GIC and SIC rates for June quarter

The ATO has published the 2016 June quarter rates for the General Interest Charge (GIC) and the Shortfall Interest Charge (SIC):

GIC annual rate 9.28%
GIC daily rate 0.02535519%
SIC annual rate 5.28%
SIC daily rate 0.01442623%

ATO releases latest business benchmarks

The ATO says that the 2013/14 data is now available for the ‘Small business benchmarks’.

The ATO uses these benchmarks as a guide on industry trends to identify businesses that may be avoiding their tax obligations by not reporting some or all of their income.

The ATO says that using the Small business benchmarks can assist with building taxpayers’ businesses.

They say that taxpayers should compare their details against similar businesses in their industry and see how competitive they are or where improvements can be made.

Editor:  We can  help you find the benchmarks for your industry (if any).

ATO sounds warning to super funds with ‘collectables’

The ATO is warning trustees of SMSFs who hold investments in collectables* or personal-use assets*, acquired before 1 July 2011, that time is running out for those items to be transferred out of the fund under the old rules.

Editor (*):  Basically, collectables and personal use assets are things like artworks, jewellery, vehicles, boats and wine. Investments in such items must be made for genuine retirement purposes, not to provide any present-day benefit.

From 1 July 2011, investments in collectables and personal-use assets must have a qualified independent valuation if they are transferred to a related party.

However, items acquired before 1 July 2011 can be transferred to a related party, without a qualified independent valuation, provided the transfer takes place before 1 July 2016, and the transaction is made on an arm’s length basis.

Editor:  Again, if any client wishes to take advantage of this window, they should contact us very soon.

Government set to re-think the backpacker tax

backpacker tax BW

Editor:  Basically, the ‘backpacker tax’, as announced, would see backpackers who work in the agricultural industry during harvest time being taxed at 32.5% from their first dollar of income.

Last month, the National Farmers Federation issued a media release slamming the tax and its negative effect on the agricultural industry, which relies heavily on backpackers. 

It pleaded for a more reasonable tax of about 19%.

The Deputy Prime Minister and the Assistant Agriculture and Water Resources Minister have announced a review into taxation arrangements for the Working Holiday Maker visa program.

The review’s scope will cover taxation and superannuation arrangements under the program.

The review is intended to ensure the right measures are in place to support the two key growth sectors of agriculture and tourism.

“We know about 40,000 backpackers work in agriculture for a few months each year, the majority in horticulture at seasonal peaks,” Deputy Prime Minister Barnaby Joyce said.

“The clear aim is to make sure we have a balanced and equitable approach to the tax status for workers here on visas – we do not want to risk a slide into black market employment in agriculture and tourism,” Assistant Minister Anne Ruston said.

GST audit alert: Selling residential property that has been rented

If you have claimed input tax credits (ITCs) on construction costs and then rented out this residential property, you are on the ATO’s audit target list. This is especially the case where the property has now been sold.

Tough economic times have meant that for many property developers, the apartments or properties they had built for sale have been held onto and rented, awaiting a change in the property market conditions.

From a GST perspective, the fundamentals are – if you build a residential apartment and rent it out you can’t claim ITCs on the costs of construction.  If you build and sell a residential apartment you can claim ITCs, and you also will have to pay GST on the sale.  Where a developer has developed an apartment intending to sell it and then decides to rent it, the GST treatment is a whole lot more complicated.

The Commissioner issued GST Ruling GSTR 2009/4 Goods and services tax: New Residential Premises and Adjustments for Changes in Extent of Creditable Purpose setting out his view of how GST applies in these circumstances.  Essentially, it focuses on intention – if you intend to make a taxable supply (ie. the sale of new residential apartments) then you can claim full ITCs.  If that intention changes to residential renting (which is an input taxed supply) the law requires you to make an adjustment to the amount of ITCs (on construction costs, for example) that you previously claimed.

Importantly, if you cannot show that you ever had a sale intention, or the ATO thinks that any expected sale was so far in the future that you were just running a rental enterprise, you would generally have to pay back all the ITCs originally claimed.

The rules about how much you may be required to pay back to the Commissioner are different if you change your intended use of a residential apartment (from sale to rental), and different again if you had two intentions at the same time (sale and rental) after you correctly claimed input tax credits on construction costs.  The challenge is to work through the very complicated adjustments to determine the extent of creditable purpose rules and identify if you have to pay back any ITCs.  The difficulty is to prove to the Commissioner in an audit, which of the rules will apply.

To make life even more difficult, the actual adjustment steps that need to be worked through can be extremely complex, and the Commissioner has been successful in audit and in court when he has disputed the calculations developers have used to work out how much ITCs they needed to pay back.

As always, it is better to be prepared than wait for the ATO to call for an audit.  The ATO are allowing “voluntary disclosures” in regard to this matter, however it is important to be aware of the GST consequences before you get caught in the ATO’s audit radar.

As a first step, you should consider the ITCs that were claimed during the construction phase of residential developments.  This is the starting figure that the Tax Office will be looking at. If there has been a chance of intention, there is a high probability that the Commissioner may want to charge penalties and interest as well as request a repayment of the ITCs that were claimed.

The actual adjustments to calculate this are complex and time consuming.  We can assist in this process having attended to a number of GST audits in this area recently.