Bonus Article, Regulatory Roundup – February 2018

Community complaints prompt Inspector-General of Taxation to review PAYG instalments

The Inspector-General of Taxation, Ali Noroozi, has just released his review into aspects of the pay-as-you-go (PAYG) instalments system that have come to be viewed as less-than-helpful by many participants and associated stakeholders.

The IGT’s review into the PAYG instalments system was conducted largely in response to feedback drawn from the IGT’s complaint handling service since May 2015. It says it has taken this amount of time to get sufficient complaint investigation data on which to act, but that it is the first such review undertaken in direct response to taxpayer complaints.

Subsequent IGT consultation also drew on input from tax practitioners, their representative bodies and also individual taxpayers who had experienced directly the aspects of the PAYG instalment system that were of concern.

What has been revealed as the major underlying source of such concerns is the accounting systems employed by the ATO. “Symptoms raised by stakeholders included the non-receipt of ATO communications and consequential issuing of multiple activity statements for past periods as well as unnecessary debt collection action whilst the ATO manually ‘washed up’ duplicated liabilities,” the review says.

Also raised as an issue that needs addressing was the ATO’s entry criteria for individuals entering the PAYG instalment system, administration of penalties and interest, and that statutory income was included when calculating the instalment rate.

One recommendation the IGT has made, which is being considered by the ATO, is for the development of additional system functionality that would allow tax and BAS agents to voluntarily enter clients into (or exit them from) the PAYG instalment system through their own practice management software.

At present, the ATO automatically withdraws the instalment rate notice or exits individual taxpayers from the PAYG instalment system if, for example, the taxpayer no longer meets the entry criteria. Taxpayers can also make a request to exit if their circumstances change, for example if they cease earning investment income. However where the ATO processes such a request, the taxpayer is still required to report and pay any outstanding activity statements that have already been issued.

Click the following to read the full document “Review into Aspects of the Pay As You Go Instalments System”.

Employers: Are you prepared for Single Touch Payroll?

Single Touch Payroll (STP) is a government initiative to streamline business reporting obligations, which is due to become compulsory from 1 July 2018. When an employer pays their employees, the payroll information will be sent to the ATO from their payroll solution.

Reporting under the new system removes the requirement to issue payment summaries, provide annual reports and tax file number declarations to the ATO. During the first year of its introduction, the ATO says employers will not be liable for a penalty for a late STP report.

Important points to keep in mind for the transition to Single Touch Payroll (STP) include:

  • Employers with 20 or more employees will need to start reporting through Single Touch Payroll from 1 July 2018.
  • Employers will report salary or wages, pay as you go (PAYG) withholding and super guarantee information to the ATO when they pay their employees.
  • To determine if you are required to report through Single Touch Payroll, employers will need to do a headcount of their employees on 1 April 2018.
  • An employer may have the option to invite their employees to complete tax file number (TFN) declaration and super standard choice forms online.
  • Payroll software will need to be updated to a version that supports Single Touch Payroll.
  • Employers have been able to report through Single Touch Payroll from 1 July 2017 if their software is Single Touch Payroll enabled.

Employee end-of-year pay information
Employers who report an employee’s details through Single Touch Payroll will not have to provide that employee with a payment summary at the end of financial year. They won’t be required to provide the ATO with a payment summary annual report for those employee’s details also.

Employers will need to notify the ATO when the payment summary data is considered final. The ATO will make that information available to employees and tax professionals through myGov, and as pre-filled information in their tax return.

Do you require specific ATO advice on your SMSF? There’s a form for that

The ATO says it can provide tailored technical assistance for SMSF trustees in some circumstances, orally or in writing, depending on the nature and complexity of the query.

For example, you may need to seek tailored technical assistance if:

  • you are not able to find the ATO’s view of how the law applies to a particular technical issue
  • you’re not certain how the ATO view of the law applies to your circumstances
  • you are seeking greater certainty (protection) than the ATO’s published products provide.

If the contentious issue at hand is about how the Superannuation Industry (Supervision) Act 1993 and Superannuation Industry (Supervision) Regulations 1994 apply to a specific transaction or arrangement for an existing SMSF, you can apply to the ATO for advice to deal with that specific issue.

The ATO says it can provide specific advice about the following topics:

  • investment rules including
    • an investment by an SMSF in a company or unit trust
    • acquisition of assets from related parties
    • borrowing and charges
    • in-house assets
    • business real property
  • in-specie contributions/payments
  • payment of benefits under a condition of release.

The ATO is at pains to point out that it cannot provide financial advice, and also says it will not provide specific advice if the request relates to the complying status of an SMSF, trustee covenants, or the residency status of an SMSF (but the trustee can apply for a private ruling, as this is a tax issue).

The form
There is a particular form that the ATO requires if you want specific advice about how the super law applies to a particular transaction or arrangement for an SMSF.

You can download this form in PDF format – see Request for self-managed superannuation fund specific advice (NAT 72441, 109KB).

Apart from requiring the use of the above form, the ATO also specifies that it will only provide SMSF specific advice if sufficient details have been provided (and that its decision to decline providing such advice does not have formal review rights).

Required information or documents
The ATO requires particular details if it is being asked to provide advice on the acquisition of assets, or about business real property, or regarding in-house assets.

Acquisition of an asset: If you need the ATO to determine whether the acquisition of an asset by the SMSF is prohibited by the Superannuation Industry (Supervision) Act 1993 (SISA), or whether it meets one of the exceptions, the ATO will need to be provided with:

  • documents that show the current or previous (depending on whether or not the acquisition has occurred already) legal ownership of the asset
  • details describing the relationship between the party who owns (or owned) the asset and the SMSF
  • documents or details about the asset acquired or to be acquired, in particular whether the asset is
    • listed shares
    • business real property
    • an asset described within subsection 66(2A) of the SISA
  • details or documents that outline how the acquisition/transaction would occur or has occurred, including the value of the asset and how the value of the asset was arrived at.

Business real property: If you want the ATO to determine whether property meets the definition of “business real property” for the purposes of SISA, the ATO will need:

  • details describing the relationship between the party who owns (or owned) the property, or lease, to be acquired for the SMSF or its members
  • documents detailing the legal ownership of the interest in the real property and the form of that ownership (such as lease or freehold)
  • details or documents that outline how the transactions would occur, or have occurred, including the market value of the asset and how that value was arrived at
  • documents explaining or a detailed description of business activities that occur on the property or in a location of which the property is a part
  • details of any private or non-business use on the property, including the degree of non-business use, purpose and frequency.

In-house assets: If you require the ATO to determine whether an investment, loan or lease (whether proposed or not) would meet the definition of an “in-house asset” for the purposes of SISA (and whether or not a contravention of the in-house assets rules has occurred), provide it with:

  • details or documents outlining the specific transaction – this may include investment, loan and lease documents
  • with regard to the investment, loan or lease arrangement, details describing the relationship between all parties and the SMSF
  • details or documents that outline how the transactions would occur, or have occurred, including the market value of the investment, loan or lease and how that value was arrived at
  • the total value of the SMSF’s assets in the year of income that the transaction has or would occur.

For more information about: