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A taxpayer has learned that no capital gains tax event would occur on the transfer of real property from themselves to a family member. A recent private binding ruling highlights that a beneficial ownership of an asset doesn't solely relate to shares in a company or beneficiaries of trusts and can occur to real property owned by individuals. In the private binding ruling the:

  • taxpayer purchased a property on behalf of a family member as they were unable to obtain finance at that time
  • family member paid the deposit for the property and had made all mortgage repayments
  • family member had lived in the property as their main residence since acquisition, and
  • taxpayer transferred the legal interest in the property to the family member when they were able to obtain sufficient finance.
The Commissioner of Taxation determined that in this instance the taxpayer who originally purchased the property has not received a financial gain. In this instance, a "trust" was created when a taxpayer purchased a property for a family member until such time that they could obtain finance. The family member lived in the property as their main residence.

Beneficial ownership
A beneficial owner is defined per TD 2017/11 as 'a person or entity who is entitled to the income and proceeds of an asset'. That is, a person or entity may hold legal title of an asset on account for another person or entity.

Even though TD 2017/11 is written in relation to children's bank accounts, the ATO applied the same theory when other property is held in trust.

Therefore, a CGT event doesn't occur when the legal interest in the property is transferred from the taxpayer to the family member (ITAA 1997 s 104-10(2)).

Additional comments
It must be maintained here that a key element in this case was that the family member had used their own resources to hold beneficial ownership. If it could be proven that the taxpayer had used their own money for the deposit or made the mortgage repayments, a CGT event may occur.

Various cases in the past have shown that the transfer of a property for "natural love and affection" has brought about a CGT event that was taxable to the transferor.

That being said, this ruling highlights an opportunity where parents or grandparents can assist family members in getting into the property market. Situations exist where an individual may be in a difficult lending position due to requirements of a financial institution. For example, subletting a second bedroom by a homeowner is not taken into consideration for lending purposes (or from a domestic partner not on the title).

Please note that in these types of transactions have state tax implications such as stamp duty and/or first home owners grants.

If you would like further information surrounding this type of arrangement, please do not hesitate to contact our office. We would be pleased to assist you further.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Norman Ruan

Accountant

T: 02 9984 7774

E:  normanr@northadvisory.com.au

Companies, trusts and partnerships can simplify their transfer pricing record-keeping requirements if any of following options applies:

  • Small taxpayers with turnover under $25m for the year for their "Australian economic group" (see below)
  • Materiality. Total international related-party dealings represent not more than 2.5% of the total turnover for the Australian economic group
  • Distributors with a turnover under $50m for the Australian economic group
  • Intra-group services. The combined value of intra-group services rendered or provided was:
    • $1m or less, or
    • more than $1m, but the total amount
      • charged for the services they received was not more than 15% of the total expenses of the Australian economic group, and
      • derived for the services they provided was not more than 15% of the total revenue of the Australian economic group
  • Management and administrative services. Income and expenditure on these services was not more than 50% of the total international party dealings of the Australian economic group
  • Technical services. Income and expenditure on these services was not more than 50% of the total international related-party dealings of the Australian economic group
  • Low-level inbound loans of $50m or less for the Australian economic group, and
  • Low-level outbound loans of $50m or less for the Australian economic group.
An Australian economic group consists of an entity together with all the entities it is required to include in its consolidated financial statement by Australian Accounting Standard AASB10. 

An entity can be a company, partnership, superannuation fund or trust.

The ATO Guideline specifies further eligibility criteria for the options. Taxpayers must self-assess to determine whether they meet these criteria.

The options reflect the types of transactions or activities the ATO believes are low risk in the context of international related party dealings. If taxpayers apply any of these options, then the ATO will check to confirm their eligibility, but will not further review the relevant transactions or arrangements for transfer pricing purposes.

Taxpayers must keep contemporaneous documentation to substantiate their eligibility. 

They must also inform the ATO of their election. This can be done by including code 7 at the percentage of documentation label field in the International Dealings Schedule (IDS) for relevant categories of transactions on the IDS. 

It must be noted that this code was not available for the 2014 income year - taxpayers who are contacted for the 2014 income year must inform the ATO that one or more options have been applied.

Note that taxpayers are still required to comply with the general record-keeping requirements.

