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Regulator Roundup March 2020

Increasing maximum SMSF members to six is still official policy
The SMSF Association held its annual conference recently, which was addressed by Assistant Minister for Superannaution, Senator Jane Hume, who stated that it remains government policy to see an increase in the maximum number of SMSF members from four to six. Implementation of the Hayne banking commission recommendations was however a priority, she said. (See full speech here.)

“This proposed change is significant,” Hume said, “because it increases the flexibility of our self-managed superannuation sector. It will allow situations such as families with up to four children to be part of a single family superannuation fund.” […]

Regulator Roundup February 2020

Taken goods for private use? Here’s the latest values for tax purposes
The ATO knows that many business owners naturally help themselves to their trading stock and use it for their own purposes. This common practice can occur in businesses such as butchers, bakers, corner stores, cafes, wine shops and more.

The ATO regularly issues guidance for business owners on the value it expects will be allocated to goods taken from trading stock for private use. The table below shows these values for the 2019-20 income year, taken from Taxation Determination TD 2020/1. […]

Concession for testamentary trusts wound back

In the Federal Budget last April, the Government announced it would make changes to the tax treatment of testamentary trusts, and an exposure draft of amendments was released by Treasury at the start of the current quarter.

The assessable income of a minor from a distribution from a testamentary trust is taxed at ordinary rates, rather than the highest marginal tax rate like other passive income received by minors. This has led some taxpayers to inject unrelated assets into one of these trusts to take advantage of the concession that is available to minor beneficiaries of these trusts.

This change will ensure that this tax concession available to minors in these trusts only applies in respect of income generated from assets of a deceased estate that are transferred to the testamentary trust under a will, or the proceeds of the disposal or investment of those assets. […]

Super strategies will soon need to factor in new transfer balance caps

When the legislation to limit the amount that can be transferred into a pension account took effect on 1 January 2017, there was always written into those rules a requirement for the transfer balance cap (TBC) to eventually be indexed.

The legislation, the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016, provides that the general TBC is to be indexed in increments of $100,000 if the indexation rate reaches a prescribed figure (and this is calculated using a formula set out in the legislation). […]

Unpaid “crypto” tax another big target for ATO revenue collection

For some time now, the ATO’s data matching arm has been collecting bulk records from Australian cryptocurrency designated service providers. It follows a growth in Australian taxpayer participation with bitcoin and other cryptocurrency assets over recent years, with estimations from the ATO that between 500,000 to one million local taxpayers (including SMSFs) have invested in crypto assets.

ATO Deputy Commissioner Will Day announced that it will be working with other regulators, particularly AUSTRAC and ASIC, to make sure tax laws are adhered to within a whole-of-system approach. “The ATO is also working in a joint international effort as part of the Joint Chiefs of Global Tax Enforcement” (also known as J5) “aimed at investigating cryptocurrency-related tax evasion and money laundering,” he said.

According to a report from US-based blockchain and crypto news site BitcoinerX, the ATO expects a three-fold return on an estimated $1 billion spend on chasing what it calls “crypto tax”. […]

Regulator Roundup November 2019

Draft guidance directs that capital gains are not to be included in FITO limit
A draft taxation determination has been issue by the ATO to clarify that capital gains are not included when calculating the foreign income tax offset (FITO) limit.

TD 2019/D10 says the FITO limit calculation involves a comparison between Australian tax actually payable and the Australian tax that would be payable if certain income, and deductions reasonably related to that income, were disregarded. Generally, the higher the amount of income captured, the higher the FITO limit.

The draft determination states that if a taxpayer made a capital gain in respect of which you have not paid any foreign income tax, no amount in respect of that capital gain will be included. The ATO states that amounts are included if they are amounts of “ordinary” or “statutory” income from a source “other than an Australian source”.

But it adds that a net capital gain does not have a source. “It is a product of capital gains and capital losses made during the income year from Australian and non-Australian sources, the application of unapplied net capital losses from earlier income years, and applicable discounts.” […]

SMSF contribution paid this year, but you want to allocate to it next year

The ATO has in place a ruling that can allow a superannuation contribution to an accumulation account made in one financial year to be deemed to “take effect” (that is, allocated to a particular year’s contribution total) in the financial year that follows.

Importantly, the ATO requires a form to be lodged, which serves to notify it that a member of a self-managed superannuation fund (SMSF) has made a concessional contribution in one financial year (year 1) but the SMSF did not allocate this to the member until the next financial year (year 2).

Most SMSFs use provisions in their trust deeds concerning contribution reserves to enable this strategy, commonly referred to as a “contribution reserving strategy”. Typically, SMSF members will have made these arrangements to allow contributions to be recognised for income tax deductibility and other purposes in year 1 while not being counted towards their concessional contributions cap until year 2. […]

Regulator Roundup – October 2019

High Court confirms Full Federal Court’s Harding tax residency ruling
The ATO’s application for special leave in the residency matter of Harding v Commissioner of Taxation has been refused by Australia’s High Court. This means the decision of the Full Federal Court (FFC) holds, which essentially provides a wider interpretation of the meaning of “permanent place of abode” than had previously been the case.

It also means it is going to make it easier for expatriates to prove that they are non-residents for tax purposes. The FFC concluded, and now appears to establish the principle, that a permanent place of abode need not be the same particular dwelling (that is, the same apartment, unit or house) in a foreign country.

To re-cap, in February the FFC overturned a Federal Court decision that had ruled a taxpayer was a resident. The Federal Court decision held that the taxpayer, who had lived and worked in the largely tax-free Arabian Peninsula, was a resident for tax purposes on the basis that the home he had established there (a rented fully-furnished apartment) was not sufficiently permanent. […]

How transfer pricing actually works – and why it’s abused

Multinational tax avoidance is proving to be a sore point for Australians. You’ve heard about the big players – Facebook, Google, Apple – and there is speculation they might be engaging in dodgy transfer pricing practices.

What is transfer pricing?
When two companies that are part of the same group trade with each other, they need to establish a price for that transaction. That amount is the transfer price.

Say an Australian-based subsidiary of Facebook buys something from a France-based subsidiary of Facebook. The price Australia pays for its purchase is the transfer price.

Transfer pricing is necessary. The two parties being separate legal entities have to establish a commercial contract. It is not illegal, and does no harm by itself. Transfer MISpricing, however, may do harm for government revenues. […]

Regulator Roundup – September 2019

ATO takes aim at ‘you-scratch-my-back’ auditing arrangements
It has long been an accepted standard that the auditor of an SMSF needs to be independent of that fund, and be a third party entity to the SMSF. This requirement is written into the legislation.

There have of course been breaches of this requirement, and instances where auditors and/or fund trustees have suffered administrative penalties or even disqualification for non-compliance in this area.

The more blatant breaches of the requirement to use a third party auditor involve someone auditing their own SMSF, or the fund of close family members. But another concern for the ATO relates to auditors who enter into arrangements that reflect that old idiom “you scratch my back, I’ll scratch yours”. The ATO has labelled these as reciprocal auditing arrangements.

It says that such arrangements arise where two or more auditors, each with their own SMSF, agree to audit the other’s fund. The ATO likens the situation to the scenario of a two-partner practice where one partner takes on the work of auditing an SMSF of which the other partner is trustee. […]