Federal Budget lock-up arrangements confirmed
The Government has given the confirmation about the 2021-22 Federal Budget and it will be released on Tuesday 11 May, 2021.
Targeted CGT exemption for granny flat arrangements
Treasury has published exposure draught legislation to allow a targeted CGT exemption for granny flat arrangements in the 2020-21 Budget. This does not imply that any separate dwelling constructed out the back of a house would be excluded from CGT.
Typically, granny flat arrangements take place when an older person gives their adult child some kind of consideration (usually title to property or proceeds from the sale of property) in return for the promise of continuing care, assistance, and accommodation.
The proposed law states that no CGT occurrence can occur when a granny flat agreement is entered into, varied, or terminated if certain conditions are met, such as the person who owns the granny flat interest:
- Has reached retirement age or has a disability, and
- The agreement is in writing and not commercial in nature.
The development, variation, or termination (as the case may be) of a granny flat interest is subject to CGT relief. Under this measure, a granny flat interest in a dwelling entitles the holder to live there indefinitely.
Another advantage of this law is that it formalizes granny flat arrangements, making older Australians less vulnerable to situations where they have passed properties to their children only to discover that they no longer have a place to live due to a falling out, divorce, death, or their children’s shifting financial circumstances. According to the explanatory materials, the presence of a granny flat arrangement does not affect the property owners’ right to assert the main residence exemption. The deadline for submissions was April 29, 2021. Exemption from FBT for redundant staff who are retrained and reskilled Treasury has introduced an exposure draught bill that will exempt employers from paying FBT if they offer training or education to a laid-off or soon-to-be laid-off employee in order to help that employee find new work.
FBT is normally payable when an employer provides workers with instruction or training that is not sufficiently related to their actual work activities. This measure aims to enable workers to retrain and upskill employees for new positions within the company or to prepare them for jobs with other companies. Under the draft legislation, a benefit is exempt from FBT if all of the following conditions are satisfied:
- For education or training completed by an employer’s employee during the FBT year, or in respect of that year, the benefit is given.
- The employee is no longer required. For the purposes of the new FBT exemption, the definition of redundancy is general. It applies to situations in which an employee is made redundant in one section of the employer’s company but is able to be reassigned to another. It also includes situations where the employer has a reasonable expectation that the employee will be laid off but has not yet done so.
- Any obligations under the Fair Work Act 2009 that apply to the redundancy (such as any provisions to consult about the redundancy or, whether the employee has been fired, any obligations about the dismissal) have been met by the employer.
- The education or training is primarily intended to enable the employee to obtain or generate a salary or wages in connection with any job to which the education or training relates. This test does not apply to education or training that is pursued solely for personal reasons or interest.
TPB releases assistance on TFNs in emails
A final practice guide on the disclosure of client TFN details in emails has been published by the Tax Practitioners Board.
The TFN Rule, which is part of the Privacy Act, governs the collection, storage, use, disclosure, protection, and disposal of TFN data. TFN information can only be used or published for the following purposes:
- A purpose authorized by taxation law, personal assistance law or superannuation law
- The object of providing a person with any TFN information held by the TFN recipient (i.e., a tax agent).
There are specific guidelines on how a TFN recipient (such as a tax or BAS agent) handles client TFN information, including taking appropriate precautions to prevent unauthorized access, alteration, or disclosure. These measures may also be needed under Item 6 of the Tax Agent Code of Professional Conduct, according to the TPB.
To reduce the risk of a violation of those provisions in situations where a tax practitioner proposes to disclose a client’s TFN by email without the client’s permission, the TPB strongly advises that tax practitioners obtain prior explicit written authorization for any proposed disclosure of a client’s TFN. The facts and conditions, including whether the tax practitioner has taken appropriate measures to put IT controls in place to protect the protection of the TFN, will determine whether disclosure of a client’s TFN in an email violates the relevant legislation.
A list of recommended measures for tax practitioners to take when using and reporting a client’s TFN in email correspondence is also included in the practise guide. This may require the use of software that extracts client TFNs from specific documents. Tax agents should review these measures to see if the current procedures are acceptable.