Date of effect

Simplification option

Available from

For taxpayers with substituted accounting periods

Small taxpayers

1 July 2013

1 January 2013

Distributors

1 July 2013

1 January 2013

Intra-group services

1 July 2013

1 January 2013

Low-level inbound loans

1 July 2013

1 January 2013

Materiality

1 July 2015

1 July 2015

Management and administration services

1 July 2015

1 July 2015

Technical services

1 July 2015

1 July 2015

Low-level outbound loans

1 July 2015

1 July 2015

If you have any questions, please do not hesitate to contact us.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Judy She

Senior Accountant

T: 02 9984 7774

E:  judys@northadvisory.com.au

When Tax Laws Amendment (2011 Measures No 9) Bill 2011 was given royal assent on 21 March 2012, it allowed certain discretions to the Commissioner of Taxation. One such discretion allowed an extension of time for capital gains tax exemption for a dwellings of a deceased estate.

As a result, from the 2008/09 income year, the Commissioner could extend the deceased estate's ownership of a main residence longer than two years. That is, the dwelling that was the deceased's main residence just before their death and was not used by them for producing assessable income.

The explanatory memorandum to that Bill gave a few circumstances in which the Commissioner may extend the time period for beneficiaries.

These circumstances include when:

  • the ownership of a dwelling or a will is challenged
  • the complexity of a deceased estate delays the completion of administration of the estate
  • a trustee of beneficiary is unable to attend to the deceased estate due to unforeseen or serious personal circumstances arising during the two-year period, or
  • settlement of a contract of sale over the dwelling is unexpectedly delayed or falls through for circumstances outside the beneficiary or trustee's control.

A private binding ruling issued by the Commissioner of Taxation has detailed a circumstance it considers to be outside the beneficiary's control.

In the private binding ruling, released in February 2017, the deceased had purchased a property prior to September 1985. The property was the main residence of the deceased for the entire time of ownership.

After probate was granted, the property mortgage liability and title was transferred to the beneficiaries, to prevent the repossession by the mortgaging bank.

The beneficiaries intended to sell the property between themselves, however, the transfer was delayed by the bank that was providing finance. The bank required demolition of a second residence, erected without council approval, on the property plus other repairs to be undertaken to the main residence.

As a provision was made regarding the second residence in the deceased's will, additional time was required in order to finalise the financial matters. The sale of the property between the beneficiaries was made soon after.

The Commissioner deemed that a situation such as this was outside the beneficiaries' control, and therefore an extension of the two-year exemption was allowed.

If you have any questions please do not hesitate to contact us.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Norman Ruan

Accountant

T: 02 9984 7774

E:  normanr@northadvisory.com.au

The Long Service Corporation operates the portable long service leave scheme available to workers in the industry.

If you operate in the building and construction industry and you employ workers, you must be registered with the Long Service Corporation in NSW. You may need to register both as an employer and as a worker if you are self-employed.

If you pay long service leave benefits to your employees you may claim part or all of the benefit amount paid from the Scheme. This is provided that you are registered and the worker's time is recorded with Long Service Corporation.

Employers will need to complete the following:

Employer Returns

Employers registered with Long Service Corporation must lodge an Employer Return by 31 July, being within 1 month of the end of a financial year. For example, the Employer Return for the 2017 financial year is due on 31 July 2017.

Start Notices

  • Employers are required to lodge a Start Notice for all workers performing eligible building and construction work within seven days of the worker commencing employment.
  • Penalties may apply if not lodged within seven days.
  • Start Notices must be completed for all workers even if they are already registered with the Corporation.
  • Before completing a Start Notice you should check if the worker has a Long Service Corporation registration number and if so include their registration number on the notice.
  • A Start Notice is required for all newly employed workers, even if they only work for one day.

End Notices

  • End Notices are required for all workers, even if they only work for one day.
  • A notice must be completed for each worker you terminate and lodged within seven days on the worker's employment being terminated.
  •  Penalties may apply if not lodged within seven days.

To complete the above Notices, the following options are available:

  1. Internet - Visit the Online Services Centre and follow the instructions.
  2. Complete and mail a paper Start/End Notice. Paper forms are available by calling the Helpline on 13 14 41.

Records
Employers must retain the following records for 6 years:

  1. Time sheets or attendance records showing the attendance at work of the worker
  2. Books and records containing the following:
    • Name and address of worker
    • Registration number of the worker
    • Kind of work performed by the worker
    • Name of the award if the worker is paid under an award
    • Total number of days of building and construction work performed by the worker each week.

