Regulatory Roundup – Aug 2016

New areas and items covered by Tax Time 2016 pre-filling service

The ATO advices that use of the pre-filling service will ensure that information provided is cross-checked with data that it already holds. This is one way to help ensure the accuracy of returns. But there are also new areas and items covered by Tax Time 2016 pre-filling service.

The ATO advices that the pre-filling service for Tax Time 2016 includes the following updates:

– removal of taxpayer gender information

– more statement-of-distribution data reported from partnerships

– consolidation of capital gains fields and new transfer of trust income data from managed funds

– new foreign source investment income data

– exploration credits reported by companies as dividends will display as tax offsets

– removal of Medicare benefit tax statement due to the net medical expense tax offset phase-out

– removal of account holding type and employee identifier for employee shares schemes, and new messages for some employees with overseas employment periods

– changes to ATO interest due to simplified data capture

– closing stock will be included in prior-year individual tax return data

– myDeductions data that your clients upload will be accessible in your Standard Business Reporting-enabled software, through the Practitioner lodgment service

– data availability for your ATO clients

– improved display of information.

Also remember that the pre-filling service only reflects the information received by the ATO at the date a request for the data is made. It says it expects most pre-filling information to be available by mid August.

 

 

Cash economy: The taxman has his own idea about “living expenses”

The ramifications of Australia’s “cash economy” is a pebble in the ATO’s shoe that it is constantly looking to dislodge. And the taxman has his own idea about what constitutes “living expenses”.

One of the tools that it has developed to achieve this is a set of guidelines looking at an average taxpayer’s household expenses. The ATO has made these guidelines available to the public to allow taxpayers to:

– assess their potential for being selected for an audit

– work out if they need to make adjustments to their expenditure and record keeping.

The ATO says its guide “explains the importance we place on examining taxpayers’ household expenditure when seeking to identify unreported cash income in the course of reviews or audits”.

There are two case study guides that the ATO has published: A “concise” sample (view it here) and a “comprehensive” sample (view this here). Scroll up to read the example taxpayer case studies these guides are based on.

The ATO has also provided sample worksheets for personal living expenses (see below to download). These have been developed from feedback from the wider taxpaying population, and detail the type of information the ATO looks for when examining average household expenditure. Of course the ATO says that in the course of an audit it may seek even more detail.

There is a sample “concise personal living expenses worksheet” (download a copy here), which shows an overview of household incomings and outgoings. There is also a “comprehensive personal living expenses worksheet” (here’s the link to download this), which provides a more in-depth analysis.

The ATO states that by comparing annual household funds and expenditure, taxpayers and their tax agents can assess if their declared income will be deemed enough to support their actual lifestyle.

 

Fuel tax credit rate changes (from July 1).

The ATO advises that on July 1, 2016, fuel tax credit rates for heavy vehicles that use taxable fuel such as diesel or petrol, and travel on public roads, increased to 13.6 cents per litre due to a decrease in the road user charge.

Biodiesel and fuel ethanol manufactured in Australia changed due to excise duty rates taking effect for biofuels.

See here for all the latest fuel rates.

The ATO says eligible business owners will need to apply the correct rate when they calculate the fuel tax credit claim on business activity statements.

Fuel tax credit rates are indexed twice a year in line with the consumer price index. This occurs in February and August.

 

Simplified fuel tax credits

The ATO also reminds business principals that if they claim less than $10,000 in fuel tax credits each year, they can now choose simpler ways to keep records and calculate claims.

For the BAS period ending March 31, 2016 and onwards, you can:

– use one rate in a BAS period – the rate that applies at the end of the BAS period

– work out your litres based on the cost of the fuel you purchased.

You can choose to use either or both of these methods that best suits your needs and can change them at any time. The ATO says a business does not need to register or advise it that you are using these methods.

It also advises that there are a range of documents that can be used to substantiate claims (which need to be kept for five years). Accepted documents can include:

– contractor statements

– financial institution business credit/debit account statement

– financial institution personal credit/debit account statement

– point-of-sale docket

– fuel supplier statement or invoice.

Also see:

– Fuel tax eligibility tool

– Fuel tax calculator

 

Feeling financial strain? Could REALLY do with that tax refund? Read on…

If you’re going through a bit of a hard time financially, but have your fingers crossed for a tax refund this year, the ATO may be able to push your refund payment along.

