Tax Update - Year End Approaches
This is the time of the year when tax accountants often do their most important work in preparing tax payers for the likely impost and looking for legal opportunities for minimisation or deferral.
Some of the opportunities include:
For individuals
o Superannuation Contributions
o Record keeping of business use of cars and homes
o Offsetting capital gains with losses
o Write-off of equipment bought for business usage
For businesses
o Writing off bad debts
o Revaluation of inventories
o Accelerated write offs
o Deferral of invoicing
o Acceleration of accruals
Superannuation Funds
o Payment of minimum pensions
Your MVAB advisor can elaborate on the application of these points to your circumstances
Federal Budget Announcements
The 120% deduction for skills training and technology costs
It’s a great headline isn’t it? Spend $100 and get a $120 tax deduction. Days after the Federal Budget announcement that businesses will be able to claim a 120% deduction for expenditure on training and technology costs, we started receiving marketing emails encouraging us to spend now to access the deduction.
But, there are a few problems. Firstly, the announcement is just that, it is not yet law. And, given the Government is in caretaker mode for the Federal election, we do not know the position of the incoming Government on this measure. And, even if the incoming Government is supportive, we are yet to see draft legislation or detail to determine the practical application of the measure.
What was announced?
The 2022-23 Federal Budget announced two ‘Investment Boosts’ available to small businesses with an aggregated annual turnover of less than $50 million.
The Skills and Training Boost is intended to apply to expenditure from Budget night, 29 March 2022 until 30 June 2024. The business, however, will not be able to claim the deduction until the 2023 tax return. That is, for expenditure between 29 March 2022 and 30 June 2022, the boost, the additional 20%, will not be claimable until the 2022-23 tax return, assuming the announced start dates are maintained if and when the legislation passes Parliament.
The Technology Investment Boost is intended to apply to expenditure from Budget night, 29 March 2022 until 30 June 2023. As with the Skills and Training Boost, the additional 20% deduction for eligible expenditure incurred by 30 June 2022 will be claimed in the 2023 tax return.
The boost for eligible expenditure incurred on or after 1 July 2022 will be included in the income year in which the expenditure is incurred.
Technology Investment Boost
A 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services, capped at $100,000 per annum.
We have received a lot of questions about the specific expenditure the boost might apply to, for example does it cover website development or SEO services? But until we see the legislation, nothing is certain.
Skills and Training Boost
A 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.
Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.
We are waiting on further details of this initiative to be released to confirm whether there will need to be a nexus between the training program and the current employment activities of the employees undertaking the course. So once again, until we have something more than the announcement, we cannot confirm how the measure will apply in practice or how broad (or otherwise) the definition of skills training is.
What happens if I have already spent money on training and technology in anticipation of the bolstered deduction?
If the measure becomes law, and the start date of the measure remains the same, we expect that any qualifying expenditure incurred in the 2021-22 financial year will be claimed in your tax return. But, the ‘boost’, the extra 20% will not be claimable until the 2022-23 financial year.
If the measure does not come to fruition, you should be able to claim a deduction under normal rules for the actual business expense.
It should also be noted that, in the case of a company, the additional tax deductions obtained through the various incentives may only provide a deferral in the payment tax, as there may be insufficient franking credits to attach to retained earnings when it comes time to pay out dividends to members. Therefore, members will receive a partially unfranked dividend, and would be required to pay all of the tax on that part with no credit for tax paid by the company.
Fuel tax credit changes
The Government temporarily halved the excise and excise equivalent customs duty rates for petrol, diesel and all other petroleum-based products (except aviation fuels) for 6 months from 30 March 2022 until 28 September 2022. This action has caused a reduction in fuel tax credit rates.
During this 6 month period, businesses using fuel in heavy vehicles for travelling on public roads won't be able to claim fuel tax credits for fuel used for this purpose. This is because the road user charge exceeds the excise duty payable, and this reduces the fuel tax credit rate to nil.
You can find the ATO’s updated fuel tax credit rates that apply for the period from 30 March 2022 to 30 June 2022 here. The ATO’s fuel tax credit calculator has been updated to apply the current rates.
Lowering tax instalments for small business – PAYG
PAYG instalments are regular prepayments made during the year of the tax on business and investment income. The actual amount owing is then reconciled at the end of the income year when the tax return is lodged.
Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government has set this uplift factor at 2% instead of the 10% that would have applied. The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year:
· Up to $10 million annual aggregated turnover for GST instalments, and
· $50 million annual aggregated turnover for PAYG instalments
The effect of the change is that small businesses using this PAYG instalment method will have more cash during the year to utilise. However, the actual amount of tax owing on the tax return will not change, just the amount you need to contribute during the year.
Section 100A and distributions to adult children
As previously advised, the ATO have issued Draft Ruling TR 2022/D1, which set out the ATO’s proposed approach to the treatment of “reimbursement agreements”.
The views set out in the Draft Ruling potentially affected the somewhat long standing and well accepted approach that families have had in the use of trusts and distributions to adult children.
