AUGUST 2017

ATO GUIDELINES

INCOME TAX

SUPERANNUATION

GST

Tax Time Monthly

www.hallchadwickmelb.com.au+61 3 9820 6400 Hall Chadwick Melbourne

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SUPERANNUATION

ATO GUIDELINES

CONTENTS

1 ATO issues guidance on Personal Liability of LPR if estate assets distributed with ATO claim

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3 Employee Remuneration Trust Arrangements: Draft TR 2017/D5

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2 Payments for the use of sportsperson’s name, image or likeness: PCG 2017/D11

INCOME TAX

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4 ESIC to reporting extended to 31 August 2017

Reduction of company tax rate not meant for passive investment companies: Minister

Draft legislation released to limit depreciation deductions for plant and equipment used in residential investment properties

Draft legislation released for CGT changes to non-residents

GST

Superannuation reporting requirements

GST on supplies of intangibles - operative from 1 July 2017

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ATO issues guidance on Personal Liability of Legal Personal Representative (LPR) if estate assets distributed with ATO claim

On 5 July 2017 the ATO issued Draft Practical Compliance Guidance PCG 2017/D12 to provide guidance for personal liability of a legal personal representative (LPR) where the assets of a deceased estate are distributed with a notice of claim or potential claim by the ATO.

The PCG notes that the liability of an LPR to pay the deceased’s outstanding tax-related liabilities is confined to the value of the deceased’s assets that come into the LPR’s hands. However, the LPR may have a personal liability if the estate assets are distributed with notice of a claim or potential claim by the ATO.

The Draft Guideline provides that the ATO will treat an LPR as having notice where there is:

• any amounts that the deceased owed to the ATO atthe date of death (including charges accruing in respect ofthose amounts following death, such as interest);

• any liabilities arising from the assessment of incometax returns that the deceased had lodged, but that hadnot been assessed at the time of death; and

• any liabilities arising in respect of outstandingincome tax returns that the LPR is required by law tolodge.

Crucially, the ATO will not treat an LPR as having notice of any further potential ATO claim relating to returns the LPR has lodged (or has advised were not necessary), provided:

• the LPR acted reasonably in lodging all of thedeceased’s outstanding returns (or informing the ATO thatthey did not need to be lodged); and

• the ATO has not notified the LPR that it intends toexamine the deceased’s taxation affairs within 6 monthsof lodgment (or advice of non-lodgment) of the lastoutstanding return.

Clients acting as LPRs of deceased estates should review this PCG to ensure they are not subject to personal liability.

Payments for the use of sportsperson’s name, image or likeness: ATO provides safe harbour: PCG 2017/D11

This Draft Practical Compliance Guideline (PCG) provides guidance to professional sportspeople on the tax treatment of payments for using a sportsperson’s name, image or likeness under third party licensing agreements. In particular, it sets out a safe harbour for apportioning these payments.

The ATO says this issue affects players across a range of sporting codes, including the AFL, rugby union, rugby league and cricket.

The ATO has indicated that it will accept that up to 10% the total payment can be referable to the use and exploitation of the sportsperson’s public fame or image under the third party licence and can therefore be treated as the income of the third party.

For the 2017 financial year, this report was due by 31 July 2017, but the ATO has extended the due date for the 2016/17 ESIC report to 31 August 2017.

ESIC will report this information electronically. Clients requiring assistance with this report should contact their Hall Chadwick advisors.

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Clients who are sportspersons with such third party licensing agreements should contact their Hall Chadwick advisors and consider if their current arrangements are affected by this PCG.

Employee Remuneration Trust Arrangements: Draft TR 2017/D5

Draft TR 2017/D5 sets out the Commissioner’s views on application of an employee remuneration trust (ERT) arrangement that operates outside of Div 83A (Employee Share Scheme) of the ITAA 1997.

ERT arrangements have been supported by positive ATO private binding tax rulings dating back to 1988. ERT arrangements involve a trust being established to receive employer contributions of cash to facilitate the provision of payments and other benefits (eg shares and other investments) as remuneration to its employees (and contractors) related to the conduct of its business and producing assessable income.

The Draft Ruling confirms that employer contributions to an ERT will be deductible under s 8-1 of the ITAA 1997, provided the contributions are dissipated in remunerating its employees (and contractors) within a ‘relatively short period’ of less than 5 years.

The ERT remains the most flexible and effective employee share and investment plan available in the Australian market place. Clients considering the implementation of an ERT or employee share scheme arrangements should contact Hall Chadwick to ensure the desired tax outcomes are achieved.

ESIC Reporting extended to 31 August 2017

Early stage innovation company (ESIC) are required to prepare a ESIC report to the ATO by 31 August 2017 if they issue new shares to one or more investors during a financial year that could lead to an investor being entitled to access the early stage investor tax incentives.

For each investment that the ESIC receive during the year that may give rise to an investor accessing the ESIC tax incentives, the ESIC needs to keep the following information and report to the ATO:

ABN, name and address for the investor (plus the date of birth for investors that are individuals)

• number of new shares issued to the investor

• amount paid for the new shares

• date the shares were issued

• percentage of shares in the company held by theinvestor immediately after the shares were issued.

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INCOME TAX

Reduction of company tax rate not meant for passive investment companies: Minister

Company tax rates are cut to 27.5% for companies in business with turnover of less than $10M in the 2016-17 financial year. The media has reported the ATO has broadened the interpretation of company tax cuts to “passive investment company carrying on a business” in its Draft TR 2017/D2 on Foreign incorporated companies: Central management and control test of residence.

