September 2018
NEW RULINGS / DETERMINATIONS
TR 2018/4 – Effective life of depreciating assets
As part of an ongoing review of the Commissioner’s effective life determinations, the ATO has made a determination of the effective life of certain depreciating assets (in Tables A and B in the Schedule to the Ruling) which took effect from 1.7.2018.
TR 2018/10 – Goods taken from stock for private use
The updates the amounts the Commissioner will accept for 2017/18 as estimates of the value of goods taken from trading stock for private use by taxpayers
in certain specified industries.
The amounts (net of GST) are:
Type of Business |
Adult/Child over 16 years |
Child 4-16 years |
Bakery |
1,350 |
675 |
Butcher |
830 |
415 |
Restaurant/Café (licensed) |
4,640 |
1,750 |
Restaurant/Café (unlicensed) |
3,500 |
1,750 |
Caterer |
3,790 |
1,895 |
Delicatessen |
3,500 |
1,750 |
Fruiterer/Greengrocer |
800 |
400 |
Takeaway Food Shop |
3,430 |
1,715 |
Mixed business (includes milk bar, general store, and convenience store |
4,260 |
2,130 |
The ATO recognises that greater or lesser values may be appropriate in some cases.
Taxation determination TD 2018/11
Reasonable allowance expense claims for daily travel allowance amounts and overtime meal allowance amounts should be read together with TR 2004/6, which
explains the substantiation exception and the way in which these expenses are able to be claimed. If you require assistance when making these claims,
please contact us.
CENTS PER KILOMETRE DEDUCTION RATE FOR CAR EXPENSES 2018
The Commissioner of Taxation has determined that the rate at which work-related car expense deductions may be calculated using the cents per kilometre method is 68 cents per kilometre for the income year commencing 1 July 2018 (up from 66 cents per kilometre).
This rate applies to the income year commencing 1 July 2018 and remains applicable to subsequent income years until the Commissioner of Taxation determines
that it should be varied.
GOVERNMENT CONSULTS ON REFORMS TO AUSTRALIAN BUSINESS NUMBER SYSTEM
The Federal Government is taking action to strengthen and modernise the Australian Business Number (ABN) system.
On 20.7.2018, the Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, released a consultation paper seeking views on designing a modern
ABN system — one that provides improved confidence in the identity and legitimacy of Australian businesses, without adding unnecessary complexity
or compliance costs.
According to Ms O’Dwyer
- The ABN system is the backbone of business registration with around 7.7 million ABN registrations, and around 860,000 new ABNs issued in 2017-18. The
ABN is increasingly acting as a business enabler, underpinning laws targeted at business, and signalling a business’s credentials. It is therefore
timely to consider whether the ABN system remains fit to support the expanded range of purposes an ABN serves today.
- The Government is acting on the Black Economy Taskforce findings that there is a significant disconnect between perceptions of what an ABN allows and
how it actually operates, creating opportunities for fraud. - The Taskforce highlighted that the ABN system is being used by some participants in the black economy to create a false sense of legitimacy to their
business. This places businesses not prepared to do the right thing on the same footing as honest businesses. It increases the risk of people being
misled and creates opportunities for tax avoidance. We will balance these priorities against the need to keep the system simple in its operation
and free of undue regulatory processes. - The Federal Government is considering changes to the ABN system alongside a suite of other reforms that are part of the Digital Transformation Agenda.
These reforms will improve business identity and verification through modernising business registers, implementing a digital identity framework
and introducing director identification numbers.
GETTING A NUDGE TO PAY MORE TAX
Since 2016 the ATO has been using pre-emptive prompts – often pop-up messages on people self-lodging their tax returns in myTax – to let taxpayers know if their work-related expense claims appear out-of-step with their peers.
Britain’s Inland Revenue – had a special division unofficially dubbed the “nudge unit” – with other jurisdictions using similar methods to get people to
voluntarily amend their tax returns.
Using behavioural economics is a low-cost approach to getting people to pay more tax, and early indications are it is having a positive impact here.
First, it can ensure Australians pay their tax debts quicker, before penalties mount up and leave them in an audit nightmare.
