Practice Update June 2021

24 May 2021

ATO LAUNCHES NEW TAX RESIDENCY DATA-MATCHING PROGRAM

Under this program, the Department of Home Affairs will provide the ATO with arrival and departure records of travelers to and from Australia for the 2016-17 to 2022-23 financial years.

This will allow the ATO to verify the identity and residency status of individuals to ensure that they are complying with their registration, lodgment, reporting, and payment obligations for tax and superannuation purposes.

The personal information of around 670,000 individuals to be analysed in the relevant financial year. This will include their full name, date of birth, arrival and departure date, passport information, and residency or visa status.

MODERNISING BUSINESS COMMUNICATIONS

As part of their economic plan and deregulation agenda, the Federal Government has committed to modernising laws within the Treasury portfolio, so they are technology-neutral. This will enable easier communication between businesses, individuals, and regulators.

The first phase of legislative reform will focus on the key areas raised by implementation-ready stakeholders. These include:

  • Expanding the range of documents that can be validly signed electronically.
  • Increasing the range of documents that can be sent electronically to shareholders and amending requirements to contact lost shareholders.
  • Improving flexibility for customers when changing address and consenting to electronic communication with credit providers.
  • Removing prescriptive requirements for notices to be published in newspapers, where suitable alternatives have been identified; and
  • Addressing provisions in treasury legislation where only non-electronic payment options are in place.

Subsequent phases will consider reforms in additional areas that could benefit from greater technology neutrality, including:

  • Communication with regulators (for example, the conduct of hearings).
  • Reducing or removing treasury portfolio legislation exemptions to the electronic transactions act 1999; and
  • Product disclosure and recordkeeping requirements.

The Government intends to finalise legislation dealing with phase one by the end of 2021.

YOUR FUTURE, YOUR SUPER REFORMS

On 23.4.2021, the Morrison Government released for consultation exposure draft regulations underpinning Treasury Laws Amendment (Your Future, Your Super) Bill 2021.

The Your Future, Your Super reforms will ensure the superannuation system works harder for all Australians by reducing waste, holding underperforming funds to account, and strengthening protections around the retirement savings of millions of Australians.

These reforms are estimated to save Australian workers $17.9 billion over 10 years.

The Your Future, Your Super package is scheduled to commence on 1 July 2021. The regulations released for consultation:

  • Outline a strengthened methodology for the annual performance test, as well as requirements for notifications to members.
  • Prescribe the definition of a ‘stapled fund’, including tie-breaker rules for determining which fund is to be an employee’s stapled fund where they have multiple existing funds.
  • Specify how products will be ranked on the online YourSuper comparison tool.
  • Set out how superannuation fund portfolio holdings are to be disclosed to members, bringing Australia into line with global best practices.
  • Prescribe the information that must be included with the notice of an Annual Members’ Meeting.
  • Further, strengthen the prohibition on funds offering inducements to employers.

The Government has made several amendments to strengthen the performance test.

Administration fees will be included in the performance test, ensuring that the test focuses on the final member outcome and is consistent with information presented to consumers on the online YourSuper comparison tool.

The Government has also added Australian unlisted infrastructure and unlisted property as specific asset classes covered by the performance test. This will improve the accuracy of the performance test; strengthen the focus of the test on investment outcomes delivered to members; and ensure that Australian superannuation funds can invest with confidence in these domestic assets.

This package builds on the Government’s legislated superannuation reforms which have included consolidating 3.3 million unintended multiple accounts worth $4.3 billion, capping fees on low balance accounts, banning exit fees, and ensuring younger Australians do not pay unnecessary insurance premiums.

Under the Your Future, Your Super reforms, the Morrison Government is taking the next step in modernising and improving the superannuation system to ensure it is working harder for you.

HOMEBUILDER EXTENDED TO SUPPORT MORE JOBS

The Federal Government has extended the construction commencement requirement for the successful HomeBuilder program from six months to 18 months for all existing applicants, bringing the total level of expected Government support for the construction sector under the program to $2.5 billion.

