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  • Overview of key changes

    Key changes and new measures to be aware of when completing your clients' tax returns include:

    COVID-19 measures and support – individuals

    Specific measures and support are available for individuals impacted by COVID-19, including:

    • early access to superannuation which is not assessable income
    • the introduction of an optional simplified method (from 1 March 2020 to 30 June 2020) to claim 80 cents for each hour you work from home to cover all deductible running expenses
    • specific advice on the tax treatment of employment payments made because of COVID-19 (for example, if you take leave, are stood down or lose your job)
    • specific advice on the tax treatment of residential rental property income and expenses.

    See also:

    COVID-19 measures and support – business and employers

    New rules follow the government's economic response to novel coronavirus (COVID-19).

    If you as an employer received a cash flow boost under the boosting cash flow for employers measure, the amount is tax free (non-assessable non-exempt income) and you are entitled to a deduction for the PAYG withholding paid.

    From 12 March 2020 until 31 December 2020:

    • the instant asset write-off threshold is $150,000 (up from $30,000)
    • the eligibility range covers businesses with an aggregated turnover of less than $500 million (up from $50 million).

    Businesses with an aggregated turnover of less than $500 million are able to accelerate their depreciation deductions on the purchase of certain new depreciable assets. This applies to eligible assets held and first used or installed ready for use from 12 March 2020 until 30 June 2021.

    Businesses may have been eligible to receive the JobKeeper Payment for:

    • eligible employees
    • an individual who is an eligible business participant.

    Any amount you received is assessable income of the business.

    See also:

    Net medical expenses for disability aids, attendant care or aged care

    From 1 July 2019, the tax offset for net medical expenses for disability aids, attendant care or aged care is no longer available.

    No deductions for vacant land

    You can no longer claim tax deductions for the cost of holding vacant land, such as:

    • interest incurred on loans to acquire the land
    • land taxes
    • council rates
    • maintenance costs.

    These changes apply to costs incurred from 1 July 2019, even if you held the land before that date.

    However, deductions for vacant land can still be claimed where, for example:

    • the land is used by you in a business carried on for the purpose of gaining or producing assessable income
    • the land is used or available for use in carrying on a business (for example, primary production)
    • the land is vacant due to an exceptional circumstance (such as fire, flood, or substantial building defects) that occurred within the last three years.

    See also:

    Stapled structures

    Since 1 July 2019, the following changes apply to stapled structures.

    A 30% withholding tax rate (see LCR 2019/D2 Non-concessional MIT income) applies to:    

    • trading income that is converted to passive income via a stapled structure or distributed by a trading trust
    • income from agricultural land and residential housing (other than affordable housing).

    The existing tax exemptions for foreign pension funds and sovereign wealth funds apply only to passive income and portfolio investments. (see LCR 2019/D4 The superannuation fund for foreign residents withholding tax exemption and sovereign immunity).

    Managed investment trust (MIT) withholding tax applies to fund payments made by a withholding MIT to foreign residents. For recipients in an exchange of information country, the MIT withholding tax rate is 30% where the fund payment is attributable to non-concessional MIT income (NCMI).

    Income is NCMI if it is any of the following:  

    • MIT cross staple arrangement income
    • MIT trading trust income
    • MIT residential housing income
    • MIT agricultural income.

    Transitional rules may apply to fund payments that are attributable to existing and sufficiently committed investments. If the transitional rules apply, the concessional MIT 15% withholding tax rate continues to apply for the relevant transitional periods. New, approved, economic infrastructure projects may also be concessionally taxed.

    Amounts paid to sovereign entities are excluded from NCMI due only to:   

    • an approved economic infrastructure facility (refer to subsection 12-437(5) of Schedule 1 to the TAA 1953)
    • transitional – MIT cross staple arrangement income (refer to section 12-440 of Schedule 1 to the TAA 1953)
    • transitional – MIT trading trust income (refer to section 12-447 of Schedule 1 to the TAA 1953)
    • transitional – MIT residential housing income (refer to section 12-451 of Schedule 1 to the TAA 1953)
    • transitional – MIT agricultural income (refer to section 12-449 of Schedule 1 to the TAA 1953)
    • application of significant global entity penalties to subsidiary entities.

    The government will be legislating to correct an anomaly in the law by ensuring the increased penalties applicable to significant global entities (SGE) apply to all members within an income tax consolidated group.

    Currently, the existing SGE penalty trigger rules only capture those entities who lodge an income tax return and have an assessment of income tax.

    The proposed law change will ensure that a subsidiary member of a consolidated group or a MEC group will also be subject to the SGE penalty trigger rules.

