Tag Archive: ATO

What is Land Tax? The Facts, Traps and Thresholds.

Posted on November 10, 2019
by Adam Birrer

4 min read

Contents

  • So what is Land Tax?
  • When does Land Tax NOT apply?
  • Land Tax Exemption Details
  • When does Land Tax apply?
  • Does who owns the land matter?
  • What Land Tax Traps do I need to know about?
  • What do I need to know about Land Tax Thresholds?
  • What are the Land Tax Thresholds & Rate Calculations in each State?
  • I own land, so what do I need to do next?

Before we get into the details here’s some Land Tax facts for you – in 2017 the NSW State Revenue Office collected over $3,050 million in Land Tax revenue! All States except the Northern Territory have land tax, and ACT land tax could be considered heavier than other States. So Land Tax is a significant tax to know about… unless you own land in the Northern Territory.

Unfortunately Land Tax is often a forgotten and misunderstood tax that can fly under the radar of many property investors. However a lack of understanding can lead to individuals or companies who have bought property falling into trouble, depending on how they bought the property and what they intend to use it for. It has also grabbed the spotlight in recent years as politicians grapple with funding challenges at both the federal and state level.

In NSW, Land Tax is assessed in December each year, so with the arrival of the 2019 Land Tax Assessment Notices due in January 2020, now is a good time to take you through Land Tax in detail so you can determine if it involves you and the steps you need to take.

So what is Land Tax?

In a nutshell, land tax generally applies to those who own, or jointly own, a property above a certain land value threshold that is not their main place of residence and is not exempt. We will go through exemptions later in this piece.

It’s important to note that land tax is state-based, so it can vary depending on the location of your property. With the rules regarding land tax being similar across states we will focus on NSW in this article. Once we get to the thresholds and rates we will go through each state, as the differences can be quite significant. You will also find links to each State’s website if you would like more information on the areas you are interested in.

When does Land Tax NOT apply?

In summary you will generally not be required to pay land tax if the property is:

  • your home, known as your principal place of residence
  • your farm, known as primary production land
  • below the land tax threshold when it is assessed at midnight on 31 December each year

Following are expanded details of land tax exemptions.

Land Tax Exemption Details

Principal Place of Residence

This exemption from land tax can apply where one of the owners uses and occupies the land as their principal place of residence. The exemption only applies to actual people (i.e. not companies or trusts) and the exemption is not affected by the value or size of the land.

Concessions can also be applied in the following situations:

  • land is intended as your principal place of residence
  • changing your principal place of residence
  • land is used for incidental business
  • absence from your former residence
  • deceased estates
  • permitted occupancies
  • mixed use properties

Primary Production Land

If the main use of the land is for primary production then this exemption may apply, whether or not it is you that is undertaking the primary production activity.

If the land is not zoned as rural, the property will need to pass a business test.

Other – Use of Land

Other exemptions or concessions may apply to owners of land used for:

  • boarding houses
  • low cost accommodation
  • residential/caravan parks
  • non-profit organisations
  • retirement villages
  • childcare centres

When does Land Tax apply?

Aside from the above exemptions, if you own or jointly own property that has a total taxable value above the land tax threshold you may have to pay land tax. This includes:

  • vacant land, including vacant rural land
  • land where a house, residential unit or flat has been built
  • a holiday home
  • an investment property or properties
  • company title units
  • residential, commercial or industrial units, including car spaces
  • commercial properties, including factories, shops and warehouses
  • land leased from state or local government.

Whether income is earned from the property or not, land tax still applies.

Does who owns the land matter?

The subject of Land Tax is complicated when you bring in who owns the land and can remove the exemption from the property. Ownership variations include if it is owned by both an individual and a company, whether you own more than one property and the list goes on. The level of detail involved in some ownership scenarios is quite long so we’ll provide you with a summary of the different types below.

Individual or Joint Ownership

If you don’t meet the exemptions then you may be liable to pay land tax and are assessed based on the total land value of all your interests in land, whether you own them as an individual or joint owner.

So if you have a 50% interest in jointly owned land your land tax assessment will include 50% of that land value and 100% of any land you own individually. Separate assessment notices will be sent for any jointly owned land.

Company or Trust Ownership

A company is assessed in the same way as an individual unless it is related to another company.

In the case of trust ownership it helps to provide a definition. So a trust is an arrangement where a trustee manages or holds a property for the benefit of one or more individuals or organisations (known as a beneficiary). A trust may be charged land tax and/or surcharge land tax.

Trusts for land tax purposes can be divided into six categories, each with various taxing implications:

  • special trusts
  • fixed trusts
  • superannuation trusts
  • trusts created by a will
  • concessional trusts
  • charitable trusts

A trustee is assessed in the same way as an individual unless it is a special trust.

If the home you live in is owned through a trust or company, land tax will need to be paid if:

  • the land is owned by a company or owned jointly with a company, unless the company is a ‘trustee company’ or a company acting as trustee of a concessional trust
  • you only own the land because you’re a trustee
  • the land is owned by a trustee of a special trust

Foreign Person

If you are a foreign person who owns residential land in NSW, you need to pay a surcharge of 2% which applies from 2018 land tax year onward. You may be a foreign person if you are not an Australian citizen. A foreign person can be:

  • an individual
  • a corporation
  • a trustee of a trust
  • a beneficiary of a land tax fixed trust
  • a government or government investor
  • a partner in a limited partnership

You are required to pay the surcharge on the taxable value of all residential land that you own as at 31 December each year.

