ATO renews focus on car deductions

Chris Jordan, Australian Tax Commissioner
Chris Jordan, Australian Tax Commissioner

The tax office has restated its examination of people who claim more than they are entitled to around a car travel deductions as part of a broader compliance crackdown.

The ATO noted that over 3.75 million people made a work-related car expense claim in 2016-17, totalling around $8.8 billion, of which around 870,000 claimed the maximum amount under the cents-per-kilometre method.

The announcement follows comments from tax commissioner Chris Jordan that some tax practitioners were “deliberately scamming or cheating the system”, which then received the backing of Tax Practitioners Board chair Ian Taylor, describing the ATO’s focus on clothing and laundry expenses as “fair”.

 In addition, ATO made a commitment earlier this year to focus on ‘other’ work-related expenses, after $7.9 billion in claims were recorded last year between about 6.7 million Australian taxpayers.

ATO assistant commissioner Kath Anderson said that the ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics.

“We compare taxpayers to others in similar occupations earning similar incomes. Our models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job,” Ms Anderson said.

“Unless you have a work-related need to travel while performing your job, you won’t be able to claim a deduction. For example, travelling from home to work is not deductible for most people.”

Ms Anderson said that while the rules can be a bit tricky for some, and that most people want to do the right thing, the ATO is seeing a lot of mistakes.

“We are particularly concerned about taxpayers claiming for things they are not entitled to, like private trips, trips they didn’t make, and car expenses that their employer paid for or reimbursed,” she said.

Last year, the ATO issued a similar warning, with Ms Anderson noting a “significant proportion” of claims were at the limit of the 5,000 kilometres mark that did not require detailed records.

She said the cents-per-kilometre method of calculating deductions for expenses is to simplify record-keeping, not to provide a free ride.

“It’s true that claims of up to 5,000 kilometres using the cents per km method don’t require a log book,” Ms Anderson said.

“However, you still need to have done the kilometres as part of your job and be able to show how you calculated your claim, for example by keeping a diary of places you have had to drive to for work, and how often.”

NSW Land Tax Assessment includes Foreign Person Surcharge when property owned by Family Trust

Revenue NSW (Formerly known as the Office of State Revenue) considers Family Trusts to be subject to the Foreign Persons Surcharge on stamp duty and Land Tax for any New South Wales residential property owned through the Trust, including Trusts that are based outside of NSW.

Revenue NSW has confirmed that they automatically apply the 2% foreign person land tax surcharge on properties where the title indicates that it is owned through a Family Trust.

Revenue NSW gives trustees 6 months (from the assessment date) to update their Trust Deed to remove foreign persons as beneficiaries. After the deed is updated, the trustee can then apply for the surcharge to be refunded.

In short, Family Trusts may have to pay the tax first and then apply for a refund (after they have updated their Deed), regardless of whether there is any history of the trust distributing to a foreign person.

The situation is slightly different for properties in other states held by Family Trusts. Victoria, Queensland and South Australia also impose foreign person surcharges on Stamp Duty and/or Land Tax, with Western Australia due to follow in 2019. Each state has its own legislation which deals with how these surcharges apply to Family Trusts and the legislation in each state differs.

Proposed changes to GST on property transactions

Measures to strengthen compliance with the GST law in the property development sector have been introduced into parliament this week.

The Treasury Laws Amendment (2018 Measures No 1) Bill 2018 will amend several tax laws to require purchasers of new residential premises and new subdivisions of potential residential land to make a GST payment directly to the ATO as part of settlement from 1 July 2018.

This was announced in the 2017-18 Federal Budget, is designed to counter tax evasion where some developers collect GST from their customers but dissolve their company to avoid paying it to the ATO. Currently, developers may have up to three months to remit GST after the sale of newly constructed residential premises and new subdivisions, allowing dishonest developers to avoid their GST obligations.

The government claims that the cost impacts on purchasers using conveyancing services are expected to be minor, given this change leverages the existing disbursement process and the use of standard contracts.

CPA Australia understands and agrees with the intent of the Bill, though disagrees with the assumption that the change will have minimal impact on most purchasers.

The impact on the cash flow of builders could be quite significant

In its submission on the draft legislation, CPA Australia stated that it is the experience of its members that GST on property transactions can be complex, including calculating the GST payable, and that such transactions may be outside the skills of many BAS and tax agents, let alone conveyancers.