New Residential Property and the prepayment of GST (10% or 7%)

The Bill introducing the “GST withholding” on new residential property is here. You can find it in Schedule 5 of the Treasury Laws Amendment (2018 Measures No. 1) Bill 2018. In summary…

Where an entity (the supplier) makes a taxable supply of new residential premises or a subdivision of potential residential land by way of sale or long term lease, the recipient of the supply (the purchaser) is required to make a payment of part of the consideration to the ATO directly, prior to or at the time consideration is first provided for the supply (other than as a deposit).

This is not exactly the same as the draft law released last year.

For example, it now only applies to new residential premises, other than those created through a substantial renovation and commercial residential premises; or subdivisions of potential residential land (This includes land that has been zoned for use for residential premises under a law of a State or Territory but that does not currently contain any residential premises).

Also, a withholding obligation does not apply if the recipient of the taxable supply is registered for GST, and acquires the potential residential land for a creditable purpose.

Where a purchaser receives a taxable supply to which the withholding obligation applies, they are required to pay to the Commissioner an amount on or before the day that consideration for the supply (other than consideration provided as a deposit) is first provided, or if the parties are associates and no consideration is provided, on the day the supply is made.

AND HERE IS THE BIG CHANGE…

The proportion of the contract price that must be withheld differs based on whether the margin scheme applies to the supply.

If the margin scheme does not apply, the purchaser must withhold 1/11th of the contract price or price.

If the margin scheme applies to the taxable supply, the purchaser must withhold 7 per cent of the contract price or price, or a greater amount that has been determined by the Minister in a legislative instrument. However, any determination by the Minister cannot require more than 9 per cent of the contract price or price to be withheld, which prevents an amount being set in excess of the GST payable on the supply.

If the amount is not at arms length it is 10% of the market value. And if there is one amount covering residential property and other stuff that cannot be separated it is 10% on the entire amount.

There is still a notification requirement such that the seller has to inform the purchaser of the obligation to withhold, but the time frame for this is now at the discretion of the Commissioner (not 14 days as it was in the draft).

And apart from where the withholding was made by mistake, there is no way for a developer to get any amount fo Get back except through the normal Activity Statement process – the withheld GST is treated as a credit on the next BAS.

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SBCGT changes…

In the May budget there were some changes announced that relate to our favourite CGT concession, the Small Business CGT Concessions in Division 152. At the time I had no idea what these changes would be but now we know.

The Government has released draft legislation to make these changes and they are designed to ensure that taxpayers cannot sell interests in either large businesses or passive entities and get these concessions.

First, the amendments only apply where the capital gain we want to reduce is as the result of selling a CGT asset that is a share in a company or an interest in a trust.

Where this is the case the taxpayer selling the share or the unit must own 20% of the shares or the units in the object entity, or be the spouse of someone who owns such a 20%, or be owned by these to people at least at 90%. This is the current rules

But there are are now four additional rules the Government wants to apply to avoid taxpayers inappropriately claiming the Small Business CGT Concessions when they sell a share or a unit.

The four additional test are:

  • If the taxpayer does not satisfy the maximum net asset value test, meaning they must be a small business entity with turnover of less than $2 million, the relevant CGT small business entity must have carried on a business just prior to the CGT event. This means if the business has stopped, then they should not be able to get the Small BUSINESS CGT Concessions;
  • The object entity, being the entity that the shares or the units are in, must have carried on a business just prior to the CGT event. Therefore if a taxpayer that is carrying on a business sells shares or units in an entity that is not carrying on a business, then they should not be able to get the Small BUSINESS CGT Concessions;
  • The object entity must either be a CGT small business entity or satisfy the maximum net asset value test. If the object entity is massive and I sell my interest in it I should not be able to get the SMALL Business CGT Concessions
  • The share or interest must satisfy a modified active asset test that looks through shares and interests in trusts to the activities and assets of the underlying entities to ensure the underlying assets at at least 80% active. If the underlying assets are passive, then they should not be able to get the Small BUSINESS CGT Concessions.
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Same sex marriage for tax avoidance

Two heterosexual Irish men marry to avoid inheritance tax on property…

Perhaps in Australia we could see two heterosexual same sex “mates” getting married just before the death of one of them to avoid tax payable on a super death benefit by becoming a dependent as they are a spouse of the deceased, even if there is not a dependent relationship between them.

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FBT and exempt vehicles

Forget salary packaging a car… may tradies just don’t need to worry about FBT at all due to the type of car they drive.

Exempt Vehicles Rules

To be exempt from FBT, all of the following conditions are satisfied:

  • the vehicle is a panel van, utility (ute) or other commercial vehicle (that is, one not designed principally to carry passengers)
  • the employee’s private use of such a vehicle is limited to
    • travel between home and work
    • travel that is incidental to travel in the course of duties of employment
    • non-work related use that is minor, infrequent and irregular (eg: occasional use of the vehicle to remove domestic rubbish).

The exemption will also apply to the private use of a taxi if the taxi is owned or leased (eg: not let on hire), if the employee’s private use is limited to:

  • travel between home and work
  • travel that is incidental to travel in the course of duties of employment
  • non-work related use that is minor, infrequent and irregular (eg: occasional use of the vehicle to remove domestic rubbish).

What Vehicles are covered…

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How the Commissioner will apply this law…

In Practical Compliance Guideline PCG 2017/D14, titled “Exempt car and residual benefits: compliance approach to determining private use of vehicles” the Commissioner states that if this Guideline applies:

you do not need to keep records about your employee’s use of the vehicle that demonstrate that the private use of the vehicle is ‘minor, infrequent and irregular and… the Commissioner will not devote compliance resources to review that you can access the car-related exemptions for that employee.

