Author: Glance Consultants

 

Being introduced in November 2021 in Australia, a Director ID is a way in which to detect unlawful activity. If you’re a company director, take a look below.

 

What is it?

A Director ID is a 15 digit identifier that all Australian company directors will need to possess. It is unique to that person and will follow the individual across any companies that they are a part of.

 

Why are they being introduced?

They are designed to track the activity of directors, rather than just the company. This is so any unlawful behaviour can be more easily identified and stamped out.

Phoenixing is one such illegal activity that will be tracked and eliminated with the introduction of the Director ID in Australia. This is when a director transfers assets from one company to another with the intent of avoiding debt. They continue their business under a new company name whilst the original company goes into liquidation.

 

Do I need one?

If you are the director of an Australian business, a registered foreign company, a registered Australian body or Aboriginal or Torres Strait Islander corporation, then yes. You will be required to register for and receive a Director ID in the coming weeks and months.

If you run a business as a sole trader or partnership or you are the director of an incorporated association without an ABN, a company secretary or acting as an external administrator of a business or are registered with the Australian charities and Not-for-profits commission, then you are not required to apply.

 

How do I apply?

You must apply yourself because part of the process is confirming your identity. This doesn’t mean you need to do this on your own, the team at Glance Consultants can help you through this new process.

You can apply online, by phone on 13 62 50, or through the post. Please have all relevant, identity documentation handy with certified copies being included with any postal forms.

Applications are open for the Director ID from the 1st November 2021. We encourage all directors to get onto this immediately for peace of mind and again.

You have until November 30 2022 to receive your Director ID. For new directors between now and  April 4, 2022, you have 28 days to apply and those who become a director of a company from the 5th of April 2022, they must have a Director ID before their appointment as a Director.

For more information please contact Glance Consultants on 03 9885 9793

 

 

When family members are involved, self-managed super funds (SMSFs) can be vulnerable to disputes and unfortunately be difficult to avoid and work through should they emerge.

Such disputes can be triggered by a range of factors including relationship breakdowns between parents and siblings when in a member/trustee relationship or due to a simple, fundamental difference in opinions. 

Investment strategy disagreements can cause a lot of confusion and frustration between members of a SMSF and when it comes to payouts, there can also be many disputes surrounding the distribution of death benefit payments between surviving members.

In order to avoid any potential disputes surrounding an SMSF, it is critical that members consider the following methods as a guideline:

 

1. Clear decision making procedures. 

Money is unfortunately a root cause of many arguments even between very closely bonded family members. By having concise decision making provisions put in place at a time when no disputes have yet to emerge, then boundaries are immediately put in place to protect the wellbeing of all involved. 

By making these clear decision making procedures available and understood by all, at everyone’s earliest convenience, then potential issues can immediately be ironed out during a period of lower emotional volatility to ensure that procedures are kept fair for all. 

For example, trustee decisions can be a majority rule rather than a unanimous decision and should there be a deadlock, a particular trustee can be appointed to cast a deciding vote. In addition, voting rights can be based on the value of a member’s account balance on a factor of percentage, to ensure those members with minority interest cannot out-vote those with larger contributions. 

 

2. Keep reevaluating, keep updating. 

In order to prevent any unwanted beneficiaries and claims, it is essential that SMSFs and trustee information is kept up to date. Unfinalised divorces or changes to a relationship status that have not been legally confirmed will mean that those connected to a member will be able to benefit from their former spouse’s superannuation death benefits. 

By simply being proactive about the processes and the information kept in a SMSF, then you are able to avoid any potential disputes that may arise throughout the course of the fund’s lifetime. 

Here at Glance Consultants in Australia, we understand that a family member’s situations are constantly changing and we seek to provide tools for our clients to ensure that such changes do not have a negative impact on everyone’s financial health and future. 

Contact our friendly team of trusted advisors on 03 98859793 or at enquiries@glanceconsultants.com.au to discuss your needs and our full service offering. If you cannot attend our office located at 217A High Street, Ashburton VIC 3147, Australia, we can organise a meeting via Zoom, phone or assist via email depending on your circumstances.

 

 

Many tenants and property owners are not even aware of the depreciation benefits that they are able to claim during tax time on their commercial property. An office building, hotel or warehouse all offer different opportunities and complexities for tax depreciation. 

