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    2018/19 tax changes for small businesses

    Company tax cuts

    For 2018/19 income year, companies with an annual aggregated turnover under $50m will have a reduced tax rate of 27.5%. To be eligible for the reduced rate, the company must be a base rate entity.

    Instant asset write-off increased, extended and allowed for medium-sized businesses

    The $20,000 instant asset write-off for small business has been increased to $30,000 from 2 April 2019. The scheduled end date of the write-off has been extended from 30 June 2019 to 30 June 2020.

    Also, there is another limit of $25,000 which is available from 29 January 2019 to 2 April 2019.

    For medium-sized business, which is defined as being over $10m in aggregated turnover but under $50m, an entitlement to a $30,000 instant write-off is allowed until 30 June 2020. The assets must be purchased after 2 April 2019.

    Single touch payroll

    Entities who are employers are required to report the following information to the ATO from 1 July 2019:

    •  withholding amounts and associated withholding payments, on or before the day by which the amount is required to be withheld
    •  salary or wages and ordinary time earnings information on or before the day on which the amount is paid, and
    •  superannuation contribution information on or before the day on which the contribution is paid.

    There are some exceptions to the single touch payroll allowed for employers who only make payments to closely held employees.

    Non-compliant withholders to be denied tax deductions

    From 1 July 2019, businesses will no longer be able to claim deductions for payments to their employees where they have not met their PAYG obligations. This includes where the employer is required to withhold PAYG from gross payments, but fail to report or remit it to the ATO.

    PAYG withholders will be required to ensure that all lodgements are made on time to avoid large penalties with denied tax deductions.

    Additionally, the deduction for businesses on certain payments to contractors which have not met PAYG obligations will be denied unless a genuine mistake has been made.

    Taxable payments reporting system

    Beginning with the 2018/19 income year, the following industries have introduced a taxable payments reporting system:

    •  Couriers
    •  Cleaners

    Starting from 1 July 2019, the taxable payments reporting system will be extended to include the following industries:

    •  Security services
    •  Road freight
    •  IT services

    Entities who engage contractors, or subcontractors, will need to provide additional reports to the ATO. This treatment has the same requirements as salary and wage employees.

    Similar business test

    A company is now allowed to claim a prior year loss against business profits as long as it satisfies the similar business test from 1 July 2015. This test adds on to the same business test, which was less flexible to pass.

    The former same business test is failed unless the company carries on the same business and has not derived income from any new kinds of business or transactions. The new test makes it easier for companies to pass where early investors have entered the company ownership.

    As the legislation takes effect as of 1 July 2015, companies in this position have an opportunity to amend income tax returns from the 2015/16 income year. Also, a company going back and amending their tax return to include the company loss deduction would do so in that prior year at a higher company rate. However, careful analysis of the company loss is advised.

    Fodder storage assets allowed immediate write-off

    For primary producers, a new law has been enacted which allows fodder storage assets to be immediately written off.

    Fodder storage assets may include silos and hay sheds, and are used to store grain and other animal feed. The immediate write-off will apply if the asset is purchased and first installed ready for use on or after 19 August 2018.

    R&D tax incentive change not law

    The research and development (R&D) tax incentive was due to be amended for income years starting 1 July 2018. Under the announcement, the incentive would have been based on an uplift of the entity’s corporate tax rate in the particular income year.

    However, changes relating to a company’s “R&D intensity percentage” have not become law. All rules as they related to R&D have not changed for companies.

    If you have any questions regarding the above points raised, please do not hesitate to contact us.

    Martin van der Saag
    Partner
    T: 02 9984 7774
    E: martinv@northadvisory.com.au

    Norman Ruan
    Accountant
    T: 02 9984 7774
    E: normanr@northadvisory.com.au

    Read more about business tax.

    Dividend imputation

    The Australian Labor Party (ALP) has announced an intention in government to change franking credits from a refundable to a non-refundable tax credit from 1 July 2019.

    A “Pensioner Guarantee” would be included in the franking credit change for individuals in receipt of an Australian Government pension or allowance. Also, self-managed superannuation funds with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes (ALP website).