  • The surcharge is in addition to any land tax you may already pay.
  • The surcharge is assessed in relation to each parcel of land, and is proportional to ownership.
  • You may be required to pay the surcharge even if you do not pay land tax.
  • There is no tax-free threshold for the surcharge.

From 1 July 2019 certain visa holders are exempt from surcharge land tax on their principal place of residence if they occupy it for 200 consecutive days in the current land tax year.

What Land Tax Traps do I need to know about?

Leases of Crown Land

If you lease property from either the Crown (i.e. NSW State Government) or a local council, under certain circumstances you may be deemed to be the ‘owner’ of the leased land and liable to land tax. This can often be an extra ‘hidden’ cost associated with entering into such a lease.

The most notable exception to this rule applies where the term of the lease is less than 12 months, including any period under an option. There are other exceptions for grandfathered leases and public authorities.

As with property you own, the land values for land you lease are determined by the Valuer General as at 1 July in the year preceding each tax year. Where there are multiple lessees occupying a property the land value of the area you lease may be apportioned to you.

Discretionary Trusts with Non-Resident Beneficiaries

Foreign persons who own residential land in NSW must pay a 0.75 per cent surcharge for the 2017 land tax year, rising to two percent from the 2018 land tax year onwards.

For an individual, a foreign person is defined as someone who is not an Australian citizen or an ordinary resident.

A potential trap applies to trusts that own residential land in NSW as the rules also deem the trustee of a trust to be a foreign person if substantial interests are held by a beneficiary who is an individual and is not ordinarily a resident of Australia.

For a discretionary trust, every beneficiary is deemed to have a substantial interest and therefore any trust with a foreign resident as a potential beneficiary (whether or not they have received distributions) will potentially be liable for surcharge land tax.

The Revenue NSW have released Revenue Ruling G010 which states that the Commissioner has a discretion to exempt the trustee of a discretionary trust from surcharge purchaser duty and/or surcharge land tax if there is no scheme to avoid these taxes, and the trust deed is amended within 6 months of the exemption being granted to remove foreign persons from the list of beneficiaries.

Therefore it is crucial for all trustees owning land in NSW to review their discretionary trust deeds and consider if any foreign residents fall within the class of beneficiaries.

What do I need to know about Land Tax Thresholds?

These apply specifically to NSW but may also be relevant in other States:

  • Individuals, most partnerships, companies and superannuation funds are generally entitled to the threshold
  • ‘Special Trusts’, including most discretionary trusts, are NOT entitled to the threshold and taxed on the total value of their property
  • If the combined value of your land does not exceed the threshold, no land tax is payable
  • Land tax is calculated on the total value of all your taxable land above the land tax threshold
  • If you own land in different States the land values aren’t combined for either threshold but assessed separately in each State.

What are the Land Tax Thresholds & Rate Calculations in each State?

Land Tax can change each year so it’s important to stay on top of the thresholds and rates. The differences in land tax can be significant across States, with some having a number of threshold tiers. Below we mention the starting thresholds for each state, the assessment dates and provide links to the relevant websites so you can gather more information on the locations relevant to you.

New South Wales

Land Tax Type Threshold Calculation
General $692,000 $100 + 1.6% of amount above general threshold & below premium threshold
Premium >$4,231,000 2% of land above premium threshold

For all NSW Land Tax Calculations refer to the Revenue NSW website.

Assessment date – Midnight on 31 December each year

Victoria

Land Tax Type Threshold Calculation
General $250,000 and above Starts at $275 + 0.2% of amount above $250,000 then increases for land value >$600,000
Surcharge (land held on trust) $25,000 and above Starts at $82 + 0.375% of amount above $25,000 then increases for land value >$250,000

For all Victorian Land Tax Calculations refer to the State Revenue Office Victoria website.

Assessment date – Midnight on 31 December each year

Queensland

Land Tax Type Threshold Calculation
Individuals $600,000 and above Starts at $500 plus 1 cent for each $1 above $600,000 then increases for land value $1,000,000 and above.
Companies or trustees $350,000 and above Starts at $1,450 + 1.7 cents for each $1 above $350,000 then increases for land value $2,250,000 and above.

For all Queensland Land Tax Calculations refer to the Queensland Governement website.

Assessment date – Midnight on 30 June each year

South Australia

Land Tax Type Threshold Calculation
General >$391,000 Starts at $0.50 for every $100 or part of $100 above $391,000 then increases for land value >$716,000

For all South Australian Land Tax Calculations refer to Revenue South Australia website.

Assessment date – Midnight on 30 June each year

Western Australia

Land Tax Type Threshold Calculation
General >$300,000 Starts at flat rate of $300 for unimproved land value above $300,000 then increases for land value >$420,000

For all Western Australian Land Tax Calculations refer to Western Australian Government website.

Notice of Assessment date – Generally issued between October and January each year.

