Immediate deductibility of capital start-up expenses
From 1 July this year, new provisions apply to allow certain small businesses, or an entity that is not in business, to immediately claim some start-up costs, including business costs associated with raising capital.
Claimable business-related start-up costs
Expenses can be fully deductible in the year in which they are incurred if the expenditure relates to a small business that is proposed to be carried on and is either:
It does not include the cost of acquiring assets that may be used by the business.
Data matching program – on eBay online sales
The ATO has announced that it will acquire online selling data relating to between 15,000 and 25,000 individuals who sold goods and services of $10,000 or more on eBay between 1 July 2014 to 30 June 2015.
Data will be sought from eBay Australia and New Zealand Pty Ltd, a subsidiary of eBay International AG which owns and operates www.ebay.com.au.
The data requested will include information that enables the ATO to match online selling accounts to a taxpayer, including name, address and contact information, as well as information on the number and value of transactions processed for each online selling account.
These records will be electronically matched with certain sections of ATO data holdings to identify non-compliance with registration, lodgment, reporting and payment obligations under taxation laws.
New multi-agency approach to fight serious financial crimes
Since 1 July this year, a new Serious Financial Crime Taskforce has been operating to ensure that Commonwealth financial crimes are disrupted and deterred.
The Taskforce is led by the Australian Federal Police, and also includes:
The Taskforce will work closely with international partner agencies, governments and organisations around the world and will initially concentrate on international tax evasion and criminality related to trusts and ‘phoenix activity’ (when companies deliberately and repeatedly liquidate to avoid paying creditors, employee entitlements and taxes).
ATO and United States IRS share bank information
The ATO has announced that it has undertaken its first ever automatic sharing of bank information with the United States (US) Internal Revenue Service (IRS).
Details of over 30,000 financial accounts worth over $5 billion are being provided to the US.
The information provided on US citizens and tax residents with Australian bank accounts is the first step in transparency measures being implemented globally by Governments and tax administrations.
Beginning in 2017, close to 100 countries will be sharing non-resident data under the OECD Common Reporting Standard.
In return, the ATO will receive data from the IRS about Australians with financial accounts in the US, and will use that data to detect cases of undeclared offshore income and tax evasion.
Small Business Protections from unfair contract terms
Editor: There are laws protecting consumers from unfair terms in ‘standard form contracts’ where the person has little or no opportunity to negotiate with the business concerned.
Businesses use standard form contracts to more efficiently deal with their customers. However, because the business is often in a somewhat superior bargaining position, there are laws in place to protect consumers from unfair terms in a standard form consumer contract.
The government has announced it will extend consumer unfair contract term protections to small businesses as well.
The changes will cover standard form contracts where at least one of the parties employs less than 20 people, and where the upfront price of the contract does not exceed $300,000 or $1 million for contracts longer than 12 months.
ATO moves on cafés & restaurants
The ATO has advised that it will be visiting restaurants, cafés and take-aways in Box Hill (Melbourne) over the coming months as part of its ongoing Australia-wide program involving the café and restaurant industry.
Assistant Commissioner Michael Hardy said similar visits in Sydney and Adelaide with over 500 cafés had been well-received, with businesses keen to meet with the ATO to better understand their obligations, as well as learn about available help and support.
“Where taxpayers are unwilling to work with us or continue to cause us concern, we will undertake further investigation. In Sydney, for example, we have now moved to auditing businesses that did not want to work with us.”
The ATO and its regulation of SMSFs
Editor: In a recent speech, Kasey Macfarlane, Assistant Commissioner, SMSF Segment, Superannuation, discussed the issues facing SMSFs and their aging trustees. The following is an excerpt from her speech.
Planning ahead – cognitive decline
“I’d like to touch on the increasingly important topic of cognitive decline. Dementia is on the rise and currently affects one in ten people over 65, and three in ten over 85.”
“Even mild dementia will affect a person’s ability to make financial decisions. SMSF numbers continue grow, and . . . require a high level of financial decision making.
“While many trustees remain perfectly capable of effectively managing their financial affairs well past retirement age, there is a risk that some with diminished capacity to effectively manage their fund may nevertheless continue to do so.
