ATO crackdown on family trusts and GST fraud

With attempted GST fraud on the rise and certain family trust payments under a cloud, the tax regulator is stepping up scrutiny of more transactions.

Here’s a roundup of some of the latest developments in the world of tax.

GST fraud warning

The Australian Taxation Office (ATO) has issued a strong warning to taxpayers not to engage in GST fraud and for current participants to come forward before it takes tougher action, such as imposing tax penalties and seeking criminal charges.

Using sophisticated risk models and intelligence from the banks, AUSTRAC and the Reserve Bank, the ATO has identified a significant fraud involving fake businesses claiming false GST refunds through fictitious activity statements. The average fraudulent amount being claimed is $20,000.

The ATO is aware information on how to attempt the fraud is being shared via social media and has reminded taxpayers they are not anonymous online, with around 40,000 scheme participants already identified.

New rules on family trusts

Taxpayers with family trusts need to check the implications of a new ATO draft guidance package on the taxation of family trust payments that could reduce the attractiveness of these tax structures.

Under its new approach in this area, the ATO will focus on common tax planning strategies relying on the section 100A exclusion covering distributions to companies and family members. The draft ruling clamps down on the use of agreements involving ‘ordinary family or commercial dealing’, making the section 100A exemption unavailable in some situations.

Although parts of the package are draft guidance, taxpayers with a discretionary trust should consider its implications prior to 30 June 2022, particularly where there are parent controllers of the trust and adult child beneficiaries.

SG contribution deadline approaching

Employers planning to claim a tax deduction in their 2021-22 tax return for Super Guarantee (SG) contributions made on behalf of their employees need to ensure their contributions are received by the employee’s super fund prior to 30 June 2022 to be eligible for the deduction.

Your payroll system also needs to be updated to accommodate the 1 July 2022 increase in the SG contribution rate to 10.5 per cent and removal of the existing $450 a month minimum threshold for employees to qualify for SG contributions.

Disclosure of business tax debts

The ATO is currently writing to businesses with tax debts to warn them their liabilities may be disclosed to credit reporting bureaus (CRBs) under the Disclosure of Business tax debts measures.

Disclosure to CRBs can be avoided by engaging with the tax office and making full payment or negotiating a payment plan.

Deductions available for work-related COVID-19 tests

Taxpayers have another tax deduction they can claim in their annual returns after legislation covering the deductibility of COVID-19 testing costs received Royal Assent prior to Parliament rising for the Federal Election.

Expenses incurred by individuals from 1 July 2021 in relation to work-related COVID-19 testing can be claimed as a tax deduction, provided you can substantiate the expenditure.

Employers are also exempt from paying FBT where they pay for or reimburse work-related COVID-19 testing costs for employees.

Lower tax instalments in 2022–23

The GDP ‘uplift’ rate used to calculate both pay-as-you-go (PAYG) and GST instalments has been announced for the 2022-23 financial year. The new rate applies to instalments due after 31 March 2022.

The new rate is only two per cent (which is lower than the 10 per cent rate applying under the statutory formula), providing valuable additional cash flow to small and medium businesses, sole traders and individuals with passive income. If a business’ earnings exceed the amount calculated, it would then need to pay the extra tax owed at the end of the financial year.

While businesses will still be able to manually set instalments with the ATO, the new PAYG formula is reportedly designed to avoid penalties arising from underpayments.

Attracting ATO attention

New information has been issued on the behaviours, characteristics and tax issues of privately owned and wealthy groups that attract the ATO’s attention.

It is interested in entities with a tax or economic performance not comparable to similar businesses; low transparency when it comes to their tax affairs; and large, one-off or unusual transactions, including wealth transfers. Aggressive tax planning and outcomes inconsistent with the intent of tax law also interest the ATO.

 

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