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ATO announces changes to how penalty relief is applied

From 1 July 2018 the ATO says it will not apply penalties to tax returns and activity statements where you have made an inadvertent error by failing to take reasonable care or due to the fact that you have not taken a "reasonably arguable" position (more below).

It says that if it finds inadvertent errors in your tax return or activity statement, it will fix the error and contact the taxpayer (or the tax agent who lodged) to make sure the taxpayer is informed about how to get it right next time.

The ATO says its penalty relief applies to eligible individuals as well as entities with a turnover of less than $10 million. These entities can be:

  • small businesses
  • SMSFs
  • strata title bodies
  • not-for-profit organisations
  • co-operatives.

Those not eligible for penalty relief include:

  • wealthy individuals and their businesses
  • associates of wealthy individuals that may be classified as a small business entity in their own right
  • entities that do not meet the small business entity eligibility criteria
  • public groups, significant global entities and associates.

The ATO points out that no-one can apply for penalty relief - it will provide this during an audit if clients are eligible. If the ATO audits you for periods earlier than 1 July 2018, it says it will also apply penalty relief for those periods.

Relief from penalties also comes with a "reset" period, which means penalty relief will be available once every three years at most. Penalty relief is not available for example where, in the past three years, you have:

  • had penalty relief applied
  • been penalised for reckless or intentional disregard of the law
  • evaded tax or committed fraud
  • been involved in the control or management of another entity that has evaded tax
  • incurred debts without the intention of being able to pay, such as with phoenix activity.

Penalty relief does not apply to other taxes such as fringe benefits tax (FBT) or the super guarantee (SG).

What is a reasonably arguable position?

The process for determining whether a position is "reasonably arguable" is explained to some degree in miscellaneous taxation ruling MT 2008/2. The ATO, in taxation ruling TR 94/5, states that: "Whether the taxpayer's treatment was reasonably arguable would depend on its relative strength when compared with the Commissioner's and other possible treatments. In other words, taxpayers should take particular note of the Commissioner's views on the correct operation of the law as expressed in a public ruling, but may adopt alternative treatments provided there are sound reasons for doing so."

A Treasury review of income tax self assessment found that "reasonably arguable" is only defined in general terms. This includes that "a position is reasonably arguable if it would be concluded in the circumstances, having regard to relevant authorities, that it is at least as likely to be correct as incorrect".

The explanatory memorandum to the A New Tax System (Tax Administration) Act (No. 2) 2000 explains this concept further as follows: "The position must be a contentious area of the law, where the relevant law is unsettled or where, although the principles of the law are settled, there is a serious question about the application of those principles to the circumstances of the particular case."

The EM further states that: "The strength of the taxpayer's argument should be sufficient to support a reasonable expectation that the taxpayer could win in court. The taxpayer's argument should be cogent, well-grounded and considerable in its persuasiveness."

If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au

Vehicle's 'private use' for FBT gets some wriggle room - up to a point


The ATO has made a change to the FBT rules, set to take affect for the 2019 FBT year and beyond, that will give businesses that supply employees with motor vehicles (that are not cars) a prescriptive method to apply to get an exemption to FBT. It is a change from the objective test that has been in place.

Generally, a fringe benefit arises where an employer makes a vehicle they hold available for the private use of an employee. Under the car-related exemptions of the FBT rules, a fringe benefit is an exempt benefit where the private use of vehicles is limited to work-related travel and other private use that is "minor, infrequent and irregular".

The ATO's practical compliance guideline on the matter says there has been demonstrated inconsistency in the application of exemptions, leading to additional compliance costs, especially where private travel is relatively low.

"To reduce these compliance costs and provide certainty, this draft guideline explains when the Commissioner will not apply compliance resources to determine if private use of the vehicle was limited for the purposes of the car-related exemptions," the PCG says.