Submissions closed on 29th April 2022, and we await the final version of documents to come from the ATO to provide further guidance in the lead up to 30 June 2022 to assist with the drafting of distribution resolutions.
The main point to note, at this stage, however, is that the ATO view does not prohibit the making of distributions to adult children should the trustee determine for that to occur. It merely solidifies the requirement, which has always been in place, that the beneficiary must ultimately benefit from the distribution. Furthermore, the ATO position indicates that documentation and tracking of transactions will become more important as time goes on for clients to clearly substantiate legitimate transactions should they be asked to do so.
We are conscious that there is uncertainty amongst the client base in relation to this matter, and seek to discuss the implications of the Draft Ruling when assisting with the drafting of distribution resolutions in the coming weeks.
An update from the ATO on this matter is provided in the link below.
Trust distributions to companies
The ATO recently released a draft tax determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries. If the amount owed by the trust is deemed to be a loan then it can potentially fall within the scope of the integrity provisions in Division 7A. If certain steps are not taken, such as placing the unpaid amount under a complying loan agreement, these amounts can be treated as deemed unfranked dividends for tax purposes and taxable at the taxpayer’s marginal tax rate. The ATO guidance deals specifically with, and potentially changes, when an unpaid entitlement to trust income will start being treated as a loan depending on the wording of the resolution to pay a distribution. The new guidance applies to trust entitlements arising on or after 1 July 2022.
Your superannuation
Work-test repeal – enabling those under 75 to contribute to super
Currently, a work test applies to superannuation contributions made by people aged 67 or over. In general, the work test requires that you are gainfully employed for at least 40 hours over a 30 day period in the financial year.
From 1 July 2022, the work-test has been scrapped and individuals aged younger than 75 years will be able to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
The work test will still apply to personal deductible contributions.
This change will also see those aged under 75 be able to access the ‘bring forward rule’ if your total superannuation balance allows. The bring forward rule enables you to contribute up to three years’ worth of non-concessional contributions to your super in one year.
Downsizer contributions from age 60
From 1 July 2022, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home. Currently, you need to be 65 years or older to utilise downsizer contributions.
Downsizer contributions can be made from the sale of your principal residence that you have owned for the past ten or more years. These contributions are excluded from the age test, work test and your total superannuation balance (but not exempt from your transfer balance cap).
First home saver scheme – using super to save for a first home
The First Home Super Saver Scheme enables first home buyers to withdraw voluntary contributions they have made to superannuation and any associated earnings, to put toward the cost of a first home. At present, the maximum amount of voluntary contributions you can make and withdraw is $30,000. From 1 July 2022, the maximum amount will increase to $50,000. The benefit of this scheme is the concessional tax treatment of superannuation.
ATO ramps up heat on directors
Throughout March, the ATO sent letters to directors who are potentially in breach of their obligations to ensure that the company they represent has met its PAYG withholding, superannuation guarantee charge, or GST obligations.
These letters are a warning shot and should not be ignored.
The director penalty regime ensures that directors are personally liable for certain debts of the company if the debts are not actively managed. The liability applies to both current and former directors.
To recover this debt, the ATO will issue a director penalty notice to the individual directors. The ATO can then take action to recover the unpaid amount, including:
· By issuing garnishee notices,
· By offsetting tax credits owed to the director against the penalty, or
· By initiating legal recovery proceedings against the director.
In some cases it is possible for the penalty to be remitted but this depends on when the PAYGW, GST or SGC amounts are reported to the ATO. For example, in some cases the penalty can be remitted if an administrator or small business restructuring practitioner is appointed to the company, or the company begins to be wound up. However, this is normally only possible for PAYGW and GST amounts if they are reported to the ATO within 3 months of the due date. For SGC amounts this is only possible if the unpaid amount is reported by the due date of the SGC statement.
If the unpaid amounts are not reported to the ATO by the relevant deadline then the only way for the penalty to be remitted is for the debt to be paid in full. Winding up the company at this stage will not make the liability of the directors go away.
If you have received a warning letter from the ATO or a director penalty notice then please contact us immediately.
New domain name changes could leave your business at risk
From 24 March 2022, anyone with a local connection to Australia (including businesses, associations and individuals) will be able to register a new category of domain name. These shorter simpler domain names will end in .au rather than .com.au, .net.au, .org.au, .gov.au or .edu.au. All Australian businesses will have until 20 September to reserve their .au equivalent domain name, then it becomes available to the general public.
This new category of domain name allows users to register shorter, more memorable online names; however it also creates another avenue for cybercriminals to conduct fraudulent cyber activities. Opportunistic cybercriminals could register your .au domain name in an attempt to impersonate your business.
For example, if you have currently registered yourbusiness.com.au, a cybercriminal could register yourbusiness.au or yourbusinesscom.au and use these domains to conduct fraudulent cyber activities.
How to protect yourself
To help protect your business from opportunistic cybercriminals, the Australian Cyber Security Centre (ACSC) recommends that all Australian businesses with existing domain names register their .au equivalents before 20 September 2022. If a business does not reserve their .au equivalent direct domain name during this six-month period, that name will become available to the public on a first come, first served basis.
