What you need to know about trust distribution resolutions

17 August 2019

An essential starting point for consideration of trust income and how that income is to be distributed is to look at the trust deed. This very central document sets out the rules and expectations for the governance and operation of the trust and the powers that can be exercised by the trustee.

Although it can be commonly assumed that the trust deeds of similar types of trusts (such as family trusts, fixed trusts, public unit trusts and so on) are generally alike, the reality is that each deed is unique and can have important differences.

There is a certain level of external regulation of trustees, in that each state and territory has its own trustees’ act, however in a practical sense such legislation generally tends to apply in circumstances where a trust deed is silent on specific areas that are relevant to operational and governance matters. And unlike companies, which operate under the regulations of the Corporations Act 2001, there are no “replaceable rules” available (whereby a company can choose to not spell everything out in a constitution and use the act’s replaceable rules instead).

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Event-based reporting mistakes lead to more SMSF audits

4 August 2019

In the year since event-based reporting (EBR) started for SMSFs (from 1 July 2018) the ATO says an unprecedented number of transfer balance cap reports have required re-reporting.

The transfer balance account report (TBAR) is used to report certain events and is separate from the SMSF annual return. The TBAR enables the ATO to record and track an individual’s balance for both their transfer balance cap and total superannuation balance.

The ATO says the regulations in place do not provide it with a discretion for “special circumstances” regarding contraventions of the transfer balance cap, and that it is particularly important for all SMSF trustees and members to self-monitor and ensure that no member exceeds the cap.

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Carrying forward concessional super contributions

21 July 2019

The income year of 2019-20 has just ticked over, which is also the first year in which an individual is able to make additional catch-up contributions to super through the application of unused concessional (before tax) contributions.

These are “unused” if the fund member made less than the legislated cap on such contributions, which was reduced to $25,000 per year from 1 July 2017.

The rules that allow for a catch-up started to take affect one year later. From 1 July 2018, if a fund member had a total super balance of less than $500,000 on the previous 30 June, and they make or receive concessional contributions (CCs) of less than the “basic cap” of $25,000 a year, they have been able to accrue unused amounts for use in subsequent financial years.

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Records for claiming work-related expenses

7 July 2019

When completing your tax return, you’re entitled to claim deductions for some expenses, most of which are directly related to earning your income.

To successfully claim a deduction for work-related expenses, it’s important that you must have spent the money yourself and weren’t reimbursed, it must be directly related to earning your income, and importantly you must have a record to prove it.

You can only claim the work-related part of expenses. If an expense relates to both work and personal use, the ATO will expect that you apportion use on a reasonable basis and only claim the work-related portion.

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Personal deductions for car parking expenses

23 June 2019

Car parking fees incurred in the course of producing assessable income are generally deductible, but special rules apply if the car is used by an employee to commute between home and work or the car is provided to the employee by the employer.

Non-employees
Self-employed persons, partnerships or trusts are entitled to claim deductions for expenses incurred for car parking fees, provided those fees are incurred in the course of producing their assessable income or as part of the ongoing operations of their business.

Employees
Employees who use their own cars for work-related purposes are generally entitled to claim deductions for the cost of travel and car parking, provided those costs are incurred as part of employment related activities.

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Alternatives to a tax invoice for certain GST credit claims

24 May 2019

Tax invoices are an essential element of Australia’s taxation system, and serve both to collect taxation revenue related to the goods and services on which GST is levied as well as record the credits that are claimable by eligible businesses.

A business registered for GST will generally be required to hold a tax invoice for any transaction in order for an input tax credit to be claimed. The tax invoice can usually only be issued by the entity that made the taxable supply, which generally must issue a tax invoice as a normal incident of transactions, or within 28 days of a request to do so.

Tax invoices are not required where the GST-exclusive value of the transaction does not exceed $75 (that is, a GST-inclusive price of $82.50) or if the goods or services supplied are GST-free, such as many food items. (And if you are wondering why $75, it’s merely a reflection, in miniature, of the turnover threshold of $75,000 at which a business must be registered for GST.)

To qualify as a bone fide tax invoice, it generally must include certain details, such as the seller’s identity (name, ABN), date, the form of supply, the price, the GST amount and so on.

Suppliers who fail to issue a tax invoice or adjustment note as required are liable to an administrative penalty from the ATO. If a tax invoice or adjustment note is not provided, it is generally expected that the recipient will make genuine reasonable attempts to request one. The emphasis however is on “genuine reasonable attempts”, as the ATO does not generally require anyone to go to extraordinary lengths to pursue a supplier for the tax invoice.

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What you need to know about the beefed-up director penalty regime

5 May 2019

Being a director of a company, as with any elevation of status, is a role that also brings with it added responsibilities and duties.

Company directors need to keep in mind that the Corporations Act holds directors personally liable for many of the legal and financial obligations expected from a company. These include, but are not limited to, any debts incurred if the company becomes insolvent and losses arising from a director’s lapse of duty.

The corporate regulator, the Australian Securities and Investments Commission (ASIC), says failing to perform your duties as a director can, in the more extreme cases, lead to being found guilty of a criminal offence with a penalty of up to a maximum of $200,000, or imprisonment for up to five years, or both.

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The approach to tax when you’re working from home

25 April 2019

If you produce assessable income at home, or some of it, and you incur expenses from using that home as your “office” or “workshop”, the ATO will generally allow that a taxpayer could be in a position to be able to claim some expenses and make some deductions. Otherwise the ATO takes the view that expenditure associated with a person’s place of residence is more likely to be of a private nature.

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Single touch payroll rollout for smaller employers

6 April 2019

A major change in the way employers report the tax and super information for their employees to the ATO has been on the way for a while now. The single touch payroll (STP) system started to be rolled out gradually from 1 July 2018 for what the ATO refers to as “substantial” employers (those with 20 or more staff). Recently passed legislation extends STP to all employers, regardless of the number of staff, from 1 July this year.

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When valuations of property are important for tax

25 March 2019

There are times when getting a valuation becomes necessary, especially to estimate the cost of transactions that are not arm’s-length or when no actual cash changes hands.  A common example of this is in respect of property, and especially for transactions when a valuation is necessary for tax purposes.

For example, let’s say that Humbert transfers his rental property to his daughter Dolores for no consideration. The tax law, specifically the CGT rules, requires that the transfer be made at “market value”. If Humbert has held the property for a lengthy period of time and the property has increased significantly in value at the time of transfer, then he could be up for quite a hefty CGT bill, even with the general discount. This is so even though he has not received a single cent by gifting his property.

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