Regulatory Roundup – September 2014

Property developers warned on contrived structures that muddy income/capital divide

The Tax Office has warned property developers against using trusts to return the proceeds from projects as capital gains instead of income.“A growing number of property developers are using trusts to suggest a development is a capital asset to generate rental income and claim the 50% capital gains discount,” Deputy Commissioner Tim Dyce said in a statement.

The Tax Office said it has found that many instances had been shown to be contrived arrangements to allow developers to inappropriately claim CGT concessions. “The ATO has already raised millions in adjustments from people who exploit the system and our current compliance activity shows we are likely to make many more adjustments in the coming months,” Dyce said.

Profits from property developments that have been treated as capital gains are high on the Tax Office’s target list right now, with it concurrently issuing a Taxpayer Alert as an extra warning that it intends to audit property developers to ensure they are accounting for their transactions in accordance with the Tax Office’s viewpoint.

Fair Work cracks down on businesses fraudulently employing 417 visa holders

The Fair Work Ombudsman is cracking down on businesses that employ 417 visa holders, after it found evidence that certain “unscrupulous operators” are abusing the system to attract free labour.Identified employers can expect to receive a field visit and communication from Fair Work later this year. Fair Work is being proactive in industries known to employ significant numbers of overseas workers – including the food services industry, agriculture, forestry, fishing, hospitality, horticulture, cleaning, 24-hour convenience stores and trolley collecting.

Since July 2009 – when Fair Work was created – it has embarked on 51 litigations involving overseas workers. The 51 litigations related to alleged underpayment of overseas workers totalling more than $3.8 million and including 10 cases with 417 visa holders specifically.Restaurants accounted for the highest number of litigations involving overseas workers, with 10 matters placed before the courts, followed by retail (6), fast food (4), cleaning (3) and maritime (3).

The Tax Office to treat bitcoins like barter transactions

The Tax Office has finally delivered guidance on the tax treatment of bitcoin. It has defined bitcoin as an “intangible asset” rather than money or a foreign currency — thereby rejecting the industry’s calls for it to be categorised as a currency. Under its guidance (read the full document here), bitcoin transactions are to be treated like barter transactions with similar tax consequences.

A new Small Business and Family Enterprise Ombudsman

Following a period of consultation on a discussion paper, the government has settled on a model with real powers for the transition of the Small Business Commissioner into the Small Business and Family Enterprise Ombudsman.The government said this latest update in the transition of the Small Business Commissioner role, currently held by Mark Brennan, into the Small Business and Family Enterprise Ombudsman role will introduce a new and easier way for small businesses to interact with the government to access assistance.

In making the announcement, the minister for small business Bruce Billson said the government wants to make certain small businesses are satisfied the new Small Business and Family Enterprise Ombudsman delivers on the government’s commitment to establish an independent role with real power.

AIST hits out at proposal to open up super to first homebuyers

A superannuation industry body has slammed independent senator Nick Xenophon’s proposal that would allow first homebuyers to access their superannuation savings to pay their deposit.In a statement, Xenophon said Australia should look to Canada where that country’s Home Buyers’ Plan has led to improved housing affordability. “With more and more Australians finding it difficult to break into home ownership, adopting the Canadian scheme would make a difference to many thousands of Australians each year,” Xenophon said.

However, Australian Institute of Superannuation Trustees (AIST) chief executive Tom Garcia hit out at Xenophon’s suggestions, saying it is dangerous to use superannuation to tackle the nation’s housing affordability challenges.“The purpose of superannuation is to enable all Australians to have enough money for a dignified retirement. It is a key plank to the nation’s retirement incomes policy and should never be used for any other purpose than helping people save for their retirement,” Garcia said.

He said removing even relatively small amounts of savings from the superannuation system would see many more Australians reliant on the Age Pension and significantly worse off in retirement.

Fair Work’s super process could cost employees and employers $400 million

The Fair Work Commission’s process of selecting default superannuation funds under modern awards will cost consumers and employers a massive $400 million due to duplication of fees, insurance premiums and employer search costs.Recent changes to the Fair Work Act 2009 require the Fair Work Commission to select at least two, but no more than 15, default MySuper products for each modern award to apply from January 1, 2015.

However, a report commissioned by the Financial Services Council (FSC) has found that the consequences of this pending change will affect more than 100,000 employers and over 2.25 million working Australians. It estimated that the potential total cost of the changes could exceed $400 million for what it perceives to be no predictable gain.

Beware one-stop shops and real estate agents providing SMSF advice: ASIC
Australian Securities and Investments Commission (ASIC) commissioner Greg Tanzer highlighted a few things ASIC is concentrating on when it comes to SMSFs – “one-stop shop” operators and unlicensed advice.

In a recent conference speech, Tanzer said a high-risk SMSF issue is the emergence of “one-stop shops” that provide advice to clients on the establishment of SMSFs, rollover of existing super funds into an SMSF, sourcing and purchase of investment properties, property management, insurance and taxation services. ASIC’s issue is the complex structure of these operators and the risks they pose to SMSF investors.

SPAA calls for self-regulation among SMSFs when it comes to borrowing
The SMSF Professionals’ Association of Australia (SPAA) has developed best practice guidelines for SMSF limited recourse borrowing arrangements (LRBAs), with NAB the first bank to agree to adhere to the two separate guidelines on lending and advice.

SPAA chief executive Andrea Slattery said SPAA had been “very conscious” of the Financial Services Inquiry’s concerns around LRBAs and the fact that a “tiny rogue minority” has been spruiking this borrowing facility. As such, it believes there is an urgent need to establish a set of guidelines that will mandate a responsible approach towards all LRBAs.

“We believe that by publishing these guidelines, and with NAB signing on and other major lenders in the pipeline (the major banks are estimated to have more than 85% of this market), the government and regulators can have a high degree of confidence that LRBAs are being used appropriately and that the industry has best practice guidelines for lending and advice in place,” Slattery said.View the LRBA guidelines here.

DISCLAIMER:All information provided in this publication is of a general nature only and is not personal financial or investment advice. It does not take into account your particular objectives and circumstances. No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor. To the fullest extent permitted by law, no person involved in producing, distributing or providing the information in this publication (including Taxpayers Australia Incorporated, each of its directors, councilors, employees and contractors and the editors or authors of the information) will be liable in any way for any loss or damage suffered by any person through the use of or access to this information. The Copyright is owned exclusively by Taxpayers Australia Inc (ABN 96 075 950 284).