You can reserve your .au domain name by visiting an auDA accredited registrar.
Further information on these changes and the registration process is available on auda.org.au/au-domain-names:
Budget 2022-2023
Key initiatives include:
But, it is also a Budget that drives digitisation. Not just to support innovation but to streamline compliance, create transparency and more readily identify anomalies. Single touch payroll was the first step, the PAYG instalment system, trust compliance, and payments to contractors are next.
Beyond compliance, there is an opportunity capitalise on the benefits of the Government’s push towards innovation and investment in new technology. Not just the $120 tax deduction for every $100 spent on training employees and digital adoption, but also the expansion of the patent box tax concessions. There are opportunities for those pushing boundaries.
Please click on the below image to access our full client guide.
If we can assist you to take advantage of any of the Budget measures, or to risk protect your position, please let us know.
As always, we’re here if you need us!
Taxation of Trusts
Time to review the operation of your family discretionary trusts.
The Australian Taxation Office has recently released guidance explaining their attitude to the use of trusts including the non-payment of accrued loan accounts in trusts and the use of income distributed for tax purposes to children over 18years.
These are important announcements and must be considered by all trustees of discretionary or family trusts.
It is common for trust income to be “distributed” by book entry making beneficiaries making presently entitled to trust income.
Sometimes (though much less commonly), a beneficiary's present entitlement to a share of trust income arises out of, or in connection with, an arrangement:
In these cases, section 100A of the Income Tax Assessment Act 1936 generally applies to make the trustee, rather than the presently entitled beneficiary, liable to tax at the top marginal rate.
In simple terms it is important that income distributed to beneficiaries is paid to or applied for the purposes of those beneficiaries.
A more common example occurs when children reaching the age of 18 years are used to share trust income of the parents after paying tax at their generally lower marginal tax rate. The Tax Office is concerned that taxpayers are entering into arrangements to avoid tax on the net income of the trust by utilising the lower marginal tax rate applying to the children in circumstances where the benefit from these arrangements is, in substance, enjoyed by the parents by:
A review of these arrangements by the Tax Office considers that the following consequences may arise:
While the Tax Office alert specifically considers arrangements involving the children of controlling individuals, they are also concerned about similar arrangements involving other family members of controlling individuals that would have lower marginal tax rates than those of the controlling individuals.
Our team will review the application of these announcements to client family trusts and it is strongly recommended that trustees or directors of trustee companies clearly understand their obligations in regards to these new requirements in particular.
Please contact your MVAB Team person if you would like to discuss the application of these announcements to your particular circumstances.
Real Estate
Planning for the consequences of increasing property values
Rising property values might seemingly fulfil the aspirations of many. However, there are unintended consequences which are worthy of thought and advice to optimise the situations.
Taxation
Governments of all persuasions love to tax property – what use to be restricted to a minority is now applying to many.
Council rates are prorated to municipal residents based on individual property values.
Council valuations are used by the State Government to levy Land Tax. Objections to valuations for Land Tax purposes need to be aimed at the Council who may determine the value at a time when the Land Tax assessment is not current and thereby missing the opportunity to object to the valuation within required timeframes.
The principal place of residence is generally exempt from Land Taxes and Capital Gains Tax. However, when is a house a Principal Residence – can a holiday house gain exemption – can a couple have more than one Principal Residence – what happens if the Principal Residence is rented out for part of the year?
As an example, if the holiday home land value was $500,000, the land tax would be c $ 775. At $1,000,000 the land tax is $2,975 and at $2,000,000 the land tax is $12,475. These amounts can be even higher if there is more than one property that is not a Principal Residence, or if the land is owned in a trust. The land tax increases exponentially compared to increases in the land value.
So what to do:
· Subdivide the land subject to Council rules?
· Rent out the house to recoup some monies and to make some or all of the taxes tax deductible
· Sell up and suffer the capital gains tax
Succession
Succession is inevitable and in a previous generation was generally caused by a death in the family. Nowadays, with generally longer life spans, succession is starting to happen while two or more generations are alive and hopefully well.
Transfers of properties outside a Will attract stamp duty which tends to discourage dealing with inter-generational transfers and puts off the inevitable. Putting off the inevitable can create differences of equity between beneficiaries by virtue of property prices rising faster than other asset classes.
A common example is with farming families. More than one child but only one child is the farmer. Can the farm be passed to the farmer without causing a rift from unequal values? Should future tax liabilities (or lack thereof) attaching to land be considered at the time of division of assets?
The Relative Values of Assets
The real issue is the reassessment of life’s purposes.
· Does farming land become too expensive to farm?
· Is the beach house worth more than the family home?
Some farming land is realising monies beyond reasonable dreams and as such may enable opportunities to do other things that may never have been contemplated.
There are tax concessions for selling so called “small businesses” – so planning to come within these rules is highly recommended before the thresholds are exceeded.
The MVABennett Approach
We invite the conversation with our clients about relative values and the timing of asset sales.
In addition, the periodic review of Wills and estate planning is key.
Please contact your MVABennett team person if any of these matters resonate for you.
