Author: Karen Lau

The ATO has recently issued an alert warning taxpayers against disguising undeclared foreign income as gifts or loans from related overseas entities, including family and friends. It says it has continued to encounter situations where Australian resident taxpayers have derived amounts of income or capital gains offshore that are assessable, but the taxpayers have failed to declare the amounts in their income tax returns.

TIP: If you’re an Australian resident for tax purposes, your worldwide income (not just money you make from Australian sources) is assessable and should be reported to the ATO in your annual tax return.

The ATO will now be looking closely at arrangements where taxpayers are aware of their residency status and the tax implications that flow from it, but attempt to avoid or evade tax of their foreign assessable income by disguising amounts as either gifts or loans from a related overseas entity.

If family or friends who live overseas have provided a genuine monetary gift or loan to you or your business, you should keep as much supporting documentation as possible about it. This is because if there is any uncertainty about whether particular amounts are genuine gifts or loans, the ATO will form a view based on all of the available evidence.

Contemporaneous and complete records should include detailed financial records, full loan documentation, formal identification of the giver and any declarations they made about the money in their country of residence. A deed of gift or a statutory declaration may not be accepted as conclusive evidence.

Inheritances also count as “gifts”. If you receive an inheritance from overseas, a certified copy of the person’s will or a distribution statement for the estate should be a part of your recordkeeping.

A new data matching program designed to identify and address non-compliance with tax and super obligations is under way in relation to government payments for the 2018–2019 to 2022–2023 income years. It covers most services that the Commonwealth Government pays third-party program providers to deliver.

The ATO will obtain data from Comcare, the Department of Health, the National Disability Insurance Agency, the National Indigenous Australian Agency, the Department of Home Affairs, the Department of Veterans’ Affairs and the clean energy regulator. This will add to the information the ATO currently receives from government entities through the taxable payments annual report (TPAR).

This means that contractors, subcontractors and consultants in any type of business structure (sole trader, company, partnership or trust) that receive payments from government under these agencies’ programs may be subject to extra scrutiny.

It is estimated that 36,000 service providers will be captured under this program each financial year. Of that number, approximately 11,000 will be individuals and the rest will be companies, partnerships, trusts and government entities.

TIP: If you’re a service provider under one of the affected government programs, you should ensure you’re meeting all your registration and lodgment obligations. We can help review your records and correct any problems so you don’t get a surprise letter from the ATO.

Due to the ongoing economic impacts of COVID-19 on large parts of Australia, the ATO has announced the extension of various COVID-19 relief measures for trustees of self managed superannuation funds (SMSFs). The relief previously only applied to the 2019–2020 and 2020–2021 financial years, but will now also be available for the 2021–2022 financial year.

SMSF residency test

To be a complying super fund and receive tax concessions, SMSFs must be an “Australian super fund” at all times during the year. This requires, among other things, for the central management and control of the SMSF (ie individual trustees, or directors of a corporate trustee) to ordinarily be in Australia. Under the relief, a fund will still meet this requirement even if its central management and control is temporarily outside of Australia for up to two years.

Rental relief

If an SMSF or a related party has continued to provide rental relief based on the current market conditions, whether it be a rental reduction, waiver or deferral to a tenant, the ATO will provide relief in the form of not taking any compliance action against the fund. However, this is predicated on the rental relief being offered on commercial terms, and there being proper documentation with regards to the arrangement.

Loan repayment relief

For loan repayment relief provided by an SMSF to a related or unrelated party due to the financial impacts of COVID-19, where the relief is offered on commercial terms and the changes to the loan agreement are properly documented, the ATO will provide relief on similar terms as the interim rental relief – that is, it will not take any compliance action against the fund. This will also apply to limited recourse borrowing arrangements (LRBAs).

In-house assets

Where an SMSF exceeds the 5% in-house asset threshold at 30 June 2021 due to the financial impacts of COVID-19, trustees must still prepare a written plan to reduce the market value of the fund’s in-house assets to below 5% by 30 June 2022. However, the ATO has said it will not take any compliance action where the plan has not been executed by the due date as a result of the market not having recovered, or in some cases the plan may be unnecessary because of market recovery.

