From the Government
- Relief Payments Reinstated Related to Covid-19
In July the Federal Government accepted to reinstate the Pandemic Leave Disaster Payment for the time from July 1 to September 30, 2022, and this happened at the meeting of the national cabinet. People who were self-isolated because of Covid-19 and not able to work were eligible for this payment. Likewise, the Pandemic Payment – National Health Emergency (Covid-19) has also been reinstated for the same time period. This payment is for those who get an income support payment or ABSTUDY Living Allowance from Services Australia and who are facing severe financial problems.
- ACNC Regulations to be Redone
Treasury has announced exposure draft legislation that makes regulations again that is related to the work of the ACNC, which were because of sunset in 2023. There are no substantial modifications to the regulations that require to be noticed.
From the Regulators
- Instructions on Reporting Cryptocurrency Transactions
The ATO has offered some concise instructions planned to help taxpayers with accurately reporting income and losses from Cryptocurrency transactions. The ATO repeats its position that most Cryptocurrency will be conducted on capital account, but it is always mandatory to know whether customers could be taxed on revenue account.
A CGT event requires to be triggered to enlighten a capital gain or loss. Unrealised losses and gains do not require to be reported for tax purposes, but it is essential to remember that a CGT event will be triggered if a taxpayer exchanges one crypto asset for another asset of crypto, and turns crypto to a flat currency or utilises to get services or goods. Other income produced from Cryptocurrency, like airdrops or staking rewards will require to be included in tax returns as other income. Taxpayers require keeping correct and suitable records of their Cryptocurrency and transactions and the notes that it has increased its use of data matching in this area.
- Handling Share Investments in the Tax Return
The ATO has released instructions related to sharing investments. The ATO offers tips to inhibit mistakes in tax returns including the following:
- Wait until pre-filling is accessible, as there are some investments that take longer as compared to others.
- Check pre-filling, and if there is no transaction, then add it in.
- Check that even if a distribution or dividend is reinvested automatically into a reinvestment plan, these should be reported as income.
- Determine that CGT events can be determined by actions an organisation takes, not solely by customer actions. It can include mergers, liquidations, demergers or return of capital.
- Reporting capital losses on tax returns is essential so they can be carried forward easily to offset future capital gains.
It is also important to make sure that you put the question to clients about new sales or investment acquisitions that have happened during the year and whether customers have enough records to support these transactions.
The ATO has also released a fact sheet that explains how to calculate capital losses or gains on units or shares. It includes assistance on how to calculate share investments’ cost base, how to manage sales that are part of parcels of shares, dealing with departed estates and tax issues for non-residents.
- Top 10 Things to Keep in Mind for Tax Time
The ATO has released the top 10 things to note in finishing individual tax returns for the 2022 year. Some of the more essential items include:
- Ensure to note if the customer’s Covid-19 natural disaster payments and support payments require to be included in their 2021-22 tax return, as the tax treatment can change based on the type of payment that has been received.
- Ensure the clients who are claiming deduction for the payment of purchasing work-related Covid-19 tests, are liable for this.
- If the individuals are claiming to work from home expenditures, they can select from either the temporary shortcut way, actual cost method or the fixed rate method, as long as they are eligible and meet record-keeping requirements for the way they select. Ensure these ways are applied accurately.
- Ensure the customer has accurate records to confirm their deduction claims – no receipts, diary or logbook, means no deduction.
- Customers need to make calculations and declarations of losses and gains from the disposal of crypto assets during the 2021-22 financial years. If the customer has received airdrops or staking rewards, ensure to add these as ordinary income. If the customer is in the business of trading crypto, then income tax will also apply.
- If the customer received any income from their rental property whole year, it will require to be reported on their return. It includes income from insurance payouts, short-term rental arrangements and bond money that was maintained.
- Making Objections
The ATO has offered some updated instructions on the types of decisions and assessments that taxpayers can make objections to. Significantly, the guide offers a summary of the time limits that apply in every circumstance.
It is also essential to check that if a taxpayer is outside of the ordinary time limit for making an objection against the decision or an assessment they can request the Commissioner to permit to extend the time by including a written request together with the objection.
- Compliance Approach of the ATO to Everett Assignments
Following the PCG 2021/4 finalisation that deals with the assignment of profits of professional firms, the ATO site has been updated to add particular instruction on how the ATO evaluates Everett assignments risk and its compliance approach in this field.
The following are some key points from a tax perspective related to the key cases in this field:
- This kind of assignment’s effect is that the assignor holds that allocated partnership interest on trust for the assignee.