The relevant part of the new guidelines state that an employee uses a vehicle to travel between their home and their place of work "and any diversion adds no more than two kilometres to the ordinary length of that trip". Also that "for journeys undertaken for a wholly private purpose (other than travel between home and place of work), the employee does not use the vehicle to travel more than 1,000 kilometres in total, and a return journey that exceeds 200 kilometres".

Australasian Fleet Management Association (AFMA) executive director Mace Hartley says the change isn't all that drastic, just new and more defined. "The rules have always been there, people have just taken a very liberal view of the law, whereas this tightens it up. Companies will have to start monitoring what personal usage looks like," he says. "The draft ruling provides something you can adopt for clarity as a business, but you have to understand what kilometres your staff are using if you're going to rely on it."

Hartley says keeping track of vehicle use was something of a thorn in the side of fleet managers before the advent of digital in-vehicle logging systems, known as telematics. "At the very least, this will mean an employee declaration. The next step would be a logbook or telematics systems which would provide added benefits to the business as well as meeting those FBT personal usage compliance," he says.

Hartley says considering telematics technology has just assumed greater importance. "The problem with FBT is the ATO can pick up something in the future and backdate penalties," he says. "The guideline has been issued to help businesses know better what minor and infrequent usage is, but in making it more specific, businesses need to make sure they comply."

He says old paper-based methods of record keeping can be susceptible to human error and, at the very least, employees will be held more accountable for their use of company vehicles by the company. "They either need a logbook, which nobody does accurately and they're flawed, or they need to sign a declaration saying they won't go over the restrictions," Hartley says.

The ATO's clarity will also test company policies. "There's no point putting policies in place and letting them sit in a drawer – they'll need to test the veracity of them. The guideline presents some potential opportunities and clarity for businesses, but they'll have to review and determine how people have done their mileage."

He says the definitions have long been murky and that has led to both the popularity of dual-cabs and the increase in personal use. "If someone's doing 50,000 work kilometres a year, the school drop-off each day certainly fails the 'infrequent' definition but by percentage it might be okay on the 'minor' definition. It's grey," he says.

"It might make a situation where even more dual-cabs like the Hilux are sold, rather than single-cab – because they're both FBT exempt but you can't take the family in the single-cab, and it also makes sense that more than two employees may need to be driven around."

If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au.

Treasury floats idea of SMSF trustees self-assessing eligibility for 3-year audit


A discussion paper was issued by Treasury in the first week of July, titled "Three year audit cycle for some self-managed superannuation funds". Among the more contentious proposals was that trustees should be able to self-assess their eligibility to conduct audits every three years, as opposed to the current standard of a yearly audit.

The basis for eligibility will depend, the discussion paper states, on funds toeing a yet-to-be determined line on good record keeping and compliance, which would include timely lodgement of SMSF annual reports (SARs) and three consecutive years of clear audit reports. An audit will be required however in a year in which a "key event" occurs, which would include starting a pension or an LRBA, the addition or removal of a member, transactions with a related party or receipt of non-arm's length income.

Timely SAR lodgement however is something that is yet to be determined, with the Treasury paper flagging range of options for what constitutes "timely". These being:

  • never submitted a late SAR
  • no late SAR in last three years
  • no outstanding SARs.

The final definition could however have quite an influential outcome on eligibility, as data the ATO holds indicates that about 40% of trustees have submitted a late SAR on at least one occasion in the three income years of 2013-14 to 2015-16.

The 3-year audit option is planned to be open from 1 July 2019.

The paper has also been issued as a method to gauge reactions from the marketplace. As a tool in the consultation process, the paper posits the following questions:

  1. How are audit costs and fees expected to change for SMSF trustees that move to three-yearly audit cycles?
  2. Do you consider an alternative definition of 'clear audit reports' should be adopted? Why?
  3. What is the most appropriate definition of timely submission of a SAR? Why?
  4. What should be considered a key event for a SMSF that would trigger the need for an audit report in that year? Which events present the most significant compliance risks?
  5. Should arrangements be put in place to manage transition to three-yearly audits for some SMSFs? If so, what metric should be used to stagger the introduction of the measure?
  6. Are there any other issues that should be considered in policy development?