By recognising the differing depreciable items within any given commercial property, our team here at Glance are able to advise, support and guide you in developing a comprehensive ATO approved tax depreciation schedule that you can use to maximise your tax return.

Take a look at some of these concepts designed to support owners and tenants during tax time to understand the potential depreciation benefits that a commercial property may provide. 

1. There are two separate divisions that commercial property depreciation can be claimed under: Capital Works and Plant and Equipment. 

Capital works refers to the building structure and permanently fixed assets and Plant and Equipment considers all fittings and fixtures that are easily removed. 

2. Depreciation deductions are available to old or new commercial properties. 

It is worthwhile to ask prior to purchasing a property whether previous tax depreciation has been claimed or not. Also, if the property has been built prior to 20th July 1982, it is important to ask whether deductions are available on the property. Anything built after this date automatically qualifies. 

3. Take note of the recently introduced government incentive that may allow you to instantly write off an asset’s cost as a tax deduction. 

Plant and equipment assets purchased between 6th October 2020 and 1st July 2023 are included in this incentive.

4. Both owners and tenants can claim depreciation. 

Property owners are able to claim deductions if the property is leased or on the market for lease. This is particularly important now that many commercial properties remain untenanted due to the Covid-19 economic impact. 

Those individuals who both own and occupy their commercial property can claim depreciation as well, which differs from residential laws which prevent people in such situations from doing so. 

If you are interested in understanding more about a commercial property’s potential depreciation and how to claim for this during tax time, then do get in touch with one of our professional team members here at Glance Consultants to talk through your situation and receive relevant advice and guidance.

 

 

Compensation payments: Avoiding contribution issues

Superannuation fund trustees who receive compensation from financial institutions and insurance providers must consider how receipt of these payments may impact a member’s contribution caps.

A superannuation fund may have a right to seek compensation if it entered into a legal contract or agreement with a financial services provider or insurance provider, paid the fees or premiums from the fund’s assets, allocated the cost to the members, and:

■ the financial service or advice was not provided
■ the advice was deficient, or
■ the insurance premiums for death or disability insurance cover were overcharged.

The compensation may include an amount reflecting a refund or reimbursement of adviser fees and/or an amount to compensate for lost earnings. It may also include an interest component.

If a superannuation fund receives such compensation, the fund’s trustee must be aware of possible superannuation, income tax and GST consequences for the fund.

The implications for the fund and members

The ATO has released a superannuation contribution caps factsheet that explains how the receipt of compensation payments to a superannuation fund may impact contribution caps.

Whether compensation is a contribution will depend on the circumstances in which the compensation is received.

The circumstances are summarised in the table below:

Knock-on effects for members

The following issues should also be considered by superannuation fund members who have received compensation payments:

■ If the payment results in the member exceeding their concessional or non-concessional contribution cap, the member can apply to the ATO to request the Commissioner to exercise their discretion to disregard the excess contributions or reallocate them to another year.

■ The ATO is unlikely to exercise its discretion if the compensation is paid to the member and the member contributes it to their superannuation fund, or the member directs the financial service provider to pay the compensation to their superannuation fund for their benefit. This is because making the contribution to superannuation is in the member’s control.

■ If a compensation payment is a non-concessional contribution and causes the member to trigger the bring-forward rule, although the member may not exceed the cap in the first year, it could cause problems in the second or third years of the bring-forward period. Where the member subsequently makes a contribution in the second or third years that results in the member exceeding their cap, the ATO has stated there would have to be special circumstances in relation to that contribution made in the later year for it to exercise its discretion.

■ If the compensation payment is a concessional contribution, there may be Division 293 tax consequences if the member’s combined income and concessional contributions exceed the income threshold for the financial year they receive the contribution. From 1 July 2017, the Division 293  threshold is $250,000.

Further information can be found on the ATO website (QC 59706).

Home as a place of business during COVID: CGT implications

The COVID-19 pandemic has resulted in more employees working from home than ever before. This, in turn, has resulted in such people being able to claim a range of deductions for various “running expenses” associated with working from home. These expenses include electricity, phone service, cleaning, decline in the value of equipment, furniture and furnishing repairs, and so on. To make things easier, the ATO even provided several “short-cut” options to claim “working from home” expenses (as opposed to claiming the relevant proportion of the actual costs).

In addition, many people who operate a business (eg, as a sole trader or in partnership) have been required to use part of their home as a place of business – or may have been doing so for many years anyhow.

