Regulatory Roundup

Regulatory Roundup

Federal Court rules that ride-sourcing is taxi travel

The Federal Court has handed down a decision in a case that deems ride-sourcing is taxi travel within the meaning of the GST law. If the applicant in this particular case appeals this decision, the ATO has announced that it will continue to administer the law according to its already published advice until there is a different decision.

The ATO says that a lot of Australian taxpayers are taking up ride-sourcing to earn more income It therefore advises these taxpayers with a ride-sourcing enterprise to:

  • keep records
  • have an Australian business number (ABN)
  • register for GST, regardless of how much they earn
  • pay GST on the full fare received from passengers for each trip they provide
  • lodge activity statements
  • include income from ride-sourcing in their income tax returns.

Drivers are also entitled to claim income tax deductions and GST credits (for GST paid) on expenses apportioned to the ride-sourcing services they have supplied.

The ATO emphasises in the same announcement that where it matches people who provide ride-sourcing through data matching, that it will continue to write to them to explain their tax obligations.

Fringe benefits tax and entertainment update

In the run up to the end of the FBT year, the ATO reminds employers that a fringe benefit may be provided by another person on behalf of an employer, but may also be provided to another person on behalf of an employee (for example, a relative).

As far as “entertainment” goes, the ATO says such benefits include providing:

  • entertainment by way of food, drink or recreation
  • accommodation or travel in connection with, or to facilitate the provision of, such entertainment.

Recreation includes amusement, sport and similar leisure-time pursuits and includes recreation and amusement in vehicles, vessels or aircraft (for example, joy flights, sightseeing tours, harbour cruises).

Some examples of the provision of entertainment are:

  • business lunches and drinks, cocktail parties and staff social functions
  • providing entertainment to employees and clients by providing access to sporting or theatrical events, sightseeing tours, holidays and so on
  • accommodation and travel when it is provided in connection with, or to facilitate, activities such as entertaining clients and employees over a weekend at a tourist resort, or providing them with a holiday.

No such category
The ATO says however that there is no FBT category of “entertainment fringe benefit” as such. Instead, the provision of entertainment may give rise to a number of different types of fringe benefit, depending on the circumstances under which you provide the entertainment.

The different types of fringe benefit that may arise are:

Exemptions to FBT
Apart from the “minor benefits exemption” (generally where the value is less than $300), there is an exemption that applies to providing food and drink in the following circumstances.

Food and/or drink provided to, and consumed by, current employees on the business premises on a working day are exempt property benefits (refer to section 20.6 of Fringe benefits tax exempt benefits). The exemption from FBT applies regardless of whether:

  • the food and drink is prepared on business premises (but remember, a corporate box is not part of a business’s premises)
  • entertainment arises from the provision of food and/or drink.

Food and/or drink provided on business premises to associates of employees (for example, spouses) is not exempt from FBT. Where food and/or drink is provided on the same occasion to both employees and their associates, there may have to be an apportionment of the expenditure on a per head basis.

This exemption does not apply to:

  • employers who are exempt from income tax when entertainment arises from the provision of food and/or drink
  • income tax-paying bodies that elect to value the entertainment as meal entertainment
  • meals provided under a salary sacrifice arrangement after 7.30pm AEST on May 13, 2008.

New transfer balance cap for pension phase accounts

From 1 July 2017, there is a limit on how much of your super you can transfer from your accumulation super account to a tax-free “retirement phase” account to receive an account-based pension income.

This is known as the super “transfer balance cap”. If you have more than one super account, the cap applies to the combined amount in all of your pension phase accounts. You will be able to make multiple transfers into the retirement phase as long as you have available cap space.

The amount of the cap will start at $1.6 million, and will be indexed periodically in $100,000 increments in line with the consumer price index (CPI).

The cap relates to the amount you transfer into your retirement phase account. There is no limit to the amount of money you can have in your accumulation super account(s). If your pension account grows over time to more than $1.6 million, you won’t exceed your cap. If your pension account goes down over time, you can’t “top it up” if you have already used your cap.

