Are you meeting the Active Asset Test?

To qualify for small business CGT concessions, an asset must meet the conditions of the Active Asset Test to apply. An asset is considered active when you own it and it is used or held ready for use in relation to a business. You can also have an intangible active asset if it is inherently connected with a business you carry on.

An active asset of yours has been held for a certain amount of time, based on how long you have owned the asset and the test period to meet the requirements of the Active Asset Test. The test period begins when you acquired the asset, and ends at the earlier of

• the CGT event, or;
• when the business ceased, if the business in question ceased in the 12 months before the CGT event.

Assets owned for over 15 years need to have been held for at least 7.5 years within the test period and assets owned for 15 years or less need to have been held for at least half of the test period to satisfy requirements.

When the assets are shares or trusts, passing this basic active asset test is not enough to qualify for CGT concessions. In addition, the asset will need to pass a further test, called the 90% test, to determine whether it is to be counted as an active asset or not. The test is satisfied if CGT concession stakeholders in the company or trust in which the shares or interest are held have a total small business percentage in the entity claiming the concession of at least 90%.

The periods in which the asset is active does not have to be continuous, however, they must total the minimum periods specified. An asset does not need to be active just before the CGT event.

New industries included under TPAR 

The taxable payment reporting system (TPRS) has extended to further businesses that provide particular services and those that pay contractors to provide the service. The extension was approved on 1 July 2019.

Road freight services, information technology services and security, surveillance and investigation services will now have to lodge taxable payments annual report (TPAR), even if those services only make up part of the business. Contractors can include subcontractors, consultants and independent contractors.

For these businesses, the first TPAR will be due on 28 August 2020. This will be for payments that have been made to contractors in the 2019–20 financial year for providing the relevant services. Business owners will now need to keep records of contractor payments made from 1 July 2019.

Exemptions from TPRS reporting obligations apply if payments received are less than 10% of the entity’s GST turnover in the following industries:

• Courier services and road freight services (combined).
• Cleaning services.
• Security, investigation or surveillance services (combined).
• IT services.

Businesses that are not required to lodge should complete a TPAR Not Required to Lodge form for the ATO to update their records, preventing any unnecessary follow up.

What is a CGT event?

Capital Gains Tax (CGT) events occur when an individual or company makes a capital gain or capital loss by selling or disposing of an asset they own. The timing of a CGT event is quite important, as it determines which income year an individual will report the capital gain or capital loss, and may affect how their tax liability is calculated.

CGT events can happen when:

• Selling or giving away an asset.
• The destruction or loss (voluntary or involuntary) of a CGT asset.
• Receiving compensation for the loss, destruction or compulsory acquisition of a CGT asset.
• The disposal of a depreciating asset used for non-taxable (private) purposes.
• Capital distributions to company shareholders or unitholders in a unit trust or managed fund.
• Shares or units being cancelled, surrendered, redeemed or declared worthless.
• You stop being an Australian tax resident.
• You enter into an agreement not to work in a particular industry for a set period of time
• A trustee makes a non-assessable payment to you from a managed fund or other unit trusts.
• A company makes a payment (not a dividend) to you as a shareholder.

When a CGT asset is disposed of, the CGT event usually takes place when a contract for disposal is entered into or when an individual is no longer the owner of the asset. Cases where a CGT asset is lost or destroyed, the CGT event will happen when the owner of the asset receives compensation for the loss/destruction or when the loss is discovered/when the destruction happened.

Reestablishing lost or damaged records

Taxpayers are responsible for safely storing a written backup copy of their tax record in case the original electronic form becomes inaccessible or unreadable. In the event that your records have been damaged or destroyed, there are a number of ways you can reconstruct them.

Where the tax records are accidentally lost or destroyed from a burglary or fire, the ATO will allow a taxpayer to claim a deduction for certain expenses, provided that:

• The taxpayer has a complete copy of a lost or destroyed document.
• The ATO is satisfied that the taxpayer took reasonable precautions to avoid the loss or destruction of the form. If the tax record was a written document, it is not reasonably possible to attain a substitute document.
• Taxpayers keep a record of these circumstances and inform the ATO in writing to back up the claim.

The ATO holds and can re-issue or supply copies of tax documents, such as:

• Income tax returns.
• Activity statements.
• Notices of assessment.

If you have lost your TFN, you can still access your tax information by phoning the ATO. They will allow for other information to verify identity, such as an individual’s date of birth, address or bank account details.

If you are unable to substantiate claims made in your tax returns or activity statements because records have been lost or destroyed, the ATO can accept the claim without substantiation, where it is not reasonably possible to obtain the original documents.

Non-compliant payments to workers no longer tax deductible

Businesses can no longer claim deductions for payments to workers if they have not met their pay as you go (PAYG) withholding obligations. This applies to income tax returns lodged for the 2020 income year onwards. Any payments made to a worker where PAYG amounts haven’t been withheld or reported are called non-compliant payments.

If PAYG withholding rules require an amount to be withheld, businesses will need to:

• Withhold the amount from the payment before they pay their worker.
• Report that amount to the ATO.

Businesses will not lose their deduction if they:

• Withhold an incorrect amount by mistake. To minimise penalties businesses can correct the mistake by lodging a voluntary disclosure form.
• Withhold the correct amount but make a mistake when reporting, though mistakes should be corrected as soon as possible.
• Fail to report payments on a Taxable payments annual report (TPAR) or a payment summary annual report (PSAR).

