New ATO Chair
As the new ATO Deputy Commissioner, Private Wealth, Louise Clarke introduced herself and was welcomed as the chair of the Private Groups Stewardship Group.
COVID-19
The ongoing COVID-19 lockdowns are impacting small business and the private wealth market. Business and advisers have competing priorities to manage currently, including accessing business support available through various state government initiatives, and the associated tax implications.
The ATO continues to work with tax professionals to assist taxpayers with their obligations, including touch points where there may be difficulty to accurately forecast and errors in calculation. Further guidance is expected to issue in due course.
Members’ comments
- There are mid-market businesses struggling to survive, but there are also businesses experiencing growth.
- ATO guidance about when state government income grants are non-assessable, non-exempt income, and whether they need to be declared as statutory income or instalment income for the BAS September quarter is important.
- In the current environment it is difficult to accurately estimate Pay as you go (PAYG) instalment income, and there may be some errors made which may flow through to PAYG instalment variation requests. A continued practical ATO approach in relation to penalties where honest mistakes are made to instalment variation requests is something businesses would appreciate.
- Difficulties with transporting assets to Australia will likely impact the timing of instant asset write off and temporary full expensing claims.
- There is ongoing pressure on tax professionals who are working hard to support clients, with more attention needed for increasingly complex issues.
- Wealthy individuals new to Australia are seeking support to be aware of how the Australian tax laws operate and understand their obligations under these laws. There is an opportunity to educate these taxpayers early, with simple guidance and products.
- Private groups are being increasingly exposed to global and international interactions which brings additional challenges and complexity from a tax perspective. Complex issues can take longer to resolve when other revenue authorities are involved. While some private wealth taxpayers have a good general understanding of their tax obligations, there is less understanding about specific issues in an international context, including transfer pricing.
- There has been an increase in sales of businesses. Family businesses are looking to exit because of the current environment and in turn, there is an increase in private equity activities. Taxpayers are requiring additional support from their advisers to assist with business sales, private equity and other tax related issues.
Your Future, Your Super
The YourSuper comparison tool compares MySuper products and assists individuals to choose a super fund that meets their needs.
- An authenticated or ‘personalised’ version is accessed through ATO online
- An unauthenticated or ‘non-personalised’ version is accessed via YourSuper comparison tool on ato.gov.au
- The information displayed in the comparison tool is collated and supplied by Australian Prudential Regulation Authority (APRA).
- On 31 August 2021 the tool was updated to include the APRA released Your Future, Your Super Performance Test ResultsExternal Link.
- There are 80 products now ranked as ‘performing’, ‘underperforming’ or ‘not assessed’ and 13 MySuper products ranked as ‘underperforming’ and four are not assessed.
- Total views to date of the comparison tool now exceeds 500,000.
The Stapled super fund request service will be available via ATO online services from 1 November 2021.
- From 1 November 2021, if a new employee is eligible to choose a super fund but does not, employers or their representatives will need to use ATO Online services for business to request details of an existing 'stapled super fund' for superannuation guarantee payments.
- The ATO is consulting with digital software providers about integrating this process into employer payroll software. This is targeted for 1 July 2022 subject to voluntary uptake by software providers.
- Requests via ATO online services provide results in seconds (short delays may be experienced when TFN exemption codes are used) and the employee is also notified of the result. Results will provide stapled fund details (if applicable), and next steps for the employer.
- Results can be saved in html or csv format.
- Entities with 100 or more employees can use a bulk request form to submit requests. This will be an excel format available on ato.gov.au from 1 November 2021.
- Error messages will display if details do not match, but do not provide details of what data does not match for individual privacy reasons, and to avoid phishing. Employers should verify their data for transposition errors as a first step, then check the details with their employee.
- The online service will include a history function, with results for up to 6 months including date, name and status.
- ATO will monitor the service for usage and employer compliance.
Modernising Business Registers program
The Modernising Business Registers (MBR) program will deliver a modern, whole of government business registry service with:
- high levels of reliability, accessibility and security
- a digital user interface for the full business registry lifecycle
- a director identification (director ID) for more than 2.7 million company directors.
