What's Inside

1. New data breach laws come into effect

The new data breach rules- who is affected and what you need to do.

2. Directors on 'hit list' for not paying employee super

New legislation will give the ATO the power to seek criminal penalties for Directors who fail to pay superannuation guarantee.

3. What's changing in 2018

The changes coming in from 1 January 2018.

New data breach rules in effect from 22 February 2018 place an onus on business to protect and notify individuals whose personal information is involved in a data breach that is likely to result in serious harm.

In October last year, almost 50,000 employee records from Australian Government agencies, banks and a utility were exposed and compromised because of a misconfigured cloud based ‘Amazon S3 bucket’. AMP was reportedly one of the worst affected with 25,000 leaked employee records. ITNews reports that the data breach was discovered by a Polish researcher who conducted a search for Amazon S3 buckets set to open, with “dev”, “stage”, or “prod” in the domain name. One contractor appears to be behind the breach.

In October 2016, the details of over half a million Red Cross blood donors were inadvertently exposed after a website contractor created an insecure data backup. In the US, a massive data breach exposed the credit records (including social security records) of over 145 million Americans – all because an IT worker didn’t open an email about a critical patch for their software.

Regardless of how good your existing systems are, data breaches are a reality either through human error, mischief, or simply because those looking for ways to disrupt are often one step ahead. But it’s not all about IT, there have been numerous cases of hard copy records being disposed of inappropriately, employees allowing viruses to penetrate servers after opening the wrong email, and sensitive data on USBs lost on the way home.

Who is covered by the data breach scheme?

The Notifiable Data Breach (NDB) Scheme affects organisations covered by the Privacy Act - that is, organisations with an annual turnover of $3 million or more. But, if your business is ‘related to’ another business covered by the Privacy Act, deals with health records (including gyms, child care centres, natural health providers, etc.,), or a credit provider etc., then your business is also affected (see the full list). Special responsibilities also exist for the handling of tax file numbers, credit information and information contained on the Personal Property Securities Register.

What you need to do

It’s important to keep in mind that complying with these new laws means more than notifying your database when something goes wrong. Organisations are required to take all reasonable steps to prevent a breach occurring in the first place, put in place the systems and procedures to identify and assess a breach, and issue a notification if a breach is likely to cause ‘serious harm’.

Taking all reasonable steps – assessing risk

The Privacy Act already requires organisations to take all reasonable steps to protect personal information. The new data breach laws merely add an additional layer to assess breaches and notify where the breach poses a threat. For example, if you have not already, you should assess issues such as:

How private information is handled by your business across its lifecycle and who has access at each stage (not just who is accessing the information for their work but who ‘could’ access this information)Possible impacts on an individuals’ privacy (risk assessment)The policies and procedures in place to manage private information, including risk management and mitigation, whether these are adhered to, and actively managedThe policy review process - review policies and procedures at least annually but again with the introduction of new systems and technology. Remember, you can’t just have a policy sitting somewhere, it needs to be actively reinforced and adopted by team membersInstate new project protocols for ensuring privacy where personal information is at riskDocument everything including your reviews and procedural updates even if nothing changed. If there is ever an issue where your business’s culpability is assessed, your capacity to prove that you took all reasonable steps will be important.

When it comes to data breaches, all organisations must have a data breach response plan. The data breach plan covers the:

Actions to be taken if a breach is suspected, discovered or reported by a staff member, including when it is to be escalated to the response teamMembers of your data breach response team (response team), andActions the response team is expected to take.

The Office of the Australian Information Commissioner provides a sample breach response plan.

Identifying a serious breach

So, what is a serious breach? A breach has occurred when there is unauthorised access to or disclosure of personal information or a loss of personal information that your business holds. Whether a breach is serious is subjective but may include serious physical, psychological, emotional, financial, or reputational harm. If a breach occurs, you need to think through how that information could be used for identity theft, financial loss, threats to physical safety (for example someone’s home address), job loss, humiliation or reputational damage, or workplace bullying or marginalisation.

If you suspect a breach has occurred, your business is obliged to take “reasonable” and “expeditious” action regardless of whether you think it is serious or not (under the NDB scheme you have a maximum of 30 days to assess the damage and respond but in general, the first 24 hours is often crucial to the success of your response). Ignorance is not a defence. A lack of systems to identify system breaches fails the Privacy Act’s requirement to take all reasonable steps to protect personal information. As soon as a breach is identified anywhere in the business, whether it is IT based or physical, steps need to be taken - even if it is simply noting that no further action is required.

If you suspect a data breach has occurred that may meet the threshold of ‘likely to result in serious harm’, you must conduct an assessment. Sounds simple right? But the problem for business is often that there are initially no definitive answers about the extent of a breach or its seriousness for the assessment to take place. Take the example of a retail business with an online store. A hacker exploiting an unpatched vulnerability in your customer relationship management (CRM) system gains access to the customer database for your online store, which includes customer purchase histories and contact details. IT calls you and tells you there is a problem but can’t tell you how, what customer records are affected, and if the records have been compromised. You don’t want to scare your customers by advising of a breach but you don’t the impact yet. What do you do? The first step is generally to contain the damage - isolate or shutdown the affected system to prevent further potential loss - then assess the scenario quickly – not just because of the NDB scheme but because your business’s reputation is on the line.

Notifying a breach

If a breach is assessed to potentially result in serious harm, you are obliged to advise affected individuals and the Australian Information Commissioner. You have the option to:

Notify all individuals whose personal information is involved in the eligible data breachNotify only the individuals who are at likely risk of serious harm; orPublish your notification, and publicise it with the aim of bringing it to the attention of all individuals at likely risk of serious harm.

You advise the Australian Information Commissioner of a serious potential breach using the Notifiable Data Breach statement — Form.

And it’s not just Australia. Does your business have international connections?

Data breaches are common and many countries have moved to ensure that the personal information of individuals is protected. If your business operates overseas or has customers overseas you need to be aware of the requirements in those countries.

Most US states have compulsory data breach requirements. The European Union’s General Data Protection Regulation (GDPR) comes into effect from 25 May 2018. If you operate through a local distributor in the European Union or have direct supply into those countries then it’s likely your business will be caught by the Regulation.

Proposed legislation would see the ATO pursue criminal charges against Directors who fail to meet their superannuation guarantee (SG) obligations.

An analysis by Industry Super Australia submitted to the Economics References Committee into Wage Theft and Superannuation Guarantee Non-compliance, indicates that employers failed to pay an aggregate amount of $5.6 billion in SG contributions in 2013-14. On average, that represents 2.76 million affected employees, with an average amount of over $2,000 lost per person in a single year. The ATO’s own risk assessments suggest that between 11% and 20% of employers could be non-compliant with their SG obligations and that non-compliance is “endemic, especially in small businesses and industries where a large number of cash transactions and contracting arrangements occur.”

At present, under reporting or non-payment of SG is usually discovered when the employer misses the quarterly payment schedule or from the ATO’s hotline.

New legislation seeks to introduce a series of changes to how employers interact with the SG system and give some teeth to the ATO to pursue recalcitrant employers. The new rules, if passed by Parliament, generally come into effect from 1 July 2018.

The key changes include:

The ATO can force you to be educated about your SG obligations

At present, if an employer fails to meet their quarterly SG payment on time they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of:

The employee’s superannuation guarantee shortfall amount – so, all of the SG owingInterest of 10% per annum, andAn administration fee of $20 for each employee with a shortfall per quarter.

Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date.

And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings. An employee’s salary and wages may be higher than their ordinary time earnings particularly if you have workers who are paid for overtime.

Under the quarterly superannuation guarantee, the interest component will be calculated on an employer’s quarterly shortfall amount from the first day of the relevant quarter to the date when the SG charge would be payable.

Where attempts have failed to recover SG from the employer, the directors of a company automatically become personally liable for a penalty equal to the unpaid amount.

Under the proposed rules, the ATO will also have the ability to issue directions to an employer who fails to comply with their obligations. The Commissioner can direct an employer to undertake an approved course relating to their SG obligations where the Commissioner reasonably believes there has been a failure by the employer to comply with their SG obligations, and, of course, a direction to pay unpaid and overdue liabilities within a certain timeframe.

Criminal penalties for failure to comply with a direction to pay

Employers who fail to comply with a directive from the Commissioner to pay an outstanding SG liability face fines and up to 12 months in prison. Before hauling anyone off to prison the ATO has to consider the severity of the contravention including:

The employer’s history of compliance (superannuation and general tax obligations)The amount of unpaid super relative to the employer’s sizeAnd steps taken by the employer to pay the liability, andAny matters the “Commissioner considers relevant”.

The ATO will tell employees if an employer is under paying or not paying SG

The proposed new rules will allow the ATO to tell current and former employees about the failure (or suspected failure) of an employer to comply with their SG obligations. The ATO can also advise the employees what action has been taken by the ATO to recover their SG.

