September 2019 News

Capital allowances: Effective life reviews

The ATO has started a review of the assets used in the following industries, with a view to making new effective life determinations (and to ensure that their effective life determinations cover all assets commonly used by these industries, and reflect current industry practices and expectations):

• funeral, crematorium and cemetery services industries (ANZSIC code 95200);
• general practice medical services industry (ANZSIC code 85110);
• childcare services industry (ANZSIC code 87100);
• supermarket and grocery stores industry (ANZSIC code 41100); and
• aircraft (and helicopter) manufacturing and repair services industry (ANZSIC code 23940).

The determinations provide taxpayers with ‘safe harbour lives’ (although taxpayers still have the option to self-assess effective lives).

The ATO expects to complete its reviews of these assets within 12 months, with new effective life determinations applying from 1 July 2019 for assets in the funeral, crematorium and cemetery services industries, and from 1 July 2020 for assets in the other industries.

Uber drivers, not employees

The Fair Work Ombudsman has completed its investigation relating to Uber Australia Pty Ltd (Uber Australia) and its engagement of drivers.

Inspectors examined a wide range of evidence, including drivers’ contracts, log on and log off records, interviews with drivers and Uber Australia, ABN documents, payment statements, banking records and pricing schedules.

Fair Work Ombudsman (‘FWO’) Sandra Parker said: “The weight of evidence from our investigation establishes that the relationship between Uber Australia and the drivers is not an employment relationship”.

Uber drivers have control over whether, when, and for how long they perform work, on any given day or on any given week, and, in particular, Uber Australia does not require drivers to perform work at particular times. As a consequence, the FWO will not take compliance action in relation to this matter.

Anyone with concerns about their employment arrangements should contact the FWO.

ATO “puts the brakes” on dodgy car claims

The ATO is making work-related car expenses a key focus again during Tax Time 2019.

Assistant Commissioner Karen Foat said over 3.6 million people made a work-related car expense claim in 2017/18, totalling more than $7.2 billion.

“We are still concerned that some taxpayers aren’t getting the message that over-claiming will be detected and if it is  deliberate, penalties will apply,” she said.

“While some people do make legitimate mistakes, we are concerned that many people are deliberately making dodgy
claims in order to get a bigger refund. We see taxpayers claiming for things like private trips, trips they didn’t make, and car expenses their employer paid for or reimbursed them for.”

One in five car claims are exactly at the maximum limit that doesn’t require receipts. Under the cents per kilometre method, taxpayers don’t need to keep receipts, but they do need to be able to demonstrate how they worked out the number of kilometres they travelled for work purposes.

“While some claims of exactly 5,000 km are legitimate, we’ve found many people are unable to show how they’ve arrived at this amount, and as a result, they’ve had their claim reduced or disallowed in full,” Ms Foat said.

The ATO’s sophisticated analytics compares taxpayer claims with others earning similar amounts in similar jobs.

Where the ATO identifies questionable claims, they will contact taxpayers and ask them to show how they have calculated their claim, and in some cases, the ATO may even contact employers to confirm whether a taxpayer was required to use their own car for work-related travel.

There are three golden rules for taxpayers to remember to get it right when it comes to car expenses:

• generally, trips between home and work cannot be claimed, unless the taxpayer has a work-related need to travel while performing their job, like travelling from site to site or being required to transport bulky equipment;
• don’t ‘double-dip’ by claiming car expenses paid for or reimbursed by the employer; and
• taxpayers should make sure they keep records to prove how they worked out their claim.

10 things to know this tax time

The ATO is letting everyone know that Tax Time is here, and they have developed a list of important things practitioners need to know this year.

Editor: We’ve already reported on some of these measures, but are including all ’10 things’ as a handy summary.