Tasmania

Land Tax Type Threshold Calculation
General $25,000 – $349,999 $50 + 0.55% of value above $25,000
General $350,000 and above $1,837.50 + 1.5% of value above $350,000

For more about Tasmanian Land Tax Calculations refer to State Revenue Office of Tasmania website.

Assessment date – Midnight on 1 July each year

Northern Territory

The Northern Territory Government currently does not charge land tax for land owners.

ACT

Land Tax Type Threshold Calculation
Fixed Charge Nil – applies to all land values $1,263 paid regardless of the land’s average unimproved value (AUV)
Valuation Charge (divided into quarterly payments) Nil – applies to all land values Starts at 0.50% of the AUV of the property up to $150,000 then increases for land value above this.

For all ACT Land Tax Calculations refer to Revenue ACT website.

Notice of Assessment date – Midnight on 1 July, 1 Oct, 1 Jan and 1 April each year

I own land, so what do I need to do next?

The main issue we see with land tax is that our clients don’t realise they need to register. We tend to notice this in the preparation of tax returns. Solicitors will often refer people to accountants to complete their land tax registration, but it is something you can do on your own if you have the means.

If you are a land owner you need to self-assess if you are liable for Land Tax and register if required. Or if you are already registered but haven’t updated your properties then now is the time to do it.

If you are based in NSW, once you are registered for Land Tax you will receive your Land Tax Assessment in January, which will outline land you own that is liable and whether it qualifies as general or premium land.

If land owners exceed the threshold for the first time on 31 December in the current year, they have until 31 March of the following year to register.

If any of the details on the Assessment Notice are incorrect, including the details of the land assessed, you have until the first instalment date to notify your State’s Land Tax office of any changes, usually the end of February. If you disagree with any land values used in your assessment, you can submit an objection within 60 days from the date of issue.

Being proactive with managing your land tax is important. State Revenue offices are regularly reviewing land title records and ATO records to check if people are meeting their obligations.

If you want some additional advice about Land Tax or assistance with your registration then our team are always available to assist you so please get in touch.

Wishing you every success!

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Record Keeping for Your Business – What You Need & How To Make It Work

Posted on October 12, 2019
by Anthony Vardareff

4 min read

Are you either in the process of setting up your business and not sure where to start with records and financial reports, or are already running your business and realised that your current record keeping process isn’t working for you? If you are in either of the above situations this is the article for you.

Record keeping is probably one of the less-exciting, but very necessary parts of business. The enjoyable aspects of setting up your business name, structure, space and team are great to tackle but without an efficient and effective process in place to manage and review your cashflow, profits and losses, salaries, tax obligations and more, you could fall behind very quickly and things could get costly.

We’ll take you through the why, what and how of record keeping which is basically – why it’s important, what it involves and how to make it work efficiently and effectively.

Record Keeping Benefits

You probably already realise the benefits of record keeping to be reading this article about it now. In case there are reasons you haven’t yet thought of we’ve listed them below:

  • Helps efficiency within your business
  • Assists in forming the basis for managing your cashflow
  • Provides timely access to information and records
  • Allows you to track business health to make important business decisions
  • Tracks key performance measures
  • Ensures information is readily available for monthly and annual reporting

Top Three Record Keeping Uses

Annual reporting obligations

  • Income Tax Compliance – As a business you need to prepare and lodge annual tax returns to the Australian Taxation Office (ATO). These will contain your income and expenses for each financial year (which is something your accountant/business advisor can assist with).
  • Payroll Reporting Requirements – This involves being compliant with the new Single Touch Payroll (STP) requirements. The ATO has introduced an STP reporting requirement for employers where they need to submit payroll information to the ATO on a real time basis (i.e. at the point of finalising each ‘pay-run’).

Monthly and quarterly obligations

  • Business Activity Statement (BAS) / Instalment Activity Statement (IAS) – This is the declaration of GST, PAYG Withholding, PAYG Income Tax Instalments etc. on a monthly or quarterly basis as required by the ATO.
  • Superannuation – Businesses are required to report and pay employee superannuation amounts within 28 days of the end of the quarter. There are strict guidelines enforced by the ATO so that employees are looked after and paid their superannuation on time and in full.

Internal reporting considerations

  • Cash Flow – Up-to-date records provide business owners with a full overview of their current cash position, as well as expenses due to be paid and income expected to be received. This can assist in planning to ensure enough cash is always available to run your business.
  • Profit & Loss – The ability to generate a correct, up-to-date Profit & Loss report will allow business owners to identify how much income they’ve earned over a certain period, in addition to providing details of the expenses they’ve incurred in order to earn this income. A Profit & Loss report will help in determining when a business owner can reduce costs and improve their overall business performance.
  • Budgeting & Forecasting – Good record keeping through the use of an accounting system can aid in projecting/estimating upcoming income and expenses, expected cash flows and the overall performance of your business.
  • Customised Reporting – Ad-hoc reports (eg. sales by customer, aged receivables, aged payables) can provide timely access to important business information. These reports can form the basis of the ongoing decision-making process for business owners. For instance, a ‘sales by customer’ report will assist in working out who the largest customers of a business are – ultimately allowing business owners to better tailor their products or services to them.

