Parliament was sitting in June and so a large number of tax and superannuation legislation has now been passed. There have also been some case decisions that are of relevance to SMEs, including on superannuation guarantee and non-residents deriving capital gains via a discretionary trust.
With Parliament sitting this month a large number of Bills have been passed.
This was passed with amendments from the original Bill (refer Tax Bulletin – March 2021).
– Limits the creation of multiple superannuation accounts for employees who do not choose a fund when they start a new job by requiring employers to contribute to their “stapled fund”. This is now to commence from 1 November 2021 rather than 1 July 2021.
– Requires APRA to conduct an annual performance test for MySuper products and other products to be specified in regulations. Members will be notified by 1 October 2021 if their fund fails this test.
– Requires fund trustees to perform their duties and exercise their powers in the best financial interests of the beneficiaries. This was amended to remove the ability for regulations to be made to prohibit certain investments. This will commence from 1 July 2021.
– Increases the maximum number of allowable members in an SMSF or small APRA fund from 4 to 6 from 1 July 2021.
– The accounts and statements of an SMSF with 3-6 directors or trustees must be signed by at least half of the directors or individual trustees
– Extends the bring forward age limit for non-concessional superannuation contributions to those aged 65 and 66 from 1 July 2020. (Note: The work test for contributions by those under age 67 has been removed).
– Prohibits a taxpayer from claiming a deduction for a re-contribution of a COVID-19 early release amount by requiring them to make a non-concessional superannuation contribution of this amount before they are able to make a personal concessional contribution. Applicable to re-contributions from 1 July 2021 to 30 June 2030.
– Removes the excess concessional contribution charge (which is payable in addition to the excess contributions tax) from 1 July 2021.
– Implements the FBT exemption for certain retraining expenses and the CGT exemption for granny flat arrangements which are in line with the draft legislation (refer Tax Bulletin—April 2021)
– Extends the low and middle income tax offset to the 2022 income year (as announced in the Federal Budget).
– Extends the treatment as non-assessable non-exempt income to eligible Covid-19 recovery grant payments received by businesses from State or Territory Government to the 2022 income year. This is expected to apply to the recent Victorian Government business support packages once the Treasurer makes the necessary Legislative Instrument.
– Amends tax secrecy provisions to allow tax information to be disclosed to Services Australia for the purposes of administering the Covid-19 Disaster Payment.
In Olias v FCT the ATO issued SGC assessments to a music school who had engaged the services of Mr R to provide private lessons. Mr R had an ABN, but was paid a ½ hourly rate, provided lessons as scheduled by the school and was provided with a uniform shirt. The AAT held that Mr R was an employee for the purposes of the SGAA 1992. They key factors that supported this position were:
– Degree of control over Mr R in relation to the duration of lessons, fees and the uniform;
– Mr R was providing services on behalf of the music school and not on his own behalf;
– Evidence indicated Mr R was required to deliver the lessons himself and was not able to delegate;
– The commercial risk lay more fairly with Olias; and
– Mr R was provided with everything he needed by Olias.
Key Takeaway: A reminder of the broad meaning of ‘employee’ and the ongoing risk that a business could be liable to pay superannuation for individuals they consider to be contractors.
In VNBM and FCT a company reported one week’s wage to its director of $107,500 in March 2020 after reporting wages of $100 a week for many years. The ATO denied the company the maximum first CFB payment of $50,000. The ATO agreed with the ATO on the basis there was no contemporaneous evidence that the company had actually paid that wage. The AAT was satisfied the company had entered into a scheme with the sole or dominant purpose of obtaining the CFB, due to the long- established pattern of wages, the timing of the large wage payment and that it gave rise to a PAYGW amount only just over that required to qualify for the maximum CFB.
Note: The TPB has advised it has 99 active COVID compliance cases under investigation, with conduct ranging from practitioner error/incompetence, to making reckless or fraudulent claims.
The AAT has made two decisions with respect to taxpayers seeking the Commissioner’s discretion to grant relief from their tax debts. Although the taxpayers were in similar financial positions they had different outcomes.
In Smith and FCT, the AAT held the discretion should be exercised, on the basis that the taxpayer’s day to day expenditure was reasonable and they had insufficient capacity to service the tax debt in a timely manner. They had no realistic capacity to borrow and it was unreasonable to require them to sell their assets. There was no evidence they had previously failed to pay any tax owed. They had been under considerable financial strain from cash flow issues experienced by their former business. At no time had the taxpayers engaged in extravagant spending or action intended to deny the ATO payment.
In SYRF and FCT the AAT denied the taxpayer relief. The main difference in this case was that the taxpayer had incurred unreasonable discretionary expenditure having regard to her tax debt, which had also contributed to her own difficult financial circumstances to some degree.
The Full Federal Court has upheld the ATO view that the trustees of resident discretionary trusts were assessable on capital gains made on the sale of shares that were not taxable Australian property (TAP) and were distributed to foreign residents. The Court confirmed that the exemption that applies to exclude non-TAP capital gains from the income of a non-resident does not apply where the gain is derived by a resident trust. This is the view expressed by the ATO in TD 2019/D6.
