The government announced changes to the instant asset write-off previsions for small business. The changes are expected to come into effect from 1 January 2014.

From the 2012-13 income year small businesses have been able to write-off depreciating assets costing less than $6,500 in the income year in which they start to use the asset, or have it installed ready for use. The can also depreciate most other assets in the general small business pool at a rate of 15% in the first year and 30% thereafter.

If the proposed changes are enacted, the threshold will change and only assets costing less than $1,000 (acquired and installed ready for use after 31 December 2013) will be eligible for immediate write-off. Assets costing $1,000 or more will need to be depreciated in the general small business pool.

Assets costing less than $6,000, acquired and installed ready for use by the small business between 1 July 2013 and 31 December 2013, will still be eligible to be immediately written-off.

SMSF – Be Prepared For New Penalty Powers
The government announced that it will proceed with law changes that give the ATO greater powers in dealing with SMSF trustees who breach super law.

It is proposed that these new powers will apply to contraventions occurring from 1 July 2014 and cover:
• administrative penalties
• education directions
• rectification directions

They will also apply to contraventions that were made prior to 1 July 2014 and continue after that date.

For example, if SMSF has let money to a member or relative and the loan still exists on or after 1 July 2014 you will be liable for a penalty. The loan should immediately be repaid to the fund with appropriate commercial interest.

Under the proposed measures, penalties will vary according to the type of breach. In the example above, each individual trustee will be personally liable for a penalty of $10,200.

For an SMSF with a corporate trustee each director will be jointly and severally liable for a penalty of $10,200.

The penalty can not be paid using the resources of the SMSF and doing so would be considered a serious breach likely subject more significant penalties from the ATO.

Under the proposed administrative penalties the ATO must impose the penalty when we become aware of a relevant breach from 1 July 2014. To avoid these penalties make sure your SMSF is fully compliant with the super laws so that you don’t become liable for a penalty.

This determination asks and answers the question “in what circumstances is a bank account of a complying superannuation fund a segregated current pension asset under S.295-385 of the ITAA 1997?”

Income derived by a superannuation fund from segregated pension assets is exempt from tax – refer S.295-385 of the ITAA 1997.

An asset is a ‘segregated pension asset’ if it is invested, held in reserve or otherwise being dealt with for the sole purpose of enabling the fun to discharge its liabilities in respect of superannuation income stream benefits (i.e., pensions).

According to the ATO, a bank account will meet this requirement, and will have the relevant sole purpose, where “the whole of the account is so invested, held or dealt with.”

Some banks offer what are commonly referred to as ‘sub-accounts”. Where all transactions and balances are recorded, maintained and reported on a sub-account basis, then a sub-account held for the relevant sole purpose may be a segregated current pension asset for the purpose of S.295-385.

ATO confirms that this interpretation applies to:
• actual sub-accounts which are formally maintained by banks; and
• informal or notional sub-accounts where proper accounting records are maintained by other non-bank parties (for example, a trustee of a superannuation fund).

Income paid to, or expenses paid from, segregated bank accounts
Some receipts or outgoings will of necessity be paid to or from a single bank account even if they require apportionment between:
• liabilities in respect of superannuation income stream benefits payable by a fund at that time (i.e., pension liabilities); and
• other liabilities.

Where such amounts are paid in a bona fide manner to or from a segregated current pension asset, being the segregated bank account, in order to maintain segregation of the bank account, the Commissioner will require the fund to make a transfer or set off (equal to the value of the receipt or outgoing that does not relate to the fund’s pension liabilities) between the fund’s segregated bank account and another bank account within a reasonable time.

When interest income is derived on amounts that were paid to a bank account that is a segregated current pension asset in the above circumstances, then any interest that is attributable to the amount required to be transferred or set off as explained above is taken not to have been earned by the segregated current pension asset (i.e., that portion of interest is not exempt income).

Some essential incidental expenses payable by a complying superannuation fund may relate to the operation of the fund generally (e.g., the SMSF supervisory levy) and might not be subject to apportionment.

