Nextclimb Accounting

Category: Business Tax

  • Cash Payments Limit Coming Soon

    Cash Payments Limit Coming Soon

    As a part of the crackdown on black economy, the Government is planning to introduce an economy-wide cash payment limit of $10,000. Any payments made to businesses for goods and services from 1 July 2019 would be captured, and if the transaction exceeds $10,000, payment will need to be made using an electronic system or by cheque.

    This proposed measure has been introduced in response to the findings of the Black Economy Taskforce Final Report. The report noted there were significant risks to legitimate commercial behaviour resulting from using large undocumented cash payments to purchase cars, yachts, other luxury goods, agricultural crops, houses, building renovations, and commodities. According to Minister for Revenue and Financial Services:

    “We…know that businesses that insist on cash payment may be doing so to avoid their tax, retain welfare payments, or avoid child support and other obligations, and may therefore receive an unfair competitive advantage over those businesses that do the right thing.”

    However, consumers should note that the cash transaction limit will only be imposed for payments (for goods and services) to entities holding an Australia Business Number (ABN). The proposal will not apply to consumer to non-business transactions, such as those in second-hand markets such as Gumtree, or where the selling party does not have an ABN.

    Further, the proposal will also not apply to financial institutions, so there will be no impediment on the abilities of individuals, businesses, or other entities to deposit large amounts of cash with their bank or to deposit cash in paying off loans with a financial institution. Although, any such deposits would be caught under the existing Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) reporting requirements to AUSTRAC.

    Currently, the Government is planning to leverage the AML/CTF obligations to assist in the administration and enforcement of the cash limit. A combination of threshold transaction reporting and reporting of suspicious matters will be deployed, with the Black Economy Hotline facilitating community referrals on suspicious behaviour. Penalties will apply to both parties to the transaction should the $10,000 limit be breached, that is, the payer and the receiving business. According to the Government this will ensure that both business requesting cash payments and consumers pressuring businesses to take cash in exchange for a discount are captured.

    If Australia implements this proposal, it will be in good company and join many other European countries that have introduced cash payments limit. The UK is currently consulting on the issue in a bid to crack down on those who use cash to evade tax and launder money. It seems the inevitable crackdown on cash and its links to illegal activities and avoidance of tax has begun.

    Are you ready for the ban on cash?

    If you would like to find out more about the proposed cash payments limit and how it will affect the way you do business, contact us today. Or if you would just like to start using electronic payments for your business, we can help.

  • IGT Review Of ATO Garnishee Notices

    IGT Review Of ATO Garnishee Notices

    As a consequence of the allegations aired by current and former ATO staff about the inappropriate use of ATO’s powers to issue garnishee notices, particularly to small businesses, on the Four Corners Program. The Inspector-General of Taxation (IGT) has now commenced an independent review to address these allegations to allay concerns of adverse impacts on the tax system.

    Garnishee notices are the most common form of “stronger” actions used by the ATO to recover tax debt from taxpayers who are unwilling to work with them to address their debt, or repeatedly default on agreed payment plans. The notices are issued to third parties who are required to pay money, owed to the taxpayer, to the ATO to satisfy the taxpayer’s debt. The notices may require either a one-off payment or recurring payments for certain periods of time.

    If you’re an individual, the ATO can issue garnishee notices to your employer, contractor, banks, financial institutions and building societies where you hold an account, and people who owe money to you from sale of real estate (ie purchaser, real estate agent and solicitors). If you’re a business, the ATO may issue garnishee notices to financial institutions where your business holds an account, trade debtors, and suppliers of merchant card facilities.

    According to the Inspector-General of Taxation: “Cash flow is the lifeblood of small businesses and, if inappropriately disrupted, can have an unjustified and devastating effect on them. My investigation will examine the accuracy of the allegations made along with themes emerging from complaints to my office with the aim of finding improvements where necessary and restoring confidence in the system”.

    In particular, the review will investigate allegations that the ATO gave directions to staff to issue standard garnishee notices in every case as a “cash grab” towards the end of the 2016-17 financial year. As well as the allegation that the ATO set targets for staff and assessed their performance based on the level of debt collected. It will draw on IGT complaints data, assess the relevant ATO systems including interviewing current and former ATO staff in debt recovery units across multiple locations, and seek to understand and assess the nature of any impact on affected taxpayers.

    The terms of reference of the review include:

    • understanding ATO’s strategies to manage tax debts by way of garnishee notices;
    • policies and procedures for issuing garnishee notices, including the circumstances the ATO considers in cases of vulnerable small businesses and individuals;
    • mechanisms present to ensure staff adhere to its garnishee notice policies and procedures;
    • key performance indicators for both tax debt collection and staff performance;
    • specific communications to staff regarding use of garnishee notices and associated KPIs at each location of its debt recovery units; and
    • other relevant concerns or potential improvements identified during the course of the review.

    Do you have a gripe?

    If you’ve experienced what you think is unfair treatment by the ATO in terms of garnishee notices issued to your business or yourself, we can help you make a submission to the review. Contact us today.  