    Negative gearing

    Under an ALP government, negative gearing will only be allowed on newly constructed residential properties after 1 January 2020 (ALP website).

    All prior investments would be grandfathered, meaning that income losses on an asset class are able to be offset against other assessable income.

    It has been suggested that any negative income amounts would be allowed to be carried forward and offset against a future capital gain on the asset (Ref: MinterEllison, p 5).

    However, investors with many rental properties may be able to “stagger” the gearing levels across currently held assets in the same class. Specifics relating to how the new policy would work with regards to split loans, redraw or credit facilities are to be determined.

    CGT discount

    From 1 January 2020, the ALP has proposed to halve the capital gains tax discount from 50% to 25%. This change in the discount rate will apply for all assets purchased after 1 January 2020 that are held for longer than 12 months (ALP website).

    The media release goes on to say that all purchases made prior to 1 January 2020 will be fully grandfathered. There has been no announcement regarding any consequences this development may have on employee share scheme acquisitions.

    Limit on deductions for managing tax affairs

    The proposal in its current form is a $3,000 limit per taxpayer per year for managing tax affairs. This may include preparing and lodging tax returns and activity statements, and obtaining tax advice from a recognised tax adviser.

    Other areas which have been seen as controversial in the media relate to tax agent charges in large “one-off” events, such as divorce, inheritance or retirement (Ref: CPA In the Black). Also, there has been no further guidance on whether the deductibility of general interest charge on a tax debt will also be limited to $3,000 per year.

    Discretionary trust distributions tax

    A prior announcement made by the ALP in opposition intends to introduce a 30% standard minimum rate of tax to adult beneficiaries for discretionary trusts. There intends to be no change to the trust taxing rules for non-discretionary trusts, such as testamentary trusts or fixed unit trusts (ALP website).

    Extension of budget repair levy

    Following the 2019 Federal Budget, the ALP confirmed that, in government, they will bring back the temporary budget repair levy of 2%. ALP shadow treasurer stated the levy would remain in place until the budget surplus was 1% of gross domestic product, anticipated to be 2023 (AFR story, 3 April).

    The 2% levy would apply to individuals who are above $180,000 in taxable income.

    Australian Investment Guarantee

    The ALP leader confirmed in the 2019 budget reply speech a commitment to the Australian Investment Guarantee (AIG). The AIG will be an immediate write-off of 20% for any new eligible asset costing more than $20,000.

    Further information on eligible assets would be made available later, but are intended to include machinery, plant and equipment, including upgrades. It is announced that investments in buildings (capital works) would be excluded, as well as motor vehicles.

    Superannuation contributions

    The federal opposition has committed to changing certain rules relating to superannuation contributions (ALP website). These include:

    • providing superannuation guarantee payments of 9.5% for paid parental leave, and
    • phasing out the $450 per month minimum income threshold for superannuation guarantee.

    Catch-up concessional contributions

    Labor has announced their intention to repeal the catch-up concessional contributions, introduced in the 2016/17 income year (2018 ALP National Platform, p 15).

    Under the enacted legislation, individuals with a total superannuation balance of less than $500,000 are able to make additional concessional contributions. Eligibility to make additional contributions apply where an individual has not reached their concessional contributions cap in previous years, with effect from 1 July 2018. Unused amounts will be carried forward on a rolling basis for a period of five consecutive years from 1 July 2018.

    Other announcements

    • Maintaining the company tax rate of 25% for businesses with aggregated turnover under $50m, scheduled to commence in the 2021/22 income year.
    • Managed investment trust tax rate to be reduced from 30% to 15% in a “Build to rent” scheme, commencing 1 January 2020.
    • Removal of thin capitalisation calculations for debt deductions, leaving international entities with only the worldwide gearing ratio test to apply.
    • Reducing non-concessional contributions cap from $100,000 to $75,000.
    • Reducing threshold for Div 293 tax from $250,000 to $200,000.
    • Banning new limited recourse borrowing arrangements in self-managed superannuation funds.
    • Reintroducing recently repealed legislation surrounding deductibility for salary and wage earners to make additional deductible superannuation contributions. In the past, only self-employed individuals could make personal deductible superannuation contributions.

