Blogs by Stewart, Tracy & Mylon

Legal expenses and deductibility


Legal expenses from workplace claim found deductible

A recent private ruling has highlighted instances where legal expenses are considered deductible under the general provisions of ITAA 1997 s 8-1. Under the provision, a deduction is allowed for legal expenses which are incurred in order to earn assessable income or in carrying on a business.

However, a deduction is not allowed for legal expenses which are capital expenses or are private and domestic in nature. Working out if a legal expense is deductible or non-deductible capital or private expenditure depends on the facts and circumstances. This question is the subject of much litigation in the courts and tribunals.

The following is a set of circumstances in which legal expenses have been determined to be deductible by the ATO in a recent private ruling.

Relevant facts and circumstances

The taxpayer was employed for a number of years, but began suffering for a medical condition caused by workplace bullying and harassment.

A claim was made for worker's compensation through an agency, which was eventually accepted. The taxpayer was paid 75% of regular salary payments.

The taxpayer made attempts to re-engage with the employer to return to work, under a different supervisor. However, no offer was received.

After a few months, the employer terminated the taxpayer's rehabilitation program. After this termination, the taxpayer made a submission to the agency to review the decision but this was unsuccessful.

The taxpayer sought legal advice. Through the lawyer's advocacy, an offer of a work trial was received by the taxpayer. At this time, the taxpayer's salary returned to 100% of regular payments.

Before the work trial, the agency determined that the taxpayer no longer suffered from the medical condition. As a result, the agency revoked the compensation claim payments. A further review of the agency's decision was submitted by the taxpayer, which was ultimately unsuccessful.

The taxpayer sought legal advice and the lawyers lodged an application with the Administrative Appeals Tribunal for a review of the agency's decision to revoke the compensation payments.

After two months of the work trial, the employer made the taxpayer redundant.

Months later, the AAT made settlement orders where the taxpayer was deemed entitled to compensation payments and medical expenses with respect to the medical condition.

ATO ruling

The taxpayer requested the ATO rule on whether the following legal expenses were deductible:

                • Advice and advocacy to gain a return to work opportunity, and

                • Out of pocket legal expenses incurred to apply to the AAT to review the agency's decision.

The ATO ruled in both instances that the amounts were deductible under the general provision. Despite the fact that the taxpayer's employment had been terminated, the amounts related to compensation that would have been received as a result of employment.

Client opportunities

Despite this situation being specific to the taxpayer, it shows another example where legal expenses can be deductible for a client.

Many areas for legal expenses are in the "grey-area" when considered for an allowable deduction. This situation shows where a taxpayer has been successful in getting a private binding ruling in their favour.

Information sourced using CCH iknow


SMSF Cryptocurrency investment

Cryptocurrency as an investment in a SMSF

An SMSF can invest in crypto and there are many considerations regarding cryptocurrency as an investment in a SMSF.

Investment Strategy and Trust Deed

Firstly, before a SMSF invests in cryptocurrency, this type of investment should be documented in the fund's investment strategy (e.g. risk, liquidity, diversification, etc) and be allowable under the fund's rules (i.e. trust deed).


One of the biggest problems for SMSF trustees who wish to invest in cryptocurrency is getting the account and wallet set up in the fund's name. If this isn't possible, the trustees should consider preparing a separate declaration of trust.

It is our understanding that some exchange platforms want you to open a separate bank account to trade out of, and usually these can't be set up in the fund's name either. A declaration of trust should also be considered for that account.

We suggest seeking legal advice in relation to the preparation of a declaration of trust.

Transaction Testing

The auditing of transactions and year end balances can be difficult to test, given the lack of transparency and reporting functionality with some providers/exchanges.

Compliance matters to be considered (which may be difficult to test):

-       Are there any related party transactions?

-       Has financial assistance been given to members or relatives of members of the fund?

-       Have contributions been made (and not recorded)?

-       Has the fund borrowed money through the platform/exchange

Preferably, all information should be provided (e.g. initial investment confirmations from Exchange).  This information is available or can be downloaded from the Bitcoin/Exchange website (or screenshots are provided if information cannot be downloaded).  The information/screenshots must be clearly labelled as Bitcoin/Exchange documents with the investor name/bitcoin details included.

Depending on how the crypto currency is stored will determine the year end holding confirmation. There are challenges in this area as some crypto currency will be stored offline. If screenshots/information is unavailable, then a separate declaration would be required; however, this evidence may not be sufficient if the crypto currency represents a significant proportion of the fund's assets.  In this case, if there is insufficient evidence the auditor may not provide an audit opinion for the crypto currency.


Another issue for a SMSF investing in cryptocurrency is going to be confirming a valuation at year end.

Obtaining reliable information regarding valuations of cryptocurrency is not easy with some exchanges providing different values.  This may improve if financial institutions start servicing this sector, but until then there may be different prices reported with significant volatility in values.

Depending on the amounts involved, the auditor may have to qualify the Audit Report or even raise an Auditor Contravention Report with the ATO depending on what information is received with regards to the value of any cryptocurrency held by the fund.


As you can see from the above there are many factors to consider when it comes to investing in cryptocurrency in a SMSF. We suggest clients seek financial advice to determine if a SMSF is the most suitable structure for them to invest in cryptocurrency.

Information sourced from AFS Audits


No tax deduction for non-compliant payments

Removing tax deductibility of non-compliant payments

From 1 July 2019, you can only claim deductions for payments you make to your workers (employees or contractors) where you have complied with the pay as you go (PAYG) withholding and reporting obligations for that payment.

If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must:

·         withhold the amount from the payment before you pay it

·         report the amount to the ATO

Any payments you make where you haven't withheld or reported the PAYG tax are called non-compliant payments. You won't be able to claim a deduction if you don't withhold any PAYG tax or report the PAYG tax to the ATO. If you make a mistake and withhold or report an incorrect amount, you will not lose your deduction.

Payments that must comply

You can only claim a deduction for the following payments if you comply with the PAYG withholding rules:

·         of salary, wages, commissions, bonuses or allowances to an employee

·         of directors' fees

·         to a religious practitioner

·         under a labour hire arrangement

·         for a supply of services (except from supplies of goods and real property) where the contractor has not provided you with their ABN


 Non-cash benefits

A non-cash benefit is something you provide instead of paying cash, for example goods or services. In this case, you still need to report the PAYG tax to us in order for this to be classified as a compliant payment and allow you to claim a deduction.

Correcting a mistake

If you withhold an incorrect amount by mistake, you won't lose your deduction. To minimise any penalties you can correct your mistake by lodging a voluntary disclosure in the approved form.

If the correct amount is withheld but a mistake is made when reporting it, the deduction is not lossed. However, these mistakes need be corrected as soon as possible.

Failure to withhold or report

If PAYG tax should have been withheld from a payment but didn't, you will lose your deduction for that payment, unless you voluntarily inform the ATO before they have commenced an audit or review into your compliance activity. You can do this by making a voluntary disclosure in the approved form to the ATO.

If you withheld PAYG tax from a payment but didn't report the amount to the ATO at all, you will lose your deduction for the payment unless you report the amount to before an audit or review has commenced.

Mistaking an employee for a contractor

There may be a situation where you honestly believe your employee is acting as a contractor, so you don't withhold PAYG tax from their payments as they have provided you with their ABN. In this instance, although you have made a mistake and not withheld PAYG tax from payments you made to your employee, you won't lose your deduction for these payments because you complied with the withholding obligations for a contractor.

You can correct your mistake by lodging a voluntary disclosure to the ATO

We recommend you use the ATO's Employee/contractor decision tool to check if your worker is an employee or contractor.


If you don't comply with your PAYG withholding and reporting obligations for a payment, deductibility is denied and you may face penalties that apply for failure to withhold and report amounts under the PAYG withholding system.

 Information sourced from the ATO 


Division 7A proposed changes


10-year Division 7A loans


A number of recommendations have been made to overhaul the treatment of Division 7A complying loans by the Treasury. The proposals recommend to begin these changes from 1 July 2019.

Proposed changes

Consistent with current practices, the 10-year loans would effectively begin at the end of the income year in which the advance is made. This will allow the taxpayer to put the loan on complying terms before the due date of the tax return. The Benchmark interest rate to compare with a small business variable overdraft at 8.30%.

Transitional rules

7-year unsecured loans

All complying 7 -year loans in existence as at 30 June 2019 must comply with the new proposed loan model. The new benchmark interest rate is to be used, and the existing outstanding term will be retained. As mentioned above, the principal repayment must be in equal instalments over the loan term.

25-year secured loans

Exempt from the majority of changes until 30 June 2021. However, the new benchmark interest rate needs to be used (at a minimum) between 1 July 2019 and 30 June 2021.

On 30 June 2021, the outstanding value of the loan will be a deemed dividend unless it is put on new complying loan terms. At this point, they will become 10-year loans.

Pre-1997 loans

A two-year grace period will also apply to these loans under the new arrangements. Therefore, a pre-1997 loan will be taken to be financial accommodation as at 30 June 2021. At this point, they will become 10-year loans.

Opportunities & Strategic options

Under the proposed transitional rules, currently unsecured 7-year loans will have an increased principal repayment initially and a higher interest rate. Essentially, this will mean an increased minimum repayment generally made as a franked dividend to directors who are also shareholders.