PAYG variations

The ATO has confirmed that its penalty and interest relief for excessive PAYG variations applies to SMSFs that continue to be impacted by COVID-19 during 2021–2022. The ATO will not apply penalties or interest for excessive variations of PAYG instalments during the 2021–2022 income year, provided that the taxpayer has taken reasonable care to estimate their end-of-year tax.

Audits

The ATO has also extended to 2021–2022 its existing COVID-19 relief in the Addendum to the Auditor/actuary contravention report (ACR). The ACR relief for 2021–2022 will apply for rental relief (including rental reductions, waivers and deferrals), loan repayment relief (including for LRBAs), and in-house assets.

TIP: If you’re a trustee of an SMSF and you or your fund’s members have been affected by COVID-19, we can help you work out the potential tax implications and relief available, and put the proper documentation in place.

Directors of companies will soon have to enrol in the Director Identification Number regime. This requires current and future directors to apply for director identification numbers (DIN) which will be permanently linked to the individual, even if they are no longer a director. It is hoped the regime will make it easier to trace relationships across companies and reduce instances of phoenixing and other illegal activity. Most existing directors will have until 30 November 2022 to apply for the DIN through the Australian Business Registry Services (ABRS).

Directors can now use the new ABRS online services to register from 1 November 2021. Sign-ins and director identity verification will be conducted using the myGovID app (different from myGov).

The Director Identification Number regime came into force late in 2020 as a tool for the Federal Government to reduce phoenixing and black economy activities.

Tip: Illegal phoenix activity is when a company shuts down to avoid paying its debts. A new company is then started to continue the same business activities, without the debt.

Individuals that operate under the Corporations Act 2001 and became a director on or before 31 October 2021 are required to apply for a DIN before the end of the transitional period, which is between 4 April 2021 and 30 November 2022.

Directors who operate under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 and became a director on or before 31 October 2021 will have even more time to apply for a DIN – until 30 November 2023 (with a transition period between 4 April 2021 and 30 November 2023). Any individuals who are appointed directors between 1 November 2021 and 4 April 2022 will have within 28 days of their appointment to apply for the DIN, and from 5 April 2022 individuals seeking to become directors will need to apply for a DIN before their appointment.

Any conduct that undermines the DIN requirement will be subject to civil and criminal penalties. This includes deliberately providing false identity information, intentionally providing a false DIN or intentionally applying for multiple DINs.

 

Additional financial support for child care providers

The Prime Minister and the Minister for Education and Youth recently announced new support measures for child care providers that are impacted by extended COVID-19 lockdowns.

Child care services in Commonwealth-declared hotspots will be eligible for new fortnightly payments of 25% of their pre-lockdown revenue, and outside school hours care (OSHC) services will be eligible for fortnightly payments of 40% of pre-lockdown revenue.

This measure will apply to services seven days after the hotspot is declared, where state and territory governments have directed families to keep their children at home. Where children are still allowed to attend child care, the supports will kick in four weeks after the hotspot declaration.

The new payments will immediately benefit services in affected areas of Sydney, the ACT and Melbourne. Other services will become eligible after seven days of lockdown, with payments backdated to 23 August. The support will then be available for services that meet the criteria in any future extended lockdowns.

Payments are made available directly to providers. Families in affected areas are not required to do anything.

This year marks the beginning of annual performance tests on MySuper products, run by the Australian Prudential Regulation Authority (APRA). The tests were introduced as part of the Federal government’s Your Future, Your Super reforms, aiming to hold super funds to account for underperformance and enhance industry transparency. The first annual test of 76 MySuper products from various super funds or registrable superannuation entities found that 13 products failed to meet the benchmark. These products will need to notify their members of the failed test and make the improvements needed to ensure they pass next year’s test.

A new interactive online super comparison tool, YourSuper, is also now available on the ATO website and via MyGov. It displays a table of MySuper products ranked by fees and net returns (updated quarterly), and you can compare up to four MySuper products at a time in more detail.