Interested SMSF trustees/members are invited to respond to Superannuation@treasury.gov.au before the end of August.

If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au

Dealing with tax and renting via Airbnb

Airbnb is one of many examples of the "sharing economy" - connecting buyers (users) and sellers (providers) through a facilitator that usually operates an app or a website. Airbnb acts as this facilitator by allowing individuals, referred to as "hosts", to rent out a room of their house or their whole house for a short-time basis via its online platforms.

 

While the focus here is on Airbnb, the tax concepts outlined could be applied in a more general sense to anyone seeking to rent out a part of their home, whether through Gumtree, Realestate.com.au, Flatmates.com.au and so on.

The tax issues raised relate to hosts who:

  • own their own home;
  • live in it full time; and
  • want to generate some dollars by putting up an identifiable area of their home for rent.

As a host, the three major tax considerations that you need to be aware of are rental income, rental expenses, and capital gains tax.

Rental income
The main question hosts need to ask themselves here is whether a commercial amount of rent is being charged. Generally, where a room is advertised for rent at market rates to the general public through Airbnb (or a similar online directory, but we'll use Airbnb as the generic term) the arrangement is likely to be at "arms-length" and hosts would be required to declare their rental income.

Rental expenses
Where the rental arrangement is at "arms-length" and income is declared, hosts would be entitled to tax deductions for expenses incurred in deriving that rental income.

Expenses incurred by hosts can be split into three categories:

  1. Expenses that are directly associated with the rented area – deductible in full.
  2. Expenses that relate to shared areas – apportionment required.
  3. Expenses that relate to the host's private area only – not deductible.

Depreciation on furniture purchased for use in the rented room is a good example of an expense that is directly associated with the rented area of the host's home, and would be deductible in full.

Some examples of other expenses that may be deductible in full include:

  • commercial cleaning of a rented area;
  • repairs and maintenance;
  • professional photography for the listing; and
  • host service fees charged by Airbnb.

Where there are expenses that relate to the entire property, apportionment is required. The ATO has indicated that floor space can be used as a general approach for apportioning expenses.

Some examples of expenses that relate to the entire property and may be deducted in this way include:

  • mortgage interest;
  • council rates;
  • utilities; and
  • insurance.

It is important to note that where capital works are undertaken in relation to the property, capital works deductions are generally not available to hosts, as they are also using the property for their own residential accommodation.

Expenses that relate to shared areas can be apportioned based on access. In regard to using floor space as an indicator, if say one tenant and one host had equal access to shared areas, the host could therefore claim for 50% of these expenses.

Examples of expenses that relate to shared areas only, and may be deductible in this way, include:

  • depreciation on furniture and appliances located in shared areas;
  • internet; and
  • cable TV.

One final thing to note in relation to expenses is that they are only deductible where an area of the house is either actually rented out, or genuinely available for rent. For example, where a room in the host's home is only available for rent for 90 days a year, say while a housemate is away, then only the portion of rental expenses that were incurred during that 90-day period would be deductible and further apportionment may be required.

Capital gains tax
In general terms, the sale of an individual's primary residence is CGT-free under the main residence exemption if the dwelling was their main residence for the entire time they owned it, and it was not used to produce assessable income.

However as hosts are renting out a portion of their home on Airbnb, they are using a portion of it to produce assessable rental income and therefore would only be only eligible for a partial main residence exemption. This means that hosts may be taxed on a portion of any capital gain realised upon the sale of their main residence.

Remember that "pre-CGT" assets (bought before 20 September 1985) are not subject to CGT, regardless of whether they are used to derive rental income.

Dealing with a post-CGT main residence
The below scenarios assume the following:

  • the host purchased their home post-20 September 1985 (and therefore may be subject to CGT on the sale); and
  • the host would have been eligible for the main residence exemption from the time that they purchased their home until the time that they started renting out a portion of their home.

