Accountants and the tax profession will find plenty of measures in the fine print of the 2018 Federal Budget papers that will affect individuals and business clients.
There is extra funding for the Australian Taxation Office (ATO) to investigate claims by individuals and their tax agents, and changes that may impact partnership structures of professional firms.
Practitioners will have to await draft legislation to better understand how many of these changes will actually impact taxpayers.
Treasurer Scott Morrison has listed many as measures to improve the integrity of the tax system. Here are five of them:
Effective immediately, people in partnerships who use income splitting arrangements commonly known as Everett Assignments will lose access to small business capital gains tax (CGT) concessions.
The ATO had flagged concerns about partners alienating income by assigning rights to future income.
Listen to the podcast:
The winners, the losers and the missed opportunities of the third Turnbull/Morrison Budget.
Partners who split income could fall under the threshold for the small business CGT concessions that otherwise might not apply. The concessions are intended to help small business owners who sell business assets but the budget papers say “some taxpayers, including large partnerships, are able to inappropriately access these concessions in relation to their assignment of a right to the future income of a partnership to an entity, without giving that entity any role in the partnership”.
The concessions will continue to be available to eligible small businesses with an aggregated annual turnover of less than A$2 million or net assets of less than A$6 million.
Celebrities licensing their fame or image
From 1 July 2019, high-profile individuals will no longer able to take advantage of lower tax rates by licensing their fame or image to another entity.
People such as sports stars and actors can currently license their fame or image to a related company or trust. Income for the use of their fame or image then goes to the entity that holds the licence, creating opportunities to take advantage of different tax treatments.
Image counts for plenty as sports starts score tax goal
This measure will ensure that all remuneration, including payments and non-cash benefits provided for the commercial exploitation of a person’s fame or image will be included in the individual’s assessable income.
Denying deductions for vacant land
From July 1 2019, property owners will no longer be able to claim a tax deduction for expenses associated with holding vacant land, which means they won’t be able to claim interest costs.
This is designed to stop land banking.
The change will apply to land held for residential or commercial purposes although the “carrying on a business” test would generally exclude land held for commercial development.
Denied deductions will not be able to be carried forward for use in later income years but expenses for denied deductions such as interest costs and council rates may be included in the cost base of the asset for CGT purposes when it is sold.
This measure will not apply to expenses associated with holding land that are incurred after a property has been constructed on the land, it has received approval to be occupied and is available for rent, or if the landowner is using the land to carry on a business, including primary production.
Extra funding to tackle taxpayers and tax agents
The ATO will get an extra A$130.8 million from 1 July 2018 to increase compliance activities targeting individual taxpayers and their tax agents.
The budget papers say the ATO has identified a number of significant compliance issues for individual taxpayers, resulting in a significant loss of revenue each year.
Real Budget story in the detail, says CPA Australia
The funding will extend the life of four income-matching programs that would have ended in July 2018 to allow the ATO to detect incorrect reporting of income, such as foreign source income of high wealth individuals.
It will enable additional audits and prosecutions, education and guidance materials, pre-filling of income tax returns and improving real-time messaging to tax agents and individuals to deter over-claiming of entitlements, such as deductions by higher risk taxpayers and their agents.
Senior tax officials have previously said the ATO is concerned about work-related expenses.
This measure is estimated to add A$685.6 million to the budget, in cash balance terms, out to 2021/22.
Full cost recovery of superannuation activities
The finance industry is facing increased regulatory charges announced in the Budget.
The Government will raise additional revenue of A$31.9 million over four years from 2018/19 by increasing the Financial Institutions Supervisory Levies. This will fully recover the cost of superannuation by the ATO.
Tax Office takes on professionals over income splitting