Financial Services Disciplinary Body Exposure draft released
Treasury has published an exposure draft bill that would allow a single disciplinary body for financial advisors to be established on January 1, 2022. Registered advisors will not be forced to retain their registration with the Tax Practitioners Board (Tax (financial) advice) – from 1 January 2022, which is a good change for advisers. The Bill implements the Government’s response to the Hayne Royal Commission:
- ASIC’s Financial Services and Credit Panel (FSCP) is given more power to act as a single regulatory body for financial advisors.
- Creates new fines and sanctions for financial advisors and financial services licensees that are found to have violated the Corporations Act (12 penalty units – currently $2,664 – per violation).
- For financial advisors, introduction of new annual registration system
- To streamline the oversight of financial advisors, FASEA’s responsibilities are transferred to the Minister responsible for administering the Corporations Act and ASIC.
- To eliminate duplication of regulation, from January 1, 2022, implements a single registration and disciplinary scheme under the Corporations Act for financial advisors who provide tax (financial) advisory services.
The FSCP will be referred to the FSCP in roughly six situations.
- Not a fit and proper person to practice as a financial advisor because of fraud, insolvency, or becoming an officer of two firms who were unable to pay their debts.
- Financial services regulation violations, such as failing to meet annual consent conditions and accepting conflicted remuneration.
- Breach by association, that is, involvement in another person’s breach, such as creating a business model that resulted in a violation.
- Giving advice when not registered
- Failure to follow a prior sanction applied by the FSCP
- Failed to respond to an Australian Financial Complaints Authority (AFCA) decision – the threshold is that the adviser was related to a failure or inability to give effect to an AFCA determination twice.
Extension in Home Builder Construction requirements
The successful HomeBuilder scheme’s construction start criteria have been increased from six to eighteen months. Before the deadline of Wednesday, April 14, 2021, more than 121,000 Australians applied for the award. The extension only affects current applicants’ building requirements.
The government’s decision to extend the deadline for current applicants by a year refers to unanticipated disruptions in the construction industry caused by COVID-19-related supply constraints, such as delays in global supply chains and recent natural disasters.
New Director ID regime – legislative instruments released
The government introduced the Modernizing Business Registers Program in the 2020 Budget, which involves the implementation of a director identification number (director ID), which is a permanent identifier for a director. In order to combat pheonixing, the director ID is intended to help avoid the recruitment of fictitious directors and promote traceability of their profile and relationships with companies over time.
A new statutory instrument has been issued that lays out some of the fundamentals of the data to be obtained and the application process. The instrument specifies that applications must be submitted through a particular electronic portal and that they must be completed within a certain time frame.
From the Regulators
$9.4m promoter penalty for solicitor, accountant and planner
In a long-running promoter penalty lawsuit, the ATO has had its pound of flesh, with the accountant losing his appeal and the Federal Court demanding $9.4 million in fines to be paid. The solicitor was ordered to pay $7.75 million, the financial planner $1.455 million, and the accountant $210,000 for their roles in the development, execution, and promotion of the schemes.
The fine is for an Emission Reduction Purchase Agreement scheme that was sold to clients between 2009 and 2012 and received deductions for credits that did not exist. The promoters guaranteed an immediate reduction in their clients’ taxable income and a tax savings that well surpassed their initial deposit in exchange for a 15% non-refundable deposit.
Making the small business independent review service permanent
The ATO has confirmed that the independent assessment service for small companies with a turnover of less than $10 million has been permanently introduced. This service gives small business taxpayers another tool for settling conflicts with the ATO related to audit operations. As part of the audit process, eligible taxpayers should be given the opportunity to request a review. It’s important to keep in mind that seeking an impartial analysis has no bearing on the client’s other objections.
Furthermore, the procedure will not take into account any new evidence or claims that have not been presented previously. While the program’s trial was deemed a success, practitioners should be mindful that the procedure includes analysis by another ATO officer who has no previous experience in the matter, and there is still some doubt that the process is not fully impartial due to perceived prejudice and a reluctance to depart from the original ATO opinion.