More than 121,000 Australians have applied for the grant which is expected to support around $30 billion of residential construction projects.

The HomeBuilder program was specifically designed to protect tradies’ jobs and catalyse economic activity in the construction industry, particularly residential construction, in response to the downturn caused by the COVID-19 pandemic.

The Government’s decision to provide existing applicants with an additional 12 months to commence construction responds to unanticipated delays in the construction industry caused by COVID-19 related supply constraints including delays in global supply chains and recent natural disasters.

The extension will only apply to existing applicants and provide an additional 12 months to commence construction from the date that the building contract was signed. All applicants who signed contracts during the HomeBuilder eligibility period between 4 June 2020 and 31 March 2021 will have this extension applied to them.

TAX EXPLOITATION SCHEMES

While discussing recent penalties handed out to Promoters of Tax Exploitation schemes the ATO pointed out a number of ‘red flags’ to look out for to protect yourself:

  • Arrangements or opportunities that seem ‘too good to be true’.
  • Schemes that focus on tax advantages rather than commerciality, or other non-tax reasons.
  • Schemes that spruik opinions from legal or financial advisers with advice that is not tailored to your circumstances.
  • Advice that has not been written down.
  • Schemes that appear designed to inappropriately exploit new government initiatives.
  • Schemes where the promoter offering the investment is the same person who sets it up and runs it.

To avoid getting involved in a tax avoidance scheme, you can:

  • Seek independent, written tax advice on deductions in your circumstances. Your trusted registered tax agent is a good first point of contact.
  • Remember that just because someone is qualified, does not guarantee that they are doing the right thing.
  • Consider running a background check on anyone giving you advice, for example by doing an Australian Financial Security Authority (bankruptcy) search.
  • Check with the ATO if you are unsure about the advice you are given or the tax consequences of an investment opportunity. You can get general advice or request a private binding ruling.

The bottom line: if it is too good to be true then look out!

PROPOSED FRINGE BENEFITS TAX EXEMPTION – RETRAINING AND RESKILLING

Last year, the government announced it will introduce an FBT exemption for employer-provided retraining and reskilling benefits provided to redundant (or soon to be redundant) employees where the benefits may not be related to their current employment.

It is proposed that this exemption will not apply for retraining acquired by way of a salary packaging arrangement. It will also not be available for Commonwealth-supported places at universities, which already receive a benefit. It will not extend to repayments towards Commonwealth student loans.

If enacted, this measure is intended to apply from the announcement (from Friday, 2 October 2020). The government released exposure draft legislation and explanatory materials on 16 April 2021, with responses accepted until 29 April 2021. You lodge your FBT return applying the current legislation and amend, if necessary when the announced changes become law.

FAMILY ASSISTANCE PAYMENTS

If you receive Child Care Subsidy and Family Tax Benefit payments from Services Australia, you and your partner must lodge their 2019–20 Individual tax returns by 30 June 2021. Lodgment deferrals with the ATO do not alter this requirement.

If you were entitled to Family Tax Benefit but did not receive any payments in the 2019–20 financial year, you will also need to lodge a lump sum claim with Services Australia by 30 June 2021.

Services Australia needs your income details to balance payments for Child Care Subsidy and Family Tax Benefit.

If tax return lodgement is not made by 30 June 2021:

  • Those receiving Child Care Subsidy may:
  • – lose their ongoing entitlement
  • – receive a debt from Services Australia and must repay the amount received in the 2019–20 financial year.
  • Those receiving Family Tax Benefit may:
  • – miss out on additional payments
  • – receive a debt from Services Australia and have to repay the amount received for the 2019–20 financial year
  • – have their fortnightly payments stopped.

If applicable, you can notify the ATO if lodgement is not required. They can then confirm with Services Australia that you are not required to lodge. You can also do this using their Centrelink online service or Express Plus mobile app.

Services Australia can assist those who have special circumstances preventing them or their partner from lodging before the deadline.