Record Keeping Requirements

As you know there are records that you are required to keep, and report on, as the responsible business owner. The ATO is a significant government body that uses these records to ensure that businesses are doing the right thing and meeting their reporting obligations. Fortunately with the introduction of online services, reporting to the ATO is much more efficient and easy. As a business owner you are required to:

  • Keep records for a minimum of 5 years
  • Make the records easily accessible and in English
  • Lodge monthly and annual reports as required by the ATO

If you are a small business owner you can find more information on record keeping here.

Accounting Software Suitable for Your Business

To make your record keeping and reporting as efficient and easy as possible, it’s important to have the right systems in place. Setting up cloud accounting software is a popular step in the right direction as it can be accessed anywhere, allows you to set up automatic bank feeds for better efficiency and accuracy and makes it easier to meet certain reporting obligations.

We’ve listed the most common and trusted accounting software platforms below, along with a brief description of what makes them different and a link to their website so you can work out which type might suit your business best:

  • Xero – A more robust and adaptable system but generally costs more than other packages (small-to medium businesses)
  • Quickbooks – Is a more basic but cost-effective option (small businesses)
  • MYOB – Offers a little more functionality than Quickbooks but is also slightly more expensive (established businesses)
  • Reckon – Similar to MYOB (established businesses)

For some industries it’s beneficial to have software specific to your industry and requirements. In this case we recommend you speak to your accountant or business adviser to discuss the options available.

Ongoing Records Management

If you are new to business and don’t have a team of employees on board to help, it may be beneficial to hire a bookkeeper for your record management and to ensure reporting dates are met. Record keeping still takes time and as a business owner you have a host of other tasks that require your attention.

In a general sense, bookkeepers may charge around $40 – $50 an hour. With ongoing technological efficiencies being built into the various cloud accounting software packages, a lot of processing can now be automated. The time it now takes to ‘reconcile’ an accounting file has reduced significantly over the past few years. An hour or two each fortnight may be all it takes to keep your accounting records up-to-date.

Common Mistakes To Avoid

When looking at record keeping, there are usually two common mistakes made by business owners:

  • Misreporting – Providing inaccurate information to business stakeholders, such as employees, the ATO and customers/suppliers. Having a strong record keeping function (i.e. using the services of a bookkeeper or taking the time to learn how to use your accounting software) will help minimise the risk of misreporting.
  • Late lodgement – The late preparation & lodgement of information for annual, quarterly and monthly obligations is another ever occurring issue in business. Much like misreporting, having a strong record keeping function will assist in keeping up with deadlines and other requirements.

In some instances, there are repercussions for misreporting information or lodging information late. These can come in the form of general interest charges, administration fees, penalties and sometime more severe consequences. It is therefore crucial to ensure your business is engaging in good record keeping practices.

Putting It All Together

Getting control of your records is a great way of getting in tune with your business situation. It allows you to set goals and identify other areas that you would like to focus on.

But there is also no one size fits all approach to any business and that also applies to record keeping. You need to use your knowledge to work out what processes and solutions work best for you and this article is a great place to start.

If you find that you do want to engage a business adviser to go through your options or gain some guidance, make sure they align with your values, they listen to what YOU want to achieve and they offer sound solutions that make sense and that make you feel confident in their ability. We ensure you will find it useful to get in touch with our team for a chat so you can find out if our approach suits your business.

Wishing you and your business every success!

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What’s changed from 1 July 2019?

Posted on September 1, 2019
by Michael Lamont

Do you know how many legislation changes came into effect in the 2018-19 Financial Year, or the year before? We haven’t calculated the actual number either, but it’s alot! What we have done is kept abreast of all these changes and written these blogs on the details to make sure you are aware of them. This year is no different!

In case you’ve missed seeing these, and while you still have an opportunity to plan for the year ahead, here are the three most significant changes affecting businesses that came into effect from 1 July 2019.

Single Touch Payroll

As discussed in Sonia Spaseski’s blog ‘Single Touch Payroll for Small Employers’, from 1 July 2019 small employers (those with 19 or less employees) will be required to register for Single Touch Payroll (STP).

So what does this mean for you? Well if you are currently using a commercial payroll software solution, setting up STP is relatively easy, with most software providers having a step-by-step guide on how to set it up.

The ATO have also provided some transitional arrangements for you to comply with the STP rules which are detailed in Sonia’s blog.

Instant Asset Write-off

From 2 April 2019 the instant asset write-off threshold was increased to $30,000 and was extended until 30 June 2020. As well as the increase to the threshold, the instant asset write-off is now available to businesses with a turnover of less than $50 million.

A few important things to note in relation to the instant asset write-off:

  • The threshold applies to individual assets; it is not a yearly threshold.
  • If you are registered for GST the cost of the asset is the GST exclusive amount.
  • If you are trading-in an asset, the trade-in value does not reduce the cost of the asset for the threshold limit.
  • The deduction is limited to the business use percentage of the asset.

Large Proprietary Company

The financial thresholds that determine whether a company is considered a ‘large’ proprietary company have been doubled from 1 July 2019, meaning many small to medium sized companies may be relieved  of the requirement to lodge audited financial statements with ASIC.

Currently a proprietary company is considered ‘large’ if they meet at least two of the three thresholds, being:

  • $25 million or more in consolidated revenue;
  • $12.5 million or more in consolidated gross assets; or
  • 50 or more full-time equivalent employees.

