ATO ramping up debt collection activities
After some two years of leniency, the ATO is ramping up its debt collection activities.
Businesses that owe at least $100,000 in tax and are more than 90 days in arrears without a payment plan can be reported to credit agencies. The $100,000 threshold includes income tax debts, activity statement debts, superannuation debts, fringe benefits tax debts, and penalties and interest charges.
The ATO will send a written letter (Intent to Disclose Notice) to a business if they plan to reporting their outstanding tax debts to a credit agency. The notice outlines the steps that need to be taken to avoid the tax debt information being reported. Businesses have 28 days from receiving the notice to take the relevant action.
If your business currently has or is likely to have an ATO debt of more than $100,000, it’s important that you or your tax advisor engage with the ATO before the business is issued with an Intent to Disclose Notice.
Also in March 2022, the ATO began contacting business taxpayers via letter to inform them about their potential personal liability under the Director Penalty Notice (DPN) program to PAYG withholding, Superannuation Guarantee Charge and GST unpaid by the company. The ATO announced that Directors will be notified that they are considering issuing them with a DPN, which makes them personally liable for the debts of their business if the company does not actively manage their debt.
ATO to focus on work related expenses
The ATO has indicated that it would take a stronger compliance approach this tax time regarding claims for work related expenses.
After two years of relatively reduced compliance activities due to COVID, the ATO are returning to a more normal pattern of working, meaning resources have been freed up to undertake compliance work including audits and reviews.
In particular, the ATO will be looking closely at claims for COVID related tax deductions, such as quarantine expenses and protective equipment along with work-related clothing, dry cleaning and laundry expenses, especially when COVID-19 (and working from home) could be expected to have a reduction in these claims.
Deductions for home office use, including claiming for ‘occupation’ costs like rent, rates and mortgage interest, are also in their scope as these expenses are not deductible unless a genuine business is being run from home.
There will also be a focus on home office, mobile phone and home internet costs with so many people still working from home during COVID-19.
To claim a deduction for work-related expenses, taxpayers must follow the 3 golden rules:
- the expense must be incurred and not reimbursed
- the expense must directly relate to earning your income
- Records must be kept to prove the expenses (usually an invoice, receipt or diary note).
Completing a car logbook correctly
Logbooks are used to record the business use of a motor vehicle as evidence to claim motor vehicle expenses as a personal tax deduction and also to reduce the FBT on cars provided to employees.
A logbook must contain the following information:
- when the period begins and ends
- the car’s odometer readings at the start and end of the logbook period
- the total number of kilometres the car travelled during the logbook period
- the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
- the business-use percentage for the logbook period
- the make, model, engine capacity and registration number of the car.
For each journey the following needs to be recorded:
- reason for the journey (such as a description of the business reason or whether it was for private use)
- start and end date of the journey
- odometer readings at the start and end of the journey
- kilometres travelled.
The above information can be recorded in a pre-printed logbook, or electronically (e.g. on spreadsheet or an approved app).
A logbook needs to be kept for at least 12 continuous weeks during the income year and that 12-week period needs to be representative of your travel throughout the year.
The logbook is generally valid for 5 years, even if you change cars, so long as there has not been a change in circumstances (e.g. your job description has changed and you no longer use your car to the same extent for work related purposes).
It is very important to record the odometer reading at 31 March each year for Fringe benefits Tax (FBT) calculations, or 30 June each year if making a personal claim for car expenses under the logbook method.
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Claiming tax deductions for political contributions & gifts
As tax time coincides with the Federal election in a few weeks, many people would be making gifts or contributions to political parties and politicians and wanting to claim these as a tax deduction.
Some key points about the tax deductibility of donations to political parties:
- Political gifts or contributions need to be made in a personal capacity, not by a business, to be tax deductible
- the donations must be to a registered political party
- the gift must be $2 or more in money or property purchase during the 12 months before making the donation
- the most that can be claimed in an income year is $1,500 for contributions and gifts which includes a membership subscription to a registered political party.
In addition, an individual can claim a further $1,500 for a gift to an independent MP or candidate.
So the maximum amount that an individual can claim each year in political donations is $3,000.
The individual must have a written record of the donation to claim a tax deduction.
Note that a deduction for a contribution or gift cannot add to or create a tax loss.
Penalties for non-compliance with director ID regime
Company directors can face severe penalties for non-compliance with the new director ID regime.
Specifically, the following four areas of non-compliance with the director ID regime have been identified and assigned accompanying penalties:
1. Failing to have a director ID - the criminal penalty is a $13,200 fine and the civil penalty is a fine of $1.1 million.
2. Failing to apply for a director ID when directed by the registrar – a criminal fine of $13,200 and a civil fine of $1.1 million.
3 & 4. Applying for multiple director IDs and misrepresenting a director ID – the criminal penalty is a $26,640 fine or one-year imprisonment or both, and a civil fine of $1.1 million for both offences.
These fines are likely to be applied in a measured way and will not be aimed at directors who make genuine errors while trying to comply with the new regime.
Tax deductibility of costs to amend a SMSF trust deed
Self managed superannuation funds (SMSF's) looking to amend a trust deed will need to consider the nature of any change before claiming tax deductions as some amendments will not be deductible.
The context of a change or amendment to an SMSF trust deed is the main factor in determining if the fund is able to claim a deduction for costs related to making the change.
If a fund amends a deed to keep up with changes to the super laws, the expense in doing this will be deductible under the general deduction provisions, unless the amendment results in an “enduring change” to the fund structure, or its functions, or creates a new asset as a result of that amendment.
Examples of an enduring change include:
1. a shift from an individual to a corporate trustee and the legal cost to amend the deed and the ASIC fees to register the corporate trustee.
2. a deed amendment to allow the fund to undertake a borrowing to acquire a residential property using a limited recourse borrowing arrangement.
In both cases the costs of these 2 specific amendment are capital in nature and not tax deductible because they involve an enduring change to the functionality of the SMSF.
In contrast, expenses related to a trust deed update to incorporate changes to the law would be deductible – for example a deed is updated for changes that will apply from 1 July 2022.
The difference here is the changes to the trust deed are an ordinary incident of the day-to-day running of the fund, and therefore not seen to be capital in nature.