The program will progressively roll out between 2021 and 2024, bringing together the Australian Business Register (ABR) and more than 30 Australian Securities and Investments Commission (ASIC) registers in one place.
Private Beta testing results completed on 18 June included 95 successful applications.
Feedback has been positive with no issues to prevent proceeding to public beta.
On average, applications took between 15–18 minutes. This includes proof of record ownership and authentication through myGovID.
eDigital, telephone and paper application options are available. The digital component is being supported by myGovID.
An engagement and awareness campaign will educate the community about director ID and encourage them to apply within required timeframes.
An easy 3-step process will support applying for a director ID, and an individual will need to prove their identity when they apply; no-one can apply for them.
myGovID strong identity strength (Identity Proofing Level 3 using facial verification) is expected to be available from September 2021.
Members’ comments
It is important for communications to issue via ASIC and target ASIC agents to highlight the line of sight between ASIC agents and tax professionals, and importance of getting a director ID immediately.
Top 500 tax performance program
The Top 500 tax performance program was reviewed and an interim findings report for 2020–21 was published on 28 June 2021.
A detailed update was provided to members on the areas of focus for the Top 500 program for 2021–22.
As a result of feedback from advisers and clients, which includes the need for clearer communication on the benefits of achieving justified trust, the program’s web content is being updated to provide greater clarity.
Top 500 private groups tax performance program guidance on ato.gov.au will be updated as the program evolves. Members were invited to provide feedback on proposed updates to existing web content.
Members’ comments
- There is still an element of ‘what’s in it for business’, and advisers need to be able to promote the benefits of justified trust to business owners.
- The client experience under the Top 500 program does sometimes vary between individual clients and engagements.
- Taxpayers need to be aware of the issues that the ATO considers will lead to trust and transparency breakdown.
- Greater clarity about what happens when justified trust is achieved is required, as well as what will occur post the conclusion of the three year ‘monitoring and maintenance’ period.
|
Action item |
0309-3 |
|
Due date |
October 2021– in progress |
|
Responsibility |
ATO |
|
Action item details |
Update ato.gov.au web content to include guidance on what a position of justified trust looks like after the three years of monitoring and maintenance. |
Top 500 Tax Performance Program – GST integrated engagements
The fourth focus area of justified trust focuses on understanding ‘why the accounting and tax results vary’. In the Top 500 GST integrated engagements, we focus on establishing correct GST liabilities paid while sense checking there has not been an overclaim of input tax credits based on a reasonableness check of taxable acquisitions included in the financial accounts.
Our GST approach has a focus on in-depth systems, data testing and analysis, risks flagged to market and significant transactions to cover the first three key focus areas.
Through a combination of these activities a high level of assurance can be obtained over the GST throughput of the client. To date, Private Wealth has not yet implemented an approach for the fourth key area in relation to ‘why the accounting and tax results vary’.
The approach is to be applied to the Top 500 work program’s engagements commencing from July 2021 with predominantly non-input taxed supplies based on:
- nature of supplies
- complexity of the economic versus GST group structure alignment.
For further integration of GST into our Top 500 engagements commencing this proposed approach will enable an assurance rating for GST to be provided across all four focus areas.
Economic stimulus measures
Temporary full expensing
The Temporary full expensing (TFE) extension to June 2023, announced in the 2021 budget, is not yet law.
TFE claims received to date are predominantly in the small business market but we are only two months into the 2020–21 income tax return lodgment period, so it is not possible to identify any definitive trends at this stage.
ATO is currently working through submissions received in response to Draft Law Companion Ruling LCR 2021/D1 Temporary full expensing. Most submissions focused on the interaction of TFE with consolidation provisions and aggregated turnover when a subsidiary joins a consolidated group or when a subsidiary leaves a consolidation group.
Further guidance on aggregated turnover is under development, following consultation with members from the Large Business Stewardship Group and Private Groups Stewardship Group.
Loss carry back
Tax Time 2021 (TT2021) Loss Carry Back (LCB) claims are increasingly steadily, however are not yet significant in volume. We have not yet seen any identifiable/significant changes to lodgments patterns.
Emerging errors from LCB claims include:
- using incorrect tax rates for base rate entities
- using incorrect income tax liability amounts
- using incorrect franking account balance
- entering the wrong amount at one or more LCB labels
- not completing mandatory LCB labels.