The new thresholds from 1 July 2019 are:

  • $50 million or more in consolidated revenue;
  • $25 million or more in consolidated gross assets; or
  • 100 or more full-time equivalent employees.

To keep your payments and lodgments organised and arriving on time, you may find it helpful to take a look at the 2019/20 financial year due dates provided by Tim O’Brien. There is also a downloadable copy available on the page to keep on hand.

Our team is here for any queries you have regarding the changes above. Alternatively if you would like to discuss your business situation in more detail, please get in touch with our team at BLG Business Advisers online or by calling (02) 4229 2211.

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Key Due Dates for the 2019/20 Financial Year

Posted on September 1, 2019
by Tim O’Brien

You are completely in control and on top of what seems to be the ever-growing list of responsibilities and actions you need to make happen. Right? If you answered a resounding ‘No!’ to this then you aren’t alone. One of the bothersome but necessary tasks to keep track of within your business are the many, many dates that payments and reports are required.

This is why we originally created, and have kept creating, this list of due dates for lodgments, payments and reports to the Australian Tax Office (ATO) each financial year.

This list of dates relate primarily to your tax and superannuation, but also mention a few other requirements.

Feel free to also download a copy as a reminder.

Following all the legislation changes that have occurred over the last year you may also benefit from reading about the July 2019 changes that Michael Lamont has covered.

Our team is here to provide advice or guidance in preparing your lodgments, as well as answer any questions about the dates listed. For this or other business queries, please get in touch with our team at BLG Business Advisers online or by calling (02) 4229 2211.

Resource - Key Due Dates for 2019/20 Financial Year

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Single Touch Payroll for Small Employers

Posted on May 13, 2019
by Sonia Spaseski

Single Touch Payroll (STP) is a relatively new electronic payroll reporting regime which commenced on 1 July 2018 for employers with 20 or more employees. At the beginning of 2019, parliament passed legislation to extend STP reporting to include all small employers (those with 19 or less employees) starting from 1 July 2019.

This follows on from BLG’s previous blog Single Touch Payroll In Practice written by my knowledgeable BLG colleague Adam Birrer, which provides more information about STP and details on how to implement it for your business.

Reporting Software Options

As the move to real-time digital reporting may be a big change for employers, in particular small businesses, the ATO is adopting a supportive approach to enable an easier transition across to STP.

With many small businesses not currently using commercial payroll software, the ATO has stated small employers will not be required to purchase this particular software for STP reporting. However, there will be some no-cost or low-cost reporting solutions available to use including simple payroll solutions, portals and mobile apps. You can review the list of providers on the ATO website here.

If you currently use commercial payroll software, setting it up for STP is relatively easy. Should you need assistance in setting up the system, our team at BLG is happy to assist you. Once this is up and running, it is a matter of lodging the required information to the ATO to remain compliant.

STP Implementation

There is help to transition to STP and the ATO have a number of alternative options to assist:

  • If you are a micro employer (1 to 4 employees) and rely on a registered tax or BAS agent, you will be allowed to report quarterly for the first two years, rather than each time payroll is run.
  • If you are a small employer (19 or less employees), you can start reporting at any time from the 1 July 2019 start date to 30 September 2019. The ATO will grant deferrals to any small employer who requests additional time to start STP reporting.
  • There will be no penalties for mistakes, missed or late reports for the first year.
  • The ATO will provide exemptions from STP reporting for employers experiencing hardship, or in areas with intermittent or no internet connection.

As with any new business systems or requirements it is important they are implemented correctly. If you aren’t sure how to proceed with Single Touch Payroll or have some questions, make sure you get in touch with our team at BLG Business Advisers online or by calling (02) 4229 2211.

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Trust Changes: What Could They Mean For You?

Posted on April 5, 2019
by Sarah Cross

In the lead up to the federal election, whether you follow politics or not, it is likely that you have heard a few of the legislative changes that the political parties are intending to introduce should they win the election. The changes to the taxation of Discretionary Trust distributions are one of the many changes that the Australian Labor Party (Labor) is looking to introduce under their “A Fairer Tax System For All Australians” reform. Given Labor is tipped to win the election we thought it would be relevant to go through how this tax reform may impact you.

What is the change?

Discretionary Trusts are a type of structure used by many Australians with over 642,000 Discretionary Trusts currently in Australia today. Discretionary Trusts are typically chosen for their asset protection purposes and the ability to distribute profit across multiple beneficiaries, for example, various family members.

Currently, as an individual, you can receive a taxable trust distribution of up to $18,200 (the tax-free threshold) and pay no tax.

If elected, Labor intend to introduce legislation to have a minimum of 30% tax imposed on Discretionary Trust distributions to those people aged over 18 from 1 July 2019.

Who will this impact?

If passed, this change may impact anyone who has a Discretionary Trust and distributes to individuals. If your current marginal tax rate is higher than 30% (e.g. your taxable income is over $37,000), there won’t be any change for you. This change is mainly designed to prohibit distributions being made to individuals on a lower tax bracket.

Who will not be impacted?