The performance tests conducted by APRA only relate to MySuper products, which are basic super accounts without unnecessary features and fees. Registrable superannuation entities usually offer multiple products in addition to MySuper products, so don’t panic if you see the name of your super fund on the list of underperforming products. However, if you see the name of your specific product or receive a letter indicating that the fund you’re in has failed the APRA performance test, it may be time to investigate the reasons why or switch to a different product.

Employers get ready – there’ll soon be an extra step involved when it comes to hiring new employees. From 1 November 2021, employers will need to determine if a new employee has a “stapled” super fund and request the details from the ATO where a new employee has not nominated a super fund.

A stapled super fund is essentially an existing super account that is linked – or “stapled” – to an individual and follows them throughout their job changes.

Currently, when a new employee starts a new job they are eligible to choose the super fund that their super guarantee contributions will go to. If they do not choose their own fund, the super contributions will be paid into the employer’s default fund. The stapling change aims to reduce unnecessary account fees by avoiding having a new super account opened every time a person starts a new job.

To ensure you’re ready for this change, check ATO online services to confirm that your business has the required access levels. You’ll need to have the “Employee Commencement Form” permission in order to request a stapled fund.

After 1 November you’ll still need to offer your eligible employees a choice of super fund and pay their super into the account they nominate – that part of your obligations doesn’t change. However, if your employee doesn’t choose a fund, you’ll need to request the stapled fund details from the ATO. In most cases, a request can be made after you’ve submitted a TFN declaration or a Single Touch Payroll (STP) pay event linking the new employee to your business.

Responses will usually be received through the online portal in minutes. The ATO will also notify the associated employee of the stapled fund request and the fund details provided.

Remember, an employer cannot provide recommendations or advice about super to its employees, unless the business is licensed by the Australian Securities and Investments Commission (ASIC) to provide financial advice. Penalties may apply if your business fails to meet the “choice of super fund” obligations.

If the current prolonged lockdowns and economic conditions have prompted you to sell or close your business, it’s important to be aware of the need to cancel the related GST registration within a certain period, unless your business is in a specific industry or performs a specific role.

TIP: Generally, you must cancel your GST registration within 21 days if you sell or close your business. If you change your business structure, for example from a partnership structure to a company structure, you must still cancel your GST registration within 21 days, unless the old entity carries on another business.

Cancelling a GST registration will also cancel other registrations such as fuel tax credits, luxury car tax and wine equalisation tax, even if the ABN is not cancelled. If you’re registered for PAYG, PAYG instalments or have FBT obligations, you will need to keep lodging business activity statements (BASs) even if you cancel your GST registration.

While you can usually cancel your GST registration from a date you choose (which should be the last day you want your previous business to be registered), you cannot cancel the registration retrospectively if you were still operating on a GST-registered basis after that date. Similarly, if you choose a cancellation date and then continue to operate on a GST-registered basis, you will not be able to cancel the registration.

When you cancel your business’s GST registration, you’ll need to lodge any outstanding BASs and complete a final GST activity statement which should include all sales, purchases and importations made in the final tax period. This should include the sale of the business, sale of any of business assets, adjustments for any assets held after cancellation, and/or any other adjustments. If you operate on a cash basis, all the sales and purchases that still need to be attributed from a previous tax period must be recorded.

If you’re cancelling a GST registration because the business has been restructured, sold or closed, the associated ABN must also be cancelled. If a company was not restructured, sold or closed, but simply no longer carries on a business, the GST registration must still be cancelled but there’s a choice to keep the ABN registration active.

Australian Capital Territory

Expanded and additional support will be available for businesses affected by COVID-19 lockdowns, in the form of two grant programs:

  • COVID-19 Business Support Grants: An additional COVID-19 Business Grant Extension payment of $10,000 for employing businesses and $3,750 for non-employing businesses will be available to businesses eligible for the existing Business Support Grants and in industries “still significantly impacted by the health restrictions”.
  • COVID-19 Tourism, Accommodation Provider, Arts and Events and Hospitality Grants: Further one-off grants will be available in October to eligible businesses in the tourism, accommodation provider, arts and events and hospitality industries.