Payment of such essential incidental expenses from a segregated bank account will not prevent the account from being a segregated current asset held for the relevant sole purpose.

Misstates regarding superannuation contributions
There may be cases in which a superannuation contribution is made in error to a bank account or recorded against the incorrect sub-account and that particular bank account or sub-account is a segregated current pension assets.
The amount of the superannuation contribution must be transferred to the correct bank account or sub-account within a reasonable time.

Any interest income that is earned on that superannuation contribution is taken not be attributable to the segregated current pension asst, and would not form part of any exempt income under S.395-385.

The ATO has announced an in-house facilitation process for tax agents and their clients to resolve tax disputes.

Tax agents and their clients will now be able to use this service in aduits and objections involving indirect tax, small business and individual taxpayers, and private groups and high wealth individuals.

In-house facilitation aims to:
• resolve less complex disputes more quickly;
• provide certainty for tax agents and their clients; and
• avoid unnecessary litigation.

The ATO says that it has trained facilitators in each State and across all areas of the Office.

These facilitators are independent of the audit or objections and will not make a decision.

There role is to bring the tax agent, their client, and the ATO case officer together to discuss areas of disagreement in an open and transparent way.

Facilitation Process
In 2013, the ATO conducted a trial of the new dispute resolution ‘facilitation’ process, in smaller and less complex indirect tax objections.

The process used ATO officers as facilitators in meetings between taxpayers. their agents and the ATO case officers responsible for the dispute to identify and review options to resolve the dispute.

The ATO facilitators had not been involved in the dispute.

This trial confirmed:
the benefits of engaging with taxpayers earlier in disputes;
• that facilitations, where the facilitator meets face-to-face
with ATO decision makers and taxpayers and their representatives,
can be a timely and effective means of resolving less
complex tax disputes; and
• that taxpayers and their representatives are generally
comfortable with having an ATO officer as facilitator
in these types of disputes.

What is ‘facilitation’?
At a facilitation, taxpayers will have the opportunity to present their case and their view of the tax issues and facts in dispute.

There is no obligation on a taxpayer to have any representation.
The facilitator will not establish facts, take sides, give advice, make a decision or decide who is ‘right or wrong’.

The facilitator merely guides the parties through the process and will help them ensure that there are open lines of clear communication, and that messages are correctly received.

Taxpayers are not obliged to agree to participate in facilitation if it is offered, but if they choose to participate and the dispute is not resolved, their rights of review and appeal are not affected in any way.

What if you (or your client) are interested in facilitation to resolve a dispute?

Taxpayers may request facilitation to resolve their dispute – request should be made to facilitation@ato.gov.au.

They may also discuss their request with the ATO officer responsible for their audit or objection, or to their manager.
Ref: ATO website – Resolve tax dispute more quickly using in-house facilitation

There has been an increasing tendency for home owners to use an existing home as a rental property, especially where a new home has been purchased.

In these situations, it is common for taxpayers to undertake repairs and maintenance to their existing home in order to make it more attractive to prospective tenants before the property is available for rent.

A landlord will only be entitled to claim a deduction for expenditure incurred on repairs to a rental property where at the time the expenditure is incurred, the property is being held or used for income producing purposes.

According to the ATO, no deduction will be available for repair expenditure that is incurred before a taxpayer’s home is held or used for income earning purposes(e.g., before the property is genuinely available for rental).

Undertake repairs when property is available for rent
Where appropriate, a taxpayer should consider ‘holding-off’ undertaking repairs to the former home until the property is either genuinely available for rent (e.g., listed with a real estate agent for rental) or actually rented to tenants.

In these circumstances, a deduction for repairs may be available even though:
• the property was previously used by the taxpayer for private purposes (i.e., as the taxpayer’s home); and
• some or all of the defects, damage, or deterioration are attributable to the period the property
was used as the taxpayer’s home.

