Practice Update - September 2021

The Australian Taxation Office ( ATO ) has started utilising new powers that will allow it to disclose business tax debts to credit reporting bureaus.   The Government passed these powers into law back in late 2019, however the ATO paused the enforcement of debts and lodgements during 2020 in response to the negative economic impact of the COVID-19 pandemic.

We understand that some businesses with tax debts in excess of $100,000 (that are at least 90 days overdue) have begun receiving letters from the ATO, warning them of the ATO's intention to disclose tax debt information to credit reporting bureaus .   The mechanism for reporting is not automatic. The ATO must notify the business in writing and give them 28 days to engage with the ATO to manage its tax debt.

Under what circumstances can the ATO report unpaid debts to a credit reporting bureau?

The relevant criteria are as follows:

• The business has an ABN and is not defined as an "excluded entity" (ie. deductible gift recipient, registered charity, a government entity, and a complying superannuation entity).
• The business's tax debts exceed $100,000 and overdue by more than 90 days.
• The business is not considered to be 'effectively' engaging with the ATO to manage its tax debt.
• The Inspector-General of Taxation is not considering a compliant made by the business about "the proposed reporting of the entity's tax debt information."

What is the impact?

Any defaults are recorded on a taxpayer's commercial credit file.   The understandable concern is this will have immediate and lasting consequences for a defaulting taxpayer, as a credit default is a black mark that lasts for five years and may give rise to reduced support from lenders.

We recommend that it is now very important to identify and manage any large outstanding tax debts by keeping up to date with payment schedules and keeping on open dialogue with the ATO at the first sign of any falling behind on payments.

JobMaker Hiring Credit: time is running out to register

The third claim period for the JobMaker Hiring Credit scheme (see ATO website here ) is now open.  If a taxpayer has taken on additional eligible employees since 7 October 2020, they may be able to claim JobMaker Hiring Credit payments for their business.

Eligible businesses can receive up to:

• $10,400 over a year for each additional eligible employee hired aged 16 to 29 years; and
• $5,200 over a year for each additional eligible employee hired aged 30 to 35 years.

The JobMaker Hiring Credit is available to businesses for each additional eligible employee hired before 6 October 2021, so, if a business is thinking about taking on extra staff, they should check if they are eligible to participate in the scheme.

SME Recovery Loan Scheme: expansion of support for SMEs to access funding

The Government is providing additional support to small and medium sized businesses ( SMEs ) by expanding eligibility for the SME Recovery Loan Scheme (see Treasury website here).

Specifically, in recognition of the continued economic impacts of COVID, the Government will remove requirements for SMEs to have received JobKeeper during the March quarter of 2021, or to have been a flood affected business, in order to be eligible under the SME Recovery Loan Scheme.

As with the existing scheme, SMEs who are dealing with the economic impacts of the coronavirus with a turnover of less than $250 million will be able to access loans of up to $5 million over a term of up to 10 years.

Other key features include:

• The Government guarantee will be 80% of the loan amount.
• Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
• Loans can be used for a broad range of business purposes, including to support investment, as well as to refinance any pre-existing debt of an eligible borrower.
• Loans can be either unsecured or secured (excluding residential property).

Changes To Payroll Tax from July 2021

Payroll tax is a State and Territory tax on wages paid by employers to their employees and is calculated based on the amount of wages paid to employees Australia-wide per month.

There are a number of changes that will have occurred to payroll tax (as implemented in July 2021).

Each of the listed States and Territory has had different changes implemented to their payroll tax requirements and thresholds, which need to be addressed by employers like you (or us, if you use a bookkeeper or accountant to help with payroll tax). You need to ensure that you are up to date with these changes to maintain compliance and avoid punishment for non-compliance.

Additional 10% CGT discount for Affordable Housing

An additional 10% affordable housing capital gain discount may be available when you sell an Australian residential rental property that you used to provide affordable housing.   This would increase the maximum CGT general discount percentage from 50% up to 60%.

What Is Affordable Housing?

