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The Australian Tax Office (ATO) is reminding self-managed super fund (SMSF) trustees to beware of allowing members to access their super early.
A self-managed super fund (SMSF) trustee must meet a condition of release before any funds can legally be released.
The ATO can issue severe penalties if you or a SMSF member access your super before you are legally entitled to do so.
Some consequences of getting caught up in an illegal super scheme include the disqualification of trustees, imposition of administrative penalties, the fund being made non-complying and prosecution.
The Tax Office encourages those members who have been involved in an illegal super scheme to contact them immediately. The ATO will review your voluntary disclosure and take your circumstances into account when determining any penalties.
From 1 July 2018, the Tax Office is advising Australians that if they find an error in their tax return or activity statement they will not incur a penalty but will advise of the error and how to get it right next time.
Penalty relief will only apply to eligible taxpayers or entities (i.e., turnover of less than $10 million) every three years.
These may include:
– Small businesses
– Self-managed super funds (SMSFs)
– Not-for-profit organisations
Eligible individuals will only be given penalty relief on their tax return or activity statement if they make an inadvertent error because they either:
– took a position on income tax that is not reasonably arguable, or
– failed to take reasonable care
The ATO will not provide penalty relief when individuals have (in the past three years):
Received penalty relief
– Avoided tax payment or committed fraud
– Accrued taxation debts with no intention of being able to pay (i.e., phoenix activity)
– Previously penalised for reckless or intentional disregard of the law
– Participated in the management or control of another entity which has evaded tax.
Individuals can not apply for penalty relief. The ATO is reminding individuals that they will provide relief during an audit should it apply.
Penalty relief will not be applied to:
– Wealthy individuals and their businesses
– Associates of wealthy individuals (that may be deemed a small business entity in their own right)
– Public groups, significant global entities and associates
Penalty relief will also not be applied to certain taxes, i.e., fringe benefits tax (FBT) or super guarantee (SG).
The Australian Securities Investment Commission (ASIC) has released a new report highlighting its view on the setup of SMSFs for property investments using ‘one-stop shop’ models.
‘One-stop shop models’ tend to promote the purchase of residential property through SMSF borrowing. They are usually arranged by groups of real estate agents, developers, mortgage brokers, financial advisers and so forth.
This model creates conflicts of interest that may affect the advice given to set up an SMSF. For example, these businesses take advantage of customers with limited or no knowledge of SMSFs or super and have the potential to cause major financial detriment, including:
– Receiving inappropriate or misleading advice to set up an SMSF which may result in members being financially worse off
– The obligations of a SMSF trustee are not clearly explained by the advice provider
– Members may be encouraged into a property purchase at an inflated value, or unaware of undisclosed high commissions.
The Australian Tax Office (ATO) are encouraging individuals to seek independent professional advice from a licensed adviser before establishing an SMSF and undertaking an new investment in an SMSF.
SMSF trustees who make a mistake are also encouraged to make a voluntary disclosure to the ATO. The ATO aim to help SMSF trustees in these circumstances to get their SMSF back on track.
Tax Time is now upon us, with the ATO Assistant Commissioner announcing the top five mistakes commonly made when Australians complete their annual tax returns.
Common mistakes some taxpayers are making include:
– Leaving out a portion of their earnings, i.e., forgetting to include a job – income from a temp job, or income earned from the sharing economy.
– Claiming personal costs for rental properties, i.e., claiming deductions for periods when they were using the property or claiming interest on loans used to buy personal assets (a car or a boat).
– Making claims for expenses unrelated to their employment, i.e., personal phone calls, work to home commute or buying normal clothes.
– Claims for things they have not paid for.
– Not holding onto receipts or keeping insufficient records of their expenses to validate their claims.
To avoid making common errors, the Tax Office is reminding individuals to:
– Remain up-to-date with what you can and can not claim.
– Keep detailed records.
– Ensure you declare all your employment earnings.
The Australian Tax Office (ATO) has recently been made aware of circumstances where a member of a SMSF commences a new market-linked pension and unintentionally exceeds their transfer balance cap.
An individual may have exceeded their transfer balance cap if they were receiving a life expectancy or market-linked pension just before 1 July 2017 (which was a capped defined benefit income stream) and then commuted the pension on or after 1 July 2017 and the transfer balance debit is nil under the special value rule in Income Tax Assessment Act 1997 subsection 294-1245(1); and then commenced a new market-linked pension.
The ATO has acknowledged these are unintended consequences associated with the current law and will not take compliance action at this stage provided an individual’s circumstances align with the above situation and:
- if a fund does not report the transfer balance account events of the commutation or the commencement of the new market-linked pension;
- where the fund has reported the transfer balance debit for the commutation as other than nil.
The Personal Income Tax Plan announced as part of this year’s Federal Budget has been passed by Parliament.
The plan introduces:
– a new low and middle-income tax offset to reduce the tax payable by low and middle-income earners in the 2018-19, 2019-20, 2020-2021 and 2021-2022 income years
– a new low-income tax offset from the 2022-23 income year
– changes to income tax rate thresholds in the 2018-19, 2022-2023 and 2024-2025 income years
Income tax rate thresholds for the relevant income years are as follows:
2018-19, 2019-20, 2020-21 and 2021-22 income years: Increase the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000.
2022-23 and 2023-24 income years: Increase the top threshold of the 19 per cent tax bracket from $37,000 to $41,000. Increase the top threshold of the 32.5 per cent bracket from $90,000 to $120,000.