    If you have any questions or concerns about how the Australian Labor Party tax policies may impact on you, please do not hesitate to contact us. Read more Financial Industry articles.

    Norman Ruan
    Accountant
    T: 02 9984 7774
    E: normanr@northadvisory.com.au

    The Federal Treasurer, Mr Josh Frydenberg, handed down the 2019/20 Federal Budget at 7:30 pm (AEDT) on 2 April 2019.

    Mr Frydenberg said the Budget is “back in the black”, announcing a budget surplus of $7.1b, and forecasting a surplus of $11b in 2020/21, $17.8b in 2021/22 and $9.2b in 2022/23. The budget focuses on “restoring the nation’s finances”, further strengthening the economy to create more jobs and to “guarantee the essential services”.

    The government proposes various changes to further lower individual taxes, including increasing the low and middle income tax offset, and lowering the 32.5% rate to 30% in 2024/25. More businesses will have access to immediate deductions for asset purchases, with the expansion of the instant asset write-off to businesses with an annual turnover of less than $50m.

    The tax, superannuation and social security highlights are set out below.

    Income tax

    • The legislated Personal Income Tax Plan will be changed to further lower taxes for individuals, including changes to the low and middle income tax offset (LMITO), the low income tax offset (LITO) and the personal income tax (PIT) rates and thresholds.
    • The instant asset write-off threshold for businesses with an aggregated turnover of less than $10m will be increased to $30,000 for eligible assets that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.
    • Businesses with an aggregated turnover of $10m or more but less than $50m will be able to immediately deduct purchases of eligible assets costing less than $30,000 that are first used, or installed ready for use, from 7.30 pm (AEDT) on 2 April 2019 to 30 June 2020.
    • The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2018/19 income year.
    • Payments to primary producers in the Fassifern Valley, Queensland affected by storm damage in October 2018 will be treated as exempt income.
    • An income tax exemption will be provided for qualifying grants made to primary producers, small businesses and non-profit organisations affected by the North Queensland floods.
    • Six more organisations have been approved as specifically-listed deductible gift recipients.
    • The list of countries whose residents are eligible to access a reduced withholding tax rate of 15% on certain distributions from Australian managed investment trusts (MITs) will be updated.

    Tax integrity and black economy

    • Australian Business Number (ABN) holders will be required to lodge their income tax return and confirm the accuracy of their details on the Australian Business Register annually to retain their ABN status.
    • The start date of amendments to Div 7A will be delayed by 12 months to 1 July 2020.
    • Minor amendments will be made to the hybrid mismatch rules to clarify their operation from 2019.
    • The ATO’s Tax Avoidance Taskforce will extend its operations and expand its activities, including increasing its scrutiny of specialist tax advisors and intermediaries that promote tax avoidance schemes.
    • The ATO will receive funding to increase activities to recover unpaid tax and superannuation liabilities with a focus on large businesses and high wealth individuals.
    • A dedicated sham contracting unit will be established within the Fair Work Ombudsman to address sham contracting behaviour by some employers.

    Superannuation

    • Members of regulated superannuation funds will not have to meet the work test after 1 July 2020 if they are 65 or 66 years of age.
    • The restrictions on claiming the spouse contribution tax offset will be eased from 1 July 2020, giving 70 to 74 year old spouses eligibility.
    • The calculation of exempt current pension income will be simplified for superannuation funds from 1 July 2020, allowing a preferred method of calculation and removal of some actuarial certificates.
    • Transitional tax relief for merging superannuation funds will become permanent from 1 July 2020.
    • SuperStream will be expanded from 31 March 2021 to include electronic ATO requests for release of superannuation funds and SMSF rollovers.
    • An expression of interest process will be undertaken to identify options to support establishment of a Superannuation Consumer Advocate.

    Indirect taxes

    • For vehicles acquired on or after 1 July 2019, eligible primary producers and tourism operators will be able to apply for a refund of any luxury car tax paid, up to a maximum of $10,000.
    • Access to refunds of indirect tax, including GST, fuel and alcohol taxes under the Indirect Tax Concession Scheme has been granted or extended.

