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Phoenix alert: Government warns directors

When a company has failed or becomes insolvent, it is perfectly legitimate to register a company to take over what is left of that company after liquidation. The directors of the failed company may have done everything they could to keep the company buoyant, but the company could not meet its debts. The insolvent company is then put into the hands of a liquidator, who sells the assets to pay the creditors and employees. The directors are then entitled to set up another company, similar to the one that failed, with renewed hope that this time it will succeed. This is kosher. ASIC sniffing out phoenix directors who rip off creditors What is not kosher is when the directors deliberately set up a phoenix company to avoid paying debts to creditors and gives these business operators an unfair competitive business advantage. This is done by transferring the assets of the old company to a new company, with the same or a similar name – for little or no cost, before the old company can be handed to a liquidator to realise the assets – leaving nothing for the anxious creditors including the ATO and employees. This really sets the cat among the birds in the eyes of the regulators, specifically the Australian Securities and Investments Commission (ASIC), who are out to prosecute and punish directors who breach their duties to the company. Penalties can include a gaol term and hefty fines, and can extend to key players including advisers, valuers, ...
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Tax time focus areas for individuals

It’s tax time again, as you gather your receipts and other assorted tax documents, you should also turn you mind to what the ATO is paying close attention to this year. This year, the ATO is focusing on taxpayers who claim “other” work-related expense deductions at label D5 on individual tax returns. According to the ATO, taxpayers need to be able to show that they spent the money themselves and were not reimbursed, the expense was directly related to earning their income, and they have a record to prove it. Where the expense is for both work and private use, only the work-related portion can be claimed. The ATO urges taxpayers to remember that they are not automatically entitled to claim standard deductions and that all expenses need to be substantiated. As a part of their focus on other work-related expense claims, the ATO will also be closely scrutinising work-related car expenses which around 3.75m individuals claimed in 2016-17 totalling $8.8bn. There are two ways a deduction for car expenses can be calculated under tax law, the cents-per-kilometre method (which limits claims for work-related travel up to 5,000 km) and the log-book method in which a log book is kept for a continuous 12-week period to determine the work-related percentage of the actual expenses incurred. Around 870,000 individuals claim the maximum amount under the cents-per-kilometre method each year, and the ATO is concerned that there is an erroneous belief among taxpayers that the maximum claim is a standard deduction that ...
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ATO focus areas for businesses

A recent interview with Tax Commissioner Chris Jordan revealed details of what the ATO will be paying particular attention to this year. Perhaps not surprising, but the ATO will be targeting businesses that deal in cash. As a part of its cash and hidden economy operation, the ATO has compiled “data-maps” of cash-only businesses and those that do not frequently or readily use electronic payment facilities. Using the data-maps the ATO is homing in on particular suburbs which have a high incidence of cash-only businesses. In Sydney, Cabramatta and Haymarket were cited as examples of areas that the ATO visited in relation to its operation. According to the Commissioner: “People say to me: ‘it’s terrible – people steal the money, you’ve got to count it, you’ve got to reconcile it, you’ve got to have security around it, you’ve got to take it to the bank’ … There’s no compelling business reason to have cash only.” With these cash and hidden economy visits the ATO is conducting, it is looking for several things: whether the business has undeclared income; whether the employees are allowed to work (visits in the past have been made in conjunction with the Fair Work Commission or the Department of Immigration); and whether the employees are receiving the correct amount of wages, conditions and superannuation. Even if you’re not running what the ATO deems to be a “cash business” there are other areas you will still need to be aware of this tax time. In particular, the ...
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When is early release of super legal

Most people know that superannuation cannot be accessed until retirement or in exceptional circumstances. These exceptional circumstances have caused considerable confusion and allowed unscrupulous individuals to promote illegal schemes to access super early to pay for a holiday or buy a car. To clarify, exceptional circumstances that allow you to access your super early relate to the following: Compassionate grounds Includes the need to pay for medical treatment for yourself or a dependant, to make a payment on a loan to prevent you from losing your home, to modify your home or vehicle for special needs of yourself or your dependant due to severe disability or to pay for expenses associated with a death, funeral or burial. The amount of super that can be withdrawn is limited to what is “reasonably needed”. Severe financial hardship This condition may be satisfied if you have received Australian Government income support payments continuously for 26 weeks and are unable to meet reasonable and immediate family living expenses. The maximum amount that can be accessed is $10,000 at a time, and you can only make one withdrawal from the fund due to severe financial hardship in any 12-month period. Terminal medical condition Early access to super may be allowed if you have a medical condition that is “likely to result in death within the next 24 months”. The medical condition and prognosis will need to be certified by 2 different medical practitioners. One of the medical practitioners must be a specialist in an area ...
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If you are using QuickBooks Online (QBO) and have CBA bank accounts, you need to look at upgrading the bank feed to a “direct feed”. QBO’s instructions are: Dashboard > Banking > Add Account > Connect an Account. Fill out form and email to intuitforms@siss.com.au ...
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Airbnb and home sharing: Taxing implications