For the purposes of the additional 10% CGT discount, " affordable housing " is any dwelling (ie. house, unit or apartment) where the following conditions are satisfied:

• The dwelling is both a taxable Australian real property ( TARP ) and residential premises that you rent out, or genuinely make available for rent.  Caravans, mobile homes and houseboats are not treated as residential premises.
• The dwelling is not a commercial residential premises (ie. hotel, hostel, boarding houses).
• Management of the tenancy or its occupancy is done exclusively by a registered community housing provider ( CHP ).Each entity that holds an ownership interest in the dwelling has a certificate from the provider showing that the dwelling was used to provide affordable housing.
• No entity that has an ownership interest in the dwelling is in receipt of an incentive from the National Rental Affordability Scheme ( NRAS ) for the NRAS year.
• If a managed investment trust ( MIT ) has an ownership interest in the dwelling, the tenant does not have an interest in the MIT that passes the non-portfolio test.

Who is eligible to access the Affordable Housing CGT discount?

When you sell a rental property used to provide affordable housing, and make a capital gain, you may qualify you for an additional (up to 10%) affordable housing capital gain discount if you meet the following eligibility criteria:

The capital gain must have been either:

• made by you as an Australian resident individual; or
• distributed or attributed to you either:
  • directly from a trust or managed investment trust ( MIT ); or
  • indirectly from a trust through an interposed partnership, MIT or other trusts (this does not include public unit trusts or super funds).

You must have also provided:

• new or existing affordable housing;
• rental rates below market rent;
• affordable housing to eligible tenants on low to moderate incomes (based on household income thresholds and household consumption); and
• affordable housing for a minimum period of three years (or 1,095 days) from 1 January 2018, which can be continuous or an aggregation of three years over a longer period.

The additional 10% affordable housing capital gain discount will be pro-rated for periods when the property was not used for affordable housing purposes.

Property investors should be aware of common tax traps

During 2019-20, over 1.8 million Australians owned rental properties and claimed $38 billion in deductions, and the ATO is now reminding property investors to beware of common tax traps that can delay refunds or lead to an ATO audit review costing taxpayers time and money.

The most common mistake rental property and holiday homeowners make is neglecting to declare all their income, including failing to declare any capital gains from selling an investment property.

So far, the ATO has adjusted more than 70% of the 2019-20 tax returns selected for a review of rental information, which can be caused by: keeping insufficient receipts and tax records; not correctly accounting for any periods of personal use of the property by the owners; or claiming ineligible deductions.

Tax Consequences of Cryptocurrency

With the increased popularity of investing in and trading cryptocurrencies, it is worth reminding ourselves of the tax consequences of digital assets, as the rules can be complicated.

Cryptocurrency may appear to be just another form of money, however the view adopted by the ATO for these digital assets is similar to investing in shares.  The tax treatment is fundamentally the same and any gains or losses are assessed as income under the capital gains tax ( CGT ) regime. 

When will there be a difference in tax treatments?

If you are a simple investor in cryptocurrency, you may have bought $10,000 worth of the currency, and held onto it for five years to then sell it for say, $25,000. The $15,000 "profit" from that sale would most likely then be treated as a capital gain.  You would be required to pay tax on half of that capital gain (after applying the CGT 50% general discount) at your marginal tax rate. 

However, if you are trading in cryptocurrency on a regular basis as well as mining for coins.  This might indicate that you are actually in the "business" of trading cryptocurrency (the same as when taxpayers are in the business of share trading).  When trading, you are taxed on your profits as income and not as capital gains. 

In most cases, this would not make a big difference to the final tax result, as a trader does not typically hold their cryptocurrency/shares for more than a year.  Therefore, they would not be entitled to access the CGT 50% general discount, as it requires you to hold the asset for more than 12 months to be eligible.

It is important to understand that the ATO receives the transaction details and trading data from all the cryptocurrency trading houses (including overseas trading houses).

The Government has passed legislation renewing the temporary relief that allows companies to use technology to meet regulatory requirements under the Corporations Act 2001.

These temporary relief measures will allow companies to hold virtual meetings and use electronic communications to send meeting-materials and execute documents until 31 March 2022 .   This should ensure that companies can meet their obligations as they continue to deal with the uncertainty of the COVID pandemic.

With the extension of this temporary relief, the Government will now seek to introduce permanent reforms later this year to give companies the flexibility to use technology to hold meetings, such as hybrid meetings, and sign and send documents.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.