AICD Governance Study Released
The Australian Institute of Company Directors has released its annual not-for-profit governance and performance study, which reveals that, while COVID-19’s effects on the sector were not so damaging as predicted, many organisations could take years to recover.
The institute’s NFP Governance and Performance Study is in its 12th year and remains the biggest governance report in the NFP sector. More than 1900 responded this year.
Last year’s study highlighted that, in many areas, the pandemic had intensified financial pressures that had existed before the pandemic, some of them caused by the bushfires of 2019-20.
This year’s study paints a more optimistic picture. Eighty-four per cent of respondents reported making a profit or breaking even in the 2020-21 financial year.
But 40 per cent said it would take at least two years to recover fully from the pandemic’s effects.
Eighty-one per cent of NFP directors worried about the strength of the Australian economy, and 95 per cent of organisations changed their business models to deliver services.
Other key findings were:
Manage Your Fraud Risk
The Australian Charities and Not-for-profits Commission’s governance toolkit includes resources to help charities manage risks, including financial abuse, cybersecurity, and working with partners.
Many charities develop working relationships with partners, which might be other charities and not- for-profits, businesses, commercial enterprises, and suppliers. Charities should ensure that their partner relationships are well-planned, supported by a solid written agreement, and pursue the agreed charitable purposes.
Charities should be aware of partnership risks and be confident that they have the right processes to manage one.
The toolkit includes a comprehensive guide and accompanying assessment, a template document for monitoring a partnership, and a list of important partnership considerations.
Since 1 January, some charities have been required to have a whistleblower policy.
The mandate applies to charities structured as public companies limited by guarantee with annual consolidated revenue of $1 million.
The Australian Securities & Investments Commission recently reviewed more than 100 whistleblower policies, including those of charitable companies, and found that most failed to include all the information required under the Corporations Act.
ASIC is concerned that whistleblowers will fail to get information about their legal rights and protections and how they can report misconduct. It is calling on companies, including charitable companies, to ensure that their policies comply with legal requirements and has published a guide explaining how to do it.
The commission recommends that all charities consider having a publicly-available whistleblower policy, even if they are not legally required to have one.
ACNC Urges use of Self-Audit Tool
Self-audits are among compliance initiatives introduced by the ACNC. By implementing a new program of self-audits, the ACNC says it is helping charities find and fix governance issues.
Along with other new compliance initiatives, self- audits allowed the ACNC to engage this year on compliance matters with 50 per cent more charities.
In an initial roll-out, 28 charities were involved. Seventy-five per cent of them provided a satisfactory response – 25 per cent of the charities were not up to standard.
Five of the 28 charities reported a plan to improve governance.
Of the charities that needed to improve, one found issues that came from rapid growth over 12 months. The charity had grown from small to large but had failed to upgrade governance to suit the more complex requirements for a larger charity. The charity acknowledged that addressing the gaps would ensure donor confidence and build broader community trust and confidence.
Your charity may download from the ACNC website a
The self- evaluation also includes a template for an action
plan.
Charity leaders need to get involved
Charity leaders should be active in their charities’ lives, the ACNC says.
An engaged board or committee is vital for a well- governed charity, so its leaders should be part of the approval and submission of an annual information statement.
The ACNC expects that a charity’s responsible people – directors, trustees, board and committee members – are fully aware of the content of their organisation’s AIS.
Charity leaders who take their duties and obligations seriously are critical in maintaining and building the confidence upon which the entire sector relies.
To ensure high standards of integrity and common sense, the responsibilities of charity leaders are set out in the ACNC’s governance standard 5. The standard requires that responsible people act honestly and fairly in the best interests of their charity and for its charitable purposes. They need to act with reasonable care and diligence, disclose conflicts of interest, and ensure that finances are well-managed. It also requires that responsible people don’t misuse their position or allow their charity to operate while it is insolvent.
To support sector transparency and accountability, the commission publishes on the register the names and positions of charities’ responsible people.
Charities must notify the commission of leadership changes, including new responsible people and those who have stepped down from their posts. Any role changes of responsible persons need to be reported.
New search features connect donors to charities
The ACNC’s charity register has new search features connecting more effectively donors with charities.
The register can be searched for charities based on type of programs they deliver, by beneficiary group, and program location.
Information on the register is based on details charities submit in their annual information statements.
Charities are encouraged to include as much program detail as possible. Providing a specific location or catchment area for where each program is delivered in the AIS will best take advantage of the new functionality, help programs to be found, and possibly boost support.
ACNC urges charities to comply
The ACNC urges charity leaders and their accountants to ensure that they comply with amended reporting regulations.
The amendments affect charity-size thresholds based on revenue, disclosure of remuneration for key management personnel, and disclosure of related-party transactions.
A charity’s ACNC financial-reporting obligations relate to size based on annual revenue. Medium and large charities must submit an annual financial report, while small charities are required only to submit an annual information statement.
From the 2022 AIS reporting period, revenue thresholds will rise for all three categories as follows:
The amendments will also require large charities to disclose in special-purpose financial reports remuneration of key management personnel. Key management personnel are senior managers and charity leaders such as directors, CEOs, and board members. The rule applies from the 2022 AIS reporting period.
