Who pays GST on new residential property?

Posted by admin on April 15, 2018

The issue of paying GST in relation to the sale of new residential property can be a complex area which continues to present challenges. Here we put the spotlight on recent proposed changes to GST on property and the implications for developers, conveyancers and purchasers.

Currently, GST is included in the purchase price of a new residential property and it is the developer who pays any GST. However, it has been reported that some developers are failing to pay GST (despite having claimed GST credits on their construction costs).

Under a measure announced in the Federal Budget in May 2017, purchasers of new residential properties or land will be required to collect and pay GST to the ATO when they buy. The Government proposed this change to start on 1 July 2018, but there have been no further public developments on this measure since the Budget and no draft legislation has been released, as at late August 2017.

Recent court case

In the latest development of the saga, the purchasers of new residential units in a Canberra development have commenced a class action to recover the GST they paid to the developer on their purchases. They allege that the units were input taxed rather than taxable – and so no GST should have been charged.

If these allegations are upheld in court, the case will represent yet another example of ongoing problems involving property developers and GST.

How will purchasers be affected?

Purchasers will be liable for paying GST directly to the ATO, which has never happened before. Most residential property buyers use conveyancing services to complete their purchases, and it seems that the Government hopes that these people will not notice much change.

How will conveyancers and developers be affected?

The Government hasn’t commented on the implications of the proposed measure for conveyancers and developers, but they may face additional compliance costs. Certainly, developers will need to change all future contracts to protect themselves if the changes are implemented.

How will GST revenue be affected?

Interestingly, the Government’s announcement stated that the proposed change would have a significant impact within Australia’s GST system.

The difference is because the timing of collection and recognition for GST on the property purchases would change.

Talk to us

We expect the Government will need to consult and give more information on this process before the confusion is sorted out. In the meantime, if you are either a purchaser of new residential property or a property developer, contact us to discuss how we can assist you with accounting for GST.

Business cash payments on ATO’s radar

Posted by admin on March 15, 2018

Cash might be king, but the use of cash by businesses is attracting attention from the ATO. It will begin visits of selected businesses to ensure that all tax obligations are met. Third-party data and risk analysis is being used to identify the types of businesses the ATO will visit, which will not be limited to one particular industry this time around.

In this competitive economic environment some businesses are increasingly turning to cash payments to dodge their tax obligations. This is becoming such an issue that the ATO has started a program of visiting businesses across Australia that may be using cash inappropriately or operating in the hidden economy.

A wide variety of resources including third-party data and risk analysis will be used by the ATO to identify the type of businesses it will visit. These include businesses that:

operate and advertise as “cash only” or mainly deal in cash;
do not take electronic payments according to data-matching;
are part of an industry where cash payments are common;
indicate unrealistic income relative to the assets and lifestyle of the business and its owner;
fail to register for GST or lodge activity statements or tax returns;
under-report transactions and income according to third-party data;
fail to meet super or employer obligations;
operate outside the normal small business benchmarks for their industry; and
are reported by the community for potential tax evasion.

A wide net is being cast to target all businesses that could potentially be avoiding their tax and superannuation obligations. In the course of the visits, where there are suspicions of wrongdoing, the ATO will follow up, initially by a letter which could include recommendations such as:

lodging a voluntary disclosure to mitigate the risk of an audit or potential prosecution;
investing in an electronic payment and record keeping system to reduce the risk of mistakes and meet consumer preference; and
attending ATO record keeping information sessions.

“In the last round of visits, three common issues of not having separate personal and business accounts, not recording all sales or keeping proper books, and having employees working off the books were found, and over 60% of businesses visited required some kind of corrective action.”

The hair and beauty, restaurant, cafe, takeaway and catering, and the building and construction industries all reported an increase in timely lodgement of activity statements after being targeted by the ATO for specific attention.

As a part of the visits, the ATO will also be working with industry associations and local authorities to educate businesses on the use of electronic payment and record keeping facilities, online lodgement, superannuation obligations to employees; proper registration and meeting of obligations, and help with business specific issues.

Need help?

To ensure that you and your businesses are not targeted under this operation, or that if you are targeted, you do not get a follow-up, the following broad suggestions may help:

deposit all cash payments into bank accounts;
keep evidence to support all income, expenses and lifestyles;
account for any stock used for private purposes; and
work out the performance of the business relative to other similar businesses in the same industry using the small business benchmarks.

If you need help with documenting your business income, expenses and stock or calculating whether your business is performing within the small business benchmarks, contact us today.

Are you signed up to the new small business super clearing house?

Posted by admin on February 15, 2018

The small business superannuation clearing house (SBSCH) is a convenient service that allows a small business to make superannuation contributions for its employees in one single payment. It’s important to know that access to the service has recently changed significantly. In this article we explain the steps you need to take to ensure your business can continue using the service.

