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Practice Update
September 2024
🔶 TAXPAYERS CAN NOW BEGIN FILLING THEIR TAX RETURNS 🔶
With millions of details already pre-filled, including data from most banks, employers, government agencies, and private health insurers, the ATO is giving the green light for those with straightforward tax matters to lodge their returns.
For those claiming deductions this year, it's important to have the correct documentation. In most cases, a bank or credit card statement alone isn’t enough to support a work-related deduction claim – receipts are important.
The ATO also reminds taxpayers that deduction rules can change, particularly for car expenses and work-from-home costs. So, it is not advisable to simply “copy and paste” last year’s claims and it is best to consider seeking advice from an accountant if needed.
Taxpayers using a registered tax agent generally have more time to file their returns.
🔶 RECEIVING PAYMENTS OR ASSETS FROM FOREIGN TRUSTS 🔶
As an Australian resident, if you receive payments or assets from a foreign trust, they may be subject to tax under Section 99B of the Income Tax Assessment Act 1936 (ITAA 1936). This applies if you're a beneficiary of the trust and receive money, land, shares, or other assets. The value of these assets must be included in your assessable income for the year they are received.
Trust Payments/Assets Include:
- Direct or indirect loans from the trustee
- Payments made to third parties on your behalf
- Gifts from family members sourced from the trust
- Distributions or transferred trust assets (e.g., shares)
Exceptions:
You may not need to include these amounts in your assessable income if they:
- Have already been assessed under another tax law
- Represent corpus (capital) as defined by the hypothetical taxpayer test
You need to understand the nature and source of the money or other assets you receive from overseas.
🔶 CLARIFICATION ON THE COLLECTION AND RECOVERY
OF DISPUTED DEBTS 🔶
The ATO has revised Practice Statement Law Administration PS LA 2011/4 to clarify its expectations regarding large businesses and wealthy group taxpayers with disputed debts. The ATO expects these taxpayers to either pay their disputed debt in full or enter into a 50/50 arrangement. If they fail to comply, the ATO may take steps to secure payment of the debt before the dispute is resolved.
Under the 50/50 arrangement, the taxpayer is required to pay at least 50% of the disputed principal tax debt. In exchange, subject to certain conditions, the Commissioner agrees to defer recovery of the remaining balance and may partially remit the general interest charge (GIC) that would otherwise apply.
According to PS LA 2011/4, a large business or wealthy group taxpayer is defined as a taxpayer that falls into one of the following categories:
- A member of a group with a turnover exceeding $250 million
- A member of a private group with net assets over $250 million
- A significant global entity
These groups can include Australian public and private businesses, majority foreign-owned companies, and private equity arrangements.
🔶 TAX INCENTIVES FOR EARLY STAGE INVESTORS 🔶
The ATO is reminding investors who have purchased new shares in a qualifying Early Stage Innovation Company (ESIC) that they may be eligible for valuable tax incentives.
These incentives include:
- A non-refundable, carry-forward tax offset equal to 20% of the amount invested in eligible shares. This offset is capped at $200,000 per year for the investor and their affiliates combined.
- Modified Capital Gains Tax (CGT) treatment, which allows capital gains on shares held for at least 12 months but less than 10 years to be disregarded. However, any capital losses on shares held for less than 10 years must also be disregarded.
It's important to note that the $200,000 tax offset cap does not limit the eligibility of shares for modified CGT treatment.
🔶 KEY PRIORITIES FOR THE NEXT 5,000:
STRENGTHENING COMPLIANCE AND TAX MANAGEMENT IN 2024-25 🔶
Assistant Commissioner Daniel Smith outlines the key priorities for the Next 5,000 Private Groups Tax Performance Program in 2024–25.
The program targets some of Australia’s wealthiest privately owned groups, setting clear expectations for compliance and demonstrating the commitment to fair tax administration. It also provides support through resources and data-driven insights to help these groups and their advisers manage tax obligations effectively.
Key focus areas for the remainder of the 2024–25 financial year include:
- Streamlined Assurance Reviews: These will continue for groups with complex structures, while risk reviews will target the remaining population. Groups must understand the implications and prepare accordingly.
- Record Keeping and Tax Management: Even sophisticated groups can falter in maintaining proper records and tax management. For example, a group faced a $27 million tax liability due to poor record-keeping practices related to loans between entities.
- Findings Report: The annual Next 5,000 findings report highlights common issues and provides strategies to avoid them. The current report is available, with an updated version to be released in November.
The ATO remains committed to working with private groups and their advisers to ensure compliance and effective tax management.
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