In Australia, about 30 per cent of small businesses did not pay their tax liabilities on time in the 2017 financial year and owed about 67 per cent of
a total collectible tax debt of $20.9 billion.
In 2017 the Australian National University (ANU) collaborated with the ATO to conduct an experiment to see if reminder letters about outstanding debts
actually work.
This target population involved small business taxpayers with a history of compliant payment behaviour who had missed their May 2017 tax deadline.
A total of 4787 unpaid debt cases were randomly allocated to receive a reminder letter either one, two or three weeks following their missed tax debt due
date; with the control group not receiving a letter for the seven-week duration of the trial.
The study found the probability of an overdue debt being paid by the end of the seven-week trial was approximately 25 percentage points greater for cases
receiving a reminder letter relative to cases in the control group, which did not receive a reminder letter.
Receipt of a reminder letter increased the probability of payment for debts up to about $7500 but had no discernible effect for debts above $7500.
The “nudge” has also been used for sending letters to taxpayers and their accountants claiming higher than average deductions on tax returns.
Data analytics are used to compare a taxpayer’s return to those lodged by people in similar circumstances. If there are inconsistencies, the taxpayer or
their agent, gets a letter telling them they aren’t in line with their peers.
This looks like reducing the nearly $22 billion in work-related expense deductions that 8.6 million taxpayers claimed in 2015-16.
Thousands of individuals and tax agents can expect to receive such letters in the coming months.
TOP 10 TAX MYTHS
As outlined by the ATO for the new tax season.
Myth: Everyone can automatically claim $150 for clothing and laundry, 5000 kilometres for car related expenses, or $300 for work-related expenses, even if they didn’t spend the money
Fact: the record-keeping exemptions provide relief from the need to keep receipts in certain circumstances. However, they are not an automatic entitlement
or a “standard deduction” for everyone. While you don’t need receipts for claims under $300 for work related expenses, $150 for laundry and 5000 kilometres,
you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.
Myth: I don’t need a receipt, I can just use my bank or credit card statement
Fact: To claim a tax deduction you need to be able to show that you spent the money, what you spent it on, who the supplier was, and when the purchase
occurred. Bank or credit card statements usually won’t contain this information. The only time you don’t need these details is if record-keeping exceptions
apply.
Myth: I can claim makeup that contains sunscreen if I work outside
Fact: We all like to look good but cosmetics are usually a private expense and the addition of sun protection does not make it tax deductible. However,
it may be deductible if the primary purpose of the product is sunscreen (i.e. it has a high SPF rating), the cosmetic component is incidental, and
you were required to wear it because you work outdoors in the sun.
Myth: I can claim my gym membership because I need to be fit for work.
Fact: While you might like to keep fit, there are only a very small number of people who can claim gym memberships, such as special operations in the Australian
Defence Force. To be eligible, your job would have to depend on you maintaining a very high level of fitness, for which you are regularly tested.
Myth: I can claim all my travel expenses if I add a conference or a few days’ work to my holiday
Fact: If you decide to add a conference or some work to your holiday, or a holiday to your work trip, you must apportion the travel expenses between the
private and work-related components.
Myth: I can claim my work clothes because my boss told me to wear a certain colour
Fact: Unless your clothing is a uniform that is unique and distinct to your employer, or protective or occupation-specific clothing that you were required
to wear to earn your income you, won’t be able to claim it. Plain clothes, like black pants, are not deductible even if your boss told you to wear
them.
Myth: I can claim my whole Netflix or Foxtel subscription because I need to keep up to date for work
Fact: Unless you only use your subscriptions for work purposes, you will have to apportion the cost between business and private usage, and only claim
the work-related portion of your expenses. You will also need to be able to show a strong connection between earning your income and the subscription.
Myth: I can claim home-to-work travel because I need to get to work to earn my income
Fact: for most of us, home to work travel is private since your boss doesn’t pay you until you get to work. There are limited circumstances where someone
who has to transport bulky equipment can make a claim.
Myth: I’ve got a capped phone plan, so I can claim both personal and private phone calls
Fact: Unless you only use your phone for work, you will have to apportion the cost between business and private usage and only claim the work-related portion
of your expenses.
