Tax on gifts and donations

Individuals can claim tax deductions when giving gifts or donations to organisations that have the status of deductible gift recipients (DGR).

To be eligible to claim a tax deduction for a gift, the ATO stipulates that it must meet the following four conditions:

• The gift must “truly be a gift”; that is, a voluntary transfer of money or property where the giver receives no material benefit or advantage.
• The gift must be made to a deductible gift recipient (DGR).
• The gift must be money or property, this can include financial assets such as shares.
• The gift must comply with any relevant conditions. For some DGRs, the income tax law adds extra conditions affecting the types of deductible gifts they can receive.

What you can claim:
The amount an individual can claim for a gift or donation depends on the type of gift given. For gifts of money, individuals can claim the total amount of the gift, as long as it is $2 or more. Different rules exist for gifts of property, and the amount of the tax deduction depends on the value and type of property. There are special circumstances where donations to Heritage and Cultural programs can also be deductible and are based on the value of the donation.

What you can’t claim:
Individuals cannot claim a tax deduction for gifts or donation items that provide some personal benefit, such as:

• Raffle tickets.
• Membership fees.
• Payments to school building funds.
• Payments where there is an understanding with the giver and recipient that the payments will be used to provide a substantial benefit for the giver.

2019 Updates to the Pension Loan Scheme 

Changes have been made to the Pension Loan Scheme (PLS) under the federal government that came into effect 1 July 2019. The updates aimed to improve the previous scheme and help more retirees boost their retirement income and pay for extra expenses such as home care.

The key features of the new Pension Loan Scheme are:

• Extended eligibility to all Australians of age pension age, now including those currently received the maximum rate age pension.
• The maximum PLS income stream will be the difference between your current age pension payment and 150% of the age pension rate.
• A single person will be able to borrow up to $36,000 a year and a couple could potentially borrow up to $54,000 per year, paid in monthly instalments.
• PSL loans are not taxable and are not counted in the age pension income test.
• The interest rate is 5.25% pa compound, which has been the same since 1997.
• There are no establishment fees or monthly account fees.

To be eligible for the PLS, the following criteria must be met:

• You or your partner have reached age pension age.
• You own real estate with enough equity to secure a loan.
• You have adequate insurance covering the property.
• You are not bankrupt or subject to a personal insolvency agreement.
• You qualify for one of the following pensions: age pension, bereavement allowance, carer payment, disability support pension, widow pension, or wife pension.

Paying tax on term deposits

The interest you earn from term deposits is subject to tax, just like your regular income. You have to declare investment income on your tax return, including interest in the year it was credited or received.

The amount of tax you need to pay depends on the amount of interest you earn on your term deposit as it is part of your overall taxable income and will, therefore, be taxed at the same marginal tax rate that applies to the rest of your income. The ATO’s marginal tax rates for the current financial year are:

• $0 for an income of $18,200
• 19c for each $1 over $18,200 for an income of $18,201 – $37,000
• $3,572 plus 32.5c for each $1 over $37,000 for an income of $37,001 – $90,000
• $20,797 plus 37c for each $1 over $90,000 for an income of $90,001 – $180,000
• $54,097 plus 45c for each $1 over $180,000 for an income of $180,001 and over

If you decide to roll over your interest earnings into a new term deposit, you will still need to declare the interest on your tax return if you choose to reinvest the money instead of accessing it.

Term deposits run under a joint account will have the ATO assuming each person has equal ownership to the funds in the account. This means that the interest earned is equally split between you and your account partner(s), where you will have to pay tax on your portion. If the funds in your account are not split equally, you can provide the ATO with documentation proving the amount you each earn and be taxed different amounts accordingly.

Does your SMSF meet the sole purpose test?

If you have a self-managed super fund (SMSF), then you need to meet the sole purpose test to be eligible for the tax concessions that are normally available to super funds. The sole purpose test aims to ensure that SMSFs are maintained for the purpose of providing benefits to members upon retirement or for beneficiaries if a member dies before retirement.

When a sole purpose test is contravened, the fund will lose its concessional tax treatment and be subject to the highest tax rate. Members could also be disqualified as a trustee and face civil and criminal penalties such as fines or imprisonment. The test is divided into core and ancillary purposes, where regulated funds must be maintained for at least one core purpose and can add one or more ancillary purposes but cannot be run only for ancillary purposes.

