Category: Featured Articles

The Attraction of Superannuation

Contrbuting to superannuation is still as popular as ever. Personal (voluntary) contributions in the December 2016 quarter (the latest available statistics) were $4,616 billion, up from $4,437 billion in the same quarter a year earlier. Superannuation assets in aggregate were $2,199 billion at the end of the December 2016  quarter, up from the previous quarter which was $2,145 billion, and are now at an all time historical record level. Over the 12 months to December 2016, there was a 7.4% increase in total superannuation assets.

This section details why, even in spite of recent unfavorable changes, contribution to superannuation is still so popular.

Tax Concessions
Superannuation is a concessionally taxed environment. This was highlighted in early 2017, when the Government released its Tax Expenditiurs Statement which stated that in total superannuation tax concessions cost the Government $38.85 billion in revenue in the previous financial year. These tax concessions which make superannution so attractive as an investment include:
Superannuation earnings (such as interest, dividends, rent etc.) are taxed at 15% when your account is in accumulation mode (i.e. not in pension mode). These earnings are txax-free when your account is in pension mode. This concessional taxation cost the Government $16.85 billion in foregone revenue in 2015/2016. By contrast, investment earnings on assets (such as shares,property, term deposits etc.) held outside of superannuation are taxed at your marginal tax rate.
Note that your tax liability outside of superannuation may be further reduced by tax offsets such as those for low-income earners and pensioners.

Capital gains made by superannuation funds are likewise taxed at 15% when your account is in accumulation mode. Where a CGT asset supports a pension, any capital gain made when those assets are sold is tax-free. On the other hand, if the CGT asset was held by one of the following entities it would be taxed as follows:
  • Individual – marginal tax rate
  • Company – 30% (or 27.5% for a Small Business Entity)
  • Trust – marginal tax rate of individual.
The tax on a capital gain made by your superannuation is reduced to 10% (a 33% discount) where the asset has been held for 12 months or more. Although this is a lesser discount than the 50% discount available to trusts and individuals, this is negated by the base CGT superannuation taxation reate being so low at 15%.

Cut Your Income Tax
Subject to age limits, from 1 Jly 2017 almost all individuals can now claim a tax deduction for their personal concessional (after-tax) contributions that they make to superannuation. Before this date, most employees were unable to do this.

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Single Touch Payroll – Imminent Headcount 1 April 2018

Larger employers need to urgently prepare for the imminent introduction of Single Touch Payroll!
Employers with more than 20 employees as at 1 April 2018 must be STP-compliant by 1 July 2018. ‘Employee’ for STP headcount purposes is the common law definition of employee (which is narrower than the definition for Superannuation Guarantee purposes). Thus, workers for whom an employer does not withhold PAYG from will generally not count towards the 20 employee threshold. Also not included in the count are staff provided by third-party labour-hire, office-holders and directors of companies, casual employees who did not work in March 2018, independent contractors, or religious practitioners.
On the other hand, employees based overseas, employees absent on leave, and seasonal employees are included. Although in most cases it will be clear-cut as to whether a worker is an employee, if you are uncertain, you should seek advice from your Accountant. Note that it appears that connected or related businesses are not required to include employees from those other businesses in their head count. Only wholly-owned groups are required to do so. Where a company owns 100% of any other company they would generally form a wholly-owned group and if the employee headcount across all entities of the wholly owned group was 20 or more, then all entities in the wholly owned group would be larger employers and thus required to be STP-compliant by 1 July 2018.
The ATO urges employers to start preparing now to be STP-ready. The next steps are:

  • Download the “Get ready checklist” from the ATO website
  • Determine how many employees you have on 1 April 2018
  • Talk to your software provider on how and when their product will be STP ready
  • Employers who don’t have existing software should choose a product that offers STP. Your Accountant or Bookkeeper may be able to suggest a suitable product.
  • Update your payroll software when it’s ready and start reporting to the ATO through STP.
A number of STP resources including factsheets, checklists, information packs and advice on how to manage the headcount are available on the ATO Webpage at
Note that although the ATO is currently working closely with software providers, some providers may not be ready by the 1 July start date. Where this is the case, the ATO will grant a deferral for affected employers. The ATO may also grant exemptions for employers in rural areas with no reliable internet connection, and also employers who only have 20 or more employees for a short period of the income year (e.g. due to harvesting activities).

