November 2019
THE FIRST HOME LOAN DEPOSIT SCHEME BILL PASSES THE SENATE
The National Housing Finance and Investment Corporation Amendment Bill 2019 passed the Senate with a single amendment on 14.10.2019.
The Bill implements the First Home Loan Deposit Scheme which was announced by the Federal Government during the 2019 election campaign and establishes a new research function within the National Housing Finance and Investment Corporation. Then amendment requires the Government to review the scheme every 12 months and provide a report to Parliament.
The Bill now reverts to the House of Representatives which is expected to pass the amendment.
The Coalition government has allocated $500 million in the form of equity to the National Housing Finance and Investment Corporation (NHFIC). The aim is to make housing more affordable, and the pathway to first home ownership more achievable and faster.
The First Home Loan Deposit Scheme will assist an eligible first home buyer to purchase a house with a 5% deposit. The government will provide a loan guarantee of up to 15% of the property’s value to individuals earning up to $125,000, or couples earning up to $200,000, per year. The scheme could also save you up to $10,000 in lender’s mortgage insurance.
Eligibility for the Scheme will also depend on where you live. The value of homes that can be purchased under the Scheme will be determined on a regional basis, reflecting the different property markets across Australia.
If you’re an eligible first home buyer, you’ll only need a 5% deposit to apply for a home loan. The additional 15% will be provided by the NHFIC and administered by an approved lender.
Applications for the Scheme are expected to open on 1.1.2020. The NHFIC will be providing further details about the Scheme, including information about:
- eligibility;
- participating financial institutions; and
- the application and assessment process.
EUROPEAN CAR MAKERS MAKE RENEWED PUSH AGAINST LUXURY CAR TAX
European car makers are seeking to have the luxury car tax and 5 per cent duty on imported cars to be scrapped. Their argument is that the basis for these measures disappeared with the closure of Australia’s car manufacturing industry.
This renewed push which cost overseas car makers and their Australian customers over $1 billion in the year ended 30 June 2019, comes shortly before the next round of trade negotiations between the European Union and Australia over a free trade deal.
The removal of the two taxes is high on the agenda of its “key demands”.If the taxes were abolished the cost of cars made by BMW, Mercedes Benz, Audi and others would be cut.
A host of car brand manufacturers CEOs have spoken out against the tax along with key industry figures.
Australia has a 5 per cent tariff on European cars and a 33 per cent luxury car tax on higher-priced vehicles. For “fuel-efficient vehicles” the luxury car tax kicks in on cars above $75,526; for other vehicles the threshold is $67,525.
States also levy stamp duty on car sales, and the Victorian and Queensland governments have upset the car industry by imposing their own version of luxury car taxes recently, on vehicles above $100,000.
In financial year ended 30.06.2019 the luxury car tax generated revenue of $640 million and the car import duty revenue of $450 million for the Commonwealth.
AIRBNB HANDS OVER DATA ON HOSTS TO ATO
In October Airbnb has defended its decision to hand over the data of 190,000 property owners and hosts to the ATO about the income they have received from the platform.
Airbnb alerted their participant hosts that it had provided data to the ATO to assist in identifying taxpayers who have left out rental income and over-claimed deductions.
This is all part the ATO’s black economy taskforce efforts to increase awareness of tax obligations among the 10.8 million Australians operating in the sharing economy.
Quoted in the Fairfax media, Airbnb head of public policy for Australia and New Zealand Brent Thomas said the information was given to the ATO due to complexities in the tax system with a view to making it easier for hosts to use the platform.
“Our challenging and difficult-to-navigate tax system can act as a barrier to ordinary Australians using their homes to supplement their income,” he said.
“Airbnb is committed to making it as easy as possible for our hosts to pay their taxes, along with making it easier for the ATO to do their job.”
Quirin Schwaighofer, co-owner of Airbnb management startup MadeComfy which has around 2,000 Airbnb beds on its books, said he was not concerned by the provision of data to the ATO.
“We understand that an online accommodation sharing platform has informed clients that use their service to rent out their properties about the data-matching program,” the spokesperson said. “The program will see them provide the ATO with data including income received per listing as well as listing dates,
enquiry and booking rates, prices charged or quoted per night and other information.”
Earlier this year treasury, as part of its black economy taskforce, released a consultation paper on implementing a sharing economy reporting scheme.
