Tax Bulletin - October 2019
$30,000 instant asset write-off
The ATO is reminding businesses that are looking to expand or improve their business and thinking of buying new or second-hand assets, that medium sized businesses with a turnover up to $50 million (but at least $10 million) are eligible for the instant asset write-off. This now applies to assets that cost up to $30,000 and which were purchased and first used or installed ready for use from 7:30pm (AEDT) on 2 April 2019 to 30 June 2020.
Medium sized businesses may purchase and claim a deduction for each asset that costs less than the $30,000 threshold. For assets over $30,000 the general depreciation rules apply (which may depend on the entity).
Federal Court provides clarification on the PSI rules
Income is classified as PSI when more than 50% of the income received under a contract is for a taxpayer’s labour, skills or expertise. The PSI rules are integrity provisions which ensure individuals cannot reduce or defer their income tax by (for example) diverting income for their personal services through companies, partnerships or trusts. If the rules apply, the individual is taxed on the income directly.
The rules do not apply if at least 75% of the individual’s PSI is for producing a result, where the individual supplies all the required 'tools of trade' and is liable for rectifying defects in the work (this is known as the 'results test').
In a recent case, the Federal Court confirmed that the taxpayer did not meet the 'results test'. The taxpayer argued that the 'results test' is still satisfied even if they do not get paid for achieving a result, provided they can show this is the custom or practice of independent contractors in their industry.
The Federal Court rejected this, agreeing with the ATO’s earlier determination to apply the PSI laws to tax the individual’s contract income as his own income, rather than income split through a partnership with his spouse (which also meant certain deductions were not allowable). The Federal Court also affirmed the imposition of penalties for recklessness.
However, in a second case, the Federal Court allowed the taxpayer’s appeal from an earlier AAT decision, that he has failed the 'unrelated clients test' despite advertising his services on LinkedIn.
Deductions for a company or trust home-based business
The ATO has reminded taxpayers that, if they run their home-based business as a company or trust, their business should have a genuine, market-rate rental contract (or similar agreement) with the owner of the property. The agreement will determine which expenses the business pays for and can claim as a deduction. If there isn’t a genuine rental contract, there may be tax implications for the homeowner and the business for providing benefits to any individuals.
Using the cents per kilometre method
The ‘cents per kilometre’ method broadly allows an individual taxpayer to claim up to a maximum of 5,000 business kilometres per car, per year without the need to keep any written evidence (e.g., receipts) of car expenses. Importantly, taxpayers making a ‘cents per kilometre’ claim are required to demonstrate that they worked out the number of business kilometres they claimed on a reasonable basis.
Taxpayers claiming under this method will generally fall into one of two categories, being either those who undertake a regular or irregular pattern of work-related travel.
If a taxpayer has a regular pattern of work-related travel (e.g., a 60-kilometres round trip to the warehouse to pick up supplies twice a week, 40 weeks in the year), then this type of explanation would generally be sufficient to justify the claim. However, if the taxpayer has an irregular pattern of work-related travel, then they would need to make a note (e.g., in a diary) of each trip.
CORPORATE AND INTERNATIONAL
Removal of CGT main residence exemption for foreign residents
The Bill proposing to remove the CGT main residence exemption for foreign residents has been reintroduced. Significantly, the Bill provides exclusions from the removal of that exemption that were not in the 2018 Bill and extends the transitional application arrangements by 12 months to 30 June 2020.
ACNC urges charities to protect against fraud
The ACNC is urging charities to take measures to protect themselves against fraud. ACNC Commissioner, the Hon Dr Gary Johns says all organisations are at risk of fraud and that charities are just as likely to be targeted by fraudsters as private corporations. Implementing a fraud prevention strategy, and applying data security mechanisms and strong financial controls, are measures charities can take to help prevent fraud.