Overview

Single Touch Payroll is a reporting change for employers.

It means employers will report payments such as salaries and wages, pay as you go (PAYG) withholding and super information to the ATO.  This information will be reported directly from employers payroll solution at the same time they pay their employees.

Employers may need to update their payroll solution to report through Single Touch Payroll.

For employers with 20 or more employees, Single Touch Payroll reporting starts from 1 July 2018.

The Australian Government has announced it will expand Single Touch Payroll to include employers with 19 or less employees from 1 July 2019. This will be subject to legislation being passed in parliament.

What’s happening right now

The ATO will continue to provide information to help employers get ready for Single Touch Payroll.

The ATO are working closely with payroll software providers to help them get ready to offer Single Touch Payroll.  Some providers have advised that they’re waiting for final versions of ATO technical documents before they can build updates to their products.

The ATO know some providers will not have their products ready by 1 July 2018.  For employers using these providers, the ATO will publish separate deferral guidelines for employers shortly.

If you would like further information regarding Single Touch Payroll, please do not hesitate to contact our office.

Source: https://www.ato.gov.au/about-ato/about-us/in-detail/strategic-direction/streamlined-reporting-with-single-touch-payroll/

To help you taxpayers get things right, you should consider the behaviours, characteristics and tax issues that may attract the audit attention of the ATO.  The Australian Taxation Office have published this information below as part of their commitment to transparency in working with privately owned and wealthy groups.

Broadly, the following behaviours and characteristics may attract the ATO’s attention:

• tax or economic performance is not comparable to similar businesses
• low transparency of your tax affairs
• large, one-off or unusual transactions, including transfer or shifting of wealth
• a history of aggressive tax planning
• tax outcomes inconsistent with the intent of tax law
• choosing not to comply or regularly taking controversial interpretations of the law
• lifestyle not supported by after-tax income
• accessing business assets for tax-free private use
• poor governance and risk-management systems

There are specific behaviours and characteristics that attract the ATO’s attention, including:

Division 7A – Deemed Dividend

The use of company funds or assets for private use by shareholders or their associates may result in a deemed dividend under Division 7A for the shareholder or their associate.

A deemed dividend may occur when a company pays, lends or forgives a debt to a shareholder or associate.  These amounts should be included in the assessable income of the shareholder or their associate.

What attracts the ATO’s attention:

• Amounts are taken from a company and are not repaid.
• A complying loan agreement has not been put in place.
• Minimum yearly repayments are not made.
• Where interest income is not declared on the company tax return.
• The private use of a company asset.
• Attempts to avoid application of Division 7A to transactions between a private company and a shareholder or their associate.

Directors loans

The ATO focuses on profits extracted from a private company by shareholders or their associates and whether they are taxed correctly.

The ATO examines the directors and shareholders of private companies who report low levels of salary and wages and no other sources of income. This examination looks to identify shareholders extracting wealth and maintaining a lifestyle that cannot be supported by the level of income reported on their tax return.

What attracts the ATO’s attention:

• Companies that do not disclose any shareholder loans on their tax return.
• Directors who do not report taxable remuneration such as salary and wages or directors fees on their tax returns.

Our services

In the preparation of financial statements and income tax returns, Griffin & Associates carefully considers the income tax legislation to ensure clients are not exposed to ATO audit activities.  Click here for more details on the services provided by our office.

Source: https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/What-you-should-know/Transparency/What-attracts-our-attention/

From 1 July 2017, travel expenses relating to a residential investment property are not deductible.

A residential premise (property) is land or a building that is:

• occupied as a residence or for residential accommodation
• intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation.

Under the new legislation, you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property unless you are carrying on a business of property investing or are an excluded entity.

Travel expenditure can also not be included in the cost base for calculating your capital gain or capital loss when selling a property.

In the business of property investing

Owning one or several rental properties will not be considered being in the business of rental properties.

The receipt of income by an individual from the letting of property to a tenant, or multiple tenants, will not typically amount to the carrying on of a business as such activities are generally considered a form of investment rather than a business.

Excluded entities

An excluded entity is a:

• corporate tax entity
• superannuation plan that is not a self-managed superannuation fund
• public unit trust
• managed investment trust
• unit trust or a partnership (all of the members of which are entities of a type listed above)

Example: An individual with residential investment property in 2017-18

Sarah rented out her residential rental property 2017-18. She travelled to the property to repair damages caused by tenants during the year.

As the investment is a residential property, Sarah cannot claim travel expense.

Example: An excluded entity in 2017-18

Terry’s Tyres incurred travel expenses in 2017-18.  The property manager was tasked with inspecting a residential property investment that is currently tenanted. Terry’s Tyres is a corporate tax entity and can claim a deduction for rental travel costs.

For further information on what deductions can be claimed for rental properties, please download Griffin & Associates rental property checklist.

Source: Australian Taxation Office

You can claim a deduction for borrowing expenses associated with purchasing your property, such as loan establishment fees, title search fees, and costs of preparing and filing mortgage documents.  Please note that interest on the loan is not a borrowing expense and can be claimed immediately.