Labor has suggested that some of the Trust structures that will not be impacted include:

  1. Charitable Trusts
  2. Testamentary Trusts (Deceased Estates)
  3. Fixed Unit Trusts
  4. Special Disability Trusts
  5. Farm Trusts
  6. Cash Management Unit Trusts

What will the change cost in terms of tax?

Should Labor win the election and the policy be passed as legislation, below is an example of the impact the proposed policy will have from a tax perspective.

  • Current legislation

Bill owns a plumbing business which trades out of the Smith Family Trust. This year the business made a profit of $30,000.

Bill decides to distribute this profit equally between his two adult children that currently do not work or have any investment income.

The $15,000 distributed to each child results in a nil tax liability. This is due to the taxable distribution being under the $18,200 tax-free threshold.

  • Proposed tax policy

The trust distribution of $15,000 to each child will result in a tax liability of $4,500 (30% of the distribution amount), resulting in an overall tax liability of $9,000 for the total profit distribution.

The changes Labor are proposing are significant and will impact our current investment landscape. The devil will be in the details and there will be a lot of pro-active planning opportunities available and required, which BLG Business Advisers will be sure to communicate with you should Labor be elected. Stay a step ahead and start planning ahead today by getting in touch with our team online or by calling (02) 4229 2211.

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Be Vigilant – Don’t Let You or Your Business Be a Scam Victim

Posted on December 3, 2018
by Adam Birrer

It has recently been reported, and we have observed among our clients, that incidents of internet and phone-based scam attempts are on the increase. For instance, the ATO advise that in September 2018 alone there were 8,859 ATO-related scam incidents reported, up from 4,366 the month before. Worryingly, they also say that in 46% of these cases the victim handed over personal information, with a reported $371,766 being paid to scammers impersonating the ATO for the month.

Such scams are becoming harder to spot, as the perpetrators are becoming increasingly sophisticated in their use of technology and guile. In many cases they will quite convincingly impersonate a friend or colleague, supplier or customer, trusted brand or government authority to con their targets.

For instance, the scammers may employ techniques such as –

  • ‘Spoofing’ an email address to make it appear to be coming from a trusted contact or source
  • Intercept and reply to emails without the intended recipient’s knowledge
  • Misappropriate business letterhead to make their correspondence more convincing
  • Use personal details they have obtained about the target to give the appearance of legitimacy
  • Back up fraudulent emails with phone calls (for instance via a number listed in their emails)

Just a few types of scams to look out for are –

  • Fake invoices

Emails containing links or attachments asking for payment of fake invoices or debts are quite prevalent, and increasingly, will appear to come from a supplier that the target actually uses on a regular basis. Unfortunately, it is very easy for hackers to make an email appear to come from a particular sender and the hackers have a variety of methods for obtaining email addresses.

Of late, many fake invoice emails have also been made to look like they have been sent from well known small business accounting software such as Xero or MYOB.

  • Payment redirection scams

These scams typically involve the fraudsters impersonating a supplier and directing accounts staff within a business to change the bank details used for invoice or other payments.

  • ‘Whaling’ or CEO Fraud

These scams involve a hacker impersonating a staff member within an organisation, more often a senior manager or director, and directing an employee with banking authority (e.g. finance staff) to transfer funds to the scammer.  As with the payment redirection scams, these are highly targeted and the scammers will often be well researched (by hacking emails and computer systems) to ensure they have enough information to maximise their chances of success .

  • ATO & ASIC scams – see further information on these below.

The risks in terms of financial impact, business interruption and business reputation are significant – therefore it is important to be vigilant and know how to protect against these scams. Business owners should also be aware that often the scammers are actually looking to obtain sensitive data from customer or other databases in order to use these for fraudulent purposes, and there are new obligations for business under the Notifiable Data Breach laws which applied from February 2018 where this information is breached.

The ACCC maintain a small business specific section on their Scamwatch site which has some useful information for further reading: https://www.scamwatch.gov.au/get-help/protect-your-small-business

ATO Scams

Some of the common ATO scams we see or hear about from clients are –

  • Refund scam emails or SMS – claiming a refund is owed with a link to ‘claim’ the refund, often requesting credit card details (which the ATO would never use for refund processing).
  • Fake ‘debt collection’ calls – alleging the individual has a debt to the ATO, sometimes involving the threat of arrest/imprisonment if payment is not made to scare the target into paying.

So what should you do if you receive an email or phone call claiming to be from the ATO and you are in doubt?

Firstly, don’t click any email links, open any attachments or respond in any way. If it’s a phone call, hang up and don’t provide any details to the caller. Then:

  • Preferably, contact your trusted tax agent (BLG Business Advisers) so they can check on your tax position and follow up for you; or
  • Phone the ATO via one of their publicly listed numbers (never one handed out by the potential scammer) and enquire.

Note also that the ATO also maintains a page with details of current known scams on their website – https://www.ato.gov.au/General/Online-services/Identity-security/Scam-alerts/

ASIC Scams

We often see fake ASIC emails circulating which request payment of renewal fees for companies or business names and contain attachments or links to fake invoices or malicious software.

If BLG are acting as the registered office and ASIC agent for your company, please contact us to check if you are unsure if you have amounts outstanding.