A basic scenario would be one in which a host rented out the same part of their home from the time that they purchased it until the time that they sold it. In this case, the part of the home used to produce assessable income would be subject to CGT and the private portion of the home would be CGT free under the main residence exemption. As with expenses, an apportionment based on floor space may be used to determine the portion of the property that is subject to CGT.

A more common scenario may be where the host began renting out a part of their home some time after moving in. The calculations under this scenario can differ depending on whether the host first began using their home to produce assessable before or after 7.30pm on 20 August 1996.

The reference "first used to produce assessable income" would generally be the first time a host rented a part of their home out (whether on Airbnb or otherwise). However, if the host had previously used part of their home as a home office or workshop at some time in the past, it may actually be that time that the home was "first used" to produce assessable income.

Pre-20 August 1996 property
Where the host first used their home to produce assessable income prior to 7.30pm on 20 August 1996, they would need to calculate the portion of the ownership period in which they used the entire house for private purposes and the portion in which they were renting part of the house out.

Purchased: 1 July 1991 (used 100% for private purposes)
First rented a portion of house: 1 July 1995 (30% of total floor space apportioned to tenant)
Sold: 1 July 2012
Total days house was owned: 7,671
Total days portion was rented out: 6,210
Gain on sale: $100,000
Calculation: $100,000 x 6,210/7,671 x 30% = $24,286 gross capital gain.

This gross capital gain could then be reduced further by either indexation or the general 50% CGT discount, as the property was held for at least 12 months.

Post-20 August 1996 property
Where the host first used their home to produce assessable income post-20 August 1996, the calculation is slightly different. Firstly, the host is deemed for tax purposes to have acquired the property as at the date that the house was first used to produce assessable income and secondly, a market valuation, calculated at that date, may be required, which is then taken to be their deemed cost base to be used in calculating any future capital gain. This valuation could come from a registered valuer or could be calculated by the host, however it is important to note that the ATO has the power to challenge valuations.

Purchased: 1 July 1991 (used 100% for private purposes)
First rented a portion of house: 1 July 1998 (30% of total floor space attributable to tenant)
Market value @ 1 July 1998: $200,000
Sold: 1 July 2012
Sale price: $500,000
Calculation: ($500,000 – $200,000) x 30% = $90,000 gross capital gain.
This amount may be reduced further by either indexation or the general 50% CGT discount.

These two scenarios are relatively straightforward. Where different portions of the house were available for rent during the host's ownership period, or where the entire house was rented during some periods and was used 100% for private purposes during other periods, the CGT calculations can become very complex.

Goods and services tax
Income from renting out part of a residential property is typically "input-taxed". This means that hosts should not charge GST on the rent that they earn from guests. Conversely, hosts cannot claim input tax credits for any rental expenses that they incur, but are entitled to claim the GST inclusive amount of any rental expenses as a tax deduction.

Be aware however that GST may apply if host is taken to provide "commercial residential premises" – which includes, among other things, accommodation that is a hotel, motel, inn, hostel or boarding house. Remember also that being registered for GST is subject to the host exceeding the $75,000 turnover threshold.

PAYG instalments
If hosts report more than $2,000 of rental income on their latest lodged tax return, they may receive a letter from the ATO notifying them that they are required to begin making periodic PAYG instalments. These are essentially prepayments of tax that are offset against the host's final tax liability at the end of the year upon lodging their tax return.

If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au

Duties and taxes when you buy online from overseas

Items that you buy over the internet from an overseas source are generally required to abide by the same rules and screening processes that apply to any other "import". Also the usual duties or taxes should apply.

Customs duties are regulated by the Department of Home Affairs (a recently formed body from December 2017, which now oversees the Australian Customs Service as well as Immigration and Border Protection).