Do you rent out a part of your home, or a holiday home, on Airbnb, Stayz or another sharing site? Perhaps you see this as a way of making a little extra income to help the household budget or to save for that holiday. But what you may not be aware of are the long-term tax implications of such a move, which may lead to a case of short-term gain causing long-term pain. Reporting income Unless a home was rented out to family members or under domestic arrangements that are not commercial, all income received needs to be included in your tax return. This is regardless of whether it was a long-term rental or a short-term rental. Claiming deductions Where you are only renting out a part of your home (ie a single room), say on Airbnb or another similar platform, you can only claim expenses related to renting out that part of the home. According to the ATO, a floor area method based on the area solely occupied by the renter as well as a reasonable amount based on their access to common areas should be used to apportion the expenses claimed. In addition, where you use the room that is rented out in any other capacity such as storage, home office, or spare bedroom, then you cannot claim deductions for any expenses for the period the room is unlet. For example, heating and electricity costs received every quarter need to be apportioned based on the number of days ...
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Beware of the SMSF death trap

It is said there are only two things certain in life, death and taxes, but what happens when they occur at the same time? Death of a loved one is not only a tumultuous time for the deceased family and friends but when the deceased is a member of a self-managed superannuation fund (SMSF) complications from trustee arrangements and payment of the death benefit come into play. As a part of the basic conditions of an SMSF, each member is required to be a trustee or a director of the corporate trustee, and each trustee must generally be a member of the fund (except in cases of single-member funds). So, who will be the trustee of an SMSF following the death of a trustee/member is all important, particularly when trustees have the discretion in determining the payment of a death benefit. In most cases, if a member/trustee of an SMSF dies, his or her legal personal representative may act as the trustee of the fund, or as a director of the corporate trustee, until payment of the death benefit commences. This ensures that the fund does not fail to satisfy the basic conditions of an SMSF. However, it should be noted that the legal personal representative of the deceased does not automatically become a trustee of the fund, or a director of the corporate trustee in place of the member. Rather, the legal personal representative must be appointed as a trustee/director of the SMSF in accordance with the trust deed ...
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Got tax clearance to sell your home?

In the market to sell your house? Before you call in the real estate agents and home stylists, you probably know that you’ll need to have a contract of sale handy. Did you know that you may also need to get a capital gains withholding clearance certificate from the ATO? This certificate allows ATO to identify whether withholding is required from the sale of Australian property and applies to any property where the contract price is $750,000 or above. In the current market conditions, the $750,000 threshold means the need to obtain the clearance certificate would apply to the majority of real estate sales in capital cities and some larger regional centres around Australia. If you’re an Australian resident selling your home or investment property, applying for a certificate means that the purchaser will not have to withhold 12.5% of the purchase price. The online application process with the ATO is simple and requires only a few personal details, such as name, DOB, address, and TFN, in the case of an individual applicant. For company applicants, name, TFN and ABN information are usually required. For trusts and superannuation funds, if the entity that has legal title to the asset is the trustee (in its capacity as either a company or an individual), then the trustee should apply for the clearance certificate using their own TFN or ABN (ACN can also be included as an attachment to the application). It should be noted that even though the clearance certificate does not ...
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Budget 2018/19: Increased "Phoenix" Activity

The Coalition will further increase activity to find and punish business owners running “phoenix” operations. Basically this is where the business owner runs the business, fails to pay employee entitlements (such as super, holiday pay, long service leave, etc), then re-opens the business in a new name claiming a “fresh start”. It’s illegal. It’s dirty. And Government should do everything in its power to catch them. (We note that some businesses do genuinely have financial difficulty and fail to pay many of their expenses, staff included. A genuine business failure is not a phoenix activity) ...
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Budget 2018/19: Increased SMSF Mebmer Cap

The Coalition will increase the maximum number of superannuation members from 4 to 6. This will make inter generational superannuation and estate planning easier, plus combat the Labor Governments proposal of preventing SMSF’s in pension phase from accessing franking credits from dividends ...
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