ATO small business benchmarks updated
The ATO has announced the latest benchmarks for small businesses. Based on the data from 2014 income tax returns and business activity statements, the benchmarks cover over 1.3 million small businesses.
ATO Assistant Commissioner Matthew Bambrick said one of the great things about the benchmarks was that they gave a lot of small-business owners peace of mind.
“If a small business is inside the benchmark range for their industry and the ATO hasn’t received any extra information that may cause concern, they can be confident that they probably won’t hear from us”, Mr Bambrick said.
Mr Bambrick said some small businesses outside the benchmark range may simply be incorrectly registered, or the business intent may have changed since starting up. “These types of small administrative errors can be easily fixed by checking the previous year’s tax return to see which business industry code was used and then updating it in the next return and on the Australian Business Register”, Mr Bambrick said.
TIP: Business owners can use the benchmarks to compare their businesses with other similar businesses. They can also be used by the ATO to identify businesses that may not be meeting their tax obligations.
SMSF early voluntary disclosure service for contraventions
The ATO has introduced a new self managed super fund (SMSF) early engagement and voluntary disclosure service. Each year, an approved SMSF auditor must audit a fund. The auditor is required to report certain regulatory contraventions to the ATO using the auditor/actuary contravention report. The ATO encourages SMSF trustees to voluntarily disclose regulatory contraventions, which they can now do using the ATO’s SMSF early engagement and voluntary disclosure service. This service provides a single entry point for SMSF trustees to engage early with the ATO in relation to unrectified contraventions.
TIP: Before using this service, the ATO says trustees should engage with an SMSF professional to receive guidance about rectifying the contravention so they have a rectification proposal to include with their voluntary disclosure. Please contact us for further information.
New tax governance guide for SMSFs
The ATO has released a new tax governance guide that can be used by SMSFs. The ATO has worked with businesses to design a guide to help private groups with tax governance. The guide also provides practical guidance about the key elements of SMSF governance. When managing an SMSF, trustees need to apply a high level of governance to meet the requirements of both the income tax and superannuation laws.
SMSF trustees can use this guide to develop an effective governance framework and to identify ways to improve existing governance practices within their SMSFs. Issues covered in the guide include:
- corporate governance and tax governance;
- starting your business;
- business expansion;
- funding and finance;
- succession planning;
- exiting a business;
- retirement planning (covering SMSFs and CGT small business concessions); and
- estate planning.
Property developer entitled to capital gain tax concession
A taxpayer has been successful before the Administrative Appeals Tribunal (AAT) in arguing that a commercial property it acquired, developed and later sold for a profit of some $40 million had been acquired as a capital asset to generate rental income, and not for the purpose of resale at a profit. The AAT reached this decision despite indicating that the taxpayer was essentially involved in “property development” activities on a broad analysis of its activities. As a result, the AAT found that the profit of $40 million was assessable as a capital gain and entitled to the 50% capital gains tax (CGT) discount.
TIP: This case is a good example of the need to maintain contemporaneous documentation should there be a dispute with the ATO. The ATO has recently reiterated its focus on trusts developing and selling properties as part of their normal business and incorrectly claiming the 50% CGT discount.
Superannuation concessional contributions caps must be observed
An individual taxpayer has been unsuccessful before AAT in seeking to have excess superannuation concessional contributions for the 2014 financial year ignored. In addition to having a full-time job, the individual also held a number of casual part-time jobs. To grow his retirement savings, he salary sacrificed super, but he did not check on his super balances. In June 2015, the individual was advised by the ATO that he had excess concessional contributions of around $11,000 for the 2014 financial year, an amount which was added back to his taxable income. He was therefore charged interest of $250. The AAT praised the individual’s efforts to save for his retirement, but it said the circumstances did not amount to “special circumstances” in which it could invoke its powers to ignore the excess contributions.
TIP: The taxpayer’s ultimate tax bill in this case would have been the same if he had stayed under the relevant cap, albeit the tax bill would have been met by PAYG deductions over time. Even so, this case is a good reminder for to monitor your super balances to ensure you don’t have a tax burden caused by extra contributions being added back to your taxable income.
Help the kids buy homes, but watch for land tax
A taxpayer has been unsuccessful before the Queensland Civil and Administrative Tribunal in a land tax dispute in arguing that there was a “constructive trust” in relation to three residential properties. The taxpayer, a father, had purchased the properties for each of his three adult children to live in. There were agreements that the children would pay their parents rent and, upon the death of both parents, as specified in mutual wills, the property would be left to the respective child. The Queensland Commissioner of State Revenue assessed land tax on the aggregate value of the three properties as at 30 June 2013 and 30 June 2014 respectively. The Tribunal affirmed the Commissioner’s decision, holding that the taxpayer was the “owner” of the properties and it was not convinced that there was a “constructive trust”. Therefore, it held the exemption under the Land Tax Act 2010 (Qld) to assess separately trust land did not apply. In this case, the Tribunal hinted at the possibility that in future assessments the taxpayer could, on sufficient evidence, persuade the Commissioner or Tribunal otherwise.
TIP: For parents looking to assist their adult children with buying homes, this case highlights the need to consider land tax implications. It is important to note that the land tax regimes differ from state to state. Please contact our office for assistance.
“A must-read for anyone interested in properties”
Goods Services Tax (GST) Margin Scheme & Property Development
With rising property values, everyone wants to get a slice of the property development pie. In many instances, we do not find out about the property transactions until after they have taken place, leading to adverse tax consequences. The issue could be a property purchased in the wrong structure, or the property was sold without applying the margin scheme. Prior to entering into any property transaction, we can work with you to lay out and execute plans that legitimately save your tax.
The margin scheme enables the GST on certain sales of real estate to be calculated on a concessional basis. It is typically applicable to new residential property developments. Normally, GST on a sale is calculated as 1/11th of the GST-inclusive price. Under the margin scheme however, the GST on the sale is instead calculated as 1/11th of the “margin”.
If you sell property as part of your business and you are registered for GST, you may be able to use the margin scheme to work out how much GST you must pay. Below is an example of how margin scheme could impact on your GST liability.
Use of the margin scheme is an effective way to reduce the GST on the sale of property where the necessary conditions are satisfied. The conditions of the application of the margin scheme are complex and vary depending on your specific circumstances. We recommend that if you are contemplating entering the property market, to call us beforehand for any pre-purchase and pre-development advice.
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Important: Clients should not act solely on the basis of the material contained in Cents & Sensibility. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Cents & Sensibility is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Please contact us if you wish to discuss how the points raised in this edition specifically affect you.
The knp Team