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Practice Update
January 2024
🔶 ENSURING COMPLIANCE:
NEW REPORTING GUIDELINES FOR SPORTING CLUBS🔶
Stay Ahead: Familiarize Yourself with the Upcoming Annual Reporting Requirement
As part of recent changes in regulatory requirements, not-for-profit entities (NFP), including sporting clubs, societies, and associations with an active Australian Business Number (ABN), are required to submit an annual NFP self-review return to retain their income tax exemption status.
This crucial self-review return necessitates a thorough evaluation of your sporting organization's objectives and activities vis-à-vis the criteria set for eligible income tax-exempt entities.
Key Dates and Requirements
The inaugural NFP self-review return for the 2023–24 income year is due between July 1 and October 31, 2024. Note that even if your organization is affiliated with a larger sporting group, if it possesses its own ABN, it must independently complete the NFP self-review return.
Preparation Checklist
To streamline the lodgment process and ensure compliance, designated individuals within your sporting club, society, or association should:
- Confirm the active status of your organization's ABN via ABN Lookup.
- Promptly update address details and responsible persons' information to ensure access to the account and receipt of important tax-related communications.
- Identify the primary purpose of your sporting organization and gather relevant governing documents.
- Conduct an early self-review to check eligibility for income tax exemption.
- Set up myGovID and Relationship Authorisation Manager (RAM) account to facilitate seamless submission of the NFP self-review return via Online services for business.
Purpose Identification Process
Your organization's main focus should be promoting a game, sport, or animal racing, with any other purposes considered secondary. If your organization also conducts non-sporting activities alongside its sporting ones, it's important to assess:
- Whether these non-sporting activities are incidental to promoting the game, sport, or animal racing.
- Whether the organization can demonstrate to its members and the public that its primary goal is promoting a game, sport, or animal racing.
While many sporting organizations concentrate on activities directly related to their designated game, sport, or animal racing, thereby confirming their primary purpose.
🔶 UPDATED GUIDANCE ON R&D CLAIMS 🔶
The Australian Taxation Office (ATO) has released two new taxpayer alerts that are regarding potentially incorrect Research and Development R&D tax incentive arrangements. These alerts pertain to expenses accrued by associated entities and activities conducted abroad for entities with foreign affiliations.
The ATO has expressed concerns regarding the use of these arrangements for:
- asserting the R&D tax offset in scenarios where it wouldn't otherwise be applicable, either entirely or during the income year claimed by the R&D entity
- inflating the claimed amount of the R&D tax offset artificially.
Participants involved in such arrangements may face penalties. However, these penalties can be substantially reduced if the request for amendment is treated as a voluntary disclosure. Typically, the reduction is more significant if the disclosure precedes any notification of an examination into your client's tax affairs.
About the Two Alerts
Taxpayer Alert TA 2023/4 - R&D activities conducted by associated entities. These are identified situations where an entity inaccurately claims the R&D tax offset for expenses accrued under an agreement with an associated entity responsible for conducting research and development activities.
Taxpayer Alert TA 2023/5 - R&D activities conducted overseas for foreign related entities. This alert underscores concerns regarding arrangements where Australian entities claim the R&D tax offset for expenses related to R&D activities conducted abroad. Of particular concern are cases where R&D activities are purportedly conducted for the benefit of the Australian entity but are, in fact, carried out for a foreign entity affiliated with or connected to the Australian entity.
🔶 TAX DEDUCTION DENIALS: UNDERSTANDING RECENT AAT RULINGS
ON WORK-RELATED EXPENSES 🔶
In recent developments, the Administrative Appeals Tribunal (AAT) has issued significant rulings regarding the deductions of work-related expenses. These rulings serve as a significant alert for taxpayers, particularly those in professions like real estate, to ensure compliance to substantiation requirements. The AAT's decisions underscore the importance of maintaining comprehensive records to support expense claims.
A recent case involved a real estate salesperson who sought tax deductions for expenses incurred over the 2018 to 2020 income years. Despite deriving income from employment with a real estate company during this period, the taxpayer's claims for various work-related expenses, such as car expenses and gifts/donations, were disallowed by the Australian Taxation Office (ATO).
The AAT upheld the ATO's decision, citing the taxpayer's failure to substantiate the claimed expenses adequately. Particularly, they highlighted deficiencies in the substantiation of car expenses. Although the taxpayer used the logbook method, it was revealed that the vehicle in question was owned by a company and not directly by the taxpayer, rendering it ineligible for deduction under this method. Furthermore, the provided logbook lacked the “sufficient specificity” for this method.