Relevant facts to keep in mind include:

  • For goods that are worth $1,000 or less, there are at the present time no duties, taxes or charges to pay (however see below*).
  • For goods that are worth more than $1,000, you are generally required to fill out a special form called an Import Declaration, and pay duties, taxes and charges.
  • You will need to pay duties and taxes on some goods (like tobacco or alcohol) regardless of their value.
  • Certain types of goods are not allowed to be brought into Australia, such as firearms, or else need special permits.


The Department of Home Affairs may screen, x-ray or examine your goods just like any other imported items to make sure the goods are allowed into Australia. The Department of Agriculture may also need to clear and inspect items before they can be delivered to you.

There can be a cost

How much the goods are worth, and how they arrive in Australia, will determine how the Department of Home Affairs clears them for delivery to you and what duty, taxes and charges may apply.

Sometimes goods bought over the internet, even from an Australian company, may be sent to you directly from overseas. However this means that you may still have to pay duty and taxes when this happens.

Goods with a value of $1,000 or less

At present, you do not have to pay duty and taxes on goods (excluding tobacco, tobacco products and alcohol) with a value of less than $1,000. These are called low value imports.

If these goods arrive in Australia by air or sea cargo, they generally must be accompanied by a "self-assessed clearance" declaration. This will generally be taken care of by the cargo company, and there is no charge for this declaration. Goods arriving by post do not require such a declaration.

*Note: GST is to be extended to low value imports from 1 July 2018. Also at the time of writing Home Affairs has issued a proposal to apply a levy, estimated to be around $5, to low value imports. The levy is to offset costs of bio-security and other screening for the roughly 40 million low value parcels entering Australia each year, which is expected to keep increasing.

Goods with a value of more than $1,000

To import goods with a value of more than $1,000, you may be required to make an "import declaration", which provides information about the items being brought into the country, including that GST has been applied. There is a processing charge for making an import declaration, and you will also be required to pay the duty and taxes for your goods.

Depending on the number of goods you are looking to bring into Australia, you may wish to use the services of a licensed customs broker to help you import your goods.

Paid customs duty but changed your mind?

Unfortunately "a change of mind", or "they don't fit", or simply "I don't like them" is not a customs duty refund circumstance under the legislation. However as an alternative option, if you go on to export the previously imported goods, subject to certain conditions, you may be entitled to a drawback of the duty paid. If relevant, ask this office for more information on the Duty Drawback Scheme.

Before you buy online

Gas and electrical goods that do not meet Australian safety and technical standards may be a serious safety risk. Those for sale online from overseas may not meet Australia's standards. Some goods, like barbeques and personal grooming items, may not be able to be modified to meet the Australian standards.

If you buy pirated or counterfeit items, you are buying a flawed product and supporting an illegal trade that could involve serious criminal activity and harm. In some cases, Customs and Border Protection will seize imported pirated and counterfeit goods.  

Alcoholic beverages, tobacco and tobacco products

If you import alcoholic beverages, tobacco or tobacco products by mail with a value equal to or less than $1,000, Home Affairs will send you an invoice advising the duty and taxes payable. You need to pay this invoice before your goods will be delivered to you.

If the goods have a value of more than $1,000 you must lodge an import declaration.

If you choose not to pay for the duty and GST on the alcohol products within 30 days of the payment advice, the goods may be returned to sender.

If you choose not to pay the duty and taxes on the tobacco or tobacco products within 30 days of the invoice, the goods will be treated as abandoned and will be destroyed (tobacco or tobacco products cannot be returned to sender).

If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au

Bitcoin: Its place in your wallet or SMSF portfolio

While bitcoin may be the most well-known cryptocurrency, there are nearly 1,500 in existence. In its simplest form, a cryptocurrency is a "peer-to-peer electronic cash system", which means that the currency is not in a physical form like cash but sits in an electronic register. 

What makes bitcoin work, where previous attempts at electronic cash did not, is in the magic of something called blockchain. One of the problems with earlier electronic cash was that it was possible for those with the skills to fool the system and allow multiple transactions of the same piece of currency.