The takeout is that it is necessary to move quickly to ensure your entitlement to these benefits.

HOME OFFICE EXPENSES

For many of us, this will be the second tax year that will involve larger tax deductions for home office expenses due to COVID-19. The ATO has advised that the temporary shortcut method is again available to those claiming working from home deductions this year.

The temporary shortcut method was created at the height of the pandemic last year to respond to the sudden influx of makeshift home workspaces.

While many have shifted back to the office, many of us have opted to continue working from home at least one day a week.

The working from home shortcut method allows claims at the all-inclusive rate of 80 cents per hour, rather than needing to do complex calculations for specific items.

According to the ATO:

  • The shortcut method is straightforward; just multiply the hours worked at home by 80 cents.
  • The only proof you need is a record of the number of hours you have worked from home, such as a timesheet.
  • The temporary shortcut method can be claimed by multiple people living under the same roof and, unlike existing methods, does not require a dedicated work area.
  • The shortcut is all-inclusive. You cannot claim the shortcut and then claim for individual expenses such as telephone and internet costs and the decline in value of new office furniture or a laptop.
  • Taxpayers can still claim under the existing arrangements if they choose.

For those who chose an existing method, the ATO encourages taxpayers to do their research and keep good records. Keeping track of each individual expense and calculating the work-related use of each one can be fiddly so be organised. If in doubt, seek guidance and talk to us.

Top 4 no-go expenses

If you chose to claim your working from home expenses through the fixed-rate or actual cost methods, remember you still cannot claim:

  • Personal expenses like coffee, tea, and toilet paper. While they might normally be supplied by your employer, they still are not directly related to earning your income.
  • Expenses related to your child’s education, such as online learning courses or laptops.
  • large expenses up-front. Any asset that costs over $300 (either in total or per item), such as a computer, cannot be claimed immediately. Instead, these claims should be spread out over a number of years.
  • Employees generally cannot claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes, and rates. Working from home does not mean your home is a place of business for tax purposes. If you claim occupancy expenses, you may have to pay capital gains tax when you sell your home, even if it is your main residence.

Three different methods for 2020–21

You can choose one of three ways to calculate your additional running expenses for this tax time:

  • Claim a rate of 80 cents per work hour at home for all your working from home expenses.
  • Claim a rate of 52 cents per work hour at home for the heating, cooling, lighting, and cleaning of your dedicated work area and the decline in value of office furniture and furnishings. Then calculate the work-related portion of your telephone and internet expenses, computer consumables, stationery, and the decline in value of a computer, laptop, or similar device.
  • Claim the actual work-related portion of all your running expenses, which needs to be calculated on a reasonable basis.

Remember, to claim any work-related expense, you must have spent the money yourself and not been reimbursed. The expense must be directly related to earning income (not a private expense). You must have kept any necessary records (a receipt is best).

Practice Update April 2025

31 March 2025
A foreign entrepreneur’s guide to starting a business in Australia Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia. Key takeaways Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership. Registered office and resident director requirements are key legal considerations. ABN and ACN are essential for business registration. The application process can be done online, simplifying the process for foreign entrepreneurs. Why register a business as a foreign entrepreneur? There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments. Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture. The general process for registering a business as a foreign entrepreneur While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur: Choosing the business structure The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include: Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability. Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk. Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders. Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company. Registering with local authorities Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as: Company name and business activities: You need to choose a unique company name that adheres to local naming regulations. Articles of incorporation: This document outlines the company’s structure, activities, and bylaws. Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents. Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office. Tax Identification Number (TIN) and bank accounts After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes. Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process. Complying with local regulations Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary. Appoint directors and shareholders To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations. For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations. Choose a company name Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website. Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move. Apply for an Australian Business Number (ABN) and Australian Company Number (ACN) Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia. ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies. ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier. You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites. Register for Goods and Services Tax (GST) If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit. Set up a registered office Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address. Common challenges for foreign entrepreneurs While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia: Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role. Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax. Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard. FAQs Can I register a company in Australia as a foreigner? Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director. Do I need to be in Australia to register a company? No, you can complete the registration process online. However, you must appoint a resident director. Do I need an Australian bank account to start a business in Australia? You will need an Australian bank account to handle your business’s finances and transactions. Can I operate my Australian company from abroad? Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.