Although the SBSCH itself hasn’t changed, the service has been migrated to the ATO’s Business Portal. This means your old login details will no longer work and you need to arrange access to the new system as soon as possible (if you haven’t done so already).

“Despite this minor inconvenience, the change benefits small businesses because they can now access a number of the ATO’s tax and superannuation services using one set of login details.”

The way you access the SBSCH depends on your business type.

Small businesses with an ABN can now access the service through the Business Portal. If you’re already using this portal, you can access the SBSCH from the “Manage Employees” menu. If you need to arrange access to the portal, you will first need to set up an approved authentication credential. You can choose from either AUSkey (which can only be used on the particular device it is installed on) or Manage ABN Connections (which allows access from any browser or mobile device).
Sole traders, individuals who employ others (such as carers or nannies) or businesses without an ABN can access the service through their myGov account (linked to ATO services).

Your accountant or tax professional can also manage your contributions through the SBSCH on your behalf.

Never used the SBSCH?

The SBSCH is a free service that makes it easier for small businesses to comply with their superannuation obligations. The service is available to any business with 19 or fewer employees or an annual aggregated turnover of less than $10 million.

After joining and updating the system with your employees’ details, you only need to make a single electronic payment to the service and it will distribute the separate contributions to each employee’s fund. Your contributions are “paid” on the date the SBSCH accepts them.

The SBSCH also allows you to nominate staff who are authorised to use the service on behalf of your business.

Need some assistance?

Has your business done everything it can to make superannuation compliance as easy as possible? If you need to set up access to the new SBSCH, or if you’ve never used the service and would like to sign up, contact our office for assistance.

First Home Super Saver Scheme update: building on the foundations

Posted by admin on January 15, 2018

We start the new year with headlines of “falling house prices”, but even if prices are set to come down and you keep a close eye on your finances, saving a deposit to buy your first home can be difficult. The First Home Super Saver Scheme (FHSSS) – now passed by Parliament – means that you can use superannuation to build your home deposit, and not only if you are buying a first home. Here is an update on FHSSS and other exemptions from which you could benefit.

The FHSSS allows you to make voluntary superannuation contributions, from 1 July 2017, and later withdraw them, starting from 1 July 2018, to use for a first home deposit

For many people, the FHSSS effectively operates to provide a 15% tax saving on money channelled via superannuation for a first home purchase. While the potential tax savings of the scheme will only make a small dent in the major funding required for a home purchase, the potential assistance on offer should not be ignored.

A person with assessable income above $52,000 who has the capacity to salary sacrifice the yearly maximum of $15,000 as a FHSSS contribution can achieve a respectable tax benefit, because they will save 17.5% in tax (plus Medicare levy) on the way into super, and only pay 2.5% (plus Medicare levy) on the FHSSS released amount. However, given that people with taxable incomes below $37,000 have a marginal tax rate of 19% (plus Medicare levy), the tax savings of the FHSSS are diminished for these low-income earners. So, the greatest tax benefit of the scheme will be for people earning between $52,000 and $102,000 who can salary sacrifice $15,000 and stay on the 32.5% marginal tax rate (income between $37,000 and $87,000).

Those with an income above $102,000 can achieve a 22% savings in tax (plus Medicare levy) on the way into super, but will pay 7% (plus Medicare levy) on the FHSS released amount.

Extension to those who are suffering “financial hardship”

When the scheme was first proposed it was limited to apply only to first home buyers.

“There is now a proposal to extend the scheme to home buyers who the ATO determines are suffering “financial hardship”

The Government is yet to release regulations that define what constitutes “financial hardship” and we will keep you updated on this.

What’s included?

Individuals are able to contribute up to $15,000 per year (and $30,000 in total) to their super for the purpose of a first home deposit. Employees can use salary sacrifice arrangements to make pre-tax contributions, but you should keep in mind that any FHSSS amounts you contribute will still count towards your yearly concessional contributions cap. The cap from 1 July 2017 is $25,000 – that is, your pre-tax contributions of up to $25,000 (including the mandatory super guarantee and any you make under the FHSSS) will be taxed at a “concessional” rate of 15%. Higher tax rates will apply if you exceed the cap.

Importantly, the scheme doesn’t allow you to withdraw money that you already had in super before 1 July 2017, and any FHSSS amounts you contribute will only be available for release from 1 July 2018.

Who’s eligible?

To be eligible to use the FHSSS you will need to:

be at least 18 years old;
have not used the scheme before and have never owned real property in Australia; or
qualify as someone who has suffered a “financial hardship” (determined by the ATO), as specified by regulations.