Bitcoin and other forms of blockchain get around this.  Rather than having a central ledger of all transactions, blockchain relies on a decentralised network of ledgers, all of which have a complete record of every transaction of every bitcoin. Every one of these ledgers must be the same before the system recognises a transfer of a bitcoin or part thereof. There is extensive cryptography to secure the transactions.

As a digital currency, bitcoins are sent and received via digital addresses. The system uses public key cryptography to make and verify digital signatures used in bitcoin transactions. Users are assigned a private access key enabling access to bitcoins stored in a digital wallet. Users are able to transfer money without utilising centralised banks and third-party payment channels.

To further enhance the system, there is a permanent limit on the number of bitcoins that will ever be created.  This ensures that the value of the bitcoin isn't destroyed by the electronic equivalent of just printing money.  The consequence of this however is that bitcoins are scarce. As we know, if a commodity is scarce but in demand, the value of that commodity will increase, as we have seen with bitcoin and other cryptocurrencies. 

The problem this creates though is that the commodity can be used for speculative purposes, which isn't bad when you buy low and sell high but can be very damaging in a boom-and-bust scenario of investment bubbles.

The other thing about bitcoin and the like is that ownership can be relatively anonymous, with the ability to hide transactions from governments and regulators. For this reason it is favoured by crime syndicates, money launderers and terrorist networks (and the odd white collar criminal too). It is this element that has bought cryptocurrencies to the attention of regulators and why they may in the future be subject to regulation.


Tax and bitcoins

Cryptocurrency in Australia had until recently been subject to what was labelled "double taxation". Legislation affective from July 1, 2017 aligned the goods and services tax (GST) treatment of digital currency with money. Before this, anyone using cryptocurrency as payment effectively paid GST twice - once when buying the bitcoin and again on its use in exchange for goods and services subject to GST.

The ATO deems bitcoin to be neither money nor foreign currency, but also holds that it can be regarded as an asset for capital gains tax (CGT) purposes.

A far as conducting transactions with bitcoin, the ATO states that it views such transactions as akin to barter arrangements. In conducting a business transaction therefore, the same process would be followed as when, for example, receiving a non-cash consideration under a barter transaction, with the consideration recorded at fair market value. This can be obtained from a reputable bitcoin exchange.

For individuals, when buying items online for personal use or consumption, there is generally no income tax or GST implications. Any capital gain or loss realised by disposing of bitcoin is generally disregarded - as a personal use asset, provided the value of the bitcoin is less than $10,000.

ATO advice is that certain records should be kept for any bitcoin transactions:

  • the date of the transactions

  • the amount in Australian dollars (which can be taken from a reputable online exchange)

  • what the transaction was for

  • who the other party was (even if it's just their bitcoin address).

SMSF investment

The dramatic rise in value (and then fall) of bitcoin and other cryptocurrencies has sparked interest among SMSF trustees on its potential as an investment, particularly in a marketplace of low-interest rates, erratic sharemarkets and an easing in property.

But its relatively short history makes it hard to predict, and there is uncertainty what (if any) future regulation will be placed on it. There are also uncertainties on how to manage cryptocurrencies within the tightly regulated SMSF space.

The ATO has made it clear that, at the moment, it cannot stop an SMSF investing in a cryptocurrency like bitcoin. There is no specific prohibition in the relevant legislation, and it is permissible as long as it meets the other rules for investment.  But this does not mean there are no pitfalls for SMSF trustees.

The first thing a trustee or administrator must do is to check the trust deed. As it is a relatively new investment vehicle few, if any, trust deeds will deal with it directly, and may need amending.

It will also be necessary to review the investment strategy.  Bitcoin is volatile, and in its short history there have been many booms and just as many busts.  Therefore bitcoin only suits those investment strategies that are prepared to take risks. As it pays no income and is subject to wide variation, it is also unlikely to be suitable for fund members in or near retirement phase.

Another thing to realise with cryptocurrencies is that they have no physical assets backing them up - if they fail, you lose everything.  They are only as valuable as someone is willing to pay for them, which also makes them particularly hard to value.