An opportunity exists for directors to turn these loans from unsecured to secured loans before 30 June 2019, as transitional rules are favourable. In order for this to happen, a written loan agreement must be put in place where the outstanding balances are secured against real property owned by the directors.

Also, no mortgage duty will be payable when the secured loan is registered as all states in Australia have abolished this in recent years. However, an additional cost of drawing up the secured loan agreement from a lawyer will be incurred.

A reduced minimum repayment under a secured loan may alleviate future interest on pre-1997 loans as additional room is available for repayments.

Information sourced using CCH iknow


Farm management deposits


Farm management deposits scheme

The farm management deposits (FMD) scheme is designed to allow primary producers, in effect, to shift income from good to bad years in order to deal with adverse economic events and seasonal fluctuations.

The FMD scheme allows primary producers (with a limited amount of non-primary production income) to claim deductions for FMDs made in the year of deposit (and to reduce their PAYG instalment income accordingly).

When an FMD is withdrawn, the amount of the deduction previously allowed is included in both their PAYG instalment income and their assessable income in the repayment year.

Reforms from 1 July 2016

Increase in farm management deposit cap

The maximum amount that can be held by an individual primary producer in farm management deposits (FMDs) at any time increased to $800,000 from $400,000.

Early withdrawal of farm management deposits within 12 months

An amount withdrawn from an FMD within 12 months of its deposit does not cease to have been an FMD if part of the land used in carrying on the FMD owner's primary production business meets the prescribed rainfall conditions for the prescribed period. The qualifying primary production business must demonstrate that any part of the land of the business has experienced a rainfall deficiency for at least six consecutive months. The deficiency must be equivalent to or worse (ie lower) than 5% of average rainfall (one in twenty year event) for that six-month period based on the most recently available publicly released data from the Bureau of Meteorology at the time of the withdrawal. Therefore the FMD owner remains entitled to the deduction for the deposit and the amount must be included in the assessable income of the FMD owner in the income year the withdrawal occurs.

Use of farm management deposits with qualifying primary production loan offset accounts

The agreement for the making of an FMD can allow the linking of an FMD to a loan or other debt of the FMD owner or their partnership (a loan offset arrangement) to enable the amount of interest charged on that loan or other debt to be less than what it would otherwise be if:

                • the FMD owner is carrying on a primary production business, and

                • the loan is used wholly for the purpose of that business.

To the extent that an FMD loan offset arrangement results in a lower amount of interest being charged on a loan or other debt used other than for the purposes of a primary production business then an administrative penalty is payable. The administrative penalty equals 200% of the amount of interest that would otherwise have been charged on the portion of the loan used for the non-qualifying purpose.

Client opportunities

The FMD scheme can be useful strategy that a primary production business can use to set aside pre-tax income in good years for use in low-income years. The ability to use the FMD to offset other primary production business loans can also help improve the cash flow and save interest costs.

Primary producers should be encouraged to engage in tax planning services to ensure these strategies are implemented. Contact should also be made with financial institutions to get more information on possible offset arrangements.

Information sourced using CCH iknow





Smart watches confirmed exempt fringe benefit


Smart watches confirmed exempt fringe benefit

The ATO has made a ruling which allows a popular smart watch to be deemed a portable electronic device for fringe benefits tax purposes. As a result, FBTAA 1986 s58X applies to the watch, which means it is exempt from fringe benefits tax under the following circumstances:

•         The watch is provided in respect of employment and is used primarily for the employee's employment; and

•         The watch is not considered a second item purchased in the past 12 months that has a substantially identical function.

The ruling is restricted to a specific smart watch which came onto the Australian market in mid-2018. However, from the ruling it appears to be a smart watch which is specifically designed to be paired with a specific mobile phone device. As stated in the Private Ruling, the Smart Watch is designed for use with the iOS operating system, which is owned by a very large US-based technology company.

Despite the fact that the ruling relates to one specific product, the general rules regarding smart watches and the FBT exemption is covered and explained below.

Portable electronic device

Fringe benefits tax law does not define "portable electronic device", despite it being listed as a work-related item eligible for an FBT exemption.

However, this section (s 58X(2)) has been amended over time because of vast changes in technology. Prior to 2008, the former subsection provided a complete list of relevant items which was replaced with the term "portable electronic device". These list of items, which included mobile or car phones, calculators, electronic diaries or laptops became untenable since many items currently available today can do multiple functions.

Despite this, the ATO was satisfied the smart watch was a portable electronic device. Its ability to operate without an external power supply, as well as being designed as a complete unit is enough to satisfy the first leg of the exemption.

Substantially different in function to a mobile phone

The second leg generally applies only to entities who are not small businesses, and is covered by s 58X(3) of the Act. A smart watch would be ineligible for an FBT exemption if another item was previously purchased in the FBT year which had a substantially identical function.

The smart watch has similar functions to that of a mobile phone, however, the Commissioner ruled the functions between the two are substantially different. In this context, which could be utilised for other similar products on the market, the following was identified:

•         The watch can receive and display text messages and emails, but sending/replying is limited to pre-set phrases or dictating a reply as an audio file.

•         A keyboard cannot be used with the watch as it can with the paired phone.

•         Purported seamless transition between the watch and phone when needing to utilise more complex functions.

•         The watch cannot download or use the majority of mobile phone applications (ie apps). Only specifically designed applications work on the watch.

•         The watch is not capable of viewing complex webpages on the screen, thus requiring use of the phone in a lot of cases.

These limitations of the smart watch were enough for the Commissioner to consider that the device was substantially different to the phone. Therefore, an entity would be able for an exemption where both devices are provided to an employee within the same FBT year. This applies regardless of whether the entity is a small business entity or not.

Information sourced using CCH iknow


Primary producers and fodder storage


Fodder storage assets allowed immediate write-off

Legislation has been entered into parliament which intends to allow an immediate deduction for fodder storage assets for primary producers. The proposal in the parliamentary bill is to amend ITAA 1997 s 40-548 which allows a fodder storage assets to be written off over three years.

A primary producer's expenditure on a fodder storage asset must have been incurred primarily and principally for use in a primary production business they conduct on land in Australia. If a taxpayer is not a primary producer or the asset is not used primarily in a primary production business, the ordinary capital allowance rules apply instead.

The 'primarily and principally' test refers to the concept that the fodder storage asset is used for the primary producer's own livestock.


The following is a list of examples of fodder storage assets for primary producers:

                • Silos

                • Liquid feed supplement storage tanks

                • Bins for storing dried grain

                • Hay sheds

                • Grain storage sheds, and

                • Above-ground bunkers.

Client opportunities

To be eligible for the immediate write-off, the fodder storage asset must be first installed and ready for use in the primary production business on or after 19 August 2018.

This change will align fodder storage asset deductions under the capital allowance rules with fencing assets and water facilities.

Information sourced using CCH iknow

Self-education expenses

Self-education expenses allowed for 'part' of course

Self-education expenses generally are deductible when two elements are met. The first of which is that the expense is from a "prescribed course of education". The second element is that the intention of the education is to maintain or improve the skills and knowledge required in the taxpayer's current income-earning activities.

However, typically an expense is not allowable where the intention is for new employment or a new income-earning activity. This includes study in a field in which the taxpayer is not yet engaged. For example, a practicing general medical practitioner would not be allowed to claim self-education expenses for a dermatology course. This would not be allowable as the study is designed to open up a new income-earning activity as a specialist.

Relevant facts and circumstances

A recent ruling from the ATO has discovered that "not yet engaged" doesn't particularly mean an entire course of study. Relevantly, a deduction is allowable for individual units of study within a complete course if it can be shown that all other elements of the self-education rules apply.

In the ruling, an individual was employed to deliver an engineering course with an education institution. Part of the duties required the individual to undertake scholarly pursuits and obtain new knowledge in order to deliver this course.

The individual determined that completing a law degree course was adequate in performing their duties.

The ATO was able to acknowledge that parts of this degree had a sufficient connection with the knowledge required to teach the class they were engaged to teach. This included the courses "Legal Conflict Resolution", "Civil Obligations" and "Construction Law". The reasoning behind this was that sections of the teaching materials related to anti-discrimination, contract terms and project management, which were parts of the engineering course.

Therefore, the individual was able to claim a deduction for self-education for parts of the degree which, on a whole, may be considered the obtaining of new knowledge.


This poses an opportunity to go through a more stringent look for individuals and the tax payers ability to make a claim under D4 in the personal income tax return.

An individual's current working situation may not automatically allow a deduction for a course of study undertaken. However, close scrutiny of these courses may entitle them to a deduction for some of the costs involved.

Information sourced using CCH iknow

Small business restructure roll-over

Pre-CGT active asset land eligible for small business restructure roll-over

The purpose of the small business restructure roll-over relief is to make it easier for small business owners to change the legal structure of their business. This greater flexibility allows eligible small businesses to defer capital gains or losses that would otherwise be taxable when transferred. This extends this flexibility to pre-CGT assets, allowing the transferee the ability to deem an acquisition of an active asset to before 20 September 1985.