Again, ASIC also maintains a page with information on known scams on their website –

https://asic.gov.au/online-services/service-availability/scams-targeting-asic-customers/

How to Protect Yourself & Your Business

  • Educate yourself and your employees about scams and how to avoid them
  • Ensure appropriate checks and controls are in place for banking, accounts payable and accounts receivable processing in the business
  • Use common sense and always exercise caution in handing out personal, business or financial information
  • Carefully inspect sender email addresses and hyperlinks within emails
  • If in doubt, independently call to verify the authenticity of any email or request for payment
  • Keep your accounting records up-to-date so you can understand your position (what you owe and what you are owed)
  • Implement appropriate software protection (e.g. antivirus and email filtering) and IT policies for your business with the help of a suitably qualified Cyber-security expert.
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Withholding GST for Residential Property Transactions

Posted on November 26, 2018
by Adam Birrer

The current financial year has seen a change introduced to the GST rules that will have significant ramifications for property developers (suppliers), and to a lesser extent, their customers (purchasers).

For contracts entered into after 1 July 2018, purchasers of new residential premises or potential residential land are required to withhold an amount of the contract price and pay this directly to the ATO as part of the settlement process on sale.

This was introduced as an integrity measure, to target developers who in some cases were failing to remit the GST collected on their property sales to the ATO. It is not intended to apply in the case of a sale of existing (not new) residential property, which is not generally a taxable supply for GST purposes.

There are also exclusions from the requirement to withhold in respect to supplies of new commercial residential premises (e.g. hotels), existing premises that are deemed to be new by way of substantial renovation, land currently in use for commercial purposes, or where the land is being acquired by a GST registered entity for a creditable purpose (e.g. by another developer).

It is important to note that the rules that determine whether the sale of a property is a taxable supply have not changed, nor has the fact that GST on the sale is ultimately the supplier’s liability. It is still up to the supplier to determine the appropriate GST treatment of a property sale – it is only the mechanism & timing for payment to the ATO that has changed.

So, how does it work in practice?

Supplier Notification

The supplier of the property is required to notify the purchaser in writing of their obligation to withhold and provide information including the ABN & details of the supplier, the amount that must be paid to the ATO and the date this must be paid.

In practice in NSW, the standard Law Society / REINSW ‘Contract for the Sale and Purchase of Land’ has been updated to include a tick box to indicate if an RW payment is required, and if so, capture the necessary information that is required to be notified to the purchaser by the supplier.

The withholding amount will generally either be

  • 1/11th of the contract price (for fully taxable supplies); or
  • 7% of the contract price (where the supplier is using the margin scheme).

Note: Penalties apply if a purchaser fails to withhold, however there are protections for purchasers where they rely on the information in the notice provided by the vendor (and it was reasonable to do so in the circumstances).

Purchaser Online Forms & Payment of GST Withholding at Settlement

There are two online ATO forms that need to be completed by the purchaser over the course of the transaction.

The first form (‘GST property settlement withholding notification’) needs to be lodged after the contract has been exchanged, but before the due date for payment of the withholding amount, and is used to notify the ATO of the details of the property, the purchaser and the supplier. This will generate a Payment Reference Number & Lodgement Reference Number which will need to be used with the second form (details below).

The second form (‘GST property settlement date confirmation’) needs to be lodged on or before the date of settlement to confirm that settlement has occurred. It is at this point that the purchaser needs to pay the withheld amount directly to the ATO, or give the supplier a bank cheque made out to the ATO. The purchaser & supplier will both receive confirmation once the payment has been processed by the ATO.

Supplier Business Activity Statement

The supplier is still required to lodge their Business Activity Statement (BAS) and report their GST liability on the sale as before.

When the supplier lodges their BAS for the relevant quarter in which the sale occurred, they will be able to claim a credit for the amount remitted to the ATO by the purchaser against the GST liability on the sale.

In the case of sales using the margin scheme, this may give rise to an additional amount payable, or a refund, depending on whether the actual GST liability was greater than or less than the 7% withheld.

What does this mean for developers?

Property developers will need to ensure they revise their project cash-flow forecasts and planning to account for the fact they will not receive the GST component of the sale price at settlement.

As an example, let’s say a developer makes a $1.1M fully taxable property sale for a new home in a residential subdivision which settles on 1 October.

Previously, if the developer was registered on a quarterly basis they may not have had to remit the resulting GST liability on the sale until 28th February when the relevant BAS fell due, so they would have had the benefit of retaining the $100k GST component received on settlement for use in their general working capital for up to 5 months.

This money could have been used by the developer to assist in completing their project, in paying suppliers and employees etc, before the business needed to meet the GST liability by the required due date (which could have been done out of the proceeds of later sales for instance).

Under the new rules, the developer would only receive $1M at settlement with the remaining $100k being paid directly to the ATO – meaning this money is not available to the business in the meantime. The developer would need to ensure they have funding available from other sources to assist in completing the project if required.

The above is of course only a general overview as every situation is different. If you are a property developer or purchaser our team at BLG Business Advisers can provide you with clarity on your situation.  Take this opportunity to get in touch online or by calling (02) 4229 2211 to discuss your circumstances today.

