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Crackdown on “other” work related expenses, and inquiry into tax deductibility

It seems that the ATO will be taking a dim view (or dimmer, this year) of the abuse of work related expense claims for individual taxpayers. The total value of such claims rose to a record $21.2 billion in 2017, and reports contend that the ATO is concerned about over-claiming and even outright fraud.

ATO advice for taxpayers, before including claims for work related expenses at the label for “other” work related expenses for 2018 tax time, should consider making sure they can show:

they spent the money themselves and were not reimbursed
the expense was directly related to earning their income
they have a record to prove it.

The push on work related expenses (WREs) comes on the back of the release by the government of a House of Representative Economics Committee’s report on its inquiry into tax deductibility. […]

Regulatory Roundup – April 2018

 

 

Require specific ATO advice on your SMSF? There’s a form for that

The ATO says it can provide tailored technical assistance for SMSF trustees in some circumstances, orally or in writing, depending on the nature and complexity of their query.

For example, you may need to seek tailored technical assistance if:

you are not able to find the ATO’s view of how the law applies to a particular technical issue
you’re not certain how the ATO view of the law applies to your circumstances
you are seeking greater certainty (protection) than the ATO’s published products provide.

If the contentious issue at hand is about how the Superannuation Industry (Supervision) Act 1993 and Superannuation Industry (Supervision) Regulations 1994 apply to a specific transaction or arrangement for an existing SMSF, you can apply to the ATO for advice to deal with that specific issue. […]

Capital works deductions for rental property

 

 

Rental property investors can claim capital works deductions for construction costs for a rental property, however there are limits imposed in relation to the dates such works were completed. The deductions are only available on residential properties if these were built after 17 July 1985. Generally, up to 15 September 1987 the rate is 4% a year (over 25 years) and after then is 2.5% (but over 40 years).

Residential property investors seeking capital works deductions need to remember that you can only make a claim for periods when the rental property was used for income producing purposes, not when used for private purposes.

Subsequent purchasers of a property can claim for the balance of the period, because unlike a depreciating asset there is no balancing adjustment on disposal of the property, unless the building is destroyed. The balance of any claim is passed on, on the same basis, to any later owners. […]

Regulatory Roundup – March 2018

Small business CGT concession eligibility to tighten
The government announced last year that it intended to tighten the eligibility factors for the CGT concessions that are generally available to small businesses. The CGT concessions are important for qualifying businesses in that they can defer, reduce or remove liability to CGT.

Specifically, the proposed amendments (which have been released in exposure draft form) will limit the current CGT concessions to assets that are used by a small business or ownership interests in a small business. […]

Regulatory Roundup – February 2018

 

 

 

Community complaints prompt Inspector-General of Taxation to review PAYG instalments

The Inspector-General of Taxation, Ali Noroozi, has just released his review into aspects of the pay-as-you-go (PAYG) instalments system that have come to be viewed as less-than-helpful by many participants and associated stakeholders.

The IGT’s review into the PAYG instalments system was conducted largely in response to feedback drawn from the IGT’s complaint handling service since May 2015. It says it has taken this amount of time to get sufficient complaint investigation data on which to act, but that it is the first such review undertaken in direct response to taxpayer complaints.

Subsequent IGT consultation also drew on input from tax practitioners, their representative bodies and also individual taxpayers who had experienced directly the aspects of the PAYG instalment system that were of concern.

[…]

The ins and outs of “entertainment” business deductions

As a tax concept, “entertainment” can be relevant not only to fringe benefits tax (FBT), but also to income tax and even goods and services tax (GST). For a business, whether a business expense is “entertainment” will generally also determine whether the cost is deductible. If the expenditure can be shown to be directly connected with the carrying on of a business, it should be deductible.

The example of someone taking a client out to lunch can certainly be shown to be in connection with a business. However, there is still a lurking danger within the relevant sections of the tax law that says that if such an expense also represents “entertainment”, by the Australian Taxation Office (ATO) view, then that cost can be taken out of the deductibility equation. In this article, we explore these ins and outs in some detail. […]

Regulatory Roundup – December 2017

Square-peg expense won’t fit in a round-hole deduction? It could be a D15

Now and then you may be required to look around for a suitable item on your tax return to place an expense that simply doesn’t “fit” in the items reserved for other categories of expenses. These are known as “D15” deductions, and sits in the section of the supplementary tax return where claims can be made that do not fit neatly into the other deduction items that precede it. […]

Regulatory Roundup – November 2017

Changes to the depreciation of intangible assets
Business taxpayers will know that asset depreciation is an important aspect to their business’s tax health and longevity. However the importance, and revenue generation role, of knowledge-based or intangible assets has become much more common in the modern business landscape.

Innovative companies know that changes in the economy, including globalisation and digitisation, have elevated the importance of intellectual property and other intangible assets, which has not been adequately recognised in the tax system.

For purposes of income tax, certain intangible assets have been depreciated over a number of years, set by statute (taxable effective life). However intangible assets with a statutory effective life can’t be self-assessed to bring their tax life in line with the economic life of the asset. This can reduce the depreciation benefit and increase the cost of investment in these assets. […]

Regulatory Roundup – October 2017

How to keep your SMSF compliant even while travelling

Are you an SMSF trustee who loves to travel? Sounds like a great lifestyle, however while planning your summer break you need to be aware that there can be negative consequences if you are out of the country for too long.

If you are a trustee and you relocate overseas for an extended period, the residency status of the SMSF, its compliance status and its ability to receive tax concessions may be affected.

Prevent your SMSF becoming non-compliant

If your SMSF becomes non-compliant it will lose its concessional tax rates (non-compliant funds are taxed at the highest marginal rate). There are three practical considerations you must take care of to retain compliance in these circumstances, however the first of these is relatively easy to satisfy.

The fund must be deemed to be an “Australian” fund, which for most (if not every) SMSF will be satisfied as the initial contributions are likely to have been made and accepted by the trustee/s in Australia.
Central management and control of an SMSF is required to be in Australia
The active member test must be fulfilled.

[…]

Regulatory Roundup – September 2017

Deduction for association subscriptions — eligibility can endure into retirement
Many professional, business or trades people are members of an association, and during their working life subscribe to an appropriate organisation. Deduction for association subscriptions

In most cases the membership of a trade union for example, or professional association relevant to workers in a particular occupation, would qualify for deduction under the general deduction provisions of the tax laws. See taxation ruling TR 2000/7 for details.

What is the test for deductibility?
Broadly, the test for deductibility under the rules is whether the payment is an outgoing that is relevant and incidental to the derivation of assessable income. In most cases, where the taxpayer is in receipt of a salary or contractor fees, the membership of a relevant association would qualify under this section of the regulations and the entire amount of the subscription can be claimed as a deduction.

[…]