The new burden on purchasers of properties over $2m from 1 July 2016 and the message to local resident vendors
Posted on April 8, 2020
It may come as a shock to investors and owners who are looking to buy properties for more than $2m from 1 July that they may be liable to withhold 10% of the proceeds and hand the money over to the ATO instead of the vendor.
In the attempt to strengthen the foreign capital gain tax regime to assist with collection of foreign residents’ liability, the ATO introduced a new law which comes into effect on 1 July 2016 and delegated the tax collection and payment process to the purchasers.
Australian residents selling their properties will need to apply for a clearance certificate from the ATO to ensure amounts are not withheld from the sale proceeds.
What do you need to know as a potential property purchaser?
The new $2 million rule applies to vacant land, buildings, residential and commercial property, leasehold and strata title schemes and indirect Australian real property interest (that is, a membership interest of 10% or more in an entity whose underlying value is principally derived from Australian real property).
If the vendor fails to provide the tax certificate, or you have reasonable grounds to believe they are a foreign resident, you are required to withhold 10% of the purchase price and pay this to the ATO if no other exclusions apply
Where the vendor is not entitled to a clearance certificate but believes a withholding of 10% is inappropriate, they can apply for a variation and show it to you before settlement to ensure the reduced withholding rate applies
It is evident that vendors, purchasers, real estate agents, banks and conveyancing solicitors will get very busy to administer the new law from 1st July and become familiar with the tiny prints of the new legislation. In many instances vendors will rush to complete negotiations before the new law kicks in by taking a hit on the sale price.
It appears that Australian vendors should have nothing to worry about and obtaining the certificate will be a streamlined process. We have dealt with the ATO long enough to know that issues and complications will always arise. A simple example is sorting out a change of name or having multiple owners on title each needing the clearance.
The ATO checks and processes may also uncover profit making enterprises where capital gains tax doesn’t apply and profits are taxed on revenue basis. Many neighbor-vendors are teaming up to offer their properties to a single developer for premium prices relying on the main residence exemption and may be unpleasantly surprised if ATO knocks on their door to demand the tax.
There are always those who simply failed to lodge tax returns for many years or have disclosed very little income which indicates they could not afford such property.
Australians love property improvements and increasing values through subdivisions, however some may loose the main residence exemption if they happen to be in the business of property development.
In other words, the clearance certificate will single out foreign residents and force them to lodge tax returns and pay capital gains tax but may also put at risk the tax affairs of many Australian vendors.
Are you thinking of selling a property worth more than $2 million after 1 July 2016? Get your tax affairs in order before you apply for the clearance certificate and double-check the tax implications on property transactions you have been involved in, as there are many hidden traps in the tax and property legislation.
Written by Venetta Sacha
Posted on April 8, 2020
Some businesses are incorrectly including offshore to offshore supplies of goods in their business activity statements (BAS) and we seek to clarify any confusion surrounding the reporting of these transactions.
Supplies where goods are delivered from a place outside the indirect tax zone to another place outside the indirect tax zone are outside the scope of the Goods and Services Tax (GST) Act and do not need to be reported in your BAS.
Example: International supply of goods
Australian Company A sells goods to Australian Company B. The goods are shipped directly from Company A’s factory in China to Company B’s branch in Japan. This supply of goods does not attract GST and should not be included in the BAS.
The ATO collect and share information and data with a number of external sources including the Department of Immigration and Border Protection (DIBP) and compare this information to amounts reported on your BAS. Including the above transactions creates a discrepancy between information reported to them in your BAS and data provided by DIBP. The inclusion of these transactions in your BAS may result in you being chosen for compliance action to explore the discrepancy.
If you think you are including these supplies on your BAS you should review your reported sales at labels G2 and/or G3. If you find you have made a mistake that affects your GST payable amount, you can talk to us or the ATO directly on how to correct the error.
If you have incorrectly reported supplies at labels G2 and/or G3, but there is no effect on GST payable, you do not need to do anything further. However, you should exclude these supplies and correctly report all sales at labels G2 and G3 on your future BAS.
Frequently asked questions
Not including these supplies in my BAS means my BAS and income tax return do not reconcile. What if I get selected for a review?
Be assured the ATO is aware of the different reporting obligations and this will not be cause for scrutiny. These supplies should be coded to ‘No Tax’ in your GST accounts and not reported in your BAS.
I’ve been reporting like this for years, why is the ATO telling me this now?
Research undertaken of compliance activities and data sharing with DIBP found the inclusion of offshore to offshore supplies of goods in the BAS is a common issue among taxpayers. Getting it right reduces the chances of having unnecessary contact with the ATO.