Inadequate substantiation extended beyond car expenses. Despite the taxpayer's efforts to provide evidence such as credit card statements and telephone tax invoices, these documents failed to establish a clear link between the expenses and work-related activities. Similarly, reliance on bank transaction statements for other expenses proved futile due to the absence of clear identification of the nature of expenses, their relevance to income generation, and any necessary apportionment between business and personal use.
Of particular note was the absence of receipts or tax invoices for claimed donations, further contributing to the insufficiency of substantiation.
These rulings serve as a stark reminder to taxpayers of the importance of meticulous record-keeping and adherence to substantiation requirements. Failure to meet these standards not only risks the disallowance of deductions but also invites potential scrutiny from tax authorities. Therefore, taxpayers, especially those in professions involving diverse expense categories, are strongly advised to maintain detailed records and seek professional guidance to ensure compliance with taxation laws and regulations.
🔶 ATO CONCLUDES TAX/SUPERANNUATION WORKER CLASSIFICATION GUIDANCE AMID PARLIAMENT'S DELAY ON FAIR WORK EMPLOYEE DEFINITION 🔶
The Australian Taxation Office (ATO) has recently finalized guidance on the classification of workers for tax and superannuation purposes. This guidance emphasizes evaluating contractual terms alongside broader factors to determine the nature of the relationship. It warns against relying solely on contractual labels and upfront assessments. Concurrently, the Parliament delays introducing a statutory definition of "employee" for Fair Work purposes until 2024.
The finalized guidance incorporates feedback and recent legal decisions, emphasizing the need to consider external factors beyond written contracts. It highlights control, hourly rate remuneration, ability to subcontract, and sham contracts as key factors in determining employment status.
Additionally, the ATO has updated compliance guidelines, narrowing the types of arrangements considered low risk. However, employers are urged to ensure comprehensive contracts and governance frameworks to mitigate compliance risks.
As organizations continue to engage workers through non-traditional channels, it's crucial to adapt governance frameworks to accommodate evolving regulatory requirements and ensure compliance. This includes reviewing contracts, establishing communication channels with contractors, and potentially automating governance processes to mitigate compliance risks effectively.
🔶 MELBOURNE RESIDENT RECEIVES JAIL TIME FOR
ATTEMPTED FRAUD WORTH NEARLY $458,000 🔶
A man from Wheelers Hill was sentenced to 3.5 years in prison on December 21, 2023, for defrauding the Australian Taxation Office (ATO) of approximately $35,000 and attempting to defraud them of an additional $458,000. Blake Crough pleaded guilty to multiple counts of financial deception in May 2023 after a joint investigation by the Australian Federal Police (AFP) and ATO SFCT uncovered suspicious claims, including 40 fraudulent applications for JobKeeper, totaling $492,957.
Detective Superintendent Bernard Geason of the AFP emphasized the sentence's significance as a deterrent against exploitation of the Commonwealth and its taxpayers. He highlighted the collaborative efforts of the ATO-led Serious Financial Crime Taskforce (SFCT) in identifying and combating such criminal activities. John Ford, Deputy Commissioner of the ATO and Chief of SFCT, reaffirmed the commitment to maintaining the integrity of the tax system, particularly in response to fraudulent attempts like those involving JobKeeper payments. Through ongoing collaboration with partner agencies, the SFCT continues to tackle serious financial crimes, while the AFP-led CACT focuses on tracing and confiscating criminal assets to safeguard public finances.
🔶 GST IMPOSITION ON SALE OF REAL ESTATE 🔶
In the case of Lance v. Commissioner of Taxation (Taxation) [2024] AATA 11, the Administrative Appeals Tribunal (AAT) ruled that the sale of a property possessing cultural and historical significance constituted a taxable transaction under section 9-5 of the A New System (Goods and Services Tax) Act 1999 (GST Act). The central question before the AAT was whether the sale of the property fell within the scope of activities conducted 'in the course or furtherance of an enterprise' by the taxpayer, with all other criteria for a taxable supply being met.
While acknowledging the taxpayer's intention to reside in the heritage homestead situated on the property at some point, the Tribunal found concurrent intentions to subdivide the property and sell off individual lots. This subdivision and subsequent sale were deemed as constituting an 'enterprise' by the AAT, given their business-like nature, particularly considering the scale and capital investment involved in the property's purchase and development. This assessment was regardless of whether the taxpayer was officially engaged in property development.
The AAT also recognized the taxpayer's activities as falling within the definition of an 'enterprise' under section 9-20(1) of the GST Act, resembling a series of endeavors akin to trade or commercial ventures, as evidenced by the intent to profit from the property's sale, even if viewed as an isolated transaction. Consequently, the Tribunal concluded that the sale of the property occurred in the course of furthering an enterprise conducted by the taxpayer, rendering the supply subject to GST as a taxable transaction.
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