Practice Update – September 2023
Appointing an SMSF auditor
The ATO reminds self-managed superannuation funds (SMSF) trustees that they need to appoint an approved SMSF auditor for each income year, no later than 45 days before they need to lodge their SMSF annual return.
An SMSF’s audit must be finalised before the trustees lodge their SMSF annual return, as the trustees will need some information from the audit report to complete the annual return.
An SMSF’s auditor is to perform a financial and compliance audit of the SMSF’s operations before lodging. An audit is required even if no contributions or payments are made in the financial year.
An approved SMSF auditor must be independent, which means that an auditor should not audit a fund where they hold any financial interest in the fund, or have a close personal or business relationship with members or trustees.
If a fund doesn’t meet the rules for operating an SMSF, the auditor may be required to report any contraventions to the ATO.
ATO gives “green light” to lodge
The ATO is giving taxpayers with simple affairs the ‘green light’ to lodge their annual income tax returns.
ATO Assistant Commissioner Tim Loh said that most taxpayers with simple affairs will find the information they need to lodge has now been pre-filled in their tax return.
Mr Loh also reminded taxpayers that some income may need to be manually added – for example, income from rental properties, some government payments or income from “side hustles”.
As taxpayers prepare to lodge, they should keep “Tim Loh’s tax time tips” in mind:
- Include all income: If a taxpayer picked up some extra work, e.g., through online activities, the sharing economy, interest from investments, etc, they will need to include this in their tax return;
- Assess circumstances that occurred this year: If a taxpayer’s job or circumstances have changed this year, it is important they reflect this in their claims;
- Records, records, records: To claim a deduction for a work-related expense, taxpayers must have a record to prove it.
- Wait for notice of assessment: Taxpayers should wait for their notice of assessment before making plans for how they will use any expected tax refund this year;
- Stay alert to scams: The ATO would never send taxpayers a link to log into the ATO’s online services or ask them to send personal information via social media, email or SMS.
We must note the ATO advises that, when taxpayers lodge their own return, the due date for payment is 21 November, regardless of when you lodge, but if you use a registered agent, your due date can be much later.
Different meanings of “dependant” for superannuation and tax purposes
On a person’s death, their superannuation benefits can only be paid directly to one or more “dependants” as defined for superannuation purposes, unless they are paid to the deceased’s legal personal representative to be distributed in accordance with the deceased’s Will.
Super death benefits can be tax-free to the extent that they are paid (either directly or indirectly) to persons who are “dependants” for tax purposes.
However, the meaning of “dependant” differs slightly for superannuation and tax purposes. For superannuation purposes, a “dependant” of the deceased comprises:
- their spouse (including de facto spouse);
- their child (of any age);
- a person in an ‘interdependency relationship’ as defined with the deceased; and
- a person who was financially dependent on the deceased.
However, for tax purposes, a “dependant” (or ‘death benefits dependant’) of the deceased includes their spouse or former spouse (including de facto spouse) and only children under the age of 18.
Therefore, super death benefits generally cannot be paid directly to a former spouse, as they are not a dependant for super purposes.
Also, while a child of any age is a dependant for super purposes, only children under the age of 18 are dependants for tax purposes. This means that, while a child of any age may receive super death benefits directly, those benefits will generally only be tax-free if the child is under 18.
If you are thinking about estate planning with your superannuation, please contact your Lowe Lippmann Relationship Partner to discuss.
NALI provisions did not apply to loan structure
The Administrative Appeals Tribunal (AAT) has held that interest income derived by a SMSF as the sole beneficiary of a unit trust was not non-arm’s length income (NALI), and so this income could still be treated as exempt current pension income.
During the 2015, 2016 and 2017 financial years, the unit trust lent money through two related entities to independent third parties who undertook development activities, through a series of loan arrangements.
The interest income derived by the unit trust through these loan arrangements was distributed to the SMSF as sole unitholder and was treated as exempt current pension income.
Following an audit, the ATO determined that the income was NALI, and therefore should not have been included as exempt current pension income.
The ATO then issued amended assessments for the relevant financial years, along with penalties.
While the AAT found that the parties were not dealing with each other at arm’s length, it also concluded that the income that the unit trust derived was not more than the amount it might have been expected to derive if the parties had been dealing at arm’s length.
Accordingly, the relevant interest income received by the SMSF was not NALI, and so the taxpayer’s objections to the amended tax assessments and penalties were allowed.
Luxury car tax: determining a vehicle's principal purpose
The ATO recently explained how to determine the principal purpose of a car for “luxury car tax” (LCT) purposes (since LCT is not payable on the supply or importation of cars whose principal purpose is the carriage of goods rather than passengers).
Broadly, a luxury car (ie. a car subject to LCT) is a car whose LCT value exceeds the LCT threshold. However, a commercial vehicle that is not designed for the principal purpose of carrying passengers is specifically excluded as a luxury car.
The ATO’s new determination sets out various factors to be considered in determining the principal purpose of a car, as well as factors to consider when assessing a car’s modifications.
The determination states that commercial vehicles are unlikely to have the body types of station wagons, off-road passenger wagons, passenger sedans, people movers or sports utility vehicles, and the supply of these vehicles for an amount above the LCT threshold without LCT being paid may well attract the ATO’s scrutiny.
Special Topic: Recent announcements for the Sharing economy
Sharing economy reporting system now law
Amendments to the tax administration legislation that recently received royal assent, will require operators in the sharing economy to report income earned by sellers on their marketplace. This is based on the ATO’s determination that income earned on these platforms is a high-risk for non-compliance with tax obligations.
The taxpayers required to comply with this reporting regime will be operators of:
- taxi travel (including ride-sourcing/ridesharing, such as Uber) - from 1 July 2023;
- short-term accommodation (such as Airbnb) - from 1 July 2023; and
- asset sharing, food delivery, task-based services and all other supplies - from 1 July 2024.
From these respective dates, any income you earn from these platforms will be reported directly to the ATO as assessable income to be include in your income tax return.
Based on other data reporting systems, information which is generally included in the reports is your name, Australian business number (ABN), address, gross income and any GST you should be reporting. If this information is currently incorrect with these platforms you operate within, we suggest that you update your information promptly.
Data matching for online accommodation platforms
A recent release from the Commissioner of Taxation has stated that a data matching program will commence between the ATO and online accommodation platforms (such as Airbnb).
Online accommodation platforms are websites where an individual can list their primary residence (or rental property) for short-term rental income. For example, listing your house when you are away on holidays.
The ATO will collect the data, including the bank details linked to the accommodation account, for the 2016-17 to 2019-20 income years. Through the bank details, the Commissioner will get a list of individuals who should have declared rental income during those years.
We note that it is important that if there is some rental income earned on your principal place of residence, there is potentially some capital gains tax which may be payable on your eventual sale.
If you have used these platforms in the past, you may be required to amend your tax returns to declare this income. We note that the ATO generally looks favourably on individuals who have made a genuine mistake and voluntary disclose their error.
Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.
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