If you’re eligible to use the FHSSS, you won’t be disqualified if you are buying a home with someone else (such as your spouse) who isn’t a first home buyer.

How does it work?

When ready to withdraw an FHSSS amount from your super, you will need to apply to the ATO, giving a declaration of your eligibility to buy or build a residence. The ATO will issue a determination and release authority specifying the maximum amount to be withdrawn, then estimate and withhold an amount of tax and release your deposit to you. The maximum withdrawal amount will be 85% of your pre-tax (concessional) contributions. Concessional contribution amounts and associated earnings withdrawn from your super under the FHSSS will count as part of your taxable income, although a 30% tax offset will apply. Amounts released from super under the FHSSS will be excluded from the social security means tests and co-contribution income test.

After the release of your FHSSS amount, you will have 12 months to sign a contract to buy or build residential premises, and 28 days after the contract signing to notify the ATO. Your purchase can include buying vacant land to build on and occupy as your residence. You will need to occupy the residence as soon as is practicable, and for at least six months of the first year after it becomes practicable to do so. For example, if you buy a house-and-land package, you will need to occupy the house for at least six months in the first 12 months after it is built.

Important considerations

If you’re saving for your first home and think the FHSSS might be for you, there are a range of factors to consider.

A super account isn’t a capital-guaranteed bank account, so it’s important to look closely at your fund’s investment strategy and be aware of the risks involved with adding the money for your home purchase to your superannuation.

It is crucial to plan ahead, as any salary sacrificing to your super will need to be prospective. The various potential taxing points in the scheme also mean that your personal finances and circumstances may affect whether using it to save your deposit would give you a useful tax saving.

Want to know more? Contact us to discuss the latest super changes and your home deposit savings plan.

Hosting Christmas parties – what you can claim

Posted by admin on December 15, 2017

The festive season is just around the corner and if you are an employer you may be about to host – or you may already have hosted – a Christmas party for staff to celebrate the year’s achievements. If so, it is a good idea to know about your tax obligations and health and safety regulations when it comes to hosting a party for your team.

End-of-year parties are a great way to celebrate and to thank staff for all their hard work during the year. If you do host a party, make sure you know your obligations. We look here at the tax implications for hosting parties, and for giving gifts. If you are in doubt, please contact our office so that we can help you know what could be exempt, leaving you free to enjoy the festivities safe in the knowledge that you have things covered.

Tax obligations when hosting Christmas parties

From an income perspective you may be thinking in terms of how to allocate the costs of a Christmas party. The cost of providing a Christmas party is income tax deductible only to the extent that it is subject to fringe benefits tax (FBT). Therefore, any costs that are exempt from FBT (that is, exempt minor benefits and exempt property benefits) cannot be claimed as an income tax deduction. There is no separate FBT category for Christmas parties. Any fringe benefits provided by you, an associate, or under an arrangement with a third party to any current employees, past and future employees and their associates (spouses and children), may attract FBT.

Exempt benefits – minor benefits

The good news is that the provision of a Christmas party to an employee may be a minor benefit and exempt if the cost of the party is less than $300 per employee and certain conditions are met. The benefit provided to an associate of the employee may also be a minor benefit and exempt if the cost of the party for each associate of an employee is less than $300.

“Employers should note the ATO’s view to the application of the minor benefits exemption to Christmas parties and gifts. According to the ATO, the minor benefits threshold of less than $300 applies to each benefit provided, not to the total value of all associated benefits.”

Exempt property benefits

Other costs (such as those for food and drink) associated with Christmas parties are exempt from FBT provided they are incurred on a working day, on your business premises and any food and drink is consumed by current employees. A taxable fringe benefit will arise in respect of an associate of an employee who attends the party, if not otherwise exempt under the minor benefits exemption.

Gifts provided to employees at a Christmas party

The provision of a gift to an employee at Christmas time may be a minor benefit that is an exempt benefit where the value of the gift is less than $300. Where a Christmas gift is provided to an employee at a Christmas party that is also provided by the employer, the benefits are associated benefits, but each benefit needs to be considered separately to determine if they are less than $300 in value. If both the Christmas party and the gift are less than $300 in value and the other conditions of a minor benefit are met, they will both be exempt benefits.

Health and safety at Christmas parties

While your staff may be “off the clock”, you will probably still be responsible for their health and safety. Here are some suggestions to help your workplace celebrate safely:

Remind staff, perhaps in an email before the event that while the party is a time to relax, it’s still a work function. You could gently remind staff to be careful if they choose to drink alcohol.
Make sure that any alcohol is served responsibly and that there’s enough food and non-alcoholic drinks available, too.
Help your staff get home safely after the event. You could organise a bus, pre-order taxis, or arrange for designated drivers.

