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  • Case studies

    Follow the links below for specific case studies for:

    Individuals

    Claims for travel to and from work

    While trips between home and work are generally considered private travel, you can claim deductions in some circumstances, as well as for some travel between two workplaces.

    Case study: Audit for work expenses travelling to and from work

    Mark, 28 years old, is a railway guard who lives in the outer suburbs of Melbourne. He works full-time, Monday to Friday, travelling to work in his own car.

    In his 2013–14 income tax return, Mark claimed deductions for car expenses in travelling to and from work, basing his claim on the fact that he carried bulky tools (including his flag, safety vest, handheld radio, torch, instructions and timetables) in his car.

    Mark attracted an audit because his deductions were much higher than those of other people in the same occupation. Mark’s employer advised us that secure facilities for equipment were available on the business premises, so the transportation of Mark’s equipment was his choice. Because it was Mark’s choice to use his car, and expenses relating to travelling to and from work are not an allowable deduction in this situation, Mark had to pay $2,000 for tax owed plus interest of $80.

    When considering the penalty, we took into account Mark’s previous excellent compliance history and the fact that he seemed to have genuinely misunderstood the rules for claiming this type of deduction.

    End of example

    See also:

    Rental property

    Most landlords know what they can and can’t claim, but sometimes this is not quite so clear-cut.

    Case study: Jointly owned rental property

    Kim and Dean are married with two children. Kim works full-time, and Dean works three days a week, as he cares for the children on the other days. Because Kim earns more than Dean, she pays more tax as she's in a higher tax bracket.

    Kim and Dean jointly own a rental property, which they bought in 2014 as an asset for their children and to provide some 'tax breaks' in the meantime.

    When filling in her tax return for 2014–15, Kim included her half of the income, but claimed all of the deductions for the property. Because the property is jointly owned, Kim and Dean must each declare half of the income, and they can each claim only half of the deductions relating to the property.

    Kim and Dean had to pay additional tax owing of about $7,000 plus a penalty of about $300.

    When considering the penalty to be paid, we looked at Kim and Dean’s previous compliance history (which was very good – they always lodged and paid on time) and their helpfulness during the review (also very good – they returned information when requested and were honest and open about their tax affairs). We also took into account the fact that Kim had genuinely misunderstood the rules, rather than deliberately setting out to avoid tax.

    End of example

    See also:

    Tax schemes

    Don’t get fooled into investing in illegal tax arrangements. If it sounds too good to be true, it probably is. See our case studies for tax schemes that end up costing you more than you bargained for.

    See also:

    Businesses

    Transitional rules for GST on imported services and digital products

    From 1 July 2017, goods and services tax (GST) will apply to international sales of digital products and services provided to Australian consumers.

    This means that overseas businesses will be required to pay GST on sales for:

    • digital products, such as movies, music, apps, games and e-books
    • services, such as architectural or legal services.

    Transitional rules may apply to supplies of goods or services that cover a period before and after 1 July 2017, such as a subscription. In these cases, GST will apply to the taxable portion of the supply after 30 June 2017.

    Case study: Transitional rules apply

    On 1 April 2017, Michael, an Australian consumer, subscribes to Library Online. This service allows him to access a range of electronic publications for a period of two years. He is invoiced for, and pays, the full cost of the subscription when he subscribes.

    Under Michael's subscription, Library Online supplies services and intellectual property over a period spanning 1 July 2017. The supply of access to Library Online over two years is a periodic supply and subject to the transitional rule. As a result, the portion of his supply after 30 June 2017 is subject to GST. It is attributable in the first tax period commencing from 1 July 2017.

    In this case, 21 out of the 24 months of the term of the subscription fall on or after 1 July 2017, so GST applies to that portion (that is, 21 ÷ 24 or seven-eighths) of the value of the supply.

    Case study: Transition rules don't apply

    On 1 June 2017, Michael engaged the Library Online research service to track down and scan a rare book. Again, he is invoiced for, and pays, the full cost of the service at that time.