How can we help?
If you have any questions, require assistance or would like further clarification please feel free to contact Kim Edwards on (02) 9984 7774 in order to discuss your particular circumstances in more detail.

New legislation to be introduced by the government is planning to give an allowance to all people over 65 the ability to contribute to super funds even after finishing work.

The measure, which is due to kick in on 1 July 2018, will allow people over 65 to contribute the proceeds of the sale of their home to super. The contribution is limited to $300,000 but for each person, meaning two owners could collectively contribute $600,000 into a concessionally taxed environment.

Also, there is no need to buy a new property either. If you have an existing house, or a holiday home, that can be considered downsizing too.

If you would like further information relating to this new measure in the tax laws, please do not hesitate to give us a call on (02) 9984 7774. We would be delighted to assist you in putting more money away for your retirement.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Norman Ruan

Accountant

T: 02 9984 7774

E:  normanr@northadvisory.com.au

The ATO has drafted safe harbour guidelines for apportioning payments made to professional sportspersons for the use of their public fame or image. The ATO will accept that 10% of a sportsperson's playing contract is associated with these appearances. Under a licensing agreement, these payments can be directed to a connected resident third party.

The safe harbour rules apply where:

  • payments are received pursuant to a professional sportsperson's:
    • playing contract and/or collective bargaining agreement where those agreements mandate the professional sportsperson's participation in appearances for the development and promotion of their sport or the use and exploitation of the professional sportsperson's "public fame" or "image" for the development and promotion of their sport, or
    • agreement to provide additional services where those services are provided in conjunction with the use and exploitation of the professional sportsperson's "public fame" or "image
  • the professional sportsperson has granted a licence for the use or exploitation of their "public fame" or "image" to an associated resident third party, and
  • the associated resident third party is contractually entitled to payments for the use and exploitation of the professional sportsperson's "public fame" or "image" pursuant to a playing contract, additional service agreement and/or collective bargaining agreement

As the exact proportion of a playing contract to split between playing fees and appearance fees is difficult to calculate. As a result, the draft guidance states that the ATO will allow a safe harbour of 10% of the total playing contract value.

How can we help?
If you have any questions, require assistance or would like further clarification please feel free to contact Martin van der Saag on (02) 9984 7774 in order to discuss your particular circumstances in more detail.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Norman Ruan

Accountant

T: 02 9984 7774

E:  normanr@northadvisory.com.au

Recently, the ATO announced that they will be putting further resources behind ensuring employers meet their superannuation guarantee obligations.

This recent announcement comes before the start of Single Touch Payroll reporting, which is due to commence next year for employers with over 20 staff.

These additional resources include sophisticated analytical programs to predict the amount of superannuation you should be paying to employees and some contractors.

We recommend that, where you are employing a substantial amount of labour hire and subcontractors, that your super obligations are subject to a full internal review.

Our firm would be delighted to assist you in making sure your super guarantee obligations are in accordance with the law. Significant penalties can apply for non-compliance.

Please contact us for further information.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Norman Ruan

Accountant

T: 02 9984 7774

E:  normanr@northadvisory.com.au

ATO focus on work-related car expenses

The ATO is warning taxpayers that they are paying close attention to claims for work-related car expenses this tax time.

Assistant Commissioner, Kath Anderson, said "standard" claims were a common error. "Some people think they are entitled to a 'standard deduction' for car expenses, using the cents per kilometre method, but this is not the case. While it's true that you don't need written evidence for claims of up to 5,000 kilometres per year, you do need to be able to show that you were required to use your car for work, and how you calculated your claim," she said.

Over 3 million people made a work-related car expense claim in 2015/16, totalling around $8.5b. Ms Anderson said a significant proportion of these claims were right at the limit that does not require detailed records. "While we have no issue with people using the cents per kilometre method and we expect that most claims at this threshold may be legitimate, we are reminding people that there's no such thing as a 'free pass' when it comes to deductions," she said.

Car expenses incurred in performing your duties as an employee are generally deductible, but taxpayers usually can't claim trips between home and work unless they've got a good reason, such as carrying bulky tools or equipment to work.