Myth: If I use an agent, they will take responsibility for my claims
Fact: Even if you use a tax agent, you are ultimately responsible for ensuring the information in your return, including the deductions you claim, is correct.
You cannot transfer that responsibility to your agent so make sure you give them complete and accurate information.
REVIEW OF TAX RESIDENCY RULES FOR INDIVIDUALS
The Board of Taxation (the Board) released its initial report on income tax residency rules for individuals.
The Board has conducted a self-initiated review of the individual income tax residency rules. The Board considered whether the existing individual tax
residency rules, that are largely unchanged since enactment in 1930, are:
- sufficiently robust to meet the requirements of the modern workforce; and
- simple, efficient and fair.
The Board also considered integrity concerns, the reasons for an increase in litigation relating to the residency rules since 2009, and any changes that
could be adopted to improve the residency rules.
The Board has provided its initial report to the Federal Government. A copy of the report is available at the Board of Tax website (http://taxboard.gov.au/publications-and-media/review-reports/).
According to the Minister of Revenue and Financial Services, Ms. Kelly O’Dwyer:
- The Board has undertaken an extensive consultation process, everyone who has been involved is thanked for their contributions.
- The Government values the crucial input provided by key stakeholders.
- The Board found that the current individual tax residency rules require modernisation and simplification.
- The Board also identified opportunities for tax arbitrage, for example where individuals become ‘residents of nowhere’ when they leave Australia and
do not become tax residents of another jurisdiction. - These are complex issues that deserve further analysis and consideration.
CAR OWNERS…. DECLARE WHAT YOU SHARE!
As part of its focus on sharing activities, the ATO recently increased focus on anyone earning income through car sharing platforms, in a bid to make sure they stay on the right side of the tax law.
The growing popularity of third party services such as Car Next Door, Carhood or DriveMyCar Rentals has prompted the ATO’s interest. There is evidence
that some taxpayers who are undertaking sharing activities might not understand the taxation implications.
No matter how little you earn through car sharing, it is important to include it in your tax return. It’s no different to anyone else renting out an asset,
like a house or a car park. You must declare the income and you cannot avoid tax by calling it a hobby.
Peer-to-peer services such as car sharing are at the cutting edge of the digital economy. But operating in the digital world leaves electronic footprints.
Whether you are a digital native or an electronic illiterate, it will be difficult to avoid scrutiny as the ATO has sophisticated systems and data to help
identify where sharing platforms are being used to generate income.
The good news is that individuals who rent their vehicle are entitled to claim some deductions. The expenses claimed must relate directly to the renting,
hiring or sharing of your car, and accurate records such as receipts must be maintained to back up all claims.
Car sharers can legitimately claim deductions for expenses like platform membership fees, availability fees, cleaning fees and car running expenses. However,
a deduction can only be claimed for cleaning and running expenses if you are responsible for them under your car sharing agreement.
For example, different agreements require either the car borrower or the car owner to bear the costs of refuelling the car. You can only claim expenses
to the extent that you paid for them.
Car owners need to be aware that deductions for running expenses may differ depending on your circumstances.
For cars designed to carry a load of less than one tonne, you can use the cents-per-kilometre method or the logbook method. But if you are sharing your
motorbike or your vehicle is designed to carry more than one tonne or more than eight passengers, the rules are a bit different as you cannot use the
cents-per-kilometre method.
According to Assistant Commissioner Kath Anderson, it’s not a free ride as taxpayers cannot claim for personal expenses or expenses they have already been
reimbursed for.
“If you use your car for your own private travel, you will need to exclude all the related costs. And you cannot claim for expenses related to a car that
you have salary sacrificed. Claims for private use amount to asking the rest of us to pay for your private petrol or car wash, and I’m pretty sure
most Australians would say that’s not ok.” Ms. Anderson said.
If you own a car jointly, you will need to declare income and claim expenses in proportion to your share of ownership.
Sometimes joint owners will try to shift the income and deductions around to get the best tax outcome. However, you must declare the income and claim the
deductions in proportion to your ownership interest.