They, too, are entitled to claim various “running expenses” associated with working from home.

Moreover, if part of the home has the character of a place of business and is set aside as such, then such persons would generally also be able to claim a portion of occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums) in addition to running expenses. This is because part of the home is an asset that is used in carrying on their business. However, where part of a home is being used as a business to generate assessable income, the homeowner will not be able to sell their home CGT-free. Instead, a partial CGT main residence exemption will apply on the basis that part of the home has been used to produce assessable income (in the same way it would apply if part of the home had been rented at arm’s length).

The rules for calculating a partial CGT main residence can be difficult to apply – particularly in determining the appropriate apportionment and correctly applying any exclusions. A professional’s expertise here is invaluable.

More importantly, in cases where a partial exemption may apply because of part-business use of a home, then the CGT small business concessions may be available to eliminate, reduce or roll over any assessable capital gain. The ATO accepts this as being possible:

“You may be able to apply one or more of the small business CGT concessions to reduce your capital gain unless the main use of the house was to produce rent.” (See the ATO website at QC 59281.)

However, the CGT small business concessions are difficult to apply at the best of times – let alone in the case where part of a home is used as a place of business. For example, issues may arise as to whether the homeowner meets the basic threshold requirement for the concessions (including the holding period rule), the effect of joint ownership of the home and, in the case of the 15-year exemption, whether the sale of the home (or CGT event) that gives rise to the capital gain is made in connection with the retirement of the taxpayer.

And of course, where a company or trust carries on the business, a crucial issue also arises as to whether the part of the home used in the business qualifies as an active asset, which is required for the CGT small business concessions to apply.

These (and related) issues require the expertise of a tax professional. So if you find yourself in this position, please contact our office to discuss.

 

 

Inheriting rental properties jointly a dilemma!

Imagine you’re lucky enough to inherit, say, four post-CGT rental properties from a deceased parent – but what happens when your sibling also inherits a half-share of these?

While you both acquire a very valuable 50% interest across four properties, it’s safe to say that in most scenarios, you’d both rather have a 100% interest in two of them.

CGT triggered

Assuming both siblings desire a 100% interest in two properties each (rather than a 50% interest in four properties), they’re going to have to do a bit of “horse trading” between them. This means that each sibling has to give up their 50% interest in two of the four properties, in exchange for acquiring a 50% interest in the other two properties.

It’s important to note that such an exchange of interests will trigger CGT consequences. This is because the interest exchanged (or disposed of) is a CGT asset with a particular cost base (under the inherited asset rules in s 128-15), and the capital proceeds for this CGT event will be the market value of the interest acquired in another property. However, the benefit of the CGT discount should be available.

Moreover, because none of the properties are a main residence or a pre-CGT dwelling, the full CGT exemption rules in s 118-195 cannot be brought into play.

Even so, there may be a couple of solutions to this problem that allow both siblings to get their desired 100% interest each in two properties – without triggering any CGT consequences.

Solution 1: A broadly written will

If the will’s been written in broad enough terms, the executor could use their power/discretion to treat the properties as a pool of assets that can be divided equally between the siblings (ie, so they can get two each).

While this presents one solution, adjustments may still be required if some of the properties have a greater contingent CGT liability attached to them than others (at least at the time of distribution) – and this would have to be accounted for in some way to keep both siblings happy.

At any rate, this becomes a matter of the interpretation of the will – a complex topic that’s beyond the scope of this article – and other issues relating to trustee powers may need to be factored in.

Solution 2: Section 128-20(1)(d)

Perhaps a better solution (assuming there are no Pt IVA issues) comes from the rule in s 128-20 of the ITAA 1997, which relates to assets in an estate passing to a beneficiary without any CGT consequences.

In particular, the rule in s 128-2091)(d) allows for this to occur on the settlement of a claim by one or more beneficiaries (or other persons) by way of entering a deed for consideration in which they relinquish rights under the will.

Specifically, the rule provides that an asset can pass to a beneficiary under a will:

(d) under a deed of arrangement if: (i) the beneficiary entered into the deed to settle a claim to participate in the distribution of your estate; and (ii) any consideration given by the beneficiary for the asset consisted only of the variation or waiver of a claim to one or more other CGT assets that formed part of your estate.

If this is carried out during the period of administration of the estate, then each sibling could take their 100% interest in two properties without any CGT consequences arising from this sanctioned estate settlement.