Key takeaway: Non-residents investing in non-TAP assets in Australia should either hold these personally or via a fixed trust (there is also a specific exclusion where non-TAP capital gains are derived by a non-resident from a fixed trust). Where gains are derived via discretionary trust they will generally be taxable in full with no 50% CGT discount.
A Draft Law Companion Ruling, LCR 2021/D1 has been issued which sets out the operation of the TFE measures, including who qualifies as an eligible entity, what qualifies as an eligible asset, the interaction with the instant asset write-off and backing business investment rules and how the measures apply to Small Business Entities. It also includes detailed examples of how the rules apply to specific acquisitions and expenditure.
The ATO has issued its final ruling, TR 2021/2 on when a car parking benefit is provided for FBT purposes. Key issues include commentary on the following requirements:
– Work car park is located at or in the vicinity of the ‘primary place of employment’: Commentary on the meaning of this term will be included once the ATO has reconsidered its position in light of the Virgin Airlines decision that the airport terminal was not the primary place of employment for flight and cabin crew. (This decision has now been appealed by the ATO).
– ‘Commercial parking station’ is located within a 1 km radius of the work car park: This refers to a permanent commercial car parking facility where at least one car space is made available to the public for all-day parking in the ‘ordinary course of business’. A facility can qualify even if it has a purpose other than providing all-day parking (e.g. hourly parking at a hospital or airport, or long-term parking), and even if its fee structure discourages all-day parking through higher fees.
The revised ATO view that a car park may qualify as a commercial parking station even if its fee structure discourages all-day parking will only apply to car benefits provided from 1 April 2022.
Note: From 1 April 2021 the Small Business Car Parking exemption will be increase from $10m to include businesses with an aggregated turnover of less than $50m. As such, most SMEs may no longer be subject to FBT when providing parking on business premises to employees.
The ATO has updated its Practical Compliance Guideline 2017/3 to extend to the 2021 income year. This applies to Unpaid Present Entitlements placed under 7 or 10 year ‘sub-trust arrangements’ to comply with Division 7A which mature in the 2021 income year and are therefore deemed to be Division 7A loans. Under the original terms of the sub-trust arrangements, these UPEs would be required to be repaid by the relevant tax return lodgement date. However, the ATO compliance approach allows the option of these balances to be placed under a complying Division 7A loan agreement.
The ATO has issued a number of rulings and determinations.
– TD 2021/D1—When working out your aggregated turnover, are the relevant annual turnovers of entities connected with you, or entities that are affiliates of yours, determined by reference to your income year?: Confirms that where subsidiary entities have different accounting periods it is the taxpayer’s income year that is the relevant reference point.
– TD 2021/D3—R&D Tax Offsets – the at risk rule: Provides guidance on the R&D ‘at risk’ rule.
– TR 2021/D4— Royalties – character of receipts in respect of software: Considers whether receipts from the licensing and distribution of software qualify as royalties, focussing on packaged software, the digital distribution of software and cloud computing arrangements (replaces TR 93/12).
– TD 2021/D6: What are the reasonable travel and overtime meal allowance expense amounts for the 2022 income year?
– TR 2021/3—Effective life of depreciating assets: Updates effective life tables from 1 July 2021.
The ATO will allow an extension of up to 12 months on Division 7A minimum yearly repayments due by the end of the lender’s 2021 income year where the inability to pay is a result of the impact of COVID-19. This is the same extension as was allowed last year with the same conditions. Cash resources and money readily obtainable from realising assets needs to be considered.
Borrowers can request the extension by completing a “streamlined online application” on the ATO website. Taxpayers can apply at any time and expect a response from the ATO within 28 business days.
Car depreciation limit: Increased to $60,733 (previously $59,136).
Division 7A benchmark interest rate: Expected to be 4.52% (unchanged from 2021).
Super Guarantee rate: Rises from 9.5% to 10% and will continue to increase up to 12% by July 2025
Superannuation general transfer balance cap: This is being indexed from 1 July 2021 and individuals will be able to view their new personal transfer balance cap online.
SMSF related-party LRBAs used to acquire real property: Safe harbour interest rate expected to be 5.10% (unchanged from 2021).
In recognition of the effect of Covid-19 on the economy the ATO has announced that employers have
additional time to complete their STP finalisations until 31 July 2021 (extended from 14 July )
The TPB has released Draft Practice Note TPB(PN) D46/2021 Supervisory arrangements under the Tax Agent Services Act 2009 (TASA). The draft guidance includes considerations to assist tax agents, BAS or tax (financial) advisers in determining whether adequate supervision and control exists, including in
– remote supervision is being undertaken in practices, and
– a tax practitioner is providing supervision for multiple related or unrelated entities.
The draft includes factors to be considered to ensure company and partnership entities have a sufficient number of individuals registered to meet the ‘sufficient number’ requirement. The TPB also requires that the prior informed written consents from registered individual tax practitioners forming the sufficient number must be obtained. Additional guidance are included for tax (financial) advisers in recognition of different business models and structures.
For further information on any of these updates, or for general assistance, please contact Our Directors, Jacci Mandersloot or Natalie Claughton.
The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.