Given the electronic nature of cryptocurrencies, there is a need to ensure that there is a clear separation between the fund's assets and those of trustees. Thus, if you have both personal and SMSF investments in bitcoin, they need to be clearly separated. The ATO has highlighted this as an issue of concern, and something they will look out for when reviewing SMSFs with cryptocurrency investments.

One advantage though of cryptocurrencies is that all transactions are recorded. Therefore they can be checked by auditors (and regulators), however it is advisable to also keep a written note of all transactions including buying and selling prices and dates.

A new issue of concern for SMSFs that invest in bitcoin is that given the wide fluctuations in value, a fund may unwittingly breach the transfer balance cap of $1.6 million and have to wear the headaches and restrictions that breaching the cap brings, in particular if other contributions have been made to the fund.

Both the ATO and ASIC have issued a warning to SMSFs investing in cryptocurrencies. They are a highly speculative investment and not recommended for those who are not willing to make riskier investments.  There is little long-term history of their performance, so it is difficult to understand how they will perform over time.

Having said that, there is nothing currently preventing an SMSF from investing in cryptocurrencies like bitcoin.  Just make sure you do your homework and are prepared for the risk they present. Also, be aware that while at the moment they are lightly regulated (if at all) this is unlikely to be the case long term.

 

Key bitcoin concepts

·         Blockchain - facilitates secure online transactions (bitcoin transaction). It consists of two types of records; transactions and blocks.

·         Blocks - hold batches of valid transactions using cryptography.

·         Transactions – denotes the volume of bitcoins purchased which must carry the digital signature of every input (transaction) owner.

·         Mining – is a record-keeping service performed through a computer system.

·         Wallets – stores the digital credentials of bitcoin holdings.

·         Transaction fees – fees are based on storage size of transactions generated.

·         Supply -12.5 bitcoins per block until 2020, and then afterwards 6.25 bitcoins per block for 4 years until next halving. This halving continues until 2110–40, when 21 million bitcoins will have been issued.


If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au.

 

ATO spells out its big FBT concerns

ATO spells out its big FBT concerns

March 31 and the end of the FBT year is around the corner, so to help taxpayers get things right, the ATO has 

made public the fringe benefits tax issues that attract its attention.

Broadly (not just in relation to FBT), the ATO says the following behaviours and characteristics tend to raise a red flag:

  • tax or economic performance not comparable to similar businesses
  • low transparency of tax affairs
  • large, one-off or unusual transactions, including transfer or shifting of wealth
  • tax outcomes inconsistent with the intent of tax law
  • lifestyle not supported by after-tax income
  • accessing business assets for tax-free private use
  • poor governance and risk-management systems.

But focusing on FBT in particular, the ATO says there are specific behaviours and characteristics that attract its attention, especially in relation to certain areas of the FBT rules. These include issues involving aspects of the living-away-from-home allowance (LAFHA), car parking, employer-provided vehicles and more. The areas the ATO has stated it will be focusing on with regard to FBT are listed below.

Living-away-from-home allowance (LAFHA)
LAFHA is an allowance an employer pays to employees to compensate for additional expenses incurred and any disadvantages suffered because the employee's duties of employment require them to live away from their normal residence.

The taxable value of the LAFHA benefit may be reduced by the exempt accommodation and food components of the allowance.

Common errors that the ATO says attracts its attention include:

  • claiming reductions for ineligible employees
  • failing to obtain required declarations from employees
  • claiming a reduction in the taxable value of the LAFHA benefit for exempt accommodation and food components in invalid circumstances
  • failing to substantiate expenses relating to accommodation and, where required, food or drink.

Car parking valuations
The ATO will focus on the validity of valuations provided in relation to car parking fringe benefits. The common errors that attract its attention include:

  • market valuations that are significantly less than the fees charged for parking within a one kilometre radius of the premises on which the car is parked
  • the use of rates paid where the parking facility is not readily identifiable as a commercial parking station
  • rates charged for monthly parking on properties purchased for future development that do not have any car park infrastructure
  • insufficient evidence to support the rates used as the lowest fee charged for all day parking by a commercial parking station.

