Practice Updates 2022

NO REDUCTION IN THE PRIVATE HEALTH INSURANCE REBATE AS OF 1 APRIL 2022

newsletter update 2022An event that we have become accustomed to every 1 April, is that the amount of the Private Health Insurance(‘PHI’) rebate decreases.

The Australian Government rebate on PHI is annually indexed on 1 April by a Rebate Adjustment Factor(‘RAF’) representing the difference between the Consumer Price Index and the industry weighted average increase in premiums.

The RAF for 2022 has been calculated as 1.

This means there will be no changes to the PHI rebate on 1 April 2022.

Editor: With inflation at levels Australians have been unaccustomed to over the last 20 years, at least there is one very small piece of good news.

DISCLOSURE OF BUSINESS TAX DEBTS

The ATO is in the process of writing to taxpayers thatmay be eligible to have their tax debts disclosed to creditreporting bureaus (‘CRBs’). The ATO can potentially report outstanding tax debts to aCRB where the following criteria are satisfied:

  • The taxpayer has an Australian business number andis not an excluded entity;
  • The taxpayer has one or more tax debts and atleast $100,000 is overdue by more than 90 days;
  • The taxpayer is not engaging with the ATO tomanage their tax debt; and
  • The taxpayer does not have an active complaintwith the Inspector-General of Taxation about theATO’s intent to report its tax debt information.

Newsletter Update 2022Excluded entities are a deductible gift recipient, acomplying superannuation fund, a registered charityand a government entity. The purpose of this letter from the ATO is to raiseawareness of the actions that the ATO can now takeunder the Disclosure of Business Tax Debtsmeasure.

The letter will be sent to all taxpayers with businesstax debts that currently meet the criteria (discussedabove) for disclosure. This letter from the ATO provides businesstaxpayers with information on how to effectivelyengage with the ATO to manage their tax debt.

Taxpayers can avoid disclosure to a CRB by makingpayment in full or negotiating a payment plan. If aneligible taxpayer does not take steps to activelymanage their debt, they will remain eligible fordisclosure.

Before the ATO takes any final action to disclose atax debt, it will issue the taxpayer with a formalIntent to Disclose Notice.

If a taxpayer receives an Intent Notice, asking them to’Act now or your tax debt will be reported to creditreporting bureaus’, the taxpayer or their tax agent mustcontact the ATO within 28 days of receiving the noticeto avoid the debt being reported. It is crucial for taxpayers to engage with the ATO earlybefore their debts become unmanageable.

Editor: If the ATO reports a taxpayer that has anoutstanding debt to a CRB, this can have a negativeimpact on the client’s credit rating.
This in turn may affect the client’s ability to borrowfrom banks and other financial institutions.

HIGH COURT REJECTS ATTEMPT TO DISCLAIMINTEREST IN TRUST DISTRIBUTION

The High Court has rejected a taxpayer’s attempt to disclaim an interest in trust income that arose as a result of a default beneficiary clause being triggered.

Facts

The taxpayer, Ms. Natalie Carter, was one of the five default beneficiaries of the Whitby Trust, a discretionary trust. For the 2014 income year, the trustee had failed to appoint or accumulate any of the income of the Trust.

The Trust Deed contained a default beneficiary clause, nominating Ms. Carter and four other beneficiaries, as the default beneficiaries, in the event that the trustee had failed to allocate trust income for the benefit of beneficiaries by 30 June of a particular year.

The ATO issued each of Ms. Carter and the four other default beneficiaries with an assessment for one-fifth of the income of the Whitby Trust for the 2014 income year in October 2015.

This was done on the basis that they were “presently entitled” to that income within the meaning of S.97(1)of the Income Tax Assessment Act 1936. An initial unsuccessful attempt was made by the default beneficiaries to disclaim their entitlement to default distributions in November 2015.

A further attempt by the default beneficiaries to disclaim their interest in trust income for the 2014income year was made in September 2016 in what was referred to as the “Third Disclaimers”.

The Administrative Appeals Tribunal held that the ThirdDisclaimers were ineffective whereas the Full FederalCourt found in the taxpayers’ favor that they were effective. The High Court was then asked to consider the legal status of the Third Disclaimers.

Decision

Newsletter Update 2022It was the unanimous decision of the High Court that the Third Disclaimers were ineffective. The High Court carefully analyzed the words ofS.97(1). In particular, the phrase “is presently entitled to a share of the income of the trust estate” in S.97(1)is expressed in the present tense.

The plurality found that expression “is directed to the position existing immediately before the end of the income year for the stated purpose of identifying the beneficiaries who are to be assessed with the income of the trust – namely, those beneficiaries of the trust who, as well as having an interest in the income of the trust which is vested both in interest and in possession, have a present legal right to demand and receive payment of the income.”

The High Court took the view that the question of the”present entitlement” of a beneficiary to income of a trust must be tested and examined “at the close of the taxation year”, not some reasonable period of time after the end of the taxation year.