However, one such structure where ownership is not necessarily easily determined would be a discretionary trust. Since the economic interests in the assets of a discretionary trust are not fixed in proportion, it could not be completely determined that the restructure is eligible. In order for a small business restructure roll-over to apply for CGT purposes, the ultimate economic ownership of the assets must remain the same. Therefore, the assets must remain within the family group just before or just after the transaction.

How this can be completed, without failing the "genuine restructure" requirement necessary for the application of this division, has been shown by a recent private binding ruling.

Relevant facts and circumstances

An individual held pre-CGT land that was used in a primary production business since the date of purchase.

Initially, the business structure for the primary production business was the individual and their spouse.

Many years ago, the structure changed to a discretionary trading trust where the individual was the trustee along with their spouse and child. The individual and their spouse were the appointors of the trust, and the individual is listed as the primary individual in the Family Trust Election.

The proposal is to transfer the pre-CGT land, which is owned under multiple titles, into various discretionary trusts with corporate trustees. For each discretionary trust, a Family Trust Election will be in place with the individual listed as the primary individual.

After the transfer the land will continue to be used in the primary production business run by the family trust started many years ago.

Eligibility for small business restructure roll-over

The taxpayer advised the ATO in the private ruling that the purpose of the restructure is to:

•         provide further asset protection by separating the ownership of assets from the individual who is integral to the trading trust, and

•         enable additional options with financiers to be negotiated over longer terms to assist in the growth of the primary production operations.

These reasons were considered by the Commissioner of Taxation to be in accordance with a genuine restructure.

The Commissioner did not form the opinion that the transfer of the land to the shareholders was a restructure in the course of winding down or realising ownership interests in the land.

As a result, the Commissioner allowed the restructure to be eligible for roll-over relief. And, as the land was a pre-CGT active asset, the family trusts acquiring the land would retain the pre-CGT status.

LCG 2016/3

LCG 2016/3 deals with the ATO interpretation of the genuine restructure of an ongoing business as it relates to the small business restructure roll-over.

In the guideline, a small business will be taken to satisfy the condition where, among other things, there is no change in the ultimate economic ownership of any of the significant assets of the business for three years following the roll-over.

As mentioned through the ruling above, a client with a similar situation may have a significant opportunity to delay the realisation of a major pre-CGT asset.

Information sourced using CCH iknow


Online accommodation providers to be data matched

Online accommodation providers to be data matched  

A Commonwealth Gazette notice has been issued stating that the ATO intends to collect data of individuals renting a premises via online accommodation websites.

These services are usually run via a platform, and data will be released for the 2016/17 to 2019/20 income years. Electronic data will be linked against Australian financial institution data to provide information regarding individual taxpayers to the ATO.

In particular, the online platform will be required to submit the following data relating to the listed accommodation:

             • Name of owners

             • Addresses (both rental property and residential)

             • Date of birth

             • Contact details, and

             • Whether the entire premises or part was listed.

Also, the listing's bank account details will be provided as well. It is understood that the ATO will be able to match this bank account to an individual's tax file number. Generally, a tax file number is requested upon opening any bank account.

The activities of the listing from the online accommodation platform that will be made available include:

             • number of nights booked

             • price per night

             • cancellations

             • "blocked-out" dates, and

             • gross rental income.

Risk mitigation steps

The objectives of the data matching program are based around promoting voluntary compliance of short-term rental income.

Clients need to be made aware that this information will be directly data matched going forward. This correspondence is necessary even if you have specific questions you ask your clients about whether they receive income from these sources.

Principal place of residence

If a client uses their principal place of residence for short-term accommodation, there is:

             • a requirement to declare income received, and

             • also a potential for capital gains event to apply on the eventual sale.

ITAA 1997 s 118-185 states that only a partial main residence exemption will apply should the property be used for income-producing purposes during the ownership period.

Rental properties

For properties that are not the main residence of the taxpayer, the ATO is making various investigations surrounding the listing dates from each provider. Therefore, the ATO is able to hypothesise the length of time in which the property in question was listed as "available for rent". The timing of when a property is available for rent is important from an income tax perspective.

Voluntary disclosure

Certain clients may not have been aware that these types of items were taxable in the past. As a result, an opportunity exists to amend previous year's returns as necessary.

In various protocols issued by the Commissioner of Taxation, individuals making voluntary disclosures in order to become compliant with the law are looked favourably upon. Generally speaking, individuals are not penalised when they are co-operative with the Commissioner.

Information sourced using CCH iknow


Overtime meal allowances

Overtime meal expenses being re-assessed on scrutiny of reasonable deduction

A recent case at the Administrative Appeals Tribunal has highlighted the current ATO practice in identifying and scrutinising overtime meal allowance deduction claims. In the case, an individual who was in receipt of an allowance also made a claim under D5 claiming a deduction for the allowance.

An individual taxpayer is not bound to show substantiation where the amount claimed as a deduction is at or below the reasonable amount outlined in public rulings (the ruling for the current year is TD2017/19, however as the case related to the 2013 income year the necessary ruling was TD 2012/17). 

However, the individual must be in receipt of an allowance to make the claim. Also, for overtime meal deductions, an individual would claim in item D5 of the tax return which can be include many other items. It is only upon further ATO scrutiny where they can determine if an amount has been claimed above the reasonable limit declared.

Relevant facts and circumstances

Mitchell was a site surveyor who was in receipt of payments which included an allowance for overtime meals. The allowance was part of the union-assisted signed EBA, and provided an individual $15 per day where 1.5 hours or more overtime was worked.

He made a claim of the maximum reasonable amount, being $27.10 per day for 300 days. The argument for making the claim was based around the usual working hours for the taxpayer. On further examination, the usual working hours were:

                • 7am - 5.30pm Monday to Thursday

                • 7am - 3.30pm Fridays

                • "Seven to eight" hours on Saturdays

                • Early starts after a concrete pour

                • Occasional Sundays, and

                • Every second Monday was a Rostered Day Off.

 An 'ordinary work day' listed in the EBA was 8 hours per day Monday to Friday and 4 hours Saturday and Sunday. Therefore, it is conceivable that Mitchell's regular 10.5 hour day, after taking into consideration breaks, would include 1.5 hours overtime. Thus, an overtime meal allowance would be paid.

The basis of the ATO's investigation centred on whether it was conceivable that Mitchell's worked 300 days of overtime in the year in question. While there are many items which can come under the banner of D5 Other work-related expenses, the ATO gave particular attention to the $8,130 claimed for overtime meal expenses.

The taxpayer rightfully argued that an exemption from substantiation is available if the claim is not greater than reasonable amount provided in a public ruling. However, the ATO challenge in the 300 days where an overtime meal allowance was paid to the individual was the basis of the case.

It was revealed on examination by the ATO that the overtime meal allowance was paid to Mitchell for 107 days in the 2013 financial year. Even if he worked overtime as per the EBA on other days, he was not paid an allowance as he mustn't have met the criteria. 

Claim over the reasonable amount

After it was discovered that Mitchell received an allowance for 107 days, his claim for overtime meals of $8,130 was over the reasonable allowable amount.

Despite this fact, the ATO granted the taxpayer the ability to make a claim for the amount they received. In this way, the benefit to the taxpayer was a net tax of nil. However, they were unable to make a claim for the reasonable amount over the 107 days, which was available without substantiation.

Risk mitigation steps

This recent case shows the depths the ATO will investigate the working arrangements of individuals to justify the receipt and claim of various employee-related deductions.

Part of the investigations included specifics surrounding the regular working times and when the overtime allowance was payable according to the EBA. Further, details about changes to regular working times were obtained. It was only after this level of investigations could the ATO make a determination about the validity of the claims made by Mitchell.

Taxpayers when in receipt of these types of allowances need to be aware of the level of scrutiny in which the ATO will look into their affairs.

Although it was not the case in this particular instance, the ATO has the ability to completely deny the deduction relating to the expensed allowance amount.

Information sourced using CCH iknow

Testamentary trust minor’s distributions

Testamentary trust minor's distribution to be limited 

Potential changes for testamentary trusts 

A proposal from the 2018 Federal Budget is to limit testamentary trust income distributed to minors to be from assets solely from the deceased estate. 

From 1 July 2019, any income distributed to minors which are derived from assets "injected" from outside the deceased's estate may lose concessional tax treatment. At this stage, the proposal is not yet linked to any draft legislation published by the Treasury. This means that the proposal is subject to change, and we are yet to see any major detail surrounding intricate parts of the announcement. 

However, we will keep you informed when draft legislation and further details are released, and how it may affect you. 

Information sourced using CCH iknow


Potential changes for insurance in super

Potential changes for insurance in super

Proposed legislation will change life and TPD insurance arrangements for certain superannuation members.

From 1 July 2019, insurances (both life and TPD) for superannuation fund members will be offered on an "opt-in" basis for the following three categories of members:

                • members with balances of $6,000 or less

                • members under the age of 25 years, or

                • members whose accounts have not received a contribution in 13 months and are considered inactive.

If you are in any of these categories, and you want to keep your life insurance or TPD coverage, you will need to "opt-in" when either the superannuation fund or the insurance company asks you to.

If your account would be considered "inactive", you can inform your superannuation fund that you elect to maintain your current insurance policy. This will ensure that your coverage continues in the event that this parliamentary Bill becomes law.