This disclosure cannot relate to the general financial affairs of the employer.

Extension of Single Touch Payroll to all employers

Single Touch Payroll – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – will be compulsory from 1 July 2018 for employers with 20 or more employees. Under the proposed rules, this system would be extended to all employers by 1 July 2019.

In addition, Single Touch Reporting will extend to the reporting of salary scarified amounts.

What’s changing in 2018?

1 January 2018

1 July 2018

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. We are here to help, contact us.

Santa’s Tax Crises

A light-hearted look at the complexity of Australian taxation laws.

Dear Santa,

Thank you for the opportunity to provide tax advice for your operation. We are pleased you have initiated this advice as the Australian Taxation Office (ATO) is looking closely at any business or individual that operates within Australia but has significant transactions or operations internationally. The fact that you run a global business that generates no profit but ‘gifts’ millions of toys each year produced by your offshore factory, have significant brand value in Australia across thousands of goods and services, have never lodged a tax return, or paid tax in Australia, is likely to trigger an investigation. We have identified a number of issues as a starting point for further discussions. These are:

Tax resident or non-resident?

We note that you have a secret Australian warehouse to aid distribution and Christmas Eve logistics across the region. The warehouse domiciled in Australia may mean that you have a permanent establishment in Australia, which could mean you are taxed in Australia on profits generated by the warehouse. As there is no Double Tax Agreement between Australia and the North Pole, it’s possible you will be subject to local tax laws in both countries. You might be able to claim a tax credit to help reduce the impact of double taxation. We note that this same situation is likely to apply in many countries not just Australia.

Representation in a particular country may also be enough to make your operation subject to local tax laws. You appear to have local agents - several thousand Santa representatives - with authority to operate on your behalf in shopping centres across Australia. These agents commit the operation with the promise of toys to millions of children. A local agent acting with authority may expose you to local tax laws. This is an issue that may extend well beyond Australia. This issue requires immediate formal assessment.

Santa’s little helpers. Volunteers, underpaid employees, or slave labour?

A review should be completed of the employment status of the ‘Santa’s little helpers’ based in Australia to determine if they are contractors or employees. If the helpers are deemed to be employees, you may be liable for the superannuation guarantee (SG) for this year (currently 9.5%) and previous years. If you have missed the SG deadline for any previous quarters then you would be subject to the superannuation guarantee charge, which means that interest and additional fees will be accumulating and you will not be able to claim a deduction for these amounts when they are paid. It will be difficult to argue that they are truly independent given the level of corporate branding involved. If the helpers are indeed ‘volunteers’ we will need to consult an employment lawyer regarding potential slave labour issues and discrimination of a minority group.

Importing goods into Australia

Goods imported into Australia with a value above $1,000 are subject to GST. As of 1 July 2018, the $1,000 threshold will be removed and all goods brought into Australia will potentially be subject to GST. With approximately 4,836,227 children in Australia on your list, averaging $40 per gift (we have made no allowances for they have been naughty or nice), we estimate that you will be liable for GST of approximately $19,344,908. We need to discuss tax structuring urgently.

Reindeers – beasts of burden?

If you are subject to Australian tax laws, a number of deductions may be available to you. Your flying reindeer for example are likely to be considered beasts of burden and as such can be depreciated as plant. However, a deduction is only available to the extent that the reindeer are used to produce income that is taxable in Australia.

Travel expenses

The ATO has increased its focus on the tax treatment of travel expenses. While it is important to ensure that you only claim deductions for expenses incurred in producing income that is taxed in Australia, maintaining adequate records of your expenses is crucial in defending your position in the event of an ATO review or audit.

There are currently no provisions within Australian tax law to allow the Commissioner the discretion to ignore your tax liabilities as a goodwill gesture. Please contact us urgently regarding these issues.

Thank you.

The tax law does not allow you to ‘flip’ a property tax-free even if you are living in it. Most people think that they can move in to a property, renovate it, and then sell it without paying tax. The main residence exemption - the exemption that protects your family home from tax - does not apply if your primary purpose is to ‘flip’ the property for a profit. The fact that you are living in the property does not mean it’s exempt from tax.

Some people reading this are probably thinking, but who is going to know? How can the Australian Taxation Office (ATO) really know what my intention is when I buy a property to live in? Generally, the ATO is looking for a pattern of behaviour or a declaration of intention. For example:

You are not employed and earn your income moving in, renovating then sellingYou have a pattern of renovating and selling propertiesYour loan documents on your mortgage suggest the property is for flipping and not for the long termYou go on national television stating that you are looking to move in, renovate and flip the property (hello The Block contestants).

The ATO’s guide on property is clear: “If you're carrying out a profit-making activity of property renovations also known as 'property flipping', you report in your income tax return your net profit or loss from the renovation (proceeds from the sale of the property less the purchase and other costs associated with buying, holding, renovating and selling it).”

People often make the assumption that any gain made from property flipping will be exempt from tax as long as the property is their main residence for the entire ownership period. However, this is only the case where the property is held on capital account. A property would generally be held on capital account if it is bought with the genuine intention of using it as a private residence or rental property for the foreseeable future and there is evidence to back this up.

The ATO indicates that someone who is renovating a property with the intention of selling the property again at a profit could be taxed on revenue account in which case the main residence exemption does not apply.

The guide identifies three main scenarios and the general tax implications:

Personal property investor – this is someone who purchases a property with the primary intention of using it as a long-term rental property or private residence. If this person undertakes renovations and then sells the property earlier than originally planned, then they should still generally be able to argue that the sale is dealt with on capital account, which means that the main residence exemption and/or Capital Gains Tax (CGT) discount could apply.Isolated profit making undertaking – this is someone who buys a property with the primary intention of carrying out renovations and then selling the property when the work is completed. Someone in this category is likely to be taxed on revenue account with no access to the main residence exemption or CGT discount.Business of renovating properties – this is someone who undertakes property-flipping activities on a regular or repetitive basis and where the activities are organised in a business-like manner. As with the category above, there is generally no access to the main residence exemption or CGT discount.

Just because you live in the property for all or part of the ownership period does not automatically mean that the profits from sale are exempt from tax. The main residence exemption can only reduce capital gains; it cannot reduce amounts that are taxed on revenue account.

What is the main residence exemption?

Generally, you do not pay CGT on the sale of your private home.

A full exemption should be available if the following conditions are met:

You are an individual who is selling a dwelling or an ownership interest in a dwelling;The dwelling has been your home for the entire ownership period;The dwelling has not been used to produce assessable income (i.e., rented out); andThe dwelling is situated on land that is 2 hectares or less.

In some situations it is possible to apply a full exemption even if you have not lived in the property for the entire ownership period or where the property has been rented out for a period of time. However, the rules can be complex and need to be analysed in detail to confirm the position.

If a full exemption is not available, it may still be possible to apply a partial exemption. The general 50% CGT discount can also be applied if you have owned the dwelling for more than 12 months (subject to your residency status).

Earlier this year the Government announced that non-residents and temporary residents would no longer able to access the main residence exemption (existing properties held prior to 9 May 2017 will be able to access the exemption until 30 June 2019). However, these proposed changes are not yet law and we are still waiting on the final version of the new rules to be released.

Whether a dwelling is your main residence is a question of fact. The following factors are often taken into account to help determine the issue:

The length of time you have lived in the dwelling;The place of residence of your family;Whether you have moved your personal belongings into the dwelling;The address you have your mail delivered;Your address on the Electoral Roll;The connection of services such as telephone, gas and electricity; andYour intention in occupying the dwelling.

Other tax and renovation issues

The main residence exemption is not the only issue that comes up with property flipping. Tax deductions for rental properties and renovating for profit inside an SMSF are common topics:

Can I claim a tax deduction for renovations on my investment property?

It is not generally possible to claim an upfront deduction for amounts spent on improving a property unless you are carrying on a business of buying, renovating and selling properties. If the property is held for long-term investment purposes then it is generally possible to claim a deduction for these costs over a period of time while the property is used to generate rental income.

Can I renovate a rental property owned by my SMSF?

An SMSF can renovate a property it owns as long as the money used to pay for the renovation is from money already within the fund. If the members pay for the renovation themselves (instead of using money in the fund), the renovation costs can create a contribution issue and the value could even be the improved value of the asset. The usual restrictions around a SMSF acquiring assets from a related party should also be considered, so the SMSF should pay for all the required materials for the renovations directly (or under an agency agreement) rather than reimbursing a related party for the expense.

Australia has followed the international trend of penalising foreign owners of Australian residential property who keep their property vacant for extended periods of time.

Last month Parliament approved legislation that imposes an annual vacancy fee on foreign owners of residential real estate if the property is not occupied or genuinely available on the rental market for at least 183 days in a particular 12 month period.

