Newsletter

ATO STOPPING RETURNS FOR REVIEW

As part of the 2012–2013 Budget, the government announced the consolidation of eight dependency tax offsets into a single, streamlined and non-refundable tax offset from 1 July 2012.

The tax offsets to be consolidated are:

• Invalid spouse tax offset;
• Carer spouse tax offset;
• Housekeeper tax offset;
• Housekeeper (with child) tax offset;
• Child-housekeeper tax offset;
• Child-housekeeper (with child) tax offset;
• Invalid relative tax offset; and
• Parent/parent-in-law tax offsets.

New legislation changing entitlements to the dependent (invalid and carer) tax offset came into effect from 1 July 2012.

Unless you are eligible for a zone or overseas tax offset, you are no longer able to claim offsets for a:

• spouse born on or after 1 July 1952;
• parent;
• parent-in-law; and
• invalid relative.

You can only claim a tax offset for dependents in receipt of a government payment for an invalidity pension or carer of such a person.

The ATO expects that very few taxpayers would be eligible to receive the new tax offset; however 32,512 taxpayers have made claims.

As a result, the ATO is stopping all income tax returns with a dependent tax offset claim greater than $0 to review and will follow-up on any notices of assessment that have already issued.

ATO DATA-MATCHING - DEPENDENT (INVALID AND CARER) TAX OFFSET

The ATO has announced a new data-matching program whereby it will request and collect names, addresses and other personal details of individuals receiving Carer Allowance or Carer Allowance Healthcare Card Only from the Department of Human Services – Centrelink program. It said the data will be electronically matched with certain sections of ATO data holdings to identify entitlements to claim a Dependent (invalid and carer) tax offset under taxation laws.

Records relating to approximately 600,000 individuals for each of the financial years 2011-2012, 2012-2013 and 2013‑2014 receiving the Carer Allowance or Carer Allowance Healthcare Card Only will be matched.

This program is called the Carer Allowance Data Matching Program and it enables the ATO to:

• Identify individuals that are entitled to receive a Dependent (invalid and carer) tax offset to expedite the processing of income tax returns and refunds;
• Tailor education strategies to ensure individuals understand their entitlement to claim the Dependent (invalid and carer) tax offset; and
• Undertake compliance activities for higher risk claims of the Dependent (invalid and carer) tax offset.

Gazette - C2013G01594

HELPING TO COMPARE BUSINESS PERFORMANCE

Small business benchmarks are key financial ratios developed from information provided to the ATO by businesses on their income tax returns and activity statements. You can use the benchmarks to help you compare your business and record keeping performance against similar businesses in your industry.

The following types of benchmarks are published by the ATO for the small business sector:

• performance benchmarks – these provide financial ratios for different industries; and
• input benchmarks – these show an expected range of income for tradespeople based on the labour and materials they use.

Benchmarks are updated by the ATO on an annual basis with new financial year data. The purpose of the update is to ensure the benchmarks reflect the performance of businesses over time.

Benchmarks are published for businesses with different turnover ranges across more than 100 industries. They are generally published as a range, to recognise the variations that occur between businesses due to factors such as location and the businesses circumstances.

Businesses reporting outside the benchmarks may attract the attention of the ATO. There may be reasons for this difference, such as higher costs or lower selling prices than others in the industry, but it may also be an indication that a business is not recording and paying tax on all its transactions, especially cash transactions.

If you find you are outside the benchmarks for your industry, check that you have correctly recorded and reported income and deductions for your business. To do this you should review your record-keeping practices to ensure they meet the legal requirements.

If you are outside of the benchmark for your industry, this might indicate that you are not properly recording all your income, in particular your cash income. The ATO has established a clear link exists between poor record-keeping practices and not meeting tax obligations.

Excess contributions tax (ECT) is a tax you pay when your super contributions go over either your concessional (before tax) contributions cap for the 2012-2013 and prior financial years or the non-concessional (after tax) contributions cap.

The cap amount and the amount of tax you pay will depend on whether the contributions are concessional or non-concessional contributions.

The ATO works out if you have excess contributions based on information they receive from your super fund and on your income tax return.

For the 2013-2014 financial year and onwards, excess super concessional contributions will no longer incur excess contributions tax (ECT) but will instead be included in your assessable income for the corresponding year and taxed at your marginal tax rate.

As part of the ATO assessment process you will receive a non-refundable tax offset of 15% of your excess concessional contributions along with an additional excess concessional contribution charge you will be liable for.

To assist payment of the additional tax and charge, individuals can request up to 85% of their excess concessional contributions to be released from their super fund. When released from the fund, it is not counted as non-concessional contributions.

For the 2011-2012 and 2012-2013 financial years only, individuals with excess concessional contributions of $10,000 or less may receive a once only offer to refund their excess concessional contributions. If refunded, the amount is still assessed at your marginal tax rate rather than pay excess contributions tax (ECT).

For the 2012-2013 and prior financial years, if the ATO calculates that you've gone over your cap and have excess contributions, they will contact you in writing.

CHANGES TO SUPER CAPS

The concessional super contributions cap has increased to $35,000 for:

• the 2013-2014 financial year - for individuals turning 60 years or older and
• the 2014-2015 financial year - for individuals turning 50 years or older.

The general concessional cap for everyone else remains at $25,000 in 2013-2014.

The higher cap of $35,000 replaces the previously announced cap that was to apply from 1 July 2014 for individuals aged 50 years and over with superannuation balances below $500,000.

When engaging a new worker in your business, you should check if they are an employee or contractor before entering into any agreement or contract. If you've previously engaged a worker without checking whether the arrangement is employment or contracting, you should review your earlier decision now to make sure you got it right.

To correctly determine whether a worker is an employee or contractor, you need to look at the whole working arrangement and at the individual circumstances for each person you're engaging. The ATO has an Employee/Contractor decision tool on their website. The tool will provide a decision based on answers to some simple questions. You can also print the results to keep for your records. Your business will need to keep records to support your decision on whether your worker is an employee or contractor and the factors you relied on.

A worker isn't automatically a contractor just because they have an ABN or specialist skills or you only need them during busy periods. Employees work in your business and are part of your business. Contractors are running their own business.

Your tax, super and other government obligations will vary depending on whether your worker is an employee or contractor. In some industries it's common for businesses to incorrectly treat their employees as contractors for tax and super purposes. Just because everyone in an industry uses contractors doesn't mean they are right.

Some types of workers are always employees. If you engage any of the following types of workers you need to treat them as an employee:

• apprentices;
• trainees;
• company directors;
• labourers; and
• trades assistants.

You may believe that engaging a worker as a contractor will save you time and money. However, if the relationship is really employment, it may end up costing your business a lot more as you may face penalties for failing to comply with your tax and super obligations for your worker.

APPRENTICES AND TRAINEES ARE EMPLOYEES FOR TAX AND SUPER PURPOSES

If you are considering taking on an apprentice or trainee, you will need to add them to your PAYG withholding, super and fringe benefits tax (FBT) obligations.

An apprentice or trainee will always be an employee. They are not running their own business. While they are in training they are required to work under your direction, control and supervision to earn their qualification, certificate or diploma. They are usually covered under an award and receive specific pay and conditions. By the very nature of the arrangement, apprentices and trainees are employees.

While your apprentice or trainee may already have their own ABN they can't use that ABN as part of their apprenticeship or traineeship.