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Who should be assessed to interest on bank accounts?

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On 26 April 2017, the Commissioner released Taxation Determination TD 2017/11, which outlines that for income tax purposes, interest income on a bank account is assessable to the person or persons who “beneficially” own the money in the account.

This Determination replaced Taxation Ruling IT 2486 and a number of early Determinations such as TD 92/106, TD 92/182 and TD 93/148.

Specifically, with respect to joint accounts and children’s saving accounts the Commissioner comments as follows:

Joint accounts

Interest income on a joint bank account is assessable to the account holders in proportion to their beneficial ownership of the money in the account.

Unless there is evidence to the contrary, it is presumed that joint account holders beneficially own the money in equal shares.  Relevant evidence can include information regarding who contributed to the account, in what proportions contributions were made, the nature of the contributions, who drew on the account and who used the money (and accrued interest) as their own property.  Evidence may also be provided that joint account holders hold money in the account on trust for other persons.

Children’s savings accounts

Where a parent operates an account on behalf of a child, but the Commissioner is satisfied that the child beneficially owns the money in the account, the parent can nonetheless show the interest in a tax return lodged for a child.  The lodgement of a trust tax return will not be necessary.

Where interest income on a bank account is assessable to a child under 18 and exceeds $416 per year, that income may be subject to higher rates of tax under the rules in Division 6AA of Part III of the 1936 Act that apply to the income of certain children.

The Determination then goes on to provide a number of examples which are reproduced below:

Example 1 – joint bank account – rebutting presumption of equal ownership

Barbara and Chelsey are each assessed to income tax on half of the interest not returned on their joint bank account.  Barbara later establishes that Chelsey contributed all of the money to the account and usually treated all of the interest as her money.  Barbara has only once drawn funds from the account.

Chelsey has beneficial ownership of the money in the account and is therefore assessable on all of the interest income.  The Commissioner amends Chelsey’s and Barbara’s income tax assessments accordingly.

Example 2 – joint signatory – no beneficial ownership of account

Adrian’s elderly aunt has a bank account in her name and Adrian is a joint signatory to that account.  Adrian will only operate the account if his aunt is unable to do so due to ill health.  All the funds in the account are hers and Adrian is not entitled to personally receive any money from the account.

Adrian does not have any beneficial ownership of the money in the account and is therefore not assessable on the interest income.

Example 3 – child savings account – child does not have beneficial ownership

Shaun, aged 10, has an account in his name.  The account was opened by his mother who initially deposited $7,000 of her own money into it.  Shaun’s mother is a signatory to the account, and makes regular deposits and withdrawals to pay for Shaun’s school and other expenses.
Shaun’s mother spends the money in the account as if it belongs to her.  She is considered to be the beneficial owner.  Shaun’s mother is assessable on the interest income earned from the account.

Example 4 – child savings account – parent operates as trustee

Raymond, aged 14, has accumulated $7,000 over the years from birthdays and other special occasions.  Raymond’s mother has placed the money into a bank account in his name, which she operates on his behalf.  Raymond’s mother does not use the money in the account for herself or others.  Raymond earns $490 in interest during an income year.

Raymond has beneficial ownership of the money in the account and is therefore assessable on all of the interest income.  The birthday gifts are not assessable income.

However, as Raymond is under 18 years of age, he will be subject to higher rates of tax under the rules in Division 6AA of Part III of the 1936 Act.  If Raymond shows the interest in his tax return for that income year, his mother will not need to lodge a trust tax return.

2017 Trustee resolutions

Trustees are required to have made their 2017 resolutions to distribute trust income on or before 30 June 2017. It is recommended that the resolution is made in writing and is in a format that is compatible with the respective Trust Deed. A written record will provide better evidence of the resolution and avoid a later dispute with the ATO as to whether any distribution of income was effectively made by 30 June.

If the resolution is not made and signed by 30 June, the ATO may assess the trust income to the trustee at 49%.

The ATO Resolutions Checklist

The ATO has helpfully provided its Resolution Checklist on their website. The key points in that checklist are:

1.    The Resolution must be made by the earlier of the date the Trust Deed requires or 30 June;

2.    The Resolution must be recorded in writing if the Deed requires, however if the Deed is silent the ATO recommend that it is writing “to                  void a later dispute.”

