Latest in the World of Small Business and Tax (August 2019)

In case you missed them, here is a quick recap of some note worth events in the worlds of small business and tax over the past couple weeks…

Westpac Successfully Defends Against ASIC Legal Action

Earlier this month Justice Nye Perram dismissed ASIC’s case against the Westpac Banking Corporation regarding the use a living expense benchmark when assessing a borrower’s ability to afford a loan.

From our perspective this is an outstanding, logical and common sense outcome and Justice Perram should be applauded for taking the pragmatic approach (Justice Hayne, of the Banking Royal Commission, could take some cues from this judgement).

The ruling recognises that to a large extent what a borrower has previously spent their money on is irrelevant when assessing their ability to meet their obligations under a new loan they may take out.  Because common sense dictates that so long as they are a responsible individual who intends to repay any loan made to them (as we would assume 99.9% of loan applicants are) then they can and will adjust their spending patterns as required to meet their commitments.

Quoting Justice Perram…

I may eat Wagyu beef every day washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare.

The result means the banks can pull back a little on the bureaucracy and conservatism when assessing loans.

This will greatly improve the lending environment for those deserving of a loan. And it means one step back towards borrowers taking personal responsibility for their actions.

This is in contrast to the trend created by the Royal Commission whereby borrowers were more and more considered incapable of managing their own affairs and instead it was increasingly becoming the job of the banks to decide whether they were capable of meeting their obligations or not!

 

Accept “Cashies” at your Peril

The ATO has recently announced it has been receiving an ever increasing number of tip-offs from the Australian community about tax evasion via unreported income (what are generally referred to as ‘cashies’)!

In fact the number of tip-offs is nearly double the same time last year!

While we sympathize with anyone keen to maximise their take home pay by offering to accept unreported cash for work they perform.  At the end of the day unreported income puts other businesses, who are doing the right thing, at a disadvantage.  And as can be seen from these tip-off numbers, the majority of Australians now recognise this and are keen to see everyone playing by the rules!

 

Property Owned by Trust NOT Eligible for Main Residence Exemption

The outcome in Mingos v Commissioner of Taxation [2019] FCA 834 is not really surprising, and we would generally steer clear of such a structure if the main residence exemption was important to a Client.

However we have been reminded by the finding in this case that where you place your family home into a Trust, when you eventually sell, it is virtually impossible to claim the main residence exemption on the property.

This means, despite the fact that generally family homes are free from tax when sold, if the family home is owned by a Trust, you should fully expect capital gains tax to apply!

 

Disqualification from Acting as Trustee of a Self-Managed Super Fund (“SMSF”) (But that was just the beginning…)

The Administrative Appeals Tribunal (“AAT”) has ruled an individual who was involved in a number of breaches related to his super fund is now disqualified from acting as the Trustee.

A number of contraventions had occurred, including lending SMSF money to related parties (including himself) which is a very clear breach of the SIS Act.

But to make matters worse, it was ruled the individual would have an additional $122,000 added to his taxable income as a result of the breaches, plus shortfall interest charges were imposed!

 

Reminder Regarding the Instant Asset Write-Off

As you may be aware, the original small business instant asset write-off threshold was due to revert back from $20,000 to $1,000 effective 1 July 2019.  However, the Government announced on 29 January 2019 that it would extend the concession for another year and increase the threshold from $20,000 to $25,000.

Then in the lead up to the Election, the Government announced a further increase of the threshold from $25,000 to $30,000 effective from 7.30 pm AEDT on 2 April 2019.

The increased threshold was also expanded temporarily to medium-sized businesses (e.g. businesses with an aggregated turnover of less than $50 million).

All of the announced changes have since become law.

Therefore, for your 2019 income tax return, there are potentially three (3) thresholds applying in just the one income year!

And it is important to know, that as the law currently stands, we are in the final 11 months of the concessional instant asset write-off period, with the law reverting back to the old threshold of just $1,000 effective 1 July 2020 (assuming there are no further changes in law).

The relevant cost and turnover thresholds are as follows –

P.S. We created a video about the Instant Asset Write-off which you can view here $20,000 Instant Asset Write-off.  While obviously the thresholds, and likely dates, have changed since then, the general advice about how to qualify, and whether you should try to, is still very relevant!