Business Advisory

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.

Businesses that have accessed government economic stimulus measures need to take extra care this tax time. The ATO has announced that it will increase its scrutiny, conducting compliance activity on various economic stimulus measures introduced to help businesses recover from the effects of COVID-19. These stimulus measures include loss carry-back, temporary full expensing and accelerated depreciation.

While the ATO will continue to support businesses, most of whom are doing the right thing, it is looking at behaviour or development of schemes designed to deliberately exploit various stimulus measures. All taxpayers who’ve used the schemes should review their claims to ensure they are eligible, and that the amounts claimed are correct.

The loss carry-back measure allows eligible corporate entities to claim a refundable tax offset in their 2020–2021 and 2021–2022 company tax returns. In essence, companies get to “carry back” losses to earlier years in which there were income tax liabilities, which may result in a cash refund or a reduced tax liability.

The temporary full expensing measure allows immediately deducting the business portion of the cost of eligible new depreciating assets or improvements. Eligible businesses also have access to the accelerated depreciation measure for the 2019–2020 and 2020–2021 income years, in which the cost of new depreciating assets can be deducted at an accelerated rate.

The ATO will review claims as part of its tax time compliance activities as well as actively identifying tax schemes and arrangements seeking to exploit those schemes. The ATO will actively pursue concerning or fraudulent behaviours, including imposing financial penalties, prosecution and imprisonment for the most serious of cases.

Tip: If your business used the various stimulus measures, we can help you confirm your eligibility and the amount of deduction claimed to avoid potentially costly compliance activity from the ATO down the line.

The ATO has announced a new data-matching program that will use information collected from the Department of Home Affairs. It is designed to determine whether business entities and individuals are Australian residents for tax purposes, and whether they’ve met their lodgment and registration obligations.
This is in addition to the existing visa data-matching program, which has been operating for more than 10 years. The new program will include data from income years 2016–2017 to 2022–2023.

According to the ATO, the compliance activities from data obtained will largely be confined to verification of identity and tax residency status for registration purposes, as well as identifying ineligible claims for tax and superannuation entitlement. In addition to compliance activities, the data will be used to refine existing ATO risk detection models, improve knowledge of overall level of identity and residency compliance risks, and identify potentially new or emerging non-compliance and entities controlling or exploiting ATO methodologies.

The data collected will include full names, personal identifiers, dates of birth, genders, arrival dates, departure dates, passport information (including travel document IDs and country codes), and status types (eg visa status, residency, lawful, Australian citizen). It is expected that the personal information of approximately 670,000 individuals will be collected and matched each financial year.

April 2021 has been a closely observed month financially, with many government COVID-19 economic supports coming away. There’s no doubt that some businesses will find themselves owed debts that cannot be recovered from customers or other debtors.

If your business is facing this type of unrecoverable debt, commonly known as a “bad debt”, you may be able to claim a tax deduction for the unrecoverable amount, depending on the accounting method you use.

If your business accounts for its income on an accruals basis – that is, you include all income earned for work done during the income year even if the business hasn’t yet received the payment by the end of the income year – a tax deduction for a bad debt may be claimable.

To claim a deduction for a bad debt, the amount must have been included in your business’s assessable income either in the current year tax return or an earlier income year. You’ll also need to determine that the debt is genuinely bad, rather than merely doubtful, at the time the business writes it off. Whether or not a debt is genuinely bad depends on the circumstances of each case, with the guiding principle being how unlikely it is that the debt can be recovered through reasonable and/or commercial attempts.

Tip: According to the ATO, making such attempts doesn’t always mean you need to have commenced formal proceedings to recover the debt. Evidence of communications seeking payment of debt, including reminder notices and attempts to contact the debtor by phone, mail and email, may be sufficient.

The next step in claiming a bad debt deduction is to write off the debt as bad. This usually means your business has to record (in writing) the decision to write off the debt before the end of the income year in which you intend to claim a deduction.

There may also be GST consequences for your business when writing off a bad debt. For example, if the business accounts for GST on a non-cash basis, a decreasing adjustment can be claimed where you have made the taxable sale and paid the GST to the ATO, but subsequently have not received the payment. However, the debt needs to have been written off as bad and have been overdue for 12 months or more.