Foreign owners can avoid the fee by living in the property (or have a family member live in the property), leasing the property, or making it available for rent, for a total of 183 days in a 12 month period. A property is genuinely available for rent if it is made available on the rental market; advertised publicly; and, available at a market rent.

Interestingly, the law requires the property to be let for a minimum of 30 days – so short term rentals arranged through platforms such as AirBNB are not an option unless the rental period is 30 days or more.

If owners fail to comply with the new law the Government has the capacity to recover any outstanding fee as a debt and/or by the creation of a charge over Australian land owned by the foreign person.

The vacancy fee is equal to the initial foreign investment application fee (currently $5,500 for properties acquired for $1m or less). The vacancy fee can also apply even if the initial application fee was waived. A vacancy year generally starts at settlement when the property was acquired or in some cases when the occupancy certificate is issued for newly built dwellings. The new vacancy fee system only applies if the notice or application to acquire the property was submitted with the Foreign Investment Review Board on or after 7.30pm on 9 May 2017.

Importantly, a foreign person who falls within the scope of the rules will need to lodge a vacancy fee return with the ATO within 30 days of the end of the relevant 12 month period. If this obligation is not met then the owner is deemed to be liable to the vacancy fee, even if the 183 day occupation requirement was actually satisfied. The main exception to this is where the owner has disposed of their interest in the property before the end of a particular vacancy year.

The Uber Driver GST Surprise

As most people are now aware, Uber drivers need to register for GST by the time they complete their first drive. What many are unaware of however is that the GST registration applies to any other businesses that they run as a sole trader. Take the example of someone who has a micro business that turns over less than $75,000. Under GST law, the business owner is not required to be registered for GST and there should be no GST on the things they sell to customers. However, if this same micro business person starts driving for Uber, the GST registration applies not only to their Uber activities but to their micro business as well.

ACCC gets tough on credit card surcharge

The ACCC has issued a warning to businesses charging excessive credit card fees. One large merchant has already been issued with four infringement notices and has paid $43,200 in penalties.

The new rules, which came into effect from 1 September 2017, prevent merchants from charging more than the true cost of the transaction. As a guide, where a charge is imposed, the ACCC says that consumers should expect to pay around 0.5% to 1% for payment by debit card, 1% to 1.5% by MasterCard and Visa credit cards and 2% to 3% for American Express. Consumers are being encouraged to contact the ACCC if a business is charging more than what the ACCC expects.

Quote of the month

“Happy, happy Christmas, that can win us back to the delusions of our childish days; that can recall to the old man the pleasures of his youth; that can transport the sailor and the traveller, thousands of miles away, back to his own fire-side and his quiet home!"

Charles Dickens, The Pickwick Papers

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. We are here to help, contact us today.

Taxing Bitcoin

Cryptocurrencies, like Bitcoin, are independent and not regulated by any central authority. Until recently, these digital currencies were not treated in the same way as cash for tax purposes in Australia. New legislation passed by Parliament last month seeks to change all of that by removing GST from currency exchanges.

How are cryptocurrencies taxed?

Under GST law, a 10% GST applies to supplies of goods and services. Money receives special treatment because it’s a medium of exchange and not something for final private consumption. Up until recently, the Australian Taxation Office (ATO) took the view that cryptocurrencies did not meet the definition of ‘money’ because they have an independent value rather than being a debt, credit or promise to make a payment, and they don’t meet the definition of money under GST law. The impact was that when people used digital currencies as payment, this could trigger GST twice; once on the goods or services being purchased, and also on the supply of the digital currency to the other party. So, the Government has changed the definition of money for GST purposes from 1 July 2017. Now, trades of cryptocurrency are disregarded for GST purposes, unless the trade is for a payment of money or digital currency (for example you are in the business of trading cryptocurrencies). Cryptocurrencies are now taxed in a similar way for GST purposes to foreign currency.

But it’s not just GST to consider. Income tax and capital gains tax (CGT) issues might also arise in transactions involving cryptocurrency depending on how and why you are using it.

Individuals trading in cryptocurrencies

If you hold cryptocurrency for your own personal use and you paid $10,000 or less to acquire the digital currency, then there is generally no tax impact when you dispose of the currency. However, if the cryptocurrency is not held for your personal use and enjoyment then there are some tax issues that can arise.

If the cryptocurrency is held as an investment (i.e., not for personal use and enjoyment) or the cost is more than $10,000 then CGT might apply when you sell or exchange the currency. At the time of writing the price of Bitcoin was just under US$6,000 – up from just under US$1,000 at the beginning of 2017 (and just over $13 at the start of 2013). The taxing point for CGT purposes is normally when a contract is entered into. If there is no contact (which is often the case with digital currencies) the taxing point is when ownership changes.

The line between personal use and investment can be very thin. It will be difficult to argue that you hold cryptocurrency for personal use if you use it irregularly to purchase goods and services and you made a large gain from holding and trading it.

Businesses trading in cryptocurrencies

If your business accepts cryptocurrency as payment for goods or services, these payments are treated in the same way as any other. That is, if your business is registered for GST, the price paid by the person paying in the digital currency should include GST. Likewise, if you purchase goods or services for use in your business then you should generally be able to claim GST credits on the transaction in your activity statement, even if you used digital currency to make the purchase.

If you are in the business of trading cryptocurrencies and your business is registered for GST, you charge GST on the exchange of the currency and claim the GST credits in your activity statement. The new legislation does not prevent GST from applying to the supply of cryptocurrencies in exchange for a payment of money or digital currency.

It is also possible that someone could hold cryptocurrency as trading stock if it is held for the purpose of sale or exchange in the ordinary course of a business. Any gains from the trades are then taxed in the business’s income tax return (or individual tax return for sole traders). CGT concessions and exemptions are not generally available in this case. If you are in the business of trading cryptocurrencies, that is, you approach the trading in a business-like manner, then you can generally claim losses and other business expenses.

The tax laws can be complex in this area and it’s important to ensure that you get the right advice.

Can your SMSF invest in cryptocurrencies?

Arguably, an SMSF can invest in cryptocurrencies but there are several factors to take into account before investing. Cryptocurrencies are a high risk product as they are blockchain driven and unregulated. While there have been numerous stories in the media about massive gains made on the currency by early investors, the price fluctuates, cryptocurrencies face new competitors, and “hard forks” occur - where the blockchain is split and forms a permanent divergence from the original. Bitcoin, for example, has broken into Bitcoin, Bitcoin Cash and now Bitcoin Gold. The danger is that you end up on the wrong fork. There is also the danger of hacker’s breaching your fund’s digital wallet and stealing your investment.

Trustees of the fund need to ensure that any investment in cryptocurrency is in line with the investment strategy of the fund, the Trust Deed allows for it at the time the investment is made, and it is an appropriate investment. In particular, the sole purpose test in the Superannuation Industry (Supervision) Act 1993 requires that the fund is maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement. Trustees need to ensure that the risk associated to these currencies is in the best interests of the fund. A minute documenting the decision to invest in the cryptocurrency would be beneficial.

For tax purposes, gains and losses in the fund are treated in the same way as other assets in the fund. That is, CGT may apply to any gains made on the sale or exchange of the currency.

If your fund invests in cryptocurrency, there are a few practical issues. Your SMSF auditor needs to confirm the ownership, existence, and value of the cryptocurrency. As a result, the digital wallet for your currency should be in the name of your fund or the corporate trustee. You need to ensure that your personal assets, and the assets of your fund, are kept separate at all times. Once money is deposited into your fund, it may not simply be a case of being able to withdraw these amounts, and they may be 'stuck' in the fund until a condition of release is met, which usually means attaining retirement age. And, you need to be able to trace your transactions to identify trades, the value of the trade, and the time and date they occurred.

Documentation to keep the ATO happy

If you are using cryptocurrencies for whatever purpose, it’s important to keep records of the transactions to ensure that if the ATO challenges your tax treatment of the currency, you can prove your position.

The detail of the Government’s crackdown on cleaning and courier companies was revealed late last month.

From 1 July 2018, the taxable payments reporting system will extend beyond the building industry to cleaning and courier businesses. This means that these businesses will need to report payments they make to contractors (individual and total for the year) to the ATO. By ‘payment’ the ATO means any form of consideration including non-cash benefits and constructive payments.

The building industry has had this form of “enhanced reporting” since 2012-13. The result was an additional $2.3 billion in income tax and GST liabilities collected through voluntary reporting in the first year alone.

What is a cleaning and courier service?

The terms ‘cleaning service’ and ‘courier service’ take their ordinary meaning.

Courier services include activities where items or goods are collected from, and/or delivered to, any place in Australia using a variety of methods including by truck, car, station wagon, van, ute, motorcycle, motorised scooter, bicycle or other non-powered means of transport, or on foot. Freight services, blood and blood product couriers, and passenger transport are not affected.