Ruling TR 2006/14 (see paragraphs 33-37) also indicates that this is a legitimate way for beneficiaries who are dissatisfied with a will to dispute it and then enter into a deed of arrangement to affect a redistribution of estate assets – without jeopardising the CGT rollover that becomes available upon death.

It’s important to note, however, that recourse to this section first requires that the deed is entered into to settle a claim to participate in the distribution of your estate.

Crucially, in this regard, paragraph 37 of TR 2006/14 states (emphasis added):

“A taxpayer is not required to commence legal proceedings in order to establish, for the purposes of paragraph 128-20(1)(d), that they have a claim to participate in the distribution of the assets of the estate. A claim may be established by a potential beneficiary communicating to the trustee their dissatisfaction with the will”.

The solution to the problem!

And so we have a workable potential solution to this problem, subject to any Pt IVA considerations – if you call inheriting multiple rental properties a “problem”!

There are a range of factors at play when determining CGT on property. Speaking to us will help you to understand the options available to you.

 

 

SuperStream deadline fast approaching

SMSF trustees must get ready to process rollovers via SuperStream by 1 October 2021. This means trustees will no longer able to send and receive paper rollover benefit statements and cheques between superannuation funds.

SuperStream requires employers to pay superannuation and send employee information electronically in a standard format. This links the data to the payment by a unique payment reference number.

Many SMSFs may already be SuperStream-ready because SMSF trustees are required to receive employer contributions electronically (including both the amount of the contribution and the contribution information).

The SuperStream changes will impact an SMSF if the members want to:

■ rollover funds to their SMSF
■ rollover funds from their SMSF (ie, when winding up an SMSF), or
■ receive and action certain release authorities, including the first home super saver (FHSS) scheme, more quickly via SuperStream.

To use SuperStream to roll over money to or from an SMSF, an SMSF will need:

1. An electronic service address (ESA) to process electronic rollover requests.
2. An Australian business number (ABN).
3. To ensure SMSF and member details are up-to-date with the ATO, including a unique bank account recorded with the ATO for superannuation payments.

In practice, the 1 October deadline is important for those SMSF members wanting to roll funds in or out of their SMSF as soon as possible. This means SMSF members who do not have any immediate plans to roll funds in or out of the fund still have some time up their sleeve to get SuperStream-ready.

Further information regarding SMSFs and SuperStream can be found on the ATO website (QC 64222).

 

 

Christmas and the ATO

When do employee gifts and celebrations attract fringe benefits tax (FBT)? And when are they exempt?

Christmas is traditionally a time of giving – including employers showing gratitude towards staff for a job well done. However, Christmas parties and gifts can attract the attention of the ATO.

In certain circumstances, an employer can hold a Christmas party for staff and the cost of the party be exempt from Fringe Benefits Tax (FBT).

Take, for example, an employer who holds a Christmas party at a restaurant for employees and their partners and, apart from perhaps the Melbourne Cup, it is the only social function they provide for employees each year. Where this is the case, the party is very likely to be exempt from FBT provided the per-head cost (dinner and drinks) is kept to less than $300 per person. To enjoy this exemption, the employer must use the “actual method” for valuing FBT meal entertainment.

Using the actual method for valuation

The actual method is the default method for valuing meal entertainment FBT and no election is required to use this method. Under this method, an employer pays FBT (in the absence of an exemption) on all taxable meal entertainment provided to employees and their associates, ie, their partners (but not to other parties, such as clients, contractors or suppliers). However, an FBT exemption may apply if the meal entertainment meets the requirements of the minor benefit exemption.

Broadly speaking, under this exemption a benefit will be exempt from FBT where its value or cost is less than $300 and, if similar or identical benefits are provided during the year, they are only provided on an infrequent or irregular basis. The less frequent and regular, the more likely each event will be exempt from FBT.

The 50/50 method

This minor benefit exemption is not available if an employer elects to value their meal entertainment under the less-used alternative 50/50 method. Under this method, the employer pays FBT on only 50% of all taxable meal entertainment provided to employees, associates AND clients, contractors, customers etc. regardless of the cost. Likewise, the employer can only claim a 50% income tax deduction and 50% GST credits on such meal entertainment.

