Importing goods worth $1,000 or less?

Overseas businesses that meet the GST registration threshold (A$75,000) will be required to charge GST on goods purchased from the 1 July 2018.

Specifically, GST will be charged on goods that are:

• less than A$1,000 (low-value);
• not GST-free (i.e., alcohol or tobacco products);
• and imported into Australia.

Individuals who purchase low-value goods (which they import) will be required to pay GST if they are not registered for GST or importing goods for personal use (even if they are GST registered).

However, individuals can avoid paying GST if they are:

• registered for GST;
• import low-value goods for business use in Australia;
• and provide their ABN to the supplier and a statement that they are GST registered.

Individuals charged GST incorrectly will need to contact the supplier to advise them they are registered for GST, and need to request a refund.

Preparing for tax time

With the end of the financial year fast approaching, preparing ahead will help to take off the pressure of running your business and organising your tax affairs this tax season.

Business owners can benefit from gathering and sorting their records now, including cash, EFTPOS, bank statements, credit or debit card transactions that relate to sales and other business income.

Records of expenses that can be claimed as business deductions, such as operating expenses, business travel, staff wages and contractor expenses should also be compiled.

For those who have changed over their record keeping software in the past year, now is a good time to check all the information has transferred over correctly.

Sole traders are reminded to lodge an annual return even if their income is below the tax-free threshold. Those that lodge PAYG instalments would benefit from lodging activity statements and paying all PAYG instalments before lodging their return so their income tax assessment takes into account the instalments paid through the year.

Targeted amendments to Division 7A

The Government is widening the scope of Division 7A to include unpaid present entitlements from 1 July 2019.

This will apply where a related private company is entitled to a share of trust income as a beneficiary but has not been paid that amount (unpaid present entitlement).

Division 7A is an integrity rule that requires benefits provided by private companies to taxpayers to be taxed as dividends unless they are structured as Division 7A complying loans or where another exception applies.

The Government aims to clarify the operation of the Division 7A integrity rule to ensure the unpaid present entitlement is either required to be repaid to the private company over time as a complying loan or subject to tax as a dividend.

Additionally, the targeted amendments announced in the 2016-17 Budget, aimed at improving the operation and administration of Division 7A, have now been delayed to commence from 1 July 2019. This will enable all the Division 7A amendments to be progressed as part of a consolidated package.

From 1 July 2019, the following measures will be introduced:
– A self-correction mechanism to assist taxpayers to rectify inadvertent breaches of Division 7A promptly.
– Appropriate safe harbour rules to provide certainty and simplify compliance for taxpayers.
– Simplified rules regarding complying Division 7A loans, including loan duration and the minimum interest rate.
– A number of technical amendments to improve the integrity and operation of Division 7A and provide increased certainty for taxpayers.

GST at settlement

As of 1 July 2018, purchasers of new residential premises or potential land are required to withhold an amount from the contract price and pay the amount to the ATO before settlement.

A supplier (vendor, seller) of residential premises or potential residential land must notify the purchaser in writing whether they will need to withhold an amount. If the purchaser is required to withhold, the supplier will need to inform them of the amount and when it needs to be paid to the Tax Office.

Generally, if the property contract sale specifies an amount that is the price of the supply, i.e., the contract price, then the withholding amount is calculated on the contract price. However, there are some situations where the amount to be withheld must be calculated differently, including:
– Where the margin scheme applies to the supply
– The supply is between associates and is without consideration, or is for consideration that is less than the GST inclusive market value of the supply
– There is a mixed supply, for example, only partly a supply of new residential premises or potential residential land
– There are multiple purchasers (not joint tenants)

Once the supplier lodges their BAS and it is processed, the supplier will receive a credit for the amount the purchaser withheld and paid to the ATO.

Note, purchasers do not need to register for GST just because they have a withholding requirement.

Focus on work-related car expenses

The Tax Office has flagged work-related car expenses as a concern this tax time.

