Talking Tax – Issue 55

ATO updates

Warning on unusually high deductions

The ATO has issued a media release warning taxpayers that there will be a focus this year on higher than expected deductions.

The warning comes in the final week before the lodgement deadline and aims to ensure that those planning to lodge learn from the mistakes of others.

Assistant Commissioner Graham Whyte has stated that enhancements in technology and data sharing have increased the ATO’s ability to check work-related expense claims. He says that if a claim appears higher than usual it will be checked with an employer.

The media release gives examples of deductions that have been disallowed, including cases where tax returns completed by accountants were verified with employers and found to have been exaggerated.

The ATO’s key compliance suggestions are:

• keep a record to prove the deduction
• the deduction must be directly related to earning income
• the taxpayer must not have been reimbursed for the expense
• be aware of what is and what is not deductable.

This is a valuable warning that those completing their tax returns in the final week of the lodgement period will need to be diligent about verifying and substantiating their deductions.

SuperStream deadlines running out

Small business need to put in place systems to start paying their superannuation contributions through the new, mandatory electronic standard, SuperStream.

Small Businesses with 19 or fewer employees need to transition to SuperStream by 28 October, meaning that only one super guarantee payment date is left. While 75% of effected businesses have made the transition, there are still some businesses that risk penalties for becoming non-compliant.

Business owners or partners, accountants and bookkeepers should be aware of the imminent compliance deadline. The ATO has developed a range of tools to assist businesses in making the transition.

Legislation and Government policy

The following Bills received assent this week:

Industry Research and Development Amendment (Innovation and Science Australia) Bill 2016 (Cth)

This Bill amends the Industry Research and Development Act 1986 (Cth) to transition the existing Innovation Australia into the new Innovation and Science Australia.  The Bill also creates a statutory framework under which the Commonwealth will have legislative authority for spending on activities related to innovation, science, research and development programs.

International Tax Agreements Amendment Bill 2016 (Cth)

According to the Explanatory Memorandum, the purpose of this amending Bill is to reinforce Australia’s support for international tax transparency and co-operation between revenue authorities to help prevent tax evasion and avoidance to improve global tax compliance.

The Bill amends the International Tax Agreements Act 1953 (Cth) to give the force of law in Australia to the Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance and its Protocol.

Treasury Laws Amendment (Income Tax Relief) Bill 2016 (Cth)

According to the Explanatory Memorandum, the purpose of the Bill is to amend the personal income tax rate thresholds so that the rate of tax payable on taxable incomes from $80,001 to $87,000 for individuals is 32.5%, instead of 37%. It is estimated that this change will benefit 3.1 million taxpayers.

Statutes Amendment (Budget 2016) Bill 2016 (SA)

The objective of the Bill is to amend various Acts for the purpose of implementing the 2016 State Budget.

Specifically, the Bill proposes to:

• Provide a one year extension of the partial stamp duty concession for purchases of eligible off-the-plan apartments to 30 June 2017.
• Remove the definitions of “goods” and “South Australian goods” so that goods that are part of an arrangement will no longer be dutiable.
• Provide a general exemption for a conveyance or transfer of property to a body established wholly for charitable or religious purposes, or to a person who acquires the property in the person’s capacity as trustee for a body established wholly for charitable or religious purposes, where the Commissioner is satisfied that the property will not be used wholly or predominantly for commercial purposes.
• Expand the land tax exemption for land held by sporting and racing associations to include all non-residential and non-vacant land, including ex gratia relief for the 2015-16 financial year.
• Expand the land tax principal place of residence (PPR) exemption to provide individuals with the ability to maintain exempt status whilst a site is being renovated and redeveloped for use up to two financial years, so that land owners are not charged additional land tax where they move out of their PPR to renovate.

Case law

RAPP and Commissioner of State Revenue [2016] WASAT 123

In 2007 the applicant acquired a 16 hectare property in Jandakot which included two houses, one of which was derelict

Land tax was payable on the property until 2015 when the applicant informed the Commissioner that it was to become her primary residence. She was also subdividing the lots into two lots, being Lot 98 and Lot 99. Lot 98 comprised approximately of 12 hectares of land and included the Applicant’s residence, whereas Lot 99 comprised of 4 hectares of vacant land.

The Commissioner exempted the property from land tax under the primary residence exemption, but then reassessed the property under s 14 of the Land Tax Assessment Act 2002 (WA).

That section provides that when a property that was previously exempt from land tax under the primary residence exemption is subdivided, land tax is payable on the ‘taxable portion of that property for each of the five financial years reckoned retrospectively from and including the financial year in which the land is subdivided.

As such, land tax is payable on the taxable portion of the property, which is the area of the subdivided land that does not contain the private residence, being that area equivalent to Lot 99 as a consequence of the subdivision.

The purpose of section 14 is to address the perceived unfairness where a lot includes a private residence and is subdivided, meaning that the land owner avoids paying tax on the sub-divided area.

The applicant argued that Lot 99, on which she was being assessed for land tax, did not exist at 30 June 2015 and was not registered until September 2015 and therefore could not be the subject of an assessment.

By way of statutory construction the Tribunal found that the meaning of the sections were to apply land tax to the taxable portion of the whole property or parent title, and did not make reference to Lot 99 or any other particular lot, rather the taxable value of the taxable portion of the parent title.

The Tribunal upheld the Commissioner’s assessment.

In addition, the applicant argued that she had been assured by an officer from the Office of State Revenue that she would not be subject to tax in the 2015/16 year. The Tribunal found that whether or not this was true, the Commissioner could not be bound by such an assurance.

This case demonstrates that the Commissioner has power to reassess land which is subject to a principal place of residence exemption that is subsequently subdivided for sale, land development, or long term hold.