Gifts

If a gift is given at Christmas time and costs less than $300, the minor benefits exemption may be available to exempt from FBT all sorts of common Christmas gifts to employees. This $300 threshold is separate from the Christmas party meal and entertainment threshold.

Non-entertainment gifts to staff (such as Christmas hampers, bottles of alcohol, gift vouchers, pen sets etc) are tax deductible and employers can claim GST credits, irrespective of cost. Note, however, that employers can generally avoid paying FBT if they keep the gift less than $300. If this threshold is exceeded, FBT will apply. Therefore, employers should be conscious of this threshold when providing such gifts to staff this Christmas.

On the other hand, entertainment gifts to staff (such as tickets to movies/theatre/sporting events, holiday airline tickets etc) that are less than $300 will generally not attract FBT, are not income tax deductible, and GST credits on it cannot be claimed. If more than $300, FBT will apply, but a tax deduction and GST credits can be claimed. With the FBT rate at 47%, the tax deduction and GST credits available are unlikely to provide a better tax outcome than avoiding FBT by keeping the gift to less than $300.

For more details on how to navigate FBT and to understand the most tax-effective way to thank or reward employees, please contact our office.

 

 

The tax treatment of Christmas parties: the actual FBT method

 

Click here to view Glance Consultants October 2021 Newsletter via PDF

 

 

The Victorian Government is providing grants for eligible construction businesses, including employing and non-employing businesses, impacted by the two-week shutdown from 21 September – 4 October 2021. The Business Costs Assistance Program Round Four – Construction will launch in mid-October.

Click the link below to subscribe to the Business Victoria Newsletter to keep up with all the latest program updates including eligibility & when the program opens.

Business Costs Assistance Program Round Four – Construction

 

 

There has been a recent change in the regulatory requirements for Rollovers and certain Release Authorities.

It is now mandatory to use SuperStream from 1 October 2021 if any benefits are being rolled in or out of an SMSF in cash as per the new regulations.  Also, certain release authorities may be processed in SuperStream.  Please click on the below link for more detail.

ATO SuperStream Rollover v3 requirement for SMSFs

For SuperStream, you will need:

• an electronic service address (ESA) – you can get an ESA from an SMSF messaging provider
• an Australian business number (ABN), and
• to ensure your SMSF’s details held by the ATO are up to date, including your SMSF’s unique bank account.

One of requirements of SuperStream is to make the rollover via SuperStream no later than 3 business days after receiving the request.  This will involve bringing the accounts up to date to determine the member’s balance before making the payment.  Therefore, the Fund Trustee should delay requesting benefits to be rolled over until the member’s benefit calculation has been finalised to avoid breaching the 3-day requirement. The auditor would be verifying if the payment was made within 3 days as part of the compliance audit.

If you have any questions regarding the above, please contact our office on 03 98859793.

 

Although we know that the Australian economy is in relatively good shape, the current lockdown situation, following previous disruptions does take its toll on businesses & individuals and as a result, recovery can be slow. 

Therefore, thankfully, the Australian Banking Association has declared that they will support both Australian businesses and individuals suffering as a result of closed businesses and reduced working hours.

There is no need to tough it out on your own and if you are finding your situation difficult, your bank may have ways to help you get through it. By assessing your situation on a case by case basis, whether you be an individual, a small business or a larger scale one, options will be made available to ensure that the necessary lockdowns do not pose a significant and lasting detrimental impact on your financial wellbeing. 

We urge you to feel comfortable with contacting support either directly with your bank or by contacting our office to discuss your current situation, if any government assistance is available, forecast your future prospects and potentially pivot to make positive change.

You would be made aware of packages that are available to you through the government or relief can be offered to you by your bank to provide respite as lockdowns continue for the wellbeing of the health system and our communities.

Support from banks include business banking payment deferrals, which can extend for up to 3 months and is available only to loans that are good standing. Some 98% of small businesses can receive this support, designed for those lending less than $3 million with a turnover of less than $5 million. 

Everyday banking support and home loan support is also available to both individual and business customers which include refunds of merchant terminal fees for up to three months, waiving of fees and notice periods and home loan deferrals on a month by month basis, depending on your situation. 

Speak up and receive the support that is available to you so that you do not need to suffer through any detrimental financial impacts that the lockdowns may otherwise impose on you and your business.

Call Glance Consultants located at 217A High Street, Ashburton VIC 3147 today on 03 9885 9793 or email us at enquiries@glanceconsultants.com.au

On the road – How to treat work-related travel and living away from home costs.