A cleaning service is any service where a structure, vehicle, place, surface, machinery or equipment has been subject to a process in which dirt or similar material has been removed from it. This includes office cleaning, road sweeping or street cleaning, swimming pool cleaning, park and facilities cleaning, or cleaning for certain types of cultural or sporting events.

Mixed business that supply services including courier or cleaning services will also be affected.

What you need to do

The first annual report for affected cleaning and courier companies is due by 29 August 2019 for the 2018-19 year. The types of information reported to the ATO about contractors include:

ABN (where known)NameAddressTotal paid to the contractor (including GST) for the financial year, andTotal GST included in the gross amount that was paid.

If an invoice you receive from a contractor includes both labour and materials, whether itemised or combined, you will need to report the total amount of the payment.

If your business is likely to be affected by the new requirements and you currently do not have systems in place that allow you to readily access the information required by the ATO, it’s important to start your planning now.

Legislation restricting access to the small business company tax rate reduction entered Parliament last month. The changes specifically preclude companies with passive investments such as rental property income from qualifying for the small business entity tax rate of 27.5%.

For the 2017 income year a company could access the reduced company tax rate if it was carrying on a business and it had an aggregated turnover of less than $10 million. The changes replace the ‘carrying on a business test’ with a ‘passive income test’ from the 2018 income year onwards. Under the new rules, to access the reduced company tax rate, 80% or less of the entity’s assessable income must be passive in nature.

The passive income test is not simple. Where a company is receiving income from trusts or partnerships, you need to trace through to determine the nature of the income that was derived by that trust or partnership, and this might need to be done on multiple levels. For example, Trust 1 might distribute income to Trust 2, which then distributes income to a company. Whether dividends are treated as passive income will depend on the shareholding percentage involved.

These changes mean that companies that only hold rental properties will not qualify for the lower tax rate, even if the rental activities amount to a business under general principles. However, a company that receives distributions from a related trust could still qualify for the lower rate if 20% or more of its income is attributable to trading profits (directly or indirectly through the trust).

Under the proposed new rules, it will no longer be necessary to determine whether the company carries on a business in its own right under ordinary principles to determine its tax rate. The removal of the ‘carrying on a business test’ should eliminate some of the uncertainty that is currently faced when trying to determine the tax rate that applies to many private companies. However, this would still be relevant in determining whether a company can access other concessions that are available to small business entities.

Changes will also be made to the maximum franking percentage rules. In determining a company’s maximum franking rate for a particular income year, you need to look at the tax rate that would apply in the current year if the following assumptions are made:

The company’s aggregated turnover in the current year is the same as in the previous year;The company’s assessable income in the current year is the same as in the previous year; andThe company’s passive income in the current year is the same as in the previous year.

There have been a lot of changes to the company tax rules and who and what they apply to. This development should finally provide some much needed certainty around which companies can qualify for the lower corporate tax rate and the flow-on impact that this has on franking rates for dividends paid by companies.

Entities with a global parent or that are part of a large group of companies are being caught in the multinational tax crackdown regardless of their size in Australia.

With effect from 1 July 2016, many smaller entities connected to a larger parent or group are now only grappling with the changes prior to the lodgement of the 2016-17 tax returns.

A series of laws targeting multinationals came into effect from 1 July 2016 to ensure that tax is paid on economic activity in Australia. But it’s not just entities with revenues of $1bn or more that are affected. Subsidiaries may be caught by the new rules if they:

Have a large global parent with annual global income of A$1bn or more, orForm part of a group of entities consolidated for accounting purposes where the global parent entity has an annual global income of A$1 billion or more.

This includes Australian headquartered entities (with or without foreign operations) and local operations of foreign head-quartered multinationals.

Australian entities (or a foreign entity with a permanent establishment) that meet these criteria are considered significant global entities (SGE). An SGE has additional reporting requirements if:

It is not required to lodge general purpose financial statements with the Australian Securities and Investments Commission (ASIC). Many wholly or partially owned foreign entities rely on the reporting exemption from ASIC.A corporate tax entity a company, corporate limited partnership or public trading trust.An Australian resident or a foreign resident operating an Australian permanent establishment (PE), at the end of the income year.

The additional reporting requirements are to ensure that profits and economic gains from activities in Australia are not diverted.

If the Australian entity does not already lodge general purpose financial statements with ASIC, where for example the entity might be exempt, then these financial statements need to be lodged with the ATO prior to the entity’s tax return being lodged.

So, you could run a local subsidiary of a multinational that might be generating very little income and still be subject to the same reporting requirements as billion dollar companies.

Being classified as an SGE has broader implications than just the additional paperwork. The administrative penalties that apply to SGEs for entering into a scheme to reduce the amount of tax payable in Australia, failing to lodge tax returns and the accompanying financial statements, and failing to lodge on time, all attract much more significant penalties than if the entity was not an SGE.

ASIC penalties ‘the cost of doing business’

The Australian Securities and Investment Commission (ASIC) is set to increase penalties for corporate and financial sector misconduct to deter the fines being seen as the cost of doing business.

The impact of the proposed changes would be to expand the range of civil penalty provisions and to increase maximum civil penalty amounts in the Corporations Act 2001 and National Consumer Credit Protection Act 2009 (Credit Act) to:

for individuals, 2,500 penalty units ($525,000); andfor corporations, the greater of: 12,500 penalty units ($2.625 million), or three times the benefit gained (or loss avoided) or 10% annual turnover.

This would mean increases from $200,000 (individuals) and $1 million (corporations) in the Corporations Act and 2,000 penalty units ($420,000) for individuals and 10,000 penalty units ($2.1 million) for corporations in the Credit Act.

ASIC is also seeking to expand its powers to enable it to remove benefits illegally obtained or losses avoided.

Maximum terms of imprisonment would also be increased for a range of offences to the highest maximum penalty available; 10 years imprisonment and substantial fines.

Quote of the month

“It is better to fail in originality than to succeed in imitation.”

Herman Melville

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. We are here to help, contact us today.

New laws hold franchisors responsible for vulnerable workers

Franchisors and holding companies could be held responsible if their franchisees or subsidiaries don’t follow workplace laws.

The Government has stepped in to protect workers following months of controversial headlines uncovering poor record keeping, questionable workplace practices and exploitation, underpayments, deception, and superannuation guarantee fraud by employers.

The Protecting Vulnerable Workers Bill amends the Fair Work Act to:

Increase penalties for ‘serious contraventions’ of workplace laws

A ‘serious contravention’ of workplace laws occur if someone knowingly contravenes the law and their conduct is part of a systematic pattern. The penalties for breaches vary according to the offence and have increased up to 10 times higher than cases without the aggravating features. A breach is more likely to be a ‘serious contravention’ if:

there are concurrent contraventions of the Fair Work Act occurring at the same time (e.g., breaches of multiple award terms and record-keeping failures);the contraventions have occurred over a prolonged period of time (e.g., over multiple pay periods) or after complaints were first raised;multiple employees are affected (e.g., all or most employees doing the same kind of work at the workplace, or a group of vulnerable employees at the workplace); andaccurate employee records have not been kept, and pay slips have not been issued, making alleged underpayments difficult to establish.

Prevent record keeping failures

Appropriate record keeping is a big part of the new laws to prevent poor employer practices being used as a defence; stymieing employee complaints for lack of evidence. Now, the onus of proof is on the employer to disprove an employee’s compliant.

The penalties for poor record keeping have also increased dramatically - now up to $12,600 for a standard breach and $126,000 for ‘serious contraventions’ by individuals and $630,000 for corporations. Maximum penalties are likely to apply where the employer knowingly falsified records and provided false or misleading payslips.

Hold franchisor entities and holding companies liable

New provisions hold franchisors and holding companies responsible for certain contraventions of the Fair Work Act by businesses in their networks.

The Government is concerned that some franchisors have either been blind to the problem of underpayments to workers or have not taken sufficient action to deal with it once it was brought to their attention.

The provisions only apply to responsible franchisors that have a significant degree of influence or control over the relevant franchisee’s affairs. Holding companies are assumed to have control. This means that franchisors and holding companies are held responsible “if they knew or could reasonably be expected to have known that the contraventions would occur, or that contraventions of the same or a similar character were likely to occur and they had significant influence or control over the companies in their network.”

Where franchisors (or their officers) recognise a problem and take action quickly to resolve it, it is unlikely that they will be held liable. This means that affected companies will need to have appropriate systems and monitoring in place to ensure that franchisee’s are acting within the law. This might include ensuring that franchise agreements or other business arrangements require franchisees to comply with workplace laws, establishing a hotline or contact point for employees, and auditing the businesses in the network.

Ban ‘cashback’ from employees or prospective employees

Workers in the 7-Eleven case reported that they were paid correctly but then required to hand cash back to the franchisee or lose their job. The Fair Work investigation found that this practice “was not isolated and was prevalent in a number of 7-Eleven stores.”

