In this Sky Update, we bring you all the latest tax news along with some other items that may pique your interest.
ATO continuing to focus on the Black Economy
The ATO is continuing to ramp up its focus on the “Black Economy” which it estimates is costing the Government as much as $50b.
As part of this, the ATO will be sending investigators into the Healesville, Hornsby and Far North Queensland areas to visit approximately 1,300 businesses in August & September. These investigators are tasked with uncovering Black Economy activity such as undeclared cash income, paying employees off the books, etc.
The ATO are very serious about shutting down the Black Economy and creating a level playing field for honest business operators. Businesses that engage in the Black Economy are put on notice to get compliant before they get caught out by the ATO.
If you need assistance to understand your businesses tax obligations, please get in touch.
Employee or Contractor?
In a recent Federal Court decision, a Sydney bus tour company was fined $89,250 for misclassifying employees as independent contractors. The business was also required to make back-payments to the affected employees.
The Fair Work Ombudsman (FWO) takes a very dim view of businesses that engage in “sham contracting arrangements” to avoid meeting their obligations. Any businesses that engage independent contractors should check out the information published on the FWO website to ensure that they are getting it right.
It should also be noted that the correct classification of independent contractors has implications for PAYG withholding and superannuation obligations, Worker’s Compensation and Payroll Tax. There are also new rules that came into effect on the 1st of July that remove tax deductibility of non-compliant payments. Ie payments to worker’s where the PAYG withholding and reporting obligations have not been met. This new rule could have very significant ramifications for businesses that misclassify employees as contractors.
The tests to determine if a person is an independent contractor vary across each of these areas and also from state to state. There can also be instances where obligations exist notwithstanding that the person is correctly classified as an independent contractor. For example, Superannuation Guarantee contributions are still required to be paid for certain contractors. Similarly, contractors may still be considered workers of your business for Worker’s Compensation purposes.
The question of whether a person is an employee or a contractor is often very challenging to answer and is a real minefield for many businesses. Those businesses that do engage contractors really do need to be across the rules and be obtaining good advice to ensure that they are not exposed. With the myriad of obligations that are potentially in play, the financial and reputational consequences of getting the classification wrong can be devastating.
If you would like assistance to understand your obligations in respect to independent contractors, please get in touch.
Levelling the playing field for online hotel bookings
In May 2018 the Federal Government announced that it would ensure that offshore sellers of Australian hotel accommodation would be required to calculate their GST turnover in the same way as local sellers from the 1st of July 2019.
Under the current law, many offshore sellers are not required to be registered for GST giving them a price advantage over local sellers.
The Bill to finally enact this change was introduced into Parliament on the 4th of July and has been moving through the legislative process. It is intended that once the Bill is passed into law, it will have retrospective application from the 1st of July.
A number of industry bodies have previously made submissions that have supported this measure with the consensus being that it will be good for the local industry. However, it is widely believed that more needs to be done to regulate the Online Travel Agent (OTA) industry to ensure a fairer deal for Australian operators. In particular, many would like to see the Morrison Government adopt the Labour Party policy to ban rate parity clauses in OTA agreements.
If you have questions, please do not hesitate to get in touch.
Clarification on eligible Research & Development activities
The Research & Development Tax Incentive provides valuable financial support to companies that invest in R&D by way of a tax offset claimed in the company’s income tax return. This tax offset is a refundable tax offset of 43.5% of eligible costs for companies with aggregated turnover of less than $20m. For companies with aggregated turnover of $20m +, the tax offset is a non-refundable tax offset of 38.5% of eligible costs.
In order to claim the tax offset, there are a number of requirements that must be satisfied. One of these requirements is that there is at least one “Core R&D Activity”. A Core R&D Activity being:
Determining if an activity meets this definition can often be a challenging task as was seen in a recent Federal Court case, Moreton Resources Limited v Innovation and Science Australia  FCAFC 120.
This case involves an appeal to the Federal Court of an unfavourable decision received by the company in the Administrative Appeals Tribunal and provides clarity around when an activity will be a Core R&D Activity.
In particular, the Federal Court found that the Tribunal had misconstrued the words “experimental activities” as not covering activities having the purpose of generating new knowledge with respect to the application of an existing technology at a new site.
Additionally, the Federal Court confirmed that a test or trial undertaken for the purpose of discovering something unknown or for testing a principal may, depending on the circumstances, constitute experimental activities.
Although it was not necessary for the Federal Courts decision in the case, it was also noted that the Tribunal’s characterisation of the activities as “testing the application of existing technology at a particular site and nothing more” was open to question.
This is because the Tribunal did not adequately consider:
- That the company’s purpose was not only to test the application of the technology, but also to determine if that technology could be used in an environmentally responsible manner; and
- the purpose of subsequent activities that would have taken place had the R&D project not been abandoned (due to a ban imposed by the Qld Government).
In other words, the Tribunal adopted a view of the purpose of the activities that was too narrow.
This decision provides important clarification that will help companies to correctly assess their eligibility to claim the R&D Tax Incentive.
If you would like further information on the R&D Tax Incentive, or require assistance to submit your R&D application, please get in touch.
Community Benefit Statements (CBS)
Victorian Clubs with gaming machines are required to submit their audited CBS for the 2018/19 financial year by the 30th of September. The CBS is required to verify that the venue is providing a community benefit of at least 8.33% of its net gaming machine revenue.
Failure to provide the minimum benefit and/or to complete the CBS can have very significant implications for a Clubs Electronic Gaming Machine Entitlements (EGMs).
With the 30th of September fast approaching, Clubs need to be making arrangements to ensure that the CBS will be submitted on time.
If you need assistance with completion of your CBS, please get in touch.
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