Tax assistance for people affected by Cyclone Debbie
The ATO has said it will fast-track refunds for people affected by extreme weather and flooding associated with Tropical Cyclone Debbie and
ex-Cyclone Debbie in Queensland and New South Wales, and will allow extra time for those taxpayers and their agents to lodge income tax returns and activity statements.
Tax Commissioner Chris Jordan said taxpayers do not need to apply for a deferral or a faster refund. “If your business or residential address is in one of the identified affected postcodes it will happen automatically”, Mr Jordan said. “We understand that for many people their tax affairs are the last thing on their minds right now. When people are ready, we will make sure they are supported in meeting their tax obligations.”
Automatic deferrals of one month apply for tax lodgement and payment dates for people in the affected postcodes. Employers still need to meet their ongoing super guarantee obligations for employees.
The ATO is offering a range of other support measures, and can help reconstruct tax records where documents have been damaged or destroyed.
TIP: If your personal or business affairs have been affected by Cyclone Debbie, contact us to find out what ATO measures and support you can access.
ATO adds value to developing financial literacy
The ATO is helping teachers add tax and super to their classes this year with dedicated educational resources.
In partnership with the Australian Curriculum, Assessment and Reporting Authority (ACARA) and the Australian Securities and Investment Commission (ASIC), the ATO has developed resources that align to the Australian Curriculum for students in years seven to 10.
“Understanding tax and super is an important skill for young Australians, and we are pleased it is now part of the Australian curriculum”, Assistant Commissioner Kath Anderson said.
The ATO says it wants to make it easy for teachers and students to access information, and now offers online learning and teaching resources, activities, videos and webinars through ACARA’s new Curriculum Connections. School visits can also be arranged to cover topics including tax file numbers, preparing for work and how to lodge a tax return.
Does your business import or export goods and services?
The ATO reminds business owners that if your business imports or exports goods or services in Australia, it is important to be aware of your GST responsibilities so you can get the information on your business activity statement (BAS) right.
Exports from Australia are generally GST-free, but special conditions apply in some situations. For example, if it takes longer than 60 days for you to receive payment for your exports, then GST could be charged.
When importing, you are generally required to pay GST (10% of the value of the taxable importation). This GST is usually paid to the Department of Immigration and Border Protection Service before the goods are released, unless you are part of the deferred GST (DGST) scheme.
Tip: Talk to us to find our more about your GST obligations. The ATO accepts voluntary disclosures about mistakes in GST reporting, and you may find your business is eligible for the DGST scheme.
Senate Committee holds corporate tax avoidance hearing
The Senate Economics References Committee is inquiring into tax avoidance and aggressive minimisation by corporations registered in Australia and multinational corporations operating in Australia, including looking at the adequacy of Australia’s current laws.
The Committee held a public hearing in Perth on 28 April 2017, where it heard from representatives of Woodside Energy Limited, BHP Billiton, ExxonMobil Australia, Shell Australia, BP Australia, Chevron Australia, the ATO, the WA Department of Mines and WA Treasury. Discussion of the Petroleum Resource Rent Tax (PRRT) occupied much of the hearing. The Committee is due to report by 30 September 2017.
Higher education HELP changes: faster repayments and threshold changes
The Minister for Education and Training, Simon Birmingham, has announced a package of reforms to higher education – the Higher Education Reform Package – to take effect generally from 1 January 2018. The details announced will be confirmed in the 2017–2018 Federal Budget. They include:
• an increased maximum student contribution from 1 January 2018;
• no up-front fees or deregulation of fees;
• a new set of repayment thresholds from 1 July 2018, changing repayment timings and quantities for all current and future Higher Education Loan Program (HELP) debtors;
• a new minimum repayment threshold at $42,000 of income from 1 July 2018 with a lower 1% repayment rate, and a new maximum threshold of $119,882 of income with a repayment rate of 10%;
• phasing in increased maximum student contributions by 1.8% each year between 2018 and 2021, cumulating in a 7.5% increase; and
• from 1 July 2019, indexation of HELP repayment thresholds, currently linked to Average Weekly Earnings (AWE), will be changed to align to the Consumer Price Index (CPI).
The Minister said that taxpayer-funded student loans stand at more than $52 billion and, without changes to address this situation, around a quarter of that is expected to go unpaid.
Super guarantee non-compliance: Senate Committee report
On 2 May 2017, the Senate Economics References Committee released its report into Superannuation Guarantee (SG) non-payment, calling for the ATO to take a more proactive stance in identifying and addressing SG non-compliance. As part of its inquiry, the committee heard that employers failed to pay $5.6 billion in SG contributions in 2013–2014, affecting 2.76 million employees who lost over $2,000 on average in a single year.
Other key recommendations include:
• requiring monthly contributions (instead of quarterly);
• removing the current $450 monthly threshold for SG eligibility;
• ensuring salary sacrificed contributions cannot count towards the employer’s compulsory SG obligation, and do not reduce the earnings base upon which SG is calculated;
• strengthening the ATO’s ability to recover SG liabilities through the director penalty notice (DPN) framework to stop directors undertaking fraudulent phoenix activity; and
• amending the Fair Work Regulations 2009 to require payslips to display further details about super contributions.