Businesses that account for income on cash basis cannot claim a deduction for bad debts. This is because these businesses only include an amount in their assessable income when it’s received, which means the bad debts have no direct income tax consequences.

More than 158,000 businesses have now reported all their payments made to contractors in the 2019–2020 year, and the ATO is using its Taxable Payments Reporting System (TPRS) to make sure the payments, totalling more than $172 billion, have been properly declared by both payers and recipients.

The TPRS captures data about contractors who have performed services including couriering (including food delivery), cleaning, building and construction, road freight, information technology, security, investigation and surveillance services.

The ATO is now using this data to contact contractors or their tax agents to ensure that they have declared all of their income, including any from part-time work, and is checking the GST registration status and Australian Business Numbers (ABNs) of contractors that are businesses to ensure their relevant obligations are met.

The ATO matches the contractor information provided by businesses in their taxable payments annual report (TPAR) to the figures in contractors’ own tax returns. Where discrepancies between business reports and contractor returns are identified, the ATO will send the contractor a letter in the first instance, prompting them to explain.

Tip: If you’ve forgotten to include income from contracting services in your tax return, an amendment can still be lodged to correct the mistake. Where we lodged your initial return as your tax agent, we can also complete an amendment to the return on your behalf – contact us today to find out more.

While it appears that the ATO won’t initially apply penalties or interest in relation to under-reported contracting income, contractors will still need to pay any additional tax owed, and it’s likely that people who ignore a letter from the ATO and fail to lodge an amended tax return will face penalties at a future date.

Small businesses now have another pathway to resolve tax disputes, with the ATO making its independent review service a permanent option for eligible small businesses (those with a turnover of less than $10 million) after a successful multi-year pilot.

The service’s original pilot commenced in 2018 and centered around income tax audits in Victoria and South Australia. It was expanded in 2020 to include income tax audits in all other Australian states and territories, along with other areas of tax including GST, excise, luxury car tax, wine equalisation tax and fuel tax credits.

“Small businesses who participated in our pilot told us they found the process to be fair and independent, irrespective of the independent review outcome, so this is a great result, and is a big part of why we are locking this service in permanently”, ATO Deputy Commissioner Jeremy Geale has said.

If your small business is eligible for a review of the ATO’s finalised audit findings, your ATO case officer will make contact and a written offer of independent review will be included in the audit finalisation letter.

Tip: An offer to use the independent review service won’t be the first opportunity you get to respond to an ATO audit. Initial findings will be disclosed in an interim paper, so you’ll have a chance to raise areas of disagreement before receiving the final audit letter.

If you wish to proceed with the review, you’ll need to contact the ATO through the relevant email address within 14 days of the date of the audit finalisation letter, clearly specifying and outlining each area of your disagreement with the audit position.

You’ll be asked to complete and return a consent form to extend the amendment period, which will allow the ATO to complete the review before the period of review for the relevant assessment ends.

Once your business obtains approval to use the review service, an independent reviewer will be allocated to the case and will contact you to discuss the process. This officer will be from a different part of the ATO to your audit case officer, and will not have been involved in the original audit.

It’s important to note that superannuation, FBT, fraud and evasion finding, and interest are not covered by the independent review service. If your dispute with the ATO relates to those areas, or if you don’t want to use the independent review service, your other options including lodging an objection or using an in-house facilitation service. You can also raise matters with the Inspector-General of Taxation and Tax Ombudsman or the Australian Small Business and Family Enterprise Ombudsman.

The ATO is kicking into gear in 2021 with another two data-matching programs specifically related to the JobMaker Hiring Credit and early access to superannuation related to COVID-19. While the data collected will mostly be used to identify compliance issues in relation to JobMaker and early access to super, it will also be used to identify compliance issues surrounding other COVID-19 economic stimulus measures, including JobKeeper payments and cash flow boosts.

As a refresher, the temporary early access to super measure allowed citizens or permanent residents of Australian or New Zealand to withdraw up to two amounts of $10,000 from their super in order to deal with adverse economic effects caused by the COVID-19 pandemic. The JobMaker Hiring Credit is a payment scheme for businesses that hire additional workers. Both measures have particular eligibility conditions to meet for access.

