% write-off for eligible depreciating assets

Ref: Shadow Treasurer's media release, 13 March 2018

The Coalition has announced that from 29 January 2019, the instant asset write-off threshold for SBE taxpayers will increase to less than $25,000 and this will apply until 30 June 2020 (at which time the immediate write-off threshold presumably goes back to less than $1,000)

SUPERANNUATION REFORMS

 

Key ALP Tax Policies Comparable Coalition Tax Policies

1. Lower the non-concessional contributions ('NCCs') cap to $75,000 (down from the current $100,000). Ref: 'A fair go for Australia', paragraph 41

The Coalition has not indicated a desire to change the current $100,000 NCCs cap (indexed)

2. Lower the Division 293 tax threshold to $200,000 (down from the current $250,000)

Ref: 'A fair go for Australia', paragraph 41

The Coalition has not indicated a desire to change the current $250,000 Division 293 tax threshold

3. Repeal the newly introduced concessional contributions ('CCs') catch-up rules

Ref: 'A fair go for Australia', paragraph 41

Retain the new CCs five-year catch-up rules for eligible members if they have a total superannuation balance of less than $500,000

4. Repeal the recent reforms allowing all eligible individuals to claim a tax deduction for personal superannuation contributions.

Ref: 'A fair go for Australia', paragraph 41

Retain the recently legislated relaxation of the personal superannuation deduction rules (i.e., the removal of the '10% test' from 1 July 2017)

5. Prospectively restore the prohibition on direct borrowing by SMSFs on housing investments via Limited Recourse Borrowing Arrangements ('LRBAs'). Ref: 'A fair go for Australia', paragraph 136

The Coalition has not indicated a desire to change the current LRBA rules

6. End the freezing of the Superannuation Guarantee rate at 9.5% and fast track the employer compulsory contribution percentage to 12% - although firm dates have not been provided. Ref: 'A fair go for Australia', paragraph 39

The Coalition has not indicated a desire to change the current 9.5% Superannuation Guarantee rate until the first increase in 2022 (to 10%) begins the gradual progression to 12% by 2026

Christmas reminders for the Festive Season


W
ith the well-earned December/January holiday season on the way, many employers will be planning to reward staff with a celebratory party or event.
 
While keeping it fun and festive, we encourage you plan appropriately for any possible FBT and income tax implications of providing entertainment (including Christmas parties) to staff and clients.

FBT and 'Entertainment Expenses'

Under the FBT Act, employers must choose how they calculate their FBT meal entertainment liability, and most use either the 'actual method' or the '50/50 method'.

Under the actual method, entertainment costs are normally split up between employees (and their family) and non-employees (e.g., clients and suppliers).

Such expenditure on employees is deductible and liable to FBT.  Expenditure on non-employees is not liable to FBT and not tax deductible.

Using the 50/50 method instead?

Rather than apportion meal entertainment expenditure on the basis of actual attendance by staff, etc., many employers choose to use the more simple 50/50 method.

Under this method (irrespective of where the party is held or who attends) – 50% of the total expenditure is subject to FBT and 50% is tax deductible.

Here are the "traps" to consider: 

1 - Even if the function is held on the employer's premises – food and drink provided to employees is not exempt from FBT;
2 -  the minor benefit exemption* cannot apply;   and
3 -  the general taxi travel exemption (for travel to or from the employer's premises ) also apply.

(*) Minor benefit exemption
The minor benefit exemption provides an exemption from FBT for most benefits of 'less than $300' that are provided to employees (and their family/associates) on an infrequent and irregular basis.

The ATO accepts that different benefits provided at, or about, the same time (such as a Christmas party and gift) are not added together when applying this threshold.

However, entertainment expenditure that is FBT exempt is also not deductible.

Editor:  And 'less than' $300 means no more than $299.99!  A $300 gift to an employee will be caught for FBT, whereas a $299 gift may be exempt.

Example: Christmas Party

An employer holds a Christmas party for its employees and their spouses – 40 attendees in all.

The cost of food and drink per person is $250 and no other benefits are provided. 

If the actual method is used: 

·         For all 40 employees and their spouses – no FBT is payable (i.e., by applying the minor benefit exemption), however, the party expenditure is not tax deductible.

If the 50/50 method is used:

·         The expenditure is $10,000, so $5,000 (i.e., 50%) is liable to FBT and tax deductible.

 CHRISTMAS GIFTS

Editor:  When rewarding employees and loyal clients/customers/suppliers it is important to understand how gifts to staff and clients, etc., are handled 'tax-wise'. 

Gifts that are not considered to be entertainment

These generally include, for example, a Christmas hamper, a bottle of whisky or wine, gift vouchers, a bottle of perfume, flowers, a pen set, etc.  

Briefly, the general FBT and income tax consequences for these gifts are as follows:

  • gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible; and
  • gifts to clients, suppliers, etc. – no FBT, and tax deductible.

Gifts that are considered to be entertainment

These generally include, for example, tickets to attend the theatre, a live play, sporting event, movie or the like, a holiday airline ticket, or an admission ticket to an amusement centre. 

Briefly, the general FBT and income tax consequences for these gifts are as follows:

    - gifts to employees and their family members – are liable to FBT (except where the 'less than $300' minor benefit exemption applies) and tax deductible (unless they are exempt from FBT); and
    - gifts to clients, suppliers, etc. – no FBT 
    - and not tax deductible.

Non-entertainment gifts at functions

Editor:  What if a Christmas party is held at a restaurant at a cost of less than $300 for each person attending, and employees with spouses are given a gift or a gift voucher (for their spouse) to the value of $150?

Actual method used for meal entertainment

Under the actual method, for employees attending with their spouses, no FBT is payable, because the cost of each separate benefit (being the expenditure on both the Christmas party and the gift) is less than $300 (i.e., the benefits are not aggregated). 

No deduction is allowed for the food and drink expenditure, but the cost of each gift is tax deductible.

50/50 method used for meal entertainment

Where the 50/50 method is adopted:

·         50% of the total cost of food and drink is liable to FBT and tax deductible; and

·         in relation to the gifts:

                             the total cost of all gifts is not liable to FBT because the individual cost of each gift is less than $300; and

                             as the gifts are not entertainment, the cost is tax deductible.

To Sum Up
We understand that this can all be somewhat bewildering, so if you would like a little help, just contact our office.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information's applicability to their particular circumstances.