Monthly Archives: August 2017

What does the ATO think about Labor trust reform?

What does the ATO think about Labor trust reform?  Well, it looks like Labor’s proposal to tax trust may be just that – a proposal.

The Age on Friday 25th August reported the ATO’s Deputy Commissioner of Taxation Mr Chris Jordan speech to the Vodafone National Small Business Summit.

The Age reported that Chris Jordan said “There’s a whole lot of reasons to pass through capital gains tax discounts and to be able to have discretion as to income and protect assets. It’s hard one.  It is a real difficult nut that one.  I think there have been a few goes at it over the decades.” 

I hear three things in these comments:-

  1. It’s difficult to address (and doing so may have unfair consequences).
  2. Income splitting is fair and reasonable (and in any case can be achieved through an array of means other than trusts).
  3. And perhaps most importantly, asset protection is a driving reason as to why people elect to use a trust structure.

Mr Jordan also went on to say that “Many small businesses and farmers were using complex arrangements they didn’t understand.”   This has certainly been our experience.  I could write an essay on this topic but simply say that most clients need help to understand trust structures and thereby put in place effective wills.

At MRS, we will spend today planning for your success tomorrow.


Labor’s proposal to tax trusts

The following was an article within our August edition of Tips & Traps.  It has been re-posted here due to the article in The Age on Friday 25th August (which will be subject to a separate post).

Bill Shorten recently announced Labor’s policy proposal to tax trust distributions and do so at a flat rate of 30%. Presumably this will mean trusts would pay tax on their income and then grant a 30% credit on any beneficiary distribution – thus a trust distribution would carry a tax credit just as company dividends do now.

It is only an announcement of intention. The next election is not due until the back half of 2019.  If they win that election, legislation would then have to be drafted and passed through both parliamentary houses.  Usually, but not always, such big ticket items are announced within a Federal Budget (which is delivered in May).  One would therefore expect that if this becomes law, it would do so no earlier than for the year ending 30th June 2020.

In his announcement, Shorten said they were targeting barristers, investment bankers and other high net worth individuals. It was also made clear that it was not intended to apply to:-

  • Special disability trusts.
  • Deceased estates.
  • Charitable trusts.

Whilst certain taxpayers were targeted in the announcement, there did not appear to be any practical acknowledgement that most trusts run small businesses; it is estimated that this accounts for two-thirds of all trusts. Many of these are tradies, farmers, retailers, manufacturers and every other sort of business within the Australian economy.

Presumably to avoid double taxation, the tax payable by the trust will be a refundable tax credit. If so, the total tax paid on trust profits won’t change – it is just a question of how much the trust pays (being 30%) and what an individual will pay (if their marginal tax rate is higher than 30%) or be refunded (if their marginal tax rate is less than 30%).

Some closing thoughts:-

  • The Rudd called Henry Tax Review recommended no such changes to trusts (nor were any announcements based targeting certain occupations).
  • The early part of the second Howard government explored taxing trusts but desisted when it became clear that it would be counterproductive to economic growth.
  • It was also thankfully acknowledged that a common driver in setting up a trust is asset protection. Our experience has been that if someone is as wealthy as that targeted by Shorten, they are far, far more concerned about protecting say a $1,000,000 property than what marginal tax rate they pay on the net rental income.
  • If they really wanted to be serious about collecting a fairer share of tax, there are other things that could be targeted. They could for example attack husband and wife trade partnerships (both political parties have been too scared to do so and despite having the power in the personal services income laws to deal with unrealistic income splitting) or look through arrangements where a high income earner funds a property bought in their spouse’s name.

At MRS, we will spend today planning for your success tomorrow.


ATO’s Taxable Payments Annual Report

28th August is the end date for lodging the ATO’s Taxable Payments Annual Report.  This form requires those businesses within the building and construction industry to report all payments to contractors within the building and construction industry.

Building and constructions includes more services than one might think as evidenced by the following link –

You need a good accounting system to simplify the reporting as you need to report the following for each contractor:-

  • Name
  • ABN
  • Address
  • Gross payment including GST as well as the total GST amount. It is important to note that for those who run an accrual accounting system, reporting is based not off the date of the contractor invoices, but they year in which they are paid.

If you are struggling with this reporting requirement, we would be happy to help you or refer you to a good book-keeper.