It is too early to determine any trends, in relation to franking account balance issues.
Further support and guidance include:
- an LCB tool for determining eligibility, calculation of the tax offset amount and on the information to be included in the tax return labels that need to be completed – release is planned by the end of 2021
- a series of four LCB guidance videos available on ato.gov.au will help taxpayers determine if they are eligible and, if so, how to make a claim.
A proposed LCB amendment has been introduced to Parliament in Treasury Laws Amendment (2021 Measures No.5) Bill provides for a mechanism for a ‘change in choice’. If enacted, it will give effect to the change in choice as if it was made at the time of the original LCB choice. Tax Time 2022 design work for the approved to make a change in choice is progressing (subject to enactment).
Consultation undertaken with ATO stewardship groups, software providers and key stakeholders, to design ‘a reconciling worksheet’ style approved form which will ensure all relevant information has been considered prior to changing a choice.
Public Advice and Guidance
Professional Firms
The ATO is working with professional associations on how to best communicate the Practical Compliance Guideline (PCG). Members welcomed the consultation.
Publication of the PCG is planned in November 2021 (subject to other priorities), once the support products to assist taxpayers implement the PCG have been finalised.
Division 7A
The Division 7A working group agreed to the Board of Taxation’s feedback to address concerns regarding the administration of Division 7A loan agreements.
Operation of s109N was found to be justified and current public advice and guidance (Taxation Determination TD 008/8 if a private company makes a loan to a shareholder or their associate in an income year and the loan has not been fully repaid, what elements of the loan agreement need to be in writing for the purposes of paragraph 109N(1)(a) of Division 7A of Part III of the Income Tax Assessment Act 1936?) is sound, however, it was agreed the ATO would review our ‘front end’ guidance on ato.gov.au
The ATO intends to revise web guidance to improve the client experience after clarification on practical issues, such as loan agreement requirements.
The updated web guidance will appear on the Managing Division 7A risks and self-correction page and will provide clear information on self-correction, making it easier for clients to understand, comply and self-correct Division 7A issues. Timing for publishing is to be confirmed, pending update on action items.
Research and development tax incentive program
Australian National Audit Office audit
The Australian National Audit Office (ANAO) Administration of the Research and Development Tax (R&D) IncentiveExternal Link audit focuses on whether Industry and the ATO had effective:
- registration, eligibility review and compliance arrangements in place
- performance measurement and monitoring arrangements.
The final audit report is due 30 November 2021.
The Board of Taxation
Differing to the ANAO audit, the Board of Taxation review focuses on dual administration of the program, the roles and responsibilities of each agency, and the ways the administrative processes could be streamlined or improved.
This includes analysis in comparative jurisdictions and the advantages and disadvantages of recommendations, including financial impacts and trade-offs between simplification and/or reductions in compliance costs
The report is due to parliament in November 2021.
Software Development Industry workshops
Following the initial workshop between Treasury, the Department of Industry, Science, Energy and Resources, AusIndustry, ATO and key software development firms in April 2021, several additional collaborative workshops have been held.
The outcome is aimed at producing a software industry specific expenditure guide that better reflects industry practice in software development.
Current Public Advice and Guidance
Draft Taxation Ruling TR 2021/D3 Income tax: research and development tax offsets - the at risk rule, closed for public consultation on 23 July 2021. The ruling outlines the Commissioner’s view on circumstances where the R&D incentive tax offset will be denied or reduced, because the expenditure is not ‘at risk’. This can occur where expenses are likely to be fully or partially reimbursed. The ruling provides practical examples where the ‘at risk’ rule will and will not apply.
The Draft Taxation Ruling also takes account of extensive feedback received during public consultation on the Draft Taxation Determination TD 2020/D1 Income tax: notional deductions for research and development activities subsidised by JobKeeper payments which considers circumstances where a company would be denied an R&D tax incentive tax offset when they received the JobKeeper payment.
Finalisation of the draft Taxation Determination was paused pending finalisation of the Taxation Ruling, due to the importance of providing clarity on the ‘at risk rule’ in a broader range of JobKeeper scenarios and ensuring consistency in approach.
