ATO develops safe harbour for car fringe benefits

The Australian Tax Office has recently collaborated with industry representatives to develop a safe harbour for car fringe benefits. A safe harbour is a guideline that allows Australian businesses to make use of an efficient way to calculate tax where certain conditions are met.

Businesses can access the safe harbour and use this new simplified approach if they have:

• a fleet of 20 or more ‘tool of trade’ cars, which are not part of salary packaging arrangements and cost less than the luxury car tax limit in the year acquired

• a mandatory logbook policy and hold valid logbooks for at least 75 per cent of the cars in the logbook year

• gathering all log books kept for each car in the fleet

• determining which of those log books are valid

• confirming they have valid log books for at least 75 per cent of the cars in the fleet

• calculating the average of the business use percentages determined in accordance with each of the valid log books

ATO warns small businesses of SuperStream deadline

The Australian Tax Office has warned small businesses that time is running out to start paying superannuation contributions in the new and mandatory electronic standard called SuperStream.

SuperStream is the new mandatory way employers must make super contributions on behalf of their employees. It involves employers sending all super payments and employee information electronically in a standard format.

Those employers that are still paying their super by cheque must move to the electronic solution to make super contributions.

Small business employers have until this Friday – 28 October 2016 – to become compliant. Small businesses who have failed to adopt SuperStream by this deadline are at risk of being non-compliant.

To become SuperStream compliant, businesses must first choose an option that suits their business, such as a payroll system that meets the SuperStream standard, a messaging portal, a super clearing house or their super fund’s online system.

Once an option is selected, businesses may need to collect new information from their employees and update records, and then they will be ready to start using SuperStream.

Changes announced to ATO withholding amounts

Following an announcement in July, the Australian Government recently increased the 32.5 per cent tax threshold from $37,001 – $80,000 to $37,001 – $87,000.

The new PAYG withholding rates will apply to individual taxpayers who earn more than $80,000 from 1 October 2016.

The Australian Tax Office provides a range of tables to assist employers work out how much to withhold from payments they make to their employees. Since the latest edition of the new tax tables is now available, employers should use these new tax tables for payments made from 1 October 2016.

The Tax Office also provides a tax withheld calculator employers can use to calculate the correct amount of tax to withhold. The tax withheld calculator applies to payments made in the 2016-17 income year and provides the correct rates for the 2016–17 income year.

Updated tax tables do not include any catch-up component for the portion of the year which has already passed. Individuals who are affected will receive the full benefit of the tax changes upon an assessment of their income tax return for the 2016-17 income year.

Employers do not need to make any other adjustments or refunds as the ATO will refund any over-payment of tax when employees lodge their 2016–17 income tax return.

Home-based work expenses

The Australian Tax Office allows Australians who work at or from their home to claim a deduction for the additional expenses they incur from running their business.

Generally speaking, the deductible expenses that can be claimed are divided into two categories; occupancy expenses and running expenses.

Occupancy expenses: relate to ‘the place of business’, i.e. where part of an individual’s home is used solely for income producing activities. Examples of occupancy expenses include:

• mortgage interest

• rental costs

• insurance

• security

To be eligible to claim a deduction for an occupancy expense, the area of the home used for business activities must have the ‘character of a place of business’. The ATO has stated that the following shows an area of a home is ‘a place of business’ where:

• the area is clearly identifiable as a place of business

• the area is not suitable for private or domestic use

• the area is used exclusively for carrying on a business

• the area is used regularly for visiting customers

Running expenses: are costs that relate to the use of facilities in the home to run the business, such as:

• the cost of electricity and gas to heat, cool or light up a room

• business phone costs

• the decline in value of plant and equipment, such as chairs, bookcases and computers

• the decline in value of furniture and furnishings, such as curtains and carpets

• the cost of repairs to furniture and furnishings

• cleaning costs

Individuals can only claim a tax deduction for the amount of running expenses’ usage from the business, not general household expenses.

ATO reminds small businesses about SuperStream deadline

The Australian Tax Office (ATO) is reminding small businesses to transition to SuperStream by 28 October 2016.

SuperStream is the new mandatory way employers must make super contributions on behalf of their employees. It involves employers sending all super payments and employee information electronically in a standard format.

Those employers that are still paying their super by cheque must move to the electronic solution to make super contributions.

Small business employers have been given extra compliance flexibility from 30 June 2016 to 28 October 2016. This means the ATO will not be taking compliance action against small businesses until 28 October 2016.

With just one quarterly payment date left until the deadline, the ATO is urging small business employers to set up SuperStream now.

To become SuperStream compliant, businesses must first choose an option that suits their business, such as a payroll system that meets the SuperStream standard, a messaging portal, a super clearing house or their super fund’s online system.

Once an option is selected, businesses may need to collect new information from their employees and update records, and then they will be ready to start using SuperStream.

ATO launches Super Scheme Smart

The Australian Tax Office has launched a new initiative called Super Scheme Smart to help educate individuals about the pitfalls of certain retirement planning schemes and how to protect their retirement nest egg.