Applying to have your refund processed as a priority because of serious financial hardship could see it get through the taxation system within seven working days, if everything goes smoothly, says the ATO.

It does mention however that turnaround times may be affected if you have liabilities with other government agencies such as Centrelink or the Child Support Agency, or it could take longer if more than one year’s return is involved.

What is serious financial hardship?
The ATO says a person is considered to be in serious hardship when they are unable to provide for themselves, their family or other dependants with regard to:

– food

– accommodation

– clothing

– medical treatment

– education, and

– other basic necessities.

Factors contributing to serious hardship generally include family tragedy, financial misfortune, serious illness, impacts of natural disasters, and other serious or difficult circumstances.

What you need to apply
To apply, see this ATO web page to find out more. You will need your tax file number on hand, but also some documents that will prove your case. These can include:

– eviction notice

– disconnection notice

– notice of legal action

– letter from a charitable organisation

– bank notice (eg, overdraft call)

– medical bills

– letter from a doctor or legal practitioner

– final notice from a school

– funeral expenses, and

– repossession notice.

Businesses can provide:

– current bank notice

– bank notices, eg overdraft call

– eviction notice

– disconnection notice

– repossession notice

– notice of impending legal action

– staff pay records

– contract payment schedules

– legal documents.

The ATO says that it takes many factors into account when assessing your claim for serious financial hardship, and that providing one or more of the pieces of evidence listed above may not necessarily result in you being granted serious financial hardship status.

 

 

Got a carry-forward tax loss burning a hole in your business’s pocket?

Business owners would be well advised to not get too creative if you’ve thought how handy it would be to absorb a business loss as a tax deduction for a future income year.

The tax law has measures in place to ensure such deductions are limited to those businesses that are legitimately eligible — such as the continuity of ownership and the same business tests. But there is another “integrity” measure that may result in a denial of a claim for losses that business owners should keep in mind.

The ATO has the discretion to disallow the deduction of a tax loss if, during the relevant income year, the business attempting to make such a claim earned assessable income (or realised a capital gain) that would not have been derived had the loss been unavailable as a deduction (our emphasis, and see more details here).

There is some balance to the rules in that the Commissioner of Taxation is “prevented” from disallowing the deduction should “continuing shareholders” stand to benefit from the relevant income. However there is still a fair amount of discretion left to the Commissioner in how the business loss rules are applied (see more here).

In other words (and of course circumstances of the business or businesses involved will have an influence), a business can mitigate the risk that the ATO will exercise this discretion to disallow a tax loss deduction by making sure that either (or preferably both) of the following contentions are supported:

– that the business would have derived the income or realised the capital gain regardless of the tax loss being available

– that continuing shareholders will benefit from the above in a fair and reasonable manner with regard to their rights and interests.

Tax professional advice is recommended if a business would like to pursue these type of tax deductions.

 

 

Using the small business benchmarks

The ATO has a database of “small business benchmarks” against which it compares lodged information. But business owners can also benefit by using the small business benchmarks to compare their own performance.

It says the small business benchmarks:

– are calculated from income tax returns and activity statements from more than 1.3 million small businesses and are verified as being statistically valid by an independent organisation

– account for businesses with different turnover ranges (up to $15 million) across more than 100 industries, and

– are published as a range to recognise the variations that occur between businesses due to factors such as location and the businesses circumstances.

Anecdotally however, many tax practitioners do not consider these ranges to be realistic enough.

A large deviation from benchmark data (particularly if it is in the taxpayer’s favour, for example comparatively high operating costs) is prima facie more likely to attract ATO review.

The current benchmark information relates to 2013-14. This is the latest available data, and was released on June 24, 2016.

See this ATO web page for benchmarks A to Z (by industry type). The ATO says the small business benchmarks are financial ratios to help compare a business’s performance against others in the same industry. It also uses them as a guide on industry trends to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income. Interested business owners can see this page to check how their own business is performing in relation to the ATO’s benchmarks.

Note also that the ATO app for smartphones (from Google Play, the Windows Phone Store or the Apple App Store) has a Business performance check tool. Business operators or their advisers can use the tool to check their business’s 2015-16 financial performance against already available benchmark data.

 

 

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