Newsletter

The government introduced changes to the capital gains tax (CGT) discount, previously known as the ‘CGT 50% discount’. In the 2012–2013 Budget, the government announced changes to the application of the CGT discount. These changes became law on 29 June 2013.

Individuals, including beneficiaries of a trust and partners in a partnership, may no longer be entitled to receive the full CGT discount on a capital gain received after 8 May 2012 if they are:

• foreign or temporary residents; or
• australian residents with a period of foreign residency.

From 8 May 2012, foreign or temporary resident individuals must meet certain eligibility conditions to apply the CGT discount.

For CGT events occurring after 8 May 2012, the application of a CGT discount percentage will depend on:

• whether the CGT asset was held before or after 8 May 2012, and
• the residency status of the individual who has the capital gain.

You are not affected by this change if the CGT event occurred before 8 May 2012.

HOW DO THE CHANGES AFFECT FOREIGN OR TEMPORARY RESIDENTS?

You must calculate the CGT discount you can apply to the capital gain if you are a foreign or temporary resident individual and, after 8 May 2012, you have a discount capital gain from a CGT event.

If you were a foreign or temporary resident on 8 May 2012, you may wish to get a market value for the CGT asset as at 8 May 2012 and use a market value calculation. This will apportion the CGT discount to take into account the capital gain you have that was accrued before 8 May 2012.

HOW DO THE CHANGES AFFECT AUSTRALIAN RESIDENTS?

You must calculate the CGT discount you can apply to the capital gain you have if you are an Australian resident and, after 8 May 2012, you have:

• a capital gain from a CGT event, and
• a period of foreign or temporary residency.

The period of foreign or temporary residency after 8 May 2012 is taken into account when calculating the CGT discount you can apply to your capital gain.

INDIVIDUALS - INCORRECT CLAIMS FOR WORK-RELATED EXPENSES

The ATO will continue to maintain a focus on incorrectly claimed deductions, concessions, offsets and credits. This year the ATO will pay particular attention to high claims made by:

• Building and Construction Labourers, Construction Supervisors and Project Managers and;
• Sales and Marketing Managers.

They will also look closely at high work-related travel expense claims across individual income tax returns.

EMPLOYERS - WORKERS INCORRECTLY TREATED AS CONTRACTORS

Across a number of industries, the ATO continues to see purported contracting arrangements being misused by employers with the intention of avoiding employment overheads.

The ATO will investigate employers that intentionally try to avoid their tax and superannuation obligations by improperly treating workers as contractors rather than employees. They will assist employers to understand and meet their obligations. Where non-compliance is detected penalties will be applied.

SUPERANNUATION GUARANTEE

Every time an employee tells the ATO that their employer has not paid their superannuation guarantee entitlement, they investigate. In the coming year the ATO expects to contact around 12,000 employers as a result of these complaints.

Employers in some industries present a higher risk than others of not complying with their superannuation guarantee obligations. The ATO will audit employers in the following industries:

• Cafes and Restaurants;
• Carpentry services; and
• Real Estate services.

Employers may be held accountable for their company’s unpaid superannuation guarantee debt under the new director penalty regime.

NEW GOVERNMENT SUPER PAYMENT FOR LOW INCOME EARNERS

A new government super payment, called the low income super contribution (LISC), started on 1 July 2012. It will help eligible low income earners save for their retirement.

LISC is for people who have an adjusted taxable income of $37,000 or less per year. People who are eligible for LISC will get a government super payment that is 15% of their concessional contributions, which includes super payments that an employer makes on a person's behalf from their before-tax income. The maximum payment will be $500.

The Australian Taxation Office (ATO) will work out your eligibility using information on your tax return or, if you don't lodge a tax return, using other information that they collect.

If you lodge an income tax return, you will receive your LISC in your super account when the ATO has processed your income tax return and received information from your super fund about your super contributions. If you do not lodge an income tax return, the ATO will work out your eligibility using contributions information from your super fund along with other information they collect.

As the ATO will pay the LISC directly into your super fund, you need to make sure your super fund has your tax file number, as they cannot send your LISC to a fund that does not have your tax file number. Your super fund will let you know on your account statement that you have received your LISC. It may take up to 14 months from the end of the financial year for you to receive your payment.

You can apply to have your LISC paid directly to you if either of the following apply:

• you have reached the 'preservation age' (currently 55 years old) and are retired;
• you are 65 years old or over (even if you haven't retired).

SUPERANNUATION CONCESSIONAL CONTRIBUTIONS CAP

From 1 July 2012, the concessional contributions cap for superannuation has reduced to $25,000 for everyone, regardless of their age. The change is due to:

• the transitional concessional contributions cap for individuals aged 50 years and over expiring on 1 July 2012; and
• a proposed new policy that will allow people aged 50 and over with low account balances to make concessional contributions up to $50,000 per year without incurring excess contributions tax, being deferred for two years until 1 July 2014.

Recent legislative changes have expanded the Director Penalty Notice (DPN) regime to include superannuation guarantee contributions (SGC).

A director can incur a director penalty equal to the company SGC liability even where the liability is not reported. The liability is a parallel liability for the company and the director themselves. As one component of the SGC is an interest component, the liability can grow quickly.

This change will allow the ATO to garnishee the director's personal bank accounts. Recovery of the penalty can only occur 21 days after the issue of the DPN. Any monies recovered are applied to the benefit of the employee. The DPN may be issued to the director's residential address or to their registered tax agent.

There are also new lockdown measures which seek to address the problem of directors who know that the company is failing to pay liabilities but are content to take no action until the DPN issues, knowing that they could put the company into voluntary administration or liquidation and avoid personal liability.

The lockdown measure removes the director's right of remission from three months after the penalty is incurred unless the company liability is reported to the ATO within three months of when it should have been reported. Failure to report will mean that the liability can't be removed unless the debt is paid.

The measure is not retrospective but does impact any penalties already incurred. There is no excuse if the company doesn't have the money to pay the liability, however there are some defences which include:

• the director didn't manage the company due to illness etc;

• the director took all reasonable steps to get the company to pay the liability;

• directors can ask the Commissioner to consider their defence even where there are no legal proceedings on foot;

• the director formed the reasonable belief that the employees were merely contractors.

From 30 June 2012, a new measure was introduced to address the so called pay as you go withholding (PAYGW) non-compliance tax. In some cases, directors were asserting the company had failed to pay their withholding to the ATO whilst claiming a refund of their instalments. This new measure will stop these claims being made. The provision could potentially apply to associates of the directors.