MONTHLY TAX UPDATE – MAY 2018 

  • Foreign residents and main residence exemption

There are special capital gains tax (CGT) rules you need to know if you’re a foreign resident. These rules will impact you when you sell residential property in Australia.

In the 2017-18 Budget, the government announced that foreign residents will no longer be entitled to claim the main residence exemption when they sell property in Australia. This change is not yet law and is subject to parliamentary process.

If the law is passed and you are a foreign resident when a CGT event happens to your residential property in Australia, you may no longer be entitled to claim the main residence exemption. This will apply to you:

  • when you use the exemption as a reason for a variation to your foreign resident capital gains withholding rate
  • when you lodge your income tax return. You must declare any net capital gain in your income and you can claim a credit for the foreign resident withholding tax paid to ATO.

The change will apply to foreign residents as follows:

  • for property held prior to 7:30pm (AEST) on 9 May 2017, the exemption will only be able to be claimed for disposals that happen up until 30 June 2019 and only if they meet the requirements for the exemption. For disposals that happen from 1 July 2019 they will no longer be entitled to the exemption
  • for property acquired at or after 7:30pm (AEST) 9 May 2017, the exemption will no longer apply to disposals from that date.

This change will only apply if you are not an Australian resident at the time of the disposal (contract date).

If you weren’t an Australian resident for tax purposes while living in your property, you are unlikely to satisfy the current requirements for the main residence exemption.

If you are a foreign resident when you die, the changes will also apply to:

  • legal personal representatives, trustees and beneficiaries of deceased estates
  • surviving joint tenants
  • special disability trusts.
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  • Superannuation Guarantee Amnesty

On 24 May 2018, Minister for Revenue and Financial Services announced the commencement of a 12 month Superannuation Guarantee Amnesty (the Amnesty).

The Amnesty is a one-off opportunity for employers to self-correct past super guarantee (SG) non-compliance without penalty.

Subject to the passage of legislation, the Amnesty will be available from 24 May 2018 to 23 May 2019.

Employers who voluntarily disclose previously undeclared SG shortfalls during the Amnesty and before the commencement of an audit of their SG will:

  • not be liable for the administration component and penalties that may otherwise apply to late SG payments, and
  • be able to claim a deduction for catch-up payments made in the 12-month period.

Employers will still be required to pay all employee entitlements. This includes the unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge (GIC).

The Amnesty applies to previously undeclared SG shortfalls for any period from 1 July 1992 up to 31 March 2018.

The Amnesty does not apply to the period starting on 1 April 2018 or subsequent periods.

Employers who are not up-to-date with their SG payment obligations to their employees and who don’t come forward during the Amnesty may face higher penalties in the future.

Accessing the Amnesty is a simple process. If you are able to pay the full SG shortfall amount directly to your employees’ super fund or (funds), then complete a payment form and submit it to ATO electronically through the business portal or through a tax agent.

If you are unable to pay the full SG shortfall amount directly to your employees’ super fund or (funds), then complete and lodge a payment form and ATO will contact you to arrange a payment plan. If you chose to, you can start payment before ATO contact you. This will reduce the GIC you would otherwise have to pay.

For further information relating to the following, please contact ATO or your tax agent:

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  • GST at settlement

From 1 July 2018, purchasers of new residential premises or potential residential land will be required to withhold an amount from the price for the supply and pay that amount to ATO on or before settlement.

The property transactions impacted are taxable supplies (for example, sales and supplies by way of long term lease) of new residential premises or taxable supplies of potential residential land where the contract is entered into before on or after 1 July 2018.

To provide certainty to purchasers, a supplier (vendor, seller, etc) of residential premises or potential residential land must notify in writing whether a purchaser is required to withhold an amount. If the purchaser is required to withhold, the supplier must also notify the purchaser what that amount is and when it needs to be paid to ATO.

The general rule is that if the property sale contract specifies an amount that is the price of the supply (for example, the contract price) then the withholding amount is calculated on the contract price. However, there are some situations where the amount to be withheld must be calculated differently.

Table 1: When the amount to be withheld must be calculated differently

Situations where the amount to be withheld must be calculated differently Amount to be paid by the purchaser
The margin scheme applies to the supply 7% of the contract price or price
The supply is between associates and is without consideration, or is for consideration that is less than the GST inclusive market value of the supply 10% of the GST exclusive market value of the supply
There is a mixed supply, for example only partly a supply of new residential premises or potential residential land A reduced amount using a reasonable apportionment of the contract price or price multiplied by the applicable rate.
There are multiple purchasers (not joint tenants) 7% (margin scheme) or 1/11th of the contract price or price for their % interest in the property purchased

Note: When none of the circumstances in table 1 apply (that is, the general rule) then 1/11th of the contract price or price is the amount to be paid by the purchaser.

This law change does not affect the supplier’s obligation to lodge their Business activity statement (BAS) and report their GST liabilities or entitlements on taxable supplies of these types of properties.

Once the supplier lodges their BAS and it is processed, the supplier will receive a credit of the amount the purchaser withheld and paid to ATO.

The transfer of the legal title of the property following settlement of a sale is a matter for the parties to the sale contract. The changes do not require the withholding amount to be paid to ATO before a title transfer can be registered with the relevant State or Territory agency.

Purchasers do not need to register for GST just because they have a withholding requirement.

 

  • Work-related car expenses television grabs

The Australian Taxation Office (ATO) has announced that it will be closely examining claims for work-related car expenses this tax time and has released video content for television stations interested in covering the story.

The recordings feature Assistant Commissioner Kath Anderson speaking about what to be aware of this tax time.

 

 

Source: ATO website