For medium and large charities, there will be increased requirements to disclose related-party transactions in special-purpose financial statements. The change applies from the 2023 AIS reporting period.
The commission will exercise discretion for charities preparing special-purpose financial statements for the first time.
Charities preparing special-purpose financial statements for the first time under amended regulations will not have to provide comparative information for the preceding period in applying the relevant Australian accounting standard. They will need to provide disclosures for the reporting period only in the first year of adoption.
Helping NFP’s with best-practice reporting
Enhancing Not-for-Profit and Charity Reporting
by Chartered Accountants Australia and New Zealand guides not-for-profits and charities in how to prepare top-quality annual, financial, and performance reports.
The guide is in two parts.
Part A – Enhancing performance reporting is designed for charity and NFP organisations in Australia and New Zealand and draws on learnings from sector regulators and leaders in each country given the commonalities in annual and performance reporting.
It aims to help NFPs to identify and define their strategic objectives and then track, monitor, and report on their performance. It’s designed for organisations doing this kind of reporting for the first time, but others can benefit from information most relevant to them.
Part A contains these sections: setting the context for reporting, performance reporting, output and outcome reporting, governance reporting, sustainability and ESG reporting and collective impact, best-practice checklist, optional reporting frameworks, Australian and NZ councils for international development, codes of conduct, enhancing assurance, legislative frameworks, and useful resources.
Part B – Enhancing financial reporting consists of two separately published editions for each country, focusing on financial-reporting frameworks.
Part B (Aust) contains these sections: 20 recommendations to enhance NFP financial reporting, guidance when producing a financial report, frequently asked questions, and an example financial report.
Part B (NZ) contains these sections: on overview of New Zealand NFP and charity reporting requirements, recommendations to enhance NFP and charity financial reporting, guidance when producing a financial report, frequently asked questions, and future development.
ACNC Activities
The Australian Charities and Not-for-profits Commission is urging charities to check that they are maintaining their entitlement to registration.
They must ensure that they are still not-for-profit, their purposes are charitable, their activities lawful, that they are operating for the public benefit, and have an ABN.
ACNC commissioner Gary Johns said charities must maintain their entitlement to registration to avoid revocation. He said the ACNC recommended that charities build in a way of regularly checking their entitlement to registration. The ACNC had a tool to help charities make that assessment, he added.
Each registered charity has a record on the ACNC charity register and is obliged to have a governing document attached as well as a list of current responsible people.
Dr Johns said, ‘Common lapses include charities not keeping their records of responsible people up-to-date, or not having enough responsible people listed as required, and not having a governing document attached to their record [...].’
Charities must also ensure that their purposes and activities are aligned with their registered- charity subtype.
The seventh Australian Charities Report published in May showed that, on average, registered charities had been operating for 32 years.
Dr Johns said, ‘Over the long life-cycle of a charity many things can change, including boards and staff, so it’s crucial charities have an established process for [...] entitlement checks.
‘Our [...] register provides key information about Australian charities to the public. It is critical that this information is up to date because that demonstrates the integrity of the sector and its willingness to be transparent.
‘It is always of public interest to know how charities are run and by whom, how their funds are accrued and spent. Keeping those details accurate is therefore an important [...] task.’
The ACNC has information about maintaining charity registration and a checklist.
Go to https://www.acnc.gov.au/for- charities/manage-your-charity/obligations- acnc/keep-charity-status.
MVA Bennett can provide assurance to those charged with governance of compliance with the ACNC rules.
Hundreds of charities struck off
The ACNC has revoked the registrations of 420 Australian charities that have failed to submit two or more annual information statements.
ACNC assistant commissioner Anna Longley said the organisations were no longer eligible for certain Commonwealth tax concessions.
‘It is important that we keep the ACNC [...] register up-to-date and accurate,’ Ms Longley said.
The commission notified in August more than 600 charities that they risked being struck off the register.
‘We take steps to allow charities that are still active to have every opportunity to maintain registration,’ Ms Longley said.
‘Some charities have since submitted their overdue statements, [...] retained registration, and will continue to access generous commonwealth [...] tax concessions.’
Solvency Essentials
The ACNC’s governance requires a charity’s responsible persons to ensure that their charity is not operating while insolvent.
Charities must take reasonable steps to ensure its responsible persons fulfil duties set out in the standard.
For a charity that is a company, in addition to standard 5, duties set out in the Corporations Act 2001 apply to responsible persons (directors), including the duty to prevent insolvent trading. If a charity that is a company continues to operate while insolvent, its directors may be subject to legal action.
Charities incorporated as associations might also have responsibilities to their state and territory regulators.
The ACNC wants charities to be aware of warning signs that might indicate a charity is facing financial trouble.
The commission nominates:
Annual Information Statement
The ACNC’s 2021 Annual Information Statement Guide aims to help charities complete their annual information statements.
The commission recommends that you use the AIS checklist before filing your statement.
Unlawful behaviour
The federal government has tabled regulations in Parliament that strengthen governance standards, ensuring that registered charities do not engage in or actively promote unlawful activity.