If your total borrowing expenses are more than $100, the deduction is spread over five years or the term of the loan, whichever is less.

If the total borrowing expenses are $100 or less, you can claim a full deduction in the income year they are incurred.

What can you claim?

You can claim all of the following as borrowing expenses:

• stamp duty charged on the mortgage
• loan establishment fees
• title search fees charged by your lender
• costs (including solicitors’ fees) for preparing and filing mortgage documents
• mortgage broker fees
• fees for a valuation required for loan approval
• lender’s mortgage insurance, which is insurance taken out by the lender and billed to you.

What are you unable to claim?

You cannot claim any of the following as borrowing expenses:

• loan balances for the property
• stamp duty charged by your state/territory government on the transfer (purchase) of the property title
• legal expenses including solicitors’ fees for the purchase of the property
• stamp duty you incur when you acquire a leasehold interest in property
• insurance premiums where, under the policy, your loan will be paid out in the event that you die, become disabled or unemployed (this is a private expense)
• borrowing expenses on any portion of the loan you use for private purposes

Stamp duty and legal expenses may be included in calculating the ‘cost base’ of the property for capital gains tax (CGT) purposes.

For further information on what deductions can be claimed for rental properties, download a Griffin & Associates rental property checklist.

Source: Australian Taxation Office

What is depreciation?

You can claim a deduction for the decline in value of certain items, known as depreciation, that you acquired as part of the purchase of your property or that you subsequently purchased for your property.

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Examples of depreciating assets are freestanding furniture, stoves, washing machines and television sets.

How is depreciation calculated?

The decline in value of a depreciating asset starts when you first use it, or install it ready for use. This is known as the depreciating asset’s start time. For example, if you purchased an asset on 1 January, you can claim half of the first income year’s decline in value.

Your deduction is reduced to the extent your use of the asset is for other than a taxable purpose.

For assets costing $300 or less, you can claim an immediate deduction for the entire cost. You can’t do this if the asset is one of a set of assets that together cost more than $300 – for example, if you buy four dining chairs each costing $250, you can’t treat them as separate assets to claim an immediate deduction.

To work out the decline in value of a depreciating asset, you need to know its effective life.  The effective life is how many years you can use the asset for a taxable purpose. For most depreciating assets, you can work out the effective life using an ATO table.

To work out your deduction for depreciation, use either the:

• prime cost method – this means the value of the depreciating asset decreases uniformly over its effective life, or
• diminishing cost method – this means the decline in value each year is a constant proportion of the remaining value.

For further information on what deductions can be claimed for rental properties, download a Griffin & Associates rental property checklist

Source: Australian Taxation Office

Recent legislation has changed the deductibility of travel expenses for residential rental properties.

2017 Income Tax Return

Generally, you can claim a deduction for the cost of travel you incur to inspect or maintain rental properties or to collect rent.

You can claim travel expenses for:

• preparing the property for new tenants (except for the first tenants)
• inspecting the property during or at the end of tenancy
• undertaking repairs, where those repairs are because of damage or wear and tear incurred while you rented out the property
• maintaining the property, such as cleaning and gardening, while it is rented or available for rent
• collecting the rent
• visiting your agent to discuss your rental property.

2018 Income Tax Return (and future years)

In the 2017–18 Budget, the Government announced that it intended to deny all travel deductions relating to inspecting, maintaining, or collecting rent for a residential investment property from 1 July 2017.

It is intended that travel expenditure incurred in gaining or producing assessable income from residential premises used as residential accommodation will not be deductible. The expenditure will also not be recognised in the cost base of the property for CGT purposes.

You will be able to continue to deduct travel expenditure if:

• the losses or outgoings are necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income; or
• you are an excluded class of entity.

An excluded class of entity will be:

• a corporate tax entity;
• a superannuation plan that is not a self-managed superannuation fund;
• a public unit trust;
• a managed investment trust; or
• a unit trust or a partnership, all of the members of which are entities of a type listed above.

Other Information

For further information on what deductions can be claimed for rental properties, please download Griffin & Associates rental property checklist

Sources:

Australian Taxation Office – Rental property deductions

Australian Taxation Office – Change in residential rental property deductions

After detailed consultation with the self-managed super fund (SMSF) sector, the ATO announced today that its implementation of event-based reporting from 1 July 2018 will be limited to those SMSFs with members with total superannuation account balances of $1 million or more.

Deputy Commissioner James O’Halloran said that this means that SMSFs whose members’ total superannuation balances are less than $1 million can choose to report events which impact their members’ transfer balances at the same time that the SMSF lodges its annual return.

“As a result of this approach it is estimated that up to 85% of the SMSF population will not be required to undertake any additional reporting outside of current annual reporting timeframes for the foreseeable future.” Mr O’Halloran said.

“From 1 July 2018 those SMSFs that do have members with total superannuation account balances of $1 million or more will be required to report events impacting members’ transfer balances within 28 days after the end of the quarter in which the event occurs.

