Claiming car expenses in the right entity
In a recent Administrative Appeals Tribunal (AAT) case, the Tribunal rejected many of the tax deductions claimed by a real estate agent, including expenses for a car owned by his company.
Though the taxpayer claimed that he had personally paid for the expenses, the Tribunal noted that section 28.90 of the Income Tax Assessment Act 1997 had not been met because he did not hold the car, rather the taxpayer’s company held the car. Accordingly, the expenses were not deductible to the taxpayer.
The Tribunal also noted that the taxpayer’s logbook lacked sufficient specificity and that he did not have any receipts to substantiate fuel expenses. Accordingly the taxpayer failed to meet the substantiation requirements anyway.
This case highlights the fact that taxpayers can only claim deductions for expenses that were “incurred” by them and not someone else. Also its important that the substantiation requirements have been met.
ATO warns businesses over late TBARs
The ATO has warned businesses that pay contractors to provide certain services to lodge their taxable payments annual report (TPAR) for 2023. The TPAR is used to report payments made to contractors or subcontractors during the financial year and is due on 28 August each year.
From 22 March 2024, the ATO will apply penalties to businesses that haven’t lodged their TPAR from 2023 or previous years or have received three reminder letters about their overdue TPAR. Last year the ATO issued approximately $18m in penalties to more than 11,000 businesses.
A business is required to lodge an annual TPAR for payments made to contractors providing services including building and construction, cleaning, courier and road freight, information technology (IT), security and investigation or surveillance.
Businesses that have not made any reportable payments during the year can submit a non-lodgement (NLA) form. Where these businesses no longer pay contractors, they can also use this form to indicate that they won’t need to lodge a TPAR in the future.
The TBAR can be lodged electronically by completing an interactive online form in online services for businesses, or a tax agent can lodge the form electronically on behalf of the business.
ATO hires external debt collection agency
From 29 January 2024 the ATO’s external debt collection agency (recoveriescorp) will be actioning tax debt cases the ATO has referred to them. This will apply to taxpayers who haven’t responded to previous ATO contact attempts or their pre-referral warning letter and are not engaging on debt repayment. Contact methods include email, SMS, phone call and letters. If a tax agent or their clients are contacted by recoveriescorp, they can verify the contact by calling them directly on 1300 352 593 for tax agents or 1300 323 495 for taxpayers.
The ATO can also report businesses with tax debts of at least $100,000 to credit reporting agencies where the debt is overdue by more than 90 days.
The best strategy to avoid these actions is for taxpayers to engage with the ATO on a timely basis to manage their tax debts.
Government announces increase to the super contribution caps
From 1 July 2024, the standard concessional contribution cap will increase from $27,500 to $30,000 and the non-concessional contribution cap which is expressed as four times the standard concessional contribution cap will also increase from $110,000 to $120,000.
This also means that the maximum available, under the non-concessional contribution bring-forward provisions, will increase from $330,000 to $360,000.
Additionally, from 1 July 2024, the Total Superannuation Balance thresholds used to determine the maximum amount of bring-forward non-concessional contributions available to an individual will also be adjusted.
Cost base reduction for capital works deductions
As a general rule, where a property was purchased after 7.30 pm on 13 May 1997 the cost base for capital gains tax purposes (CGT) is reduced by any capital works deductions (usually at 2.5% per annum) that have been claimed on the property. This write-off is based on construction costs that were incurred in relation to the property and any capital improvements subsequently made to the property.
This cost base reduction usually increases the amount of any capital gain made when the asset is sold and the CGT payable.
The cost base reduction applies where the taxpayer was “entitled” to claim the capital works deductions - whether they made the claim or not.
However, the ATO provides some administrative relief in Practice Statement PS LA 2006/1 (GA), which outlines when a taxpayer is NOT required to reduce an asset's cost base. This will be the case where the taxpayer:
- does not have sufficient information to determine the amount and nature of the construction expenditure for the asset (e.g. does not have a quantity surveyor report); and
- does not seek to claim a deduction for any amount of that expenditure.
ATO considers delaying GST refunds due to fraudulent BAS lodgements
The ATO is considering extending the time it takes to process GST refunds in an effort to stamp out fraudulent claims. This is in response to widespread schemes that rorted around $2 billion between 2022 and 2023. Currently the ATO usually has a 14 day turnaround time for issuing GST refunds.
The Australian National Audit Office released a report on Tuesday 13 February 2024 that said the lack of a “contemporary and holistic view of GST fraud risks” and insufficient detection systems meant the ATO played catch up through Operation Protego as more than 57,000 people, including some 150 ATO workers, participated in the infamous "TikTok" GST scams.
Should the ATO delay the payment of GST refunds, this will have a major impact on the cash flow of already struggling small businesses.
