SG Amnesty still pending

The proposed superannuation guarantee (‘SG’) amnesty is a one-off, 12-month opportunity to self-correct past non-compliance (i.e., from 24 May 2018 to 23 May 2019).

It will apply to previously undeclared SG shortfalls for any period from 1 July 1992 up to 31 March 2018.

The ‘carrot’ currently on the table is that employers who voluntarily disclose previously undeclared SG shortfalls during the amnesty (i.e., importantly, before the commencement of an ATO audit) will:

  • not be liable for the administration component and penalties that may otherwise apply to late SG payments, and

  • be able to claim a deduction for catch-up payments made during the relevant 12-month period.

This means that employers will still be required to pay all employee entitlements, including any unpaid SG amounts owed to employees and the nominal interest, as well as any associated general interest charge.

Employers who are not up-to-date with their SG payment obligations and who do not come forward during the proposed SG amnesty have been put on notice by the ATO that they may face higher penalties in the future.

While the SG amnesty is being actively promoted by the ATO, it is important to be aware that the proposed concessions currently on the table are not guaranteed until the relevant legislation becomes law.

Removing tax deductions for PAYG failure

The Government is currently considering removing tax deductions where businesses fail to comply with their PAYG withholding obligations for payments to employees and contractors from 1 July 2019.

Specifically, deductions are proposed to be denied for these types of payments where the payer has failed to either:

  • comply with their obligations in relation to withholding from these payments; or

  • notify the ATO of the withholding amount (i.e., via their BAS).

Interestingly, deductions will only be denied if no withholding took place or no notification has been made.  That is, incorrect amounts withheld or reported to the ATO will not impact a taxpayer’s entitlement to deductions.

Crowdfunding donations to help drought-affected farmers

For taxpayers wishing to make a contribution to a drought relief fund, it is important to be aware of the tax implications associated with making such donations.

For example, donations of $2 or more to an organisation that is a deductible gift recipient will be tax deductible.

To check to see if a particular appeal is a registered charity, the ATO has advised that taxpayers should use the ‘ABN lookup’ function on the Australian Business Register website before donating.

For those looking to raise funds through crowdfunding platforms to assist their farming business, payments received from the crowdfunding platforms may be assessable income, depending upon how the funds are used. 

For example:

  • Where the funds are used for emergency relief (i.e., such as food and clothing), then the amounts are not assessable. 

  • Where the funds are spent on deductible expenses (i.e., such as purchasing feed for livestock), the amount is assessable income, but will be offset by the relevant deductions obtained, ensuing there is no net taxable outcome. 

Market Update

The leadership challenge against Malcolm Turnbull and the subsequent elevation of Scott Morrison to the position of Prime Minister dominated the headlines in August.   However, its impact on financial markets was largely confined to the Australian dollar which fell against other currencies as investors focused on the policy uncertainty brought about by political instability.   While there was a slight recovery following the resolution of the challenge, the dollar has not returned to previous levels.

 

Equities markets were more concerned with the August reporting season with listed companies announcing their profit results and providing guidance on their prospects for the period ahead.   While the reported profit results were largely in line with expectations, there were some significant share price falls where companies disappointed.   For example, Flight Centre, Origin Energy and Ansell all suffered double digit price declines in August.

 

In economic news, Australia’s gross domestic product (GDP) and inflation figures were released.   The Australian economy grew by 0.9% in the June quarter following a 1.1% increase in the previous quarter.   As a result, the economy has grown by 3.4% over the past four quarters.   Household private consumption expenditure increased 0.7% to be 3.0% above year ago levels.   While the result is relatively strong, spending has been partly financed by a fall in the household saving ratio to 1%, suggesting it may not be sustained.   This is the lowest saving rate since 2007 and compares to the 8%-plus saving rate seen in recent years.

 

Inflation figures were also released earlier in the quarter.   A 0.4% increase in consumer prices in the quarter means that inflation is now running at 2.1%.   While this puts inflation inside the Reserve Bank’s (RBA) 2-3% target range, there is little to suggest the RBA is concerned about the inflation trajectory or that the probability of a domestic rate hike has increased.   This partly reflects that other inflation measures that arguably provide a better measure of underlying inflation trends remain below the target range. Furthermore, wages growth remains relatively subdued at around 2.0%.

 

US economic data remains relatively robust with US GDP growing at an annualised rate of 4.2% in the June quarter following a 2.2% result in the first quarter.   This has reinforced expectations the US Federal Reserve (the Fed) will increase the fed funds rate by another 25 basis points at its September meeting.   This would take the fed funds rate to 2.0-2.25%, still below the long-term average of around 3.25%.

 

At the same time, the US Core Private Consumption Expenditure Price Index, which is the Fed’s preferred  measure of inflation, increased by 1.9% compared to a year ago providing some comfort that inflation pressures are not overly problematic.   In contrast, the standard consumer price index showed a 2.9% year-on-year increase in July, in large part due to higher oil prices.   Nevertheless, wage and inflation momentum in the US suggests that further gradual tightening of US monetary policy is likely into 2019.