“However, it is important to restate that in all cases, regardless of the reporting timeframe that applies, reporting is only required if an event that impacts a member’s transfer balance cap actually occurs – for example, when a SMSF member first starts to receive a pension from their fund.”

Mr O’Halloran said “On 22 August 2017 we issued a public position paper about SMSF event-based reporting. The feedback we received highlighted concerns about the effort and costs that may be associated with the proposed approach.

“The ATO has listened carefully to this feedback, and in considering these concerns we have decided to provide an annual reporting timeframe for SMSFs with members with lower superannuation balances and to allow a quarterly reporting timeframe for other SMSFs.

“The ATO believes that the combination of these approaches sensibly balances administrative ease and efficiency with the increased need for transparency across the superannuation system.”

Source: https://www.ato.gov.au/Media-centre/Media-releases/SMSF-event-based-reporting/

Together with the Department of Agriculture and Water Resources, local, state and other federal government agencies – the ATO are offering help and support for Australians:

• experiencing hardship because of drought
• preparing for future drought conditions.

If you’ve been affected by drought, the ATO can help by looking at your individual circumstances and working with you to address any difficulties you are having managing your tax obligations.

Source: https://www.ato.gov.au/General/Financial-hardship/In-detail/Help-for-drought-affected-taxpayers/

Your ‘main residence’ (your home) is generally exempt from capital gains tax (CGT). To get the exemption, the property must have a dwelling on it and you must have lived in it. You’re not entitled to the exemption for a vacant block.

Generally, a dwelling is considered to be your main residence if:

• you and your family live in it
• your personal belongings are in it
• it’s the address your mail is delivered to
• it’s your address on the electoral roll, and
• services such as gas and power are connected

The main residence exemption is not based on one factor alone, and the weight given to each varies depending on individual circumstances. The length of time you stay there and your intention in occupying it may also be relevant.

You’re eligible for a full main residence exemption if the dwelling:

• has been the home of you, your partner and other dependants for the whole period you’ve owned it
• has not been used to produce assessable income – that is, you’ve not run a business from it, rented it out or flipped it, and
• is on land of two hectares or less

If the full exemption applies your capital gain or loss is disregarded – you don’t pay tax on any capital gain, but nor can you use any capital loss to reduce your assessable income.

Alternatively, you may be entitled to a partial exemption.

Source: https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/Your-main-residence/

The Australian Taxation Office (ATO) is reminding taxpayers there are serious consequences if they choose not to meet their tax obligations this tax time.

Assistant Commissioner Kath Anderson said most Australians want to do the right thing, but some refuse to pay their share, or pay at all.

“In the first instance we always try to help and educate taxpayers about how to get their tax right. Unfortunately in some cases people don’t respond or deliberately make false statements to avoid paying the right amount of tax – and we have to pursue this,” she said.

Ms Anderson said the ATO has sophisticated systems and analytics that ensure wrongdoing can’t fly under the radar. If a claim raises a red flag in the system, auditors will investigate further.

“In 2015–16 for individual taxpayers we conducted around 450,000 reviews and audits, resulting in adjustments of nearly $1 billion in income tax, and prosecuted over 1,300 taxpayers,” Ms Anderson said.

“Criminal investigations and prosecution are a last resort and not something we take lightly. However, Australians expect us to make sure nobody gets a free ride and we are prepared to use all the avenues available to us to protect the integrity of the tax system.

“Our message to all taxpayers is that the ATO takes firm action against those who actively choose to ignore their obligations or try to game the system.”

Ms Anderson said the ATO uses a range of strategies to manage taxpayer transgressions, ranging from help and education, to audits and even prosecution through the court system for more serious cases.

“When choosing a course of action, we consider a number of factors including a taxpayer’s history of compliance, and the number of chances we’ve already given them to get back on track with their obligations,” Ms Anderson said.

“The decision to prosecute is only made if we have exhausted other options to get the taxpayer to change their behaviour and correct their affairs.”

The ATO is aware some people are willing to take risks and falsely claim work-related expenses. Ms Anderson said taxpayers considering risky claims should be on notice that the ATO is serious about dealing with non-compliance, and the consequences can be costly for those found to be doing the wrong thing.

“In the worst cases a penalty can be up to 95% of the tax shortfall amount. For example, we took a taxpayer to court over his false car work-related expense claims in two consecutive years, and he was ordered to pay more than $4,000 in fines and court costs,” Ms Anderson said.

“In another instance, a taxpayer had neglected to lodge his tax returns over a 12-year period despite being given a number of opportunities to comply. After being fined more than $100,000 and still failing to get his tax affairs in order, he was handed down an eight month suspended sentence.

“The vast majority of Australians do the right thing, which is why we will pursue those who try to dodge their obligations. Our message to anyone thinking about making a false deduction, omitting income or not lodging at all is that it just isn’t worth running the risk of audits, fines or prosecutions.”

Source: https://www.ato.gov.au/Media-centre/Media-releases/Don-t-dodge-when-you-lodge/