The ATO has released new guidance to help clarify the tax treatment of costs and allowances incurred when an employee travels – or spends time living away from home – for work.

Certain conditions need to be met to ensure an allowance can be considered a travel allowance:

■ None of the individual absences from the employee’s usual place of residence exceed 21 days.

■ The employee is not present in the same work location for 90 or more days in an FBT year.

■ The employee returns to their usual residence once their period away ends.

See the table on the following page for a breakdown of the characteristics of travel allowances versus living away from home allowances.

Where the applicable allowance type remains unclear, certain questions can be asked to discern further, such as:

■ Has there been a change in the employee’s regular place of work?

■ Is the duration of the employee’s period away from home relatively long?

■ Is the nature of the accommodation such that it becomes the employee’s usual place of residence?

■ Can the employee be visited by family and friends?

Of course, for a travel expense to be deductible, the employee must be able to demonstrate that it was incurred while travelling for work. Unless exceptions apply, the employee must maintain written evidence of the expenditures and keep travel records for work- related trips that involve an absence of six or more consecutive nights from their usual residence.

The ATO does allow for the not-uncommon scenario where an employee attending a conference, for example, is accompanied by their spouse and stays an extra few days for leisure purposes – although reasonable apportionment is required in these cases.

The ATO also recognises that where employees regularly travel to the same location they may choose to rent or even buy a property there rather than stay in a hotel, motel or AirBnB. The associated costs will be deductible provided they are not disproportionate to what would have been paid had the employee elected to use suitable commercial accommodation instead.

It’s important that allowances paid (or reimbursements made) to cover an employee’s accommodation, food and drink expenses do not form part of a salary packaging arrangement, and must be included in the employee’s payment summary with tax withheld where appropriate. The employer should also obtain and retain documentation establishing that all the circumstances have been met.

 

SMSFs & property development Emerging risks

There has been an increase in the number of SMSFs entering into arrangements where real property is purchased and developed to subsequently be sold or rented out. Such investments can help the fund build up its wealth more quickly than other forms, and from a tax standpoint, any rent or eventual capital gain may enjoy concessional tax treatment.

There are four main ways an SMSF may structure a property development investment or arrangement:

■ Engage an unrelated property developer. The simplest and least risky method, where a developer undertakes the development for payment.

■ Undertake the development itself. For example, an SMSF purchases a house and does its own renovations. The key issues to avoid here are payments to related parties and borrowing funds to finance improvements.

■ Invest in an ungeared related unit trust or company. In this scenario, the trust/company would undertake the development. Such an entity is not subject to the in-house asset rules (unlike a related geared unit trust), but must meet the requirements listed in the Superannuation Industry (Supervision) Regulations 1994 (SIS Act).

■ Through unrelated unit trusts. Where no single SMSF owns 50% or more of the units in a unit trust (as doing so would mean it was in control of the trust and thus a related trust). This has the advantage of allowing the unrelated unit trust to borrow.

SMSF property development is layered with complexity. The sole purpose test, payments to related parties, and the in-house rules are just some of the SIS Act provisions that can lead to an SMSF becoming non- compliant. While the ATO recognises that property development can be a legitimate option for SMSFs, it has flagged the following investment types as liable to raise a red flag:

■ Where they are used to inappropriately divert income into the superannuation environment.

■ Where property development ventures are funded in a way that is inappropriate for retirement purposes.

■ Where they are implemented in a way that can lead to inadvertent but serious contraventions of the SIS Act.

What are some of these potential contraventions?

■ Collateral purposes. Where a property development venture could amount to the SMSF being maintained for a collateral purpose – that is, one other than providing retirement benefits to its members (or their dependants). For example, where the SMSF trustees have other roles within the property development venture (either through other businesses or control of other entities), it is important they can demonstrate that decisions made were solely pursuing the retirement purpose of the SMSF.

■ Related party loans/financial assistance. SMSFs are prohibited from providing loans or financial assistance to members or their relatives. In the property development space, this means not engaging a related party to provide services as a means of providing them with work, and not paying more than market value for their services.

■ Operating standards. SMSF money and assets must be kept separate from those held by a trustee personally; assets must be appropriately recorded at market value; and all transactions carefully documented.

