Interposed companies used to avoid tax under review.
The ATO has issued Taxpayer Alert, The Alert addresses certain arrangements involving CGT roll-overs and Div 7A. In these arrangements, a company is interposed between a private company with retained profits (“first company”) and its shareholder, and a CGT rollover is applied to disregard the CGT consequences. The first company then pays a franked dividend to the interposed company, which uses the proceeds to fund a loan to the individual, on terms which do not comply with s 109N of the ITAA 1936.
The roll-over enables the shareholder to disregard for tax purposes the capital gain they make on disposal of their shares in the first company. The ATO states that the arrangements are structured so that Div 7A would not apply to treat the loan to the individual as an assessable dividend. That is because the interposition of the company and the subsequent dividend paid by the first company is to ensure that neither company has a distributable surplus for the purposes of Div 7A. As a result, the individual seeks to access, and purports to be able to access, the retained profits of the first company in a tax-free form. The Alert highlights the arrangement features that are “red flags”, stating that taxpayers and advisers who enter these types of arrangements will be subject to increased scrutiny.
New fixed-rate method to calculate WFH running expenses.
The ATO has overhauled its popular fixed rate method, which was a deduction of 52c per hour that allowed people to separately claim phone, internet, stationery and computer expenses and depreciation.
The new fixed rate – backdated to July 2022 – is 67c per hour, and now encompasses phone and internet usage, energy costs, stationery, and computer consumables, but not depreciation.
The ATO says transitional measures are in place: “From 1 July 2022 to 28 February 2023, we’ll accept a record which represents the total number of hours worked from home But from March 1, all hours worked from home must be recorded, it says.
Financial Planning
Financial advisers who can provide tax (financial) advice: ASIC register
ASIC has issued a reminder that its Financial Advisers Register (FAR) now publicly displays whether relevant providers can provide tax (financial) advice services. This information is displayed under the appointment details for each relevant provider (ie a person who is authorised to provide personal advice to retail clients about relevant financial products).
ASIC says it is the responsibility of AFS licensees to ensure that the information recorded on the FAR about their relevant providers is correct. If ASIC has not been notified about whether a relevant provider can provide tax (financial) advice services, the FAR will not display whether the relevant provider can provide tax (financial) advice services.
Superannuation
Pension transfer balance cap increase
The release of the CPI index number for December 2022 has confirmed that the superannuation “general transfer balance cap” will increase by $200,000 to $1.9m for 2023-24 (up from $1.7m for 2022-23).
If an individual starts to have their first retirement phase income stream on or after 1 July 2023 their lifetime personal transfer balance cap will be set at $1.9m. However, if an individual started to have a transfer balance account before 1 July 2021, they will have a personal transfer balance cap between $1.6m and $1.7m (which may be subject to proportional indexation on 1 July 2023 if they haven’t fully utilised their personal cap).
The “total superannuation balance” threshold for making non-concessional contributions (which is tied to the general transfer balance cap) will also increase to $1.9m for 2023-24 (up from $1.7m for 2022-23).
The “defined benefit income cap” will increase to $118,750 for 2023-24 (ie $1.9m divided by 16).
Super fund NALE rules: discussion paper
The Government has released a consultation paper on options to amend the non-arm’s length expense (NALE) provisions for superannuation funds to ensure they operate as intended.
The paper sets out potential policy changes to the non-arm’s length income (NALI) and NALE provisions in s 295-550 of the ITAA 1997, where they relate to general expenses which have a sufficient nexus to all income derived by the fund. While the Government believes the NALI rules are operating “broadly as intended”, it accepts that severe outcomes can result for some super funds in relation to general expenses.
For self-managed super funds (SMSFs) and small APRA funds, the paper proposes a factor-based approach whereby the maximum amount of fund income taxable as NALI at the highest marginal rate (45%) would be five times the level of the general expenditure breach. This would be calculated as the difference between the amount that would have been charged as an arm’s length expense and the amount that was actually charged to the fund. Where the product of five times the breach is greater than all fund income, all fund income will be taxed at the highest marginal rate. Large APRA-regulated funds are proposed to be exempted from the NALI provisions for general expenses.
Date of effect: The changes are proposed to apply from 1 July 2023, following the expiry of the ATO’s transitional compliance approach for general expenses (PCG 2020/5) for the period 2018-19 to 2022-23.
Comments are due by 21 February 2023.
Competency standards for approved SMSF auditors to sunset
ASIC has issued a media release proposing to allow class order [CO 12/1687] Competency Standards for Approved SMSF Auditors to sunset on 1 April 2023. The class order, made under s 128Q(1) of the SIS Act, sets out competency standards for approved SMSF auditors. ASIC considers that the class order is no longer necessary and relevant, given the SIS Act already requires all SMSF auditors to be registered with ASIC.
Submissions are due by 10 March 2023.
Source: IPA Australia
