November 2010 E-News
This month’s issue of E-News includes:
- Recent Increases in ATO Audit Activity
- Contractors vs Employees: Can you tell the difference?
- New Australian Business Name Registration – Coming Soon
- Legislative change softens Tax Invoice Requirements
- Why Every Person with a Self Managed Super Fund needs a Will
- ATO Interpretive Decisions:
- 2010/195: Car Expenses: Business kilometres - Travel to Tax Agent
- 2010/178: Deductibility of Income Protection Premiums
- Changes to the Eclipse Accounting Team
We are continually looking for new ideas of topics or news to include in our newsletters and on our website. If you have any ideas or requests for either, we’d love to hear from you, so please send an email to Matt (matt@eclipseaccounting.com.au) or Megan (megan@eclipseaccounting.com.au). In the meantime, check out our website now at www.eclipseaccounting.com.au
Recent Increases in ATO Audit Activity
In recent months, we have noticed a significant increase in ATO audit activity compared to prior years. Through the use of technological advances and a lot of Government funding, ATO audits are increasing in several areas including the Cash Economy Data Matching Program; Employer Superannuation Guarantee obligations; and substantiation of Employee work-related expense deductions.
The ATO expects to cross-reference, or data-match, more than 500 million financial transactions this year as part of its normal audit program. This involves cross-referencing information included in tax returns with transactions from financial institutions, government organisations and other third-party bodies.
This is a timely reminder for business and individual taxpayers to be vigilant in keeping full and accurate records including log books and diaries, where relevant, and ensuring that business and work deductions are always supported by receipts or invoices.
Contractors vs Employees: Can you tell the difference?
A recent decision by the Administrative Appeals Tribunal (AAT) (Associated Translators and Linguists Pty Limited and Commission of Taxation [2010] AATA 260) should serve as a warning for any employer who employs independent contractors. In a case brought by the Tax Commissioner, a company that employs over 1,000 contractors to provide interpretation and translation services is now potentially liable for superannuation guarantee payments to all of its contractors - now and retrospectively.
So what went wrong? The problem is that there is no conclusive definition of who or what an independent contractor is. The fact that an agreement might state that someone is a contractor is considered merely a ‘label’ by the court. Where the contractor primarily supplies their personal labour, the dividing line between an employee and a contractor is even harder to distinguish when the tools of the contractor’s trade is their knowledge and expertise.
The Superannuation Guarantee Assessment (SGA) Act requires that superannuation guarantee payments are made by the employer for employees (using the ordinary term for employee). Then, the Act goes one step further stating that “if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”
This case deals with independent contractors who are individuals. The use of an interposed company structure is often seen as a way of overcoming this problem (where the company represents an individual only and is the vehicle to provide their personal services) but there still may be a risk.
If you employ contractors, take a close look at the arrangements in place and whether you might have a superannuation guarantee exposure.
For a more detailed overview of the above case and issues with using contractors, go to our website at http://www.eclipseaccounting.com.au/resources/library/index#contractors
New Australian Business Name Registration – Coming Soon
In mid-2011, ASIC will be responsible for a new national business name registration service. This will mean that businesses no longer have to register their business name in every state and territory they want to trade in. The new service will replace the current state and territory systems.
Businesses will be able to apply to register a national business name online and in most cases receive confirmation of their registration immediately.
A joint online application for an ABN and national business name registration will also be available to streamline the establishment of a new business.
This will usually not affect business owners who choose to operate their business through a company or Trust structure. And it is important that people always seek their accountant’s and solicitor’s advice before commencing or purchasing a business to ensure it is operated using the most appropriate structure based on their specific circumstances.
Legislative change softens Tax Invoice Requirements
A new fact sheet outlines recent legislative changes that soften the requirements for what information needs to appear on a tax invoice for it to be a valid tax invoice for tax credit purposes.
The new rules allow invoices to be valid tax invoices even if they are missing key information, provided the invoice makes it clear that it is intended to be a tax invoice and the missing information can be obtained by other documents provided by the supplier, for example a contract of sale.
The minimum requirements for a valid tax invoice are:
• The supplier’s identity and ABN
• If the consideration for the supply is $1,000 or more, or the document is issued by the recipient, the recipient’s identity or ABN
• What is supplied, including the quantity and price of what is supplied
• The extent to which supplies are taxable (for GST purposes)
• The date of issue
• The amount of GST payable and, if the document is a RCTI, a statement that the GST is payable by the supplier.
These new rules also apply to recipient created tax invoices. The changes applied from 1 July 2010.
Why Every Person with a Self Managed Super Fund needs a Will
Approximately 60% of Australian’s die without a will in place. The average age of people with a will is 82 and the average age of people who die without a will is 62. Apparently, the majority of us believe that we are going to die of extreme old age.
Dying intestate can be complex enough but if you have a Self Managed Superannuation Fund the situation can become even more complex. Dying without a will in place is likely to mean that there will be a significant period of time before your beneficiaries can access your superannuation - even if you have binding death benefit nominations in place. The reason is that once the trustee dies, there may not be anyone with the legal authority to approve the payment of your superannuation to your nominated beneficiaries. If you are a Director of a trustee company with multiple directors, it will depend on whether the trust deed and the company constitution allow the other directors to act without you.
With many people building a significant amount of wealth within SMSFs, it’s important that these funds are not unnecessarily tied up when our families most need them.
Note: The Trust Deeds and Constitutions that our firm uses for our clients offer full flexibility in providing for a surviving director to act alone. Fund Trustees should ensure that if the Super Deed or Trustee Constitution is from another firm, they should be reviewed by a solicitor. Fund Deeds should also be upgraded at least every 5 years to ensure compliance with current Legislation.
ATO ID 2010/195: Car Expenses: Business kilometres - Travel to Tax Agent
Facts
• The taxpayer was an employee.
• The taxpayer used a tax agent to prepare their tax return.
• The taxpayer travelled 4,500kms in the year in relation to their income-earning activities.
• The taxpayer also travelled 600kms in visiting the tax agent for the purposes of managing their tax affairs.
Issue
Are the kilometres travelled by a taxpayer to consult with a tax agent included in the business kilometres used for determining their car expense deductions under Division 28?
Decision
Yes, the kilometres travelled by the taxpayer would be included in the business kilometres used in calculating their car expenses deduction under Division 28. This is because the travel to the taxpayer’s tax agent is deemed to be travel for an income producing purpose.
ATO ID 2010/178: Deductibility of Income Protection Premiums
Facts
• The taxpayer is an employee.
• The taxpayer pays an annual insurance premium for an income protection policy.
• The policy provides the taxpayer with periodic benefits to protect them against loss of income.
Issue
Is the taxpayer entitled to a deduction under s8-1 for the premiums paid for the income protection policy?
Decision
Yes, the taxpayer is entitled to a deduction for the insurance policy premium that protects them from a loss of their income provided it pays periodic benefits in the event of an inability to earn income. This is notwithstanding the fact that no income may actually be received from the policy.