Mr Thomas said Airbnb had made a submission to the taskforce and that the current rules were written before the sharing economy existed. In view of this the development of a light-touch, mandatory data sharing framework was critical for the sector.
“[Airbnb] remains supportive of implementing a data sharing framework that not only takes data privacy laws into account but makes it easier and cheaper for Australians to pay their taxes across all sharing economy platforms,” he said. “We shouldn’t be making it harder for people to supplement their
incomes, combat cost of living and help generate jobs.”
“THE TIMES THEY ARE A CHANGING” FACEBOOK, GOOGLE BACK OECD’s DIGITAL TAX PLAN
Facebook and Google have backed a multilateral solution to digital taxes proposed by 134 nations in a policy move labelled the “most dramatic change” to international taxation in decades.
In October, the Organisation for Economic Co-operation and Development released its multinational tax framework. This could lead to the most significant shift in the international tax transfer system since the 1920s. Digital giants with global turnover of more than $1.23 billion will be affected by
the proposed changes.
The Morrison government had been hoping for international support to implement with a digital tax after deciding against initial plans to go it alone this year. This proposal will be considered at the next G20 Finance Ministers’ meeting and will target the “excess profit” of sales made by digital multinationals in countries where there is no presence there for tax purposes. This contrasts with a flat 3 per cent tax on digital sales the European Union had proposed.
Facebook backed the multilateral proposal from the OECD’s Secretariat for the Steering Group of Inclusive Framework. Clearly both Facebook and Google want to avoid a situation where countries independently impose unilateral taxes as it would create myriad jurisdictions to comply with.
Both Facebook and Google take the view that tax policy should provide certainty for businesses to operate domestically and abroad.
Initial Treasury concerns that the measures could be used against Australian resources companies exporting into other markets have now been addressed by specific exclusions for commodities and financial services.
We will keep you informed on developments.
IF YOU CHANGE YOUR BUSINESS STRUCTURES, YOU MAY NEED TO APPLY FOR A NEW ABN
If you change your business structure, you may need to cancel your Australian business number (ABN) and apply for a new one.
Examples of when you need to cancel your ABN and apply for a new ABN under the new structure include moving from either:
- individual/sole trader to partnership or trust;
- individual/sole trader to company or trust;
- partnership to company or trust.
Ensure your ABN details are updated on your tax invoices. This is essential as your ABN is used to:
- identify your business identity to others when ordering and invoicing;
- claim GST credits.
Other businesses and entities must withhold payment at the top tax rate if the ABN quoted on the invoice is incorrect or the details do not match up.
Ensure you update your GST registration details whenever you get a new ABN.
We can assist in this.
CONTACTING EMPLOYERS ABOUT LATE OR UNDER-PAID SG
Single Touch Payroll (STP) reporting, combined with improvements in super funds’ reporting through the Member Account Transaction Service (MATS) means the ATO now has near real-time data to show employers’ compliance with their super guarantee (SG) obligations.
According to the ATO this data is now used to help prevent and correct late or under-payment of employer SG contributions so to improve community confidence that Australian workers are receiving correct SG entitlements on time.
The ATO plans to soon reach out by letter, email or phone to employers where they have not met their SG obligations.
They will:
- request lodgement of super guarantee charge statement(s), if they have paid late or under-paid their SG obligations in a previous quarter;
- remind them to pay their current quarterly SG obligations by the due date.
Tax agents will be provided with a list of clients the ATO has contacted about their SG obligations.
The 9.5% superannuation guarantee is a statutory cost of doing business. Payments being withheld from staff salaries and wages as PAYG is effectively money being held on trust for the ATO. The same applies to net GST liabilities.
This relatively new “real time” overview now available to the ATO could serve to actually help some employers.
In the absence of newline unusually large trade debtors or work-in-progress; unanticipated (real) emergency large drawings by the business owners…
then the build-up of the above liabilities presents a warning flag that it may be necessary to review:
- the business model;
- pricing and billing policies;
- cost structures including labour budgets;
- whether job costing adequate takes into account fixed overheads before allowing for the profit in the calculation;
- personal expenditure (family) budgets.
If you have any concerns in this area, please contact us.