Illegal SMSF early access scheme leads to $6,000 fine
ASIC reports that a man from South Melbourne has pleaded guilty in the Melbourne Magistrates Court and been fined $6,000 for operating a financial services business without an Australian financial services (AFS) licence.
ASIC’s investigation arose from ATO intelligence that raised concerns about the promoter’s conduct. The offence related to a scheme the man promoted and operated to facilitate illegal early release of his clients’ superannuation benefits through the creation of self managed superannuation funds (SMSFs).
Between 2010 and 2012, the man placed newspaper advertisements in Victoria and South Australia offering loans dependent upon future superannuation entitlements. A round-robin scheme was operated whereby the promoter’s clients transferred their superannuation funds into newly created SMSFs. The SMSFs lent funds to a company the promoter operated, and then an amount, less a fee, was loaned by either the company or personally back to the trustees of the SMSF in their personal capacity. The promoter has never been granted an AFS licence or a credit licence and has never been an authorised representative of a licensee. ASIC said the promoter exploited his clients’ trust through an illegal scheme that exposed them to potential legal and financial risk.
ASIC urges consumers to deal only with licensed representatives of the financial services and credit industries.
Family or discretionary trusts have long been used by business owners to shield assets from litigation and to utilise members of a family group on lower marginal tax rates. However, one question that seems to be becoming more prevalent from all clients is, when looking at structuring a property portfolio, with a long term view in mind, should we be buying through a trust?
To help make that decision, we always like to list the advantages and disadvantages of any structure before deciding which structure to choose. This is to ensure there is complete understanding of any future implications.
First we will look at who can be a party to a trust:
Generally an unrelated individual, a settlor is the person who “settles” the trust, by providing a settled sum to the trustee. Usually around $10 is deemed sufficient for the trust to be created.
The person or entity responsible for the growth and care of the trust.
Beneficiaries receive taxable distributions from the trust and ensure the trustee is doing their job.
An appointor has the power to change the trustee if it chooses (usually an accountant/lawyer that establishes the trust).
With increased marketing of “no win, no fee” solicitors, people are becoming more and more inclined to seek legal representation if issues arise. Under a family trust with a corporate trustee, properties are held by the trust, so are shielded from creditors, bankruptcy and divorce.
Unlike owning a property in an individual name, a discretionary trust gives the trustee, by way of resolution, the flexibility each year to allocate net income to a family member on a lower marginal tax rate. This also applies to the distribution of capital gains tax. For example, if a property was purchased through a trust and held through the family life cycle until a child reaches 18, the property could be sold and the capital gain distributed to the child, greatly reducing any tax liability if both parents are working.
A family trust with a corporate trustee allows a seamless transfer of wealth to future generations by allocating the shares and nominating the directorship of the corporate trustee, in accordance with your will.
Capital gains tax discount
Unlike a company, a family trust still receives the 50% capital gains tax discount if an asset is held longer than 12 months. For example, if a property increases in value by $100,000 and is sold after 12 months, ignoring other costs, $50,000 in capital gains income would be distributed to beneficiaries as opposed to $100,000.
High establishment costs, increased ongoing costs and compliance
The establishment costs are around $1,800, including stamp duty, trust deed, corporate trustee and company constitution. There will also be an ongoing ASIC annual review fee of around $250 per year, an annual set of Financial Statements and a tax return will need to be completed for the trust. This starts at around $550 and can increase depending on the complexity of the transactions running through the trust. A cost/benefit analysis should be conducted prior to the creation of the structure.
Lower land tax thresholds
If you are looking to buy property, the land tax thresholds are significantly lower. For example, NSW has a nil threshold for family trusts, meaning you pay land tax on the first dollar value of the unimproved land, at 1.6%. QLD is slightly different, with the threshold being reduced from $600,000 for an individual to $350,000 for a trust.
Land tax would need to be taken into consideration on a property by property basis, to determine the best ownership structure.
Losses are quarantined in the trust until such time as there is a profit. Unlike getting a tax break for negative gearing in your own name, losses cannot be distributed out of the trust.
Losses can reduce future net income and capital gains however, so are not lost when incurred
Distributions do affect government benefits - this needs to be kept in mind when deciding on beneficiaries that receive net income.
The establishment of a trust to purchase property should not be undertaken without first seeking advice from your accountant and solicitor, to determine if the structure will be right for your overall wealth creation strategy and how it will affect your estate plan upon your passing.
P. Liddy & Associates
Please contact us for more information:
P. Liddy & Asscociates
Suite 6, Level 2, 64 Croydon Street, Cronulla NSW 2230
P.O. Box 505, Cronulla NSW 2230
Tel: (02) 9544 0722 Fax: (02) 9544 0922
General Advice Warning
The article is provided for general information only and the author and P. Liddy and Associates are not engaged to render professional advice or services through this article. The author and P. Liddy and Associates expressly disclaim all and any liability and responsibility to any person in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this article.