Practice Update March 2025

5 March 2025
Do bucket companies help build wealth at retirement? Bucket companies are familiar with wealth-building strategies, particularly as individuals approach retirement. By distributing profits to a bucket company, individuals can benefit from reduced tax liabilities and enhanced investment growth opportunities. This essay explores how bucket companies influence wealth building at retirement, their impact on age pension eligibility and tax positions, and strategies to maximise economic outcomes. Understanding bucket companies A bucket company is used to receive distributions from a family trust. Instead of distributing profits directly to individuals, which may attract high marginal tax rates, the trust distributes income to the bucket company, which is taxed at the corporate tax rate (currently 30% or 25% for base rate entities). The company can then retain the after-tax profits for reinvestment or distribution. Impact on wealth building at retirement Tax efficiency and compounding growth Using a bucket company can result in significant tax savings compared to personal marginal tax rates, reaching up to 47% (including the Medicare levy). Retained earnings within the bucket company are taxed lower, allowing more capital to compound over time. Example of Tax Efficiency: Income DistributedPersonal Marginal Tax (47%)Bucket Company Tax (25%)Savings $100,000$47,000$25,000$22,000 Over 20 years, if the tax savings of $22,000 per year are reinvested at an annual return of 7%, they would accumulate to approximately $1,012,000. Age pension and means testing The age pension is subject to both an income test and an assets test. Holding wealth in a bucket company can impact these tests: Income Test: Distributions to individuals count as assessable income. Retained profits within the company do not. Assets Test: The value of the bucket company shares is counted as an asset, which may affect pension eligibility. Strategic use of the company can help individuals control their assessable income, potentially increasing their age pension entitlement. Strategies to maximise economic outcomes Timing of Distributions By deferring distributions from the bucket company until retirement, individuals can benefit from lower marginal tax rates or effectively use franking credits. Dividend Streaming Using franking credits from company-paid tax can reduce personal tax liabilities when distributed dividends. Investment within the Company Reinvesting retained earnings within the bucket company in diversified assets can enhance compounding returns. Family Trust Distribution Planning Strategically distributing income to lower-income family members before reaching the bucket company can reduce overall tax. Winding Up or Selling the Company Carefully planning an exit strategy to wind up the b ucket company or sell its assets can minimise capital gains tax liabilities. Example of a retirement strategy with a bucket company Assume that John and Mary, aged 65, have distributed $100,000 annually from their family trust to their bucket company over 20 years. Corporate tax paid: 25% Annual return on reinvestment: 7% After-tax reinvested earnings annually: $75,000 YearAnnual ReinvestmentTotal Accumulated Amount (7% p.a.)5$75,000$435,30010$75,000$1,068,91420$75,000$3,867,854 At retirement, they can distribute dividends with franking credits to minimise personal tax and supplement their income while potentially qualifying for some age pension benefits due to strategic income timing. FAQ What is a bucket company? A bucket company is a corporate entity that receives trust distributions, taxed at the corporate rate rather than personal marginal rates. How does a bucket company impact my age pension eligibility? While retained earnings do not affect the income test, the value of the company shares is considered an asset under the assets test. Can bucket companies help reduce tax during retirement? Yes, by using franking credits and strategic distribution timing, bucket companies can minimise tax liabilities. Are there risks associated with using bucket companies for retirement planning? Yes, risks include changes in tax laws, corporate compliance costs, and potential capital gains tax upon winding up the company. Should I consult a professional before using a bucket company? Absolutely. Professional advice is essential to ensure compliance with tax laws and optimise wealth-building strategies.

Personal super contribution and deductions

11 February 2025
Personal super contribution and deductions