“As my colleague Matthew Bambrick said back in March, ‘These issues are a time bomb waiting to go off if not addressed now’.
“It’s essential to ensure that all trustees are genuinely involved in managing SMSF funds, to agree in advance about decision points and exit decisions, to have a will, and appoint an enduring guardian and power of attorney.”
Editor: If you would like to discuss this important issue further, please contact our office.
The thought of the Australian Tax Office (ATO) sharing up to 50% of any gain you make on an investment decision is enough to strike fear into the hearts of most people. Given Australia’s love affair with property, it is little wonder that we are often asked about the impact of capital gains tax (CGT) on property. This month, we explore the most frequently asked questions.
In general, CGT applies to any change of ownership of a CGT asset, unless the asset was acquired before 20 September 1985 when the CGT rules first came into effect.
Most questions about CGT on property are based on the main residence exemption that exempts your home (your main residence) from any CGT exposure when you sell the property.
I jointly own an investment rental property with my elderly mother. Neither of us has ever lived in the property. We’ve recently updated our wills. The lawyer says that if Mum’s will gifts her half of the property to me then this ‘gift’ will not attract capital gains tax. Is this correct?
Kind of. Tax law tends to work on the basis that if looks like a duck and walks like a duck then it’s a duck, not whatever your legal document calls it. Exposure to capital gains tax is a matter of fact and substance.
If you inherit your mother’s share of the property, there would generally be no tax liability until you sell the property. What is important here is how the CGT is calculated when you ultimately sell.
When the rental property transfers to you from your mother’s estate, the tax rules determine how CGT is calculated when you eventually sell. Basically, if the property was bought on or after 20 September 1985 then when you sell the property your taxable profit will be based on the original purchase price. That is, you will end up being taxed on the increase in value of the property since it was acquired, including the portion that accrued while your mother was still alive.
In general, if you jointly own an investment property, your individual exposure to CGT will depend on how the property is owned. If the property is held as tenants in common then any CGT exposure is in line with your ownership interest. For example, in your case, it is 50% owned by your mother and 50% by you but different people can own different ownership interests. If the property is owned as joint tenants then any CGT exposure is equally shared by the owners.
I bought a house in 2000, and lived in it until 2003. I was posted overseas with my job between 2003 and 2011. During that time my brother lived in the house rent free – he just paid for utilities. In 2011 to 2012, I rented the house out (no one I knew). I moved back into the property in 2012 and have just sold the house. Do I have to pay capital gains tax on the property?
The capital gains tax rules are more understanding about how people live their lives than other laws and in some circumstances allow you to continue to treat your home as your main residence even if you are not actually living in it.
While you are away overseas, if you leave the property vacant or let a friend or relative live in the property rent-free, assuming you do not claim any other property as your main residence, then you can continue to treat the property as your main residence for CGT purposes indefinitely.
If you rent the property out while you are away, the tax laws allow you to still claim the property as your main residence as long as the period you rent it for is not more than a total of 6 years. This 6 year period can actually be reset by moving back into the property again.
Effectively, you can move out and move back in as many times as you like and still claim the property as your main residence as long as it is your only main residence during that time and if you are renting it out, you do not rent it out for more than a total of 6 years across the period you are claiming the property as your main residence.
During the rental period you can also claim deductions against the rent, even though the property might still be exempt from CGT during this period.
I bought a property in 2008 and expected to move in straight away, but there were tenants still in the property and their lease still had 8 months to go. I waited for the lease to expire and then moved in. I have lived there ever since and plan to sell later this year. Can you just confirm that I would still qualify for a full CGT exemption on the sale as the property has significantly increased in value?
This is a very common situation but is probably overlooked much of the time. Unfortunately, you would not qualify for a full exemption in this case.
The main residence rules allow you to treat a property as if it has been your main residence since settlement date as long as you actually move into the property as soon as practicable after settlement. This is intended to cover situations where there is some delay in moving into the property due to illness or some other “reasonable cause”. The ATO’s view is that this rule cannot apply if you are waiting for existing tenants to vacate the property.