    For more information, see Stapled structures.

    International taxation – hybrid mismatch rules

    The hybrid mismatch rules are designed to prevent entities from gaining an unfair competitive advantage through hybrid mismatch arrangements. These arrangements exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions.

    These rules have been legislated in the following Australian income tax law to include:

    • Division 832 of the ITAA 1997 with an effective start date of 1 January 2019, with the exception of certain aspects of the imported mismatch rules.
    • related amendments to the ITAA 1997 (including to subdivision 768-A dividend exemption and Division 207 franking entitlements)
    • ITAA 1936 (Part IIIB for the Australian branch of a foreign bank and section 23AH for branch mismatches)
    • Division 820 containing an integrity provision that applies to certain deductible interest payments, or payments under a derivative, made to an interposed foreign entity where the rate of foreign income tax on the payment is 10% or less.

    The related measures referred to above have effect for distributions received and flows occurring on or after 1 January 2019, apart from particular transitional measures relating to AT1 distributions.

    These rules operate in Australia to neutralise hybrid mismatches by cancelling deductions or including amounts in assessable income.

    For more information, see Hybrid mismatch rules.

    Capital gains tax changes for foreign investors

    On 12 December 2019, the government passed amendments to the law for the capital gains tax (CGT) main residence exemption for foreign residents. The changes impact certain foreign residents for property held before 7.30pm (by legal time in the ACT) on 9 May 2017. The CGT main residence exemption can be claimed only for disposals that occur on or before 30 June 2020, provided other existing exemption requirements are satisfied.

    For disposal of property that occurs from 1 July 2020, foreign residents will no longer be entitled to the exemption. That is unless any of the following events occur within six years of the individual becoming a foreign resident:

    • The foreign resident, their spouse, or their child who was under 18 years old, has a terminal medical condition
    • The foreign resident's spouse, or their child who was under 18 years old at the time of their death, dies
    • The CGT event involves the distribution of assets between the foreign resident and their spouse because of their divorce, separation or similar maintenance agreements.

    For properties acquired at or after 7.30pm (by legal time in the ACT) 9 May 2017, the CGT main residence exemption no longer applies to disposals. That is unless any of the events listed above occur within six years of the individual becoming a foreign resident.

    For more information, see Capital gains tax changes for foreign investors.

    Expanding tax incentives for investments in affordable housing

    On 9 May 2017, the government announced that it will provide an additional CGT discount of up to 10% for Australian resident individuals who provide affordable rental housing to people earning a low to moderate income. This will increase the CGT discount to up to 60% for qualifying investors.

    On 12 December 2019 the change became law and will apply to CGT events occurring on or after 1 January 2021. These residential rental properties must have been provided on or after 1 January 2018 for a period or periods totalling to a minimum of three years (1,095 days), which may be aggregate usage over different periods. The number of days affordable housing was provided before 1 January 2018 will not be counted.

    For more information, see Expanding tax incentives for investments in affordable housing.

    Death benefit increase deduction

    From 1 July 2019, the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 removed the death benefit increase deduction. Previously, an income tax deduction was available to a complying super fund, life insurer, or complying approved deposit fund that pays an increased superannuation lump sum, because of the death of a member for the benefit of their spouse, former spouse or child, to compensate for income tax paid by the fund in respect of contributions made for the member during their lifetime.

    Non-arm’s length income (NALI)

    On 2 October 2019, the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 that amends section 295-550 of the Income Tax Assessment Act 1997 (dealing with NALI), was given royal assent.

    From 1 July 2018, NALI was expanded to also include income derived by an SMSF from a scheme in which the parties were not dealing with each at arm's length. This is where the fund incurred expenses (including nil expenses) in deriving the income that are less than, those which the SMSF would otherwise have been expected to incur if the parties were dealing on an arm's-length basis.

    The expenses may be of a revenue or capital nature in the same way that NALI may be statutory or ordinary income.

    From 1 July 2018, income derived by an SMSF in the capacity of beneficiary of a trust through holding a fixed entitlement to the income of the trust will be NALI where both:

    • the SMSF acquired the entitlement under a scheme or the income was derived under a scheme in which parties weren't dealing with each other at arm's length
    • the SMSF incurred expenses in acquiring the entitlement or deriving the income that are less than, including nil expenses, what the SMSF would otherwise have been expected to incur if the parties were dealing on an arm's length basis.

    For more information, see Non-arm's length income.

    CGT small business concessions – Partnerships

    Partners in partnerships who alienate their income by creating, assigning or otherwise dealing in rights to the future income of a partnership will no longer be able to access the small business CGT concessions in relation to these rights.