- The assignment doesn’t make the assignee a partner in the partnership or give the assignee any right to the assets, management of the partnership or the entitlement to an inspection of accounts and books.
- A partner’s income is not income from personal efforts but it is the income from property, with the property that is being the partner’s fractional interest in the partnership.
The ATO’s instructions imply that it will determine these arrangements at high risk where:
- They purport to accept an individual who is not an equity holder or an owner in the partnership as a partner of the partnership.
- A relationship of a partner with the partnership has features signifying that the relationship is similar to an employee or contractor of the partnership.
- The partner is not allowed to fully participate in the management and the partnership’s benefits.
- The partner gets a fixed salary and they have restricted or no exposure to the risks and advantages related to the partnership’s performance.
- The partner is paid by other partners for any liability in relation to actions against the partnership.
The ATO implies that the approach to determining the risk related to Everett assignments that don’t show high-risk factors will be assessed concerning the risk assessment framework set out in PCG 2021/4. On the flip side, where the Everett assignment contains high-risk characteristics, the ATO implies that this probably result in a closer focus on the individual facts and arrangement circumstances, including consideration of whether Part IVA could implement.
- Minimum Pension Drawdown Rated Diminished for 2023
It has been confirmed by the ATO that the minimum pension drawdown rates remain diminished by 50% for the 2023 income year. It minimises the minimum annual payment needed for account-based pensions and annuities, assigned pensions and annuities, and market-linked pension and annuities.
- Viewing Super Contribution Cap Information
Now, superannuation fund members can view and manage their non-concessional contributions by using ATO online services. A member can see the rest cap amount for the financial year, whether they are about to surpass the cap, and if they have surpassed the cap, the excess amount.
- ATO Rental Property Focus
The ATO has signified that it will focus on the reporting of rental income and deductions as it continues to be an area where mistakes are often done. The ATO made the first point that ensures all rental income is included, such as income from short-term rental arrangements, and other rental-related income like rental bond money that has been preserved.
The advisor must note to make sure that all expenditures are reported correctly. It is mandatory to make sure that deductions are solely claimed to the extent that property is utilised for income-generating purposes. It can also be an issue concerning appointing interest expenses on a loan utilised partially to obtain the property and partially for private purposes.
The ATO offers some comments on the tax calculations that require to be executed when selling a rental property. The cost base will include the property cost when bought and any costs related to obtaining or selling it. This can include things like legal fees, stamp duty, real estate sales fees and valuations. Capital works deductions need to be eliminated from the cost base. Over the comments created by the ATO in the guide, it is essential to make sure that suitable adjustments are done when customers sell depreciatory assets with a rental property. These are different assets from the property and it is crucial to execute separate calculations concerning these assets.
- Main Residence Exemption and Occupancy Expenses
To the ATO’s ‘employee’s guide for work expenses’, there has been an update that was mentioned in the June 2022 Tax round-up. The ATO has changed the document to clear the point that if you are entitled to claim occupancy expenses for a property, then it means that you are not entitled to a full main residence exemption.
If a taxpayer is eligible to claim interest expenses but doesn’t, then they would not be able to claim the full main residence exemption. The ATO is making clear that if a taxpayer is entitled to claim a deduction, then they can’t generally select not to claim the deduction to access beneficial tax treatment in another field.
Rulings, Determinations, and Guidance
- Division 7A and UPEs
The ATO has completed its updated instructions on the treatment of UPEs which stands for unpaid present entitlements owed by a trust to a corporate beneficiary for Division 7A purposes.
The important point to consider is that the ATO has backtracked on the approach chosen in the draft determination when a UPE will begin being treated as a loan. The ATO implies that the loan increases at the point in time when the private company beneficiary knows that it can request payment of from the trustee and doesn’t request payment of the amount.
Where the trustee and the private company beneficiary are part of the same family group, the company is chosen to know the amount that it can demand immediate payment from the trustee when the trustee does. It will normally happen in the following year when the accounts have been completed for the trust. The ATO supposes that there will be a limited number of exceptions to this. The other problem in the final determination is related to sub-trust arrangements. The ATO confirms its updated view that sub-trust will not be allowed to prevent a UPE from being treated as a loan for Division 7A purposes. Sub-trust arrangements will be liable for Division 7A purposes in some situations.
- ATO Warning on Treaty Shopping
The ATO has announced a taxpayer alert concerning ‘treaty shopping’ arrangements that are to acquire the advantage of a diminished withholding tax (WHT) rate under DTA which stands for the double tax agreement.
