The Australian Government has now released draft amendments to disallow deductions against taxable government assistance payments that are eligible for a rebatable benefit following the High Court’s decision in FCT v Anstis [2010] HCA 40.

Government assistance payments that are currently eligible for the beneficiary rebate include, but are not limited to:

• Austudy
• ABSTUDY
• Newstart Allowance
• Youth Allowance (student)
• Youth Allowance (jobseeker)

The amendment is proposed to have effect from 1 July 2011.

• replacing the integrity rules restricting access to losses
• allowing immediate loss refundability
• allowing losses to be carried back and offset against previous years’ profits
• allowing losses carried forward to be uplifted by a determined benchmark rate.

The Interim Report says the bias derives from the way Australia allows for tax deductions of losses, which it says can become “trapped” and unavailable as a tax relief vehicle for entrepreneurs. “In some regards,” the Interim report says, “trapped losses represent a windfall gain for governments.” Current treatment of losses also makes cashflow management cumbersome.

The final report on the tax treatment of losses is expected in March 2012.

Yesterday, directors were given a temporary reprieve from the potential of personal liability to meet employees’ superannuation obligations but it is only temporary.

Bill Shorten the assistant treasurer said the measure would be re-introduced in early 2012 following more consultation with stakeholders.

So, for the time being, it remains that Director Penalty Notices relate only to unpaid PAYG – but change is likely in 2012.

Sham contracting occurs when an employer attempts to disguise an employment relationship as an independent contracting relationship, thereby avoiding obligatory rates of pay and other entitlements. This gives the employer an unfair competitive advantage.

The operational intervention began in April in response to intelligence from various sources and concerns raised by key stakeholders, including employee and employer groups and members of parliament.

The report states that a number of trading enterprises engaged contractors who should more properly have been classified as employees.

While Fair Work inspectors found that most of these arrangements were not deliberate, they did identify a number of employers whom they believe knowingly or recklessly misrepresented the employment relationship to their workers as one of independent contracting.

Legal action is being considered in some instances.

The Fair Work Ombudsman found misclassification of employees in each of the three industries that were investigated, but does not believe the problem is confined to these industries alone. 

Misclassification can lead to a contravention of the National Employment Standards (NES), minimum wage orders and terms of a Modern Award or Enterprise Agreement.

It can also result in contraventions of employer obligations to provide employee records and pay slips and may expose employers to back-payment of outstanding entitlements.

The report calls for employers to exercise a greater degree of care over their contracted labour arrangements.

A number of employers had received advice from accountants on how to structure their operations. It appeared the legality or appropriateness of the arrangements under relevant workplace laws was often not considered.

About the pharmaceutical arrangement

In the arrangement that the ATO investigated:

• participants entered into contracts in 2009-10 to purchase and transfer pharmaceuticals for use in treatment programs to charities that are registered deductible gift recipients.
• participants made an initial payment of about 7.5% of the purchase price of the pharmaceuticals. The balance of the purchase price is due and payable up to fifty years after the contract was entered into. The participants also made a prepayment of interest, reflecting an interest rate of approximately 0.1% per annum, on the balance of the purchase price.
• the promoter claims:
  • the pharmaceuticals were delivered by the vendor to a bonded warehouse in a country outside Australia.
  • ownership of the pharmaceuticals was transferred to the participant, who then immediately transferred ownership to the nominated charities.
  • entities associated with the promoter of the arrangement arranged and paid for the pharmaceuticals to be shipped to places nominated by the charities.
• participants were told that they could claim a deduction for the full contracted purchase price of the pharmaceuticals in 2009-10, the year that they entered the arrangement.

The amendments are proposed to commence on 1 July 2013 (dependent on the passing of the Minerals Resource Rent Tax package).

• increase the small business instant asset write-off threshold from $1000 to $6500, and consolidate the long-life small business pool and the general small business pool into a single pool to be written off at one rate of 30 per cent
• allow small business entities (annual turnover less than $2 million) to claim an accelerated initial deduction for motor vehicles acquired in the 2012–13 and subsequent income years. Purchase of a motor vehicle costing $6500 or more from the 2012–13 year will be able to be immediately written off up to $5000
• amend the Superannuation (Government Co-Contribution for Low Income Earners) Act 2003 to provide for a maximum $500 low-income superannuation contribution
• repeal the 25 per cent entrepreneurs’ tax offset

Mr Shorten’s spoke to the Australian Charity Law Association Annual Conference on 23 Sept 2011 outlining the development of the proposals . His full speech can be found here

The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, recently released draft Regulations that extend the audit period when the audit report cannot be provided on time due to certain circumstances beyond the auditor’s control.

“The proposed changes will ensure SMSF auditors are not penalised unfairly when external factors cause delays in the completion of the audit report,” Mr Shorten said.

Currently, SMSF auditors are required to provide SMSF trustees with their audit report no later than the day before the SMSF trustees are required to lodge their annual return. They can be penalised for not providing the audit report within this period, regardless of the
reasons for the delay.

The draft Regulations create certainty for SMSF auditors by extending the period when SMSF trustees do not appoint the auditor on time or do not provide them with information needed to complete the audit.

“The draft Regulations respond to concerns raised by the accounting profession and provide fairer outcomes for SMSF auditors,” Minister Shorten said.