So what to the ATO do with all this data? They crossmatch all payments reported to each business within the building construction industry to their reported income.  The ATO had a field day some years ago with a pilot program of plasterers within the Hunter Valley.  Obviously it is paying dividends if the ATO still requires this reporting.

At MRS, we will spend today planning for your success tomorrow.

Small business tax breaks

Now that a small business is defined by the ATO as one with group turnover under $10,000,000, there are many more businesses that can avail themselves of the many and valuable small business tax breaks.

The tax breaks can be summarised as follows:-

  • A company tax rate of 27.5%. Please note that companies with non-business income (that is “passive” income from investments, rents and trust distributions) will continue to pay company tax at 30%. Please also note though that small businesses will only be able to frank dividends at 27.5% so any tax saving is short lived if most profits are paid out as dividends.
  • The Small Business Income Tax Offset of up to $1,000 for non-corporate businesses (that is sole traders or those who receive a share of partnership or trust business income).
  • The choice to use the simplified depreciation rules. This is important for those businesses who wish to purchase assets costing less than $20,000 (ex GST) before July 2018. Please see our past blogs for further details.
  • The choice to use a simplified trading stock rules under which one can estimate their stock if they believe it is not changed by more than $5,000 (which probably means you need to do a stock take anyway).
  • The ability to claim prepayments (such as insurance and prepayments rents & interest).
  • 100% write-off of start-up expenses.
  • The ability to elect to pay GST on a cash basis.
  • The option to pay fixed dollar instalment amounts of GST.
  • The option to pay fixed dollar amounts of PAYG Instalments.
  • Access to the FBT car parking exemption.
  • The ability to provide employees with multiple work related portable electronic devices (lap-tops, tablets, calculators, GPS navigation receivers and mobiles) within the one year and free of FBT.
  • The ability to use the free ATO Small Business Superannuation Clearing House.
  • The ability to restructure under the new small business CGT restructure rollover relief provisions. Please note though that the small business CGT concessions are still only available to those businesses with group turnover under $2,000,000 and/or net asset value under $6,000,000.

So what does this mean to you?

It depends on what you are trying to achieve. There are occasions where we have and haven’t used these rules depending on the short and/or long-term benefits to our clients.  Grabbing at shiny red apples hanging on a tree is no substitute for proper planning.  We address these opportunities throughout the year, particularly so when undertaking pre year end tax planning review of our clients.

If this is all news to you then you should be looking  for a new accountant.  We welcome your call.

At MRS, we will spend today planning for your success tomorrow.

A welcome change to super

There has been a welcome change to super. Without going through all the rules and a carve out, there was a basic prohibition against employees obtaining a tax deduction for personal contributions into super.  However, from July an employee can claim a deduction for personal super contributions (and the 10% rule has been removed).

How will this work? Say Fred is employed by Turnbull Wind Farms Pty Ltd.  If Fred’s salary was $100,000 the SG super thereon would be $9,500.  Fred could make a personal contribution of up to $15,500 so that he uses all of his $25,000 concessional contribution cap.

A word of warning though – the $25,000 is measured on contributions received by your super fund.  As such, one needs to be aware of contributions for the June 2017 quarter which can legally be paid as late as 28th July 2017 and/or whether an employer has changed from making contributions at the end of each quarter to doing so on a monthly basis.  You need to check with your super fund before making any final contribution(s) as you might be closer to your contribution cap thank you think.

In Fred’s case, he may not need the last $15,500 of income. Paid as a salary, it is subject to tax and Medicare Levy of 39% whereas the tax on the super contribution would only be 15%.  Fred will save tax of $3,720 by making a personal contribution.

So those who will benefit from this welcome change include:-

  • Those whose employer who won’t allow an employee to salary sacrifice into super. You would be surprised how common this is.
  • Those whose employer legally follows the book and bases SG super off the after super salary sacrifice pay. This too is surprisingly common.
  • Those employers who charge through a packaging provider for a super salary sacrifice arrangement.
  • Where a client could better use the cash during the year and only make a contribution at year end.
  • An employee of one’s business who doesn’t wish to incur WorkCover and Pay-roll Tax on employer contributions in excess of SG super.There have been some other welcome changes to super which will outline in future weekly blogs.The removal of the basic prohibition against employees obtaining a tax deduction for personal contributions into super is a welcome change .

There have been some other welcome changes to super which will outline in future weekly blogs.

What should you do? You should discuss your situation, needs and goals with a financial planner to ensure making a personal super contribution is in your best all round interests.