Asking an employee for ‘cashback’ so the person can keep their job, or to keep wages below minimum entitlements will always be unreasonable and prohibited. Penalties have increased tenfold for cases where these aggravated circumstances apply.

Powers and penalties of the Fair Work Ombudsman ramped up

During the 7-Eleven investigation, the Fair Work Ombudsman (FWO) expressed frustration at their limited investigative powers. The new laws provide the FWO with similar powers to the Australian Securities and Investment Commission and the Australian Competition and Consumer Commission. The new powers not only bolster information gathering but also provide the FWO with an enforceable power of questioning for the first time.

The FWO can now issue an ‘FWO notice’ requiring someone to give information, produce documents, or attend before the FWO to answer questions.

New penalties also apply for giving false or misleading information, or hindering or obstructing a Fair Work investigation.

The maximum penalty for failing to comply with an FWO notice is $126,000 for individuals and $630,000 for corporations.

The 1 July 2017 superannuation reforms introduced a new reporting regime for funds.

Funds now need to advise the ATO of key events within the fund that impact on retirement income streams (pensions):

When you start a pensionWhen you stop a pension or take a lump sumWhen the fund accepts a structured settlement contribution such as personal injury compensation.

Superannuation funds are also required to report the value of existing superannuation income streams at 30 June 2017.

While reporting of these events to the ATO does not formally start until 1 July 2018 for SMSFs, event based reporting still needs to be completed if these events occur from 1 July 2017 – that is, you have a reprieve from the compliance but not the actual reporting.

If we are managing your SMSF’s accounting and compliance, we will track most of these events for you electronically where you have enabled us to access feeds from your SMSF’s bank accounts. If we see any transactions that could meet the reporting criteria, we will be in touch with you to confirm the nature of these events.

Where electronic feeds are not available - if your bank does not support them or where you have opted not to enable the feeds, you will need to let us know about these events at the time they occur.

In addition to the new events based reporting regime, SMSFs are also obliged to report any of the following changes to the ATO within 28 days.

Fund nameFund addresscontact person for the fundfund membershipfund trustees, andthe directors of the fund’s corporate trustee

Australia’s insolvent trading laws impose harsh penalties on directors of companies that trade where there are reasonable grounds to suspect that the company is insolvent. Criminal and civil penalties can apply personally including penalties of up to $200,000, compensation proceedings by creditors or liquidators, and where dishonesty has been involved, up to 5 years in prison.

You can understand why directors might choose to place a company into administration rather than face personal risk. Section 588G(2) of the Corporations Act imposes personal liabilities if a person is a director at the time the company incurs a debt, and the company is insolvent or becomes insolvent by incurring that debt, and, at that time, there are reasonable grounds to suspect that the company is or would become insolvent. It’s all about timing.

The threat of Australia's insolvent trading laws, combined with uncertainty over the precise moment a company becomes insolvent have been widely criticised as driving directors towards voluntary administration even in circumstances where the company may be viable in the longer term. And, the very real personal risk is often cited as a reason why experienced directors are unwilling to engage with angel investors and start-ups.

New safe harbour provisions give directors some ‘wiggle room’ where they are attempting to restructure a company outside of a formal insolvency process.

Under the new rules, directors will only be liable for debts incurred while the company was insolvent if they were not developing or taking a course of action that at the time was reasonably likely to lead to a better outcome for the company than proceeding to immediate administration or liquidation. The explanatory memorandum to the amending legislation however clearly states that “hope is not a strategy” when it comes to assessing the reasonableness of the actions taken by directors.

Tolerance levels of the new laws

The new laws give directors a safe harbour from the civil insolvent trading provisions of the Corporations Act but only where the company is up to date with employee entitlements including superannuation, and has met its tax obligations – normally the first thing to go in distressed companies.

The amendments create a safe harbour for “honest and diligent company directors from personal liability for insolvent trading if they are pursuing a restructure outside formal insolvency.” Directors who merely take a passive approach or allow the company to continue trading as usual during severe financial difficulty, or whose recovery plans are “fanciful”, will not be protected. Directors who fail to implement a course of action, or to appoint an administrator or liquidator within a reasonable time period of identifying severe financial difficulty will also lose the benefit of the safe harbour.

What does all this mean?

The new rules do not soften the requirement for directors to stay informed about the welfare of the company. It merely provides protection where there is a reasonable chance of a turnaround from insolvency. To utilise the safe harbour, directors will need to demonstrate that they took action that “could lead to a better outcome” such as:

Accessing the right information to make timely and informed decisions – engage professional advice to assess the company’s solvency and provide the right information at meaningful time periods. As soon as the company’s solvency is questionable, steps should be taken to ensure further debts are not incurred. The result of this assessment might be that the company is not able to reasonably turnaround its financial position.Assess if the safe harbour could apply - A decision to utilise the safe harbour provisions should be taken at Board level. Professional advice should be taken to review eligibility and viability of accessing the safe harbour provisions.Develop a plan – document a plan with measureable and realistic targets. You need to demonstrate that the plan is “reasonably likely to lead to a better outcome” for the company. Any contracts the company has entered into also need to be reviewed as part of that plan.Measure and adjust – The plan should not only be followed but also regularly assessed and amended where required for changing circumstances. Directors have an obligation to understand the point at which the plan is not working and to work co-operatively with liquidators or administrators. The safe harbour does not protect directors who do not keep tight controls on the viability of a turnaround plan. Keep informed and realistically assess the company’s position.

Can the company incur debt while insolvent?

The safe harbour provides protection for debts “incurred directly or indirectly in connection with” actions taken to turnaround the company. It includes debts taken on for the specific purpose of the restructure such as a professional adviser. Even in circumstances where a company’s solvency is doubtful, incurring debts may be a reasonable course of action to lead to a better outcome, and it may remain in the interests of the company that some loss-making trade should be accepted - for example, incurring debts associated with the sale of assets which would help the business’s overall financial position.

While hindsight might demonstrate that the path taken was the wrong one, directors are protected if they can demonstrate that the course of action was reasonably likely to lead to a better outcome at the time the decision was made. The safe harbour does not protect from debts incurred outside of the turnaround actions.

Solvency is an issue that arises for companies of all sizes; particularly those on a fast growth trajectory. It’s essential that directors have the right information available to them to manage these periods of uncertainty. Employee and tax payments, and tax reporting should never be missed as these are the first sign of deeper problems and likely to trigger further investigation or audit by the regulators. If the company needs help, get help. Hope is not a strategy.

In the 2017-18 Federal Budget the Government announced a series of measures intended to improve housing affordability in Australia. To entice investors, the Government is providing an increase in the CGT discount for individuals who choose to invest in affordable housing.

The draft legislation enabling this change has now been released so we can see the detail.

There are two aspects to these changes. Firstly, individuals who make a capital gain on residential dwellings that have been used to provide affordable housing can potentially qualify for an additional CGT discount of up to 10%, this could take the total discount percentage from the existing maximum level of 50% to 60%. While the additional 10% CGT discount applies if you meet the eligibility criteria, the 60% discount rate is not automatic – it’s ‘up to’ and the final total discount could be less than 60%.

The increased discount will only be available if the dwelling has been used to provide affordable housing for at least 3 years after 1 January 2018. The 3 year period does need to have been continuous.

The additional discount needs to be apportioned to take into account periods when the individual was a non-resident or temporary resident as well as periods when the property was not used to provide affordable housing over its ownership period.

The second aspect to the rules allows individuals to also access an additional 10% CGT discount on their share of capital gains that are distributed by a certain trusts (e.g., managed investment trusts) where the gain is attributable to dwellings that have been used to provide affordable housing for at least 3 years.

Affordable housing is….

There are a few compliance hoops to jump through to be ‘affordable

housing’.

The property must be residential (not commercial)the tenancy of the dwelling or its occupancy is exclusively managed by an eligible community housing provider;the eligible community housing provider has given each entity that holds an ownership interest in the dwelling certification that the dwelling was used to provide affordable housing;no entity that has an ownership interest in the dwelling is entitled to receive a National Rental Affordability Scheme (NRAS) incentive for the NRAS year; andif the ownership interest in the dwelling is owned by a Managed Investment Trust, the tenant does not have an interest in the MIT.

Quote of the month

“People don’t want to buy a quarter-inch drill. They want to buy a quarter-inch hole.”

Theodore Levitt, 1960s Marketing guru & Harvard Business School Professor

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained. We are here to help, contact us today.

Should Business Push A Social Agenda?

For years we’ve been told that consumers prefer businesses that take a stand on social issues – those that are environmentally and socially friendly. But is that always the case?