The most practical way to do this is to get in contact with your fund to find out what their preferred method of communication is. Electronic communications will be deemed valid if completed in the correct manner.

Information sourced using CCH iknow


Super guarantee opt-out for high income earners


Super guarantee opt-out for high income earners   

The government has recently introduced legislation into parliament which will allow high-income earners to avoid the superannuation contributions cap.   

The proposal is to allow an individual with multiple employers to stop one employer from making superannuation guarantee contributions. This option is only available where the individual is earning above $263,157 per year and it is likely they exceed the concessional contributions cap.   

Currently, the concessional contributions cap is $25,000 per annum per person. Should the legislation receive royal assent in its current form it will commence from 1 July 2018.   

Strict rules may apply in order to receive this allowance, which effectively will reduce paperwork for inadvertent breaches of the contributions cap.   

Information sourced using CCH iknow

SMSF Non Arm’s Length Income


SMSF NALI rules to be strengthened

Legislation has been tabled into parliament which will strengthen the rules in which self-managed superannuation funds (SMSF) are being taxed for non-arm's length income (NALI) purposes.

In particular, the amendments to the current NALI provisions make it clearer that schemes as a whole are included in the Act. This includes schemes from both an income and expenditure perspective. If passed, the legislation is due to be applicable for the 2018/19 income year, and will include schemes that were entered into before 1 July 2018.

Current NALI rules

Currently, ITAA 1997 s 295-550 states that NALI applies if:

·         it is derived from a scheme where the parties involved in the transaction are not dealing with each other at arm's length

·         the amount received by the SMSF is more than what could have been earned if the parties were dealing at arm's length.

Where this section is clear in situations of overpaid income amounts into an SMSF, it creates a practical ambiguity with instances of underpaid expenses from the SMSF. In particular, situations may exist when an SMSF holds commercial property assets leased to a related party.

Currently, there are no legislative rules surrounding the in-house asset treatment for related party commercial properties under a limited recourse borrowing arrangement (LRBA). The ATO has previously released guidance surrounding "safe harbour" terms of an arm's length LRBA. However, this is the Commissioner's interpretation of arm's length and is not supported by legislative or judicial concurrence.

Also, an SMSF auditor cannot bring any NALI issues to the regulator due to wordings around SIS Act s 109. Specifically, s 109, which is a reportable contravention, relates only to the investment transaction, or whether the trustee was "required to deal" with another party during the financial year. Therefore, it is arguable that arrangements which are not on "safe harbour" terms are not a SIS breach. Only s 82 may be a breach if the under-reported interest (or accrued liability) is greater than 5% of the total value of assets.

Alternatively, an auditor could qualify the financial audit in the instance where the "Provision for Income Tax" is materially misstated. However, this qualification is also based on whether there was a specific breach of NALI rules. At any rate a financial audit qualification is not a reportable breach, either via contravention report or by the SMSF annual return.

Proposed strengthening of rules

The above pitfalls relating to NALI are proposed to be strengthened by specifically including a provision for NALI where expenses of the fund are understated. Also, NALI will exist where the fund does not incur an expense at all when it should have under normal circumstances.

Risk mitigation steps

Any SMSF currently operating outside the "safe harbour" guidelines based on their arguable position should be advised that new legislation is pending. If the proposed legislation passes through the parliamentary process, it is advised that any non-arm's length dealings are re-worked to be compliant with the Act.

SMSF internal arrangements

Despite the legislation, there are specific carve-outs where the new NALI rules will not apply in situations where SMSF "reduced expense" arrangements are purely internal. A couple of examples of this are listed in the explanatory memorandum are where an SMSF trustee:

·         undertakes bookkeeping activities for the SMSF in lieu of engaging a licensed bookkeeper

·         provides property management services for the SMSF in lieu of contracting a real estate agent.

 Information sourced using CCH iknow



2018 tax planning opportunities for small business

2018 tax planning for small businesses

As 30 June 2018 is fast approaching, we would like to advise you of some key tax planning opportunities that your business may be in a position to take advantage of before the end of the financial year.

Extension of instant asset write-off

It was announced, and expected to become law, that the instant asset write-off for small business will be extended 12 months to 30 June 2019. Entities with an aggregated annual turnover less than $10m will be able to immediately write-off an asset costing less than $20,000.

The change in the end date of 12 months reduces a potential cash-flow issue for small businesses.

Company tax cuts

Companies with annual aggregated turnover between $25m to $50m will have a reduced company tax rate of 27.5% from 1 July 2018. The change in tax rate will only apply to base rate entities.

Single touch payroll

Entities with 20 or more employees are required to report the following information to the ATO from 1 July 2018:

             • withholding amounts and associated withholding payments, on or before the day by which the amount is required to be withheld

             • salary or wages and ordinary time earnings information on or before the day on which the amount is paid, and

             • superannuation contribution information on or before the day on which the contribution is paid.

For the first 12 months, reporting entities will not be subject to administrative penalties, unless first notified by the ATO.

Division 7A

Although only due to commence from 1 July 2019, a change to Division 7A rules has been proposed where unpaid present entitlements will be included as a deemed dividend.

This announcement is perhaps part of a bigger regime of changes that may become law. The extension of the Division 7A regime was announced in the 2016 Federal Budget, as well as in the Board of Taxation review into Division 7A.

This may be the best opportunity to put systems in place to ensure a favourable position for Division 7A loan holders.

Trust distributions

Trust tax planning should be undertaken as soon as possible. The resolution appointing or distributing income to beneficiaries needs to be made on or before 30 June 2018, or earlier if required by the trust deed.

Capital gains

Capital losses realised before year's end can be used to offset capital gains of that year.

Deferral of income

Subject to cash-flow considerations and anti-avoidance rules, income could be deferred to the following year, particularly if:

             • income in the following year is likely to be lower, or

             • tax rates for the following year are expected to be lower.

Note: For cash businesses - deferral of income can be risky, especially when the deferral puts them outside the ATO small business benchmarks.


Subject to cash-flow considerations, deductible purchases could be made by year's end in order to accelerate deductions. This applies particularly if the income in the following year is expected to be lower than in the current year.

Trading stock

For obsolete stock, or in other special circumstances, a special lower valuation could be adopted. Also, no adjustment for closing stock is necessary when a reasonable estimate of closing stock is within $5,000 of opening stock.

Bad debts

A properly authorised resolution is required when writing off a bad debt and claiming a tax deduction. A GST adjustment may also be required on the original invoice.

Directors' fees

To claim a current year deduction for directors' fees, the company should have definitively committed itself to the payment, ie by passing a properly authorised resolution.


For the quarter ending 30 June 2018, employer superannuation contributions must be made before 30 June for a deduction to be available in the 2017/18 year.

For family businesses, it is important that annual caps for concessional and non-concessional superannuation contributions are not exceeded.

 Information sourced using CCH iknow

2018 tax changes for small business

2018 tax changes for small business

As 30 June 2018 is fast approaching, we would like to advise you of some key tax changes that your business may be in a position to take advantage of before the end of the financial year.

Company tax cuts from $25m to $50m

The 2017/18 corporate tax rate will be 27.5% for companies that carry on a business and have an aggregated turnover of less than $25m. This turnover threshold will be increased to $50m for the 2018/19 financial year.

Single touch payroll

Single touch payroll has been introduced into the Australian tax system to combat areas of taxpayer non-compliance of PAYG withholding and superannuation guarantee obligations. This new payroll system commences from 1 July 2018 and "substantial employers" are required to be compliant.

A "substantial employer" at 1 July 2018 is a business who has a headcount of 20 or more employee as at 1 April 2018.

Taxable payments reporting system for couriers and cleaners

The taxable payments reporting system for contractors will be extended to entities in the courier and cleaning industries from 1 July 2018.

Entities who engage contractors, or subcontractors, will need to provide additional reports to the ATO. This treatment has the same requirements as salary and wage employees.

GST on offshore suppliers of low value goods

The GST and customs duty exemption for imported low value goods less than $1,000 will end on 30 June 2018. From 1 July 2018, offshore suppliers of low value goods sold directly to consumers will be liable to pay GST on those supplies.

Company tax rate lower for "base rate entities" only (not yet law)

New legislation that restricts the lower company tax rate to base rate entities only is still under the parliamentary process. Pending approval, from the 2017/18 income year the 27.5% tax rate will apply to companies who are considered base rate entities. A base rate entity is a company who has less than 80% of assessable income from passive sources.

ATO debts now sent to credit reporting bureaus (not yet law)

Businesses with a tax debt greater than $10,000 may have that debt reported to credit reporting bureaus from 1 July 2018 by the ATO. This may affect a business' credit rating and their ability to obtain future finance in an attempt to increase the transparency of tax debts throughout business circles.

Similar business test (not yet law)

Legislation surrounding extending the same business test for company tax losses is yet to pass the parliamentary process. A company will be allowed to claim a prior year loss against business profits as long as it satisfies the similar business test from 1 July 2015. This test replaces the same business test, which was less flexible to pass.

The Bill has been blocked by the crossbench due to be similar business test being linked with the proposal for self-assessment of effective life of intangible assets.

R&D tax incentive proposed from 1 July 2018

The R&D tax incentive will be amended for income years commencing 1 July 2018. Under the announcement, the incentive will be based on uplift of the entity's corporate tax rate in the particular income year.

