Withholding certificate applications on the sale of property – trap where vendor has outstanding tax returns
With effect from 1 July 2017, for any real estate transactions of $750,000 or above, the vendor must provide to the purchaser, prior to settlement, a “clearance certificate” obtained from the ATO. Without this certificate the purchaser is required to withhold 12.5% of the sale price and pass this on to the ATO even if the property is not subject to capital gains tax (e.g. it is the vendor’s main residence).
The laws were introduced to overcome the problem of foreign residents selling real estate and avoiding their capital gains tax liabilities. However they also apply to Australian residents who dispose of Australian real estate.
If the certificate is not received by the date of settlement and tax of 12.5% has been deducted by the purchaser, the vendor would then need to wait until lodgement of their income tax return before they could recover the withheld amount.
Where the vendor has outstanding tax return lodgements, the certificate is subject to a manual review process instead of an automated one. A manual review will take longer to process.
If the sale has a short settlement period, this could be the difference between the purchaser having to withhold 12.5% of the purchase price or not.
AAT finds contractor was both a common law and section 12(3) employee for super purposes
The Administrative Appeals Tribunal (AAT) in Trustee for Kitchen Unit Trust v FCT [2023] AATA 2831, has found that a purported contractor engaged by the taxpayer was an 'employee' of the taxpayer for superannuation guarantee purposes, both within the ordinary/common law meaning of that term and the extended definition in section 12(3) of the Superannuation Guarantee (Administration) Act 1992.
Accordingly the Tribunal affirmed the objection decision under review that the taxpayer was liable for the superannuation guarantee charge in relation to payments made to the worker from 1 July 2007 to 31 December 2012. Significantly, there was no written contract between the taxpayer and the worker. This required the Tribunal to ascertain the terms of their agreement based on the relevant facts. Based on the Tribunal's assessment of the evidence (noting that many of the relevant facts were in dispute), some of the reasons for its decision included that:
- the worker was given payslips by the taxpayer, which recorded an hourly rate and an annual salary;
- payments from the taxpayer into the worker's bank account included descriptions such as 'salary' and 'wages';
- the inability of the worker to delegate the performance of the relevant services; and
- the fact that the worker was subject to a high level of control from the taxpayer and intended to work within its business.
- The person engaged in this case would almost certainly also be an employee for income tax, payroll tax and workcover purposes, therefore exposing the employer to additional tax, interest and penalties on top of the additional superannuation liability.
This is a timely reminder of the broad meaning of ‘employee’ and the ongoing risk that a business could be liable to pay superannuation (and other on-costs) for individuals they consider to be contractors.
Deduction for personal super contributions denied as notice requirements not met
Taxpayers who wish to claim a personal tax deduction for concessional super contributions must provide a Notice of Intent to their superannuation fund.
The tax rules require taxpayers to provide this Notice on or before whichever of the following days occurs earliest:
- the day the taxpayer lodges their tax return for the year in which the contributions were made.
- the last day of the income year after the income year in which the contributions were made.
The Administrative Appeals Tribunal (AAT) in Nicholls v FCT [2023] AATA 2772, has denied $6,000 in personal superannuation contributions claimed by a taxpayer in the 2020-2021 income year, on the basis that the taxpayer had not complied with the notice requirements in section 290-170 of the ITAA 1997 before lodging his income tax return.
This case demonstrates the strictness of the notice requirements that must be complied with to claim a deduction for personal superannuation contributions.
Amendments to revised fixed rate for claiming working from home deductions
On 16 February 2023, the ATO released PCG 2023/1 which sets out a practical way for taxpayers to claim working from home (WFH) deductions. Broadly, if the taxpayer wants to use the method, the number of hours worked from home is multiplied by 67 cents to determine the amount claimed.
The 67 cents per hour deduction covers the following expenses that have been incurred and not reimbursed:
- energy expenses (electricity and gas) for lighting, heating, cooling and to run electronic items used for work;
- internet expenses;
- mobile and home phone expenses; and
- stationery consumables; and
- computer consumables.
An unclear part of the PCG was whether a taxpayer must incur all of these types of expenses in order to use the revised fixed rate method. That is, could you, for example, incur only energy expenses and then claim the full 67 cents per hour? Is the availability of the 67 cents per hour method predicated on the basis that a taxpayer incurs all five types of expenditure listed above?
A minor amendment has been made to paragraph 49 of PCG 2023/1 to make it clear that a taxpayer needs to only incur one of the above types of expenditure to use the the revised fixed rate method.
In addition, if an employer reimburses an employee for some, but not all of the five types of expenses, the employee can still claim the 67 cent rate method for the unreimbursed expenditure. Paragraph 50 of the PCG has been amended to make this clear.
Tax tips for sole traders
The ATO published a document on their website that indicates that sole traders are continuing to make mistakes in respect of:
- omitting income such as salary or wages earned outside of their business. Including non-monetary payments or payments in kind;
- incorrectly claiming expenses, for example, claiming for the portion of an expense related to personal use or overstating the cost of goods sold and other business expenses;
- incorrectly calculating business losses;
- incorrectly applying non-commercial loss rules to offset the loss against other income;
- incorrectly claiming PAYG withholding refunds; and
- incorrectly reporting or failing to report personal services income (PSI).
The ATO reminds sole traders of the small business tax time toolkit which can assist them to avoid making these mistakes.