Qantas CEO Alan Joyce had a pie shoved in his face at a business breakfast in May 2017 for Qantas’s proactive position on same sex marriage. The protagonist, a 67 year old former farmer claimed that Joyce is, “… very much part of a network trying to subvert the federal parliamentary process around the issue of marriage equality."

The issue of corporate clout being used to promote social agendas was later attacked by the Minister for Education and Border Protection, Peter Dutton at a Liberal National Party State council meeting stating that, “It is unacceptable that people would use companies and the money of publicly listed companies to throw their weight around.” And, executives like Alan Joyce should “stick to their knitting.”

Then, there were the calls to boycott the airline from tennis legend Margaret Court and others in the community.

Qantas is not alone. Car maker Holden’s sponsorship of the 2017 Gay and Lesbian Mardi Gras (see Out Loud and Proud) and their pledge to support Australian Marriage Equality also came under attack from some consumers threatening to boycott the company.

Threatening to boycott a company is not new although generally it is in pursuit of change. When a business upsets a customer or a group of customers it’s the first thing that’s actioned; after all, consumers vote with their wallets. In 1955, during the American civil rights movement a boycott by blacks and whites almost crippled a bus company. The controversy was sparked after Rosa Parks refused to give up her seat for a white man. The bus service had to desegregate or face bankruptcy. Similar protests were held in stores to desegregate lunch counters. Martin Luther King Jr., knew the power of ‘economic withdrawal’ and used it effectively, calling to “redistribute the pain” to corporate America.

Qantas has not suffered for being at the epicentre of the gay marriage debate. In it’s most recent results the company achieved an underlying profit before tax of $1,401 million – the second highest in its history. The airline has clearly not alienated its customer base. The result however follows three years of pain and restructuring. Joyce attributes the airline’s performance to the diversity of the management team who led the transformation telling The Australian, “…as a gay Irishman running a national carrier it absolutely shows the meritocracy Australia is, and that diversity generated better strategy, better risk management, better debates [and] better outcomes.”

Mr Joyce was named a Companion of the Order of Australia (AC) in the Queen's Birthday 2017 Honours List for his services to “the aviation transport industry, to the development of the national and international tourism sectors, to gender equity, inclusion and diversity, and to the community, particularly as a supporter of Indigenous education.”

For Holden, the diversity push is aligned to a shift in the type of worker it wants to attract. With the last manufacturing plant closing down this year, its workforce has dramatically changed from manufacturing to design, engineering, administration and sales. Holden’s Managing Director Mark Bernhard states that Holden is working to “to shake off the ‘blokey’ reputation our brand has been saddled with for years.” Diversity is a strategic goal. On its blog, Holden states that 27% of its corporate workforce is now women. The company is aiming to increase this target to 50% within 5 years.

“We know the commercial rationale of becoming more gender balanced, including over 80% of vehicle buying decisions being influenced by women,” Bernhard says. “But, we also have a social responsibility to help move our country forward by lending our voice and influence to issues that matter….I want Holden to be a leader; a leader in our industry, a leader in society, a leader who can change behaviours. If we don’t do it, who will?” Bernhard says.

In August, the German EDEKA retail outlet in Hamburg made a very physical point about racial diversity by stripping the supermarket’s shelves of all goods not produced or sourced in Germany. The result; the shelves were almost bare. Instead, staff made signs saying (translated) “This is how empty a shelf is without foreigners”. The independent supermarket’s bold anti-xenophobia campaign went viral. The company actively promotes a culture of diversity and the campaign has not only reinforced that brand value but attracted positive global feedback. But, the initiative was not without its detractors as the campaign is a month out from Germany’s federal elections.

But what about influence through association? In April, the Catholic Archbishop of Hobart wrote an article for The Australian newspaper commenting that there “is an increasingly insidious presence operating in our corporate sector. This presence is the existence of so-called “diversity” organisations and committees. Far from promoting authentic diversity within our businesses, they have become the means to impose a particular social agenda.” The Archbishop cites scenarios where senior employees were forced to remove themselves from involvement with groups publicly in conflict with their employer’s support of the LGBTI community. While we’re not sure what “authentic diversity” is as opposed to plain vanilla diversity, it’s an interesting debate. What happens if an employee’s public representation and support for an organisation is in conflict with their employer’s public position?

The fundamental rule for any business seeking to embrace a social position is to understand your market. If your business’s social agenda is likely to alienate your market rather than encourage or diversify it, then think twice. If an initiative does not enhance the business’s reputation with its customers, or enhance its culture with existing and potential staff, then why bother? Every initiative needs to have a measureable purpose and be aligned to your business’s strategic direction.

In their book Leveraging Corporate Responsibility: The Stakeholder Route to Maximizing Business and Social Value, authors Bhattacharya, Korschun and Sen experiment with what drives value in corporate responsibility. They found that “well-meaning corporate-responsibility activities can actually harm a company’s competitiveness.” This is primarily the case for businesses perceived as having low product quality. Consumers took the view that these businesses should just focus on their product not other activities. But, for businesses perceived to have high product quality, the corporate initiatives enhanced public perception and the likelihood to buy. The key take outs were:

In every period of social change there is vitriolic debate. Before entering the fracas think about what footprint you are creating for your business and what this might mean if you are on the wrong side of history. Unlike in 1902 when the suffragette movement in Australia won the right for women to vote and stand in Federal elections, what is said and done is not merely recorded on paper - it’s freely available and accessible on the internet for a long time.

ASIC Targets Growing Companies In Audit Crackdown

ASIC is in the midst of a concerted campaign targeting private companies that have outgrown the reporting exemptions.

ASIC requires companies to prepare and lodge a financial report and a directors’ report each financial year, and have the accounts audited unless the company is exempt. Most small companies are exempt from the compliance requirements as are small foreign owned companies in certain circumstances.

Utilising data from the Australian Taxation Office (ATO), ASIC is contacting companies that have moved beyond or not complied with the exemption and are now in breach of their reporting requirements.

If your company has never had to lodge financial reports with ASIC in the past, it’s very easy to breach the rules without realising it. The reporting requirements are hard and fast and ASIC is not overly sympathetic to “oops” as a reason for a breach.

What is a small company?

Small companies are exempt if they satisfy at least two of the following:

The consolidated gross revenue for the financial year for the company and any entities the company controls is less than $25 millionThe value of consolidated gross assets at the end of the financial year of the company and any entities it controls is less than $12.5 million, andThe company and any entities it controls have fewer than 50 employees (full time equivalent) at the end of the financial year.

No longer a small company? Then you are a large company and are required to lodge audited financial statements.

Will the auditor want to audit the previous year’s figures when we were still a small company? Yes.

This exemption is for companies not controlled by a foreign entity or disclosing entities.

Failure to lodge annual accounts with ASIC may result in penalties and potentially the company being deregistered.

The rules for foreign controlled companies

Small companies controlled by a foreign company may also be exempt in some circumstances.

For small companies that are not part of a large consolidated group, the directors must resolve to rely on relief provided by ASIC and lodge this resolution (form 384). Timing is everything to be eligible for this exemption, if the right form is not lodged between the period starting 3 months prior to the start of the financial year relief is first applied and ending 4 months after the end of the relevant financial year, the exemption is unlikely to apply.

ASIC warns that, “in most cases, relief is not granted for financial reports that were due in the past”.

Foreign companies that fail to lodge the appropriate financials and are not exempt may be deregistered.

Again, if you have a requirement to lodge financial statements with ASIC, they must be audited.

If you are uncertain about the requirements for your company, please contact us and we’ll work with you to ensure your company is compliant.

Super Guarantee – What Happens When You Get It Wrong

The ATO receives around 20,000 reports each year from people who believe their employer has either not paid or underpaid compulsory superannuation guarantee (SG). In 2015-16 the ATO investigated 21,000 cases raising $670 million in SG and penalties.

The ATO’s own risk assessments suggest that between 11% and 20% of employers could be non-compliant with their SG obligations and that non-compliance is “endemic, especially in small businesses and industries where a large number of cash transactions and contracting arrangements occur.”

Celebrity chefs are the latest in a line of employers to publicly fall foul of the rules - one for allegedly inventing details on employee payslips and another for miscalculating wages. But what happens if your business gets SG compliance wrong?

Under the superannuation guarantee legislation, every Australian employer has an obligation to pay 9.5% Superannuation Guarantee Levy for their employees unless the employee falls within a specific exemption. SG is calculated on Ordinary Times Earnings – which is salary and wages including things like commissions, shift loadings and allowances, but not overtime payments.

Employers that fail to make their superannuation guarantee payments on time need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline.

The SGC is particularly painful for employers because it is comprised of:

The employee’s superannuation guarantee shortfall amount – so, all of the superannuation guarantee owingInterest of 10% per annum, andAn administration fee of $20 for each employee with a shortfall per quarter.

Unlike normal superannuation guarantee contributions, SGC amounts are not deductible, even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date.

