News

Tax implications for the sharing economy

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The ATO is reminding taxpayers who earn income through the sharing economy that they have tax obligations they should consider.
Examples of sharing economy services include:

  • ride-sourcing – providing taxi travel services to transport passengers for a fare;
  • renting out a room or a whole house or unit on a short term basis;
  • renting out parking spaces; or
  • providing personal services, such as web or trade services, or completing odd jobs, errands, deliveries, etc.

As is usual under the GST and income tax law, the nature of the goods or services they provide and the extent of their activities will determine what they need to do for tax purposes.

ATO focuses on rental property owners

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With Tax Time 2016 just around the corner, the ATO has stated it will be paying close attention to excessive interest expense claims, and incorrect apportionment of rental income and expenses between owners.
The ATO is also looking at holiday homes that are not genuinely available for rent, and incorrect claims for newly purchased rental properties.
An ATO spokesperson said that their ability to identify incorrect rental property claims is becoming more sophisticated due to enhancements in technology and the extensive use of data.

Case Studies

Holiday home not genuinely available for rent

John has a newly purchased rental property that had not returned any rental income.
He told the ATO that the property was occasionally advertised on community noticeboards and websites.
John was unable to prove there was a genuine arrangement in which he actively sought tenants, or had taken sufficient steps to genuinely advertise the property for rent.
A rental loss of almost $60,000 was disallowed and penalties were applied.

Interest

Rental property owner Sarah reported high rental interest claims and was required to provide bank statements as evidence to the ATO.
The statements showed borrowings well in excess of the purchase price of the rental property.
The interest charges relating to the private part of the loan were disallowed.
Sarah was required to pay more than $15,000 back to the ATO.

Incorrect claims for a newly purchased rental property and false claims

Nancy recently purchased a rental property and had her tax return amended by the ATO to remove deductions for repairs, capital works and incorrectly apportioned borrowing expenses.
Nancy had inappropriately claimed a deduction for repairs to defects present in the newly purchased property, and the capital works and borrowing expenses should have been spread over several years.
She also provided false receipts for property management fees undertaken by a family member.
Nancy was required to pay more than $57,000 back to the ATO as well as over $10,000 in penalties for making a false statement in her tax return.

Apportioning expenses between joint owners of a property

A rental property claim was investigated by the ATO where the rental expenses had not been apportioned correctly. The property was jointly owned by a couple but the higher income earner claimed the larger proportion of the expenses.
The expenses were adjusted to reflect the ownership interest and the higher earner had to pay back more than $8,000 in tax.

SMSFs and Collectables – last opportunity to comply!

From 1 July 2011, SMSF investments in collectables and personal-use assets have been subject to stricter rules than SMSF investments in other assets (such as shares and property).

Editor: Assets considered collectables and personal-use assets include things like artwork, jewellery, antiques, vehicles, boats and wine.

However, SMSFs that already had investments in such assets before 1 July 2011 were given five years to comply with these rules (i.e., until 30 June 2016).

Therefore, any SMSFs with such investments need to consider their situation carefully and take appropriate action (if necessary) before 1 July 2016.

Such action may include (for example):

  • reviewing current leasing agreements (items can’t be leased to or used by a related party, including business premises);
  • making decisions about storage (items can’t be stored or displayed in a private residence of a related party, and decisions about storage must be documented and the written record kept); and
  • arranging insurance cover (items must be insured in the fund’s name).

In addition, if the trustees of the fund are considering disposing of these items, they can be transferred to a related party without a qualified independent valuation, but only if the transfer takes place before 1 July 2016 and the transaction is made on arm’s-length terms.

If these requirements are not met from 1 July 2016, penalties may apply.

ATO’s continuing focus on trust property developers

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In recent years, the ATO has focused on trusts developing and selling properties as part of their normal business.

When these developed properties are sold, some trusts incorrectly claim a 50% CGT discount.

The ATO will continue to target arrangements that display the following characteristics:

  • clients have experience in either developing or selling property (or experience in the industry) and establish a new trust to acquire property for development and sale;
  • circumstances surrounding the arrangement are inconsistent with the stated purpose of developing the property as a long term investment;
  • the development is advertised as available to purchase before completion, or is sold soon after completion; and
  • the trustee claims the 50% CGT discount on the sale of the property.

The ATO is encouraging taxpayers to review their circumstances with their tax agent/adviser.

Editor: The ATO has also advised that they may contact property developers directly to “help them meet their obligations during development and disposal of the property.  However, we may contact your clients at any stage of a development, not just on the sale of the property.”

If you get any such contact – let us know!