CHANGES FOR PROPERTY INVESTORS
Holding costs on vacant land being held with the intention to derive future income (including an investment property) will no longer be tax deductible under a current bill before Federal Parliament.
The new rules will remove the subjective intention to derive future income from holding vacant land – as mentioned this will affect the deductibility of holding costs such as interest, land tax and rates.
This change was first announced in the May 2018 Federal Budget.
In the legislation vacant land is defined as having no substantial and permanent building or other structure that is in use or available for use on the land. The land will remain classified as vacant where it contains structures including power lines and pipes aligned with the purpose of a proposed structure such as an investment property, rather than having their own independent purpose.
Note that where the structure on the land is residential premises, the land would still be considered vacant until the premises are lawfully able to be available for rent or hire.
Individuals, SMSFs and most private family trusts will be affected by these measures that apply from 1.7.2019.
The measures will not apply to corporate tax entities, non SMSF superannuation plans, managed investment trusts and public unit trusts.
The new legislation does not apply where the land is used to carry out a business.
SALARY SACRIFICE – SUPERANNUATION CONTRIBUTION
Here we acknowledge the change in legislation from 1.7.2017 which allows individuals a personal tax deduction for superannuation contributions up to $25,000 per annual less any employer contributions.
Salary sacrifice still remains valid given its enforced savings nature throughout the year towards the end of a financial year, many people want to contribute
to super but simply do not have any funds available.
The Consequences of Salary Sacrifice Contributions Are as Follows:
- The salary sacrifice contribution is subject to 15% contribution tax.
- The salary sacrifice contributions and earnings on them are subject to preservation, which means the earliest most individuals (born prior to 1 July 1960) can access them is permanent retirement from the workforce at age 55. There is a “phase in” (1960–1964) regarding preservation, meaning a
person born after 30 June 1964, has a preservation age of 60. - If the ultimate benefit is taken as an income stream and the recipient is age 60 or more the income stream is tax free.
- Employers may restrict the amount that can be salary sacrificed up to the age-based tax deduction limits for superannuation contributions.
Salary sacrifice contributions may be inappropriate in the following situations:
- Where individuals require the extra cash flow to meet their living expenses (including the repayment of non-tax-deductible debt).
- Where individuals have planned capital expenditure such as home renovations in the immediate future (say within 18 months) and require the cash flow to meet that expenditure. It does not usually make sense to pay more interest than necessary on a non-tax-deductible bank loan.
- Individuals on the lowest marginal rate of tax.
Salary sacrifice contributions are most appropriate for individuals who are on the highest marginal tax rate.
Salary sacrifice contributions may also be appropriate for individuals who do not fall into either of the above categories, but it will depend on the particular circumstances.
The ongoing advantage of salary sacrifice contributions is that the money will be invested in the tax effective superannuation environment where investment earnings on the contributions are taxed at 15%. For individuals on the higher marginal rates of tax, this will generally be more tax effective than investing in their own name where the investment earnings will be taxed at more than 15%.
Structure of Salary Sacrifice Arrangements
Salary sacrifice arrangements that are not properly structured may be subject to ATO scrutiny and there is a danger these arrangements would be deemed to constitute tax avoidance. For instance, an invalid salary sacrifice arrangement would be one where the gross salary is paid to the employee directly and the employee redirects that gross salary into the superannuation fund.
Taxation Ruling TR 2001/10 issued by the ATO outlines the Commissioner’s views on the consequences for employees and employers using salary sacrifice arrangements.
The ATO’s view is that a valid arrangement is one where an employee forgoes future or prospective entitlements to salary or wages (providing all relevant administrative procedures are adhered to). Conversely, retrospective salary arrangements are not valid and such payments would be considered to be
income of the employee.
A retrospective salary sacrifice arrangement involves an employee directing a present entitlement to salary or wages be paid in a form other than salary or wages. Note that an employee is considered to have a present entitlement to salary or wages for services performed over a period even if the employee is not paid until a later period. For instance, an employee who will be paid on 30 August cannot on 25 August stipulate that their salary be salary
sacrificed. This is because services have already been rendered for the period and the fact the salary has not yet been paid is irrelevant. The ruling should be consulted for those wanting more details.
Salary sacrifice arrangements that follow the guidelines below are likely to be considered valid and in accordance with the Tax Office’s approval:
- The employer initiates the arrangement in conjunction with the employee’s consent.