And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings. An employee’s salary and wages may be higher than their ordinary time earnings particularly if you have workers who are paid for overtime.

Under the quarterly superannuation guarantee, the interest component will be calculated on an employer’s quarterly shortfall amount from the first day of the relevant quarter to the date when the superannuation guarantee charge would be payable.

The penalties imposed on the employer for failing to meet SG obligations on time might seem harsh, but they have been designed that way on purpose. This is really money that belongs to the employee and should be sitting in their superannuation fund earning further income to support the employee in their retirement.

Directors are personally liable for unpaid SG

Where attempts have failed to recover superannuation guarantee from the employer, the directors of a company automatically become personally liable for a penalty equal to the unpaid amount.

Directors who receive penalty notices need to take action to deal with this – speaking with a legal adviser or accountant is a good starting point.

If you are uncertain about your SG obligations or would like a compliance audit of this and other key risk areas of your business, give us a call.

Director’s fees: What and How To Pay Them

The issue of Director’s fees often comes up – should we pay directors, how to pay, and if we do pay fees how should they be paid? We answer the common questions for private companies.

Can you pay a Director?

Directors who work in the company, executive directors, would generally have an agreed executive remuneration structure that takes into account their service including attending Board meetings (so, generally no extra fees for service outside of the agreed remuneration structure).

For non-executive directors, companies can only pay Director’s fees if the company constitution allows for it or a resolution is passed to make the payments. The resolution to pay directors fees must be made and documented prior to the fees being paid.

These fees are in addition to any agreed expenses such as travel expenses to attend board meetings or in connection with the company’s business.

Fees paid to directors are subject to disclosure requirements. Special rules exist for listed entities, not for profits, APRA-regulated financial institutions and specific advice should be sought for the management of director fees by these entities.

Tax deductibility of director’s fees

Fees paid to Board members are tax deductible to the company in the year they are paid or intended to be paid. Many Boards pass a resolution to pay Director’s fees just prior to the end of the financial year to claim the tax deduction in that same year. The fees do not necessarily have to be paid prior to the end of the financial year but the Board must have definitely committed to paying them and then the fees paid as soon as practicable.

Tax on director’s fees

Assuming the directors fees are being paid through an individual contractual arrangement (i.e. the contract is with Mr Smith to act as a director, not with Smith Pty Ltd to provide ‘someone’ as a director, and that happens to be Mr Smith), then the directors fees are treated like salary and wages for the purposes of PAYG withholding. PAYG is required to be withheld from the gross directors fees, reported on the IAS or BAS that is used to report the salary and wages and related PAYG W for that period, and should be remitted to the ATO.

Director’s fees fall within the definition of Ordinary Times Earnings, and superannuation guarantee applies.

Director fees are required to be reported on a payment summary, and are generally reported at item 2 of an individual’s tax return. If they are not reported on payment summaries, it could result in errors in the PAYG withholding annual report, and queries from the ATO regarding the payments.

While the ATO may recognise that there can be a difference in the provision of services by and payments to directors (e.g. the contract may be for ongoing director services and attendance at quarterly board meetings, with payments of director fees to be made once a quarter, not monthly), the PAYG W and superannuation contributions are still subject to reporting and payment by the standard deadlines that apply for all other employees.

The directors fee should also be included in any workers compensation calculation and would generally be captured for payroll tax purposes as well.

Can Director’s fees be paid as super contributions?

Yes, assuming the proper process has been followed (e.g., effective salary sacrifice arrangement has been entered into before the fees have been earned), fees can be paid to the Director’s superannuation fund as a reportable employer contribution to utilise preferential tax rates. This assumes the director is within their contribution limits.

Quote of the month

“Coming together is a beginning; keeping together is progress; working together is success.”

Henry Ford

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Super Concessions For First Home Savers And Downsizers

Does superannuation offer an avenue to help downsizers and first home savers? The Government seems to think so. Late last month the detail of the housing initiatives announced in the Federal Budget were released for consultation. We explore what’s on offer and the implications.

Super concessions for downsizers

If you are over 65, have held your home for 10 years or more and are looking to sell, from 1 July 2018 you might be able to contribute some of the proceeds of the sale of your home to superannuation.

The benefit of this measure is that you can contribute a lump sum of up to $300,000 per person to superannuation without being restricted by the existing non-concessional contribution caps - $100,000 subject to your total superannuation balance - or age restrictions. It’s a way of building your superannuation quickly and taking advantage of superannuation’s concessional tax rates.

The $1.6 million transfer balance cap will continue to apply so your pension interests cannot exceed this amount. And, the Age Pension means test will continue to apply.

If you are considering using this initiative, it will be important to get advice to ensure that you are eligible to use this measure and the contribution does not adversely affect your overall financial position.

The downsizer initiative applies to the sale of any dwelling in Australia – other than a caravan, houseboat or mobile home – that you or your spouse have held continuously for at least 10 years. Over those 10 years, the dwelling had to have been your main residence for at least part of the time. As long as you qualify for at least a partial main residence exemption (or you would qualify for the exemption if a capital gain arose) you may be able to access the downsizer concession. This means that you do not actually need to have lived in the property for the 10 year period being tested.

The rules also take into account changes of ownership between two spouses over the 10 year period prior to the sale. This could assist in situations where a spouse who owned the property has died and their interest is inherited by their surviving spouse. The surviving spouse can count the ownership period of their deceased spouse in determining whether the 10 year ownership period test is satisfied. This rule could also assist in situations where assets have been transferred as a result of marriage or de facto relationship breakdown.

In general, the maximum downsizer contribution is $300,000 per contributor (so, $600,000 for a couple) but must only come from the proceeds of the sale. The contribution/s need to be made within 90 days after your home changes ownership (generally, the date of settlement) but you can apply to the Tax Commissioner to extend this period. And, the initiative only applies once – you cannot use it again for future properties.

Using super to save for your first home

Saving for a first home is hard. From 1 July 2018, the first home savers scheme will enable first-home buyers to save for a deposit inside their superannuation account, attracting the tax incentives and some of the earnings benefits of superannuation.

Home savers can make voluntary concessional contributions (for example by salary sacrificing) or non-concessional contributions (voluntary after tax contributions) of $15,000 a year within existing caps, up to a total of $30,000.

When you are ready to buy a house, you can withdraw those contributions along with any deemed earnings in order to help fund a deposit on your first home. To extract the money from super, home savers apply to the Commissioner of Taxation for a first home super saver determination. The Commissioner then determines the maximum amount that can be released from the super fund. When the amount is released from super, it is taxed at your marginal tax rate less a 30% offset.

For example, if you earn $70,000 a year and make salary sacrifice contributions of $10,000 per year, after 3 years of saving, approximately $25,892 will be available for a deposit under the First Home Super Saver Scheme - $6,210 more than if the saving had occurred in a standard deposit account.

If you don’t end up entering into a contract to purchase or construct a home within 12 months of withdrawing the deposit from superannuation, you can recontribute the amount to super, or pay an additional tax to unwind the concessional tax treatment that applied on the release of the money.

To access the scheme, home savers must be 18 years of age or older, and cannot ever have held taxable Australian real property (this includes residential, investment, and commercial property assets). Home savers also need to move into the property as soon as practicable and occupy it for at least 6 of the first 12 months that it is practicable to do so.

As with the concession for downsizers, the first home saver scheme can only be used once by you.

While the capacity to voluntarily contribute to the first home savers scheme started on 1 July 2017 (with withdrawals available form 1 July 2018), it’s best to wait until the legislation is confirmed by Parliament just in case anything changes.

Main Residence Exemption Removed For Non-Residents

The Federal Budget announced that non-residents will no longer be able to access the main residence exemption for Capital Gains Tax (CGT) purposes from 9 May 2017 (Budget night). Now that the draft legislation has been released, more details are available about how this exclusion will work.

Under the new rules, the main residence exemption – the exemption that prevents your home being subject to CGT when you dispose of it – will not be available to non-residents. The draft legislation is very ‘black and white.’ If you are not an Australian resident for tax purposes at the time you dispose of the property, CGT will apply to any gain you made – this is in addition to the 12.5% withholding tax that applies to taxable Australian property with a value of $750,000 or more (from 1 July 2017).

Transitional rules apply for non-residents affected by the changes if they owned the property on or before 9 May 2017, and dispose of the property by 30 June 2019. This gives non-residents time to sell their main residence (or former main residence) and obtain tax relief under the main residence rules if they choose.

Interestingly, the draft rules apply even if you were a resident for part of the time you owned the property. The measure applies if you are a non-resident when you dispose of the property regardless of your previous residency status.

Special amendments are also being introduced to apply the new rules consistently to deceased estates and special disability trusts to ensure that property held by non-residents is excluded from the main residence exemption.

