Current as at 13 August 2019
Employees will be receiving an Income Statement, in place of a physical payment summary/group certificate, on their myGov account and their pre-fill if their employer is already using Single Touch Payroll (STP).
- According to the ATO, the overwhelming majority of income statements are ‘tax ready’ and payment summaries have been issued by those employers not using Single Touch Payroll.
- Most pre-filling information is now available. You may wish to encourage clients that have yet to lodge to make an appointment to see you.
- You may be finding that the pre-fill information from private health insurers is not providing you the information you need. While private health insurers are no longer required to send end-of-year information directly to policy holders, many are. Given this, you may wish to encourage your clients to share with you their private health insurance statement or ask them to seek that statement from their insurer.
- The low- and middle-income tax offset (LMITO) has been increased for the 2018-19 year. The ATO will automatically calculate and apply the non-refundable offset. It is important to note that not all taxpayers will receive the full LMITO, if at all. The amount of the LMITO a taxpayer qualifies for is dependent on the taxpayer’s taxable income and other factors such as their tax payable, the amount of PAYG instalments or withholding paid and whether the taxpayer qualifies for other offsets such as the senior and pensioners tax offset. Any offset entitlement can only reduce the amount of tax payable to zero and can't reduce the Medicare levy.
- You can download a list of your clients with their correct lodgment due dates from both ATO Online services for agents and the tax agent portal. Members have informed us that it can take less than five minutes to download the client list through ATO Online services for agents, whereas it may take up to 24 to 48 hours through the tax agent portal.
- Make sure you correctly enter deduction data for labels D1-D15 as line entry data will form part of the tax return for 2018-19 and beyond.
- Your practice management software may alert you in real time as to when a client’s deduction claim seems high compared to other taxpayers within the taxpayer’s industry or occupation. This will be dependent on your digital service provider and real-time 'nudges' will be covered by the same ATO audit logging as other PLS services.
- There will be a large increase in taxpayers establishing their myGov accounts with income statements now only available online. As a result, ATO correspondence such as Notices of Assessment will be sent to your client’s myGov account not to the tax agent directly. The ATO has warned against the use of client myGov personal logins to access their ATO Online account. Tax agents must only use Online services for tax agents to manage client affairs.
- You should regularly check your client correspondence list (CCL) on Online services for agents to ensure you receive copies of correspondence sent by the ATO to your clients. The ATO is working on a correspondence preferencing solution which is due October 2019.
- The ATO will send weekly progress of return emails to agents to inform you of potential delays in processing a client’s return 10 days post-lodgment. This will replace the weekly 30-day Delayed Refund Report.
- Reasonable care is required by the Tax Practitioners Board, the ATO and CPA Australia. See below for further detail.
- The ATO’s Online services for agents will become the default login for agents. It will have most of the same functionality as the portal, however it will have a different look. It is important to remember that ATO Online services for agents does not include information on your deceased clients. To access this information, agents will need to use the Portal, which remains open.
- The ATO’s Online services for agents allows tax agents to view or download pre-fill reports for up to five clients at a time in reports and forms. Select the report format, either view in a browser or download in XML, CSV or HTML. Then add each client using their identifier or name. Predictive search will be used if you type more than three characters.
Lodgment due dates and service standards
The lodgment due dates for your clients is available in Online services for agents and the tax agent portal.
The ATO aims to finalise the majority of electronically-lodged current year tax returns within 12 business days of receipt. This includes both individual and non-individual tax returns. Tax returns lodged on paper could take up to 50 business days from receipt to be finalised.
If a tax return is incomplete, incorrect, needs checking or relates to a prior year, it may take longer to finalise.
Income statements and Single Touch Payroll
Employees will be receiving an Income Statement, in place of a physical Group Certificate/Payment Summary, on their myGov account and their pre-fill if their employer is already using Single Touch Payroll (STP). Employers will have until 31 July 2019 to finalise the declaration of these income statements. Moving forward, the finalisation declaration date will be 14 July each year.
Once finalised, the employee’s income statement will show as ‘tax ready’. It is recommended that employees wait until their statement shows ‘tax ready’ before lodging their tax returns to avoid possible amended assessments and additional charges.
The ATO is currently contacting employers about STP reporting irregularities, including where they have ceased reporting for more than 45 days or have submitted employees under multiple payroll or BMS IDs.
Employers who are not reporting through STP will need to issue payment summaries as normal by 14 July 2019.
Reporting through STP will commence from 1 July 2019 for clients with 19 employees or less. Small employers have until 30 September 2019 to commence reporting through STP without needing a deferral. A range of concessions are available to micro employers (1-4 employees). Closely-held payees do not need to be reporting through STP during the 2019-20 financial year.
You should also consider STP solutions for your clients, especially micro-employers, to begin reporting by 30 September 2019 for the 2019-20 year. The ATO has provided a list of no-cost and low-cost solutions for STP.
