Goods and Services Tax (GST)
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    2018-19 Federal Budget highlights

    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.

    From 1 July 2018, GST will apply to sales of low value imported goods (valued at A$1,000 or less) to consumers in Australia.

    These GST changes will also affect Australian GST-registered suppliers including Australian retailers who ‘drop ship’.

    Drop shipping in this context refers to sales of goods that are located overseas at the time of sale and sent directly to consumers in Australia from an overseas source (for example, manufacturer, wholesaler or warehouse).

    Currently these transactions do not incur GST. However, from 1 July 2018, Australian retailers should treat these sales the same as other domestic sales, and apply GST at the point of sale.

    These changes will ensure goods sourced domestically and from offshore receive the same GST treatment when sold to consumers in Australia.

    Imported goods valued above $A1,000, as well as all tobacco products and alcoholic beverages, will continue to have GST applied at the Australian border as per current arrangements.

    Any Australian suppliers not registered for GST, will need to include drop shipping sales when determining if they are required to register. If your GST turnover is A$75,000 or more in a 12-month period, you are required to register for GST.

    Example

    Stellar Fashion, a major online Australian-based GST-registered retailer, makes a sale to a consumer in Australia (after 1 July 2018) for a dress valued at $A100. The dress ships directly to the consumer by sea cargo from the company’s offshore supplier based in the Philippines. Stellar Fashion treats the sale the same as a domestic sale and remits 1/11th of the sale price to the ATO. They account for this on their business activity statement.

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

    Marius Fourie
    Accountant
    T: 02 9984 7774
    E: mariusf@northadvisory.com.au

    Read more about business tax.

    An entity cannot be registered for GST unless it is carrying on an enterprise (GST Act s 23-5; 23-10). The term “carrying on an enterprise” is defined in s 9-20 as an activity, or series of activities done in the form of a business. This is the general concept for being registered for GST. And, specifically, under the GST Act an “enterprise” does not include an activity done as a private recreational pursuit or hobby (GST Act s 9-20 (2)(b)).

    The term “business” is statutorily defined in the GST Act as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee. However, the term “hobby” is not defined by the GST Act and must take its ordinary meaning. Various ATO rulings over the years (MT 2006/1; GSTD 2006/6) have used “hobby” interchangeably with income tax laws interpreted by courts and regulators.

    With this in mind, it is clear that the ATO determines that the same rules apply to hobbies from both an income tax perspective and a GST perspective. A recent media release issued by the ATO has specifically dealt with this similarity.

    The ATO has warned of GST reviews in situations where an entity has irregular activities which generate little income and no profits. Clearly, their first group of taxpayers to review would be businesses who have deferred non-commercial losses by not meeting the assessable income test ($20,000).

    Even though there is a GST turnover threshold of $75,000, an entity may choose to register for GST as long as they are carrying on an enterprise (or in this case, a business)

    If you are currently operating at a loss but claiming GST credits, this may bring an ATO review for GST. You may need to show the ATO that you are operating a business and the following documents may be necessary to present to continue claiming GST credits:

    • business plan
    • repetition of activity
    • marketing/advertising materials, and
    • evidence to show size and scale of the business and its commerciality

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

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

    Read more about business tax.

    Are you considering driving your car for Uber to earn extra money on the side? If so, this worked example below will help to illustrate how Uber driving will impact on your tax obligations.

    The Issue

    Elon Leyland is currently employed as an engineer for Aerospaceco.  To help grow his savings for a deposit on a property he decides to become an Uber Partner. He registers with Uber and immediately starts earning income. Elon has never previously supplemented his income. He has always been on salary and wages with PAYG withholding. He has a FEE-HELP debt and a small amount of interest income from his term deposits. Now Elon is exposed to the sharing economy, he wants to ensure that he continues to meet all of his tax obligations.

    What are the tax consequences and the steps he needs to undertake to ensure he continues to be tax compliant?

    Solution

    Taxable income and deductions

    Elon must declare all the income he receives from his Uber driving along with his salary and wages from Aerospaceco in his annual tax return, as these amounts are assessable as ordinary income. Any associated expenses directly associated with gaining this income will be allowable deductions for tax purposes.

    Elon can claim deductions for expenses related to his Uber income. Given that Elon’s car is also used for private purposes, he can only claim expenses based on the proportion that the car is used for Uber purposes.