Also, changes will occur to companies that have an aggregated turnover of $20m or more. The rate of the R&D tax incentive will be determined by the company's "R&D intensity percentage". The intensity percentage is the rate of R&D expenditure compared to overall expenditure for the year, where a marginal rate of offset will be applied.

Budget announcements - but not due until 1 July 2019

The recent Federal Budget has plenty of announcements which may affect small businesses. However, these following Budget announcements are not due to commence until 1 July 2019.

– Individual's fame or image

All remuneration provided for the commercial exploitation of a person's fame or image will be included in the assessable income of that individual.

– Cash receipt limit for businesses

Cash receipts for a business will be limited to under $10,000.

– Director Penalty Notice regime

DPN regime to be extended to include GST, luxury car tax and wine equalisation tax, making directors personally liable for the company's debts.

– Australian government tenders

Businesses seeking to tender for large Australian government contracts will be required to provide information on the status of their tax obligations. Under the proposed arrangements, contracts over $4m (including GST) will be affected.

 Information sourced using CCH iknow


2018 tax planning opportunities for individuals

2018 planning opportunities for individuals

As 30 June 2018 is fast approaching, we would like to advise you of some key tax planning opportunities you may want to take advantage of before the end of the financial year.

Deferral of income

Subject to cash flow considerations and anti-avoidance rules, consider deferring income to the following year, particularly if:

             • income in the following year is likely to be lower, and

             • tax rates for the following year are expected to be lower.

Capital gains

Where appropriate, consider realising capital losses by year's end so that they may be offset against realised capital gains of that year.


Donations or gifts of $2 or more to a deductible gift recipient (DGR) are tax deductible. A deduction is also allowed for gifts of publicly-listed shares that have been held for at least 12 months and which are valued at $5,000 or less.

Where spouses are on different marginal rates, consider ensuring that all deductible gifts are made by the spouse in the higher tax bracket so as to maximise the benefit of the deduction.


Subject to cash flow considerations, consider making deductible purchases by year's end in order to accelerate deductions. This applies particularly if the income in the following year is expected to be lower than in the current year.

In certain circumstances, an immediate deduction can be available for prepaid expenditure (eg interest on a loan relating to a rental property).

Personal super contributions

From 1 July 2017, an individual is able to make a personal deductible superannuation contribution regardless of whether they are self-employed or not. Individuals at a lower tax rate would need to make sure what contributions they can make before claiming a deduction. They can review their superannuation accounts to see their employer contributions to date.

Individuals need to be reminded that the concessional contributions cap is $25,000 for the 2018 financial year.

Additionally, individuals earning over $250,000 in taxable income need to be aware that Division 293 tax will apply to concessional superannuation contributions.

Spouse superannuation contribution rebate

A $540 tax offset is available for after-tax contributions (up to $3,000) to a complying superannuation fund on behalf of a spouse (married or de facto) where the spouse's annual taxable income is less than $37,000. A reduction of the maximum offset is available where spouse's income is between $37,000 and $40,000.

Superannuation government co-contribution

For low income earners, subject to certain conditions, the government makes a co-contribution of up to $500 if a taxpayer makes after-tax contributions of at least $1,000. The co-contribution begins to phase-out at a taxable income of $36,813, and is not available for taxable income above $51,813.

Individuals could also take advantage on increasing the amount that can be withdrawn under the First Home Super Saver Scheme. However, the co-contribution itself would not be included.

Proposed changes to HELP repayments

The MYEFO report from December 2017 announced that new HELP repayments level may exist from 1 July 2018. As a result, students with a HELP debt may need to start repaying the debt on earning $45,000. Delaying some deductions where appropriate may remove the repayment in the next financial year.

Nearing retirement

A taxpayer who is considering retiring near year end may find it worthwhile to defer discretionary income until after 30 June. In that subsequent year, their income will normally be smaller and the marginal rate may therefore be less.

When considering the timing of retirement, keep in mind the restrictions on the concessional treatment of employment termination payments that apply.

Property development and vacant land deductions denial

Using lead-time rules for non-commercial losses, as well as property development interest deductions, may only be available for this and next financial year. An announcement to remove these deductions from 1 July 2019 was announced in the Federal Budget. The proposal will also remove these interest amounts from the cost base of the asset.

Therefore, property development clients may need to act quickly to get their operations started.

Additional CGT discount available for investors

An additional CGT discount of up to 10% is now available for investors who invest in affordable housing from 1 January 2018. Conditions apply to get the additional discount, including holding the asset in affordable housing for three years.

Information sourced using CCH iknow


2018 tax changes for individuals

2018 tax changes for individuals

As 30 June 2018 is fast approaching, we have briefly summarised the important tax changes to remember when collating your tax information.

Car claims to be closely examined by ATO

As part of a broader focus on work-related expenses, the ATO will be examining large car deductions claimed under D1 for the 2017/18 income year. They are particularly concerned with taxpayers making fraudulent claims which are reimbursed by an employer.

The ATO has stated that enhanced technology and data analytics will identify claims which are unusual, with an intention to increase audit activity.

Travel deductions for rental properties not allowed

2017/18 is the first year in which deductions for travelling to a residential rental property will no longer be allowable for certain taxpayers. A deduction is not allowable for travelling to collect rent, maintain the property or complete an inspection, and extends to individuals, partnerships and trustees of a trust.

This measure will not prevent investors from engaging third parties such as real estate agents for property management services. These expenses will remain deductible.

Plant and equipment depreciation changes for rental property in effect

Deductions for depreciation of residential property fixtures will only be allowable for expenses actually outlaid by an investor, effective 1 July 2017. Plant and equipment purchased by an investor as part of a real property asset can only form part of the cost base.

Special exclusions from this may apply for off-the-plan purchases, owner builders with substantial renovations, and entities who carry on a business of letting residential rental properties.

Change for low income tax offset and LAMITO

A low and middle income tax offset (LAMITO) will be introduced from 1 July 2018. The offset will run in conjunction with the low income tax offset as a targeted reduction of income tax for Australian residents.

The LAMITO will provide an additional offset of up to $200 for individuals on a taxable income of $37,000 or less. Taxpayers up to $48,000 will get an increased LAMITO up to the maximum amount of $530.

The maximum LAMITO will be available for incomes up to $90,000, and will phase out for individuals with a taxable income of $125,333.

The LAMITO will be available for four years, ending with the 2021/22 income year. At this point, further income tax reductions will absorb the LAMITO.

New child care subsidy commencing

Families will need to be aware of the changes associated with the implementation of the new Child Care Subsidy due to be law from 1 July 2018. The new subsidy will replace the Child Care Benefit and Child Care Rebate.

The Child Care Rebate is not income tested and allows a 50% out-of-pocket rebate up to $7,500 per child. The rebate may have been reduced by the Child Care Benefit, which reduced the fee based on a family's income.

CGT main residence denial for foreign residents still in transitional rules

Individuals who are foreign tax residents will no longer have access to the CGT main residence exemption from 9 May 2017. The exemption is removed if the owner is a foreign resident for tax purposes on the date of the event. However, grandfathering rules are still in existence up to 30 June 2019, where foreign residents who held property at the original date can still access the exemption.

"Catch-up" superannuation contributions to begin next year

Individuals with a total superannuation balance of less than $500,000 will be allowed to make additional concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2018. Unused amounts will be carried forward on a rolling basis for a period of five consecutive years from 1 July 2018.

Individuals making extra superannuation contributions would be better off this year making the maximum contribution available to them.

Downsizer contributions available from 1 July 2018

An individual who is aged 65 or over may make "downsizer contributions" from the proceeds of the sale of a dwelling that was the person's main residence, applicable to the proceeds from contracts entered into on or after 1 July 2018.

Proceeds arising from an exchange of contracts occurring before 1 July 2018 cannot be made as a downsizer contribution, even if the settlement of the contracts occurs on or after 1 July 2018.

 Information sourced using CCH iknow

SMSF 2018 planning guide

SMSF Planning for 2018

The end of the financial year is approaching. There have been significant changes to superannuation in the past two years. Here are key superannuation considerations that need to be made prior to 30 June 2018. 


Ensure the minimum pension requirements are paid. If the minimum payment is not met, the pension will cease and the fund will lose its tax exemption on earnings.

Transition to retirement pension payments need to fall within the minimum and maximum amount. This information is provided to you annually with your compliance work. As the tax exemption on investment earnings have been removed, consideration needs to be given as to whether the TRIP continues.

Concessional (Tax Deductible) Contributions

The maximum concessional contribution cap for the 2018 financial year is $25,000. This applies to all members as transitional caps have been removed.

Fund members between the age of 65 – 74 need to pass the work test in order to make member concessional contributions.

The removal of the 10% rule means that if eligible, everyone is able to claim a deduction for personal contributions

Individuals with a superannuation balance less than $500,000 will be allowed to make additional catch-up concessional contributions where they have not reached their concessional contributions cap in previous years, with effect from 1 July 2018. Amounts are carried forward on a rolling basis for a period of five consecutive years, and only unused amounts accrued from 1 July 2017 can be carried forward.