Line entry deduction data will be included in tax returns
The detail of all work-related deductions data (labels D1 to D15) that you include in your tax return preparation software will form part of your client’s tax return this tax time, and will therefore be lodged with the ATO. Ensure that you only include information required to describe each deduction entry at these fields in your software.
Some tax agents may need to alter their return preparation processes and may require process changes to obtain more information from clients than they previously did. You may need to consider whether any additional time taken for this requirement should be reflected in your fees.
Granular data will be introduced in your software by your digital service provider in a phased approach to include a:
- new deduction schedule to be mandatory from tax time 2019
- new multi-property rental schedule for individuals that may be available from tax time 2019, but will be mandatory from tax time 2020
- new income schedule and updated capital gains tax and non-resident foreign income schedules to be mandatory from tax time 2020.
Private health insurance statements
Health insurers are no longer required to send end-of-year private health insurance statements directly to policy holders. These were previously sent to taxpayers by 15 July and members inform us that most funds may continue to send information or alerts.
Private health insurance information will be available in the pre-fill report, usually by mid-August. If it is not populated by then, taxpayers may need to request a statement from their health insurer.
Check occupation and business industry codes
Occupation and business industry codes are more critical than ever. The ATO uses this information for benchmarking, nearest neighbour comparison for real time nudges and risk identification which means that incorrect codes can cause issues with verification activities, delayed refunds or even audits.
Ensure you correctly identify your client’s occupation or business industry codes.
If your client’s business industry code needs updating:
- enter the new code in their next tax return
- change it on the ABR.
You may also wish to check your clients’ small business performance against the ATO’s published small business benchmarks.
Take reasonable care
The ATO is getting smarter with its data and taxpayers are increasingly being contacted regarding their income and deduction claims. With a focus on line-item deductions, discrepancies in returns when compared against pre-fill data, nearest neighbours or business benchmarks, and investments in dealing with the cash economy, the need for tax agents to take reasonable care when preparing tax returns is as pertinent as ever.
The TPB information sheets TPB(I) 17/2013 and TPB(I) 18/2013 sets out tax agent obligations to take reasonable care to ‘ascertain a client’s state of affairs’ and ‘ensure taxation laws are applied correctly’. For members, APES 110 Code of Ethics for Professional Accountants and APES 220 Taxation Services also apply.
As the TPB information sheets state, “There is no set formula for determining what it means to take reasonable care in any given situation. Rather, whether a registered agent has taken reasonable care in a given situation will depend on an examination of all the circumstances.”
TPB(I) 17/2013 also states, reasonable care “does not require registered agents to ‘audit’, examine or review books and records or other source documents to independently verify the accuracy of information supplied by their clients. However, there may be circumstances where a registered agent may not automatically discharge their responsibility in particular cases by simply accepting what they have been told by their clients.”
Depending on the circumstance, reasonable care may include checking against available information such as pre-fill and business benchmarks, identifying personal/private use, sighting vehicle logbooks and other forms of substantiation, checking for personal services income, reviewing funds transfers between different accounts, checking previous year’s returns, foreign income, sale of assets and asking about cash income.
Other steps might include asking about client investments, changes in their financial and employment affairs and checking documentation. In instances where claims, transactions or reported income appear out of the ordinary, it is important to ask questions of your client and to seek substantiation. These conversations can also be useful in the context of a general discussion regarding the business or the individual’s tax affairs to provide professional, tailored advice. See our Tax Planning Checklist for further detail.
Agents should also consider a suitable disclaimer where clients insist on lodging before pre-fill information is finalised. This should include an explicit statement that the client accepts responsibility for any errors or omissions and incurs the risk of corrective action being taken by the ATO.
Check your security and be aware of fraud
You hold a large amount of client, staff and business information that is of interest to identity thieves. Review your security to protect your clients and your practice and help stop fraud.
Criminals may target your practice to access your clients' information to obtain fraudulent refunds. They may also try to trick you or your staff into clicking on links or opening attachments that install malware or ransomware on your computer systems. Ensure your computer systems and other devices have up-to-date security and anti-virus software to protect against cyber-attacks. Also review staff accesses, cancel AUSkeys for anyone who shouldn’t have one and update passwords regularly.
If you notice suspicious behaviour from a new client, we recommend you take extra precautions to ensure they are legitimate. Check the proof of identity for all new clients and question discrepancies before you prepare and lodge their returns.
You may be approached to unknowingly lodge fraudulent tax returns on behalf of clients using false payment summaries. These payment summaries are often realistic copies of genuine payment summaries or other employment documents, with legitimate details such as TFN, payer name and ABN. If you cannot confirm the payment summary and claims are authentic, explain to your client your responsibility as a registered tax agent and decline to prepare and lodge their tax return.
The ATO has released cyber safety at tax time 2019 which provides tips and resources to help stay safe online.