    The list of deductions available to Elon that relate to his Uber driving include:

    • any amounts paid to Uber as commissions, licensing or service fees

    • costs for water and mints for Uber Riders

    • fuel

    • tolls

    • parking

    • vehicle registration and insurance

    • mobile phone bills, and

    • costs of cleaning, servicing and repairing the vehicle.

    Deductions that are considered private and not deductible include:

    • driver’s licence

    • any fines such as parking or speeding

    • clothing and

    • personal meals.

    The largest of Elon’s expenses that can be claimed as deductions will relate to the car usage costs.

    The ATO permits two methods to calculate car expenses based on the substantiation required to support these claims, ie the cents per kilometre method and the log book method.

    Under the cents per kilometre method Elon can claim kilometres travel at 66c per kilometre for distances up to 5,000 km. This method incorporates all car expenses including petrol, servicing and depreciation.

    Using the log book method Elon must maintain a log book for a minimum period of 12 weeks to determine the business use percentage for the car expenses. This log book must be updated every five years. Elon can then claim all expenses that relate to the operation of the car, at his percentage of business use (which is based on an estimate of business kilometres travelled using the log book and other factors.

    GST obligations

    As an Uber driver Elon will have GST obligations. Although, enterprises with a turnover of less than $75,000 are not normally required to register for GST, taxi and limousine operators are required to be registered, regardless of turnover.  A person who is carrying on an enterprise is required to be registered for GST purposes if, in carrying on the enterprise, that person supplies taxi travel.  “Taxi travel” is defined as meaning “travel that involves transporting passengers, by taxi or limousine, for fares”.

    In a recent tax case, Uber BV v FC of T 2017 ATC, the courts confirmed that providing uberX services to passengers (uberX Riders), uberX drivers (uberX Partners) are a supply of “taxi travel”.

    Accordingly, Elon must be registered for GST and must charge GST on all fares. Elon can also claim the GST back on any expenses that he has incurred.

    This means Elon must apply for an ABN and register for GST. There are no application fees for this process.

    These registrations must be in place within 28 days from the end of the first quarter that Elon started receiving income from his Uber activities. This is the deadline for Elon to lodge his first Business Activity Statement (BAS).

    For example, if Elon started receiving Uber income on 23 July 2017, then he must lodge his first BAS by 28 October 2017.  This BAS includes the net GST up until 30 September 2017.

    Management

    To manage his ongoing compliance, Elon should consider setting up a separate bank account for his Uber activities with all the income and expenses debited and credited through that account. This will assist him to keep a record of all expenses as well as income, and manage his quarterly GST liability.

    PAYG instalments

    As Elon is now deriving income that is not subject to PAYG withholding, it is possible that Elon may become liable to pay PAYG instalments. This will apply if Elon is not entitled to the senior and pensioners’ tax offset, the balance of his assessment is $1,000 or more, and his business and investment income is $4,000 or more.

    Please contact us for more information, if you have any queries in regards to reporting requirements for Uber driving. Read more Personal Tax articles.

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

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

    From 1 July 2017, Simpler BAS will be the default GST reporting method for small businesses with a GST turnover of less than $10 million. The simplified GST reporting means that businesses will only need to report:

    • Total sales
    • GST on sales
    • GST on purchases

    Please note that this does not change the reporting cycle, record keeping requirements, or how other taxes are reported on the Business Activity Statement.

    The ATO will automatically transition eligible small business’ GST reporting methods to Simpler BAS from 1 July 2017.

    New small businesses that are registered for GST after 19th January 2017 are eligible to start using Simpler BAS reporting straight away.

    If you have any questions about the simplified GST reporting method how this may affect your particular circumstance, please do not hesitate to contact us. Read more business accounting articles.

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

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

    In ‘Uber BV v FC of T‘, the Federal Court has held that persons who are Uber drivers are required to be registered for GST purposes. The court considered that the provision of a ride by an uberX Partner to a customer was the supply of “taxi travel” for GST purposes.

    Enterprises with a turnover of less than $75,000 do not need to register for GST but there is a special rule or exemption, created by s 144-5(1) in Pt 4-5 of the A New Tax System (Goods and Services Tax) Act 1999, which has the effect that taxi and limousine operators are required to be registered, regardless of turnover. This high profile case confirmed an earlier direction from the ATO that an Uber driver must be registered for GST, irrespective of any turnover threshold.

    If you have any questions or enquires, please contact:

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

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

    Read more about business tax.