Queensland

Federal and state funded emergency support packages worth $52.8 million will be available to assist Queensland businesses suffering due to the NSW–Queensland border restrictions, and to provide targeted support to tourism and hospitality businesses facing significant hardship. These special hardship grants will be available from mid-October.

South Australia

The COVID-19 Tourism and Hospitality Support Grant will be available for businesses in eligible tourism and hospitality sectors, and other sectors such as performing arts, creative artists, taxis and car rental, that have already received the COVID-19 Additional Business Support Grant.

There is also a new COVID-19 Business Hardship Grant for certain employing businesses that haven’t been eligible for previous business grant support since July 2021.

In addition, the SA government is increasing its Major Events Support Grant, to provide up to $100,000 for large cancelled or postponed events where more than 10,000 attendees were expected.

Tasmania

The existing Business Support Package will be boosted from $20 million to $50 million, with grants of up to $50,000 available to eligible businesses across two funding rounds.

In addition, the Tasmanian government will offer eligible tourism and hospitality industry businesses payroll tax relief, waived vehicle registration and passenger transport accreditation fees and waived Parks & Wildlife license fees. Businesses can apply immediately.

Victoria

New regulations have been made to provide relief under the Commercial Tenancy Relief Scheme for small and medium-sized commercial tenants struggling with rent payments. Eligibility has been broadened, and businesses will get relief in the form of a rent reduction proportionate to the amount of turnover lost due to COVID-19.

The Victorian Small Business Commission will provide information so that landlords and tenants can negotiate an agreement, and free mediation for those who need assistance.

Land tax relief will be available to help landlords that are doing the right thing by eligible tenants, and eligible small landlords can apply for payments from a $20 million hardship fund.

Western Australia

WA tourism businesses impacted by COVID-19 will soon be able to apply for funding support under a new joint Commonwealth–State program. About 3,500 businesses will be eligible for grants of up to $10,000, including tourism operators, accommodation providers and travel agents.

The government’s long-slated “flexibility in superannuation” legislation is finally law. This means from 1 July 2021, individuals aged 65 and 66 can now access the bring-forward arrangement in relation to non-concessional super contributions. The excess contributions charge will be removed for anyone who exceeds their concessional contributions cap, and individuals who received a COVID-19 super early release amount can now recontribute it without hitting their non-concessional cap.

Previously, if you made super contributions above the annual non-concessional contributions cap, you could automatically access future year caps if you were under 65 at any time in the financial year.

The bring-forward arrangement allows you to make non-concessional contributions of up to three times the annual non-concessional contributions cap in that financial year.

Tip: For the 2021 income year, the non-concessional contributions cap is $110,000, which means that individuals aged 65 and 66 can now access a cap of up to $330,000.

Previously, individuals who exceeded their concessional contributions cap would have to pay the excess contributions charge (around 3%) as well as the additional tax due when excess contributions were re-included in their assessable income. However, people who exceed their cap on or after 1 July 2021 will no longer pay the charge, but will still receive a determination and be taxed at their marginal tax rate on any excess concessional contributions amount, less a 15% tax offset to account for the contributions tax already paid by their super fund.

Recontributions of COVID-19 early released super

Under the COVID-19 early release measures, individuals could apply to have up to $10,000 of their super released during the 2019–2020 financial year and another $10,000 released between 1 July and 31 December 2020. Between 20 April 2020 and 31 December 2020, the ATO received 4.78 million applications for early release, totalling $39.2 billion worth of super.

Not everyone who applied to have super released ended up needing to use it once the government ramped up its financial support programs. From 1 July 2021, people who received a COVID-19 super early release amount can recontribute to their super up to the amount they released, and those recontributions will not count towards their non-concessional contributions cap. The recontribution amounts must be made between 1 July 2021 and 30 June 2030 and super funds must be notified about the recontribution either before or at the time of making the recontribution.