Practice Update - June 2021

New ATO data-matching programs involving property

The ATO has recently announced that it will be launching two new data matching programs dealing with property transactions.

First, the ATO will acquire property management data from property management software providers for the 2018-19 through to 2022-23 financial years (relating to approximately 1.6 million individuals each year), including:

• Property owner identification details, including names, addresses, Australian business numbers (if applicable), contact details and account details such as BSB number, bank account number and bank account name; and
• Rental property details, including the date the property was first available for rent, the rental income categories and amounts, rental expense categories and amounts, and the net rent amount; and
• Property manager details, including business name, managing agent name, business addresses (business, postal, internet) and contact details, ABN and licence number.

Second, the ATO will acquire rental bond data from state and territory rental bond regulators bi-annually through to 30 June 2023 (relating to an estimated 350,000 individuals each year), including:

• Landlord and managing agent identification details (names, addresses, email addresses, phone numbers, etc); and
• Rental bond transaction details including rental property address, period of lease (including commencement and expiration of lease), amount of rental bond held, amount of rent payable for each period, type of dwelling, and unique identifier of the rental property.

We remind you that it is very important to keep accurate records and working papers in relation to any property transactions, and we note this should be a continued focus beyond the current tax year ending 30 June 2021.

Loss Carry Back Tax Offset requires an accurate Company Franking Account to be maintained

The loss carry back rules provide a refundable tax offset that eligible corporate entities can claim:

• After the end of their 2020–21 and 2021–22 income years,
• In their 2020–21 and 2021–22 company tax returns.

Eligible entities can access the offset by choosing to carry back losses to earlier years in which there were income tax liabilities.  The tax offset effectively represents the tax the eligible entity would save if it were able to deduct the loss in the earlier year using the loss year corporate tax rate.

As it is a refundable tax offset, it may result in a cash refund, a reduced tax liability or a reduction of a debt owing to the ATO.  Importantly, the eligible entity does not need to amend the earlier income tax returns to claim the offset.

The amount of tax offset available is limited to the franking account surplus on the last day of the income year for which the company intends to make a claim.  The ATO has recently updated its guidance on the ATO website (click here) to include more information about how to make a loss carry back claim by reviewing the relevant company's franking account to ensure it is accurate and up to date.

When reviewing their franking account, clients should check to ensure they have:

• Identified all transactions that result in a credit or debit in their franking account;
• Recorded all transactions correctly in their franking account; and
• Calculated the balance of the franking account correctly in determining whether the franking account is in a surplus (credit) or deficit (debit) position at the end of the income year.

We recommend that company franking accounts are up to date and accurate, particularly if errors have been identified and corrected in previous tax years.

Cryptocurrency under the microscope this tax time

The Australian Taxation Office (ATO) is concerned that many taxpayers believe their cryptocurrency gains are tax-free, or only taxable when the holdings are cashed back into Australian dollars.

The ATO's data analysis shows a dramatic increase in trading since the beginning of 2020 and has estimated that there are over 600,000 taxpayers that have invested in crypto-assets in recent years.

For the tax year ending 30 June 2021, the ATO will be writing to around 100,000 taxpayers with cryptocurrency assets explaining their tax obligations and urging them to review their previously lodged returns.  The ATO also expects to prompt almost 300,000 taxpayers as they lodge their 2021 tax return to report their cryptocurrency capital gains or losses.

Gains from cryptocurrency are similar to gains from other investments (such as shares) and generally taxed under the capital gains tax (CGT) regime.  Generally, as an investor, if you buy, sell, swap for currency, or exchange one cryptocurrency for another, it will be subject to CGT and must be reported.  We also note that the CGT rules apply to the disposal of non-fungible tokens (NFTs). 

Holding a cryptocurrency for at least 12 months as an investment may mean the holder is entitled to a CGT 50% general discount if they have made a capital gain.

The ATO matches data from cryptocurrency designated service providers to individuals' tax returns, helping it to ensure investors are paying the right amount of tax.

"The best tip to [manage] your cryptocurrency gains and losses is to keep accurate records including dates of transactions, the value in Australian dollars at the time of the transactions, what the transactions were for, and who the other party was, even if it's just their wallet address," Assistant Commissioner Tim Loh said.

Businesses or sole traders that are paid cryptocurrency for goods or services will have these payments taxed as income based on the value of the cryptocurrency in Australian dollars.

The ATO has released a cryptocurrency factsheet (see here) with general tips and information on how CGT applies to cryptocurrency.

ATO warns on 'copy/pasting' tax deduction claims

The ATO is alerting taxpayers that its sights are set on work-related expenses like car and travel claims that are predicted to decrease in this year's tax returns.

The ATO has noted that COVID-19 has changed people's work habits.  The ATO expects that work-related expenses will most likely reflect an increase in deduction amounts, but the ATO have noted that deductions for travelling between worksites or business trips would most likely have reduced.

The ATO have announced that they will be reviewing taxpayers with significant working from home expenses, that maintains or increases their claims for deductions relating to car, travel or clothing expenses, stating that "You can't simply copy and paste previous year's claims without evidence."

We recently published our 2020-21 End of Year Individuals Checklist, which can be used as a helpful guide when preparing your tax documents for 30 June 2021 – you can download the LLCA Checklist here.

Luxury Car Tax thresholds increase

The ATO has updated the luxury car tax (LCT) thresholds for the 2021-22 financial year.

The LCT threshold for fuel efficient vehicles in 2021-22 is $79,659 (up from $77,565 in 2020-21) and the LCT threshold for other vehicles in 2021-22 is $69,152 (up from $68,740 in 2020-21).

We note that these thresholds determine whether LCT is payable, and are different from the luxury car depreciation limit of $60,733 for 2021-22.

Super Guarantee rate rising from 1 July 2021

On 1 July 2021, the super guarantee rate will rise from 9.5% to 10%, and some care may need to be taken before simply increasing superannuation contributions after 1 July 2021 passes.

In particular, when a payroll period crosses over the months of June and July, you need to consider how the super guarantee rate change should be executed. 

The super guarantee rate employers are required to apply is determined based on when the employee is paid, not when the income is earned.  A super guarantee rate of 10% will need to be applied for all salary and wages that are paid on and after 1 July 2021, even if some or all of that pay period relates to income earned before 1 July 2021.

The ATO has recently updated some guidance examples to consider the change of the super guarantee rate increase – see ATO page here.

Temporary reduction in pension minimum drawdown rates has been extended

The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022.

As part of the response to the coronavirus pandemic (and the negative effect on the account balance of superannuation pensions), the Government reduced the superannuation minimum drawdown rates by 50% for the 2019-20 and 2020-21 income years.

This 50% reduction will now be extended to the 2021-22 income year.

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