The ATO expects that data relating to more than three million individuals will be collected from Services Australia (Centrelink) for the temporary early access to super program, as well as data about around 450,000 positions related to JobMaker. Approximately 100,000 individuals’ data will also be collected from the state and territory correctional facility regulators.

While the data collected will primarily be used to verify application, registration and lodgment obligations as well as identify compliance issues and initiate compliance activities, the ATO will also use it to improve voluntary compliance, and to ensure that the COVID-19 economic response is providing timely support to affected workers, businesses and the broader community.

Small employers with closely held payees have been exempt from reporting these payees through single touch payroll (STP) for the 2019–2020 and 2020–2021 financial years. However, they must begin STP reporting from 1 July 2021.

Tip: STP is a payday reporting arrangement where employers need to send tax and superannuation information to the ATO directly from their payroll or accounting software each time they pay their employees.

For STP purposes, small employers are those with 19 or fewer employees.

A closely held payee is an individual who is directly related to the entity from which they receive a payment. For example:

  • family members of a family business;
  • directors or shareholders of a company; and
  • beneficiaries of a trust.

Small employers must continue to report information about all of their other employees (known as “arm’s length employees”) via STP on or before each pay day (the statutory due date). Small employers that only have closely held employees are not required to start STP reporting until 1 July 2021, and there’s no requirement to advise the ATO if you’re a small employer that only has closely held payees.

The ATO has now released details of the three options that small employers with closely held payees will have for STP reporting from 1 July 2021:

  • option 1: report actual payments through STP for each pay event;
  • option 2: report actual payments through STP quarterly; or
  • option 3: report a reasonable estimate through STP quarterly – although there are a range of details and steps to consider if you take this option.

Tip: If your business will need to lodge through STP soon, we can help you find an easy and cost-effective STP-enabled solution, or we can lodge on your behalf. Whatever you choose, remember that STP reports can’t be lodged through ATO online services and isn’t a label on your BAS, so early preparation is needed.

The Federal Minister for Families and Social Services has now registered the legal instrument that ensures the COVID-19 Supplement will continue to be paid until 31 March 2021 for recipients of:

  • JobSeeker Payment;
  • Parenting Payment;
  • Youth Allowance;
  • Austudy Payment;
  • Special Benefit;
  • Partner Allowance; and
  • Widow Allowance.

It will be paid at the rate of $150 a fortnight (down from the previous $250 a fortnight) from 1 January 2021 to 31 March 2021.

The period for which people are considered as receiving a social security pension or benefit at nil rate, meaning they keep their access to benefits such as concession cards, has also been extended until 16 April 2021.

A number of other temporary social security measures will also remain until 31 March 2021, including waivers of waiting periods for certain payments, some requirement changes and exemptions, and more permissive income-free areas and payment taper rates.

Tax planning or tax avoidance – do you know the difference? Tax planning is a legitimate and legal way of arranging your financial affairs to keep your tax to a minimum, provided you make the arrangements within the intent of the law. Any tax minimisation schemes that are outside the spirit of the law are referred to as tax avoidance, and could attract the ATO’s attention.

The ATO has outlined some common features of tax avoidance schemes, and we can help you to steer clear of them. While it’s not always easy to identify these schemes, the old adage of “if it seems too good to be true, it probably is” is a good rule of thumb.

Tax avoidance schemes range from mass-marketed arrangements advertised to the public, to individualised arrangements offered directly to experienced investors. Other schemes exploit the social/environmental conscience of people or their generosity. As different as these schemes are, the common threads involve promises of reducing taxable income, increasing deductions, increasing rebates or entire avoidance of tax and other obligations.

Schemes may include complex transactions or distort the way funds are used in order to avoid tax or other obligations. They may also incorrectly classify revenue as capital, exploit concessional tax rates, or inappropriately move funds through several entities including trusts to avoid or minimise payable tax.

Currently, the ATO has its eyes on retirement planning schemes, private company profit extraction and certain problematic financial products.

Tip: If you’ve come across something that seems too good to be true, or you’re considering an investment or arrangement, we can help you decipher whether it could constitute a tax avoidance scheme. Don’t risk a penalty – contact us today.