  • ATO’s Focus Areas for Businesses

    ATO’s Focus Areas for Businesses

    A recent interview with Tax Commissioner Chris Jordan revealed details of what the ATO will be paying particular attention to this year. Perhaps not surprising, the ATO will be targeting businesses that deal in cash. As a part of its cash and hidden economy operation, the ATO has compiled “data-maps” of cash-only businesses and those that do not frequently or readily use electronic payment facilities.

    Using the data-maps the ATO is homing in on particular suburbs which have a high incidence of cash-only businesses. In Sydney, Cabramatta and Haymarket were cited as examples of areas that the ATO visited in relation to its operation. According to the Commissioner:

    “People say to me: ‘it’s terrible – people steal the money, you’ve got to count it, you’ve got to reconcile it, you’ve got to have security around it, you’ve got to take it to the bank’ … There’s no compelling business reason to have cash only.”

    With these cash and hidden economy visits the ATO is conducting, it is looking for several things: whether the business has undeclared income; whether the employees are allowed to work (visits in the past have been made in conjunction with the Fair Work Commission or the Department of Immigration); and whether the employees are receiving the correct amount of wages, conditions and superannuation.

    Therefore, the other areas the ATO is targeting this tax time also include unpaid superannuation guarantee contributions and cash payments of wages without the associated conditions and benefits. According to the ATO, with the introduction of the single-touch payroll (STP), it will be able to receive information on unpaid superannuation contributions much earlier and act on it.

    Even if you’re not running what the ATO deems to be a “cash business” there are other areas you will still need to be aware of this tax time. In particular, the ATO will be looking at small businesses wrongly claiming private expenses, and unexplained wealth or lifestyle.

    Under tax law, you can generally deduct a business expense if it is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income, provided the expense is not capital, private or domestic. Commissioner Jordan noted that small businesses intermingling their private expenses with their business expenses have been an issue for a long time, but this year he has decided to “renew the discussion to highlight that we are going to be focusing on these areas”. Hence if you’re running a small business you should make sure all your expense claims are in fact business related, any expenses that are both business and personal needs to be apportioned on a reasonable basis.

    The unexplained wealth or lifestyle targeted by the ATO includes instances of business owning families that have low or average reportedincomes, but have a lifestyle that far exceed those modest incomes. Commissioner Jordan considers that having kids in private schools and taking frequent business class flights on overseas trips would be considered to be unexplained wealth. He said the ATO will use all its resources including obtaining information from other government departments (ie Department of Immigration) and social media (ie Facebook posts).

    Want to find out more?

    If you think your business may have some issues with ATO’s tax time focus areas, we can help you sort them out before the ATO get involved. If you’re thinking of moving away from cash and transitioning into electronic payments, we can assist with those first steps.

  • Trust Vesting

    Trust Vesting

    Have you looked at your trust deed recently? If you have a trust, chances are it was set up by your accountant or solicitor, and you didn’t have to do too much of the legwork. Look closely at your deed and you’ll notice that it will specify a date on which the interests in the trust vest and contain a clause which specifies the consequences of that date being reached.

     

    Put simply, on the vesting date of a trust, the interests in the trust property become vested interest and possession; the beneficiaries become takers who hold a fixed interest in the capital and income of the trust property. This will have CGT and tax consequences for the trust and the beneficiaries. 

    The ATO has recently released a long awaited draft ruling to clarify when the vesting date can be changed and the consequences of trusts vesting.

     

    Broadly, the draft ruling states that prior to the vesting date, it may be possible for the trustee or a Court to postpone the vesting of the trust by nominating a later date. Once the vesting date has passed, it is not possible to change the vesting date as the trust has vested. According to the ATO, the consequences of vesting cannot be avoided by the parties continuing to carry on as though the trust had not vested or by an exercise of power to vary the deed.

     

    Once the trust vests, depending on the clauses contained in the deed, there could be no CGT consequences, the creation of a new trust could occur, or a situation could arise where a beneficiary becomes absolutely entitled to the assets of the trust. The outcome depends entirely on the clauses contained in the deed and differs in each individual circumstance as each trust deed may be different.

     

    The income of trust after vesting is also taxed differently. Prior to vesting the trustee had discretionary power to distribute the income or capital of the trust to certain beneficiaries entitled under the trust. However, after the vesting of the trust, the takers (beneficiaries) hold the present entitlement of the trust in proportion to their vested interests in the property of the trust and are assessed on the portion.

     

    An example to illustrate this concept would be, prior to the vesting of the ABC Trust, the trustee determined that all the income would go to beneficiary X. At the vesting date, the trust deed specified that trustee was to hold the trust property in equal shares for beneficiary X, Y and Z. Therefore, for the income year that the trust vests, beneficiaries X, Y and Z are assessable on 1/3 of the share of the net income that relates to their share in the total income of the trust estate.

     

    Vesting of a trust is a very complex matter and needs to be treated very carefully. The tax consequences stemming from a trust vesting could be very significant on both the trust and beneficiaries, and it cannot be undone by either the trustee or the courts. Therefore, understanding your own trust deed and forward planning is advisable to ensure that the purpose of the trust is met and maintained.

     

    Too complicated?

     

    Confused about all the potential CGT and income tax consequences for your trust? Or do you just want to make sure that plans are in place to protect your trust from falling afoul of the vesting rules? Talk to us today.