■ Limited recourse borrowing arrangement. An SMSF may borrow money to acquire the land/ property by entering into a LRBA, but the LRBA must be on arm’s-length terms – that is, trustees should consider: repayments and ability to repay; arrangements to provide security to a lender; and related party fees. Also, the amounts borrowed cannot be used to develop or improve the acquirable asset, and if money from other sources is used to fundamentally change the property’s character, it may contravene LRBA requirements by ceasing to be the same/original single acquirable asset.

■ In-house assets. Subject to certain exceptions, an in-house asset of a superannuation fund is an asset that is: a loan to a related party of the fund; an investment in a related party of the fund; an investment in a related trust of the fund; or an asset of the fund that is subject to a lease or lease arrangement between the trustee of the fund and a related party of the fund. Contraventions of the in-house asset rules can occur where the SMSF is deemed to be “investing” in the property development, and thereby potentially exceeding the level of in-house assets allowed (i.e. more than 5% of the market value of the fund’s assets in any financial year).

■ Taxation. SMSFs in the property development game also need to properly discharge their tax obligations, which include income tax matters (such as the non- arm’s length income provisions and general anti- avoidance rules) as well as GST matters (such as registration requirements, correct reporting and the application of the margin scheme).

The ATO is closely monitoring property development arrangements involving SMSFs, and while SMSFs investing in property development will often deal with related parties as part of that development, it’s imperative for trustees to recognise that each transaction must be conducted on arm’s-length terms and recorded as such.

SMSF clients should seek independent advice before entering into property development arrangements, as non-compliance can result in adverse consequences including the forced sale of assets and even closure of the SMSF.

Clients who have already developed property or invested in a property development venture should assess their investment against the issues flagged here – and where contraventions or concerns are identified, disclose them to the ATO so that rectification plans can be put in place.

Claiming GST credits for employee reimbursements

If you are an employer registered for goods and services tax (GST), you may be entitled to claim GST credits for payments you make to reimburse employees (including company directors) or partners in a partnership for certain work-related expenses.

If you are running a business, you will be entitled to a GST credit for an employee-reimbursed expense if the following criteria are met:

■ the employee’s (or associate’s) expense is directly related to their activities as your employee or the reimbursement is an “expense payment benefit”

■ the sale of the item bought by your employee was taxable (that is, not “input taxed”), and

■ your employee is not directly entitled to a GST credit for the expense.

The ATO says a business can claim GST credits where it has relevant documents such as receipts or tax invoices issued to the employee. These will need to be provided to substantiate claims for reimbursement.

A business that is entitled to a GST credit can claim it in a Business Activity Statement once it has been provided with this documentation.

An “expense payment benefit” is made, according to the ATO, when a business makes a payment to, or reimburses, another person “in whole or in part, of an amount of money spent by your employee as part of their employment with you”. Fringe benefits tax (FBT) may apply however.

A business is not entitled to a GST credit if it has:

■ reimbursed “non-deductible expenses”, such as the portion of expenses relating to entertaining clients (usually only half of such expenses are deductible for the provision of entertainment)

■ reimbursed expenses that relate to input taxed sales that are made in the running of the business and it exceeds the special threshold for financial purchases (a reduced GST credit is therefore available on specific purchases), or

■ paid the employee an “allowance”.

The ATO says that if a business makes a payment to an employee based on a “notional” rather than an actual expense, it is not making a reimbursement. For example, if a business makes a cents-per-kilometre payment to cover work-related use of an employee’s private car, it is paying an allowance and not making a reimbursement (again, consider the FBT implications).

MAKING REIMBURSEMENTS

A business makes a reimbursement where it pays an employee for the price, or part of the price, of a particular purchase they made.

For example, if an employee incurs an expense of $220 for a purchase, and is re-paid the whole $220 or even half of that, either payment will be a reimbursement. A business will also have made a reimbursement if:

■ it pays the employee for a particular expense they haven’t paid, provided they have become liable for the expense

■ it pays the employee an advance for an expense they have not yet incurred, providing they have to repay any unspent amount of the advance to the business, or

■ it pays an expense on behalf of the employee, for example, to the business that has made a sale to the employee (the GST legislation treats this type of payment as a reimbursement).

Where any personal use of a purchased item is involved, or the expense relates to non-cash employee benefits, liability for FBT should be a consideration.