Car sharers should keep good records to help ensure they declare the right amount of income and they have evidence for claims made. Keeping accurate records
is critical. Your sharing platform should be able to provide you with accurate records of the income and the kilometres travelled for sharing purposes,
which would form a good basis for your deductions.
In terms of expenses, we recommend you use the myDeductions tool in the ATO app. The information can then be sent directly to the ATO or to your tax agent
for prefilling at tax time.
If your activities are more than occasionally renting out your own car, you should familiarise yourself with other taxation requirements.
If you are registered, or required to be registered for GST, and have an enterprise of renting or hiring your car, you will be liable to pay GST on payments
you receive. You will also be able to claim GST credits for any GST included in the price you pay for things to the extent that you use them in carrying
on your enterprise (that is, you cannot claim GST credits for personal use and so you will need to apportion your expenses).
This will be the case if:
- you are already registered, or required to be registered, for GST for another enterprise (e.g. ride-sourcing) and also carry on an enterprise of renting
or hiring your car - you don’t have an Australian Business Number (ABN) or are not registered for GST and your GST turnover from all your enterprises (including renting
or hiring your car) together is, or is expected to be, $75,000 or more per year.
TAX TREATMENT OF CRYPTOCURRENCIES
The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain.
Cryptocurrency generally operates independently of a central bank, central authority or government.
The creation, trade and use of cryptocurrency is rapidly evolving. Any reference to ‘cryptocurrency’ in this guidance refers to Bitcoin, or other crypto
or digital currencies that have the same characteristics as Bitcoin.
If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your
circumstances.
Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.
If you have dealt with a foreign exchange and/or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.
A CGT event occurs when you dispose of your cryptocurrency. A disposal can occur when you:
- sell or gift cryptocurrency
- trade or exchange cryptocurrency (including the disposal of one cryptocurrency for another cryptocurrency)
- convert cryptocurrency to fiat currency like Australian dollars, or
- use cryptocurrency to obtain goods or services.
If you make a capital gain on the disposal of a cryptocurrency, some or all of the gain may be taxed. Certain capital gains or losses from disposing of
a cryptocurrency that is a personal use asset are disregarded.
If the disposal is part of a business you carry on, the profits you make on disposal will be assessable as ordinary income and not as a capital gain.
While a digital wallet can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset.
Exchanging a cryptocurrency for another cryptocurrency
If you dispose of one cryptocurrency to acquire another cryptocurrency, you dispose of one CGT asset and acquire another CGT asset. Because you receive
property instead money in return for your cryptocurrency, the market value of the cryptocurrency you receive needs to be accounted for in Australian
dollars.
If the cryptocurrency you received cannot be valued, the capital proceeds from the disposal are worked out by using the market value of the cryptocurrency
you disposed of at the time of the transaction.
Example: On 5 July 2017, Katrina acquired 100 Coin A for $15,000. On 15 November 2017, through a reputable digital currency exchange,
Katrina exchanged 20 of Coin A for 100 of Coin B.
Using the exchange rates on the reputable digital currency exchange at the time of the transaction, the market value of 100 Coin B was $6,000. For
the purposes of working out Katrina’s capital gain for her disposal of Coin A, Katrina’s capital proceeds are $6,000.
Cryptocurrency as an investment
If you acquire cryptocurrency as an investment, you may have to pay tax on any capital gain you make on disposal of the cryptocurrency.
You will make a capital gain if the capital proceeds from the disposal of the cryptocurrency are more than its cost base. Even if the market value of your
cryptocurrency changes, you do not make a capital gain or loss until you dispose of it.
If you hold the cryptocurrency as an investment, you will not be entitled to the personal use asset exemption. However, if you hold your cryptocurrency
as an investment for 12 months or more, you may be entitled to the CGT discount to reduce a capital gain you make when you dispose of it.
If you have a net capital loss you can use it to reduce a capital gain you make in a later year. You cannot deduct a net capital loss from your other income.
You are required to keep records of each cryptocurrency transaction to work out whether you have a made a capital gain or loss from each CGT event.
Example: Terry has been a long-term investor in shares and has a range of holdings in various public companies in a balanced portfolio
of high and low risk investments. Some of his holdings are income producing and some not, and he adjusts his portfolio frequently at the advice
of his adviser.