The core purposes are paying benefits to:

• Members on or after retirement from gainful employment.
• Members when they have reached a prescribed age.
• Dependents if the member dies.

The ancillary purposes are:

• Termination of a member’s employment where the employee made contributions to the fund on behalf of the member.
• Cessation of employment due to physical or mental health reasons.
• Death of the member after retirement where the benefits are paid to the member’s dependants or legal representative.
• Death of the member after attaining a prescribed age where the benefits are paid to the member’s dependants or legal representative.
• Other ancillary purposes approved in writing by the regulator (ATO or the Australian Prudential Regulation Authority).

Making NRAS claims

The national rental affordability scheme (NRAS) started on 1 July 2008, encouraging large-scale investment in affordable housing. It offers tax and cash incentives to providers of new dwellings for 10 years, granted they are rented to low and moderate income households at 20% below market rates.

Though the NRAS is no longer taking new investments, property owners within the scheme will soon be receiving letters from the ATO to remind them of their claim requirements.

The two key elements of the NRAS are;

• An Australian Government contribution in the form of a refundable tax offset or direct payment to the value of $8,394.10 per dwelling per year in 2018-19. The Australian Government contribution is 75% of the total annual incentive.
• A state or territory contribution in the form of direct financial support or an in-kind contribution to the value of at least $2,798.03 per dwelling per year in 2018-19. The state or territory contribution is 25% of the total annual incentive.

Owners of NRAS rental property are eligible to claim a refundable tax offset if:

• The Approved Participant has provided them with advice of their entitlement based on the certificate received from the Housing Secretary, and;
• The claim is made in the year to which the certificate relates.

Deductions can be claimed for expenses incurred with a NRAS rental property, excluding the contribution amount received from the state or territory. The contribution amount is non-assessable, non-exempt (NANE) income for tax purposes.

Super when you’re self-employed 

If you are a sole trader, or in a partnership, then you are not obligated to make super guarantee (SG) payments for yourself. However, you should still consider making personal contributions to super to help you save for retirement.

Your methods of contributing to super can depend on how you pay yourself. For example, if you receive a wage, then you can set up a regular transfer into super from your income before tax. If your income is from business revenue, you can periodically transfer a lump sum into your super depending on your cash flow.

When contributing to personal super contributions with your after-tax income, you may be eligible to claim tax deductions on them. Before claiming a deduction, you must give your selected super fund a ‘Notice of intent to claim or vary a deduction for personal contributions’ form, and received an acknowledgement from your fund.

You can contribute up to $25,000 a year in concessional super contributions, which are the contributions you can claim tax for, and an additional $100,000 a year in non-concessional super contributions, which you don’t claim deductions for. If you are aged 75 years or older, you are only able to claim tax deductions for contributions you made before the 28th of the month after you turned 75.

Introducing ASFP

Plans are underway to carry out a system change during the December closure of the ATO, to introduce Activity statement financial processing (ASFP). This change will move the majority of taxpayer financial information into one accounting system that will have multiple accounts.

ASFP will shift activity statement and franking deficit tax accounts from the current ATO system into their primary accounting system, covering all the different taxes they administer. This change is intended to help improve ATO digital services by delivering simplified transaction descriptions and summary views of “statement of account transactions” with the ability to view full account transaction if required.

During the closure, a number of ATO online services will be unavailable. These include;

• SuperMatch: A service that enables APRA-regulated funds to consolidate member accounts.
• EmployerTICK: An online service employers can voluntarily use to validate employee details, prior to making the first contribution to a super fund.
• Fund Validation Service (FVS): A service that enables employers and funds to obtain APRA-regulated funds’ e-commerce details that support SuperStream transactions.
• Electronic portability form (EPF): An ATO-hosted form that can be used by fund members to transfer the whole balance of super accounts between APRA-regulated funds, or to member’s self-managed super fund.
• Member Account Attribution Service (MAAS): A service for super providers and life insurance companies to report the opening and closing of accounts, and changes to a member’s account phases and attributes when they occur (event-based reporting).
• Member Account Transaction Service (MATS): A service for super providers and life insurance companies to report member contributions or transactions more frequently and at a transactional level.
• Small business superannuation clearing house (SBSCH): The superannuation clearing house is a free online super payments service that can be used by employers with 19 or fewer employees or have an annual aggregated turnover of $10 million or less, to pay super contributions in one transaction to a single location.