2024-25 income year onwards: Increase the top threshold of the 32.5 per cent tax bracket from $120,000 to $200,000.
Self-managed super funds (SMSFs) are required to provide an accumulation phase value (APV) on their transfer balance account report for 30 June 2017 in certain circumstances.
SMSFs should note, APV is often different to the account balance of the SMSF member’s accumulation phase assets. This is due to the exit and administration fees and realisation costs that would be taken into account if the SMSF member would voluntarily close their account.
APV is a component of a member’s total super balance which shows the value of the member’s assets in the accumulation phase at 30 June.
Providing a member’s APV is conditional for SMSFs in the 2016-17 financial year. The member’s APV will be calculated as the difference between the closing account balance from the SMSF annual return and the value of the member’s transfer balance account for the SMSF at 1 July 2017 if not provided.
SMSFs need to provide their APV if the SMSF member has interests in the accumulation and retirement phase at 30 June 2017 where the member has a capped defined benefit income stream or a flexi-pension in that SMSF. It is also mandatory to provide the APV where the difference between the APV and the closing account balance is not limited to the value of exit and administration fees, and realisation costs.
If the SMSF member has 100 per cent of their interest in the accumulation phase at 30 June 2017, then providing the APV is conditional and only required when the difference between the APV and the closing account balance is not limited of the value of exit and administration fees, and realisation costs.
Where the SMSF member has 100 per cent of their interest in retirement phase, then the APV is only mandatory where the member has a capped defined benefit income stream or a flexi pension in that SMSF. The APV value to be supplied is zero.
APV reporting for 30 June 2017 is due by 8 September 2018.
The Australian Tax Office (ATO) is cracking down on claims for work-related clothing and laundry expenses this tax time.
Last year total claims for work-related clothing and laundry expenses totalled nearly $1.8 billion. The ATO has acknowledged that many of these claims are legitimate. However, it is unlikely that half of all taxpayers would have been required to wear uniforms, occupation-specific clothing or protective clothing.
The Tax Office is in the view that many taxpayers are either making mistakes or deliberately over-claiming. Common mistakes that are observed include:
– Claiming for something without having spent the money
– Not being able to explain the basis for how the claim was calculated
– Claiming ineligible clothing (eligible clothing is occupation-specific, protective or uniform)
Another concern facing the ATO is the number of claims which totalled exactly $150. This amount is the threshold that requires taxpayers to keep detailed records. The ATO is reminding taxpayers the $150 limit is not an automatic entitlement for everyone; it is in place to reduce recordkeeping burden.
Normal clothing is another deduction under scrutiny. Claiming for normal clothing such as a suit or black pants is not legitimate, even if you only wear it to work, or your employer requires you to wear a particular colour and so on.
The ATO uses sophisticated technology to analyse claims and compare them to other taxpayers in similar occupations and earning similar income.
If a taxpayer cannot substantiate their claim, they should prepare to be refused and potentially face a penalty for failing to take reasonable care when submitting their return.
There is a number of changes to the 2017-18 Self-managed super fund annual return (SAR) thanks to the super changes which came into effect on 1 July 2017.
Transition to retirement income stream (TRIS) account
The ATO has included a new label for the number of TRIS accounts an SMSF member has in accumulation phase.
A TRIS account is in accumulation phase unless the SMSF member has reached 65 years of age or has met another ‘nil’ cashing restriction condition of release (i.e., permanent incapacity, retirement or a terminal medical condition) and has advised their fund.
Limited recourse borrowing arrangements (LRBA)
New questions focused on the use of LRBAs and extra borrowings have been added to section H, items 15e and 16. SMSFs that hold assets under LRBAs will be required to complete these questions.
Correct calculation of a member’s total superannuation balance (TSB)
New labels to allow the make-up of the ‘closing account balance’ to be reported to support a more efficient calculation of a member’s TSB have been added.
The member’s TSB may affect their non-concessional contributions cap as well as other super caps from 30 June 2017.
Cessation of the temporary budget repair levy
Certain tax rates for superannuation entities have been reduced in line with the cessation of the temporary budget repair levy (payable by some individuals for 2014-15, 2015-16 and 2016-17).
These rates affected those individuals that applied to the taxable income of non-complying superannuation funds (47 per cent to 45 per cent) as well as the non-arm’s length component of the taxable income of a super fund (47 per cent to 45 per cent).
A new label has been added to the capital gains tax (CGT) schedule for the purpose of reporting deferred notional gains where the gain has been realised.
Early stage venture capital limited partnership tax offset
The ATO has added a new label to enable SMSFs to report the amount of unused early stage venture capital tax offset carried forward from the previous year.
Overseas businesses that meet the GST registration threshold (A$75,000) will be required to charge GST on goods purchased from the 1 July 2018.
Specifically, GST will be charged on goods that are:
- less than A$1,000 (low-value);
- not GST-free (i.e., alcohol or tobacco products);
- and imported into Australia.
Individuals who purchase low-value goods (which they import) will be required to pay GST if they are not registered for GST or importing goods for personal use (even if they are GST registered).
However, individuals can avoid paying GST if they are:
- registered for GST;
- import low-value goods for business use in Australia;
- and provide their ABN to the supplier and a statement that they are GST registered.
Individuals charged GST incorrectly will need to contact the supplier to advise them they are registered for GST, and need to request a refund.