Travel Allowances – Domestic and Overseas

In TD 2017/19, the ATO has set what is considers ‘reasonable’ limits for allowances paid in connection with overnight travel (see the tables at the end of this spcial edition). In such cases, the employee must sleep away from their home. The amount of the allowance depends on both your destination and your annual salary. Unlike an overtime meal allowance reasonable domestic and overseas travel allowances do not have to be paid under an industrial award or agreement. Reasonable travel allowances are paid in respect of set travel components:

  • Domestic allowances include components for accommodation, meals and incidentals.
  • Overseas allowance include components for meals and incidentals only. They do not include a component for accommodation. Any claim for accommodation, regardless of the value, must be fully supported by written evidence.
The components of demestic travel allowances are set with reference to costs in spectific destinations and according to an employee’s annual slalary. Designated high cost contry centres also have specified accommodation rates.

LIkewise, overseas allowances for meals and incidentals are set with reference to costs in the various countries. Countries are grouped todgether according to the relative cost of living associated with each location.

For example, less expensive countries to travel in, susch as Bolivia and Paraguay, are grouped together (Group 2), while countries that are expensive to travel in, such as Denmark and Norway are grouped together at the other end of the scale (Group 6).

Travel allowances are comprised of the following components:

Accomodation (Domestic Travel Only)
The accommodation reates shown for domestic travel apply only for stays in commercial establishments, such as hotels, motels and serviced apartments. If a dfferent type of accommodation is used, the rates do not apply. Reasonable allowance amounts have not been set for overseas accommodation and written evidence is required for claims made for this time of expense.

The reasonable amount for meals depends on the period and time of travel. That is, the rates will only apply to meals (ie breakfast, lunch, dinner) that fall within the period from the commencement of travel by the employee to the end of travel covered by the allowance. Therefore, in determining the reasonable amount for meals, one must not only look at the reasonable amount per meal (ie the dollar figure provided in TD 2017/19), but also what meals (ie breakfast, lunch, dinner) it is reasonable to include from the time the travel commences to the end of the travel period covered by the allowance.


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GST SBE Concessions


Small Business Entities have access to a range of GST concessions including accounting on a cash basis, paying GST by instalments, an annual apportionment of GST credits, and a new Simplified BAS. Are you taking advantage of these concessions?

SBE Defination Extended!
New law has now been passed by Parliament expanding the definition of Small Business Entity (SBE).

Backdated to 1 July 2016, to qualify as an SBE you must be carrying on a business and have an annual turnover of less than $10 million – including the turnover of any connected entities or affiliates. This is up from the previous turnover threshold of $2 million. Treasury estimates that this change will open the way for an additional 90,000 to 100,000 businesses (i.e. those with a turnover of between $2 million and $10 million) to access the following GST SBE concessions:

New Law – Simper BAS
SBEs  may now be eligible to complete a simplified Business Activity Sttement (BAS) under the new Simpler BAS rules.

At its core Simpler BAS involves the reduction in the number of labels on the BAS. Under Simpler BAS SBEs now only need to report the following GST information on their BAS:
  • GST on sales (label 1A)
  • GST on purchases (1B)
  • Total sales (G).
SBEs are no longer required to report Export saels (G2), other GST-free sales (G3), Capital purchases (G10), and Non-capital purchases (G11). These labels are removed from the BAS altogether. Simpler BAS is aimed at simplifying BAS preparation, but also account set-up within a software file, and GST bookkeeping. To this end, the ATO has worked closely with software companies to streamline the coding of transaction for users of Simpler BAS. Within the software under Simpler BAS, you will only have three tax codes to choose from which wil generally be: GST, GST-free or Out of Scope. This may assist by making it easier to classify transactions with the other tax codes not relevant (e.g. Capital Purchases etc.).

  • SBEs do not need to opt-in to Simpler BAS – it is compulsory. The ATO will automatically send out these streamlined BAS to eligible SBEs. If you are an eligible SBE and you do not receive the simplified BAS, you should contact the ATO.

In theory, with the reduction in labels, Simpler BAS will make GST reporting and bookkeeping requirements simpler. This may encourage SBEs to bring the BAS function in-house rather than pay a Bookkeeper or Accountant to prepare your BAS. However, a word of caution! Although for GST purposes there will only be 3 classification, complexities will still arise in determining which supplies and purchase attract GST and which do not. A reduction in reporting labels does not change the complex GST law that sits behind thoise labels. Therefore, while moving the BAS function in-house may be appealing in terms of cost, you may wish to leave BAS preparation in the hands of your Bookkeeper or Accountant and enjoy the peace of mind and time savings that this brings.

