State Budget
With the State Budget being announced on 10 May 2018 and the Federal Budget on 8 May 2018, we highlight some of the key proposals put forth for businesses to take note of leading into the new financial year:
Expansion of the Building and Construction Industry Training Fund Levy
From 1 July 2018, engineering construction projects in the resource sector will be facing the 0.02% Building and Construction Industry Training Fund Levy as based on construction values.
The resource sector had previously been exempt from this levy from 1995, with the levy only applying to residential, commercial and civil engineering projects undertaken in Western Australia and with a construction value exceeding $20,000.
The levy is required to paid prior to commencement of construction works and penalties apply for failure to pay.
Increase in State Government Projects
With much of the State Government spending being placed on improvements to hospitals ($104 million across hospitals in Geraldton, Murdoch, Osborne Park and Joondalup), schools ($1.2 billions across the state over 4 years for upgrades to existing schools and $157 million on new schools), and the new Metronet system ($3.6 billion across the board), more opportunities to tender government works will be open to WA businesses.
The State Government will be focused on using the services of local supplies particularly for construction and maintenance projects.
New Industries Fund
Launched back in 2017, the New Industries Fund will see an injection of $17.8 million over 4 years in government spending.
The objective of the fund is to support new businesses in WA and support job growth.
The fund will function through a variety of initiatives open to local businesses including business growth programs, sponsorships, investments attractions and encouraging collaborations between industries and universities.
Increases in Utility Costs and Government Services Levies
Operating costs for many businesses are likely to rise given the number of fee increases proposed by the State Government on utilities and other government services in the budget.
Fees increases are set to be applied to electricity charges (7% increase), water charges (5.5% increase), metro Emergency Services Levies ($28 increase) and associated motor vehicle fees (5.8% increase on vehicle license recording fees, 3.7% on drivers’ licenses and 2.4% on motor injury insurance).
Federal Budget
The Federal Budget emphasised a crackdown on compliance, with many of the proposals targeting stricter processes to prevent tax avoidance and targeting non-compliance.
We summarise some of the key points of the Budget as well other government publications for business to consider leading to 1 July 2018 as follows:
Tax Related Matters
Increased ATO Data Matching for Motor Vehicle Expenditure and Income
The ATO will be receiving data from state and territory motor vehicle registry authorities in an attempt to reduce non-compliance associated with the sale and purchasing of motor vehicles.
The ATO will now be receiving information on motor vehicles transferred to or newly registered where values exceed $10,000. The objective of the new data matching process will be to ensure taxpayers are correctly meeting their obligations for reporting GST, fringe benefits and income tax on relevant purchases and sales.
Non-compliant Payments No Longer Deductible
Similar to super guarantee payments, the ATO will no longer allow deductions for wage payments to employees wherein PAYG obligations have not been met. This will include payments from which PAYG withholding is required to be held but has not been remitted to the ATO.
Furthermore, the deduction for businesses will be denied wherein payments to contractors with whom there are PAYG withholding obligations have not been met. Under the current rules, where a contractor does not provide an ABN, businesses are required to withhold tax at the top marginal rate and remit this to the ATO.
Failure to remit contractor and employee withholding to the ATO, will therefore prevent the deductibility of such expenses regardless of whether the expenses have been paid or not.
Introduction of Cash Receipt Limit for Businesses
The government has also announced a proposed new cash receipt limit of $10,000 for businesses to be implemented from 1 July 2019 in an attempt to deter tax avoidance and criminal activity.
The proposed limit will only affect cash transactions undertaken between businesses and consumers and excludes transactions between financial institutions.
Requirements for Taxable Payments Annual Reporting Expanded
Currently, businesses engaged in the building and construction industry are required to report details of payments made to contractors for the services provided on an annual basis. This includes payments to subcontractors, consultants and independent contractors.
From 1 July 2018, the requirement to lodge this report with the ATO will be expanded to apply to businesses in the industries of supplying services relating to of security and investigation, road freight transport, computer system design and cleaning.
The proposal forms part of the government’s Black Economy Taskforce measures aiming to reduce tax avoidance.
Extension on the Small Business $20k Instant Asset Write Off Deduction
The $20k instant asset write off deduction is set to be extended to the financial year commencing 1 July 2018.
Eligible small businesses can purchase depreciable assets under $20,000 (excluding GST) and claim an immediate deduction on the purchase. For the deduction to be applicable, the asset must be held for business purposes and be ready to use by the end of the financial year. Where assets are used for a combination of both private and business portions, only the business portion is able to be written off.
Amendments to Division 7A UPE rules to begin from 1 July 2019
Amendments are set to be made to the current tax legislation concerning Division 7A loans between private companies and trust income.
The objective of the amendment will be to clarify the circumstances in which unpaid present entitlements (UPEs) apply for Division 7A purposes and are set to come into effect from 1 July 2019.