Division 7A loans
For the 2019–20 income tax year, the ATO offered a streamlined process for borrowers with a complying loan agreement under s109N to seek an extension on their minimum yearly repayment (MYR). This was to avoid the borrower being considered to have an unfranked dividend equal to the amount of the MYR shortfall.
This was introduced to assist borrowers facing ‘circumstances beyond their control’ due to COVID-19 by making the extension of the MYR a simplified process.
An extension to the streamlined process for MYR was provided for the 2020–21 income tax year for borrowers affected by COVID-19, where they are unable to make their MYR based on circumstances beyond their control owing to COVID-19.
S100A Reimbursement Agreements
Guidance is close to finalisation. Due to the ongoing COVID-19 environment, the planned release is early 2022. In the interim, the ATO will provide advice through external forums.
Relaxed residency requirements for SMSFs and small APRA regulated funds
|
Action item |
0906-1 |
|
Due date |
September 2021 - Closed |
|
Responsibility |
ATO |
|
Action item details |
Relaxed residency requirements.
ATO to update members on Treasury consultation activities. |
Government will relax residency requirements for self-managed super funds (SMSFs) and small APRA regulated funds by extending the central control and management test for both fund types.
The measure will have effect from the start of the first financial year after royal assent of the enabling legislation which is expected prior to 1 July 2022.
Members indicated interest in participating in Treasury consultation, however the measure remains a government announcement with no new law at this stage. Once there is available law, planning will commence for delivery of the measure including consultation as appropriate.
Reportable tax position schedule
Prompt letters issued in July 2021 for private companies who may have a 2022 Reportable tax position (RTP) schedule lodgment requirement based on information from prior years income tax return data. It was noted that receiving a prompt letter is not confirmation of an RTP schedule lodgment obligation. Private companies will still need to self-assess their obligation if they meet thresholds.
See RTP schedule instructions 2021.
The ATO will be issuing reminder letters shortly to private companies who have already been notified of their requirement to lodge a 2021 RTP schedule.
External consultation will occur prior to publishing new Category C questions.
Members’ comments
- Members encouraged ATO to adopt a practical approach if tax practitioners fail to identify a requirement to self-assess obligation.
- Larger firms have dedicated resources to support completion of an RTP schedule and may be valuable for future consultation.
- Is there an obligation for Not-for-profits to lodge an RTP schedule if they fall into the private groups segment? Many accountants do more pro bono work and need to know what they need to do to get charities prepared.
Other business
Members’ comments
- Budget announcement on changes to individual residency rules – Is there is any additional guidance to help clients plan?
The ATO advised that work is progressing. A discussion paper was expected from Treasury, but work has been delayed due to COVID-19 impacts. A revised release date is now in 2022.
- Unenacted Measures – Are there concerns with the growing list of unenacted measures?
The ATO is consulted on priority measures, and Treasury also regularly considers priority items. There have been other measures that have taken priority in the current environment.
Attendees
|
Organisation |
Members |
|---|---|
|
ATO |
Louise Clarke (Co-chair), Private Wealth |
|
ATO |
Emma Rosenzweig, Superannuation and Employer Obligations |
|
ATO |
Jade Hawkins, Private Wealth |
|
ATO |
Kasey Macfarlane, Private Wealth |
|
Arnold Bloch Leibler |
Paul Sokolowski |
|
Chartered Accountants Australia and New Zealand |
Michael Croker |
|
CPA Australia |
Elinor Kasapidis |
|
Deloitte Private |
Michael Gastevich |
|
Fox Private Group |
Garry Voigt |
|
Greenwoods & Herbert Smith Freehills |
Andrew White |
|
Independent Member |
Paul Brassil |
|
KPMG Australia |
Bernadeene Cangelosi (Co-chair) |
|
Law Council of Australia |
Angela Lee |
|
Lowy Family Group |
John Fanning |
|
Oatley Family Group |
Sharon Clark |
|
PFD Foods |
Peter Cartsidimas |
|
PwC |
Michael Dean |
|
Tax Bar Association |
Terry Murphy QC |
|
The Tax Institute |
Chris Wookey |
|
7-Eleven Group |
Kenny Cheong |