Proactive consolidation with ILBAs

Inactive low-balance accounts (ILBAs) are a new category account that needs to be reported and paid to the ATO. This was introduced in the Treasury Law Amendment (Protect Your Superannuation Package) Bill 2019 that came into effect on 1 July 2019 after first being announced in the 2018-19 Federal Budget.

ILBAs are designed to protect accounts from fee erosion. Where possible, the ATO will proactively consolidate super on behalf of an individual.

A superannuation account is considered an ILBA if the following criteria are met:

• No amount has been received by the fund for crediting to that account for an individuals benefit within the last 16 months.
• The account balance is less than $6,000.
• A prescribed condition of release has not been met.
• The account is not a defined benefit account.
• There is no insurance on the account.
• The account is not held in a self-managed super fund (SMSF) or small Australian Prudential Regulation Authority (APRA) fund.

Funds are required to identify ILBAs on 30 June and 31 December each year, then report and pay them to the ATO by the statement date.

• 31 October in the same year for accounts identified on 30 June.
• 30 April of the following year for accounts identified on 31 December.

Individuals that have an account that they do not want to be transferred to the ATO as an ILBA, can consolidate super accounts using ATO online services through myGov, contact their super fund for more information or authorise their super fund to provide a written declaration to the ATO.

Time limit on GST refunds

Small businesses entitled to refunds of GST may not be aware of the four-year time limit on claiming those refunds. Your entitlement to a GST credit ends four years from the due date of the earliest activity statement in which you could have claimed it.

GST refunds are claimed under the indirect tax concession scheme (ITCS), which also covers luxury car tax (LCT), wine equalization tax (WET) and excise. They are a form of “outstanding indirect tax refunds”, which are tax refunds that are entitled to the taxpayer but are yet to be claimed. “Outstanding indirect tax refunds” can be claimed in the following cases.

Refund of a net amount for a tax period:
This applies to those that have yet to lodge an activity statement for a tax period. Small businesses that have GST entitlements that amount to $2,000, (which exceeds the net GST, WET and LCT liabilities for that period $1,500), are able to claim an outstanding indirect tax refund of $500.

Refund of an overpayment of a net amount:
Due to a clerical error, a business owner reports and pays $4,600 net GST for a tax period instead of the actual amount of $4,060. The excess amount of $540 is an outstanding indirect tax refund which the business can claim.

Refund due to an underreported initial net refund entitlement:
A business claims a net GST refund of $3,000 for the tax period and receives the refund. Afterwards, however, it is realised that the actual refund entitlement was $3,200, the excess $200 represents an outstanding indirect tax refund that can be claimed.

Commutation authorities for SMSFs

Commutation authorities are issued by the ATO when a member of a SMSF has exceeded their transfer balance cap. A commutation authority will be issued after the member has received an excess transfer balance determination alerting them they have passed the cap.

The transfer balance cap is currently $1.6 million and is applied to the combined total of all superannuation accounts held by an individual. To receive a commutation authority, a SMSF member has either;

• Not commuted the excess amount in the determination in full by the due date, or;
• Has made an election for the ATO to send a commutation authority to their fund to have the excess amount commuted.

After receiving a commutation authority, individuals must then;

• Pay a superannuation lump sum by way of commutation. The commutation authority will detail the amount that must be commuted from a specified income stream for that SMSF member. Or;
• Choose not to comply with the commutation authority because the member is deceased or the ATO issued in relation to an income stream that is a capped defined benefit income stream.
• Send the ATO a transfer balance account report (TBAR) stating the details of the commutation or why you have chosen not to comply with the commutation authority.
• Notify your member in writing that you have complied or not complied with a commutation authority.

This will need to be done within 60 days of receiving the commutation authority. Though the Commissioner of Taxation issues the authority, they do not have the power to grant an extension of time to respond. If you fail to commute or respond to the ATO regarding the authority, the income stream will stop being in retirement phase, affecting the fund’s entitlement to exempt current pension income. You may also be liable for penalties or subject to compliance action.