Sky Update – March 2017

In this Sky Update, we bring you all the latest tax news along with some other items that may pique your interest.

Personal services income diverted to SMSFs: ATO extends offer

Since April 2016, the ATO has been reviewing arrangements where individuals divert personal services income (PSI) to a self managed super fund (SMSF) to avoid tax.

The arrangements, described in Taxpayer Alert TA 2016/6, involve individuals (typically SMSF members at or approaching retirement age) performing services for a client via a company or trust structure.  That company or trust then distributes the income to a SMSF.

The ATO has previously asked taxpayers to help identify and resolve these issues, offering to remit the related penalties. That offer has now been extended to 30 April 2017.

Research & Development (R&D) Tax Incentive

The R&D Tax Incentive is a program jointly administered by AusIndustry and the ATO consisting of a tax offset for eligible R&D expenditure.

The tax offset rate for 2015/2016 is:

  • 45% for companies with annual turnover of less than $20M.
  • 40% for companies with annual turnover of $20M or more.

With the 1 May 2017 due date for lodging 2015/2016 registration applications fast approaching, companies seeking to claim the R&D Tax Incentive in their 2016 tax returns need to give priority to completion of their application.

Keep in mind that 1 May is a strict deadline.  If applications are not lodged on time, the company will simply miss out on the opportunity to claim the R&D Tax Incentive.

If you believe that your company can claim the R&D Tax Incentive, but have not yet looked at applying, it is not too late.  However, there is no time to waste and you should talk to us as soon as you can.

Overtime meal expenses disallowed because no allowance received

A taxpayer has failed in claiming deductions for overtime meal expenses before the Administrative Appeals Tribunal (AAT).  The AAT denied his appeal because he was not paid an allowance under an industrial agreement.

The AAT noted that whether overtime meal expenses are deductible according to the tax law depends on whether the taxpayer receives a food or drink allowance under an industrial instrument.

The AAT agreed with the Commissioner of Taxation that the taxpayer had not received an allowance of this kind and, in fact, had not received any allowance at all.

Penalty Rates Case

On 23 February, the Fair Work Commission handed down its penalty rates decision affecting awards applying to the retail and hospitality industries.

Saturday rates in the fast food, hospitality, restaurant and retail sectors will not change.  Sunday rates for retail, fast food and some hospitality industries will be reduced by 25 to 50 percentage points.  Public Holiday rates will also change.

We note that the Registered and Licensed Club Award remains unchanged.

With the Easter Public Holidays just around the corner, it is important for businesses operating in the retail or hospitality industries to get up to speed as soon as possible.

Taxpayer denied deduction for work expenses of $60,000

The Administrative Appeals Tribunal (AAT) has confirmed that a mechanical engineer was not entitled to deductions for various work-related expenses totally approximately $60,000.

The expense claims in question (for vehicle, self-education and other work expenses), were denied because the taxpayer was unable to establish the required connection between the outgoing amounts and the derivation of his assessable income as a mechanical engineer.

Furthermore, in relation to a range of miscellaneous expenses (such as mobile phone and internet charges, professional membership fees, conference fees and depreciation), the AAT found that most of the deductions were not substantiated with sufficient (or any) evidence.

This case highlights the importance of properly substantiating claims for work-related expense deductions.

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