The Revenue Minister, Kelly O’Dwyer, issued a media release on 4 July 2017 countering such reports in the media as being “premature”, and that the ATO “will in due course provide further other guidance”. She said the policy decision made by the Government to cut the tax rate for small companies “was not meant to apply to passive investment companies”.

Clients with companies affected by the reduction in tax rate should also note their franking percentage is reduced in line with the reduction in the company tax rate, and should contact Hall Chadwick for assistance in relation to retained profits taxed at the full tax rate of 30%.

Draft legislation released to limit depreciation deductions for plant and equipment used in residential investment properties

Draft legislation has been released to limit depreciation deductions for plant and equipment used in relation to residential investment properties.

Under the proposed measures, from 1 July 2017, plant and equipment depreciation deductions for investors in residential investment properties will be limited to assets not previously used. This means investors who purchased second hand properties after 9 May 2017 can only claim depreciation for plant and equipment assets that they purchase directly. Previously a depreciation deduction was available whether they purchase these plant and equipment directly or not.

Plant and equipment items are usually mechanical fixtures or those which can be “easily” removed from a property such as dishwashers and ceiling fans. Plant and equipment used or installed in residential investment properties as of 9 May 2017 (or acquired under contracts already entered

into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

The proportion of the decline in value of the asset that cannot be deducted will be recognised as a capital loss (or in certain circumstances a capital gain) when the asset ceases to be used.

Owners of second-hand residential properties will still be able to claim a capital works deduction (Div 43) for the structural element of a building including fixed assets, if the building was constructed after 1987.

Draft legislation released for CGT changes to non-residents

It is proposed that the ITAA 1997 be amended, essentially with effect from 9 May 2017, such that:

• individuals who are foreign residents at the timea CGT event occurs to a dwelling in which they havean ownership interest will not be entitled to the mainresidence exemption;

• a trustee of a deceased estate will not be entitled tothe main residence exemption in respect of an ownershipinterest in a dwelling of a deceased individual if theindividual was a foreign resident at time of death. Abeneficiary of a deceased estate will not be entitled toa main residence exemption in respect of an ownershipinterest in a dwelling of a deceased individual if thedeceased was a foreign resident at the time of death.

This is proposed to apply to CGT events happening on or after 9 May 2017. However, the amendments to the main residence exemption will not apply for certain dwellings held before 9 May 2017, where the CGT event occurs on or before 30 June 2019.

Australian expatriate clients expecting to sell their home in Australia free of CGT should contact Hall Chadwick for tax planning advice in light of these proposed changes to the legislation.

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SUPERANNUATION

Superannuation Reporting Requirements

To support the introduction of the new transfer balance cap, all super fund including SMSFs will be required to report certain income stream events to the ATO much sooner. Currently SMSFs are only required to report member account and income tax information once a year in the SMSF annual return. To recognise the difference, a transitional approach is available for the 2017-18 year.

The below table is a summary of what is required to be reported and when:

TRANSITIONAL REPORTING RULES

EVENT 2017-18 TRANSITIONAL RULES 2018-19 RULES

The commencement of a new superannuation

income stream

Details of the pension, including the commencement value, are required to be reported to the ATO by the

later of 1 July 2018 or 28 days after the end of the financial quarter in which the pension commenced

Details of the pension, including the commencement value, are required to be reported to the ATO 28 days

after the end of the financial quarter in which the pension commenced

Commutations (other than those referred to

below)By 1 July 2018

Within 10 business days after the end of the month in which the event

occurred

Commutations where the proceeds are rolled over to another fund, or the commutation is required to rectify an

excess superannuation income stream balance*

Within 10 business days after the end of the month in which the

event occurred.

Within 10 business days after the end of the month in which the event

occurred

Cessation of a pension By 1 July 2018Within 10 business days after the

end of the month in which the event occurred

Commutations (other than those referred to

below)By 1 July 2018

Within 10 business days after the end of the month in which the

event occurred

Note: * When the commutation is reported, the SMSF will also be required to report the 30 June 2017 value of the superannuation income stream (or the commencement value of that income stream if commenced on or after 1 July

2017), if these values have not previously been reported to the ATO. The reason for this is that the ATO needs to “fill in the gaps” in the reporting sequence so they can appropriately track an individual’s transfer balance account.

Clients with SMSFs commencing or commuting a pension from 1 July 2017 should contact their Hall Chadwick advisors to ensure their SMSF complies with these reporting requirements.

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GST

GST on supplies of intangibles – operative from 1 July 2017

The 'Netflix Tax' came into effect 1 July 2017 to bringsupplies of intangibles made by non-resident suppliers to Australian consumers within Australia’s GST net. While the original intention was to tax supply of digital download products to Australian consumers, the rules also capture the supply of anything other than goods or real property made by non-residents to Australian consumers. These rules only apply to Australian consumers, defined as an Australian tax resident who is not registered for GST (or if registered, does not make the acquisition for the purpose of carrying on their enterprise). Supplies to Australian businesses are therefore not taxed under these provisions.

Affected non-residents making supplies to Australian consumers should contact us as soon as possible if not already registered to remit GST.

Clients with concerns regarding their current situations should contact Hall Chadwick Tax Advisors for assistance.

hcm@hallchadwickmelb.com.au

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