Example

A railway guard claimed deductions for car expenses in travelling to and from work, basing his claim on the fact that he carried bulky tools (including his flag, safety vest, handheld radio, torch, instructions and timetables) in his car. He attracted an audit because his deductions were much higher than those of other people in the same occupation. His employer advised us that secure facilities for equipment were available on the business premises, so the transportation of equipment was the employee's choice. For this reason, expenses relating to travelling to and from work are not an allowable deduction in this situation, and the taxpayer had to pay $2,000 for tax owed plus interest.

If you have any questions regarding your work related car expenses deduction claims , please do not hesitate to contact us.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Norman Ruan

Accountant

T: 02 9984 7774

E:  normanr@northadvisory.com.au

Events-based reporting for SMSFs

From 1 July 2017, all superannuation funds, including SMSFs, will be required to report Transfer Balance Cap (TBC) credits & debits to the Australian Taxation Office (ATO) on an 'events' basis.

All superannuation fund providers, including SMSFs, will report TBC events via the Transfer Balance Account Report (TBAR). This will be done on an ATO approved form. The form will be lodged electronically or you will be able to post it.

The ATO has proposed that all superannuation providers, including SMSFs, will be required to report events occurring in relation to their member's Transfer Balance Account 10 business days after the end of the month in which the relevant event occurs. This hasn't been legislated yet and its open for discussion. At present the ATO has received negative feedback on this proposal.

There are some specific exclusions that will apply to the above timeframe;

  • SMSFs – Commencement value of a member's super income stream. SMSFs to report the commencement value of an income stream (new pension), 28 days after the end of the quarter in which the relevant income stream is commenced.
  • SMSFs – Limited Recourse Borrowing Arrangements impacted by the 2017 budget measures
  • All Funds – where needing to comply with a commutation authority the SMSF must notify the ATO within 60 days of the date of issue of the Commutation Authority.

The ATO has advised that TBAR reporting functionality will be available from the 1st October 2017. A transitional period will be allowed for SMSFs so that they will generally not be required to commence TBAR reporting until 1 July 2018 but functionality for TBAR reporting will be available for those SMSFs that wish to commence TBAR reporting before 1 July 2018. We recommend that you commence TBAR reporting right away as SMSFs will need to track all relevant transfer balance account events leading up to the date of lodgement of their first TBAR.

We have the resources to manage the new TBAR requirement efficiently and effectively.

If you would like to discuss the new TBAR requirement please feel free to call Cayle Petritsch or Martin van der Saag on 02 9984 7774.

 

Cayle Petritsch

SMSF Specialist Advisor

T: 02 9984 7774

E: caylep@nac.com.au


Martin van der Saag

Director

T: 02 9984 7774

E: martinv@nac.com.au


In this blog post we provide an overview of the following:

  1. Transfer Pricing Rules
  2. Simplified Transfer Pricing Documentation Requirements
  3. 2016 International Dealings Schedule

Transfer Pricing Rules

The scope and complexity of Australia's transfer pricing regime has increased considerably following the recent enactment of more stringent and robust domestic transfer pricing rules.

The new self-assessment regime effectively requires every taxpayer with international related party transactions to:

  • Self-assess its compliance, regardless of the size of the transaction.
  • Consider whether related party dealings are conducted in a manner consistent with current transfer pricing  legislation (i.e. no tax benefit derived)
  • Prepare and maintain transfer pricing documentation to demonstrate that the taxpayer's cross-border transactions are at arm's length in accordance with the transfer pricing legislation
  • Complete this before lodging the income tax return for the year in which those transactions occur.

This is the duty of the public officer signing the tax return.

Such documentation must provide details of:

  • the actual and arm's-length conditions of each cross-border transaction
  • the arm's length methodology selected to determine those arm's length conditions;
  • the comparability factors used in identifying the arm's-length conditions, and
  • the application of the selected arm's length methodology to the particular cross-border transaction.     

Where such contemporaneous documentation is not prepared the entity will not be able to demonstrate that it has a reasonably arguable position (RAP)  in contesting any penalties later imposed on any tax shortfall (i.e. underpayment of tax), should a transfer pricing adjustment later be made by the ATO in relation to that tax year.

Taxation Ruling TR2014/8 further clarifies the records that must be kept in order for a taxpayer to develop a reasonably arguable position whilst the application of the penalty provisions is discussed in Practice Statement PSLA 2014/3.