- The employer documents the arrangement as an offer.
- The employee signs an acknowledgement agreeing to accept the offer of the superannuation and salary arrangement made by the employer; and
- Arrangements are then put in place on a prospective basis.
Salary sacrificing in excess of the employer superannuation guarantee (currently 9.5%) has the potential to help secure a comfortable and secure retirement.
With lower (max 15%) tax in super, the power of compounding and the years to retirement, salary sacrificing a modest amount of $40-$50 a week will make a real difference.
This has to be viewed in the context of the cost of living and mortgage stresses that many Australians have to deal with.
Years ago, the conventional advice for young families was to place as much as possible into superannuation while attacking the home mortgage.
In the last fifteen years, low interest rates for home borrowers have been both a blessing and a curse.
In a rising property market, interest only loans were common and sometimes these were extended as property values increased.
The result? Many people in their fifties are contemplating retirement with inadequate super and significant mortgages. This really points to the importance of long-term planning in tandem with family budgeting.
The Australian Bureau of Statistics (ABS) figures show that just 56 per cent of people aged 55-64 are mortgage-free, and there are real concerns that older Australians will find their retirement plans seriously tested as they try to survive on a reduced income, with mortgage payments needed to be made.
REPORTING ASSET DISPOSALS FOR CGT
As ATO data-matching capabilities increase they are paying close attention to capital gains made on shares, property and cryptocurrency.
You need to advise your accountant of asset disposals, which can include an asset’s sale, loss or destruction. The type of capital gains tax (CGT) event that applies can affect:
- how a capital gain or loss is calculated;
- when it is included in a net capital gain or loss.
Good records will help us work out a capital gain or loss correctly on disposal of an asset. Generally, you need to keep records relating to any CGT event, including asset disposals, for at least five years after the year in which the event occurred.
You should also keep records for any net capital losses, which may be offset against capital gains in a later year. Once a loss is offset against a capital gain, you should keep records of the CGT event that resulted in the loss for:
- two years (for individuals and small businesses)
- four years (for other taxpayers).
WORKING OUT IF YOU HAVE TO PAY SUPER
Generally, if you pay an employee $450 or more (before tax) in a calendar month, you have to pay them super guarantee (SG) on top of their wages.
If your employee is under18 or is aprivate or domestic worker,
such as a nanny, they must also work for more than 30hours per week to qualify. For example, you will have to pay them super on top of their wages for each week that the employee has worked more than 30hours.
You have to pay super for somecontractors,
even if they quote an Australian business number (ABN).
Generally independent contractors who are paid for a result will not be included in your obligations. However, those who primarily offer their labour, who cannot delegate their tasks, then work set hours under your control and direction on an hourly rate will be eligible for SG. It can be a “fine line” and the ATO has a decision tree for this on their website.
You pay super regardless of whether the employee:
- is full-time, part-time or casual;
- receives a super pension or annuity while still working – including those who qualify for the transition-to-retirement measure;
- is a temporary resident, such as a backpacker or a working holiday maker – when they leave Australia, they can claim their super through theDeparting Australia superannuation payment(DASP)
program; - is a company director;
- is a family member working in your business – provided they are eligible for SG.
Domestic workers
If you engage someone to do work of a domestic or private nature for 30hours or more per week and pay them $450 or more (before tax) in a calendar month, you have to pay super for them.
‘Domestic or private’ means work relating personally to you (not to a business of yours), or work relating to your home, household affairs or family – such as a nanny, housekeeper or carer.
If you use funds from the National Disability Insurance Scheme (NDIS) to engage a carer or other domestic help, you may have to pay super for them. This only affects people who choose to manage their NDIS plan themselves.
When you don’t have to pay super
You don’t have to pay super guarantee (SG) for:
- non-resident employees you pay for work they do outside Australia;
- some foreign executives who hold certain visas or entry permits;
- members of the army, naval or air force reserve for work carried out in that role;
- employees who opt out of receiving super if you’re covered by anSG employer shortfall exemption certificatein relation to the employee for the quarter;
- employees temporarily working in Australia who are covered by a bilateral super agreement – you must keep a copy of the employee’s certificate of coverage to verify the exemption.
If you’re a non-resident employer, you don’t have to pay super for resident employees for work they do outside Australia.
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.