3.    Where Streaming of capital gains and franked dividends is allowed in the Deed, the Resolution must be in writing;

4.    The ATO does not accept distributions of notional amounts (such as franking credits) in line with its “preliminary” views in TR 2012/D1;

5.    The ATO does not accept that income other than capital gains and franked dividends can be streamed to specific beneficiaries, such as rent, interest, foreign income etc.

GST on international supplies of goods and services

There are two significant changes for non-residents doing business in Australia or supplying goods or services online to Australian consumers.

From 1 July 2017 (pending passage of Bill before Parliament), low value goods (ie. goods with a value equal to or less than A$1,000) will be subject to GST.  Where these are currently exempt from GST, the new rules will impose GST on all physical goods sold to consumers and imported into Australia.  This means that GST will apply to all cross-border supplies of digital products and other services imported by Australian consumers.

This includes:
•    services such as architectural or legal services;
•    digital products such as streaming or downloading of movies, music, apps, games and e-books.

This will require the supplier of these products or services to collect the GST from consumers, otherwise, they will be left footing the GST liability.  It also poses a huge administrative issue as suppliers not currently registered for GST in Australia will now need to be registered in order to remit these amounts.

Additionally, from 1 July 2017, non-resident entities may need to register for goods and services tax (GST) in Australia if both of the following apply:

•    It is carrying on an enterprise; and
•    Its GST turnover from sales that are “connected with Australia” and made in the course of its enterprise, meets or exceeds the registration turnover threshold of A$75,000 (or A$150,000, for a non-profit body).

Essentially, a sale of something other than goods or property is connected with Australia if any of the following apply:

•    the purchaser is an Australian consumer;
•    the thing is done in Australia;
•    an entity makes the sale through an enterprise that it runs in Australia; and
•    the sale is of a right or option to purchase something that would be connected with Australia.

If your business acquires goods or services on line from non-resident entities from 1 July 2017 be aware that GST may be raised and is therefore claimable.

The Government has been declaring that it wants to target international sales to Australian consumers to level the playing field for Australian businesses.  The changes discussed above seem to achieve this, at least in theory.  However, the “proof will be in the pudding” when these measures are enacted from 1 July 2017 as to how these changes will be administered and enforced.

Removal of the Temporary Budget Repair Levy from the 2017/18 income year

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The 2% Temporary Budget Repair Levy (or ‘TBRL’), which has applied to individuals with a taxable income exceeding $180,000 since 1 July 2014, is repealed with effect from 1 July 2017.

Up until 30 June 2017, including the TBRL and the Medicare Levy, individuals earning more than $180,000 faced a marginal tax rate of 49%.

With the benefit of the removal of the 2% TBRL, from 1 July 2017, individuals with a taxable income exceeding $180,000 face a marginal tax rate of 47% (including the Medicare Levy).

Editor: Don’t forget to add another 1.5% for the Medicare Levy Surcharge for certain individuals that don’t have Private Health Insurance.

Extension of the $20,000 SBE Immediate Deduction Threshold

In the 2017/18 Federal Budget handed down on 9 May 2017, the Federal Government announced that it intended to extend the ability of Small Business Entity (or ‘SBE’) taxpayers to claim an outright deduction for depreciating assets costing less than $20,000 until 30 June 2018.  This Budget Night announcement has now been passed into law.

Prior to the relevant legislation being passed into law, the outright deduction threshold for SBEs in relation to depreciating assets was scheduled to revert back to $1,000 as of 1 July 2017.  Now that this change has become law, the threshold is scheduled to revert back to $1,000 as of 1 July 2018.

To qualify for an immediate deduction for depreciating assets purchased by an SBE taxpayer costing less than $20,000, the asset needs to be first used or installed ready for use on or before 30 June 2018.

Editor:  The ‘aggregated turnover’ threshold to satisfy the requirements to be an SBE taxpayer has increased from $2 million to $10 million, as of 1 July 2016.  As a result, more business taxpayers than ever before will be eligible for the $20,000 immediate deduction for depreciating assets.

Please contact our office if you need any assistance in determining if your business is an SBE, whether an asset purchase you are considering will qualify as a “depreciating asset” and/or what constitutes being “used or installed ready for use”.