The measure will ensure the UPE is required to repaid to the company providing the loan and subject to tax as a dividend.
Introduction of Anti-Avoidance Rules for Circular Trust Distributions to Family Trusts
In an effort to prevent circular distributions of trust income and avoidance of tax, the budget also proposes a new rule to apply to closely held trusts including family trusts.
The measure will allow the ATO to pursue family trusts distributing income to related trusts with the purpose of returning the distributed income to the original trustee and avoiding payment of any tax. The ATO will now be able to impose tax on distributions at an equal rate to the highest personal tax rate plus Medicare levy wherein tax avoidance is evident.
Payroll and Superannuation Compliance
Single Touch Payroll Reporting Requirements
Single touch payroll (STP) will mean reporting changes for employers with employees of 20 or more. From 1 July 2018, these employers will be required to report certain payments to the ATO using their business management software.
Information being collected from the ATO includes salaries and wages, pay as you go (PAYG) withholding, super liability amounts and ordinary time earnings.
This will mean employers required to report will need to ensure their payroll system will offer STP reporting either through an upgrade or additional service to be acquired.
Additionally, STP reporting will mean employers can view their PAYG withholding liability through the Business Portal and will no longer need to provide employees with a PAYG Payment Summary at the end of the financial year.
For businesses, this will mean the ATO will have a better view of payments to employees and the ability to track non-compliance in PAYG tax withholding and super guarantee payments as they occur.
Single touch payroll is being proposed to be expanded to also include employers with 19 or less employees from 1 July 2019.
Super Guarantee Compliance
The ATO’s new super guarantee compliance factsheet explains employer super obligations and the approach taken by the ATO for non-compliance. Non-compliance includes non-payment, underpayment and late payment to eligible employees.
When assessing whether to penalise employers, the ATO has advised they consider the history of engagement of the employer with the ATO and history of compliance. Where regular engagement and positive compliance history can be shown, penalties are less likely to occur.
The ATO is encouraging employers with difficulty in meeting their obligations to come forward and contact the ATO. We note the Commissioner has discretion to consider full or partial remissions of penalties so being on the front foot is of the utmost importance.
Enforcement actions the ATO can undertake to force compliance in situations where employers repeatedly fail to make correct payments include:
- Collecting amounts owed directly from banks or third parties that owe them money
- Collecting amounts owed directly from the company directors
- Actions that can result in bankruptcy or liquidation.
Furthermore, the government have introduced a 12-month amnesty for catch up payments on previously unpaid super guarantee liabilities. Catch up payments made under this amnesty will attract a nominal interest amount, however will ensure any potential penalties for late payment and other enforcement actions are not applied.
The amnesty applies from 24 May 2018 to 24 May 2019 and with the government giving more powers to the ATO to come down harder on employers for unpaid liabilities, employers need to act now to bring their payments up to date.
International Tax
Common Reporting Standards
The OECD has updated the list of countries with which they exchange financial account information under the Common Reporting Standard Multilateral Competent Authority Agreement (CRS MCAA).
Furthermore, certain businesses, such as those that are foreign tax residents or that have customers whom are foreign tax residents, will need to lodge a CRS report to the ATO on an annual basis.
Other
Large Government Contract Tenders Requirement to be Tax Compliant
The government is also implementing a new requirement for businesses wanting to tender larger scaled government contracts. The new requirement will mean businesses will need to provide information relating to the status of tax obligations and prove compliance.
The requirement is set to affect contracts over $4 million (including GST).
R&D Tax Incentive Overhaul
With the number of Research and Development (R&D) tax incentive applications increasing substantially from 2010, a number of changes will be coming into effect on or after 1 July 2018.
These changes will focus on reduced benefits being available from the incentive, tightened grants for software R&D claims and tightened regulations on what is considered to be ordinary business expenditure. The ATO have historically placed emphasis on ordinary business activities being categorised as supporting activities to increase R&D claims.
Furthermore, the changes will also affect the R&D intensity percentage of entities. The R&D intensity percentage is based on the R&D related expenditure expressed as a percentage of the total business expenditure, with percentages correlated to the maximum available tax offset.
Currently, there is a limit on which a business can claim the accelerated rate for the R&D tax incentive. Amounts above the limit can still be claimed however are restricted to the entity’s corporate tax rate. The budget proposes the maximum eligible expenditure to receive the concessional rates will rise from $100 million per to entity to $150 million per entity per year.
The proposed changes will mean businesses will be placed under greater scrutiny when applying for the incentive, and a greater need for businesses to ensure documentation and evidence is maintained when applications are made.
Should you be interested in discussing any of the above further, or want to know how we can assist you, please contact our Client Services team at clientservices@ww2.austasiagroup.com.