February’s Tax Updates – Here’s what’s in this update:-
- What are the ATO’s priorities on settling cases?
- The ATO has developed “work-related expenses” profiles.
- The onus is on the taxpayer to show “No Fraud”.
- Admin Penalties of 75% for failing to lodge FBT Returns!
- New ATO data-matching program.
- Tax Ruling on deductibility of commercial websites.
- Beneficiaries of Trusts – Tax Determination on deductibility of bad debts.
WHAT ARE THE ATO’S PRIORITIES ON SETTLING CASES?
The ATO has advised that it places a high priority on resolving tax disputes early, including through reaching settlements where appropriate, but that it will not settle disputes at any cost. It says “the sensible use of settlements” is part of its commitment to earlier and more effective dispute resolution. In this regard, the ATO has advised that in 2015–2016, it settled 1,362 cases (31% more than in the previous year) and that the increased number of settlements can be attributed entirely to settlements finalised as part of Project DO IT (Disclose Offshore Income Today). The ATO’s stated policy of “placing a high priority on resolving disputes early, including through settlements where appropriate” is something that should be kept in mind in any dispute with the Commissioner, whether large or small. A settlement may provide a great opportunity to finalise a difficult or long-running dispute.
THE ATO HAS DEVELOPED “WORK-RELATED EXPENSES” PROFILES
The ATO has developed work-related expenses risk profiles to help it identify how work-related expense deduction amounts compare for similar taxpayers. The ATO said improvements in data analytics and modelling have allowed it to create a risk profile for tax agents’ practices based on comparing their clients’ work-related expenses claims with those made by similar taxpayers.
The ATO has said it will share these risk profiles with some tax professionals where their clients’ claims appear higher than expected.
The ATO’s increasing capacity to monitor the often difficult issue of work-related expenses claims means taxpayers and tax professionals need to take care when preparing returns. Contact us if you would like to discuss which of your work-related expenses may be tax deductible.
THE ONUS IS ON THE TAXPAYER TO SHOW “NO FRAUD”
Several taxpayers have been unsuccessful in their appeals to the Full Federal Court in which they challenged tax assessments that dramatically increased their assessable income for certain income years. In each case, the Court confirmed that where the Commissioner of Taxation has issued an amended or default assessment out of time on the grounds of taxpayer “fraud or evasion”, the taxpayer bears the responsibility of proving that such fraud or evasion does not exist.
ADMIN PENALTIES OF 75% FOR FAILING TO LODGE FBT RETURNS!
The AAT has confirmed that 75% administrative penalties were rightfully imposed on several companies for their failure to lodge FBT returns over a four-year period. The AAT found that the Commissioner of Taxation was obliged to impose a 75% administrative penalty because the FBT returns were not lodged, and that the “safe harbour” provisions did not apply to such an administrative penalty.
The AAT also found that it was not appropriate to exercise its discretion to remit the penalties in part or whole under the circumstances. The AAT relied on the criteria in Practice Statement Law Administration PS LA 2014/4 in arriving at its decision.
NEW ATO DATA MATCHING PROGRAM
The ATO has announced a new data-matching program involving ride-sourcing providers. Under the program, the ATO will acquire data to identify individuals who may be engaged in providing ride-sourcing services during the 2016–2017 and 2017–2018 financial years. Details of all payments made to ride-sourcing providers from accounts held by a ride-sourcing facilitator will be requested from the facilitator’s financial institution for the 2016–2017 and 2017–2018 financial years. The ATO estimates that up to 74,000 individuals (ride-sourcing drivers) offer, or have offered, the services.
TAX RULING FOR DEDUCTIBILITY OF COMMERCIAL WEBSITES
A new taxation ruling from the ATO sets out the tax deductibility of expenditure incurred in acquiring, developing, maintaining or modifying a commercial website for use in carrying on a business.
Broadly, the ruling explains that acquiring or developing a commercial website for a new or existing business is considered to be a capital expense, and is therefore not deductible. On the other hand, maintaining a website, including remedying software faults, is generally a revenue expense, so may be deductible.
BENEFICIARIES OF TRUSTS – TAX DETERMINATION ON DEDUCTIBILITY OF BAD DEBTS
In a new tax determination, the ATO states that a beneficiary is not entitled to a bad debt deduction for an amount of unpaid present entitlement (UPE) that the beneficiary purports to write off as a bad debt.
It says this is because the amount of UPE is not included in the beneficiary’s assessable income. Instead, the entitlement is used to determine how much net income of the trust is included in the beneficiary’s assessable income. This means that the the debt amount cannot be included in the taxpayer’s income in that year or in an earlier income year, which is a requirement for writing off a bad debt.
Now the fun starts – comment below on how any of these issues might have affected you!
If you own a small business and need any advice on your tax – structure or transaction – why not send us a message from the “Contact Us” page on our website or call us for an appointment.