Establishing minor infrequent and irregular use is the hardest part, so what types of cars and arrangements does this Guideline apply to?

5. You may choose to rely on this draft Guideline if:

(a) you provide an eligible vehicle to a current employee

(b) the vehicle is provided to the employee to perform their work duties

(c) you take all reasonable steps to limit private use of the vehicle and have measures in place to monitor such use

(d) the vehicle has no non-business accessories

(e) the vehicle had a GST-inclusive value less than the luxury car tax threshold at the time the vehicle was acquired

(f) the vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the use of the vehicle, and

(g) your employee uses the vehicle to travel

i. between their home and their place of work and any diversion adds no more than two kilometres to the ordinary length of that trip

ii. no more than 750 kilometres in total for each FBT year for multiple journeys taken for a wholly private purpose, and

iii. no single, return journey for a wholly private purpose exceeds 200 kilometres.

No non business accessories, like fishing rod holders or bike racks. No salary packaging or extra cash arrangements. No more than 2km on the way to work or home (going to footy training is an example and thesis guidelines will not apply if the employee does this each week). No more than 200km private travel in one trip and no more than 750kms in a year… If so, then no FBT

 

 

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Pick any ABN…

The federal government’s Black Economy Taskforce claims 40 per cent of ABNs quoted in the Northern Territory were the Bunnings ABN…

You have to love the Northern Territory…

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Rental properties and electricity data matching

From the Commissioner…

His newest weapon is the data-matching of utility records, like electricity and gas meters, against properties that are claimed to be unoccupied, to test if landlords are telling the truth.

“There’s going to be a whole lot of new things,” he said. “So when people say their place wasn’t rented, well, we’ll look at the electricity records and (see) they went up. And we’ll say (to landlords): ‘Hey, you said the place wasn’t rented, so why are your electricity records going up?’

“So once you can start to use all these matching tools, you start to be able to say ‘Someone was there, so was that you using it, or (was it) a rental? And if you were using it, why weren’t you apportioning some of your deductions?’”

The ATO was particularly interested to see figures in the latest national census suggesting 11 per cent of properties in Australia — or 1.1 million dwellings — are reported as unoccupied.

There are going to be a lot of questions asked of rental property owners… why is your rent down substantially this year? Because I did not have a tenant. Then why is your electricity bill up this year? Because I lived in it? So why are you claiming all your costs and not apportioning????

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The Worst Tax Cheats Are… Salary and Wage Earners by Far!

The Commissioner has started to release “Tax Gaps”. He says a “Tax Gap” is:

The tax gap is an estimate of the difference between the amounts the ATO collects and what we would have collected if every taxpayer was fully compliant. Tax gaps exist in all countries to some extent. The gaps are driven by cultural and human factors, global forces, complexity in business and legal systems, those who take aggressive tax positions, and genuine errors.

In the Australian today (behind a paywall) the Commissioner announces that the tax gap from salary and wage earners is much higher than the tax gap for the large corporate sector. Actually he says it is multiples of the $2.5 billion tax gap in the large corporate sector.

Next year he will release the tax gap for salary and wage earners and to get this number the commissioner randomly did full audits on 900 salary and wage returns. Most of these were done by tax agents, and the tax agents return were worse than the returns done by the taxpayer themselves.

The worst returns were done by tax agents who specialise in certain industries like nurses, teachers or police officers. So what are these tax agents doing wrong. Two things:

  1. Claiming deductions for things the taxpayers did not buy. “Teachers can claim the cost of sunglasses each year because they work outside”… BUT ONLY IF THEY ACTUALLY BUY A PAIR OF SUNGLASSES IN THE YEAR. “Nurses can claim the cost of the equipment they use”… BUT NOT IF THEIR EMPLOYER GIVES IT TO THEM. I can’t believe I have to say this…
  2. Claiming standard deductions. See following…

Let me be clear – there are no standard deductions at all in the Australian Tax Law.

  • There is no $300 standard deduction, rather, if you have work related expenses under $300 then you don’t have to meet the detailed record keeping requirements BUT YOU STILL HAVE TO SPEND THE AMOUNTS TO CLAIM A DEDUCTION.
  • There is no standard deduction of $150 for laundry, rather, if you have compulsory, safety or registered uniforms you can only claim the laundry cost you actually incur but if the amount is less than $150 you don’t need to hold receipts BUT YOU STILL HAVE TO SPEND THE AMOUNTS TO CLAIM A DEDUCTION.
  • There is no standard deduction of 5,000km x 66 cents for work related travel, rather, you need to have undertaken work related travel and record the kilometres.
  • There is no standard deduction for work travel costs, rather, if you travel for work and your costs are not paid or reimbursed by your employer but you are paid a travel allowance, you don’t need to hold a tax invoice for every cost BUT YOU STILL HAVE TO HAVE SPENT THE AMOUNTS TO GET A DEDUCTION.

The Commissioner says that these tax agents say that they can get better tax refunds for those who are in either the nurse, police or teaching profession. I can get an even better tax refund for these taxpayers than other tax agents if I can claim tax deductions for amounts a taxpayer did not spend.

Next year the Commissioner could be coming for tax agents who have work papers that say “standard deduction” or that have all their clients claiming these standard amounts (all your client have compulsory work uniforms and spend $150 on laundry and all your clients have more than 5,000 work related kilometres… Amazing!)

 

 

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