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Selling your Property as a Foreign Resident

Posted on November 19, 2018
by Tammy Tieu

Are you currently working overseas indefinitely? Or are you considering taking the leap and working overseas permanently? Depending on your situation, either of these scenarios could render you a foreign resident for tax purposes. Additionally if you are in this situation and thinking of selling your residential property in Australia, there are a few things you need to consider before you sell.

Selling your Main Residence and Capital Gains Tax (CGT) Exemptions

As an Australian tax resident, if you sell a property that you consider, and have elected, to be your main residence, generally the entire sale of that property is exempt from capital gains tax (CGT) so long as you have not used that property to produce assessable income.

Specifically, a property is considered your main residence and is generally exempt from CGT if:

  • you and your family reside in it
  • your personal belongings are in it
  • it’s the address your mail is delivered to
  • it’s your address on the electoral roll,
  • services such as gas and power are connected

Unfortunately, as of the 9th May 2017, as part of the crack down on foreign residents, the Federal Government restricted the utilisation of the main residence exemption for foreign residents. From this date, the main residence exemption is no longer available to someone who is a foreign resident at the time of the CGT event, subject to a transitional period.

The budget changes will apply to foreign residents as follows:

  • for property held prior to 7:30pm (AEST) on 9 May 2017, the exemption will only be able to be claimed for disposals that happen up until 30 June 2019 and only if they meet the requirements for the exemption. For disposals that happen from 1 July 2019 they will no longer be entitled to the exemption
  • for property acquired at or after 7:30pm (AEST) 9 May 2017, the exemption will no longer apply to property sales from that date.

Considering the above, if you are a foreign tax resident and not eligible to claim the main residence exemption, you will need to include the full capital gain in your income tax return to be assessed at foreign resident tax rates.

Foreign Resident Capital Gain Withholding (FRCGW)

In addition, foreign residents are also subject to foreign resident capital gain withholding (FRCGW) when selling property. Specifically, when a foreign resident sells their property, the purchaser is now required to withhold an amount from the purchase price and pay that amount to the Australian Taxation Office (ATO).

The changes the government have implemented will apply to contracts entered into on or after 1 July 2017 and are as follows:

  • Applies to real property sales where the contract price is $750,000 or more (previously $2 million)
  • The purchaser must withhold 12.5% from the purchase price and pay that amount to the ATO (previously the FRCGW rate was 10%)

So, if you are thinking about or are currently working overseas permanently and want to sell your property while you are overseas to free up some cash, it is recommended you seek advice before selling to ensure that you are making the right decision for you. We have an experienced team at BLG Business Advisers who are happy to assist you. Take this opportunity to get in touch with us online or by calling (02) 4229 2211.

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TBAR Requirements & Deadlines Explained

Posted on September 16, 2018
by Michael Lamont

The Federal Government has introduced new reporting obligations on Self Managed Superannuation Funds (SMSFs) designed to monitor a superfund member’s Transfer Balance Account (TBA), which was discussed in Luke Bland’s blog ‘New SMSF Reporting Requirements’.

Under these new reporting obligations SMSFs are required to report to the Australian Taxation Office (ATO) specific events that impact a member’s TBA. These events are reported to the ATO using the Transfer Balance Account Report (TBAR) form.

Below we go into more detail about some of the common types of events that are required to be reported as well as the required timeframe.

Common reporting events

Common events that may impact a member’s TBA, which requires an SMSF to report to the ATO include:

  • Superannuation income streams in existence just before 1 July 2017 that are continued to be paid on or after 1 July 2017
  • The commencement of a new superannuation income stream, where the member is in retirement phase
  • The commutation (roll-back) of a superannuation income stream
  • The cessation of a superannuation income stream
  • ATO issued commutation authority notices
  • Limited recourse borrowing arrangement payments that affect the value of an interest supporting a superannuation income stream
  • Structured settlement contributions received on or after 1 July 2017 (e.g. contributing the proceeds of certain insurance payouts)

Reporting deadlines

SMSF members, who had a superannuation income stream (pension) in existence just before 1 July 2017 which continued to be paid on or after 1 July 2017, were required to report the balance of the pension by 1 July 2018.

All events occurring on or after 1 July 2017 are required to be reported either quarterly or annually, depending on the SMSF member’s total superannuation balance.

If a SMSF had at least one member with a total superannuation balance in excess of $1 million as at 30 June 2017, the SMSF is required to report any events 28 days after the end of the quarter.  The first quarterly due date for TBARs is 28 October 2018.

For SMSFs that had no members with a total superannuation balance in excess of $1 million as at 30 June 2017, the SMSF is required to report any events by the due date of the SMSFs return.

What does this practically mean?

SMSFs will need to work closely with their business advisers to ensure that all relevant events are reported to the ATO in a timely manner. Planning will become more important so that income streams can be commenced and reported in the appropriate quarter to maximise the tax savings that come with commencing a pension.

If you are drawing a pension from your superfund and wish to draw more than the minimum pension amounts required by law, it may be beneficial to commute an amount from your pension account and withdraw from your accumulation account instead. There may be adverse tax implications if you simply increase your pension payments. This should be discussed with your business adviser before any lump sums are withdrawn from your superfund.

Get in touch with our team at BLG Business Advisers to discuss your requirements either online or by calling (02) 4229 2211.

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