October 2019

Hello and welcome to our October 2019 newsletter.  In this quarter’s issue, we have provided articles on the following topics:

Staff Updates

Our long term receptionist Nadia is no longer with us as she has moved to QLD to be closer to her sons and granddaughters.  We wish her all the best for the future and enjoy the much warmer weather. Thank you for the 5 and half years you were with us! 

Please welcome our new receptionist Arlene who started at the end of August with us and we hope you enjoy working at our firm and you are here for a long time to come.

Our senior accountant Allison Burman had a beautiful baby boy Liam on the 29th July and mum and bub are doing very well.

Congratulations also to another one of our accountants Holly Barnes who travelled down to the Mornington Peninsula in mid-September to compete in the Australian National Amateur Dressage Championships. Holly and her horse Bella finished up as overall champion at Advanced level.

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Default tax return

If you have an overdue tax return lodgement the ATO may issue a default tax assessment. This is usually only issued after they have contacted you in regards to your overdue tax obligations. A default assessment is an assessment of what the ATO deems your net assessable amount due based on your taxable income. The income that they use is generally what has been reported to them from your employer and other income sources. Other ways in which the ATO calculates your default assessment includes previously lodged returns, income from financial institutions, salary/wages reported from your employer, GDP (gross domestic product) growth rate, and annual tax statistics. The default assessment will not incorporate any deductions that you may be eligible for, other than those currently reported to the ATO. There is also an administrative penalty of 75% of the tax-related liability that gets applied to each default assessment issued. This penalty can also been increased to 95% for those taxpayers whom have a pattern of non-compliance. On top of this penalty, the ATO can also apply another penalty for failing to lodge on time.

What should you do if you receive a default assessment?

If you have received a default assessment warning letter, it is imperative that you lodge all overdue tax obligations prior to the date advised in the warning letter. You should seek tax advice to ensure that your tax affairs are tended to in a timely manner to help reduce any penalties and fines imposed.

If you do not manage to lodge your returns before the ATO issues a default assessment, the only way to reverse that is to lodge an objection form with the ATO.   You have two years from the date of the assessment to lodge that objection.

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Cryptocurrency and Tax

The term cryptocurrency is used to describe a digital asset in which encryption techniques are used to regulate the generation of additional units and verify transactions on a blockchain. Cryptocurrency generally operates independently of a central bank, central authority or government.

If a self-managed super fund (SMSF) is transacting with cryptocurrency SMSF trustees and members need to be aware of the tax consequences relating to digital currency. These vary depending on the nature of your circumstances & anyone involved in acquiring or disposing of cryptocurrency needs to keep records in relation to their cryptocurrency transactions. Essentially the date of each transaction, the value of the cryptocurrency in Australian dollars at the time of the transaction, the purpose of the transaction and the details of the other party involved.

Software such as Coin Tracking can help to track your trades and generate capital gains reports. If you hold any digital currency as an investment, you’ll be taxed on the capital gains you make when you sell it for fiat or another crypto. However, if you hold your cryptocurrency for more than a year before selling or trading it, you may be entitled to a 50% CGT discount. Even if the market value of your cryptocurrency changes, you won’t make a capital gain or loss until you actually dispose of your holdings. If there is a capital loss, capital loss can be used to reduce capital gains made in the same financial year or a future year, including investments outside of cryptocurrency.

Any profits you make mining bitcoin or any other cryptocurrency will form part of your assessable income. If you trade crypto for profit, you’ll need to include those profits as part of your assessable income for tax purposes. If your business pays for goods and services using cryptocurrency, or receives payments for goods and services in cryptocurrency, these transactions are subject to GST and if you operate a crypto exchange service, income tax applies to the profits you make and your transactions will be subject to GST. There are situations you may be eligible for the personal use asset exemption and Cryptocurrency transactions are exempt from CGT.

If you lose your private key or your crypto holdings are stolen, you may be able to claim a capital loss.

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Instant Asset write-off Increased and Extended

The threshold has increased to $30,000, and has been extended to 30 June 2020.

The instant asset write-off now also includes businesses with a turnover from $10 million to less than $50 million.  These businesses can claim a deduction of up to $30,000 for the business portion of each asset (new or second hand), purchased and first used or installed ready for use from 7:30pm (AEDT) on 2 April 2019 until 30 June 2020.

Businesses with a turnover of up to $10 million can also claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:

  • $30,000 from 7:30pm (AEDT) on 2 April 2019 until 30 June 2020
  • $25,000 from 29 January 2019 until before 7:30pm (AEDT) on 2 April 2019
  • $20,000 before 29 January 2019

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Taxable Payments Annual Report (TPAR)

There are several industries that are required to complete a TPAR when lodging their tax return.  If your business is currently in the building and construction industry, cleaning industry or courier industry, you must report payments that you make to contractors for those services.  This is to ensure that the contractors themselves report their income properly to the ATO when they prepare their own income tax returns.

From 1st July 2019, the reporting requirements have been expanded to include road freight, information technology, security, investigation and surveillance services.

Businesses in these industries will need to collect details of payments made to contractors from 1st July 2019 until 30th June 2020, and provide the TPAR to the ATO by 28th August 2020. 

You will need to provide the contractors ABN, name, address, the gross amount you paid them for the financial year including GST and how much GST is included in the amount you paid them.  Only report the amount you actually paid to the contracts, don’t include invoices that you have received but not yet paid.

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When does an SMSF need an Actuarial Certificate?

An SMSF can have two types of accounts within the fund: an accumulation account (for contributions and/or rollovers) and pension account(s) (used to pay the member a regular income stream or lump sum). The tax treatment for each account is different and sometimes there’s a need for an actuarial certificate to determine the tax implications.

An actuarial certificate will determine the percentage of income that will be exempt from tax for a SMSF.

An actuarial certificate is required in the following circumstances:

  • A two member SMSF where one member is drawing a pension and one member is in accumulation.
  • A single member SMSF where the member is drawing a pension and making contributions throughout the year (eg. Transitioning to retirement).
  • A two member SMSF where both members are drawing a pension and one member makes a single large contribution and starts a new pension with the amount.
  • A two member SMSF where one member passes away and the death benefit (either a lump sum or pension) is started several months later.
  • The SMSF is paying a defined benefit pension.

When is it not needed:

  • The most common situation where an actuarial certificate is not needed is when all members of the SMSF are in pension mode all year.
  • When all members of the SMSF are in accumulation mode all year.
  • When assets of the fund have been segregated (ie different bank accounts and investments).
  • When the SMSF has a taxable loss as there would be zero tax anyway.

When preparing the accounts for an SMSF, we need to make the decision whether to commence a new pension from contributions made, or to leave them in accumulation and get an actuarial certificate.

When pension members make a large contribution to the SMSF we will generally commence a new pension with this amount. The difficulty we face is when members make several contributions during the year with the intention that the amounts will be treated as a single contribution amount. In practice we would need to turn each deposit into a new pension.

If you intend on making large contributions into your SMSF, we strongly suggest that you seek advice to ensure that you do not breach the contribution caps and that the best outcome can be achieved for your fund.

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