ATO increases interest charges
The ATO has increased both its general interest charge (GIC) rate and shortfall interest charge (SIC) rate for the next quarter, increasing both by more than 1 per cent.
The GIC rate rises from 8 per cent in the July to September quarter to 9.31 per cent for October-December, while the SIC increases to 5.31 per cent, up from 4.00 per cent.
Both ATO charges are now at their highest levels since the second quarter of 2015, when the GIC rate was 9.36 per cent and the SIC rate was 5.36 per cent.
The GIC rate applies to late or unpaid tax liabilities or excessive shortfalls in incorrectly varied or estimated income tax instalments. The SIC rate applies when a tax return is amended and the tax liability increases resulting in a tax shortfall. Interest charged by the ATO is tax deductible in the year incurred.
Exposure draft legislation - skills and training deduction boost
The government has released exposure draft legislation providing for a 20% bonus deduction to small and medium businesses on eligible external training expenditure for employees. Businesses with aggregated annual turnover of less than $50 million may be eligible where expenditure is incurred on external training for employees of the business. The additional deduction will not apply for training non-employee business owners (including sole traders and partners in a partnership) and independent contractors.
The following criteria must be met for the bonus deduction to be claimable:
the external training expenditure must be charged (directly or indirectly) by a registered training provider and be for training within the scope of its registration (if applicable);
the registered training provider or an associate must not be the entity claiming the bonus deduction; and
the relevant expenditure must already be tax deductible.
Furthermore it is proposed that the bonus deduction will only apply to expenditure:
incurred from 7.30PM AEDT on 29 March 2022 until 30 June 2024; and
where the enrolment or arrangement relevant to the provision of the training occurs at or after 7.30PM AEDT on 29 March 2022.
Exposure draft legislation - technology investment deduction boost
The government has released exposure draft legislation providing for a 20% bonus deduction to small and medium businesses on eligible expenditure supporting digital adoption. Businesses with aggregated annual turnover of less than $50 million may be eligible where the expenditure has a direct link to an entity’s digital business operations.
Examples of eligible expenditure may include, but will not be limited to, amounts spent on:
digital enabling items (such as hardware, software or systems and services that form and facilitate the use of computer networks);
digital media and marketing; and
e-commerce.
It is proposed that the bonus deduction will:
only apply to expenditure incurred from 7.30PM AEDT on 29 March 2022 until 30 June 2023; and
be capped at $20k per year.
Updating CGT small business concessions
In its pre-budget submission, the SMSF Association has called on the government to update some of the small business capital gains tax (CGT) concessions to support retirement planning for small business owners.
The below qualifying thresholds for the small business CGT concessions are not subject to indexation and have not been reviewed for some time: - $6m maximum net asset value test threshold, and the $2m threshold for the aggregate turnover test have not changed since 2007. - The retirement exemption contributions cap is fixed at $500,000 and has not been reviewed or updated since its introduction in 1999. The Association noted that the superannuation contributions cap under the 15-year exemption is indexed on an annual basis, increasing from $1m since inception in 2007/08, to $1.65m for the 2022/23 year. Given that the retirement contribution cap was 50% of the lifetime CGT cap amount when the CGT cap amount was first introduced, the Association says that the retirement contribution cap should be increased to $825,000 for the 2022/23 year.
Using family trusts in a business structure
Family trusts are complex and harder to understand than a simple company structure. Note also recent communications from the ATO concerning the payment of distributions from family trusts.
However the added flexibility offered by a family trust can make it worthwhile.
Two of the more common methods for utilising a family trust in carrying on a business are:
Family trust carrying on a business - The simplest approach is for a family trust to carry on a business, which provides similar asset protection to trading through a private company as any debts and business risks are separated from the family members, and assets owned by the family, such as their home and other passive investments, can be protected from claims by creditors of the business. The main advantage offered by a family trust is a high degree of flexibility compared to a company that has its shares owned by one or more individuals, as the trustee can make decisions each year on a discretionary basis as to how the net profit of the business should be allocated among different family members or related entities falling within the class of eligible beneficiaries. Companies can be used as beneficiaries and may be entitled to a 25% tax rate. However there are strict rules on how this situation is managed which require the funds to be either paid to the company or “loaned back” on standard seven-year principal and interest terms (the interest on the loan should be tax deductible to the trust). It is also important to note the nature of a discretionary trust means this structure works best for a business controlled by a single family and is unlikely to suit two or more unrelated families carrying on business together, although this is sometimes addressed by the less common structure of trading through a partnership of different discretionary trusts.
Family trust owning shares in a company carrying on a business - A more sophisticated approach to business structuring is to have a company carrying on a business where all the shares are owned by a family discretionary trust. This structure has all the simplicity of a regular operating company, which is readily understood by all involved including the business owners, family members, customers, suppliers, lenders, and potential future purchasers. It also allows profits to be retained by the company to fund working capital and/or to help grow the business and only paid out as dividends, usually fully franked to the trust, when funds are required by the family for their own purposes. When dividends are paid, this will represent income for the trust in the year of the dividend, which will then be allocated to various trust beneficiaries on a discretionary basis.
SMSF trustee disqualified
The recent Administrative Appeals Tribunal (AAT) decision in Goulopoulos and Commissioner of Taxation [2022] AATA 2540, concerned an individual who was disqualified from being a director of a corporate trustee of a SMSF following a number of serious contraventions of the Superannuation Industry (Supervision) Act 1993 (SIS Act):
Breach of prescribed operating standards (section 34);
Failure of the requirement to lodge annual returns (section 35D);
Breach of sole purpose test (section 62);
Lending to members (section 65);
Contravention for acquisition of certain assets from members (section 66);
Contravention for borrowing (section 67);
Breach of in-house asset rules (section 84); and
Requirement that investments are on arm's length basis (section 109).
The AAT confirmed that the trustee demonstrated 'that he preferred to take actions that suited his own convenience and comfort, rather than doing what he understood was right'.
Whilst the trustee had expressed some remorse or contrition for what occurred, this appeared to be in relation to the fact of disqualification, as opposed to any acceptance of the wrongfulness of the conduct.
Although the trustee offered to undertake a trustee education course with an eligible provider, to provide an enforceable undertaking to stop the behaviour that led to the contraventions, and put in place strategies to prevent contraventions again, the AAT was not satisfied that they would mitigate the risk of future contraventions.
Disclaimer
This information is provided solely for general information purposes and is not intended as professional advice. Readers should not act on the information contained therein without proper advice from a suitably qualified professional.
We expressly disclaim all liability for any loss or damage to any person or organisation for the consequences of anything done or omitted to be done by any such person relying on the contents of this information.
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