Regulatory Roundup – May 2017

More super reform changes being made on the fly

Further rumoured amendments to the superannuation reforms taking effect on July 1, 2017, only roughly two months away, are seeding further panic among the superannuation industry. The document circulated by the ATO lists seven areas where further amendments, termed “minor and technical”, are being sought.

It is proposed that the government intends to enact these amendments in the winter sitting, that is before July 2017.

The most controversial of the seven items are the last two, both in relation to limited recourse borrowing amendments (LRBAs) and termed “LRBA related amendments”. Broadly, these provide for a transfer balance credit for each repayment of principle and interest under the LRBA.

So if a person starts a pension in their SMSF with $1 million of their balance, then it’s a $1 million transfer balance credit. If the trustee makes a periodic repayment of the LRBA to the amount of $10,000, then arguably it’s another $10,000 transfer balance credit to the member’s account. And this will therefore compromise that person’s ability to start further pensions.

Further, there is a proposal to count the outstanding balance of the LRBA loan towards the member’s total superannuation balance. So if a fund purchased a $2 million property under an LRBA and the outstanding loan is $1.5 million, then consequently it would appear that it is not the net value of the asset but also the liability attached to it that are totalled together to arrive at the member’s equitable interest in the superannuation fund.

The drafters of this proposal appear to be unconversant with Luca Pacioli’s work, and it is doubtful that the risk of being excommunicated is going to stop them from putting this proposal into law.

Treasury so far has released the exposure draft of the Treasury laws amendment (2017 Measures no. 2) Bill 2017 for consultation. Comments close by next Monday, April 24.

Briefly, the bill contains the following amendments:

– Several changes to the operation of the transfer balance cap and transfer balance account, among them to enable additional transfer balance credits and transfer balance debits to be prescribed via regulations

– Bringing forward the ability to roll-over superannuation death benefits. It is proposed to start on the day when this bill is introduced into Parliament

– A TRIS will be in the retirement phase if the member has satisfied a condition of release with a nil cashing restriction. This is a welcome change and will alleviate advisers and trustees having to convert TRIS pensions into account-based pensions.

– A clarification to the CGT relief is made to ensure that the CGT relief applies to a TRIS in a segregated fund.

The ability to prescribe transfer balance credits and debits is a worrying development in light of the newness of the system. Arguably, the regulations are easier to make compared to legislative acts. The operation of the transfer balance credits and debits is fundamental to the new reforms, but what is more concerning is the unrestricted ease for the government to change the rules on the fly.



Travel allowance substantiation exceptions: Use them (correctly) or lose them

At the end of September last year, the Taxation Commissioner Chris Jordan issued a consultation document on the substantiation exception for reasonable travel allowance expenses.

It is not unusual for the Commissioner to issue guidance on travel allowances, and every year he releases an annual update on reasonable travel and meal allowance expenses.

However what was totally unexpected was that the consultation document stated that the workings of the travel allowance substantiation exception was widely misunderstood by taxpayers and tax practitioners, and this misunderstanding meant that in many cases taxpayers are overclaiming travel deductions.

The Commissioner in his consultation document (read it here) says: “For around 30 years, we have provided guidance on the exception to substantiation for travel allowance expenses. More and more, taxpayers and their representatives, are telling us the ATO’s guidance is confusing and, as a consequence, the outcome of compliance action is considered unjust. Cases continue to proceed to the tribunal or court, further demonstrating the complexity and ambiguity in this area.”

The warning that is inferred from this for travel allowance claims is that it could very well be that taxpayers really need to get to understand how these substantiation exceptions operate, or be prepared to face a future where there is no access to them.

Remember, travel allowances are assessable income and to claim a deduction for travel expenses the general rules in section 8-1 apply – that the expenditure must be incurred in gaining assessable income. Simply, there is no “standard deduction” that can be claimed by those who have a travel allowance.

But there are three administrative concessions that relate to travel allowances — for employers that pay reasonable travel allowances there is a withholding exception and a payment summary exception, and for employees there is a substantiation exception if the allowance paid is reasonable.

But remember, the latter does not extinguish the requirement for the employee to incur an expense. The taxpayer may not be required to substantiate it in a written form like other deductible work expenses, but the expense must still happen to be able to claim a deduction.

There are other issues surrounding such allowances that should be considered, such distinguishing between travelling and living-away-from-home, and the targeting of certain industries.



ATO may delay your BAS refund for verification and checking

Statistics supplied by the ATO indicate that most GST refund claims (98% of them according to its data) are processed without any problem, but the ATO also says that every year it will select a small proportion of BAS refunds and temporarily hold onto them to check the accuracy of the information provided.

If your expected activity statement refund that hasn’t surfaced, this is one possibility. The ATO says however that should this be the case it will contact taxpayers within 14 days after lodgement (or 30 days if it is concerning an income tax return).

This may be to ask for more information, so ensuring you have your tax invoices and bank statements on hand will help speed up the process. It also says it will verify information provided on the BAS against information on its systems, and may contact other parties such as banks, employers, customers and suppliers.

The ATO says it has good reasons for these checks. Going back five years, it says of the 2.2 million GST refund claims, 45,000 were identified as being either overclaimed or fraudulent. The ATO says on average it adjusted one out of three of these identified claims, which resulted in around $775 million of incorrect refunds being corrected.

What are the triggers?
The ATO says it may stop to check a refund based on:

– the size of the refund being claimed

– the value of the refund in relation to previous activity statement lodgments

– changes in circumstances or behaviour, and/or

– data matching for known fraud activities.

It provides some examples of circumstances that may lead to a refund being stopped for review. These include but are not limited to:

– a small business claiming a large refund for the first time

– a refund that is significantly large

– a refund that is inconsistent with previous claiming patterns of the business

– businesses that claim an accumulation of small refunds over time

– if the ATO has concerns around the ability of the business to support their acquisitions based on reported income and cash flow

– if there are indications of identity takeover (for instance, if it suspects the refund may be going to the bank account of another party without the client’s knowledge, or where the ATO has intelligence that the identity has been stolen or is linked to other fraudulent activity).

Of course some larger-than-usual GST refunds are perfectly legitimate. “For example, if your refund is larger than normal, there is probably one or two transactions that are the difference between receiving a large refund which is unusual or having to pay a net amount to us as you have done previously,” the ATO says. “A one-off purchase of a motor vehicle is an example.”

The ATO says that if it continues to withhold a refund 60 days after the initial 14 day (or 30 day) notification period, taxpayers are entitled to object the decision to retain the refund. “If we request information from you during this 60-day period, the period before which you may object is extended by the number of days it takes you to provide all information we request from you.”



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