Recently, Terry’s adviser told him that he should invest in cryptocurrency. On that advice Terry purchased a variety of different cryptocurrencies
which he has added to his portfolio. Terry doesn’t know much about cryptocurrency but, as with all his investments, he adjusts his portfolio from
time to time in accordance with appropriate investment weightings.
If Terry sells some of his cryptocurrency the proceeds would be subject to CGT because he has acquired and held his cryptocurrency as an investment.
Personal use asset
Cryptocurrency is only capable of being acquired, held and transacted with. Both the period of holding and the nature of the subsequent transaction will
be relevant to whether your cryptocurrency is a personal use asset.
The relevant time for determining whether or not an asset is a personal use asset is at the time of its disposal.
During a period of ownership, the way that cryptocurrency is kept or used may change (for example, cryptocurrency may originally be acquired for personal
use and enjoyment, but ultimately be kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business). The
longer the period that a cryptocurrency is held, the less likely it is that it will be a personal use asset.
Cryptocurrency is not a personal use asset if it is acquired, kept or used:
- as an investment
- in a profit-making scheme, or
- in the course of carrying on a business.
If you have to exchange a cryptocurrency you own to Australian dollars (or to a different cryptocurrency) to purchase or acquire the items for personal
use or consumption, then this strongly indicates the cryptocurrency you own was acquired, held and used for a purpose other than personal use or enjoyment.
Some capital gains or losses that arise from the disposal of cryptocurrency that is a personal use asset may be disregarded.
Cryptocurrency may be a personal use asset if it is kept or used mainly to purchase items for personal use or consumption. Only capital gains you make
from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets
are disregarded.
Example: Michael wants to attend a concert. The concert provider offers discounted ticket prices for payments made in cryptocurrency.
Michael pays $270 to acquire cryptocurrency and uses the cryptocurrency to pay for the tickets on the same day. Having regard to the circumstances
in which Michaelacquiredandused the cryptocurrency, the cryptocurrency is a personal use asset.
Example: Peter has been regularly keeping cryptocurrency for over six months with the intention of selling at a favourable exchange
rate. He has decided to buy some goods and services directly with some of his cryptocurrency. Because Peter used the cryptocurrency as an investment,
the cryptocurrency is not a personal use asset.
Loss or theft of cryptocurrency
You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen.
In this context the issue is likely to be whether the cryptocurrency is lost, whether you have lost evidence of your ownership, or whether you have lost
access to the cryptocurrency.
Generally, where an item can be replaced it is not lost. A lost private key cannot be replaced. Therefore, to claim a capital loss you will need to be
able to provide the following kinds of evidence:
- when you acquired and lost the private key
- the wallet address that the private key relates to
- the cost you incurred to acquire the lost or stolen cryptocurrency
- the amount of cryptocurrency in the wallet at the time of loss of private key
- that the wallet was controlled by you (for example, transactions linked to your identity)
- that you are in possession of the hardware which stores the wallet
- transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.
Chain splits
Cryptocurrency held as an investment
If you hold cryptocurrency as an investment and receive a new cryptocurrency as a result of a chain split (such as Bitcoin Cash being received by Bitcoin
holders), you do not derive ordinary income or make a capital gain at that time as a result of receiving the new cryptocurrency.
If you hold the new cryptocurrency as an investment, you will make a capital gain when you dispose of it. For the purposes of working out your capital
gain, the cost base of a new cryptocurrency received as a result of a chain split is zero. If you hold the new cryptocurrency as an investment for
12 months or more, you may be entitled to the CGT discount.
Example: Alex held 10 Bitcoin on 1 August 2017 as an investment, when Bitcoin Cash split from Bitcoin. Immediately after the chain
split, Alex held 10 Bitcoin and 10 Bitcoin Cash. Alex does not derive ordinary income or make a capital gain as a result of the receipt.
On 25 May 2018, Alex sold the 10 Bitcoin Cash for $4,000. Because the cost base of the Bitcoin Cash was zero, Alex makes a total capital gain of $4000
in the 2017-18 income year from the sale of the Bitcoin Cash.
Cryptocurrency used in business has other implications which we will cover in future.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.