1. The ATO has resources practitioners can use to educate their clients about their obligations (and they recommend practitioners share the ATO’s ‘Tax Time Toolkits’ with clients to help them get their tax returns right).
2. Practitioners can use Online services for agents to access details of clients’ processed tax returns from 2010 onwards (even if they didn’t prepare or lodge the return). Practitioners can view clients’ outstanding obligations, make payment arrangements and check the progress of tax returns in real-time.
3. Employers reporting through Single Touch Payroll (‘STP’) are no longer required to provide payment summaries and instead will finalise ‘income statements’ for their employees. This information is available to clients through their myGov account (if they have one) linked to the ATO, or practitioners can access it through Online services for agents, the Tax Agent Portal, or through pre-fill in their practice management software.
4. This year, employers have until 31 July to finalise their employees’ income statements (although they don’t need to wait, as they can do this as soon as the information is ready). In future years, employers will need to finalise income statements by 14 July.
5. To reduce the risk of mistakes and amendments to tax returns, practitioners should wait until their client’s income statements are ‘Tax ready’ before lodging (most pre-fill information will be available by mid- August).
6. If a client has their myGov account linked to the ATO, or they create a new one, the ATO will direct some communications to their myGov Inbox. Practitioners should continue to check ‘Communication history’ in Online services for agents, and the Client communication list function in the Tax Agent Portal, to see copies of communications the ATO sends to them.
   Note that clients do not need a myGov account for their tax agent to lodge their tax return.
7. Private health insurance providers are no longer required to send end of- year information directly to policy holders; the details will be included in pre-fill information.
8. The ATO will amend the assessments of any clients that lodged their 2018/19 tax returns before the changes to the new LAMITO (low and middle-income tax offset) became law to add any additional credits (i.e., practitioners will not need to request amendments).
9. Line entry deduction data for labels D1 to D15 will be included in the client’s tax return for 2018/19 and future years.
10. The ATO will send practitioners weekly progress of return emails to let them

Car cost limit for depreciation

The maximum value taxpayers can use for calculating depreciation of cars is the car limit in the year in which they first used or leased the car.

In the 2019/20 income year, the car limit is $57,581, unchanged from the 2018/19 year (or, indeed, unchanged from the 2016/17 year).

Note that the last Annual Taxation Determination for the car limit, which are no longer published, was TD 2018/6.

Example: Applying the car cost limit
In July 2019, Laura buys a car for $60,000 (after any reduction for GST ITC entitlements) to use in running her business (being a type of car to which the car limit applies).

When working out the car’s decline in value for the 2019/20 income year, the first element of the cost of the car is reduced to $57,581.

ATO rates and thresholds

Division 7A – benchmark interest rate

The Division 7A benchmark interest rate for the 2020 income year is 5.37%. This is the ‘Indicator Lending Rates — Bank variable housing loans interest rate’ published by the Reserve Bank of Australia on 4 June 2019.

The rate for the 2019 income year was 5.20%, as contained in TD 2018/14 (the last Taxation Determination published by the ATO for this rate).

Capital improvement threshold

If a taxpayer makes a capital improvement to an asset they acquired before 20 September 1985 (such as renovating a house), it is considered a ‘major capital improvement’ if its original cost (indexed for inflation if the improvements were made under a contract entered into before 11:59 am on 21 September 1999) is:

• more than 5% of the amount you receive when you dispose of the asset; and
• more than the improvement threshold for the income year in which you dispose of the asset.

In this case, the improvement is treated as a separate asset that is subject to CGT, unless the main residence exemption applies. The improvement threshold for the 2019/20 income year is $153,093, up from $150,386 for the 2018/19 income year (as set out in the last Taxation Determination containing this threshold — TD 2018/8).

SMSF limited recourse borrowing arrangements interest rates

The following interest rates charged under a limited recourse borrowing arrangement (‘LRBA’) in the 2020 income year would be consistent with the safe harbour terms outlined in PCG 2016/5 — Income tax arms length terms for limited recourse borrowing arrangements established by self-managed superannuation funds.

Real property 5.94%

Listed shares or units 7.94%

Ref: ATO website, Key Super Rates and Thresholds, 17 July 2019

CPI – June 2019 quarter

The CPI indexation factor for the June 2019 quarter is 114.8 (an increase of 0.7 from the March 2019 quarter of 114.1).

This indexation factor is now basically only used (in a taxation context) for FBT purposes in relation to remote area housing.