Regulatory Roundup – November 2014

Tax Office to probe overseas banks in expat audits

Australian expats should prepare for a new round of Tax Office audit activity involving key banks like ANZ, a legal firm has warned. Cooper Grace Ward lawyers said the Tax Office will be requesting information from overseas banks to identify Australian tax residents receiving income in offshore bank accounts. According to the firm, HSBC, Citibank, Deutsche Bank, Bank of China and Credit Suisse will be targeted.

A fix announced for employee share schemes

The incumbent employee share scheme system, set up in 2009, means that employees are taxed at the point of issue on share options rather than when the options are exercised, which critics have pointed out is not overly inviting for employees who may have a tax liability imposed on a benefit that may not have reached a proposed value.

To fix the system, the government last week announced changes to employee shares schemes. Under the new scheme, which the announcement said is intended to come into force from July 2015, there will be no up-front taxation. Companies of all sizes can now move to give employees discounted options, which will be taxed when they are converted to shares rather than when they are received. While one condition is that they will need to be held for at least three years, it means that those participating in an employee share scheme will only have to take care of tax liabilities when they actually receive value.

Under the new system, start-ups will also be given further concessions in an attempt to bolster the Australian innovation sector. Companies that have an aggregate turnover of less than $50 million, are unlisted and have been incorporated for less than 10 years will be given further financial concessions.

“Eligible start-ups” will be allowed to issue shares to employees at a small discount (up to 15%) and issue options under advantageous conditions. Start-ups also benefit by having their gains on the options taxed as capital gain and not income, therefore generally being taxed at a lower concessional rate.

The government also said, in order to give start-ups more time to be competitive and succeed, it will extend the maximum time for tax deferral from seven to 15 years.

However one of the changes made in 2009 will be retained, which is an increased income threshold at which eligibility to tax discounts is accessed. When the 2009 changes to employee share schemes came in, they were designed to prevent higher-level executives using the schemes to reduce their tax liability.

Tax Office to publish tax data for higher turnover businesses

In a speech given by Second Commissioner Andrew Mills in mid October, titled Reinventing law design and  practice within the ATO, it was revealed that the Tax Office will start to make publicly available the tax records of companies with a turnover of more than $100 million.

“I urge all companies to get on the front foot to explain publicly their tax performance before incorrect conclusions are drawn,” Mills said. “With changes over recent years, we have transfer pricing and anti-avoidance laws that are if not the strongest among the strongest in the world, and we are not afraid to use them,” Mills warned.

Small business assist service

The Tax Office’s small business assist service is a handy tool for both new and established businesses needing comprehensive information quickly. Users simply type a question in the search bar, and the service provides information tailored from a range of sources.  Search results are displayed in an easy-to-read format.

Small businesses can seek information for many topics, including:

• registering for an Australian business number
• understanding and registering for GST
• employer obligations
• lodging activity statements.

Visit www.sba.ato.gov.au.  The page will display a search bar widget labelled “How can we help?” Type in your query, for instance “GST.”  As you type, the search service will provide suggestions based on common searches made, with the completed search putting all GST-related information in categories. You can collapse and enlarge categories to access all included information.

SMSF assist service

Also, the Tax Office’s new self-managed super fund assist service allows users to search for information on a wide range of topics associated with all aspects and stages of super fund management. Users simply type a question in the search bar, and the service provides information tailored from a range of sources.  Search results are displayed in an easy-to-read format.

SMSF owners can seek information for many topics, including:

• thinking about self-managed super
• setting up an SMSF
• contributions
• investments
• administration and reporting
• benefit payments
• wind ups.

Visit http://smsfassist.ato.gov.au/. The page will display a search bar widget labelled “Type a question or keyword”.  Below that are two drop-down bars labelled “Topic” and “Sub-Topic” respectively.  You can either search by keyword or by topic/sub-topic.

Type in or select your query.  For instance, “thinking about self managed super.”  As you type, the search service will provide suggestions based on common searches made. The completed search will put all query-related information in categories.

ATO ruling narrows claims scope for property investors

A new Tax Office ruling clarifying the criteria for deductions on income earned through specific lease arrangements may limit property investors who incorrectly claim losses on their properties.

The ruling, issued mid-September, sets out parameters for claiming losses on properties that are let at arm’s length or to relatives, or on properties that are used as holiday homes part of the year.

As part of the ruling, holiday homeowners cannot, for instance, treat small payments from friends or relatives who use the home as assessable income.  Any income received from the commercial letting of the home, however, can still be claimed.

The Tax Office ruling lists seven sections – which represent seven rental situations – in which questions commonly arise about “the extent to which losses and outgoings in connection with rent producing properties are allowable as income tax deductions.”  These situations are as follows:

• arm’s length letting of an identified part of a residence, for example a bedroom, with access to general living areas of the residence
• letting of property to relatives
• payment by family members of an amount for board and lodging
• occupancy of part of a residence on the basis of occupants sharing household costs such as food, electricity, heating, etc.
• letting of a holiday home or potential retirement home for part  of a year only
• letting of a residence during a transfer in place of employment
• purchase of a residence by a family trust and the subsequent leasing of it to family beneficiaries in the trust.

Read the full Tax Office ruling for more details.

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