Non-Concessional (Non-tax deductible) contributions

The maximum member non-contribution is $100,000. Members can bring forward three years' worth of contributions if under the age of 65. This means that up to $300,000 can be contributed in one year.   

Members are not permitted to make non-concessional contributions if their total superannuation balance exceeds $1.6M at 30 June 2017.

Property valuations

Funds are required to value property assets at the end of each financial year. Asset valuations are a key component in preparing accurate financial reports. Depending on the situation, a valuation maybe undertaken by a registered valuer or a person without formal qualifications but who has specific experience or knowledge in a particular area.

Contributors - Emma McNaught and Tyson Arentz (Authorised representatives of the SMSF Expert)

Unpaid present entitlements

Unpaid present entitlements to be included in Div 7A

The government has announced in the 2018/19 Federal Budget that unpaid present entitlements (UPE) will come within the scope of Div 7A from 1 July 2019. This changes the current guidance that the ATO does not see a provision of financial accommodation where a UPE is held in a sub-trust for a private company.


An "unpaid present entitlement" for the purposes of Div 7A occurs where a closely-held trust (usually a family discretionary trust) distributes income to a "bucket company". The bucket company pays tax usually at 30%, instead of the higher marginal tax rates of the individual beneficiaries.

Division 7A will apply under Subdiv EA if the trust also has a debit loan to the individual beneficiaries. As the private company will also have a debit loan to the trust, it is assumed that a provision of financial accommodation has been granted.

Also of note is when private companies do not "call" the present entitlement from the trust who allocated it to them. It was determined by the ATO on 16 December 2009 that this situation is also a provision of financial accommodation which attracts Div 7A.

Current UPE loan agreements

Under the rules allowed by the ATO from TR2010/3, a UPE can be held on sub-trust for the sole benefit to the private company. In order for Div 7A to not apply, certain provisions must be adhered to, including putting the UPE on commercial terms.

The first option granted by the ATO is for UPE's at 30 June 2010 to be put into a 7-year interest-only loan at the benchmark interest rate by 30 June 2011. Interest would be charged and payable each year, meaning that the first year of UPE's principal amounts were due to be repaid at 30 June 2018. A further option exists for the principal amount to be moved into a complying loan

Budget announcement

The announcement is clear in that the government's intention is to put unpaid present entitlements on the same footing as a loan for Div 7A purposes. Hence, any trust distribution from a closely-held trust to a private company would commence accruing interest immediately following the distribution announcement, which is usually made on 30 June each year.

What we are unsure of at this stage is how far the measures intend to go. Also of note is the announcement to include 2016 Federal Budget measures along with this announcement as it goes through parliament. One of these measures was to simplify Div 7A loan arrangements, which may include one amalgamated loan to be paid off in 10 years.

Client opportunities

Clients have an opportunity to get their affairs in order prior to commencement of 1 July 2019, the intended start date of any legislation.

This may include getting current UPE's into an interest-only loan, and making sure any UPE loans about to expire are included in a new loan agreement compliant with s 109N.

However, be warned and informed that major change to Div 7A laws may apply from 1 July 2019. This may include widening the scope of Div 7A to include pre-December 1997 loans. Also, the amalgamation of all loans to be repaid by a certain date may introduce a need to make larger repayments to companies from directors.

Further information will be provided when available.

Information sourced using CCH iknow


SMSF audit cycle to change

SMSFs to move to three-year audit cycle

An announcement from the 2018 Federal Budget states that the government intends to change the SIS regulations which require an SMSF to be audited by an approved auditor every year. 

Currently, the trustee of a superannuation entity must ensure that an approved auditor is appointed to give the trustee a report in the approved form of the operations of the entity for that year.

In addition, the trustee of a superannuation entity must provide the auditor with any document (as may be requested in writing by the auditor) that is relevant to the preparation of the report within 14 days of the request being made.

The approved form of audit report must cover various areas of superannuation law, such as the fund's compliance with areas of the SIS Act 1993. Also, a financial audit must be completed and the auditor must be satisfied that the financials represent a true and fair view of the position of the fund for the year in question.

Proposed changes

The proposed change is that a self-managed superannuation fund may be eligible to get an audit report once every three years should they meet certain criteria.

The first criteria is that they have had three consecutive income years with an unqualified audit report.

The second criteria is that the SMSF must have lodged its annual returns on time in those same three consecutive years.

Risk mitigation steps

There appears to be no change in policy surrounding the stringent record-keeping obligations of SMSF trustees imposed under the SIS Act 1993. This includes:

·         keeping accurate and accessible accounting records that explain the transactions and financial position of the fund for a minimum of five years

·         preparing an annual operating statement and an annual statement of the financial position of the fund, and keep those records of a minimum of five years

·         keeping minutes of trustee meetings and decisions, including changes to trustees for a minimum of 10 years, and

·         keeping copies of all annual returns lodged and reports given to members for a minimum of 10 years.

Also, there is a strict penalties that apply to non-lodgement of various superannuation fund reports that are not part of this announcement. That includes events-based reporting, lodgement of annual return and reporting of contributions received to the regulator.

Information sourced using CCH iknow


Vacant land expenses

Vacant land expenses no longer deductible

From 1 July 2019, a tax deduction will not be allowed for expenses associated with holding vacant land. These denied deductions will not be allowed to carry forward for a later income year. Also, the expenses will not be allowed to be included in the cost base for capital gains tax purposes. 

Current treatment

The deductibility of interest expenses under the general deduction provision in ITAA 1997 s 8-1 has been the subject of much litigation. A majority of the High Court concluded in Steele v DFCT 99 ATC 4242 that interest incurred during the construction phase of a development when no income is being derived is of a revenue (not capital) nature, and so potentially deductible. This means that an income tax deduction may be allowable for interest borrowed to construct an income-producing asset, such as a block of flats or a factory, even where the interest is paid during the construction period when no income is being derived from the project.

Also, the third element of the cost base of an asset is the costs of owning the asset, as long as the asset was acquired after 20 August 1991.

Costs of owning an asset consist of any expenditure incurred by a taxpayer to the extent to which it is incurred in connection with the continuing ownership of the asset. These costs include interest on money borrowed to acquire an asset, costs of maintaining, repairing and insuring an asset, rates and land tax, interest on money borrowed to refinance the money borrowed to acquire an asset, and interest on any money borrowed to finance capital expenditure incurred to increase an asset's value.

Proposed new treatment

The 2018 Budget announcement states that any expenses relating to vacant land are not deductible and cannot be added to the asset's cost base. This measure will apply to land held for residential or commercial purposes. However, the "carrying on a business" test will generally exclude land held for commercial development.

Under the proposal, the expenses relating to holding costs will only become deductible where:

·         a property has been constructed on the land, it has received approval to be occupied and is available for rent, or

·         the land is being used by the owner to carrying on a business, including a business of primary production.

Risk mitigation steps

This announcement shows the intention of the government to stimulate the construction of buildings in a timely manner. Also, it significantly reduces the tax incentives for "land banking", which is an investment strategy to purchase and hold land until such time as it is re-zoned for construction purposes.

For clients who are holding land in this manner, or are preparing to commence a construction project, timing is of crucial importance. As the measure is only intended to commence from 1 July 2019, a window of 13 months exists for construction to get underway and completed.

Despite these future detriments to constructing buildings for rent or sale, it should not be a complete deterrent where large gains could be made. However, adjustments to investment calculations should be factored into future decision making.

Information sourced using CCH iknow

Work test exemption

Work test exemption coming for recent retirees

From 1 July 2019, an exemption from the work test will apply for the first year in which an individual would be required to pass it.

Under SIS Regulation, a superannuation fund is able to accept a contribution on behalf of a member so long as the member is under 65 years of age. However, if the member is over 65 years of age, varying rules apply. 

If the member is over the age of 65, but under the age of 75, a superannuation fund may accept any contribution that is a mandated employer contribution. A mandated employer contribution would include those that are necessary to be made under superannuation guarantee rules.

However, other contributions such as non-concessional contributions can only be accepted if they are in accordance with Part 3 of SIS regulation. It states that the member must have been gainfully employed for at least 40 hours in a 30 consecutive day period in that financial year.

Proposed changes

Under the proposal, an individual over 65 will be able to make contribution in the first year that they do not meet the work test requirements.

Practically, an individual who retires with an Employment Termination Payment does not have to make a quick decision about putting the money into superannuation. They are able to wait and see what their financial situation looks like after their retirement before making any final decisions relating to superannuation.


Peter is 66 years of age and during the 2019/20 financial year, he ceased working from his employer after many years' service. He received a golden handshake, as well as payments for unused leave entitlements.

After finishing employment, Peter was unsure what to do with the final payment he received, as well as the next stage of his life in general. As a result, Peter went on a holiday for a number of months. Upon return, he decided that he would sell his main residence and move from the city to a coastal town elsewhere in the state.

After paying down his debt, transaction and moving costs, Peter had a fair surplus of funds left over.It is now the 2020/21 financial year.

Downsizer contribution - Peter is able to make a downsizer contribution as he is over 65 and has met the other requirements to make the contribution. It is excluded from being a non-concessional contribution.

Non-concessional contributions - Peter is able to make a further contribution to superannuation for the balance of his excess funds. He will be able to utilise an exception to the general rule that you cannot make a non-concessional contribution after age 65. This is because in the 2020/21 financial year, it is the first year he would be ineligible to contribute due to not passing the work test.