    It takes Library Online some time to find the book, and Michael does not receive the electronic copy until 5 September 2017.

    GST does not apply to this supply. The supply is not periodic or progressive, and the invoice and payment were received before 1 July 2017. Therefore, no part of the supply was made after 1 July 2017. The transition rules do not apply.

    End of example

    See also:

    Real estate business advertising for foreign buyers

    As a real estate agent, you may not be aware that penalties apply for breaching Australia’s foreign investment rules. If you deliberately avoid your obligations, you could be risking an infringement notice, criminal prosecution or civil penalty orders.

    Case study:

    Aussie Dream Homes Pty Ltd staff and management don’t concern themselves with whether or not the buyers they introduce to vendors need, or have obtained Foreign Investment Review Board (FIRB) approval prior to purchase.

    After compliance action is carried out, it is found that 20 of the properties Aussie Dream Homes Pty Ltd has sold in the previous year have been to foreign persons who did not seek approval and were not eligible to purchase an established dwelling.

    The real estate agency had reason to suspect that the purchasers were foreign persons who were required to seek FIRB approval prior to purchasing an established dwelling. Therefore, it knowingly participated in the breach and will be subject to civil and potentially criminal penalties.

    End of example

    See also:

    Simplifying fuel tax credit claims

    If you claim less than $10,000 in fuel tax credits each year, you can now choose simpler ways to keep records and calculate your claim.

    If you use certain heavy vehicles mainly off public roads, you no longer need to apportion on-road and off-road travel when calculating your fuel tax credit claim.

    Next step:

    Refer to our case studies for more detail.

    See also:

    Change of rate during a BAS period

    If you claim less than $10,000 in fuel tax credits each year, you can treat all fuel purchases made during a tax period in which there is a change of rate (for example, due to bi-annual indexation) as acquired on the last day of the tax period. This applies for BAS periods ending 31 March 2016 and onwards.

    There's no need to split your fuel purchases during the period and use two different rates. To work out your claim, simply total your litres for the period and use the rate that is current on the last day of the BAS period.

    Case study

    KK's Trucks Pty Ltd operates a fleet of heavy vehicles in Victoria. The company arranges for bulk deliveries of fuel from the supplier to their premises, for use in their fleet of heavy vehicles. KK's Trucks Pty Ltd is preparing their March 2016 quarterly BAS.

    Their fuel acquisitions are:

    • 1,200 litres (January 2016)
    • 800 litres (February 2016)
    • 1,000 litres (March 2016)
    • 3,000 litres (Total).

    During this period, fuel tax credit rates increased from 1 February 2016, due to bi-annual indexation.

    Before the introduction of the simplified fuel tax credit method, KK's Trucks Pty Ltd would have calculated their claim as follows:

    Month

    Litres

    Fuel tax credit rate
    (see note 1)

    Amount of fuel tax credit

    January

    1,200

    13.06

    $156.72

    February

    800

    13.36

    $106.88

    March

    1,000

    13.36

    $133.60

    Total

    3,000

    $397.20

    n/a

     

     

     

    Note 1: The fuel tax credit rate for fuel acquired is expressed in cents per litre for liquid fuels such as diesel and petrol.

    As KK's Trucks Pty Ltd claims less than $10,000 in fuel tax credits each year, they can simplify this calculation as follows:

    • Total litres for the period × rate current on the last day of the period

    3,000 litres × 13.36 cents per litre = $400.80.

    End of example

    Calculating litres of fuel purchased

    If you claim less than $10,000 in fuel tax credits each year, for BAS periods ending 31 March 2016 and onwards, you can work out litres based on the cost of the fuel purchased.

    Where you rely on financial statements which display only the dollar amount, not the number of litres purchased, you can simply use the total cost of fuel you purchased in the BAS period, divided by the average price per litre for the BAS period.

