Paying reasonable travel allowances to employees
The ATO has recently issued Tax Determination TD 2024/3 which sets out the reasonable allowances for the 2024/25 year for overtime meals, domestic and overseas travel paid to employees, company directors or office holders.
The reasonable allowance for overtime meals is $37.65, while the reasonable allowances for domestic and overseas travel is set out in various tables in the Determination.
Where the amount paid falls within the relevant reasonable allowance, the person is not required to substantiate the expenses. However, the ATO still requires some written records be kept to show how the allowance was expended.
Note any expenditure on accommodation overseas must be fully substantiated.
Taxpayers found to have undisclosed business income
The recent dministrative Appeals Tribunal decision in YNVP and Commissioner of Taxation [2024] AATA 2588 relates to amended assessments issued for the 2008-2015 years which arose from an audit of the relevant taxpayers' affairs in 2016.
The amended assessments related to income from business activities carried on by the taxpayers, a sushi business, which the Commissioner determined had omitted cash-based income. Issues were raised as to:
- the completeness of the sales records, 'no sale' transactions which allowed the cash drawer to open without sales being recorded;
- the use of cash by the taxpayers (e.g. cash deposits exceeding $10,000 being made in two deposits of $10,000 on the same day);
- purported gifts by family & friends; and
- bank loan applications disclosing income significantly greater than what was disclosed in the tax returns.
Whilst the Tribunal was not able to formulate what the applicant's income was, the Tribunal did conclude the intentional nondisclosure of income and attempts to cover it up constituted fraud or evasion. Family members who the applicants claimed had made loans or gifts, declined to give evidence, the Tribunal concluding the evidence would not be helpful to the applicant's case.
Of particular interest in this case is the involvement of the tax agent, who the Tribunal recommended be referred to the Tax Practitioners Board. In the 2016 interview, which was recorded, the applicant's tax agent gave advice to the taxpayers in Cantonese to give false or misleading answers to the ATO's questions. This represents a serious breach of the Code of Conduct if proven.
This case is a timely reminder of the consequences for both taxpayers and their tax advisors who engage in fraud or evasion.
ATO’s renewed focus on CGT main residence exemption
The ATO are reporting issues with taxpayers incorrectly claiming the main residence exemption on sale of their family home. To ensure tax returns are completed correctly, the ATO has provided some tips relating to the main residence exemption including:
- have taxpayers started earning income from their home? If so, they may need to get a market valuation for CGT purposes.
- have they rented out a property that was their main residence? If so, they should consider the 6 year absence rule.
- Tax agents should not ignore prompts in their software advising that a client has transferred property. Details of property transfers are available in Online services for agents.
- Taxpayers can only have one property as their main residence at a time. The only exception is the 6-month period when they move from one home to another.
- If there is a change in the taxpayer’s Australian tax residency during the year, the CGT implications of this change needs to be considered.
It’s important that taxpayers record all income correctly, including capital gains or losses on sale of their main residence.
Employee Vs contractor update
The issue of whether a person is an employee or contractor for tax and superannuation purposes continues to be a significant area of focus by the ATO. An ATO ruling outlining the key considerations was recently updated with an appendix regarding the extended meaning of employee which applies to some contractors.
Recently amended Taxation Ruling TR 2023/4DC1 was released with an added draft appendix on the extended definition of an ‘employee’ for superannuation guarantee purposes. Whilst this is not a significant deviation from the original guidance on this issue, this clarification from the ATO shows the increased level of focus on this issue as demonstrated by the number of Director Penalty Notices being issued.
Whilst the first part of the ruling deals with the meaning of ‘employee’ for common law purposes, being relevant for PAYG withholding, fringe benefits tax and superannuation guarantee purposes, the new appendix deals only with the extended meaning of employee for superannuation guarantee purposes.
The draft appendix outlines in some detail, the conditions below that must be met for “individuals” to be considered employees under the extended definition relating to contracts wholly or principally for labour. Note there will generally be no employment arrangement where a Pty Ltd company is engaged unless the contract is a sham.
1. There must be a contract
The ruling confirms that the criteria can still be met where there are more than two parties to a contract.
2. The person must work under that contract
This requires the contract to name a natural person who will deliver the services personally.
3. The contract must be wholly or principally for the labour of a person
This means the worker must deliver the services themselves and cannot delegate or sub-contract delivery of the services if they are to be considered an employee under this provision. It is the right to delegate and not whether it is exercised that is important. Such services can include mental and artistic effort, as well as physical exertion.
The contract must be for labour, rather than provision of a result. Payment would typically be with reference to time worked rather than a fixed sum on completion.
A rate of pay based on the number of times a certain activity is completed (for example, exams marked, deliveries made, etc.) would usually be considered a contract for labour, particularly where:
- the rate of pay per activity is determined with reference to time; and
- the activities are the worker’s only tasks, it is easier to calculate the remuneration on that basis and the purpose of the payment method is to increase productivity.
To be considered an employee, the contract must be “principally” for the provision of labour and not some other benefit, such as equipment, with ‘principally’ meaning mainly.
Proposal to extend amendment period from 2 to 4 years for small to medium businesses
Treasury has released draft legislation which will extend the period that small and medium businesses have to self-amend returns from two to four years.
The legislation will amend the Tax Act to provide small and medium business entities up to four years after the Commissioner has given a notice of an assessment to apply to have the assessment amended.
Under the existing legislation, the standard limitation period in which the Commission can amend an assessment of a small and medium business entity is two years.
Treasury said the change "will reduce the administrative costs of amendments on small and medium businesses by delaying their engagement with the burdensome amendment process currently required when the existing 2-year self-amendment period expires".
Under the proposed provisions, the Commissioner may only amend assessments to give effect to a decision in relation to the taxpayer's application.
The provisions do not permit the Commissioner to amend the assessment about other particulars that are not included in the taxpayer's application.
