2016 tax return forms released
The ATO has released the 2016 tax return forms with accompanying instructions. Individuals, partnerships, trusts and companies can now access these forms and begin their compliance work for the 2015/16 period. The ATO will begin to process returns on 8 July 2016 and they have indicated that they will seek to begin paying refunds from 18 July 2016. The ATO has indicated it hopes to achieve a 12 business day turnaround period with respect to most electronically lodged returns.
GST registration threshold for body corporates
The ATO has released Interpretative Decision ID 2016/1, which outlines the requirements that a body corporate entity needs to satisfy in order to be considered a non-profit body for the purposes of the GST registration turnover threshold in section 23-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This document states that it must be clear from the objects, policy statements, history, intention, activities and proposed future directions of the body corporate that there will be no distributions to the entity’s members. The ATO has stated that a return of members’ own funds will be seen as a return of capital, rather than a distribution of profits. Where an entity satisfies this requirement the GST registration turnover threshold, which dictates when an entity must register for GST, will rise from $75,000 to $150,000.
ATO tips in preparation for tax time
In anticipation of tax time, the ATO has provided advice to tax professionals, including:
- Before lodging, consider issues such as residency, foreign income, work-related expense claims and check for common errors.
- After lodging, provide relevant information to clients to manage their expectations.
Further, the ATO has provided an overview of the key changes to be aware of when preparing tax returns, some of which include:
- simplified depreciation for small businesses
- accelerated depreciation for primary producers
- company tax cuts for small businesses
- immediate deductions for start-up costs
- small business income tax offset
- new laws for managed investment trusts
- increasing access to company losses.
ATO focus for 2016 tax year
Rental property deductions
The ATO has recently announced that it will be focusing on excessive interest claims and the incorrect apportionment of rental income and expenses, between multiple owners of rental properties. They will also be looking at deductions that are claimed in relation to rental properties, that are not genuinely available for rent at the time the expense was incurred. Lessors must also apportion these deductions to ensure that they take into account any private use of the property and we encourage you to keep detailed records of any claims you make. The ATO website provides a short series of rental property videos which provide an overview to the various issues you may face as the owner of a rental property.
The ATO has recently announced that it will be focusing on work-related deductions that are higher than expected. For the first time ever the ATO will be checking taxpayers’ deductions in real time as they complete their online tax returns. Where claims are substantially higher than others in a similar profession, this will flag to the ATO that they may be overstated. Where the ATO believes expense amounts are suspiciously high, they will contact employers to check these deductions are correct.
The ATO has encouraged taxpayers to keep three key considerations in mind when lodging their tax returns:
- You must have personally spent the money and were not reimbursed by your employer.
- The expense must have actually been related to your job.
- You must keep accurate records of all your claims.
Legislation and government policy
Victorian Budget Bill passes the Lower House
The State Taxation and Other Acts Amendment Bill 2016, which seeks to enact certain changes announced in the Victorian Budget, including:
- raising the foreign purchaser stamp duty surcharge from 3% to 7%
- raising the absentee owner land tax surcharge from 0.5% to 1.5%
- extending the primary production exemption to land tax, where the land is owned by certain superannuation trusts
- raising the payroll tax-free threshold from $550,000 to $650,000 over the next four years
- introducing a payroll tax exemption for wages paid to a displaced apprentice or trainee.
For a look at these and further changes to Victorian taxation laws, please refer to our earlier publication Talking Tax Issue 33.
Commissioner’s proposed remedial power – Regulation Impact Statement released by Treasury
The Tax and Superannuation Laws Amendment (2016 Measures No 2) Bill 2016 proposed to provide the Commissioner of Taxation with a power to remedy tax laws to ensure they apply as intended in more circumstances. While this Bill has lapsed by virtue of the dissolution of both Houses of Federal Parliament, a Regulation Impact Statement (RIS) released by Treasury, discussing this remedial power, has been assessed as compliant with best practice by the Office of Best Practice Regulation (OBPR).
The purpose of the remedial power is to allow the Commissioner to deal with unintended outcomes in the application of the taxation law. The key concern relates to the potential Constitutional separation of powers issues which may arise. However, the RIS anticipates that the creation of the remedial power will not change the current regulatory burden, and will provide greater certainty and confidence in the administration of the taxation system. The OBPR has agreed with these predictions.