The rules have also been tightened for property held through companies or trusts to prevent complex structuring to get around the rules. The draft amends the application of CGT to non-residents when selling shares in a company or interests in a trust. The rules ensure that multiple layers of companies or trusts cannot be used to circumvent the 10% threshold that applies in order to determine whether membership interests in companies or trusts are classified as taxable Australian property.

The residency tests to determine who is a resident for tax purposes can be complex and are often subjective. Please contact us if you would like to better understand your position and the tax implications of your residency status. Simply living in Australia does not make you a resident for tax purposes, particularly if you continue to have interests overseas.

The Tax Commissioner’s Hit List

Every so often the Australian Taxation Office (ATO) sends a ‘shot across the bow’ warning taxpayers where their gaze is focussed. Last month in a speech to the National Press Club, Tax Commissioner Chris Jordan did exactly that. Part of the reason for this public outing is the gap between the amount of tax the ATO collects and the amount they think should be collected – a gap of well over 6% according to the Commissioner.

“The risks of non-compliance highlighted by our gap research so far in this market are mainly around deductions, particularly work related expenses. The results of our random audits and risk-based audits are showing many errors and over-claiming for work related expenses – from legitimate mistakes and carelessness through to recklessness and fraud. In 2014-15, more than $22 billion was claimed for work-related expenses. While each of the individual amounts over-claimed is relatively small, the sum and overall revenue impact for the population involved could be significant,” the Commissioner stated.

Individuals – the hit list

Claims for work-related expenses that are unusually high relative to others across comparable industries and occupations;Excessive rental property expenses;Non-commercial rental income received for holiday homes;Interest deductions claimed for the private proportion of loans; andPeople who have registered for GST but are not actively carrying on a business.

While small in value, the ATO are also concerned about the amount of people who appear to be claiming deductions by default for items such as clothing expenses. In 2014–15, around 6.3 million people made a claim for $150 for work related clothing - the level you can claim without having to fully substantiate your expenses. Those 6.3 million claims amounted to $1.8 billion in deductions.

Small business – the hit list

Those deliberately hiding income or avoiding their obligations by failing to register, keep records and/or lodge accurately;Businesses that report outside of the small business benchmarks for their industry;Employers not deducting and/or not sending PAYG withholding amounts from employee wages;Employers not meeting their superannuation guarantee obligations;Businesses registered for GST but not actively carrying on a business;Failure to lodge activity statements; andIncorrect and under reporting of sales.

If your business is outside of the ATO’s benchmarks, it’s important to be prepared to defend why this is the case. This does not mean that your business is doing anything wrong, but it increases the possibility that the ATO will look more closely at your business and seek an explanation.

Private groups – the hit list

Tax or economic performance not comparable to similar businesses;A lack of transparency in tax affairs;Large, one-off or unusual transactions, including transfer or shifting of wealth;A history of aggressive tax planning;Choosing not to comply or regularly taking controversial interpretations of the law;Lifestyle not supported by after-tax income;Treating private assets as business assets; andPoor governance and risk-management systems.

Property developers – the hit list

Developers using their SMSF to undertake or fund the development and subdivision of properties leading to sale;Where there has been sale or disposal of property shortly after the completion of a subdivision and the amount is returned as a capital gain;Where there is a history in the wider economic group of property development or renovation sales, yet a current sale is returned as a capital gain;How profit is recognised where related entities undertake a development (i.e., on the development fees as well as sales of the completed development);Whether inflated deductions are being claimed for property developments;Multi-purpose developments - where units are retained for rent in a multi-unit apartment, to ensure that the costs are appropriately applied to the properties produced.

These are just a small sample of the ATO’s area of focus. Other areas include tax and travel related expenses and self-education expenses. We’ll guide you through the risk areas pertinent to your individual situation but if you are concerned about any of the ‘hit list’ areas mentioned, please contact us.

Quote of the month

"The Entrepreneur always searches for change, responds to it, and exploits it as an opportunity."

Peter Drucker

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained

很快7月1日就要到来，澳大利亚新州政府针对首次置业者的全新补助套餐政策就要全面生效了。

NSW政府官网发布细则时称这是对购买首套自住房的安家人士的公平待遇将会提升整个新州房价的可负担性。

新政策主要包括3个部分： 1. 增加首套自住房的安家人士优惠力度。 2. 控制合理的房价，提高房源供应。 3.完善居民区的生活设施。如火车，学校等，以期提高居民的生活质量。

这次的新政策影响最大的人群包括首次置业人士（首套自住房购买者）和海外投资购房者。

对首套自住房买家的影响 1.$65万以下的新房或者二手房，印花税全部免除。 2.$65万到$80万之间的新房或者二手房，印花税将按比例减免。 3.对于购买价值$600,000及以下的新房，政府提供$10,000的补贴。 4.对于建造价值$750,000及以下的新房，政府提供$10,000的补贴。 5.取消银行贷款保险的保险印花税。

从2017年7月1日起，对把楼花作为投资的购买者，取消了12个月的印花税延缓期政策，必须在3个月内支付印花税。

但是，此政策仅仅针对投资者。如果购房人所购楼花是用于自住，则仍然享有12个月的印花税延缓期政策。

对海外投资者的影响 与自住补贴增加相反的是政府同时提高了对海外人士购房的税费缴纳额。除了正常的印花税之外，现有海外人士额外的附加印花税，税率将从4%提升到8%，而土地附加税也将从之前的0.75%提升到2%。

政府支持建造更多住房，22大优先开发区公布 2年内政府将会增拨250万给10个优先Council大区制定提升住宅环境计划预计会增加30,000个新的物业。

目前官网上公布的重点开发区域有：

更快房屋批准 在新政策下政府会推出一系列条例来缩短房屋建造批准时间除此之外房屋建造成本也会删减以便买家可以以更优惠的价格买到自己心仪的房子。

同时政府也考虑将一些物业的停车位与房屋分开售卖以更好帮助部分可能不需要车库的买家减少开支，降低住房压力。

提升居民区基础设施

政府也计划把732亿澳元用在新州的设施建设在这些设施建设中主要的交通建设包括WestConnex，NorthConnex, Sydney Metro等高速公路/隧道以及CBD道路，东南区轻轨Parramatta轻轨，B-line公交线等。

房产税务有哪些变化？

1. 二手投资房折旧受限 2017年5月9日之后购买的二手投资房，前房东遗留下的设备将不能用于折旧，只能作为购房成本，减少将来卖房时的增值税。

2. 异地投资房察看差旅费减免政策取消

从2017年7月1日开始，异地察看投资房的差旅费用将不能用于抵扣你的房产收入。例如机票和酒店住宿。

3. 非本地税务居民的自住房增值豁免取消

非本地税务居民在5月9日之前购买和2019年6月30日前卖出，仍可享受增值豁免。在5月9日之后购买的，增值部分需缴纳增值税。

4. 房产空置超过6个月，海外人士需缴纳房产空置税 2017年5月9日以后递交海外人士购房申请的人士，如果房产空置超过6个月，政府会收房产空置税。空置税=最初的FIRB申请费。

5. 海外人士出售高于75万的房产时，需缴纳预扣税

从2017年7月1日开始，海外人士出售高于75万的房产时，税务局按照卖价预扣12.5%的预扣税。

商业税务有哪些变化？

1. 更多的公司享受到更低的公司税率

从2017年7月1日开始：

2. 自雇人士（sole trader）获得更高税务优惠

从2017年7月1日开始，如果自雇人士的销售额低于5百万，净利润的缴税可以获得8%的税务减免，不过减免部分最高为1千元。

新财年自雇人士税务参考表格：

同时：2017年7月1日-2018年6月30日期间，营业额低于1000万的公司和自雇人士可以把低于2万的设备直接100%抵收益。

3. 2017年7月1日开始，个人收入（包括sole trader）高于$180,000人群，不再需要缴纳2%的预算修复税

但是从2019年7月1日开始，税务局把社会医疗保险从2%提高到2.5%。

新财年个人税参考表格：

消费税务有哪些变化？

1. 2017年7月1日起，购买电子货币不再需要缴纳消费税GST。税务局对待电子货币（例如比特币）等同于普通货币。

2. 自2018年7月1日起，购买新房时，买家律师需将消费税直接上交税务局。由买卖双方律师在成交房产时操作，并不影响购房者。

养老金税务有哪些变化？

1. 退休养老金收益完全免税制度取消

2. 养老金贡献（Super contribution）额度降低

从2017年7月1日开始，每个人的税前养老金贡献额度降低到25000每年，税后的养老金贡献额度降低到10万每年。

3. 首次置业者将可利用养老金购买首套房产 从2017年7月1日开始，首次置业者可将税前收入注入到养老金中，来缴纳较低的养老金税率。 但，注入到养老金的税前收入每年不得高于1万5，总共不能高于3万。从2018年7月1日开始，可以取出用于购置首套房产。