If you are currently in excess of your transfer balance cap, then you may have to remove the excess from retirement phase and pay tax on the earnings in excess of the cap.

Different tax rules will apply if you receive a capped defined benefit income stream as you usually can’t transfer or remove excess amounts from these pensions. These pensions are commonly provided by defined benefit funds, but may be provided by other funds, including some self-managed super funds (SMSFs).

If you have to move assets out of your retirement phase account back into your accumulation account to be under the cap before 1 July 2017, capital gains tax (CGT) relief is available to your super fund to reset the cost base(s) of these assets. CGT relief is available if your fund holds the assets between 9 November 2016 and 30 June 2017.

Change to spouse tax offset

Currently, an individual can claim a tax offset up to a maximum of $540 for contributions they make to their spouse’s eligible super fund if, among other things, the total of the spouse’s assessable income, total reportable fringe benefits and reportable employer super contributions is under $13,800.

From 1 July 2017, the spouse’s income threshold will increase to $40,000. The current 18% tax offset of up to $540 will remain and will be available for any individual, whether married or de facto, contributing to a recipient spouse whose income is up to $40,000. As is currently the case, the offset gradually reduces for incomes above $37,000 and completely phases out at incomes above $40,000.

Individuals will not be entitled to the tax offset when:

  • the spouse receiving the contribution has exceeded their non-concessional contributions cap for the relevant year, or
  • the spouse has a total superannuation balance equal to or more than the general transfer balance cap ($1.6 million for 2017–18) immediately before the start of the financial year in which the contribution was made.

The intent of this change is to extend the current spouse tax offset to more couples to allow them to support each other in saving for retirement. The government expects this move will better target super tax concessions to low-income earners and people with interrupted work patterns.

Inspector-General to review the ATO’s GST refund discretion

As part of its 2017 work program, the office of the Inspector-General of Taxation (IGT) has announced that it is going to examine the ATO’s administration of an existing provision that allows it to hold on to GST refunds if it believes additional verification is required.

The ability for the ATO to retain a GST refund if it believes further verification is necessary does however come with certain conditions. It must of course notify the entity involved, but must also have regard to certain factors, such as:

  • the impact on the taxpayer’s financial position
  • the impact on its revenue
  • the likelihood there is fraud or evasion, intentional disregard or recklessness with regard to tax law.

Timeframes written into the law as it stands provides that the ATO can only retain a refund until the time it would no longer seem to be reasonable to ask for verification of information. It also cannot hold on to a refund (beyond the notification period) if it fails to actually notify the taxpayer that this is a possibility, nor if the relevant tax assessment has been amended (an amendment ends the retention period allowed).

In announcing its work program for this year, the IGT says that complaints data as well as submissions made for the 2017 program had indicated that the ATO’s administration of the relevant provision in the tax act (section 8AAZLGA) may, in some instances, “result in inappropriate and unfair delays in GST refunds being issued”.

The IGT says its review will examine the ATO’s approaches in using this provision, the impact it has in taxpayers, and the need for any administrative or policy improvements.

“The combination of public consultation and complaints handling data has led to a work program which reflects the issues of greatest community concern or significance in achieving a fairer, more efficient and transparent tax administration system,” the IGT says.

As well as examining the withholding of GST refunds, it has also flagged that it will review the pay-as-you-go instalments system. This has been initiated in the face of complaints that the system is generating confusion and misunderstanding for certain taxpayers who are required to make payments.

The Tax Commissioner has also requested that the IGT examine the state of the ATO’s services and support for tax practitioners. “This review will be forward-looking and will examine the future role of tax professionals in the tax system particularly in light of increased use of digital technology and ATO service delivery initiatives.”

In doing so, the IGT will also examine concerns raised by tax practitioners on issues affecting their industry. “The IGT will consult extensively with the tax profession, the ATO and the TPB to identify opportunities to improve the tax system as a whole.”