PRACTICE UPDATE | SEPTEMBER 2019
"Outrageous" deductions rejected
The ATO has published some of the most unusualclaims that they disallowed last financial year.
Nearly 700,000 taxpayers claimed almost $2 billion of ‘other’ expenses, but theATO's systematic review of claims had found, and disallowed, some very unusual expenses, including:
claims for Lego sets bought as gifts for children, and sporting equipment or membership fees for their child athletes;
claims for dental expenses ("believing anice smile was essential to finding a job");
some taxpayers tried to claim the purchase of a brand new car (in excessof $20,000 each!), with one "particularlycharitable" taxpayer trying to claim for a car purchased as a gift for their mother;
one taxpayer made a claim for "the cost of raising twins", while another claimed for the "cost of raising three children" (and another taxpayer was obviously shocked at the cost of having children, simply stating "New born baby expensive" whenmaking their claim);
other taxpayers claimed child support payments, private school fees, school uniforms, before school care and other school expenses, as well as health insurance costs and medical expenses; and
one taxpayer decided to claim the cost oftheir wedding reception.
The ‘other’ deductions section of the tax return is for expenses incurred in earning income that don’t appear elsewhere on the return — such as incomeprotection and sickness insurance premiums.
The ATO is reminding taxpayers that, in order to claim an ‘other’ deduction, the expenses must be directly related to earning income and they needto have a receipt or record of the expense.
ATO guidance regarding incorrect ENCC determinations
The ATO has acknowledged that an incorrectexcess non-concessional contribution ('ENCC')determination may issue due to a known system issue with the calculation of some SMSF member’stotal super balance ('TSB').
Editor: Recent super reforms have meant that individuals are restricted from making non- concessional contributions where their TSB equals or exceeds $1.6 million.
This is due to an individual’s pension being incorrectly 'double counted' in the calculation of their TSB (which may have occurred where the individual commenced a pension on 30 June 2017 and/or 1 July 2017).
If an incorrect ENCC determination does issue, the ATO advises that there is no need for the SMSF to amend its reporting — an amended determinationshould issue within 4 weeks.
Editor: If you get one of these, please contact ouroffice and we'll help sort it out.
Please read this updateand contact this officeif you have any queries
ATO watching for foreign income this Tax Time
The ATO is urging taxpayers who receive any foreign income from investments, family members or working overseas to make sure they report itthis tax time.
New international data sharing agreements allow the ATO to track money across borders and identifyindividuals not meeting their obligations.
“This year, the ATO has received records relating to more than 1.6 million off-shore accounts holding over $100 billion and is now using data-matching and sophisticated analytics to identify foreign income that has not been reported,” AssistantCommissioner Karen Foat said.
The ATO has shared data on financial accountinformation of foreign tax residents with over 65foreign tax jurisdictions across the globe, includinginformation on account holders, balances, interest and dividend payments, proceeds from the sale ofassets, and other income.
In addition to a small number of individuals deliberately engaging in tax avoidance, the ATO is concerned about a large number that are unsureof how to meet their obligations.
“If you're an Australian resident for tax purposes,you are taxed on your worldwide income, so you must declare all of your foreign income no matter how small the amount may be. This may include income from offshore investments, employment, pensions, business and consulting, or capital gains on overseas assets,” Ms Foat said.
"Even if you have paid tax on the overseas income it must be reported to the ATO, however you may be able to claim a foreign income tax offset to account for any foreign tax paid.”
The ATO hits the road
The ATO plans to visit almost 10,000 businessesthis financial year in all States and Territories, acrossa variety of industries, as part of their strategy to deal with the black economy (they visited nearly9,000 businesses in the 2018/19 financial year).
According to Assistant Commissioner Peter Holt, there are a number of businesses in some areas not registered for GST or PAYG withholding, which can be a sign of the black economy, as well as anumber of businesses with overdue tax returns.
Other black economy signs that the ATO looks out for are things like lifestyle and assets far exceeding reported business income, sham contracting, a failure to provide pay slips, reports that employers are paying their workers cash in hand and keeping them off the books, or a lack of merchant paymentfacilities like EFTPOS.
Some businesses are more likely than others to get a visit from the ATO, including:
Residential building construction;
Building completion and installation services, and other construction services;
Building cleaning, pest control, and gardening services;
Pharmaceutical and other store-based retailing;
Automotive repair and maintenance;
Cafes, restaurants, and takeaway food services;
Personal care services;
Legal and accounting services;
Computer system design and related services; and
Adult, community and other education services
Motor vehicle registries data matching program protocol
The ATO will match the data provided by the State and Territory motor vehicle registering authorities against the ATO’s taxpayer records with theobjective of identifying those who may not bemeeting their registration, reporting, lodgment andpayment obligations.
Details will be requested where records indicate a vehicle has been transferred or newly registeredduring the 2016/17, 2017/18 and 2018/19 financialyears where the purchase price or market value is equal to or exceeds $10,000 (approximately 2million transactional records a year).
This data will allow compliance checks on luxury car tax, FBT and fuel schemes, as well as identifying higher risk taxpayers with outstanding taxation lodgments, and those with undeclared income orconcealing the real accumulation of wealth.