This means that you would only qualify for a partial exemption under the main residence rules. We will need to calculate your gross capital gain and then apportion it to reflect the period of time when it was actually your main residence (i.e., from when you actually moved in).
As long as you are a resident of Australia and have owned the property for more than 12 months we can also apply the 50% CGT discount to reduce the leftover capital gain.
It will be important in this case to gather as much evidence as possible of non-deductible costs that you have paid in relation to the property such as stamp duty, legal fees, commission paid to real estate agents, interest, rates, insurance, etc. This will help to reduce the gross capital gain that is subject to tax.
GST on all (taxable) online transactions from 1 July 2017
The (now former) Treasurer recently announced that the States and Territories had unanimously agreed in principle to reduce the GST threshold on imported goods and services (currently at $1,000) to zero.
The new arrangements will apply from 1 July 2017.
He said that he had put forward a proposal that relies on a vendor registration model as a method of collecting the GST.
As goods would not be stopped at the border, administering a vendor registration model would have a relatively low cost.
Non-residents (overseas suppliers) will be the ones who charge, collect and remit the GST for digital and physical products.
As is the case in Australia, only vendors with an Australian turnover of at least $75,000 will need to register and charge the GST.
NZ changes to GST imports to affect our exporters
Editor: In a similar fashion, the New Zealand government has issued a discussion paper, entitled “GST: Cross border services, intangibles and goods”, the upshot of which is to levy GST on imports under the current threshold of NZ$400.
The proposed rules would require offshore suppliers to register and return GST, when they supply services and intangibles, which exceed a given threshold in a 12-month period, to New Zealand-resident consumers.
The paper proposes that there would be a wide definition of “services”, which would include digital services (such as video, music, and apps and other software downloads).
It would also include traditional services such as consultancy fees for legal, accounting, engineering, and other services.
At the present time there is no proposed start date, although the NZ government may decide to align their start date with Australia’s proposed start date for GST on imports under $1,000 of 1 July 2017.
Holiday rentals under the microscope
The ATO has advised that it is sending letters to taxpayers in approximately 500 postcodes across Australia, reminding them to only claim the deductions they are entitled to, for the periods a holiday home is rented out, or is genuinely available for rent.
They advise that, to avoid making mistakes on their tax return, property owners should:
If a property is rented at below market rates, for example to family or friends, claims for deductions must be limited to the income earned while rented.
Credit and debit cards data-matching program
The ATO has announced that it will conduct a data-matching program on credit and debit card transactions for the 2012/13 and 2013/14 years.
Data will be collected from the following financial institutions:
Based on previous programs, it is estimated that over 8 million records will be acquired, relating to over 940,000 merchants. These records are linked to approximately 90,000 individuals and 850,000 non-individuals.
Taxpayers can apply to the ATO for a market value ruling
The ATO has issued an information sheet to help taxpayers get their property valuations right.
They say that practitioners or their clients can apply for a market value private ruling, by either:
There are several advantages to requesting a market value private ruling, as opposed to obtaining a private valuation, as a market value private ruling:
ATO warns about doing your own valuation
According to the ATO, taxpayers who undertake their own valuations – or use valuations from people without adequate qualifications – risk incorrectly reporting their tax, and may be liable to pay administrative penalties.
However, taxpayers who use a qualified valuer or equivalent professional for taxation purposes will generally not be liable to a penalty if they have provided the valuer with accurate information should the valuation ultimately prove to be deficient.
Pay GST instalments quarterly and report annually
Editor: The ATO has advised that practitioners and their clients can opt to pay GST quarterly, and only report annually.
This option is available to all businesses with a turnover of $2 million or less.
If a business elects to take this option, it pays a quarterly GST instalment that the ATO works out (the taxpayer can vary it) and reports its actual GST information annually on an Annual GST return.
Editor: If you would like to discuss this option, please call our office.
GIC and SIC rates for the 2015 December quarter
The ATO has published the 2015 December quarter rates for the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC):
|GIC annual rate||9.14%|
|GIC daily rate||0.02504109%|
|SIC annual rate||5.14%|
|SIC daily rate||0.01408219%|