Provided motor vehicles
Another area of focus will be on situations where an employer-provided motor vehicle is used, or available, for private travel of employees. The ATO says this constitutes a fringe benefit and needs to be declared on the FBT return (if lodgment is required). There are circumstances where this may be exempt, such as where the business is tax exempt or the private use of the vehicle was exempt. There are special rules around these circumstances (ask us for more details).

The ATO has found that some employers fail to identify or report these fringe benefits or incorrectly apply exemption provisions.

Employee contributions
A red flag is also raised in situations where employee contributions that have been paid by an employee to an employer (which reduces the FBT liability of the employer, such as where a car is supplied but the employee contributes to its maintenance).

The ATO is on the lookout for these amounts being declared on both the fringe benefits tax return (if lodgment is required) and the employer's income tax return. This helps to ensure that the employer does not:

  • fail to report these contributions as income on their income tax return
  • incorrectly overstate employee contributions on their fringe benefits tax return to reduce the taxable value of benefits provided.

For the upcoming FBT season, make sure any concerns with regard to the above areas are raised with this office in plenty of time.

If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au.

Rental property owners lose some deductions!!!

Rental property owners lose some deductions!!!

Legislation that came into law in the last half of 2017 makes certain measures first announced with the 2017 Federal Budget now a reality.

The "housing tax integrity" bill solidifies the government's intention to deny all travel deductions relating to inspecting, maintaining, or collecting rent for a residential investment property. As well, second-hand plant and equipment that came with an investment property are now off the table as far as depreciation goes.

The measures will apply from July 1, 2017, so will affect returns for the current financial year. However the changes to depreciation are dependent on when assets were purchased (more below).

The change to travel claims means that travel expenditure incurred relevant to gaining or producing assessable income from housing premises used as residential accommodation will not be deductible. The travel expenditure will also not be recognised in the cost base of the property for CGT purposes.

It should be noted that the amendments do not affect deductions for travel expenditure incurred in carrying on a business, including where a taxpayer carries on a business of providing property management services.

Depreciation change

The government has also limited plant and equipment depreciation deductions to outlays actually incurred by investors. In essence, unless you as the buyer have physically purchased the items, you can no longer depreciate them. In other words, if otherwise depreciable assets came with the investment property you purchase, there will no longer be an option to continue depreciating those assets in your hands.

Being new rules however, there are calendar dates that may determine if you are affected or not. The amendments will apply from 1 July 2017 for assets purchased after 7.30 pm 9 May 2017 (when they were announced in the Federal Budget 2017).

The changes apply to:

  • previously used plant and equipment acquired at or after 7.30 pm on 9 May 2017 unless it was acquired under a contract entered into before this time
  • plant and equipment acquired before 1 July 2017 but not used to earn income in either the current or previous year.

Investors who purchase new plant and equipment will continue to be able to claim a deduction over the effective life of the asset.

Exceptions

A taxpayer will be able to continue to deduct travel expenditure and depreciate incumbent plant and equipment if:

  • the losses or outgoings are necessarily incurred in carrying on a business for the purposes of gaining or producing assessable income; or
  • the taxpayer is an "excluded class of entity".

The ATO explains these as being:

  • a corporate tax entity;
  • a superannuation plan that is not an SMSF;
  • a public unit trust;
  • a managed investment trust; or
  • a unit trust or a partnership, all members of which are entities of a type listed above.

The ATO says that its aim is to "improve the integrity of the tax system by addressing concerns that some taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private purposes".

However, it is also explained that these measures is not intended to affect deductions for institutional investors in residential premises, as "the same integrity concerns do not arise for such investors".

 

If you have any questions, or need further clarification please contact BgBA Chartered Accountants on Telephone: (02) 9188 5252 or Email: info@bgba.com.au.

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