AUGUST 2009

ATO's 2009/10 Compliance Targets

On 6 August 2009, the Commissioner released his Compliance Program for 2009/10 outlining where he intends to concentrate his focus for the current tax year. One constant theme was the use of data matching and new technologies throughout all segments. Other key areas of focus dissected into industry segments are:

Individuals:

• Expanding data matching activities around executive and director remuneration to ensure shares and options are correctly reported
• Using new technologies to identify refund fraud, potentially unregistered tax return preparers and cases of fraud involving theft
• Matching information supplied by overseas revenue agencies and AUSTRAC against income tax returns to identify unreported foreign income
• Work expense claims, dodgy tax schemes, investment gains and losses and superannuation (concessional contributions caps, early access schemes, etc)

Micro businesses (turnover under $2m):

• Helping viable businesses stay on track through ATO's small business assistance program, the introduction of temporary penalty and interest concessions, and implementation of new measures
• Identifying possible cash economy participants using additional information sources including benchmarks and following these cases up
• Ensuring PAYG withholding obligations and superannuation guarantee obligations are being met

Small to Medium Enterprises (SMEs) (turnover $2m to $250m):

• Developing and using new information collection and data matching tools to identify potential high risk taxpayers

Large businesses (turnover more than $250m):

• Closely reviewing structures and arrangements that appear to exist only to obtain a tax benefit
• Increase work with tax havens and bank secrecy jurisdictions to achieve transparency and effective exchange of information between our countries

The Cash Economy and the new Personal living expense guide

The ATO has developed a new guide to explain the importance they place on examining taxpayers' household expenditure when identifying omitted cash income in the course of reviews or audits.

Basically, what the ATO will do is work out the taxpayer's family's living expenses, and compare this to their declared income – if the income is less than the expenses, the taxpayer may be asked to reconcile the difference.

Personal living expense worksheets

During the audit, the ATO often asks the taxpayers to complete a questionnaire detailing the living expenses for their household. These worksheets are now available at the ATO website and detail the type of information the auditors look at when examining taxpayers' personal living expenses. The worksheets request information on such items as tobacco and alcohol, heating, power, water and sewerage, phone, gardening and security, eating out, takeaways, lunches and coffees, lottery tickets, clothing and footwear, and "grooming" expenses.

Of course, many of these can be checked with third parties (banks, utilities, etc.), although other expenses have to be estimated. 

If, in the course of an audit, the ATO re-assesses the taxpayer's income to a higher figure, the taxpayer would then have to prove, possibly under oath, that the ATO's assessment is excessive.

If you are approached by anyone claiming to be an Australian Taxation Office employee, we strongly recommend that you do not provide any information until you have spoken to us and received specific instructions.

Tax Bonus = Child support bonus

Following on from the last point, many taxpayers do not know the consequences of dealing with tax authorities without taking advice. For example, the Child Support Agency (CSA) has been able to recoup $32.4 million in outstanding child support payments following an increase in the lodgment of tax returns.

According to the ATO, 263,000 'new' taxpayers came forward to claim their tax bonus.

Although most of them received refunds on lodging their outstanding tax returns, many of them had outstanding child support obligations. We do not condone or assist cheating the system. The point illustrates that telling the ATO, what many taxpayers consider to be straightforward or harmless communications, can have significant and costly ramifications.

Employee Share Schemes

The Government has confirmed the final changes to the taxation of employee share schemes, which will apply to all shares and rights acquired on or after 1 July 2009 (not 13 May 2009 as originally announced).

Modifications from the position announced in the consultation paper are:

• increasing the income tax threshold for eligibility for the upfront tax concessions from $150,000 to $180,000, to align it with the top marginal tax rate threshold;
• providing further clarity on the meaning of "real risk of forfeiture" principally  through the use of a range of examples;
• moving the deferred taxing point from a point at which the taxpayer will no longer have a real risk of losing the share or right to a point at which:
  
  
• in the case of shares, there is both no longer a real risk of the taxpayer losing the share and no restriction (present at acquisition) preventing the taxpayer from disposing of the share; and
• in the case of rights to shares (options), there is both no longer a real risk of the taxpayer losing the right and no restriction (present at acquisition) preventing the taxpayer from either disposing or exercising of the right.
  
  
• allowing the deferral of tax in relation to up to $5,000 worth of shares under particular salary sacrifice based employee share schemes, where there is no real risk of forfeiture.
• removing the reporting requirement for employers to report the market value of employee share scheme benefits in the year of grant, if this is not the year in which the employee is taxed; and
• asking the Board of Taxation to, among other things, examine how to determine the market value of shares and rights provided  and whether shares and/or rights issued under an ESS by start-up, R&D and speculative-type companies should be subject to a tax deferral arrangement, despite not being subject to a real risk of forfeiture;

Related party transactions of SMSFs under review

The ATO is warning SMSF trustees to be careful about people offering to set up an agreement between their SMSF and a related party to purchase assets, particularly properties.

These arrangements may breach the in-house asset rules that the SMSF must follow to be considered a complying super fund.

The in-house asset rules are one of the many investment restrictions that apply to SMSFs.

Basically, only 5% of an SMSF's assets can be "in-house assets", which are investments in related parties or lease arrangements with related parties (subject to some exceptions).

The arrangements the ATO is concerned about use a paid third party to set up an agreement (sometimes referred to as 'a joint venture agreement') between the fund and a related trust to purchase an asset that provides income for the trust and the fund.

The ATO believes that these arrangements are an attempt to circumvent the in-house asset rules, as the related party transaction is really an investment in the related trust by the SMSF.

Claiming the Tax Break on laptops

Liability limited by a scheme approved under Professional Standards Legislation.

The information in this newsletter is quite general in nature and anyone intending to apply it practically to their own circumstances should seek professional advice to verify it’s individual applicability. 

If you have any queries regarding the information contained in this
update please do not hesitate to contact us.

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