Accounting on a Cash Basis
SBEs can elect to account on a cash basis. This means they can:
  • Claim GST credits on business purchases in the tax period in which you pay for those purchases. If you pay only part of the cost of a business purchase in a tax period and have a valid tax invoice, you will only claim GST credits for that part of the cost you payed for in that tax period.
  • Account for the GST payable on your sales in the tax period in which you receive payment. If you only receive part payment for a sale in the tax period, you will account only for the part of the GST payment that relates to that part of the sale in that tax period.

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TAX AUDITS – Behaviours To Avoid

The ATO has recenty published a list of behaviours and characteristics that may attract its attention. In order to minimise the chances of ATO scrutiny, this section provides the details.

Capital Gains Tax

Broadly, the ATO is focussed on capital losses that on the face of it appear to be exaggerated, fabricated or misclassified; all with the aim or reducing taxable income. Specifically, the following attract the ATO’s attention:
  • For companies, if from the time the losses were incurred to the time they are used, other information indicates that the company had a change in ownership or there was a change in the type of activites being conducted
  • Capital losses that are artificially generated (for example, non-arm’s length transactions or through ‘wash sales’ where loss-making shares are sold and then bought back) with the express purpose to offset capital gains
  • Reclassifying capital losses as revenue losses with the aim of reducing taxable income
  • “Loss washing” whereby a taxpayer deliberately triggers a CGT event (e.g. sale) in order to bring to account an unrealised loss in a year in which a capital gain is made.
The ATO focusses on your reporting and payment obligations resulting from a disposal of a capital asset. It has particular concerns where the amount of a net capital gain reported on a tax return is less than the ATO believes it should be based on their external data sources. The following specifically attract ATO attention:
  • Entities that fail to meet their lodgement obligations
  • Companies claiming the 50% CGT discount (other than life insurance companies, the discount for holding a CGT asset for 12 months or more is not available to companies)
  • Entities that receive cash through a partial scrip-for-scrip rollover. By way of background, you may be entitled to a scrip-for-scrip rollover and avoid CGT where a company in which you owned shares was taken over and you received new shares in the takeover company
  • Entities which dispose of high-value assests but record small capital gains or losses on their tax retun
  • Entities that incorrectly access the Small Business CGT Concessions. (Note that despite the increase of the Small Business Entity turnover threshold from $2 million to $10 milliion (effective 1 July 2016) this does not apply for the purposes of accessing the CGT concessions. To access the concessions, generally businesses must have an aggregated turnover of less than $2 million, or have net assets to the value of less than $6 million).
Fringe Benefits Tax

The ATO focuses on situations where an employer-provided motor vehicle is used or made available for use. This may constitute a fringe benefit and require an FBT return to be lodged. Note that an employer-provided vehicle will be deemed to be avalable for private use – and therefore a fringe benefit may arise – where an employee keeps it at their residence overnight (even if it not used).
An employee contribution is an amount paid to an employer by an employee in relation to a fringe benetit, The contribution reduces the taxable value of a fringe benefit, and must be made by the employee from their after-tax income. These contributions will normally be assessable in the hands of the employer. The FBT legislation describes three types of employee contributions: 

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Rental Property Owners – New Rules!

Housing affordability was a major focus of the 2017 Federal Budget. Among the measures announced was a tightening of some of the deduction rules around rental properties as follows:

Rental Property Travel
Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental propety will be disallowed from 1 July 2017. Before this date, the rules were very generous and allowed an owner to claim everything from airfares, accommodation, overseas travel (in certain circumstances) and car expenses incurred when:
  1. Preparing a property for new tennants
  2. Inspecting the property during or at the end of tenancy
  3. Undertaking repairs, where the repairs are because of damage or wear and tear incurred while you rented out the property
  4. Maintaining the property (e.g. cleaning or gardening) while it is rented or available for rent
  5. Collecting the rent, and
  6. Visiting your agent to discuss your rental property.

In light of these changes, there are a few important take away points for property owners as follows:
  • Category (a), (c) and (f) expenses appear to be still claimable under the new rules (we will need to await the final legislation to confirm this)
  • This measure will not prevent investors from engaging third-parties such as real estate agents for property mamagement services. These expenses will continue to be deductible. Indeed, if the travel is costly (e.g interstate) then you may wish to engage third parties to undertake Category (b), (d) and (e) expenses from 1 July 2017 rather than you personally.

Restriction on Depreciation Claims
From 1 July 2017 “plant and equipment” depreciation deductions are now limited to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be “easily” removed from a property such as dishwashers and ceiling fans. This change was made to address concerns that some “plant and equipment” items are being depreciated by successive investors in excess of their actual value. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors…….

