Removal of the Temporary Budget Repair Levy from the 2017/18 income year
The 2% Temporary Budget Repair Levy (or ‘TBRL’), which has applied to individuals with a taxable income exceeding $180,000 since 1 July 2014, is repealed with effect from 1 July 2017.
Up until 30 June 2017, including the TBRL and the Medicare Levy, individuals earning more than $180,000 faced a marginal tax rate of 49%.
With the benefit of the removal of the 2% TBRL, from 1 July 2017, individuals with a taxable income exceeding $180,000 face a marginal tax rate of 47% (including the Medicare Levy).
Tip: Don’t forget to add another 1.5% for the Medicare Levy Surcharge for certain individuals that don’t have Private Health Insurance.
Extension of the $20,000 SBE Immediate Deduction Threshold
In the 2017/18 Federal Budget handed down on 9 May 2017, the Federal Government announced that it intended to extend the ability of Small Business Entity (or ‘SBE’) taxpayers to claim an outright deduction for depreciating assets costing less than $20,000 until 30 June 2018. This Budget Night announcement has now been passed into law.
Prior to the relevant legislation being passed into law, the outright deduction threshold for SBEs in relation to depreciating assets was scheduled to revert back to $1,000 as of 1 July 2017. Now that this change has become law, the threshold is scheduled to revert back to $1,000 as of 1 July 2018.
To qualify for an immediate deduction for depreciating assets purchased by an SBE taxpayer costing less than $20,000, the asset needs to be first used or installed ready for use on or before 30 June 2018.
Note: The ‘aggregated turnover’ threshold to satisfy the requirements to be an SBE taxpayer has increased from $2 million to $10 million, as of 1 July 2016. As a result, more business taxpayers than ever before will be eligible for the $20,000 immediate deduction for depreciating assets.
Please contact our office if you need any assistance in determining if your business is an SBE, whether an asset purchase you are considering will qualify as a “depreciating asset” and/or what constitutes being “used or installed ready for use”.
Simpler BAS is coming soon
The ATO is reducing the amount of information needed to be included in the business activity statement (or ‘BAS’) to simplify GST reporting.
From 1 July 2017, Simpler BAS will be the default GST reporting method for small businesses with a GST turnover of less than $10 million.
In relation to GST, small businesses will only need to report:
G1 - Total sales
1A - GST on sales
1B - GST on purchases.
This will not change a business’ reporting cycle, record keeping requirements, or the way a business reports other taxes on its BAS.
Simpler BAS is intended to make it easier for businesses to lodge their BAS. It should also reduce the time spent on form-filling and making changes that don't impact the final GST amount.
The ATO will automatically transition eligible small business' GST reporting methods to Simpler BAS from 1 July 2017.
Small businesses can choose whether to change their GST accounting software settings to reduce the number of GST tax classification codes.
Changes to the foreign resident withholding regime for sales of Australian real estate
Since 1 July 2016, where a foreign resident has disposed of real estate located in Australia, the purchaser has had to withhold 10% of the purchase price upon settlement and remit this amount to the ATO, where the market value of the property was $2,000,000 or greater.
As a result of another 2017/18 Budget Night announcement becoming law, in relation to acquisitions of real estate that occur on or after 1 July 2017, the withholding rate has increased to 12.5% and the market value of the real estate, below which there is no need to withhold, has been reduced to $750,000.
Note: Unfortunately, even if a sale of real estate with a market value of $750,000 was to take place between two siblings on or after 1 July 2017 (both of whom have been Australian residents for 50 plus years), withholding must occur unless the vendor obtains a ‘clearance certificate’ from the ATO – despite the two siblings clearly knowing the residency status of each other!
These changes highlight the need to obtain clearance certificates where the vendor is an Australian resident and the real estate is worth $750,000 or more - not a high exemption threshold given the sky-rocketing values of Australian real estate! If you are buying or selling real estate worth $750,000 or more (including a residential property, i.e., home) please call our office to see if a clearance certificate is needed.
Change to deductions for personal super contributions
Up until 30 June 2017, an individual (mainly those who are self-employed) could claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This was known as the “10% test”.
From 1 July 2017, the 10% test has been removed. This means most people under 75 years old will be able to claim a tax deduction for personal super contributions (including those aged 65 to 74 who meet the work test).
An individual can claim a deduction for personal super contributions made on or after 1 July 2017 if:
- a contribution is made to a complying super fund or a retirement savings account that is not a Commonwealth public sector superannuation scheme in which an individual has a defined benefit interest or a Constitutionally Protected Fund;
- the age restrictions are met;
- the fund member notifies their fund in writing of the amount they intend to claim as a deduction; and
- the fund acknowledges the notice of intent to claim a deduction in writing.
Concessional contributions cap
Broadly speaking, contributions to super that are deductible to an employer or an individual, count towards an individual’s 'concessional contributions cap'.