The regulations reaffirm that compliance with Australian laws sets a minimum benchmark by which registered charities should govern themselves.
The changes will empower the ACNC commissioner to investigate registered charities engaging in or actively promoting theft, vandalism, trespass, and assault and threatening behaviour, and to take appropriate enforcement action if warranted.
Registered charities that act lawfully and do not use their resources to promote others to engage in unlawful activities already comply with the amended standards.
Charities will not be deregistered for inadvertent or unintentional non-compliance. Education underpins the ACNC’s regulatory approach, and revoking registration is reserved for serious and deliberate contraventions.
The ACNC will provide guidance to registered charities once the amended standard comes into effect to help them to understand and comply.
Director Identification Numbers
Australian directors have a year to apply for their unique director identification numbers before fines of more than $1.1 million kick in.
Company directors must apply for a DIN by 30 November next year, and directors of Indigenous corporations that are governed by the Corporations (Aboriginal and Torres Strait Islander) Act 2006 must apply for the unique identifier by 30 November 2023.
The deadline was confirmed in Corporations (Director Identification Numbers—Transitional Application Period) Instrument 2021 made by the Minister for Superannuation, Financial Services and the Digital Economy Jane Hume.
DIN applications are free and will open next month on the newly established Australian Business Registry Service, a single platform administered by the taxation commissioner that brings together ASIC’s 31 business registers and the Australian Business Register.
Directors must personally apply for DINs and will be required to produce myGov IDs, and two identity documents from a list that includes bank-account details, super-account details, ATO notices of assessment, dividend statements, Centrelink payment summaries, and PAYG summaries.
Directors appointed between 1 November and 4 April next year will have just 28 days after appointment to apply for DINs. Directors appointed from 5 April 2022 will be required to apply for DINs before being appointed.
Directors who fail to apply for DINs within the stipulated deadlines can face criminal and civil penalties of 5000 units, which at the moment amounts to $1.11 million. Directors of a CATSI organisation can face penalties of up to $200,000.
Penalties will also apply for conduct that undermines the new requirements, including providing false identity information and intentionally applying for several DINs.
More than 2.5 million directors will need DINs. They will be permanent, even if holders cease to be directors, change their names, or move interstate or overseas.
More information can be found at https:/www.abrs.gov.au/director-identification-number.
Fines for late Lodgement of Tax Returns
After many years of not being punitive, the tax office are now imposing fines for late lodgement of income tax returns.
Due dates for lodgement of tax returns are set by the tax office and vary from 31st October 2021 and May 2022 depending on lodgement history and likely tax payable.
Landholder Duties
The Victorian State Revenue office has issued a Ruling in relation to obligations in relation to a new premium rate of duty that took effect from 1st July 2021 for transactions with a dutiable value of more than $2m.
The rate of duty on the acquisition is $110,000 plus 6.5% of the excess over $2m.
Where fixtures are held separately from the land on which they are located then the fixtures became dutiable after 19th June 2019. However, duty will not be calculated with reference to the value of the interest in the fixtures unless the total value of the fixtures exceeds $2m.
Primary production land continues to be exempt provided the relevant rules regarding exemption are satisfied.
State Revenue office duties and land Taxes continue to grow as a significant impost to the ownership of land and regular review of the relevant regimes are recommended
Construction grants now open
Applications for the Business Costs Assistance Program Round Four – Construction are now open. The program provides one-off payments to eligible employing and non-employing businesses in the construction sector more detailed list link is here.
Grant amount is Once off payments up to $8400 further details can be found in this link.
You can apply for a grant yourself with this link, Please feel free to contact our office should you wish us to assist you with the application and we will get application underway. Cost of application is $300.
Eligibility criteria for grant is as follows:
If you would like to discuss anything raised in the newsletter, please contact our Team.
Unwinding COVID-19 Relief
COVID-19 support will roll back as states and territories reach vaccination targets.
The National Plan, the road map out of COVID-19, does more than provide greater freedoms at 70% and 80% full vaccination rates, it withdraws the steady stream of Commonwealth financial support to individuals and business impacted by COVID-19 lockdowns and border closures. We look at the impact and the support that remains in place.
For individuals
The COVID-19 Disaster payment offered a lifeline to those who lost work because of lockdowns, particularly in the ACT, New South Wales, and Victoria where the Delta strain of the virus and long-term lockdowns had the greatest impact.
In late September, the Treasurer announced that the Disaster Payment will roll back as states and territories reach vaccination hurdles on the National Plan. Over $9 billion has been paid out to date on Disaster Payments and at 70% and 80% full adult vaccination, the disaster, apparently, is over.
At 70% full vaccination in your state or territory
In the first week a state or territory reaches 70% full adult vaccination, the automatic renewal that has been in place will end and individuals will need to reapply each week that a Commonwealth Hotspot remains in place to confirm their eligibility. The COVID-19 Disaster payment will not necessarily end, but anyone currently receiving the payment will need to reconfirm that they meet the eligibility criteria, including living or working in a Commonwealth declared hotspot.