    Social security

    • There will be a one-off Energy Assistance Payment of $75 for singles and $62.50 for each member of a couple eligible for qualifying payments on 2 Apri 2019 and who are resident in Australia.
    • Single Touch Payroll reports lodged by employers will be shared with social security agencies from 1 July 2020.
    • Family Tax Benefit eligibility will be extended to the families of ABSTUDY (secondary) student recipients who are aged 16 years and over, and are required to live away from home to attend secondary school.
    • From 1 July 2019, net income generated from the forced sale of livestock will be exempted from the Farm Household Allowance payment assessment, when that income is invested into a farm management deposit.
    • The HELP debt incurred for recognised teaching qualifications after teachers have been placed in very remote locations of Australia for four years (or part time equivalent) will be extinguished. Indexation on HELP debts of all teachers while they are placed in very remote locations will no longer accrue from 14 February 2019.

    How can we help?

    If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2018-19 Federal Budget, please feel free to contact Martin van der Saag or Norman Ruan on (02) 9984 7774. Read more Financial Industry articles.

    The ATO has advised that it intends to issue the following guidance on 25 July 2018:

    Taxation Determination TD 2018/14 Income tax: what is the benchmark interest rate applicable for the year of income that commenced on 1 July 2018 for the purposes of Division 7A of Part III of the Income Tax Assessment Act 1936 and how is it used?

    The determination advises that the benchmark interest rate for 2018/19 for the purposes of s 109N and 109E of the ITAA 1936 is 5.20% pa.

    If you have questions on any of the above issues raised, please do not hesitate to contact us.

    Judy She
    Senior Accountant
    T: 02 9984 7774
    E: judys@northadvisory.com.au

    Martin van der Saag
    Partner
    T: 02 9984 7774
    E: martinv@northadvisory.com.au

    Read more about business tax.

    Mr Scott Morrison, the Federal Treasurer, handed down his third Budget at 7.30 pm (AEST) on 8 May 2018. Mr Morrison said the Budget is focused on further strengthening the economy to “guarantee the essentials Australians rely on” and “responsibly repair the budget”. With a deficit of $18.2b in 2017/18 and $14.5b in 2018/19, the Budget is forecast to return to a balance of $2.2b in 2019/20 and a projected surplus of $11b in 2020/21.

    The government is proposing a three-step, seven-year plan to make personal income tax “lower, fairer and simpler”. The Budget also contains additional measures to counter the black economy, particularly in response to the final report from the Black Economy Taskforce, including expanding the taxable payments reporting system. Additionally, the Budget contains a range of measures intended to ensure the integrity of the tax and superannuation system.

    The tax and superannuation highlights are set out below.

    Individuals

    • A seven-year Personal Income Tax Plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% personal income tax bracket.
    • The Medicare levy low-income thresholds for singles, families, seniors and pensioners will be increased from the 2017/18 income year.
    • The 2017/18 Federal Budget measure to increase the Medicare levy from 2% to 2.5% of taxable income from 1 July 2019 will not proceed.
    • Supplementary amounts (such as pension supplement, rent assistance and remote area allowance) paid to a veteran, and full payments (including the supplementary component) made to the spouse or partner of a veteran who dies, are exempt from income tax from 1 May 2018.
    • Schemes to license a person’s fame or image to another entity such as a related company or trust to avoid income tax will be curtailed.
    • The ATO will be provided with $130.8m from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.

