Talking Tax – Issue 149

Changes to deductions for non-compliant payments to workers

From 1 July 2019, businesses will lose their deductions for payments to employees if no pay as you go (PAYG) withholding amount is withheld and reported to the ATO.

However, deductions won’t be denied for mistakenly reporting or withholding the wrong amounts, provided that businesses correct their mistakes or make a voluntary disclosure.

This change exposes the need for businesses to obtain certainty on their PAYG withholding obligations.

For more information, contact Anthony Bradica.

New way to calculate company losses for deductions

The Treasury Laws Amendment (2017 Enterprise Incentives No 1) Bill 2017 has passed both houses of Federal Parliament and awaits Royal Assent. The Bill amends the income tax laws to supplement the ‘same business test’ with a more flexible ‘similar business test’. We previously provided an overview on the proposed legislation here.

The ‘similar business test’ is used to determine whether a company's tax losses and net capital losses from previous income years may be used as a tax deduction in a current income year. The Bill aims to improve access to losses for companies that have changed ownership, enabling them to seek out opportunities to innovate and grow.

Before being passed, the Bill was amended to remove Schedule 2, which offered taxpayers the choice to self-assess the effective life of certain intangible depreciating assets. The Bill no longer allows such self-assessment.

These changes should come into effect from 1 April 2019.

For more information on how this might impact your business, contact Michael Parker.

Illegal phoenixing Bill introduced

The Treasury Laws Amendment (2017 Enterprise Incentives No 1) Bill 2017 has passed both houses of Federal Parliament and awaits Royal Assent. The Bill amends the income tax laws to supplement the ‘same business test’ with a more flexible ‘similar business test’. We previously provided an overview on the proposed legislation here.

‘Phoenixing’ occurs where a company’s assets are transferred to another entity to avoid paying the company’s debts. It is estimated to cost the Australian economy more than $3 billion each year. The Bill proposes some of the reforms announced in the 2018-19 Federal Budget, including:

• new laws to penalise and prohibit creditor-defeating dispositions of company property, and empower liquidators and ASIC to recover such property;
• amendments to ensure company directors are held accountable for misconduct, such as by preventing directors from improperly backdating resignations or intentionally leaving the company with no directors;
• extending the Director Penalty Regime to company GST liabilities; and
• retaining tax refunds where taxpayers fail to lodge returns or provide information to the Commissioner that may affect the refund amount.

To find out more or for assistance in making a submission, contact Andrew O’Bryan.

Draft Determination on Employment Termination Payments from redundancy trusts

On 12 February 2019, the ATO issued in draft a Legislative Instrument Income Tax: Employment Termination Payments Redundancy Trusts (12 month rule) Determination 2019 (ETP 2019/D1) affecting the application of the Employment Termination Payment (ETP) rules to payments received by workers from a redundancy trust.

A redundancy trust is a trust which has been established for the purpose of preserving workers’ termination payments, including redundancy payments.  For the purposes of the ETP 2019/D1, a Redundancy Trust is a trust that is established for this purpose and which has been endorsed by the Commissioner as an ‘approved worker entitlement fund’ (AWEF) for the purposes of section 58PB of the Fringe Benefits Tax Assessment Act 1986.  Not all redundancy funds have this particular status; a worker can check whether a redundancy trust has AWEF endorsement by searching the fund’s ABN on the Australian Business Register.

Generally, when a worker receives a payment on account of the termination of their employment (including for reasons of redundancy), section 82-130 of the Income Tax Assessment Act 1936 (Cth) requires that payment to be made within 12 months of the termination of the worker’s employment, to attract concessional tax treatment as an employment termination payment (ETP). ETP 2019/D1 modifies this requirement, such that if a worker receives a payment on account of the termination of their employment (including for reasons of redundancy) and:

• the worker lodges a claim with the trustee of the Redundancy Trust to receive a payment within 12 months of the termination of their employment; and
• the payment is made by the trustee of the Redundancy Trust within 2 years of the termination of the worker’s employment.

ETP 2019/D1 will extend the definition of ETP by removing the requirement that a payment is made within 12 months of a person's termination (in certain circumstances). This will expand the types of payments that receive the concessional tax treatment applying to ETPs.

ETP 2019/D1 will replace Employment Termination Payments Redundancy Trusts (12 month rule) Determination 2009 (ETP 2009/1), which is due to sunset. ETP 2009/1 will be repealed on commencement of ETP 2019/D1.

There are no substantive differences between the two.  The only changes that have been made are intended to:

• update the definition of 'redundancy trust' to take into account changes to the underlying definition in the Fringe Benefits Tax Assessment Act 1986; and
• remove a provision concerning transitional arrangements for redundancy trust entitlements that arose prior to 1 July 2017, the date the current legislation was introduced.

For assistance in respect of ETPs, contact Anthony Bradica.