Regulatory Roundup – July 2018

Tax Time toolkit

The ATO been working with a small, diverse group of tax agents to develop a suite of resources for you and your clients this tax time. The Tax Time Toolkit includes information about car expenses, clothing and laundry, working from home, self-education and much more. See what’s available here.

Q&A on the small business concessions and super’s non-concessional contribution cap

Q: I am close to reaching my total super balance, however I have assets in my business that I want to contribute to my superannuation. Can I do so without breaching the NCCC?

A: If those assets meet either or both of the small business exemptions rules, then (subject to the caps in relation to those concessions not being breached) you can under S292-90(2)(c)(iii) ITAA97 apply the proceeds of selling those assets without breaching your NCCC.

Q: I have held business assets for more than 15 years, however for the first five years the assets were not used in the business. Would I still be able to use the 15-year small business asset concession?

A: As long as you otherwise meet the basic conditions of the 15-year active asset CGT exemption, then you will still be able to use the concession. However if the assets were not assets of your small business for more than half the time you owned them or you held them as business assets for less than seven-and-a-half years after holding the asset for 15 years or more, then you would not meet the requirements.

Q: I am not in business myself but I own assets used by a small business run by my partner. Can I use the small business exemptions?

A: As long as the assets and the small business otherwise meet the “basic conditions”, yes you can. However, you will need to document your ownership of the assets and how they are used by the business.

Q: I sold some small business assets a month ago and contributed the proceeds to my superannuation fund at the time. I was not aware at the time of the concessions and now want to retrospectively apply the concessions. Can I do this?

A: No. The law is very clear that the election in the appropriate form must be prior to or at the same time as making the contribution to your superannuation. The election will be invalid if made after the time of contribution. These contributions will still be part of your NCCC. However, if you make subsequent small business exemptions contributions, make sure to make the election prior to or at the time of making those contributions.

Q: I sold some business assets that otherwise met the small business retirement exemption (SBRE) requirements three months ago. I have not yet contributed those amounts to my super, they are just sitting in an account. Can I now make the contributions such that they don’t count towards my NCCC?

A: Yes you can. You must make the election to use the concession prior to or at the same time as making the contribution, however, it does not need to be made at the time of selling the asset.

Q: I am 65 and I have some small business assets that meet the requirements for the small business retirement exemption. I want to sell some of those assets under the retirement exemption, however I want to use that money to get rid of some debt rather than contribute it to superannuation. Can I do this?

A: As long as you are over 55 and meet the requirements then you are not required to put the amount into a superannuation account.

A commonly forgotten tax deduction: Association fees

A commonly forgotten tax deduction is for subscription or membership fees to an association or union, which affects many professionals, business or trades people who will probably be members of some sort of association.  See taxation ruling TR 2000/7.

Broadly, the test for deductibility under the rules is whether the payment is an outgoing that is relevant and incidental to the derivation of assessable income. And there is no requirement in the rules that the taxpayer gains income in the industry that the association represents (so the deduction is still available into retirement).

However any deduction made under that section of the tax law (s 25.55) has a down side in that the deduction is limited to only $42.  It has been that amount for decades and it is not adjusted for inflation. If the retired taxpayer was a member of two associations each costing $100, the deduction would be limited to $84.

However, in the situation where the taxpayer is in receipt of a salary or contractor fees then the entire amount of the subscription will generally be available as a deduction — in most cases the membership of a trade union or professional association relevant to workers in a particular occupation would therefore qualify them to claim a deduction under s 8-1 of the regulations.

In limited circumstances, a taxpayer could also qualify for both the deduction under s 25.55 and the deduction under s 8-1 for different subscriptions. For example, a person who is qualified as an engineer but who also works as an accountant for an engineering firm might claim a $42 deduction for the membership of an engineer’s association, and claim a full deduction for membership of an accounting body.

Sometimes, in addition to periodic subscriptions, associations may charge members joining fees, special levies and other contributions, such as a fund for a special purposes (for example, a union’s campaign fighting fund). The deductibility for those fees depends on whether there is a clear and necessary nexus between the activities by which the assessable income is derived and the purpose for which the fees are made.

A joining fee is generally a once-and-for-all payment, which provides the new member with the enduring benefit of membership of the association.  Its purpose is to cover the additional administration expenses associated with inducting a new member or to contribute towards the infrastructure costs met by past members. The deduction for this is still limited to $42.

On the other hand, the payment of a special levy or contribution is an allowable deduction if the purpose is clearly linked to the activities by which the assessable income is derived. For example, the payment of a bargaining agent’s fee to a union for negotiations in relation to a new enterprise agreement award with an existing employer. Taxpayers can only claim payments of levies to a strike fund where the fund is used solely to maintain or improve the contributors’ pay. Most unions and associations send members statements of the fees or subscriptions paid.

Have you had a change in creditable purpose?

Sometimes you may use a property you bought in a way that is different to what you originally planned.

Remember that if you claimed GST credits for property purchases you now use to make input-taxed supplies, you need to report adjustments for this change in creditable purpose in your activity statement.

For example, if you constructed a new residential premise to sell, but then rented it out, you need to make an increasing adjustment on your activity statement. You are required to do this even if you still market the property for sale. You may also need to make an adjustment if you use the property for private purposes.

Adjustments are required for changes in creditable purpose because the GST credit you originally claimed will either have been too much or too little.

You will generally not have to make an adjustment for a change in creditable purpose if:

  • the value of the purchase or importation was $1,000 (GST-exclusive) or less
  • the value of the purchase or importation related to business finance and was $10,000 (GST-exclusive) or less.

Adjustment periods

“Adjustment periods” are the reporting periods in which you have to account for any adjustments in your activity statement.

An adjustment period for a purchase or importation is a reporting period that both:

  • starts at least 12 months after the end of the reporting period you claimed your GST credit in (or would have claimed your GST credit in had the purchase or importation been creditable), and
  • ends on 30 June (or if none of your reporting periods end on 30 June, your reporting period that ends closest to 30 June).

The maximum number of adjustment periods in which you make adjustments depends on the value of the purchase or importation.

Adjustment periods for most purchases and importations
Value of the purchase or importation (GST-exclusive) Number of adjustment periods
$1,001 to $5,000 2
$5,001 to $499,999 5
$500,000 or more 10

 

Adjustment periods for purchases or importations that relate to business finance
Value of the purchase or importation (GST-exclusive) Number of adjustment periods
$10,001 to $50,000 1
$50,001 to $499,999 5
$500,000 or more 10

If you cancel your GST registration, your final reporting period is also an adjustment period for purchases and importations.