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Tax Relief on Changing Business Structures

Whilst the ability for a small business to change their legal structure without attracting a tax liability has been available for a little over 15 months, it may be one of those areas that small business and tax practitioners are still coming to terms with. This tax tip considers:
The eligibility criteria;

  • How the provisions work; and
  • What are the impacts. 

Is My Business Eligible 

To be eligible and to gain access to the rollover provisions, a number of tests must be satisfied as follows: 

  1. Both the transferor and the transferee must be small businesses 

This means that both the transferor and the transferee must be businesses each with an aggregated turnover of less than $10 Million.  Note that this aggregated turnover not only relates to the subject entity, but also to entities that may be affiliated or connected with the subject entity. Care is required in determining the applicability of this test as the affiliated or connected with test can be quite complex. 

  1. The restructure must be part of a genuine restructure and not part of a tax driven scheme 

Whether or not a restructure is “genuine” will depend on the specific circumstances surrounding the restructure. The guidelines that accompanied the restructure legislation provide some details on what may be considered a “genuine restructure” and include:

  • A bona fide commercial arrangement has been undertaken to enhance business efficiency;
  • The business continues to operate following the transfer, through a different entity structure;
  • Transferred assets continue to be used in the new business structure;
  • The new structure that has been adopted has taken professional advice when setting up the business;
  • The restructure is not artificial or unduly tax driven; and
  • The restructure is not a divestment of assets or a preliminary step to facilitate the disposal of assets outside the business. 
  1. Ultimate economic ownership must be maintained before and after the restructure 

The ultimate economic owners of an asset are the individuals who, directly or indirectly, own an asset. Where there is more than one individual with ultimate economic ownership, there is an additional requirement that each individual’s share of ultimate economic ownership be maintained. Where a discretionary trust is involved, this means that there is no practical change to the individual beneficiaries who ultimately benefit from the assets before and after the transfer. 

How The Provisions Work 

A business can be operating either as a sole trader, a partnership, a company or as a trust. There may be a time when the business owners believe that they have “outgrown” their current trading structure and that the structure no longer meets their needs. This could involve asset protection issues, commercial requirements, public perception, etc.  The Rollover Provisions provide opportunities for a business to restructure from one legal entity to another without incurring a range of tax liabilities that would normally arise when such a transaction is performed. 
It is important to note however that the rollover provisions only apply to certain “active assets” of a business. Such assets are normally CGT assets, depreciating assets, trading stock and other assets that form part of the operating business being restructured.  The rollover does not apply to certain assets such as shareholder or beneficiary loans or  passive assets held in a structure. 

What Are The Impacts 

There are a number of impacts that you should consider before applying the restructure rollover measures including:

  • Assets are taken to be transferred at their tax cost and as such will not result in an income tax liability to either the transferor or the transferee.
  • There is no requirement for any consideration (market value or otherwise) to be provided by the transferee in exchange for those assets.
  • In relation to specific asset classes, the following should be considered:
  • Pre-CGT assets retain their pre-CGT status.
  • Post-CGT assets are taken to be acquired by the transferee at the date of transfer for their cost at that time. This means that to be eligible to claim the CGT discount on any subsequent sale from the new structure, you will need to wait at least 12 months.
  • Access to the 15 year exemption however as part of  the small business CGT concessions is not affected as the transferee will be taken to have acquired the asset when the transferor acquired it (different to the CGT discount).
  • Trading stock can either be transferred at the transferor’s cost or at the market value of that stock held by the transferor at the start of an income year.
  • Revenue assets take the cost which will result in no profit or loss to the transferee.
  • Depreciating assets will be transferred at the written down value of those assets at the date of the transfer and then continue to depreciated using the same method and effective life that the transferor was using. 
  • There may also be issues to consider in relation to GST or stamp duty on the restructure so professional advice should be sought when utilising the rollover measures. 
  • The restructure provisions can have a very positive outcome for small businesses looking to restructure their affairs, but ensure you seek appropriate professional advice as there may also be some other implications that result in unwanted outcomes..