     

    Income tax

    • Significant changes to the calculation of the R&D tax incentive will commence for income years beginning on or after 1 July 2018. Additionally, a maximum cash refund will also apply for some entities.
    • The $20,000 instant asset write-off will be extended for small businesses by another year to 30 June 2019.
    • Amendments to Div 7A will strengthen the unpaid present entitlements (UPE) rules from 1 July 2019.
    • The start date of targeted amendments to Div 7A will be deferred from 1 July 2018 to 1 July 2019.
    • Deductions for expenses associated with holding vacant land not genuinely used to earn assessable income will be denied.
    • The small business capital gains tax (CGT) concessions will not apply to partners alienating rights to future partnership income.
    • Payments to employees and contractors are no longer deductible where any amounts that are required to be withheld are not paid, from 1 July 2019.
    • The definition of a “significant global entity” (SGE) will be broadened to include more large multinational groups, from 1 July 2018.
    • The thin capitalisation rules will be amended, effective 1 July 2019, to require entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.
    • The thin capitalisation rules will be amended, effective 1 July 2019, to treat certain consolidated groups and multiple entry consolidated groups as both outward and inward investment vehicles for thin capitalisation purposes.
    • Tax exempt entities that become taxable after 8 May 2018 will not be able to claim tax deductions that arise on the repayment of the principal of a concessional loan.
    • The 50% capital gains discount for managed investment trusts (MITs) and attribution MITs (AMITs) will be removed at the trust level.
    • A specific anti-avoidance rule that applies to closely held trusts engaging in circular trust distributions will be extended to family trusts.
    • The concessional tax rates for the income of minors from testamentary trusts will not be available for trust assets unrelated to the deceased estate.
    • A five year income tax exemption will be provided to a subsidiary of the International Cricket Council (ICC) for the ICC World Twenty20 to be held in Australia in 2020.
    • The list of countries whose residents are eligible to access a reduced withholding tax rate of 15% on certain distributions from Australian managed investment trusts (MITs) will be updated.
    • Six more organisations have been approved as specifically-listed deductible gift recipients.

     

    Superannuation

    • The maximum number of allowable members in SMSFs and small APRA funds will be increased to six from 1 July 2019.
    • The annual audit requirement for self managed superannuation funds will be changed to a three-yearly requirement for funds with a history of good record keeping and compliance.
    • Individuals whose income exceeds $263,157, and have multiple employers, will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG) from 1 July 2018.
    • Individuals will be required to confirm in their income tax returns that they have complied with “notice of intent” requirements in relation to their personal superannuation contributions, effective from 1 July 2018.
    • An exemption from the work test for voluntary contributions to superannuation will be introduced from 1 July 2019 for people aged 65–74 with superannuation balances below $300,000, in the first year that they do not meet the work test requirements.
    • Insurance arrangements for certain superannuation members will be changed from being a default framework to being offered on an opt-in basis.
    • A 3% annual cap will be introduced on passive fees charged by superannuation funds on accounts with balances below $6,000, and exit fees on all superannuation accounts will be banned.
    • The financial institutions supervisory levies will be increased to raise additional revenue of $31.9m over four years, from 2018/19.

     

    Black economy measures

    • A package to reform the corporations and tax laws to deter and disrupt illegal phoenix activity and the black economy will be introduced.
    • The taxable payments reporting system for payments to contractors will be expanded to include security services, road freight transport and computer system design industries, effective from 1 July 2019.
    • Business seeking to tender for Australian government contracts above $4m (including GST) will need to provide a statement of compliance with their tax obligations, from 1 July 2019.
    • Businesses can no longer receive cash payments above $10,000 for goods and services, from 1 July 2019.

     

    Indirect taxes

    • Offshore sellers of hotel accommodation in Australia will be required to calculate their GST turnover in the same way as local sellers from 1 July 2019.
    • The luxury car tax on cars re-imported into Australia, following a refurbishment overseas, will be removed from 1 January 2019.
    • Alcohol excise refund scheme cap increased from $30,000 to $100,000 per financial year from 1 July 2019, and lower excise rates will apply for smaller beer kegs.
    • Measures to combat illicit tobacco in Australia, including collecting tobacco duties and taxes upon importation and creating a multi-agency task force, will be introduced.
    • Customs tariffs from placebos and clinical trial kits that are imported into Australia will be removed from 1 July 2018.
    • Access to refunds of indirect tax, including GST, fuel and alcohol taxes under the Indirect Tax Concession Scheme has been extended.

     

    How can we help?

    If you have any questions or would like further clarification in regards to any of the above measures outlined in the 2018-19 Federal Budget, please feel free to contact Martin van der Saag or Norman Ruan on (02) 9984 7774. Read more Financial Industry articles.