Each year the ATO discovers complex tax schemes and arrangements designed by promoters solely for the purpose of helping people avoid tax.

The office is currently seeing a number of schemes targeting Australians planning for their retirement. These schemes encourage individuals to channel money inappropriately through their self-managed superannuation fund (SMSF).

The penalties are substantial for those involved in deliberate tax avoidance schemes; an individual may well lose their right to be a trustee of their own super fund, or, in some cases, they could go to jail.

According to the ATO, individuals most at risk are those approaching retirement.

While the retirement planning schemes can vary, common features people should be aware of include schemes that:

– are artificially contrived with complex structures usually connecting with an existing or newly created SMSF

– involve a significant amount of paper shuffling

– are designed to give the taxpayer minimal or zero tax, or even a tax refund

– aim to give a present day tax benefit by adopting the arrangement

– invariably sound ‘too good to be true’, and as such they generally are

ATO outlines common FBT mistakes

Fringe benefits tax (FBT) is a tax an employer pays on certain benefits they provide to their employees, including their employees’ family or other associates. The benefit may be in addition to, or part of, their salary or wages package. Fringe benefits tax is separate to income tax and is calculated on the taxable value of the fringe benefits provided.

Recently, the Australian Tax Office has released information for business owners which outlines some of the most common FBT mistakes made over recent financial years, as there are some misconceptions surrounding FBT exemptions of certain benefits provided to employees.

A condition of an FBT exemption is that the benefit provided is primarily used to enable the employee to do their job. In determining a benefit’s primary use, the Tax Office considers the employee’s ‘intended use’ at the time the benefit is provided.

There are also benefits that an employer can provide that are already deemed FBT exempt, such as work-related items like laptops, computer software and mobile phones.  

Some of the circumstances the ATO has advised businesses to be wary of include:

• Garaging a business vehicle at an employee’s residence; this may be deemed a car fringe benefit

• Contributions an employee makes to reduce the taxable value of a fringe benefit are assessable income for income tax purposes and are also possibly taxable supplies for GST purposes

• If employees have incurred any fuel and oil expenses they must provide the employer with a declaration to substantiate these expenses

Five expenses you can’t claim as a tax deduction

As the countdown begins to Australia’s tax return lodgment date, many individuals in the country may be hurrying to find a few extra possible tax deductions to claim.

However, in the rush before the deadline, it is important not to waste time claiming deductions for expenses or items that are commonly thought of as tax deductible, but are knocked back by the ATO.

Volunteer work
Individuals cannot claim tax-deductions for expenditures while volunteering for charities or other not-for-profit organisations e.g. petrol used when driving out to help community efforts.

Police clearance and record checks
While some checks are required as a prerequisite to secure certain types of employment, the cost of these checks are not allowable deductions (the reason being that the cost is incurred at a point that is too soon to be associated with the employment income).

Vaccinations
Individuals, even those who work for certain airlines, cannot claim deductions for the cost of vaccinations against diseases they may come in contact with during the course of earning an income.  

Driver’s licence
Even if it is a condition of a person’s employment, the cost of a driver’s licence is not an allowable deduction.

Eviction of a tenant
Expenses incurred by rental property owners when raising eviction proceedings against a tenant are not allowed as a tax deduction to the property owner.

Small business company tax rate reduced

The small business company tax rate has been reduced from 30 per cent to 28.5 per cent. The new lower rate applies to small businesses that are corporate unit trusts and public trading trusts.

When completing company tax returns, use the new rate of 28.5 per cent on calculation statements at label T1 – Tax on taxable or net income. The franking credit cap has remained unchanged at 30 per cent, and still applies to those eligible for the reduced company tax rate of 28.5 per cent.

ATO advice for SMSFs with related-party loans

The ATO has recently provided recommendations for self-managed super funds (SMSF) trustees with related party LRBAs that are lodging before the 31 January 2017 compliance deadline.

The Tax Office stated that the relevant income of an SMSF is considered NALI (non-arm’s length income), and should be reported as such in the SMSF’s 2016 annual return, when trustees have:

• taken no action to ensure any LRBA in their fund is on terms consistent with an arm’s length dealing and;

• not made the required catch-up payments at the time of lodgement of its 2016 SMSF annual return

Prior to 31 January 2017, the Tax Office will not be allocating compliance resources to review the borrowing terms of a fund’s LRBA. Therefore, provided the LRBA in an SMSF is consistent with an arm’s length dealing and the required catch-up payments are made by 31 January 2017, the fund is not at risk of ATO enforcement action.

Strict consequences, such as ATO compliance and enforcement action, await SMSF trustees who do not ensure that any LRBA in their fund is on terms consistent with an arm’s length dealing and if catch-up payments are not made by 31 January 2017.

Where the necessary action has not been undertaken by 31 January 2017, SMSF trustees must take immediate action to amend any previously lodged 2016 SMSF annual return if it did not correctly report relevant income as NALI.