The contributions claimed by an individual as a deduction will count towards their concessional contributions cap, which for the year commencing 1 July 2017 is $25,000, regardless of age. If an individual’s cap is exceeded, they will have to pay extra tax.
Call our office to discuss the eligibility criteria and tax consequences of claiming a tax deduction for a personal contribution to super for the year commencing 1 July 2017.
Tax matters from 1 July 2017
From 1 July 2017, the ATO will increase the value of a penalty unit from $180 to $210 for breaches of most Australian tax laws. The purpose of the penalty provisions is to encourage taxpayers to take reasonable care in complying with their tax obligations.
The tax laws authorise the ATO to impose administrative penalties for conduct such as:
1. making a false or misleading statement or taking an unarguable position
2. failing to lodge a return or statement on time
3. failing to withhold amounts as required under the PAYG withholding system
4. failing to meet other tax obligations.
1. False or misleading statement penalty
1.1 False or misleading statement penalty – shortfall amount
You'll be liable for this penalty if you make a false or misleading statement (for example, in a tax return, activity statement or amendment request) that results in you having a shortfall amount. The shortfall amount is the difference between the correct tax liability or credit entitlement, and the liability or entitlement worked out using the information you provided.
The base penalty is a percentage of the shortfall amount. The percentage used is determined by the behaviour that led to the shortfall amount:
- Failure to take reasonable care: The base penalty is 25% of the shortfall amount. Generally, you fail to take reasonable care if you have not done what a reasonable person in the same circumstances would have done.
- Recklessness: The base penalty is 50% of the shortfall amount. You are reckless if a reasonable person in your circumstances would have been aware that there was a real risk of a shortfall amount arising and you disregarded, or showed indifference to, that risk.
- Intentional disregard: The base penalty is 75% of the shortfall amount. You intentionally disregard the law if you are fully aware of a clear tax obligation and you disregard the obligation with the intention of bringing about certain results (underpaying tax or over-claiming an entitlement).
1.2 False or misleading statement penalty – no shortfall amount
You're liable for this penalty if you make a false or misleading statement (for example, in an objection, private ruling request or during an audit) that does not result in you having a shortfall amount.
The base penalty is calculated as a multiple of a penalty unit. The multiple used is determined by the behaviour that led to the false or misleading statement:
- Failure to take reasonable care – the base penalty is 20 penalty units.
- Recklessness – the base penalty is 40 penalty units.
- Intentional disregard – the base penalty is 60 penalty units.
2. Failure to Lodge (FTL) penalty
For a small entity, FTL penalty is calculated at the rate of one penalty unit for each period of 28 days (or part thereof) that the return or statement is overdue, up to a maximum of five penalty units.
For a medium entity the penalty is multiplied by two. A 'medium entity' is a medium withholder for PAYG withholding purposes, or has assessable income or current GST turnover of more than $1 million and less than $20 million.
For a large entity the penalty is multiplied by five. A 'large entity' is a large withholder for PAYG withholding purposes, or has assessable income or current GST turnover of $20 million or more.
3. Failure to withhold
Pay as you go (PAYG) withholding obligations mainly apply to businesses.
You're liable for a penalty if you fail to withhold or pay a PAYG withholding amount when required. This applies, for example, if you're required to:
- withhold from payments made to employees, directors, office holders or other individuals in various capacities
- withhold from payments to enterprises that do not quote an Australian business number (ABN) for a supply
- pay an amount for
–alienated personal services payments
The penalty is equal to the amount that you should have withheld or paid.Company directors are legally responsible for their company meeting its PAYG withholding obligations. The director of a company that fails to meet a PAYG withholding obligation in full by the due date automatically becomes personally liable for a penalty equal to the unpaid amount.
4. Failure to meet other tax obligations
Taxpayers are liable to penalties if they fail to meet the obligations contained in the various tax laws. The penalties are applied in multiples of a penalty unit.
Penalties for failing to meet tax obligations
With 1 July 2017 fast approaching, please make tax one of your top priorities in the new financial year because tax matters!
If you need any assistance with your tax matters, please contact us on 03 9066 0400.
We’ve seen an increasing number of email and telephone scammers purporting to be from ASIC or the ATO.
Important: Clients should not act solely on the basis of the material contained in Cents & Sensibility. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Cents & Sensibility is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
Please contact us if you wish to discuss how the points raised in this edition specifically affect you.Yours faithfully,
The knp Team
cents & sensibility
tax news | views | clues
IN THIS ISSUE
- Removal of the Temporary Budget Repair Levy from the 2017/18 income year
- Extension of the $20,000 SBE Immediate Deduction Threshold
- Simpler BAS is coming soon
- Changes to the foreign resident withholding regime for sales of Australian real estate
- Change to deductions for personal super contributions
- Tax matters from 1 July 2017
- Scam Alert