    Case study

    SHWG Pty Ltd is located in Brisbane and operates a fleet of heavy vehicles transporting goods to various locations within Queensland. The company arranges for a bulk delivery of fuel from the supplier to their premises, for use in their small fleet. SHWG Pty Ltd is preparing their June 2016 monthly BAS.

    The company uses MYOB to record transactions for fuel acquisitions as part of its business. The office clerk inputs the total diesel fuel acquisitions (dollar amounts) into the system each month. Litres of fuel are not recorded, but the information about the fuel acquisitions can be used for fuel tax credits, GST, and income tax obligations and entitlements.

    During June 2016, SHWG Pty Ltd had the following fuel acquisitions:

    Date

    Litres

    Cost

    24 June

    500

    $610.00

    30 June

    700

    $847.00

    Total

    1,200

    $1,457.00

    The average price of diesel in Brisbane was $1.222 per litre in June 2016 (Cost per litre based on the Australian Institute of Petroleum website aip.com.au/pricingExternal Link)

    As SHWG Pty Ltd claims less than $10,000 in fuel tax credits each year, they can apply the simplified fuel tax credit method and use the average litres for the month.

    Their fuel tax credit calculation is as follows:

    • Total cost of fuel purchased ÷ Average price of fuel
    • = $1,457 ÷ $1.222
    • = 1,192 litres.

    The amount of the fuel tax credit is then calculated as:

    • 1,192 litres × 13.36 cents per litre = $159.25.
    End of example

    See also:

    Record keeping

    If you claim less than $10,000 in fuel tax credits each year, you can use a range of documents to support your fuel tax credit claims for your past and future BAS.

    Case study

    Rob's Relocations operates a fleet of heavy vehicles. They use MYOB software along with other documentation to support their fuel tax credit claims, including tax invoices showing the number of litres of fuel acquired

    During January 2016 the company experienced some flooding in a kitchen and the adjacent store room on their premises. The store room contained tax invoices and vehicle and fuel issue records for January 2016 and for all fuel acquisitions during 2015.

    Rob's Relocations still have their computer records containing their financial institution records and contractor’s statements, and these demonstrate the quantity of fuel acquired and used in their enterprise during that time. They are able rely on these as acceptable documents to support their claims.

    End of example

    See also:

    Incidental use

    If you use certain heavy vehicles mainly off public roads, you no longer need to apportion on-road and off-road travel when calculating your fuel tax credit claim.

    Your vehicle may be on the list of heavy vehicles we consider are used off public roads – for example, a harvester or backhoe. Starting from your March 2016 BAS period and onwards, you can claim all fuel used at the 'all other business uses' rate, even if you sometimes drive the vehicle on a public road.

    Case study

    Minate Enterprises Ltd (Minate) carries on a primary production business on an agricultural property. Parts of the property are separated by a public road. Minate uses a harvester it owns to gather crops on its farm. In the course of this work, the harvester travels two kilometres on the public road to get from one part of the property to another.

    Minate is preparing their July 2016 monthly BAS. During the month of July, the harvester travels 56 kilometres on the agricultural property, and four kilometres on the public road.

    As this travel of four kilometres on the public road is incidental to the harvester's main use, Minate can apply the simplified fuel tax credit method. This allows Minate to claim all fuel used over the total 60 kilometres at the 'all other business uses' rate, saving them the need to apportion on-road and off-road travel.

    End of example

    See also:

    • Heavy vehicles – this includes a list of vehicle types treated as being used fully off public roads

    Employee or contractor?

    It's important to check whether your workers are employees or contractors, as your tax, super and other government obligations are different depending on whether the working arrangement is employment or contracting.

    If you get it wrong and fail to meet your obligations, you risk having to pay penalties and charges.

    Next steps:

    Our case study will help you understand the difference between an employee and a contractor. You can also use our Employee/contractor decision tool to find out if your worker is an employee or a contactor.

    See also:

    Phoenix activity

    Phoenix activity leaves more than $10 million in debts – read the story of Mr X.