    These changes apply to CGT events occurring after 7.30pm (by legal time in the ACT) on 8 May 2018.

    SMSF instructions

    Part A qualification

    Instructions for Section A: SMSF auditor Part A have been updated to help clarify the requirements for the fund. This question can also now be answered as 'No' if the audit report was qualified only in relation to insufficient audit evidence under Auditing Standard ASA 510 Initial Audit Engagements – Opening Balance.

    Was Part B of the audit report qualified

    Question 6D no longer includes Part A qualifications. This question relates only to rectifying to Part B of the audit report.

    Property count

    A new label J7 Property count has been added to Section H: Assets and liabilities at 15b. If your SMSF holds investments in real property that was held in trust as a security under a limited recourse borrowing arrangement, this information must be reported at J7 Property count.

    G1 Death benefit increase

    • Label G1 Death benefit increase at Section C, Deductions and non-deductible expenses has been removed.
    • If a fund member died on or before 30 June 2017, the fund must have paid the benefit before 1 July 2019 to be eligible to claim a deduction.
    • From 1 July 2019, the deduction is no longer available.

    Extending anti-avoidance rules for circular trust distributions to family trusts

    From 1 July 2019, trustees of family trusts are liable to pay trustee beneficiary non-disclosure tax (TBNT) on circular trust distributions. Family trusts are trusts that have a valid family trust election in place, have made a valid interposed election, or are part of a family group.

    When trustees of those trusts become presently entitled to a circular trust distribution, TBNT is imposed on the untaxed part of that distribution at the top marginal tax rate, plus the rate of Medicare levy.

    For more information, see Closely held trusts.

    Improved reporting for trusts

    To allow trustees of trusts to more accurately report information to us, we have added:

    • a new testamentary trusts code at Type of trust
    • a new label C1 Division 6AA Eligible income at item 56 Statement of distribution
    • net medical expenses for disability aids, attendant care or aged care.

    From 1 July 2019, the tax offset for net medical expenses is no longer available for:

    • disability aids
    • attendant care
    • aged care.

    Limiting access to tax concessions for testamentary trusts

    On 22 June 2020, legislation was enacted to improve the integrity of the taxation of a testamentary trust by preventing minors from accessing concessional tax rates (that is, the ordinary tax rates) on income derived by a testamentary trust from assets unrelated to the deceased estate.

    These changes apply to assets acquired by, or transferred to, the trustee of a trust estate on or after 1 July 2019.

    For more information, see Appendix  9: Instructions to trustees where a beneficiary is under 18 years of age -– other than trustees of deceased estates.

    Single Touch Payroll – changes to end-of-financial-year processes

    Most employers should now report their employees' payroll information through Single Touch Payroll (STP). If you or your clients aren't reporting through STP, you should start straight away.

    Next step:

    Changes to payment summaries

    Employers no longer need to give their employees payment summaries nor lodge a payment summary annual report to us for information reported and finalised through Single Touch Payroll (STP).

    Employees who don't receive a payment summary can find the information needed to finalise their tax return in their new income statement in ATO online service through myGov or by contacting their tax agent. Tax professionals can access their clients' income statements through Online services for agents.

    Employers should tell their employees not to expect a payment summary and to contact their agent or visit ATO online services via myGov to complete their tax returns.

    Finalising STP records

    After the last pay event for the financial year, employers need to make a finalisation declaration. They must do this by:

    • 14 July if they have 20 or more employees
    • 31 July if they have 19 or fewer employees.

    If your employer client can't make a finalisation declaration by the due date, they will need to apply for a deferral.

    Next step:

    STP exemption extension for closely held payees

    We have extended the exemption for small employers with 19 or fewer employees to report their closely held (related) payees through STP from 1 July 2020 to 1 July 2021.

    Closely held payees include family members, directors or shareholders of a company, or beneficiaries of a trust.

    Other (arm's length) employees must be reported through STP on or before each payday. Employers can choose to report their closely held payees sooner if they are ready.

    Next step:

    ATO communication with agents, employers and individuals

    This tax time we're writing to you and your clients about the changes to end-of-financial-year (EOFY) processes associated with STP.

    We're also sending you a list of your clients' STP reporting status so you can help them with STP onboarding and EOFY finalisation.

    Granular data changes

    From 1 July 2020, the granular data expansion will be complete and include the:

    • income details schedule
    • multi-property rental schedule for individuals.

    Information entered on these schedules and the deductions schedule will be included with lodgment of 2019–20 individual tax returns.

    For more information, see Granular data – level of detail required.

    Last modified: 07 Apr 2021QC 45404