    Who this applies to

    In the healthcare services industry, it is now common for some practitioners to operate from healthcare centres run by third parties. This frequently occurs without any stated partnership or employment relationship between the third party and the practitioner.

    The third parties that run these centres generally encourage practitioners to start work or continue to work from their centres. They may offer lump sum payments for this purpose and there is nothing wrong with that.

    ATO’s concerns and types of arrangements

    The ATO’s concerns relate to the tax treatment of the lump sum payments by the practitioner for arrangements which has most or all of the following features:

    • A healthcare centre operator provides you with fully equipped consulting rooms, administrative services, clerical staff and facilities as necessary for you to provide healthcare services. The agreements entered into typically state that there is no employment relationship between you and the operator.
    • In return for these facilities and services, you are required to pay the operator an agreed percentage of the receipts for the healthcare services you provide.
    • You are required to provide healthcare services from the healthcare centre for an agreed minimum period of time, minimum weekly working hours and working patterns.
    • You are required to use your best endeavours to grow and promote the interests of the healthcare centre.
    • The operator pays you a lump sum
      • it is described as being consideration for a restraint imposed, for goodwill, for other terms or conditions, or for a combination of the three
      • the payment is ordinarily made when you enter into the agreement or start to provide healthcare services to patients from the healthcare centre (whichever is the later) or whenever the agreements relating to the provision of healthcare services are renewed.

    Whilst these are common features, any other arrangements that relate to a lump sum payment for your ongoing provision of healthcare services from a medical centre may still be of concern to the ATO.

    The ATO’s concerns are:

    • The lump sum will typically be ordinary income of the practitioner for providing services to their patients from the healthcare centre.
    • Practitioners are required to include the full amount of the lump sum payment in their assessable income.
    • These lump sums payments cannot be treated as a capital gain, and cannot apply the small business CGT concessions to reduce the capital gain.

    The ATO has formed this view due to:

    • the lump sum payment is an inducement for the practitioner to enter into the agreements to provide healthcare services from the healthcare centre
    • the lump sum is fundamentally connected to the practitioner’s provision of those services in the alternative, the lump sum payment represents a profit or gain from an isolated transaction in the course of the practitioner providing healthcare service
    • the mere fact the payment is a one-off lump sum, or expressed to be principally consideration for the restraint imposed, for the goodwill or for the other terms or conditions, does not define it as having the character of a capital receipt there is no transfer of goodwill as
      the third party operating the healthcare centre does not acquire the right to provide healthcare services from the practitioner
    • the practitioner does not cease to provide healthcare services.

    Where these features applies to the arrangement, the whole of the lump sum payment is assessable as ordinary income in the hands of the practitioner.

    What you need to do

    If you are considering any arrangements that relate to a lump sum payment for commencing or providing ongoing healthcare services, you should note that the ATO:

    • Has concerns with those payments being mistakenly treated as capital gains
    • Are looking closely at these arrangements to determine if they are compliant with income tax laws and whether the anti-avoidance provisions may apply.
    • From 2013, the ATO has consistently issued private rulings on these or similar arrangements treating the whole of the lump sum payment as assessable ordinary income.

    What is happening now 

    If you have already treated these lump sum payments as something other than ordinary income, the ATO is offering to help you ensure you are in, or that that you get into, the correct tax position.

    The ATO has started targeted activities and examinations of healthcare practitioners who may have incorrectly treated these lump sum payments as capital gains.

    The ATO is working to provide further advice and guidance to health practitioners to help them either self-identify these and emerging arrangements that concerns the ATO , or as early warning for those who may be considering them.

    The ATO is encouraging practitioners to seek professional advice from their accountants which may include:

    • applying for a private ruling with the ATO about your specific circumstances
    • make a voluntary disclosure if you believe the ATO’s concerns apply to you, which may reduce any penalties.

    The ATO will continue to identify, examine and understand the types of payment arrangements being used in the industry by further engaging with healthcare centre operators.  This may include obtaining details of which practitioners have received payment from the healthcare centre operators.