Given that the time gap between 70% and 80% full vaccination might be as little as two weeks in some regions, the impact of the 70% restrictions might be a moot point.
At 80% full vaccination in your state or territory
In the first week a State or Territory reaches 80% full adult vaccination, the COVID-19 Disaster Payment will phase out over a two week period before ending completely.
| Trigger | Disaster payment per week |
| <70% vaccination* | $750 - lost 20 hours or more for that week
$450 - lost at least 8 hours of work $200 - on income support and have lost at least 8 hours of work |
| 70% vaccination* | Automatic renewal ends |
| 80% vaccination | Payment reduced from first week |
| Week 1 | $450 - lost at least 8 hours of work
$100 - for those on income support who have lost at least 8 hours of work |
| Week 2 | $320 - lost at least 8 hours of work |
*First week population +16 years of age reaches vaccination target
Those needing financial support will no longer be eligible for the disaster payment, regardless of whether a Commonwealth hotspot is in place, and instead will need to apply for another form of income support such as JobSeeker. Unlike the disaster payments, JobSeeker and most other income support payments are subject to income and assets tests.
The Pandemic Leave Disaster Payment, for those who cannot work because they need to self-isolate or care or quarantine, or care for someone with COVID-19, will remain in place until 30 June 2022.
Support for business
Each State and Territory manages in different ways the lockdown and financial support provided to businesses impacted by COVID-19 lockdowns and border closures. The way in which support is withdrawn will depend on how support has been provided and the extent of Commonwealth support. In this newsletter we focus on Victoria. Detail on support in other States is available from your MVAB client service staff person.
The Victorian Government has distributed grants to business jointly funded with the Commonwealth. For many of these grants, funding has been topped up in line with lockdown extensions.
The Small Business Hardship Fund has provided one-off grants of $20,000 for businesses that have suffered a 70% or more decline in turnover and were not eligible for other grants or funding, will reopen (see the BusinessVictoria website for details).
The Business Costs Assistance Program will provide automatic top-ups to existing recipients across October and into the first half of November (two fortnightly payments between 1-29 October on a rising scale). Businesses that remain closed or severely restricted between 70% and 80% double dose will receive an automatic payment for the period from 29 October to 13 November.
Licensed hospitality venue fund recipients will also receive weekly top-ups in October of between $5,000 and $20,000, stepped according to venue capacity. Between 70% and 80% double dose, payments for licensed premises in metropolitan Melbourne will be reduced by 25%, and in regional Victoria by 50%.
For Borrowers
While an economic rebound is expected by some when restrictions ease across the country, for many, a funding gap will remain between the assistance provided by Government grants and viable trading conditions.
The expanded SME recovery loan scheme took effect on 1 October 2021. Under the scheme, the Government will guarantee 80% of loan amounts to businesses that have been adversely impacted by COVID-19.
The lending terms, repayment, and interest rates are set by the lenders but cannot be backed by residential property, that is, if the Government is underwriting the loan, lenders cannot ask business owners to use their home as security. However, Directors guarantees are likely to be required.
Under the scheme, lenders can provide:
The recovery loans can be used to refinance existing loans, purchase commercial property, purchase another business, or working capital. But, cannot be used to purchase residential property, financial products, lend to associated entities, or lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.
The loan scheme is generally available to solvent businesses with a turnover of up to $250m, have an ABN, and a tax resident of Australia. Loans remain subject to lending conditions and generally the lenders will look to lend to viable businesses where it is clear that they can trade their way out of the impact of COVID-19 or the assets of the business make the break-up value attractive.
If you default on your loan, you cannot simply walk away from it. The Government is guaranteeing 80% of the lender’s risk not your debt. Director guarantees are still likely to be required and for many loans, it will be secured against a business asset. On the plus side, interest rates are very attractive right now and many of the lenders are providing a repayment holiday of up to 24 months and in some cases,existing debt can be bundled into the loan arrangements.
Capital Gains Tax – subdividing the Main Residence
Subdivision of the main residence is a popular activity in Melbourne suburbs. Excising the unused and maybe oversize back yard is an example or more we are seeing houses demolished and the land split in two with two adjoining houses on the former single block.
The main residence exemption applies only to the “dwelling” when the land remains immediately under the accommodation.
If the accommodation is removed from the land and the land is sold (or half of it sold), the land does not come within the definition of dwelling and the main residence exemption does not apply.
Land under the accommodation qualifies for the main residence exemption for capital gains tax only if the land and the accommodation are sold together.
If you are contemplating changing the use of your main residence then taxes are complex and the proposition should be planned in advance for the likely tax consequences.
Cryptocurrency
The use of cryptocurrency is growing and there are taxation ramifications.
The term cryptocurrency is generally used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.
If you are involved in acquiring or disposing of cryptocurrency, you need to be aware of the tax consequences. These vary depending on the nature of your circumstances. The default position is to tax the crypto currency transaction as a capital gain.
Everybody involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions.
If you have dealt with a foreign exchange or cryptocurrency there may also be taxation consequences for your transactions in the foreign country.