Do I include these sales in label T1 ‘PAYG Instalment Income’ in the BAS?
Yes. Such sales still need to be included under label T1.
Posted on April 8, 2020
Every tax time is an opportunity for scammers to target the unwary.
This time around, the scammers are phoning and claiming to be from the prosecutions department of the ATO. They then state that they believe you have committed fraud and the Sheriff’s Office has been called. You can of course make this all go away by transferring cash using the details they provide or by giving your details to them. All of it is fake.
There are a number of variations to this fake arrest warrant scam. In some cases a message is left on an answering machine obliging the person to call back.
Understandably for those with outstanding tax debt, these calls can cause concern.
If you receive a call like this, you should feel free to hang up. We can contact the ATO on your behalf to verify there are no known issues.
Or, if you would like to report the scammers, take as many details as possible without giving any information away (phone numbers, supposed section of the ATO, name of the person calling, etc.,) and pass them onto us. Once again we’ll verify with the ATO and report any known details about the scam for further investigation.
If you are contacted by email by the ATO or a group purporting to represent the ATO, you can forward these emails directly to the ATO at ReportEmailFraud@ato.gov.au.
Posted on April 8, 2020
ATO has announced a new data matching program as one of the strategies to ensure that Taxpayers are correctly meeting their taxation obligations in respect of their share transactions.
This matching program will source details of share acquisitions and sales from major Companies that offer share transaction services from 20 September l985 to 30 June 2016. It collects data that includes the name and address of the Taxpayer and the price & number of shares acquired or sold. The collection of data occurs twice annually covering the periods January to June and July to December, occurring during the quarter following the end of periods.
The date generated from this program will become available to Taxpayers on an annual basis at the time when they are lodging their tax returns via electronic pre-fill channels, which informs them of their obligations to report their capitol gains from share transactions;
Those that are not registered for their taxation obligation are more likely to be identified by the ATO through this program and accordingly, their taxation obligations will be required to be registered;
A minimum twenty-eight (28) days will be provided to Taxpayers for them to respond to any discrepancy matching obtained by the ATO before any administration action is taken. However, if Taxpayers foil lo comply with their taxation obligations after being reminded, prosecution action may be taken; and
This program also requires Taxpayers to comply with their taxation and superannuation obligations, including registration requirements, lodgment obligations and payment responsibilities.
This share transactions data matching program promotes the integrity of the taxation and superannuation systems and instils further community confidence. It further allows the ATO to be in a better position to identify non-complaint behaviours.
If you are uncertain about the share transactions undertaken in the past and whether they have been correctly disclosed in your tax returns, please call us and we will be happy to assist with your questions.
Posted on April 8, 2020
The Australian government announced measures to simplify the current payroll system by introducing a “single touch payroll system” and the ATO is currently conducting a consultation process in order to examine the consequences of this measure.
Under “single touch payroll”, employers will be required to electronically report payroll and super information to the ATO (Australian Tax Office) when employees are paid, using standard business reporting – enable software. This is different to the current situation where employee tax deducted from payroll is reported in the employers BAS and only forwarded to the ATO depending on the particular companies reporting requirements. Superannuation is only required to be forwarded 28 days from the end of each quarter. If the super deducted from employees pay is unremitted employers have three months to report the breach to the Australian taxation office.
The “single touch payroll” is expected to make small businesses much more efficient as it will simplified their reporting process, reduce compliance costs and help managing tax debt.
There is of course a very big advantage to the ATO that there will be an early warning where tax and superannuation are unremitted.
On the other hand there may be cash flow implications for small businesses in that they will be required to remit the employee deductions at the end of each pay period.
“It is likely that this cash flow pressure will increase the numbers of company liquidations, administrations and receiverships due to the fact that company directors will be forced to approach insolvency practitioners at a much earlier time” Jones Partners, Sydney.
When a company is in financial difficulty and cash flow is tight it is too easy to use unremitted PAYG tax and super as working capital to fund the ailing business. The problem is compounded because the ATO appears to be somewhat inefficient in chasing up these outstanding debts. As a consequence the insolvent company is allowed to continue for a considerable time often incurring more debts and creating unfair competition in its industry environment.
In defence of the ATO it is frequently unaware of the liability because the employer has not lodged the appropriate documentation.
As a consequence so-called fraudulent Phoenix activity involving a succession of liquidated companies with a similar name, address and phone number employees and website—has become common.
The single touch payroll proposal is a practical way of solving this problem.
How do you think this proposal will impact your business?
Based on article by Jones Partners, Sydney published on the website blog of Jones Partners.