After the dust has settled, Peter is able to have all his retirement funds in one easy to understand and review financial product, which is his wishes.

Information sourced using CCH iknow

Personal income tax cuts

Personal income tax proposed to 2022

A seven-year personal income tax plan will be implemented in three steps, to introduce a low and middle income tax offset, to provide relief from bracket creep and to remove the 37% tax bracket.

Low and middle income tax offset

A low and middle income tax offset (LAMITO) will be introduced as a non-refundable tax offset of up to $530 per annum to resident low and middle income taxpayers from 2018/19 to 2021/22.

The LAMITO will provide a benefit of up to $200 for taxpayers with taxable income of $37,000 or less. For taxable incomes between $37,000 and $48,000, the value of the offset will increase at a rate of three cents per dollar to the maximum benefit of $530. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $530. For taxpayers with taxable income from $90,001 to $125,333, the offset will phase out at a rate of 1.5 cents per dollar.

This offset will be received as a lump sum on assessment after an individual lodges their tax return. It will run in addition to the existing low income tax offset.

Middle income relief from bracket creep

From 1 July 2018, the top threshold of the 32.5% tax bracket will be increased from $87,000 to $90,000.

From 1 July 2022, the low income offset will be increased from $445 to $645 in accordance with the removal of LAMITO. The increased low income offset will be phased out at a rate of 6.5 cents per dollar for incomes between $37,000 and $41,000. The remaining $385 low income offset will then be phased out at 1.5 cents per dollar for income between $41,000 and $66,667.

The change in the low income tax offset will run in conjunction with a change in the middle income brackets. The top of the 19% tax bracket will increase from $37,000 to $41,000, and the top of the 32.5% tax bracket will increase again from $90,000 to $120,000. These brackets are due to change from 1 July 2022.

Removing the 37% tax bracket

The 37% income tax bracket will be removed from 1 July 2024.

From 1 July 2024, the top threshold for the 32.5% tax bracket will increase from $120,000 to $200,000. Taxpayers will pay the top marginal tax rate of 45% for taxable incomes exceeding $200,000, and the 32.5% bracket will apply from $41,000 to $200,000.

Information sourced using CCH iknow


Instant asset write-off extended

Instant asset write-off extended

A small business entity is classified as a business with an aggregated annual turnover (the total normal income of the business and of any associated businesses) of less than $10m. A small business entity can enjoy many income tax concessions, one of which being a simplified depreciation regime. 

Under simplified depreciation rules, assets costing less than the "instant asset write-off" threshold are written off in the year they are bought and used, or installed ready-for-use.

In the 2018/19 Federal Budget, the current "instant asset write-off" threshold of $20,000 was extended. Previously due to expire on 30 June 2018, the $20,000 immediate write-off is available for another 12 months to 30 June 2019.

The instant asset write-off applies where:

                • the entire cost, excluding GST, of the asset is less than the threshold

                • trade-in amounts are ignored

                • the asset may be new or second-hand.

Also, for the instant asset write-off to apply for small business, the amount written off must be in the same proportion of the business use percentage. That is, an asset costing $18,000 which is used 50% of the time for business purposes can only be written off immediately for a total of $9,000.

Clients who were looking to utilise the immediate deduction are not pushed into a cashflow issue prior to 30 June 2018 by having the write-off extended. In particular, there is no need for a "mad rush" to get assets installed prior to 30 June this year.

Another year extension means that certain small businesses may be eligible from 1 July 2018 to write-off the entire amount in their small business depreciation pool.

The entire balance of the pool can be deducted in an income year when the balance before the calculation of depreciation is less than $20,000. The depreciation calculation comes in after adding new additions that would have cost more than $20,000 in the 2018/19 income year.

Also noted in the 2018/19 Federal Budget is that the current suspension of small business depreciation "lock-out" rules will also continue for another 12 months to 30 June 2019.

Generally, a taxpayer who stops using (or opts-out of) simplified depreciation even though they are eligible to do so must stay out of the regime for five years. These lock-out rules currently do not apply as the $20,000 instant asset write-off is in place.

Information sourced using CCH iknow

Car claims to be closely examined

Car claims to be closely examined by ATO in 2017/18

Work-related car expenses will be closely scrutinised by the ATO for individuals claiming in the 2017/18 income year. A recent media release has highlighted the ATO's concerns that taxpayers are either over claiming or incorrectly calculating car expenses. This concern will be expressed by additional audit resources being used for the upcoming tax lodgment season.

It is the ATO's intention to utilise improved technological enhancements along with data analytics to target unusually high claims based on similar occupational and income models.

The focus of the upcoming ATO scrutiny will be based on three "golden rules" they have identified.

                (1) The taxpayer must have spent the money themselves and was not reimbursed.

                (2) The car claim must be directly related to earning assessable income.

                (3) There must a record to prove it.

This year it is important to ensure that your clients are fully aware of their substantiation requirements when making a car expense claim.

Cents per kilometres method

A deduction is calculated at a prescribed rate and is allowable for up to 5,000 km of income-producing use of the car. The maximum cents per kilometre claim can be made even if more than 5,000 business use kilometres. Under this method, full substantiation is not required, however, the deduction must be calculated based on a reasonable estimate of income-producing kilometres.

"Log book" method

A deduction for a percentage of the total car expenses is allowed as long as odometer records are kept. The odometer records must be kept every five years, and containing details of all business trips for a period of 12 weeks. For the 2017/18 income year, a log book will only be valid if it commences from 1 July 2013.

All expenses relating to the car must be kept in order to substantiate the log book claim, with the exception of fuel and oil costs. Fuel and oil costs can be substantiated by reference to odometer records, using a reliable estimate for distance and bowser price.

Information sourced using CCH iknow

Accessing CGT exemption for main residence previously owned solely by spouse

A private binding ruling demonstrates that a taxpayer maybe CGT exempt when disposing their share of a property that they did not own until after they ceased living in it, if their spouse nominates that property as their main residence for the relevant period.

The basic case is that a taxpayer's main residence maybe fully exempt from CGT when they dispose of their interest under ITAA 1997 s 118-110.

In this scenario, the taxpayer's spouse purchased a dwelling, Dwelling A. The taxpayer moved into Dwelling A with the spouse. After a few years, the couple moved out to travel around Australia and rented out Dwelling A to a tenant for less than six years.

On return from travelling, the taxpayer purchased land and built another house. The spouse transferred 50% ownership interest in Dwelling A to the taxpayer. The taxpayer and the spouse subsequently sold Dwelling A.

According to the ruling, there is nothing to prevent either spouse from nominating the other's dwelling as their main residence even though they did not have an ownership interest in that dwelling.

In the present situation, because Dwelling A was the spouse's main residence at relevant times, the taxpayer is entitled to nominate Dwelling A as their main residence for that period as well. This is so notwithstanding that the taxpayer did not acquire a legal ownership interest in the property until after the taxpayer ceased living in the property.

In addition, if the taxpayer nominates Dwelling A as their main residence, the absence choice in ITAA 1997 s 118-145 will also apply, such that the taxpayer will be entitled to a full main residence exemption on their share of the eventual sale of the property.

Consideration should be given as to ownership of main residence between spouses and their entitlement to CGT exemption.

Information sourced using CCH iknow

Bitcoins and CGT


Bitcoins and CGT exemption for personal use assets


The ATO considers that digital currencies, including bitcoin, are CGT assets (Taxation Determination TD 2014/26). That determination refers to the detailed description of bitcoin contained in TD 2014/25, and concludes that bitcoin holding rights amount to property. As such, a person holding bitcoin is considered to hold a CGT asset.


A private binding ruling demonstrates that bitcoins (or other similar cryptocurrencies) a taxpayer purchased as a hobby during the very early stages of their existence could fall within the CGT exemption for personal use assets.


A capital gain made from a personal use asset (a CGT asset used or kept mainly for personal use or enjoyment) is disregarded if the first element of the cost base is $10,000 or less. Any capital loss made from a personal use asset is disregarded.


A private binding ruling shows that a taxpayer who is not carrying on a business of trading bitcoins were holding bitcoins on capital account and that the bitcoins fell within the CGT regime.


The ruling said that the taxpayer purchased bitcoins informally and/or mined them personally in the very early stages of their existence as a hobby, rather than to obtain a speculative profit. Accordingly, these bitcoins could fall within the CGT exemption for personal use assets.


However, bitcoins mined as part of a pool would not be personal use assets because:

•        at the time of acquiring the bitcoins, the taxpayer was no longer required to support the Bitcoin network, as evidenced by the higher difficulty which led to the need to use a pool, and

•        a pool involves cooperation in order to obtain something of value, which puts the activity closer to the commercial end of the spectrum rather than the personal.


Similarly, bitcoins purchased through an online exchange would not be personal use assets because:

•        at this stage, the bitcoin market and ecosystem was maturing, as evidenced by the existence of exchanges where bitcoins could be readily bought and sold, and

•        it is more difficult to characterise the taxpayer's purchase was part of a hobby; the taxpayer was more likely to have a substantial aspect of seeking an exchange gain or at least storing value, as opposed to personal use or enjoyment.