Residency
Many of our family clients have a next generation living outside Australia.
Australia seeks to tax the world-wide income of its residents for tax purposes and the Australian taxable assets of its non-residents.
Like all tax matters there are shares of grey, complexities and unintended consequences.
If non residency or a likely change in residency applies in your family, you should be reviewing the implications of:
If you have parents who reside outside Australia where assets maybe inherited into Australia, again planning is recommended well in advance.
Superannuation and Contractors
We continue to see business confused by the compliance rules of Superannuation Guarantee Charge obligations for service providers of business who might invoice rather than being on the payroll.
The definition of employee for SGC purposes is narrow and is not cross referenced to other definitions of generally accepted concepts of employment. If your business pays for labour to suppliers then you should be reviewing your compliance obligations to pay 10% superannuation in accordance with the Superannuation Guarantee Charge rules.
Superannuation - Rule changes for new employees
When your business hires a new employee, the Choice of Fund form is used to identify where they want their superannuation to be directed. If the employee does not identify a fund, generally the employer directs their superannuation into a default fund.
From 1 November 2021, where an employee does not identify a fund, the employer is required to contact the ATO and request details of the employee’s existing superannuation fund or ‘stapled’ fund (the fund stapled to them). The request is made through the ATO’s online services through the ‘Employee Commencement Form’.
If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement (if the determination was made before 1 January 2021).
Superannuation Funds - payments made on death
Superannuation is not like other assets as it is held in trust by the trustee of the superannuation fund. When you die, it does not automatically form part of your estate but instead can be paid to your eligible beneficiaries by the fund trustee according to the rules of fund, superannuation law, and the death nomination you made.
Fund members have a death nomination in place to direct their superannuation to their nominated beneficiaries on their death. There are four types of death benefit nominations:
Binding death benefit nomination - Putting in place a binding death nomination will direct your superannuation to whoever you nominate. As long as that person is an eligible beneficiary, the trustee is bound by law to pay your superannuation to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.
Non-lapsing binding death benefit nomination - Non-lapsing binding death nominations, if permitted by your trust deed, remain in place unless the member cancels or replaces them. When you die, your super is directed to the person you nominate.
Non-binding death nomination - A non-binding death nomination is a guide for trustees as to who should receive your superannuation when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay the superannuation to someone else or to your estate.
Reversionary beneficiary – if you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years. If a reversionary pension is in place the benefit is not directed by the BDBN. Therefor direct two binding outcomes could be effected - one via BDBN of an accumulation account or no reversionary pensions, and on via reversionary pension account.
If no death benefit nomination is in place - If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will often be a financial dependant to the legal representative of your estate to then be distributed according to your Will.
Is your death benefit valid?
There have been a number of court cases over the years that have successfully contested the validity of death nominations, particularly within self managed superannuation funds. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name and if the superannuation is to be directed to your estate, ensure the wording uses the correct legal terminology.
Who can receive your superannuation?
Your superannuation can be paid to a SIS dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you.
A dependant is defined in superannuation law as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. An interdependency relationship is where someone depends on you for financial support or care.
Do beneficiaries pay tax on you superannuation?
Whether or not the beneficiaries of your superannuation pay tax depends on who the superannuation was paid to and how. If your superannuation is paid as a lump sum to a tax dependant, the superannuation is tax-free. The tax laws have a different definition of who is a dependant to the superannuation laws. A tax dependant for tax purposes is your spouse or former spouse, your child under the age of 18, or someone you have an interdependency relationship with. Special rules exist if you are a police officer, member of the defence force or protective service officer who died in the line of duty.
If your superannuation is paid to your estate, the tax laws use a ‘look through’ approach when superannuation death benefits are distributed to the deceased’s legal representative. This involves determining whether the final recipient of the superannuation is a dependant or a non-dependant of the deceased.
If the person is not a dependant for tax purposes, for example an adult child, then there might be tax to pay.
Should you have any questions regarding the above, please do not hesitate to contact our office on 03 9642 8000, or email us on info@mvabennett.com.au
MVA Bennett is pleased to announce that the accounting and advisory practice known as Aberdeen Advisory merged with MVA Bennett on 1st October 2021.
Chris Hall, Chartered Accountant, established Aberdeen Advisory some 10 years ago to enable him to serve clients with his particular passion and professional expertise. The practice has grown steadily, and the time is right to broaden the base so that the depth and capacity needed to service clients can continue at the expected standards.
We welcome Chris and his team into our La Trobe Street offices. Chris has joined our partnership as one of eight equity partners in the combined business and, as both businesses have aligned values, culture, and software, we expect that you will notice very little difference in the day-to-day support of your needs as a valued client. Further information is included on our website at www.mvabennett.com.au
We welcome all the valued clients of Aberdeen Advisory and look forward to supporting their professional services needs into the future. In particular, MVA Bennett looks forward the having the expertise of Chris Hall and his team to further develop their passion and skills in respect to advising on complex taxation issues.
If you have any questions kindly contact our Managing Partner Andrew Ellem on 9642 8000 orandrew@mvabennett.com.au