Simplified Transfer Pricing Documentation Requirements

Practice Statement PS LA 2014/3 allows certain smaller taxpayers the option of meeting simplified transfer pricing documentation requirements.

This allows taxpayers to lessen the costs associated with preparation and  retention of contemporaneous transfer pricing documentation for either some or all of their IRPDs, provided certain eligibility criteria are satisfied

In place of full documentation, taxpayers can instead prepare a document detailing their eligibility for the simplified rules.  The ATO will not allocate resources to audit these companies, however will only check each entity's eligibility for these rules. The taxpayer is required to self-assess for these rules.

Where these simplified options are applied, eligible taxpayers will not be liable for a 25% penalty if they do not have a reasonably arguable position because they do not have full transfer pricing documentation.  However, such taxpayers are not relieved of their broader obligation to ensure that all their cross-border transactions are compliant with the transfer pricing rules.

The Practice Statement refers to an on-line guidance product 'Simplifying transfer pricing record-keeping' which sets out the range of smaller taxpayers who can apply this safe harbour documentation option for the year ended 30 June 2016.

A copy of the guidance can be downloaded from the ATO website.

Summary of the categories of smaller taxpayers entitled to apply the simplified record-keeping option: 

 Category Applies to 

 Materiality

IRP Transactions < 2.5% of total turnover for Australian group  + other conditions
 Small Taxpayers Total Turnover < $25 M for Australian group + other conditions
Cannot apply to Distributors.
 Distributors Total Turnover < $50 M for Australian group + other conditions
 Intra-Group Services Related Party Services of $1M or less  + other conditions
 Technical Services 50% or less of total related party dealings + other conditions
 Management & Administrative Services Mark ups of:
-5% or more for relevant services provided to IRP
-5% or less for relevant service received from IRP
+ other conditions
 Low-Level Loans (inbound) Combined cross-border loan balance <$50 at all times through the financial year
Interest rate used is < the RBA Indicator lending rate for 'small business variable residential-secured term';
Loans and associated costs are transacted in AUD & this is reflected in the loan agreements.
 Low-Level Loans (outbound) Combined cross-border loan balance <$50 at all times through the financial year
Where interest rate applied for income year is no less than:
-4.91% in 2015
-4.37% in 2016
-4.34% in 2017
+ other conditions

Some of the options may be subject to additional eligibility conditions which must be met.

In particular, the options for small business taxpayers, distributors, low level in-bound loans and intra-group services will not be available if the taxpayer has sustained tax losses for three consecutive years (including the current year) or has undergone a restructure in the current income year.

The above simplified record keeping option does not apply to:

  • international related-party financial transactions in a low-tax jurisdiction
  • international related-party dealings of a capital nature.

International Dealings Schedule (IDS)

The IDS must be submitted with a tax return, where taxpayers undertake transactions or dealings with international related parties over the specified A$2 million threshold (including average loan balances) of total transactions.

Importantly, the IDS requires disclosures on:

  • % of dealings covered by documentation
  • Transfer pricing method used to price the transaction
  • Quantum and countries involved
  • Whether a restructure has occurred during the year
  • Any dealings with specified countries
  • Any related party transactions which were capital in nature

The ATO uses the IDS heavily as the first port of call.

It is relied upon by the ATO for risk analysis, case selection and risk profiling for Multinational Anti-Avoidance Law cases.

The current ATO focus is on:

  • Thin capitalisation
  • Marketing / procurement hubs
  • Management fees/services
  • Offshore digital tax structures
  • IP migration
  • Related party financing

If you are eligible to apply a simplified record-keeping option because you are an eligible small taxpayer, then at the relevant labels on the IDS you would include code 7 at the percentage of documentation label code. This confirms that you have assessed your situation as complying with the transfer pricing rules and advised the ATO that a simplification option has been applied to your record keeping.

In closing, we reiterate the transfer pricing rules now operate on a self-assessment basis, and that  public officers must turn their minds to the veracity of the pricing of their cross-border transactions before signing and lodging returns.

If you have further queries on this matter, please do not hesitate to contact Judy She or Martin van der Saag on 02 9984 7774.

Martin van der Saag

Director

T: 02 9984 7774

E: martinv@northadvisory.com.au

 

Judy She

Senior Accountant

T: 02 9984 7774

E: judys@northadvisory.com.au