Buying a new home before selling the old one: The ins and outs

Sometimes an individual or couple decide to buy a new home before selling their existing one. In such cases, a concession exists that allows for both houses to be treated as a main residence for up to six months – but only if certain conditions are met. Section 118-140 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that both the old and new dwellings can be treated as the taxpayer’s main residence for the lesser of:

■ The six-month period immediately before the sale of the existing home, or

■ The period between the purchase of the new home and the sale of the existing home.

So if it takes a taxpayer less than six months to settle on the sale of their original home after having settled on the sale of their new home, then both homes can be treated as the taxpayer’s main residence during this period.

On the other hand, if more than six months passes between the settlement of the new home and the (later) settlement of the original home, both dwellings will only be treated as a main residence for a maximum period of six months before the settlement on the original home.

In the latter instance, a partial CGT exemption will apply during the excess period (i.e. after the maximum six months) to either the original or new home. Which of them it is will depend on which did not qualify as the taxpayer’s main residence.

Other than the fundamental requirement that the new home must become the taxpayer’s main residence, the other two key requirements that must be met for the concession to apply are:

■ The existing home must have been the taxpayer’s main residence for at least 3 of the 12 months before the taxpayer’s “ownership interest” in it ends, and

■ The existing home must not have been used to produce assessable income in any part of that 12-month period when it was not the taxpayer’s main residence.

That said, an absence concession exists that can be used to allow the original home to qualify as a main residence — including where it may have been rented in that 12-month period. This is because the effect of the absence concession is to continue to “treat” the original home as the taxpayer’s main residence — notwithstanding any absence and any income use in this period.

The example on the following page featuring ‘Anne’ illustrates how the “absence concession” can work in conjunction with the “changing main residence concession”.

Note that that purchased vacant land or land with a partly constructed building on it can also be treated as the taxpayer’s new home for the purposes of the concession.

Example scenario

Anne acquired a dwelling on 1 January 2008 where she lived until she went overseas on 1 January 2019. Anne did not rent the home during her absence. She acquired another dwelling on 1 February 2020 and moved into that dwelling on her return from overseas on 1 March 2020. Anne disposed of the first dwelling on 1 August 2020.

The law recognises that Anne continued to treat the first dwelling as her main residence for the period 1 January 2019 until she disposed of it on 1 August 2020.

In fact, from 1 February 2020 Anne would have been able to treat both dwellings as her main residence for up to six months, ending when she ceased to have an ownership interest in the first dwelling.

Trust distributions to non‐residents

When an Australian trust makes a distribution to a non-resident beneficiary, it is often the case that the Australian trust is required to pay tax on the distribution.

The trustee’s payment of tax on trust distributions to non-resident beneficiaries of an Australian trust is a tax collection security measure. It is a type of withholding tax, which is not a final tax in Australia.

When the non-resident beneficiary lodges their Australian tax return, the beneficiary will be refunded some of the tax paid by the Australian trust if the tax paid by the Australian trust exceeds the amount payable by the non- resident beneficiary.

Where an Australian trust makes a distribution to a non-resident trust that, in turn, distributes the amount to a non-resident individual, the non-resident trust is not liable for Australian tax.

Where the Australian trust derives dividends, interest or royalties – and distributes this income to a non- resident beneficiary – the Australian tax law applies a withholding tax to the payments. The rate of withholding depends on the type of income and whether Australia has a double tax agreement with the country to which the amount is being paid.

The payment of the withholding tax by the trustee is a final Australian tax – which means the non-resident beneficiary is not subject to any further Australian tax on the income.

Generally, where an Australian fixed trust makes a capital gain from the disposal of assets that are not directly or indirectly related to real property located in Australia and distributes that gain to a non-resident beneficiary, neither the Australian trust nor the non- resident beneficiary are liable to Australian tax.

Stapling super: Reducing multiple accounts for employees

New legislation will ensure that when an employee moves jobs, the super fund they used with their former employer will be ‘stapled’ and will automatically follow them.

Under current rules, if an employee changes jobs multiple times over their working life and does not nominate a superannuation fund to their employer, they could end up with multiple superannuation accounts, each charging their own fees and insurance premiums.

To prevent this from happening and to stop unintended accounts being created for employees, including for short-term jobs, the Your Future, Your Super legislation will require that a person’s super is ‘stapled’ to them (unless they actively choose to change funds) as they progress their employment.

The changes will apply to employees starting a new job from 1 November 2021.

 

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