Three Changes to the SME’s Taxation Laws 2020

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Steven Craig from BridgePoint Group outlines what the Australian taxation landscape in 2020 looks like.

One of the major things to disrupt tax practitioners this year is going to be the division 7A issues.

Potentially removing the 25-year terms and standardising it all to be flat tenure. Regardless if the borrower offers a security or not.

Division 7A are essentially loans from a company to its shareholders or its shareholders associate. The shareholders (or associates) have been able to draw down money tax-free as a loan and not pay any interest on it. Currently, there is a blanket rule that those monies for the shareholders. Or the shareholder’s associates essentially fall under these provisions of Division 7A. That means if it hasn’t security over it, then you get a 7-year term to repay that loan. The company sets a benchmark rate on that loan, along with a minimum repayment requirement. This ensures the borrower sits within the Division 7A rules.

The other side of it is the 25-year loan, which is when there is a security over the loan. This is at risk moving forward because the ATO may remove that loan term. If the ATO issues a change to repay a 25-year loan within 10 years, it will significantly impact tax for individuals and companies. Another disruptor on the 2020 landscape that tax practitioners have to pay attention to, is having foreign entities seeking deduction benefits from trusts. It’s another one to pay attention to with respect to the deductions. To ensure land tax isn’t hit with an additional surcharge and there’s no additional surcharge for stamp duty, foreign entities as beneficiaries of a trustee is an amendment to be aware of.

Deduction compliance has been cleaned up a lot and the ATO’s data matching is getting better and better.

We’re finding more and more things that the ATO is applying ratios or data matching. For example, license plates from motor vehicles. A vehicle’s deductions are being matched to companies, to see if the company is reporting accurate deductions to the ATO. Data matching for individuals, such as looking at a persons residency to see whether the kilometres are reasonable with their industry guidelines. There’s a huge amount of compliance from the ATO side that’s being cleaned up. The use of technology means, from our point of view, we need to make sure that everybody’s remaining compliant and they have the substantiation in place behind it.

The third main impact on tax practitioners in 2020 is around the My Gov ID.

It’s definitely affecting SME owners, so anybody that has had access to the business portal which allows them to check their ATO liabilities, such as any outstanding lodgements, BAS etc. Rather than using what they used to call AusKey, now they’re moving everybody to the My Gov ID. From a business point of view, you’ve got to do a proof of identity of the business, and all its shareholders, directors, to set up a My Gov ID. Essentially a company has to establish what they call a relationship access manager. This allows them to assign access to certain individuals. So they’ll also need to assign themselves to be able to access the business information through that.

We’ve had a lot of clients already come through and ask about setting up that relationship access manager. At present they are busy using the business portal and wanting to know the best procedure to set up a My Gov ID. So we’re currently going through a process with the ATO to get all these set up and get some training around the best way for small practitioners to be set up. As far as we are aware the process is relatively straightforward. Until we start using the platform more and more we won’t really know the pitfalls to the new system.

The tax-environment, particularly in Australia, is changing quite rapidly.

There is a lot before Parliament for consideration and a few things waiting for a Royal Assent at the moment, to come into law. There are a lot of different changes that are going on at the moment that would be worthwhile.

In summary, the major changes impacting tax practitioners in 2020 is the Division 7A changes. The superannuation environment is changing quite a bit and the ATO still with developing those rules at the moment. Particularly in the financial advice sector. They’re really cracking down on poor practices which were highlighted in the Banking Royal Commission in 2019. And general compliance is being overhauled. The use of technology in matching deductions to activity is getting better and better every time we look at it.

Outside of work, I am a volunteer with the charity Mates Against Melanoma https://www.mam.org.au/ which was established by Jason Sprott, who is battling stage IV metastasis melanoma. The charities cause is “to promote the prevention and early detection of melanoma in the Australian community.” Jason’s story is nothing short of inspirational and I feel any way that I can help is the right thing to do.

For assistance in understanding the 2020 tax changes and their impact on your business, contact BridgePoint Group on 1300 656 141.

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