Using the temporary full expensing and loss carry-back measures
Company taxpayers who use these new clauses or opt out of the temporary full expensing or accelerated depreciation regulations will be obliged to complete additional labels in their 2021 tax returns, according to the ATO. Taxpayers must send the following information to the ATO in order to take advantage of the temporary full expensing steps.
- If they opt out of temporary full expensing for any or all of their qualifying properties.
- The number of assets they are claiming or opting-out for
- The value of the assets (if applicable)
- complete sum of the full expensing deduction (temporary)
- Information about their aggregated turnover
Although we await the publication of the 2021 tax return forms, the ATO has issued a detailed timetable for organizations that must complete returns for the 2021 year before July 1, 2021. This may include companies with different accounting periods, entities that no longer live in Australia, and firms entering into liquidation.
Rulings & determinations
Promoter penalty scheme approach defined
The promoter penalty laws are found in Division 290 of Schedule 1 of the Taxation Administration Act 1953. The laws are aimed at discouraging the promotion of tax avoidance schemes in general. The following items are examined in the practice statement:
- Some indicators of possible promoter behaviour;
- the ATO’s decision-making process regarding the promoter penalty laws;
- The implementation of the promoter penalty laws, including the penalties and remedies available.
Some of the signs that someone is engaging in promoter behaviour include that advisors have:
- Encouraged one or more taxpayers to apply for a tax or superannuation reward to which they are not entitled
- Advertised or sold ‘too good to be true’ tax or superannuation schemes
- Offered tax benefits in exchange for a hefty fee or a share of the tax savings
- Several clients are involved in similar deals that are overly complicated or seem to be structured solely to obtain a tax or superannuation value
- Offered or facilitated illegal early access to superannuation despite non-compliance with release requirements
This last point is especially important for any adviser who successfully advocated early access to retirement savings under the COVID-19 relief measures despite the fact that clients failed the hardship exams.
Commissioner’s discretion to retain income tax refunds
The ATO has finalized a practice statement on ATO officers’ right to use the Commissioner’s increased powers to maintain tax refunds. Although the ATO states that the Commissioner’s discretion to maintain a refund is unrestricted by statute, the practice statement recognizes that the Commissioner’s exercise of the expanded discretion will not be taken lightly.
The ATO notes that when taxpayers are marked as engaging in high-risk conduct, such as illicit phoenix activity, the exercise of discretion will be considered. The practice statement states that if clients have a weak enforcement background and other existing pending lodgments, the ATO is more likely to maintain refunds.
GST and property development in the ACT
The Australian Taxation Office (ATO) has issued a GST decision outlining its position on whether ‘building works’ and ‘related site works’ carried out by property developers on land purchased under a long-term Crown lease are subject to GST. The decision confirms that these works are not considered consideration for a government agency’s provision of that lease. That is, when calculating the amount of input tax credits available to the developer, the value of the work done is not taken into account.
According to the ATO, the developer’s duty to complete the works only occurs after the developer has been given a Crown lease. Because of the existence of a Crown lease in the ACT, the developer is essentially building on its own property. The developer is the one who benefits from the structures that are expected to be built on the property, because the developer is the one that benefits from the construction and related site work, and the work is not a supply to the government department.
Approach to super and non-arm’s length expenditure
The ATO has updated this realistic enforcement guidance to reflect their decision to extend their compliance strategy for another year, to cover the 2022 income year. The PCG addresses the complicated issue of determining if an SMSF has derived non-length arm’s revenue, especially when this is suspected because the SMSF has incurred non-length arm’s expenses. Changes to the law in 2018 made it possible for certain funds to be considered to derive non-length arm’s revenue, which could have a substantial impact on the fund’s tax treatment. Since the ATO has extended the enforcement strategy described in this PCG, they will not devote compliance resources to determining if the non-length arm’s income requirements apply when a super fund has incurred non-length arm’s expenditure of a general nature.
Contact Reliable Melbourne Accountants now to avail the benefits of recent announcements made by the Government.