    Example: A new doctor joins the practice

    Dr Lee has recently been approached by Medical Centre Z, a medical centre operator, with an offer to join a well-established healthcare centre.

    Medical Centre Z’s offer includes the payment of a lump sum connected to an agreement where Dr Lee is required to work 40 hours a week, Monday to Friday, providing healthcare services to patients attending the medical centre.

    The medical centre provides Dr Lee with the use of their facilities and all the support services needed to run the practice so she can focus solely on what she loves best, working with patients. For the use of these facilities and services, the medical centre takes a percentage of her billable receipts.

    Dr Lee is unsure how this payment will be treated for tax purposes. A friend suggests that the payment is a capital gain and she would be able to apply for CGT concessions. This doesn’t seem quite right to her so she decides to talk to her accountant about the payment.

    Her accountant confirms her thoughts; the payment is not a capital gain as it is essentially made for her agreeing to provide her healthcare services at the medical centre. Dr Lee needs to treat the payment as ordinary income and report it and pay tax on it accordingly. Her accountant advises her that had she tried to include the payment as a capital gain she would have underpaid her tax and been exposed to tax adjustments and potential penalties.

    Where to go for help

    If you have entered, or are planning to enter, into an arrangement of this type or if you have questions about the tax consequences of these arrangements, please do not hesitate to contact us. Read more Personal Tax articles.

    Judy She
    Accountant
    T: 02 9984 7774

    judys@northadvisory.com.au

    The ATO has updated its guidance on simplified transfer pricing record keeping options to include the minimum interest rate of 3.79% for small related party outbound loans for the 2018 year. Paragraph 75 of Practical Compliance Guideline PCG 2017/2 has been updated to reflect the new rate. Eligible lenders (among other things, entities with a combined cross-border loan balance of $50m or less for the Australian economic group) charging this interest rate may keep reduced transfer pricing documentation for eligible loans.

    For further information, please contact our office on 02 9984 7774 or email us at info@northadvisory.com.au.

    Read more about business tax.

    The ATO has released guidance on the implementation of Country-by-Country (CbC) reporting in Australia.

    The ATO guidance outlines its administrative practice, including advice on CbC reporting, to assist taxpayers in understanding and meeting reporting obligations for significant global entities).

    It supplements and should be read with Law Companion Guideline LCG 2015/3 (issued 17 December 2015).

    According to the ATO, the three types of statements required under the CbC reporting regime correspond to the master file, local file and CbC report in Annexes I, II and III to Chapter V of the final report.

    The ATO has approved forms for each of these statements. Read more Financial Industry articles.

    From 1 July 2018, all employers with more than 20 staff will be required to implement a payroll system that reports directly to the ATO with every pay cycle.

    This payroll system must be SBR-enabled, so that you can report to the ATO each pay cycle the following items:

    • each employee’s name and tax file number (TFN)
    • gross amount paid
    • tax withheld on the gross
    • ordinary time earnings for the period, and
    • any superannuation guarantee obligations.

    The ATO will then report to you each month or quarter the correct amount of PAYG tax withheld to pay in your activity statement. Also, each quarter there will be information available regarding your superannuation obligations to either pay the ATO clearing house or your independent provider.

    As part of the new regime, the reports and liabilities owing will be available to you in real time. This means that, if you wish, you will be allowed to make payments towards PAYG tax withheld and superannuation contributions in your pay cycle before the legislated due date.

    If your system is already automated with reports that can provide the information listed above for every pay cycle, the system may just need an update to become SBR-enabled.

    However, if your system is still manual it is now time to discuss and review your internal processes. The STP regime is mandatory for employers of more than 20 staff from 1 July 2018, and will most probably be mandatory for all employers by 1 July 2019.

    Our advice is to become STP ready to avoid any fines or penalties in the future from the ATO. We are here to help you through the process if you need it. Please do not hesitate to contact our office for support.

    Martin van der Saag
    Director
    T: 02 9984 7774
    E: martinv@northadvisory.com.au

    Norman Ruan
    Accountant
    T: 02 9984 7774
    E: normanr@northadvisory.com.au