Tax Update – March 2019

As we approach the end of the financial year, the hot topic at the moment is the extension of Single Touch Payroll (STP) to include all Australian businesses regardless of size. In this month’s update, we look at what is changing and what changes small businesses might need to make to get STP-ready. We also look at some of the key pieces of legislation which have been introduced by the current government, but which remain in limbo as we near the next Australian federal budget and election.

Single touch payroll extended to all employers

From 1 July 2019, single touch payroll – the direct reporting of salary and wages, PAYG withholding and superannuation contribution information to the ATO – will apply to all employers. What employers need to report will also be extended to include certain salary sacrificed amounts.

Employers with 20 or more employees have been required to use single touch payroll since 1 July 2018. The new rules push all businesses with employees into the single touch payroll system. This includes the situation where payments are made to the owners of the business in the form of salary, wages or directors fees.

The ATO states that to assist micro employers there will be, “a number of alternate options that are not available to employers with 20 or more employees – such as initially allowing your registered tax or BAS agent to report quarterly, rather than each time you run your payroll.”

While the start date for small employers will technically start on 1 July 2019, the Commissioner of Taxation released a statement indicating that small employers can actually start reporting through single touch payroll any time from 1 July 2019 until 30 September 2019. No penalties will be applied to mistakes, missed or late reports for the first year.

Read more about Single Touch Payroll.

Employers with poor super guarantee payment history outed

Underpayment or non-payment of superannuation guarantee (SG) is a big issue. New laws will enable the ATO to advise employees (or former employees) of their employer’s poor SG payment and reporting history.

If an employer makes a complaint to the ATO, then a taxation officer is able to make a record or advise the employee about a failure or suspected failure by their employer or former employer to comply with their SG obligations. They can also share the Tax Commissioner’s response to the complaint. So, if the Commissioner finds there is a problem with SG payments, they can disclose this information to the complainant.

Legislation in limbo

A budget, an election and the legislation that hasn’t made it through.

The February 2019 Parliamentary sitting days were the last opportunity before the Federal Budget for the Government to introduce or push through new legislation. Next month, on 2 April, Parliament reconvenes for the Federal Budget and it’s likely that an election will be called very soon after that (18 May 2019 is the last possible date for the election of the House of Representatives). Any legislation that has not passed when the election is called basically goes back to the drawing board and may never be enacted.

With the focus of politicians firmly on the impending election and the Government now in an untenable position following the loss of its majority in the lower house, tidying up outstanding business legislation was not the priority in February, and as a result, several key pieces of legislation are in limbo.

Extension of the $20k instant asset write-off

Originally introduced in the 2015-16 Budget, the popular $20k instant asset write-off has been extended across consecutive years. At present, small businesses are able to immediately deduct purchases of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2019.

In a pre-election sweetener, the Government announced that the threshold for the small business instant asset write-off will increase to $25,000 and the timeframe to claim the increased write-off extended from 29 January 2019 until 30 June 2020.

The Bill enabling the changes was rushed into Parliament in February. While the upcoming Budget will provision for the measure, the outcome of the next election may determine whether the change comes to fruition.

Removing the CGT main residence exemption for non-residents

Currently, individuals are generally not subject to capital gains tax (CGT) on the sale of the home they treat as their main residence. If the home was your main residence for only part of the ownership period or if the home is used to produce income (for example, you use part of the home as business premises or rent out part of the property), then a partial exemption may be available. In addition, if you move out of your home and you don’t claim any other residence as your main residence, then you can continue to treat the home as your main residence for up to six years if you rent it out or indefinitely if you don’t rent it out (the ‘absence rule’).

The main residence exemption is currently available to individuals who are residents, non-residents, and temporary residents for tax purposes.

In the 2017-18 Federal Budget, the Government announced that non-residents and temporary residents would no longer have access to the main residence exemption under the CGT rules. The Government later confirmed that the exemption would still be available to temporary residents as long as they were residents of Australia under the normal residency tests.

The proposed rules would prevent non-residents from claiming the main residence exemption even if they were a resident for some (or even most) of the ownership period. The proposed rules do not allow for partial exemptions. If, however, you are an Australian resident at the time you sell, then the normal main residence exemption rules apply, even if you were a non-resident for some or most of the ownership period.

The draft laws become even more complex when dealing with deceased estates.

Under the proposed new laws, the transitional period for non-residents to make arrangements to either sell their property or restructure their affairs, ends on 30 June 2019. The transitional period applies if the property was held at 9 May 2017 and is sold under a contract entered into on or before 30 June 2019. If there is no contract of sale in place by 30 June 2019, then the main residence exemption will not apply if the individual is a non-resident when the sale takes place.

With the legislation stalled in the Senate, non-residents are in a precarious scenario. If the legislation is enacted with the current deadlines, it will now be difficult to sell any property in time to meet the transitional period requirements.

We expect that the timing of the main residence exemption amendments will be addressed in the upcoming Federal budget.

Employer Superannuation Guarantee amnesty

Back in May 2018, the Government announced an amnesty for employers who had fallen behind with their superannuation guarantee (SG) obligations. Under the amnesty, employers could catch up or “self-correct” outstanding SG payments for any period from 1 July 1992 up to 31 March 2018. The intent was to reduce the estimated $2.85 billion owed by employers in late or missing SG payments.

Running from 24 May 2018 for 12 months, the amnesty was to provide relief from some of the punitive penalties that normally apply to late SG payments. To take advantage of the amnesty, employers were to make voluntary disclosures to the ATO about outstanding payments.

But, the legislation enabling the amnesty has stalled in the Senate. Up until recently, the ATO was encouraging employers to make voluntary disclosures with the view that when the legislation passed Parliament, the amnesty would be applied. However, any employer who made a voluntary disclosure to the ATO will not benefit from the reduced punitive penalties unless the legislation passes, which at this stage, is highly unlikely in its current form. Further, the Tax Commissioner has no discretion under the law to reduce the penalties applied to employers in this scenario, so if the legislation doesn’t pass, then there isn’t much the ATO can do to soften the blow.

SMSF membership limit changes

Rushed into Parliament before the break was a bill enacting the Government’s 2018-19 Budget measure increasing the maximum number of allowable members in a Self Managed Superannuation Fund from four to six.  The measure is before the Parliament but unlikely to be addressed before the election.

Superannuation guarantee and salary sacrifice

The Bill amending how superannuation guarantee is calculated, to ensure that an individual’s salary sacrifice contributions cannot be used to reduce an employer’s minimum superannuation guarantee (SG) contributions, appears to have stalled. The Bill has not progressed since November 2017. At present, the minimum amount of SG an employer is required to pay is based on an employee’s ordinary time earnings. As entering into a salary sacrifice arrangement reduces the employee’s ordinary time earnings, it reduces the amount of SG that an employer is required to pay.

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If this article has raised questions regarding your personal situation, please contact one of our team of experts on +61 8 6555 9500.

This article contains information that is general in nature. It is not intended to be advice and you should consider your personal situation and needs before making any decisions based on this information.