Mandatory disclosure rules – Treasury releases discussion paper
In the 2016/17 Federal Budget, the Government proposed the introduction of Mandatory Disclosure Rules (MDRs) requiring tax advisors and/or taxpayers to disclose aggressive tax arrangements to the ATO. The proposed MDRs adopt the recommendations made in Action Item 12 of the OECD’s Final Report on Base Erosion and Profit Shifting. The purpose of the MDRs is to increase transparency and to assist the ATO in targeting tax avoidance, without placing unnecessarily burdensome obligations on taxpayers and tax advisers.
On 3 May 2016, Treasury released a Consultation Paper which outlines how the MDRs will operate and discusses a number of key issues. The following are some of the key points highlighted in the paper:
- The burden will be placed primarily on the tax advisers who are responsible for the design and implementation of relevant aggressive tax arrangements.
- The ATO should be given broad discretion to determine the types of arrangements it believes are ‘aggressive’ (however it is unclear whether the MDRs will be triggered automatically based on a definition of ‘aggressive tax arrangement’ or whether they will have no effect unless and until the ATO takes some action in the form of publishing something akin to a Taxpayer Alert).
- The information that is required to be disclosed should be clearly specified in the MDRs.
- The ATO should be given discretion in regards to imposing a timeframe for disclosure, but this should not be less than 90 days.
- Non-compliance with the MDRs will result in monetary tax penalties for the tax adviser.
The Government has stated that the purpose of the Consultation Paper is to seek community views on how the MDRs should be framed in Australia. The consultation submission deadline is 15 July 2016.
ASIC announce relief for new AMIT regime
ASIC has recently announced it plans to issue a legislative instrument (formerly known as a Class Order) allowing registered funds to make changes to their constitutions, in order to enter the new Attribution Managed Investment Trust (AMIT) regime, without holding unit holders’ meetings. The AMIT regime was enacted on 5 May 2016 and is discussed in detail in our earlier publication New AMIT Rules.
The main requirement in obtaining the relief is that the responsible entity making the changes must advertise the proposed changes on their website and allow unit holders 7 days in which to request a unit holder meeting. If you wish to opt in to the AMIT regime, you will need to take appropriate steps before 30 June 2016. To see what is required of you before this date, see our earlier publication.
ACT Budget 2016/17
The Australian Capital Territory’s 2016/17 Budget was handed down on 7 June 2016. The Budget includes new tax measures as well as some that add to those introduced in previous years. The first stage of the ACT’s 20-year tax reforms, as introduced in 2012, will be achieved under this Budget. The second five-year stage of reform starts in 2017/18.
Significant measures introduced under the Budget include:
- increasing the payroll tax free threshold from $1.85 million to $2 million, while the payroll tax rate will remain at 6.85%
- abolishing the duty on general insurance from 1 July 2016
- a reduction in the conveyance duty rates and thresholds
- reducing the early payment discount to 2% and increasing the general rates
- raising the Ambulance Levy and Fire and Emergency Services Levy
- introducing the Safer Families Levy.
Tax Governance for privately owned groups
The ATO has announced that it expects private groups to have in place effective tax governance practices to identify and manage tax and superannuation risks. The right governance for your business will depend on a range of factors, including its size, complexity, history and culture.
The ATO have released a practical guidance which sets out guiding principles and examples of tax governance practices that businesses can, with the help of their tax advisers, incorporate into their overall governance framework. This guidance is structured around major events in the business lifecycle, highlighting the tax governance issues that accompany these events and the associated tax risks that commonly attract the ATO’s attention.
The ATO expects to see private group taxpayers engaging in tax governance practices in areas such as:
- starting a business
- business expansion
- funding and finance
- succession planning
- estate planning
- exiting a business.
For example, in relation to starting a business the ATO stresses the importance of choosing an appropriate business structure and understanding the responsibilities that attach to it.
Investing in effective tax governance that supports appropriate tax outcomes can influence your tax profile with the ATO, with the potential to save you time, money and effort. We can help private group taxpayers meet the ATO’s requirements in this regard.
This article was written with the assistance of Todd Bromwich & Cameron Forsyth, Law Graduates.