The ATO is targeting those who make mistakes or deliberately lodge false claims. Examples include:
– Claiming things they are not entitled to, i.e., private trips such as work to home travel.
– Making claims for trips that did not occur.
– Claiming expenses that their employer has already reimbursed them for.

Advancements in data-matching technology allow the ATO to match individuals with peers in similar occupations, earning similar amounts of income. Analytics is also used to identify claim patterns, i.e., over 800,000 people claimed exactly 5,000 kilometres under the cents per kilometre method last year.

The best way to avoid making a mistake include:
– only making a car claim if you paid for the expense yourself and were not reimbursed;
– it was directly related to earning your income; and,
– you must have a record to support the claim.

An example of a legitimate car claim is travelling between work sites or between jobs as part of your job.

Before you submit a car claim, consider if your employer would agree you needed to undertake the trips as part of your job. Employers may be contacted if your claim raises a red flag.

Budget 2018: creating a level-playing field

The Government will continue its commitment to strengthen the economy by focusing on improving its integrity measures to create a fairer level-playing field for all.

Funding new ATO enforcement
Additional funds will be allocated from the Budget over four years to fund a new ATO enforcement strategy to tackle the black economy. Through this measure, the ATO will implement new mobile strike teams, stricter auditing and a Black Economy Hotline for Australians to report black economy and illegal phoenix activities.

Cash payment limit
The Government will commence with a restriction on cash payments made to businesses for goods or services of up to $10,000 from 1 July 2019. Payments over $10,000 must be made via an online banking system or cheque unless payments are with financial institutions or consumer to consumer non-business transactions.

No tax-deductibility for non-compliant payments
From 1 July 2019, the Government is keeping a closer eye on those businesses that try to claim deductions for any payments made to their employees that do not comply with current regulations. Deductions for payments from a business to a contractor will also be disallowed if the contractor does not have an ABN and the business does not withhold any PAYG monies, despite the withholding requirements applying.

Reforms to combat illegal phoenixing
Corporations and tax laws will be strengthened with further measures to prevent illegal phoenix activities. Those measures will include changes to:
– introduce new phoenix offences for individuals who run or open the door to illegal phoenixing;
– stop directors incorrectly backdating resignations to avoid liability or prosecution;
– control the power of related creditors to vote on the appointment, removal or replacement of an external administrator;
– expand the Director Penalty Regime to GST, luxury car tax and wine equalisation tax (to make directors personally liable for company’s debts); and
– allow the Tax Office to restrict refunds for outstanding tax lodgements.

Personal income tax
The ATO will receive further funding from 1 July 2018 in a bid to strengthen compliance activities on individual taxpayers and their tax agents. This funding is set to provide new compliance activities, a stronger audit presence and prosecutions, improve education and guidance materials, pre-filling of income tax returns and enhance real time messaging to tax agents and individual taxpayers. This measure is set to prevent over-claiming of any entitlements, including tax deductions by higher risk taxpayers and their agents.

Black economy package
The Taxable Payments Reporting System (TPRS) will expand to include security providers and investigation services; road freight transport; and computer system design and related services. Businesses required to report payments to contractors to the Tax Office must keep information from 1 July 2019, with the first annual report due by August 2020.

Tax and superannuation debts
The Budget implements a further range of strategies to improve debt collections revenue and time taken for debts to be collected. This measure is set to deter individual taxpayers from gaining an unfair advantage over individuals paying their fair share of tax and super.

Budget 2018: building resilience

The 2018 Federal Budget is built on the back of a historically strong post-mining boom Australian economy, triggering fairly conservative changes to tax policy. The Budget’s strategy is to provide sustainable tax relief to those in the workforce, stimulating spending and encouraging businesses to invest in creating jobs.

Individuals
The Government is introducing a seven-year Personal Income Tax Plan to make tax lower, fairer and simpler. The plan is affordable and consistent.