The ATO continues its focus on work-related expense claims. Check that:
- the client spent the money and it was not reimbursed
- the client has the records to prove the claim, or where receipts are not required, how the claim has been calculated
- ensure the client is not automatically deducting up to the specified amount where the money has not been spent
- only the work-related portion is claimed where the expense relates to work and personal use
- tools or item of work equipment costing more than $300 is depreciated over its effective life.
The ATO has published a series of occupation-specific fact sheets sheets and guides for clothing and laundry and car expenses to assist you and your clients.
Rental property deductions
The ATO has announced that it will double the number of audits scrutinising rental deductions. The ATO will have a specific focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. The ATO have also stated that they are still receiving tax returns from agents where travel to rental properties has been incorrectly included.
Ensure that you are aware of the client’s history with the property and complete the rental property schedule properly. Query if the property was used for holiday or other letting during the course of the year.
Ask clients about crypto-currency transactions
It is estimated that there are between 500,000 to one million Australians that have invested in crypto-assets. The ATO is now collecting bulk records from Australian cryptocurrency designated service providers as part of a data matching program to ensure people trading in cryptocurrency are paying the right amount of tax.
Ensure that your clients who have bought or sold crypto-currency are aware of their record-keeping, reporting and tax obligations.
If your clients provide goods or services through digital platforms, consider how income tax, goods and services tax or any other tax applies to their earnings. If your clients are engaged in the sharing economy, their income and deductions need to be included in their tax returns.
Small business checks
Ensure that your small business clients:
- provide you with details of all their income to ensure you can correctly calculate their assessable income
- have the necessary records to prove expense claims
- do not claim private expenses as business expenses.
The ATO has issued small business factsheets on motor vehicle expenses, business travel expenses and home-based business expenses. You may wish to check your clients’ record-keeping standards using the ATO’s record keeping evaluation tool.
The ATO has identified common small business errors when changing business structures, such as reporting income or claiming expenses under the wrong entity and personal use of business bank accounts. Tax agents should ensure clients understand and comply with their obligations in relation to incorporated or trust structures, including their responsibilities as directors and/or trustees.
Check residency for tax purposes
The tests used to work out residency status for your clients for tax purposes are not the same as residency tests used for other purposes such as immigration. The ATO has published information on residency and the relevant tests.
Advise your clients that if they reside in Australia for less than 183 days per financial year, they may still be a resident for tax purposes. The 183-day test only applies to individuals arriving in Australia.
There are separate rules for working holiday makers and individuals who are dual residents.
Help your clients check for unclaimed super
With the recent passing of the inactive low-balance super accounts legislation, the ATO is proactively working to reunite clients with their lost and unclaimed super. Currently the ATO will pay out unclaimed money in ATO-held super directly to clients if they meet eligibility criteria and their correct financial institution details (FID) are held on their Super role.
To help your clients receive unclaimed super from the ATO:
- ask your clients if they would like you to update their FID (for the Super role) so the ATO can pay them any current or future amounts
- ensure the FID for the account to receive the ATO-held unclaimed super money is in your client's name. Note: You will still receive income tax refunds on behalf of your clients if you have added your tax agent FID to your clients' Income Tax (IT) role
- update or correct your clients' FID (for the Super role) using Online services for agents or the Tax Agent or BAS agent Portal.
- Clients receiving income from capped defined benefit income streams may have additional tax liabilities and you may need to calculate their entitlement to the 10 per cent tax offset.
- Taxable Payments Annual Report (TPAR) obligations are now available through Online services for agents. Due lodgments are listed on the 'for action' screen and in ‘Lodgments - Taxable payments annual report - Not lodged’. Up to 20 payees can be added to one report and multiple reports can be lodged (including nil reports), and lodged reports can be amended.
- The 2019 self-managed superannuation fund (SMSF) return has new labels related to Part A qualifications, outstanding limited recourse borrowing arrangements, crypto-currency and downsizer contributions.
- The Government has released information on the Bills proposed for introduction in the 2019 winter/spring sittings. This does not include the lapsed Bills related to removing the CGT main residence exemption for non-residents, the superannuation guarantee amnesty or tax debt disclosures.
- Client lists are critical to the effective running of your practice so ensure that you proactively manage and maintain your client lists. You can download and maintain your lists through Online services for agents.
- The ATO is currently reviewing adherence to trustee obligations including the lodgment of Tax File Number (TFN) reports for TFN withholding for closely held trusts. Beneficiaries are required to quote their TFN to trustees to avoid having tax withheld from payments or unpaid present entitlements. Where TFNs are quoted, trustees are required to provide the ATO with a TFN report for each beneficiary. A TFN report must be lodged for a quarter in which a beneficiary quotes their TFN to the trustee.
- The ATO has commenced a phased rollout of myGovID to replace AUSkey, with AUSkey shutting down by the end of March 2020. Agents will have access to a beta version of myGovID in the coming months.
- The ATO has prepared tax time toolkits for you to share with your clients to help them get their tax returns right.