Australian Tax Update – July 2019

This month’s tax update, we look into the changes in super, insurance and exit fees as there.  ATO new concession to small employers, claims on work-related and laundry expenses, trust property and 60,000 tax cheat tip-offs to the ATO.

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Super, insurance and exit fees: The 1 July changes

From 1 July 2019, new laws prevent superannuation providers from eroding member balances with unwanted or unnecessary insurance and exit fees. Plus, inactive accounts with low balances will be moved to the ATO to try and unite the unclaimed super with its owner.

These changes do not apply to self-managed superannuation funds or small APRA funds.

Insurance inside your fund

Up until 30 June 2019, superannuation providers were required to provide members with appropriate life and total and permanent disability (TPD) insurance inside superannuation on an ‘opt out’ basis.

What to do if you are affected

If you are affected, you need to make a decision about whether the insurance held in your fund is valuable to you. Often insurance cover through superannuation is cheaper than what you might be able to access elsewhere.

Low balance super accounts moved to ATO

Twice a year, super funds will report and pay:

  • unclaimed super of members aged 65 years or older, non-member spouses and deceased members.
  • unclaimed super of former temporary residents.
  • small lost member accounts and insoluble lost member accounts.
  • inactive low-balance accounts.

Rescuing fees and charges

From 1 July 2019, exit fees including fees on partial withdrawals have been abolished for all superannuation fund members regardless of their superannuation account balance.

Where a superannuation fund member’s final account balance is less than $6,000 in a year, new caps apply to the fees that providers can charge. From 1 July 2019, administration and investment fees and other prescribed costs on these accounts will be capped at 3%. If the fund has charged more than 3%, the excess needs to be refunded within 3 months.

Single touch payroll exemption for directors and family members

Single touch payroll (STP) was extended to cover all employers on 1 July 2019. For directors of their own company or for family businesses employing family members, there are some practical problems with STP – sometimes they don’t know exactly what their salary or wages are for the year until just after the end of the financial year. STP however demands that payments are reported to the ATO in real time.

Who is a closely held employee?

  • family members of a family business
  • directors or shareholders of a company
  • beneficiaries of a trust

What happens after 1 July 2020?

  • Withdrawals taken by the payee (but don’t include payments of dividends or payments which reduce liabilities owed by the business to the closely held payee).
  • Calculating 25% of the total salary or director fees from the previous year or the year of the last lodged tax return of the closely held payee.
  • Vary the previous years’ amount (to take into account trading conditions) within 15% of the total salary or directors fees for the current financial year

Who owns the assets of a trust?

It’s not uncommon for people to put assets such as their family home into a trust, particularly professionals working in litigious fields or family groups wanting to protect assets. A recent case highlights some of the tax problems that can occur.

In effect, without explicit documentation stating that the property was held on bare trust for the taxpayer at the time of the transfer, it did not matter that all the parties involved

thought things were structured differently. The case also shows how important it is for everyone to understand the implications of what is presented in the financial records. The actions of the taxpayer in this case when they signed off the accounts was a factor that led to the Court to determine that the property was an asset of the trust.

Laundry expenses hung out to dry

The ATO is airing the ‘dirty laundry’ on work-related clothing and laundry expenses warning that it is closely reviewing claims.

Clothing claims are up nearly 20% over the last five years and the ATO believes taxpayers are making common mistakes and errors like claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated. In some cases, the ATO will ask employers if they require their employees to wear a uniform to check the validity of claims made.

It’s not just large claims that the ATO is reviewing but claims up to the $150 substantiation threshold. Claims over $150 have to be substantiated with receipts for expenses. Below this level taxpayers are not required to keep normal records. The ATO believes that a lot of taxpayers are simply ticking the box thinking that the claim is a ‘standard deduction’ but it’s not an automatic entitlement.

60,000 tax cheat tip-offs

Tip-offs to the Australian Taxation Office (ATO) have reached an all-time high with close to 60,000 tip-offs received between June and May 2019 – almost double the number of the previous year. The ATO thinks the number of tip-offs will reach around 70,000 for the full financial year.

Some of the typical behaviours reported include:

  • Discounts for cash, cash deals without a receipt or a discount for cash/mates rates
  • Jobs paying cash wages without payslips or superannuation entitlements
  • Not ringing up a sale on the till or keeping the till drawer open
  • Having two sets of books
  • Deleting transactions on the point of sale system
  • Claiming work-related expenses the taxpayer is not entitled to
  • Attempts to avoid paying child support or other obligations by appearing to earn less income than what the person receives
  • Failing to lodge returns or keep records
  • Arrangements that promise tax benefits like fabricated deductions or schemes out of step with the intention of the law

Business owners are reported for:

  • Claiming personal expenses on a business account so they can claim deductions
  • Paying employees late or less than they should
  • Not paying superannuation or other employee entitlements

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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. We are able to help you and your business with all aspects of tax time, and we can offer strategic advice to help you and your business.

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 decision based on this information.