Speak to us

The FBT year runs from 1 April to 31 March. You may not be ready to prepare your FBT until after 31 March, but you may be preparing accounts now in order to allocate the costs of the Christmas party. Speak to us for further information.

Tax scams: don’t be a victim

Posted by admin on December 1, 2017

Tax scams are real and taxpayers need to be vigilant about bogus calls, text messages and emails from scammers. Some scammers go to great lengths to deceive taxpayers, including impersonating government representatives on the phone, sending fraudulent emails and even creating fake websites. It’s important to stay informed about what the latest scams look like, and know what questions to ask so you can avoid being scammed.

The ATO warns taxpayers to always watch out for scammers. Each year, the ATO receives a growing number of reports from the public of new phishing scams – it detected over 17,000 scams during the first half of 2017. Not only do scammers try to steal money, they also try to steal identities. The Government has identified several cases of misuse of stolen personal information that have led to fraudulent income tax returns, as well as GST, superannuation and welfare frauds.

Scammers are becoming more sophisticated in their attempts to defraud the public and trick people into handing over money, their tax file numbers and other personal information. A recent stratagem is to telephone people, displaying an official-looking ATO number as a caller ID so the victim feels confident enough to engage with the scammer and will provide personal information – this type of impersonation is known as “spoofing”. Sending emails containing links to bogus websites that mirror the official ATO website is also still a popular scamming method.

The typical story is that a fraudster contacts a taxpayer out of the blue claiming that the taxpayer has overpaid taxes and is entitled to a refund. The fraudster often asks the taxpayer to pay an “administration” or “transfer” fee to obtain the refund. They may also ask for the taxpayer’s personal details, including financial details such as bank account information so that the “refund” can be transferred. If the taxpayer hands over money, chances are that it is never seen again, and no transfer is forthcoming.

Another tactic is when fraudsters phone to demand that people pay allegedly unpaid taxes. The ATO is aware of one such aggressive scam where taxpayers are threatened with arrest if they do not pay a fake “tax debt” over the phone. Scammers may also demand payment in gift cards, such as iTunes or prepaid Visa cards.

“Scams are most prevalent during tax time, but it’s important to remain vigilant for them throughout the year.”

If you receive an email, a text message (SMS) or an unexpected phone call from “the ATO” claiming that you are entitled to a refund, that you owe taxes or that you must confirm, update or disclose confidential details like your tax file number, delete the message (do not click any links or download any attachments) or hang up the phone.

From time to time, the ATO itself will send emails, text messages or official social media updates to advise you of new services. However, the ATO’s messages will never request personal or financial information by SMS or email, and its representatives will never ask you to pay money into a personal bank account.

If you receive a call, an email or an SMS and are concerned about providing personal information, you can call the ATO on 1800 008 540 (8 am to 6 pm, Monday to Friday), forward the suspicious email to ReportEmailFraud@ato.gov.au or check your myGov account for any message from the ATO.

You can also contact our office for more information if you have concerns.

First Home Super Saver Scheme: lay foundations and plan to benefit

Posted by admin on November 15, 2017

Even if you avoid café brunches and keep a close eye on your everyday spending, saving a deposit to buy your first home can be a challenge. The First Home Super Saver Scheme, announced in the 2017–2018 Federal Budget, proposes using the superannuation system to help Australians build their home deposits. The government has now released draft legislation to lay the scheme’s foundations – let’s take a look at the assistance on offer and how it would work if this draft becomes law.

The proposed First Home Super Saver Scheme (FHSSS) will allow people to make voluntary superannuation contributions from 1 July 2017 and later withdraw them, starting from 1 July 2018, to use for a first home deposit.

For many people, the FHSSS will effectively operate to provide a 15% tax saving on money channelled via superannuation for a first home purchase. While the potential tax savings of the scheme will only make a small dent in the major funding required for a home purchase, the assistance on offer should not be ignored by those who can benefit.

A person with assessable income above $52,000 who has the capacity to salary sacrifice the yearly maximum of $15,000 as a FHSSS contribution can achieve a respectable tax benefit, because they will save 17.5% in tax (plus Medicare levy) on the way into super, and only pay 2.5% (plus Medicare levy) on the FHSSS released amount. On the other hand, given that people with taxable incomes below $37,000 have a marginal tax rate of 19% (plus Medicare levy), the tax savings of the FHSSS are diminished for these low-income earners.

So, the greatest tax benefit of the scheme will be for people earning between $52,000 and $102,000 who can salary sacrifice $15,000 and stay on the 32.5% marginal tax rate (income between $37,000 and $87,000). Those with an income above $102,000 can achieve a 22% savings in tax (plus Medicare levy) on the way into super, but will pay 7% (plus Medicare levy) on the FHSS released amount.