    Case study

    We recently investigated Mr X, a wealthy property developer involved in multiple projects across Sydney. Mr X had a history of liquidating companies and leaving substantial debts for unpaid tax and super obligations. The debts of the liquidated companies totalled more than $10 million.

    This behaviour attracted our attention and, as a result, we initiated an in-depth examination of the tax affairs of the group. In the course of auditing the liquidated entities we were able to track the funds from the sale of properties. It became apparent that through a series of related-party transactions and false loans, associates/relatives of the property developer were the ultimate recipients of the proceeds from the sale.

    By tracing the true flow of the funds, we were able to issue assessments to recover the outstanding tax debts and ensure that they were paid. In addition, the taxpayer was subject to increased penalties and interest.

    End of example

    Working together with our government partners as the Phoenix Taskforce, we continue to monitor and take action against phoenix property developers across the country who don’t pay the right amount of tax or seek to evade their responsibilities as an employer or director.

    Research and Development tax incentive

    If you register for the Research and Development (R&D) tax incentive, it's your responsibility to ensure information you supply to both AusIndustry and the ATO meets legislative requirements, and is accurate, consistent and supported by evidence and records.

    Case study

    Andrew runs a small business and has been thinking of applying for the R&D tax incentive.

    Andrew has been approached by an R&D consultant who tells him he can maximise the amount he can claim under the R&D tax incentive. The consultant says it doesn’t matter whether the claim is all to do with eligible R&D activities, and that just by registering the R&D activities with AusIndustry means the company’s R&D tax offset claim will be reviewed and approved.

    The R&D consultant also tells Andrew not to worry about the consistency of the information he provides when registering his R&D activities with AusIndustry and lodging his R&D schedules with the ATO. He says that AusIndustry and the ATO are two separate government bodies and are unlikely to ever compare the registration information they receive.

    Andrew has his doubts about what he's hearing, as it sounds too good to be true. He decides to see his own tax agent who is registered with the Tax Practitioners Board to get some independent advice.

    Andrew’s tax agent consults the ATO and AusIndustry websites to get the facts on claiming the R&D tax incentive. What he discovers is quite different from the R&D consultant’s version.

    Andrew’s tax agent learns that:

    • AusIndustry and the ATO jointly administer the program and regularly share information related to its administration. This includes the details of the activities being registered and the amount of expenditure registered against them. What’s more, if significant discrepancies are discovered, this will actually increase the likelihood that a claim will be reviewed.
    • While registration for R&D activities occurs on a self-assessment basis, the responsibility remains with the registering company to ensure that eligible activities are being carried out. They must only recognise expenditure in an R&D claim that is actually incurred on R&D activities.
    • Both websites say that good record keeping is essential as AusIndustry and the ATO require that all the information supplied to them is accurate, consistent and supported by evidence and records.

    The tax agent tells Andrew that doing the wrong thing when registering and claiming under the R&D tax incentive could lead to AusIndustry and the ATO fully reviewing his company’s R&D registration and claim. There is also a risk that Andrew would have to return any funding received under the program, and pay a significant fine.

    Andrew doesn’t need that headache and rejects the R&D consultant’s offer. He asks his tax agent to investigate the right way to access the R&D tax incentive, so he can get the support he needs to innovate, while allowing him to get on with doing business.

    Andrew’s tax agent reports the R&D consultant to AusIndustry and to us. In order to maintain the integrity of the R&D tax incentive, AusIndustry and the ATO will evaluate the R&D consultant’s behaviour and may take action against them.

    End of example

    See also:

    Cash economy

    There are a number of ways we can identify people who may not be reporting all of their income, including:

    • matching assets and lifestyle against reported income
    • matching the information we receive from various sources against reported income.

    Next step:

    See the results of reviews and audits and the work we are doing with industry to address the cash economy.

    Super

    If you are a self-managed super fund (SMSF), we have a range of case studies that will help you to understand how the rules and guidelines apply in various situations.

    If you need help understanding how the tax rules apply to you, contact us.

    Next step:

    Last modified: 06 Sep 2017QC 47200