Information sourced using CCH iknow



Budgeting and cashflow forecasting


Is budgeting and cashflow forecasting necessary for businesses?


It is recommended that every business prepares an annual Budget and Cashflow Forecast.


Analyse previous year's performance to prepare budgets


When preparing a budget, you should firstly analyse the previous financial year's performance. What you need to consider is whether you propose to increase turnover during the forthcoming 12 months, whether you will employ the same number of staff or increase your staff and what other events are likely to occur in the next 12 months.


Detailed consideration to all aspects of the business


This will require you to give detailed consideration to a number of separate areas, including:

• Sales

• Production Forecasts

• Labour Productivity Budgets

• Gross Profit Percentages that you believe are achievable Investments in Stock

• Investment in Debtors

• The payment of Creditors

• Key expenses such as advertising, wages and salaries, rents and superannuation contributions.


Cashflow forecast


In preparing the Cashflow Forecast you should have regard to:

• Loan Repayments

• Taxation Payments

• GST Payments

• Income tax instalments

• Any Capital Expenditure that you wish to undertake

• Any funds (dividends) that you wish to withdraw from the business.


Blueprint for the next twelve months


The whole concept of preparing a Budget and Cashflow Forecast is to prepare a blueprint for what you would like to see your business achieve during the next 12 months.


Budgeting should highlight potential troublespots


If you are realistic in your estimates, then the forecast should highlight any potential troublespots during the year, eg you may be going to experience a shortage of funds from the payment of income tax in March or from stock build-ups in November for Christmas trading. There could also be other times during the year when you anticipate problems due to seasonal conditions.


Measure actual performance against Budgets/Cashflow Forecast


You will then have Budgets and Cashflow Forecasts against which to measure your actual performance during the year, so as to determine whether you are on track in your business performance.


Budgets help you get a clear indication of where you are


No one expects you to be able to actually achieve budget estimates in every segment of the business. That is a virtual impossibility. What the budget does give you is a blueprint against which to measure your actual performance. This will give you a clear indication as to where you actually stand on current day-to-day trading as compared to your expectations at the beginning of the year when the budget was prepared.


Budgets give businesses a better chance of success


There is no doubt that the businesses which prepare Budgets and Cashflow Forecasts and compare this to their actual performance, give themselves a far greater chance of business survival.


Information sourced using CCH iknow

Moving overseas


Moving overseas? You may have to pay more tax


A dual citizen has been declared a non-resident of Australia by the Commissioner of Taxation via a Private Binding Ruling request. As a result of this, the employer of the dual citizen is required to withhold tax on salary at the non-resident tax rate.


In order to be classified as a tax resident of Australia, an individual is required to meet the definition as defined in ITAA 1936 s 6(1). The definition offers four tests to use to ascertain whether an individual is a tax resident of Australia, and includes the:

• resides test

• domicile and permanent place of abode test

• 183-day test, and

• Commonwealth superannuation fund test.


The "resides test" is the primary test for residency. If this test is failed based on relevant factors, then the other three tests are applied.


Relevant facts and circumstances


The individual:

• was a dual citizen of Australia

• moved overseas with their spouse and children

• was employed by an Australian company to complete work serving Australian customers

• maintained an Australian bank account to receive their salary

• had no occupation in the foreign country

• was only renting in Australia before moving overseas

• shared a house with in-laws in the foreign country, and

• advised Medicare that the family had departed Australia




In the ordinary concepts (resides) test for residency, not one of the eight factors has greater weight to the others when making a determination. The weight usually becomes apparent when looking at everything as a whole.

The eight factors taken into account by the courts and tribunals are:

• physical presence in Australia

• nationality

• history of residence and movements

• habits and "mode of life"

• frequency, regularity and duration of visits to Australia

• purpose of visits to or absences from Australia

• family and business ties with Australia compared to the foreign country concerned, and

• maintenance of a place of abode.


Based on the relevant facts for the individual, residency pointed towards being a citizen of Australia and having all business ties related to Australia via employment. The individual had no other major income from employment or business purposes. The individual was being paid into an Australian bank account presumably in Australian dollars.


Non-residency pointed towards the individual's immediate family (ie spouse and children) living in the foreign country with extended family. While this could be considered usual and non-determinative because circumstances may have been fortuitous, the individual informed Medicare that they were leaving Australia indefinitely.


As noted, all signs generally pointed towards residency, due to all the work being Australian-sourced. Perhaps the individual was working remotely and was back in the foreign country with family for an unknown period for personal reasons.


The individual telling Medicare that the family was leaving indefinitely was the factor which tipped the scales to the individual being a non-resident. The individual also failed the other three tests.


Client application


As the individual is an employee non-resident, their salary is now taxed at the non-resident marginal rates. Also, this higher rate of tax is withheld from the individual's salary as part of the payroll process.

This could result in a few further issues, including:

• whether the individual is able to claim a rebate of Australian tax paid in the foreign country

• the individual no longer be eligible to receive superannuation guarantee, and

• the employer being aware that the PAYG withholding has to occur at the higher rate.

All these factors could considerably change the overall outcome for the individual salary package, including where superannuation guarantee amounts may be taxed at 37% or even higher.


Client opportunities


If applicable, the individual may look to a different structure and provide the Australian company with services under a contractor arrangement. However, this can be tricky in instances where the individual was previously employed as an employee. Payments for contracted services to a foreign contractor typically do not have withholding amounts applied.


The individual may want to review their options in this situation, particularly in the foreign country.


Information sourced using CCH iKnow


Fixing interest rates

To fix, or not to fix, that is the question.


With fixed rates as low as they are, and speculation of a rate rise in the later part of 2018, it is understandable why people may be considering fixing their loan.

If you are thinking about fixing the interest rate on part of, or your whole loan, remember that there are many things to think about before locking it in.

Here are some possible pros and cons when fixing a loan.


·         Certainty of monthly repayments for the term of the fixed-rate period

·         Insurance against rate rises, which will increase your loan repayments

·         The peace of mind that the above two outcomes provide

·         You can fix your whole loan or part of it – giving you greater flexibility



·         Additional repayments may attract penalties

·         If a loan is paid out during a fixed-rate term, penalties may be incurred

·         If interest rates fall, you will not receive the benefits of lower minimum repayments

·         Redraw and Offset accounts are commonly excluded from fixed rate offers


So ask yourself.

Are you likely to make additional repayments or sell the property in the short term?
Do you regularly use an offset or redraw facility?
Are you happy to pay a slightly higher rate to secure a stable loan repayment?
Deciding whether to fix or not depends upon your plans for the future.

Single Touch Payroll


Single touch payroll for everyone?


Single Touch Payroll (STP) has been introduced into the Australian tax system to combat areas of taxpayer non-compliance of PAYG withholding and superannuation guarantee obligations. Past legislation has been enacted which brings this new payroll system into commencement from 1 July 2018.

Currently as it stands, only "substantial employers" will be necessary to implement STP (TAA 1953 s 389-5). However, new legislation has been tabled in parliament that will mean that every employer will be required to use and lodge STP software. On enactment, all employers will be required to use STP from 1 July 2019.




A "substantial employer" is one who employs 20 or more employees, or is a member if a wholly-owned group, and the group has 20 or more employees in total. Contractors and other individuals that are employees under the extended meaning of "employee" in the Superannuation Guarantee (Administration) Act 1992 are excluded from the headcount if they do not meet the ordinary meaning of employee. A checklist on whether an individual is an employee is available here.


The headcount, which determines whether an employer is a "substantial employer", must be undertaken as at 1 April 2018.


Headcount, as defined by the ATO, is as follows as at 1 April 2018:

          • full-time employees

          • part-time employees

          • casual employees who are on the payroll at 1 April and worked at any time during March

          • employees based overseas

          • any employee absent or on leave (whether paid or unpaid), and

          • seasonal employees (if necessary).


Do not include any independent contractors or staff that is provided by a third party labour hire organisation. Also, company directors are not included unless they are also employees.


This reporting will continue indefinitely even if the employer goes below 20 employees during the 2018/19 income year.


Reporting requirements


Employers will need to report the following through their payroll system:

          • payments made to individuals and amounts withheld from those payments

          • payments of salary or wages and ordinary time earnings (OTE), and

          • employee superannuation contributions.


Also, pending the passing of new legislation, other amounts such as "sacrificed ordinary time earnings amounts" and "sacrificed salary and wages amounts" will be reportable. The objective of these additional reporting requirements ensures that superannuation guarantee is not reduced by amounts salary sacrificed. These amounts, along with ordinary time earnings and superannuation contributions can be reported either separately or combined. Either way, the ATO has stated that they will be aware of an employee's overall package from which they work out their superannuation guarantee.


Payments not made through the payroll system (eg contractor payments, payments of superannuation income, payments of dividends, interest and royalties, etc) are excluded.


Employers will not be subject to administrative penalties for the first 12 months, unless first notified by the Commissioner.


PAYG payment summaries


For employers who are required to use STP from 1 July 2018, there will no longer be a requirement to provide employees with PAYG payment summaries at year end.

Essentially, the employees will be able to see their payment summaries at year end online from myGov and also they will be available on the Tax Agent Portal.


Information sourced using CCH iknow

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