Accordingly, Ms. Carter and the other four beneficiaries had been appropriately assessed by the ATO under S.97(1) given their status as default beneficiaries under the Trust Deed.

For the sake of completeness, the High Court also rejected the taxpayers’ argument that a beneficiary of a discretionary trust, with reference to events that may occur in a “reasonable period” after the end of an income year, can trigger an event that would disentitle the beneficiary to a distribution.

Editor: This decision is significant because it backs the proposition that disclaimers of trust income cannot be effective if they occur after the end of the income year that gave rise to a present entitlement.

It will be interesting to see in any subsequent Decision Impact Statement how the ATO intends to apply the decision in Carter’scase. As we head towards the end of another income year, this case serves as a timely reminder to ensure for discretionary trusts, that steps are taken before the end of the income year to effectively distribute trust income.

This is done to avoid the operation of default beneficiary clauses or the situation where no beneficiary is presently entitled to trust income and the trustee is assessed at the highest marginal rate.

Business Tips 2022

HART PARTNERS HELPFUL TOOL: DRIVER’S NOTE

Does the thought of doing a log book make you want to scream? Now, there is an easy solution.

We find clients hate doing a logbook for car usage. If you wish to claim a percentage of your motor vehicle costs on your tax return, then you’re required to keep a 12-week logbook detailing your business travel.

Drivers note will easily track your motor vehicle use and all you need to do is classify it with a swipe to classify each trip. For more visit https://www.driversnote.com

Download on App Store for apple user.

Download on Google Play for android user.

 

 

* * * Disclaimer: No person should act on the general information in this article without taking specific advice from a qualified advisor. * * *

Making it Easier to Get Paid

Making sure you get paid on time is crucial to your success. The process of making sales and generating revenue lies at the heart of any business model. But you can’t manage your cashflow effectively or raise any profits if customers don’t actually pay their invoices.easier to get paid

The easier you can make it for customers to pay you, the faster you’ll see cash coming into the business. That’s good news for your financial position, your ability to cover your operational costs and your capacity to fund the growth and expansion of your business.

So, how do you speed up those payments and make sure you get paid on time?

Set out clear payment terms

Your payment terms are the starting point for healthy payment times. These terms set out when you expect to be paid and form a legally binding contract with the customer. You may expect immediate payment on receipt of the invoice. Or you might set out a specific number of days that the customer has to pay the invoice (generally 30, 60, 90 or 120 days, depending on your industry). This is sometimes called ‘trade credit’ and allows your customers to pay for goods and services at a later, pre-agreed date – helping them to spread the cost.

Your payment terms should also include details of any late payment penalties. If the customer doesn’t meet your agreed payment times, most businesses will add a 1% to 1.5% monthly late payment fee to the outstanding bill. This acts as a great incentive for the customer to pay the bill, before the penalty fees start mounting up.

Invoice customers as soon as you can

In a business-to-consumer (B2C) environment, your customers will generally pay for their goods and services immediately. But when you’re working in the business-to-business (B2B) world, you’ll need to send your customer an invoice, asking for the money to be paid.

A customer can’t settle their bill until you send them an invoice. So, it’s vital to send out the invoice as quickly as possible, so you can minimise the gap between doing the work and being paid for the work. In some industries, the project will be broken down into multiple invoices, paid across a period of time. This makes it easier for the customer to pay, and means you (as the supplier) don’t have to complete the project before receiving the money you’re owed.

Ideally, you want your invoices to go out as early as possible. This allows your payment terms to kick in and makes it easier to predict when cash will be coming into the business.

Be organized about your payment admin

Getting paid is a process – and the more organised you make the process, the quicker the payment will be received. When you send out the invoice, make sure you send it to all the relevant people in the payment chain. This will usually be:

  • Your main contact at the client – the person who you usually deal with
  • The person who will approve the bill – the person who will green-light the payment
  • The finance team – the person (or people) who will actually action the payment.

It’s also a good idea to quote any relevant purchase order (PO) numbers that the customer has raised, and to give a very clear description of the work done, or the goods purchased.

Embrace the available payment technology

Invoices used to be hard-copy printed bills, but in the digital age the vast majority of companies will send out e-invoices. Electronic invoices are easy to raise (usually from your accounting software or project management app) and can be emailed out instantly. Doing everything in the digital realm also makes it easier to keep records and keep track of payments.

Many e-invoice systems will also let you add a variety of different payment options for the customer. You could just include your bank details and wait for the customer to make a direct payment to your account. But you can also include payment buttons in the e-invoice that give customers the option to pay via digital payment gateways, like PayPal or GoCardless etc.

Offering more ways to pay makes the whole process more convenient for your customers – and will generally result in faster payment times as a result.

If you want to speed up your payment times and boost your cashflow, please do get in touch. We can help you streamline your payment processes and embrace the latest in payment tech.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.
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