The first step is to lower taxes for low and middle-income earners, thereby increasing disposable incomes to help take the pressure off household budgets. From 1 July 2018, the Government will introduce the Low and Middle Income Tax Offset, a non-refundable tax offset of up to $530 per annum to Australian resident low and middle-income taxpayers.

The second measure in the plan will tackle bracket creep. From 1 July 2018, the Government will increase the top threshold of the 32.5 per cent personal income tax bracket from $87,000 to $90,000.

The top threshold of the 32.5 per cent personal income tax bracket will increase from $90,000 to $120,000 from 1 July 2022.

The third phase of the Government’s Personal Income Tax Plan will simplify and flatten the personal tax system by eliminating the 37 per cent tax bracket entirely. From 2024-25, the 37 per cent tax bracket will be abolished to protect middle-income Australians from bracket creep over their working life. This will also allow working Australians to take on additional work and seek advancement without increased tax consequences. This strategy suggests the Government’s confidence in a buoyant economy and increased future wages growth.

The increase in Medicare levy from 2 to 2.5 per cent indicated in last year’s Budget will no longer proceed. In addition, the Medicare levy low-income thresholds will be increased for singles, families, seniors and pensioners from the 2017/18 income year.

Businesses
The $20,000 instant asset write-off has been extended for small businesses to 30 June 2019, providing more opportunity for them to reinvest in their business and replace or upgrade their assets. While the extension is a welcomed measure for small businesses; it may prove to be a standard feature with the Government facing difficulty trying to eliminate it in the future.

ATO clarifies claims made in recent media coverage

The Australian Tax Office is standing by its actions undertaken that were presented on a recent current affairs program.

The ATO says where taxpayers fail to lodge tax returns and BAS returns over a number of years despite repeated requests, the ATO will raise a default assessment based on evidence that can be obtained, i.e., cash deposits in their bank account and bank statements.

In circumstances where a taxpayer refuses to cooperate with the ATO such as refusing to provide basic information, the ATO can only work off their bank account.

Firmer action is undertaken where taxpayers fail to respond to a position paper put to them based on this evidence and where there are attempts to engage with such taxpayers for an extended period, i.e., giving them a chance to rectify their tax situation.

One such penalty is a mandatory 75% penalty where a taxpayer has failed to send the ATO GST or tax they have withheld from their employees’ pay.

The next step is to issue a garnishee notice for taxpayers who repeatedly fail to engage with the ATO, despite the Tax Office’s attempts to contact them and collect tax owed. If there is no response from them, the ATO will then issue a garnishee notice.

The Tax Office generally will not proceed with garnishee action if there is a current dispute.

Employing holiday makers on a visa

Employers can employ holiday makers on either a Working Visa (subclass 417) or a Working and Holiday Visa (subclass 462).

Employees on either visa are taxed at 15 per cent from the first dollar earned, regardless of their residency. Working holiday makers cannot claim the tax free threshold and must provide their employer with their tax file number (TFN).

Those who do not supply their employer with their TFN will be taxed at top marginal tax rate.

If a working holiday maker meets eligibility criteria, employers are required to pay superannuation.

Before employing someone on a Visa, you should check they have the correct visa using the ATO’s Visa Entitlement Verification Online service and register with the ATO before making your first payment to them.

Changes to GST payments at settlement

Buyers of new residential premises or subdivisions of potential residential land will need to pay the GST component of the purchase price to the Australian Tax Office (ATO) as of 1 July 2018.

The amount of GST will not change. This change does not affect the sales of existing residential properties or the sales of new or existing commercial properties.

Buyers will need to split the amount of GST from the total purchase price, pay the GST component directly to the ATO by a disbursement at settlement and pay the GST exclusive purchase price to the vendor.

It is important to note settlements will not be conditional on the payment of GST to the Tax Office.

It is the property developer’s responsibility to provide written notice to the buyers when they need to withhold.

The liability for GST remains with the property developer.