These arrangements can involve the utilisation of interposed entities between the recipient of the royalty or dividend and an Australian resident entity, where the interposed entity belongs to a treaty partner country. Generally, the ultimate recipient is located in a country that either doesn’t have a DTA with Australia or, where it is Australia’s treaty partner, the DTA offers fewer treaty benefits.
The ATO signifies that it may be rechecking arrangements that include the following characteristics:
- Structures and restructures include the interposition of current or newly incorporated entities between the ultimate recipient of royalties and Australia.
- The interposed entity may have important current operations and employees and the taxpayer may argue that commercial advantages flow to the Australian operations.
- Unfranked dividend payments to the interposed entity are liable to WHT at reduced costs under the DTA compared with Australian domestic law or eligible WHT rate under the DTA between Australia and the country of residence of the recipient.
The taxpayer warns states that these kinds of arrangements may be liable to both the operation of the anti-avoidance rules offered under Australia’s DTAs and anti-avoidance rules in Australia’s domestic tax laws.
- Dividends from Capital Profits
According to the AAT, the dividends paid to a shareholder of an organisation will be added to assessable income and taxed on the revenue account, even if the dividend is carried back to capital profits made by the organisation paying the dividend. In this case, an individual taxpayer got a payment from an organisation (BHP) that was described as a special dividend and that was from the capital proceeds produced from the assets’ sales by the company.
After incorporating the dividend in the tax return, the taxpayer changed the return to treat this as a return of capital. As a taxpayer had obtained the shares in the organisation pre-CGT they treated this as an exempt capital gain. The ATO released a changed assessment based on the payment that was a dividend and must be incorporated in assessable income. After the rejection of objection by the taxpayer, they brought the case to the AAT.
The AAT confirmed that an organisation and its shareholders should be looked at separately when the tax rules are applied. The fact that an organisation has produced profits from the capital assets’ sales doesn’t mean that the shareholder can treat dividends that are sourced from those profits as a capital amount for tax purposes.
When a company distributes to a shareholder it will be taxed except to the extent that the company’s share capital account, the distribution is debited. The practitioner must notice that the tax result can be different in circumstances where the organisation can apply for the small business 15-year exemptions. Different tax implications can sometimes occur for shareholders when a company that is listed undertakes an on-market share buyback or a liquidator distributes to shareholders sourced from exempt capital gains made by a company.
The case also gives a warning on self-representation. Taxpayers with less experience with the tax system and who do not use a highly technical approach to the conflict are likely to have less success before the AAT.
Some tax-related bills have been presented by Parliament after a break of a few months.
- Exempting Electric Cars from FBT
This bill gives for an FBT exemption for cars that are categorised as zero or low emission conveyance and the employer offers an employee a car fringe benefit. Some important points to consider with regards to this measure include:
- Limited exemption to vehicles that are below the luxury car tax threshold for fuel-efficient cars.
- The exemption is likely to apply to advantages offered from July 1, 2022, but would not be available to cars that were already bought on this date.
- The exemption can be applied to cars that are offered under a salary sacrifice arrangement.
- It is significant to confirm whether a particular car model will be liable for the exemption.
- Maximised Limit of Income Test for Commonwealth Seniors Health Card
Social Services and Other Legislation Changes Bill 2022
To get qualified for a CSHC adjusted taxable income plus considering account-based pensions requires to be less than $57,761 for singles and $92, 416 for couples. This bill maximises the income test restricted to $90,000 and $144,000 respectively.
Even though the ancillary advantages are not as wide as the pension concession card, a CSHC will offer qualified self-funded retiree customers to access to advantages such as:
- Affordable medicine under the PBS stands for Pharmaceutical Benefits Scheme. Card holders can get free prescriptions after a safety net of $326.40 for the calendar year that has been met.
- Access to the Medicare safety net.
- A number of billed medical appointments – are liable to approval from your doctor.
The rise proposed in the Bill exchanges indexation in line with the CPI that was about to happen on September 20, 2022.
- Cyclone Seroja Recovery Grants NANE
Treasury Laws Amendment Bill 2022
This bill makes minor changes to the income tax laws including:
- Grants got with regards to Cyclone Seroja under Category C of the Disaster Recovery Funding Arrangements 2018 will be NANE which stands for non-assessable and non-exempt that is income for income tax purposes.
The bill offers income tax and withholding tax exemptions for FIFA and it is a completely owned subsidiary in relation to producing the 2023 FIFA Women’s World Cup in Australia.