Monthly Archives: May 2022

How to maximise your position through PROPER tax planning

Proper tax planning done well is pivotal to maximising your position.

Our process takes into account:-

  • Opportunities to be taken up
  • Issues that need to be rectified
  • Attend to a variety of must do compliance tasks
  • Recommendations to improve your tax position (both in current and future years).
  • And also takes into account various government benefits such Family Tax Benefit and Senior Health Concession Card.

Our 5 page checklist ensures you don’t miss out on the good stuff you are entitled to.  We also ensure you avoid the bad stuff.

Our 5 page checklist is our internal process.  What our clients are issued with though is report which clearly sets out what:-

  • Our recommendations are.
  • You need to implement (both before and after 30th June).
  • The financial benefit will be to you.
  • Your tax payments for the next year.
  • All in plain English and easy to read (and re-read).  It’s not some short email or quick conversation.  It is all set out in an easy to read report.

Are you concerned that your accountant doesn’t have the same robust process to ensure you are better off?  We welcome the opportunity to discuss your situation with you.

And you may also wish to join me on Thursday morning as I deliver a presentation on proper tax planning.  It’s a Zoom meeting that concludes at 8.30am so it won’t break into your working day.  Please email me if you would like the details so I can register you.

The latest on the ATO’s attack on trusts

May I start by reporting that there has been a welcome shift by the ATO away from its controversial quantum shift in how they would regard trust distributions.

There are a great number of unfortunate ramifications that could flow from the ATO’s attack on trusts – in particular extra taxes, interest and penalties.  Got your attention?

But amongst all the possible outcomes, there is one key matter to factor in going forward.   If your trust distributes to an adult child or company, then that amount must be paid to them AND they must keep evidence that they used those monies for their benefit.

But let me set the scene before exploring those developments

As you will have read from our client emails on 1st and 21st March, the ATO announced, to put it mildly, a totally unexpected shift in the way they would regard trusts distributions.  Moreover, they announced their right to retrospectively adjust taxable income and levy fines and interest as they saw fit.  Going retrospectively back all the way to the 2014 financial year!

In doing so, the ATO were disregarding a court case they lost before the Federal Court.  They somehow think they are above the law and can ignore court decisions.  And even though they are now appealing that decision to the High Court, they have not fully withdrawn.

They still hang their hat on a 2014 fact sheet.  Fact sheets are not law.  They are not legislation.  They are not binding on taxpayers and tax agents.  But the ATO are defending themselves on this as a legislative line in the sand – and doing so even though they have done nothing about it in the following 7+ years.

So what as the initial reaction?

It has caused a storm of anger amongst accountants and lawyers.  And accounting bodies and professional firms have been lodging submissions in numbers not seen before.

It even resulted in the Federal Treasurer Josh Frydenburg visiting my accounting discussion group the week before last.

Even though it does happen, I can’t tell you of a single instance where a professional body or firm has lodged a submission to a public tax ruling.  It happens but one never hears about it.

This is different.

There was such a howl that the initial submission date of 8th April was extended to 29th April.  And it came last week that it had been extended again.  Certainly Frydenburg made no comment as to extension on 27th April.  No-one seems to have heard about a further extension until late last week when the IPA announced they had lodged a submission (perhaps they were late and accommodated out of courtesy?).

Where are we at now?

Whilst this new approach hasn’t been dropped (noting that the High Court has yet to hand down its position) the ATO have a least back pedalled.

Three comments of note made by the ATO Deputy Commissioner Louise Clark are that:-

The ATO is not concerned when profits from the family business are distributed to members of the family who work in the management of the business and then that family member chooses to reinvest the profits in the business.

The ATO will not be pursuing taxpayers who entered into arrangements between 1 July 2014 and 30 June 2022 where, in good faith, they concluded that section 100A did not apply to them based on the previous 2014 guidance.

“I want to reassure the community – we won’t have a retrospective element. We stand by our 2014 guidance for this interim period,”

They are only words.  There are still inconsistencies in the ATO’s position.  The law has remains the same and has not been changed.  They are still taking a very aggressive position not supported by law and 43 years of practice.  But at least we have some movement towards normality.

So what happens next?

We await the High Court’s decision.

It is not unreasonable to expect nothing changes before they decision is handed own.  But the reality will probably be that the ATO will finalise their ruling as they see fit.

Please be assured that professional accounting bodies will continue to seek what is fair and reasonable.

In the meantime, we at least have the comfort that prior years and indeed 2022 will not be under the microscope as first announced.

But from July 2022, it will be a different world if the ATO only gets part of what they decreed back in February.

 

This is far from settled but we do welcome your questions.

 

Why getting your FBT exposure right is so critical

So why getting your FBT exposure right so critical?

Before we answer that question, I will answer the base question of what is a fringe benefit.  A fringe benefit is anything provided by an employer to an employee other than by wage/salary and super.

As such it includes such things as:-

  • Passenger cars
  • Car parking
  • Entertainment
  • Selling firm’s goods at a discount
  • Providing accommodation
  • Paying any employee bill whether that be school fees, mortgage, health club membership and so on.

And this leads to the understanding of how to address your FBT exposure.

To avoid over-paying FBT and not coming unstuck in an audit you need to:-

  1. Determine whether you the employer are exempt (charities, public hospitals) or subject to a reduced rate (private schools).
  2. Determine what fringe benefits you have provided to whom
  3. Assess whether an exemption or concession applies to that type of benefit.  There are some special rules which benefit small businesses.
  4. Calculate the taxable value
  5. Then, and this what most people get wrong, determine whether the employee is better off making a contribution to reduce the fringe benefit rather than pay FBT tax (which is equivalent to the highest marginal tax rate).
  6. Prepare and lodge the FBT Tax Return.

The reality is that all too many employers get this wrong as the ATO is successful in making an adjustment in 50% of FBT audits.  That’s every second audit!

And don’t think the ATO doesn’t think this is a big audit target. 

A couple of years ago, they recorded the number plates of all utes parked at an AFL game at the MCG.  Those plate numbers registered to companies were then cross matched with lodged FBT and Income Tax Returns.  The ATO had a field day!  And perhaps are doing the same again now that we are returning to the footy and other activities post covid.

So what should you do?

Well for our clients we run through a checklist to make sure all benefit s provided are identified.  We will then work through (a) quantifying the benefit before (b) determining the most efficient manner of dealing with the benefit and then (c) lodge an FBT Return (we do this even if the taxable value has been reduced to nil as the ATO have therefore issued an assessment and then only have two years to audit.

And with that I return to the question of why is getting your FBT exposure right is so critical?  As you will now be able to appreciate there is more than answer to this question:-

  • It is a key ATO audit area.
  • If it is wrong in one year, the ATO will start auditing all years.
  • With the FBT tax rate being the equivalent of the highest marginal tax rate, the tax can be significant.
  • The ATO readily applies both interest and penalties.
  • The audit clock will start clicking once an FBT Tax Return is lodged – after that the ATO can’ t go back further than 3 years.

And this year due to covid work backlogs, the ATO have extended the FBT Return lodgement date by 4 weeks to 27th to June if lodged by a tax agent. But don’t leave it to then – lodge now and get the audit clock ticking!

Do you have any questions?  We would welcome the opportunity to discuss them with you.