SBE Opportunities


Small Business Restructure Rollover

The increased SBE threshold of $10 million also applies to the rollover for restructures of SBEs. To recap, this measure allows SBEs to change their operating structure without incurring capital gains tax or other income tax liabilities. It does this by providing an optional rollover (deferring any CGT liability or income tax liability until the asset is eventually sold) where an SBE transfers an active asset of the business to another SBE as part of a genuine business restructure, without change the ultimate economic ownership of the asset. The rollover may also be available for assets that are used by the SBE but held by an entity connected or affiliated with the SBE or, if the SBE is a partnership, a partner of that partnership. This ensures that partners and other ‘passive entities’ within an SBE that are not themselves SBEs (because they do not carry on a business themselves) can access the new rollover. Under the rollover, specifically, from a CGT standpoint:

  • No capital gain or loss will accrue to the Transferor. The Transferee will be treated as acquiring the asset on the date of transfer for an amount equal to the cost base of the asset.
  • Pre-CGT assets will retain their pre-CGT status post-transfer.
  • For the purposes of the 50% CGT discount, the ’12-month clock’ will be reset, such that the Transferee will need to hold the asset for a further 12 months following the restructure to avail themselves of this discount.
  • For the 15-Year Exemption however, the Transferee will be taken to have acquired the asset back when it was originally acquired by the Transferor.

As the $10 million increased threshold is backdated to1 July 2016, tax returns may need to be amended in respect of capital gains made and declared from restructures after this date. Amendments may result in refunds where any capital gains liabilities have been paid. 

CGT Small Business Concessions – No change

Unfortunately, the increased $10 million SBE threshold does not apply to the CGT Small Business Concessions (i.e. the Active Asset Reduction, Retirement Concession, Rollover, 15-Year Exemption). To access these concessions, the standard criteria must be met, namely you and connected entities must be met, namely you and connected entities must have net assets to the value of less than $6 million or your annual turnover (including connected entities and affiliates) must be less than $2 million.

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Non-Resident CGT Withholding Rules…. REBOOTED!

Are you buying or selling property? If so, you need to be aware of the newly adjusted withholding rules, which are now set to impact a much wider range of property sales.

Last year Federal Parliament passed legislation designed to collect gapital gains tax (CGT) from non-residents selling certain Australian property from 1 July 2016.
Although the law is targeted at foreign Sellers, given the way the legislation was drafted, all Sellers of property (resident or non-resident) may be impacted. The new law required that for all property sales of $2 million or more, the Buyer was required to withhold 10% of the sale proceeds and remit that amount to the ATO without delay – unless the Seller obtains a Clearance Certificate from the ATO before settlement.
The legislation doesn’t just apply to individuals but also Companies, Trusts, and Superfunds. Further to this, it is the Buyer that can then be penalised by the ATO for failing to withhold and remit the withholding tax.

What’s Changed?
In the May 2017 Federal Budget, the Government made the following two changes:
  • Increasing the CGT withholding rate for non-residents from 10% to 12.5% from 1 July 2017, and
  • Reducing the real property exemption threshold from $2 million to $750,000 from 1 July 2017.
These changes mean that many more txpayers will be impacted by the new regime. Given this, we now examine the law in detail.

The new withholding regime applies to contracts entered into on or after 1 July 2016 where the following three conditions are met:

This includes
  • Real property in Australia – land, buildings, residentail and commercial property
  • Lease premiums paid for the grant of a lease over real property in Australia
  • Mining, quarrying or prospecting rights
  • Interests in Australian entities whose majority of assets consist of the above such property or interests (e.g. shares in a company or units in a trust) or
  • Options or rights to acquire the above property or interest.

Note that where there are multiple Sellers in the one tansaction, this condition will be met where any of the Sellers is a non-resident.
This condition is the ‘kicker’. The rules can catch Australian resident Sellers if they do NOT obtain a Clearance Certificate from the ATO.

(a) Real property transactions with a market value of less than $750,000 (downd from $2 million). As well as sales of real property, this exemption………..

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Immediate Deduction for SBE Start-up Expenses


This allows taxpayers who are not in business or are a Small Business Entity (SBE) (turnover of less that $10 million) to immediately deduct certain expenses relating to the proposed structure or operation of a business. The expenses must relate to a business that is proposed to be carried on, including certain Government fees and charges and costs associated with raising capital, where these expenses would otherwise be deductible over five years. Eligible expenses generally fall into two categories:

  • Expenditure on advice or services relating to the structure or operation of the proposed business.
  • Payments to Australian Government agencies.

Allowing SBE’s to deduct their start-up expenditure in the year it is incurred provides them with a cash-flow benefit. The deductions are brought forward rather than spread out over a number of years. Cash-flow is one of the main killers of start-up businesses.

Given that the threshold increase is backdated to 1 July 2016, if your business incurred these expenses but failed to claim them in full in the 2016/2017 tax return, you may wish to amend that return.

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