Businesses will only lose their deduction if no amount is withheld or reported to the ATO unless voluntarily disclosed before the ATO examine their affairs. Businesses that don’t comply with PAYG withholding and reporting obligations may lose the deduction for that payment and face penalties that apply for failure to withhold and report amounts under the PAYG withholding system.

FBT car parking threshold changes

The ATO has released the Taxation Determination 2019/9, which outlines changes to the fringe benefits tax (FBT) car parking threshold.

The car parking threshold for the year commencing on 1 April 2019 is $8.95. This replaces the amount of $8.83 which applied to the FBT year ended 31 March 2019. The increase has been set by adjusting the previous year amount by a factor equivalent to the movement in the Consumer Price Index (1.3%).

Section 39A of the Fringe Benefits Tax Assessment Act 1986, sets out a number of conditions that must be met before car parking facilities provided by an employer to their employees will be subject to FBT. These conditions include:

• A commercial car parking station is located within a one-kilometre radius of the employer-provided car park.
• The lowest fee charged by the car park operator is more than the car parking threshold.
• The car is parked for more than four hours between 7 am and 7 pm on any day.

There are circumstances where car parking benefits are exempt from FBT. These exemptions may apply to:

• Employers who meet the conditions of a small business entity.
• Institutions of certain research, education, religion and charity.
• Employees with a disability (irrespective of the type of employer).

New ATO toolkit helps small businesses get expenses right

The ATO has developed a new toolkit that helps small business owners to understand their entitlements and avoid mistakes in their tax returns.

The 2019 Tax Time Toolkit Small Business covers information about:

• Three of the most common expenses: home-based business, motor vehicle, and business travel.
• Single Touch Payroll (STP) for small employers.

These toolkits are designed to highlight areas that small businesses may struggle with at tax time. Subjects include:

• Information about claiming deductions for home-based business expenses.
• Types of motor vehicle expenses that you can claim.
• The importance of accurate record keeping.
• How to differentiate between business and private use.

One of the factsheets, in particular, provides options and support for employers using STP. Some of the important topics outlined in the fact sheet include:

• What information you need to report and when you need to report it.
• How to correct the amounts reported.
• The changes to payment summaries.
• Information you need to provide to your employees.
• Available exemptions.

As it is common for there to be confusion around these topics, taking the time to understand your obligations as a business owner can streamline the returns process and help to ensure correct reporting.

Be wary of unregistered tax preparers

The Australian Taxation Office (ATO) is warning taxpayers to keep an eye out for people posing as tax agents who are not registered with the Tax Practitioners Board (TPB). Only a registered tax agent can charge a fee to prepare and lodge your tax return.

There are concerns from the ATO about the number of people claiming to be tax agents, often promising refunds that sound too good to be true, or providing discounted services much cheaper than registered, legitimate tax agents. Unregistered preparers will often use a taxpayer’s personal login details to access their ATO Online account through myGov to lodge tax returns.

To protect yourself from a large tax bill or from facing penalties, check that your tax agent is registered on the TPB website or ask to see their Certificate of Registration of Tax Agent. Protecting your myGov login details and password will also ensure safety as a legitimate tax practitioner will never ask for your myGov credentials. Registered tax agents can access the information they need themselves through ATO online services dedicated to lodging returns for their clients.

Individuals should also be aware that if you use an unregistered tax or BAS agent and they are negligent, you will not be protected under the safe harbour provisions set out in the Taxation Administration Act 1953.

New tax toolkit for rental property owners

The ATO has developed a new rental property owners toolkit for property investors to ensure that mistakes are avoided in their tax returns.

Each year, the tax office identifies fairly common mistakes being made with tax claims made in regard to investment properties. In a recent review of individual tax returns, nine out of 10 taxpayers with a rental property were found to have made a mistake in their tax return.

The newly developed toolkit focuses on areas were mistakes are most commonly being made. These include:

• Renting out a room, a unit, or a whole house on an occasional basis through the sharing economy (such as Airbnb).
• Repairs, maintenance and capital expenditure.
• Any borrowing expenses incurred when taking out a rental property loan.
• Interest on a loan that is taken out to purchase a rental property.

Fact sheets within the toolkit are also available to be downloaded individually. The toolkit is designed to assist rental property owners to get the information they need in order to lodge correctly and to avoid any lodgement mistakes in the future.

What is replacing AUSKey?

The ATO is developing new online services systems as AUSKey will be retired in March 2020

Replacing AUSKey will be myGovID and Relationship Authorisation Manager (RAM).

MyGovID is an authentication service that will allow individuals to prove who they are online. This system will work by establishing your identity once online and then using your myGovID credentials to access government services you need online.

Relationship Authorisation Manager (RAM) is an authorisation service that allows you to link your myGovID to an ABN, managing authorisations across government services, for businesses and their staff. RAM gives you the ability to add multiple businesses, access the business portal on behalf of multiple businesses, modify authorisations, customise and delegate the level of business authorisation for employees and nominate who can act on behalf of your practice.

MyGovID and RAM are currently available in a public beta for eligible businesses to access the ATO Business Portal and will soon be available for online services for agents. AUSkey can still be used to access online ATO services while myGovID and RAM are being developed.

The ATO advises that in preparation for the changes you check your ABN details are up-to-date in the Australian Business Register (ABR).