3.1 New schedule for increasing the Superannuation Guarantee (‘SG’)

The government will change the schedules for increasing the SG rate from 9.25% rate to 12%, to provide business with certainty, as follows:
• Instead of pausing the SG rate at 9.25% (as previously announced0, the SG rate will increase from 9.25% to 9.5% from 1 July 2014 as currently legislated, to give certainty to employers and employees (given the Minerals Resource Rent Tax Repeal and Other Measures Bill 2013 was rejected in the Senate).
• The SG rate will reman at 9.5% until 30 June 2018 and then increase by 0.5% each year until it reaches 12% in 2022/23 (one year later than previously proposed).

3.2 Private Health Insurance Rebate and Medicare Levy Surcharge income thresholds – pausing indexation

The PHI rebate is currently income tested against three income tiers with were first introduced on 1 July 2012. The rebate may be available to those eligible individuals who are covered by a complying private health insurance policy.

The MLS is levied upon individual taxpayers who are not covered by a complying private health insurance policy, and whose income exceeds certain income thresholds.

From 1 July 2015 to 30 June 2018, the PHI and MLS income thresholds will not be indexed. In relation to the PHI rebate (for example), this means that if an individual’s income or a family’s income increase enough for them to move into a higher income tier, they may end up receiving a lower or no PHI rebate.

3.3 Higher Education Loan Programme – cessation of HECS – HELP benefit and changes to repayment thresholds and indexation

The government will continue to make HELP loans so that eligible students do not have to pay their fee up-front. However, the HECS-HELP benefit that was intended to provide an incentive for graduates of particular courses to take up related occupations or work in specified locations will be abolished from 2015/16.

Further, commencing from 2016/17, a new minimum threshold will be established for the repayment of HELP debts, currently estimated to be $50,638. A new repayment rate of 2% of repayment income will also be applied to debtors with incomes above the new minimum threshold. Indexation of HELP debts will also be adjusted from 1 July 2016.

3.5 Research and Development Tax Incentive – reducing the rates of the refundable and non-refundable tax offsets

Consistent with the government’s commitment to cut the company tax rate from 1 July 2015, the government will preserve the relative value of the Research and Development Tax Incentive by reducing the rates of the refundable and non-refundable offsets by 1.5%, effective from 1 July 2014.

3.7 Measures for a more sustainable family payments system

The government has announced various measures to the existing family payments system. Some of the main measures including the following:
(1) new supplement for single parents – From 1 July 2015, single parents who receive teh maximum rate of FTB Part A, but are no longer receiving FTB Part B as a result of changes to eligibility, will have access to a new $750 annual supplement for each child aged 6-12 years.
(2) FTB Part B for children under 6 years of age – From 1 July 2015, families eligible for FTB Part B will only receive the payment while their youngest child is under 6 years of age. Families already receiving FTB Part B with a youngest child at least 6 years of age on 1 July 2015 will continue to receive FTB Part B until 30 June 2017.
(3) FTB Part B primary earner income limit – From 1 July 2015, the primary earner income limit for families to become eligible for FTB Part B will be reduced from $150,000 to $100,000 per annum.
(4) FTB end-of-year supplements – From 1 July 2015, the FTB Parts A and B end-of-year supplements will be returned to their original amounts of $600 and $300, and will remain at the amount without further indexation.
(5) FTB Part A higher-income free area per child add-on – From 1 July 2015, the FTB Part A per child add-on amount used to calculate a family’s income free area will no longer apply.
(6) Paid Parental Leave – From 1 July 2015, the Abbott government will reform the Paid Parental Leave scheme, to provide six month paid leave (with an income cap of $100,000 per annum) and include superannuation. The intention is to support women to remain engaged with their employers, and help boost their retirement income.

3.9 Increasing the age pension age to 70 years of age

Building on the former government’s move to increase the pension age to 67 by 1 July 2023, new legislation will continue this process to increase the age pension age from 1 July 2025, until it reaches the age of 70 in July 2035. This measure will not affect Australian born before 1 July 1958.
From September 2017, the government will also reset the deeming thresholds for the income test to $30,000 for single pensioners and $50,000 for pensioner couples combined . Furthermore, for a period of three years from July 2017, the Government will pause the indexation of the income and assets test free areas for the pension (i.e., the amount of income and assets that individuals and couples can have before the pension begins to be reduced).