Tax Alert – September 2018

Small businesses are offered reviews while the individual tax gap grows. With new personal and small business tax cuts taking effect from 1 July, key developments in the tax arena have turned to smaller, less headline grabbing issues.

September Alert

Here’s a roundup of the latest tax news:

Individuals’ tax gap hits $8.7 billion

The Tax Office is likely to continue its current crackdown on work-related expenses and incorrect rental property expenses in light of its new research showing the income tax gap for individuals (not businesses) is $8.7 billion. This figure represents the difference between the amount of tax collected and the amount that would be collected if all 9.6 million salary and wage earners and taxpayers with investments were fully compliant with the law.

The estimated tax gap is primarily driven by incorrectly claimed work-related expenses, claims for private expenses, or no taxpayer records to show that an expense was incurred. Other areas of concern are incorrect claims for rental property expenses and non-reporting of cash wages.

In comparison, the net income tax gap for large corporates is currently estimated at only $2.5 billion.

Update to car expense rate

The cents per kilometre rate taxpayers can use for claiming car expense deductions during the 2018-19 financial year has been announced by the ATO, although taxpayers still have the choice of using either this method or the logbook method for claiming car expenses.

During 2018-19, the rate will be 68 cents per kilometre, up from 66 cents for the 2017-18 income year.

Taxpayers can claim a maximum of 5,000 business kilometres per car.

Couriers and cleaners under the spotlight

The ATO’s Black Economy Taskforce has several new industries in its sights announcing that from 1 July 2018 businesses supplying courier or cleaning services will need to report payments made to contractors. Payments must be reported to the ATO annually on their taxable payments annual report.

In a further crackdown on the black economy, new legislation will ban electronic sales suppression tools at each stage of the supply chain.

Cryptocurrency disposal a CGT event

Disposing of cryptocurrencies such as Bitcoin is a capital gains tax (CGT) event, according to new information published by the regulator.

While a ‘digital wallet’ can contain different types of cryptocurrencies, each cryptocurrency is a separate CGT asset. The ATO deems a disposal to have occurred when someone sells, gifts, trades or exchanges a cryptocurrency; converts cryptocurrency into fiat currency like Australian dollars; or uses cryptocurrency to obtain goods or services.

Small businesses offered audit review

Some Victorian and South Australian small businesses are currently being offered an opportunity to participate in a 12-month pilot scheme offering an independent review of the ATO’s audit position in relation to their tax affairs.

The independent review is conducted by an officer from the ATO’s Review and Dispute Resolution unit who has not been involved in the original audit and who can bring a fresh perspective to the case.

The pilot is limited to small business disputes involving income tax audits not related to GST, superannuation, fringe benefits tax, fraud and evasion findings, or penalties and interest. Eligible businesses with an audit in progress are being contacted directly by their case officer.

Changes to penalty relief

The ATO will no longer be applying a penalty to tax returns and activity statements where taxpayers have made an inadvertent error by failing to take reasonable care, or have not taken a reasonably arguable position.

Penalty relief applies to eligible individuals and entities with a turnover of less than $10 million, such as small businesses, SMSFs, strata title bodies, not-for-profits and co-operatives.

The ATO will provide penalty relief during the audit process if the taxpayer is eligible, but it will only be available once every three years at most.

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