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Practice Update - January 2024

Practice Update

January 2024

🔶 LATEST DEVELOPMENTS IN VICTORIAN TAX REFORM 🔶

The Victorian Government’s recent budget announcement revealed plans for a significant transition in the taxation of commercial and industrial properties. The proposed Commercial and Industrial Property Tax Reform aims to replace transfer duties with an annual property tax, impacting properties from July 1, 2024.

Key Points:

1. Transition Period:

Commercial and industrial properties will shift from stamp duty to an annual property tax of 1% p.a., known as the Commercial and Industrial Property Tax (CIPT).
The CIPT comes into effect after the final round of stamp duty is paid on a property, typically on July 1, 2024.

2. Qualifying Properties:

The reform applies to Victorian land with commercial or industrial use, excluding residential, primary production, community services, sport, heritage, and culture.
For mixed-use properties, the “sole or primary use” test is applied by the Victorian Commissioner to determine eligibility.

3. Entry into the New System:

Properties enter the new system when a contract for sale is executed on or after July 1, 2024, with a 50% or more charge in ownership and a relevant “positive duty liability.”
Exemptions include transactions exempt from duty (e.g., deceased estates) and excluded/complex arrangements.

4. Annual CIPT and Land Tax:

Once in the new system, subsequent dealings are not subject to stamp duty if the property maintains its commercial or industrial classification.
The CIPT, set at 1% of the property’s unimproved land value, applies annually from December 31 after the tenth anniversary of the last duty payable, with no tax free threshold.
CIPT administration mirrors land tax, with similar features and exemptions.

5. Change of Property Classification:

If a property shifts to a non-qualifying use, CIPT is suspended while in use for that purpose. Dealings during this period may be subject to duty.

A “change-of-use duty” may apply if there has been a dealing in the property in the 10 years before the change.

What’s Next?

The recent announcement provides a clearer understanding of the proposed reforms, but the process requires further details and legislation. The Victorian Parliament is expected to receive these updates in 2024. Stay tuned for developments on the transition from stamp duty to the Commercial and Industrial Property Tax system.

🔶 UPDATE ON THE SERIOUS FINANCIAL CRIME TASKFORCE (SFCT) INITIATIVES 🔶

As the head of the Serious Financial Crime Taskforce (SFCT), the Australian Taxation Office (ATO) remains steadfast in its commitment to combatting serious financial crime.

Focusing on the Serious Financial Crime

While most individuals fulfill their tax obligations, there is a small cohort deliberately engaging in wrongful activities. In response, the ATO-led SFCT was established to address and target the more severe instances of financial crimes across Australia.

Latest News: Gold Bullion Fraud Lands 8-Year Jail Sentences

In a major win for the ATO-led Serious Financial Crime Taskforce (SFCT), two fraudsters, Cedric Adrian Millner and Jonatan Kelu, received 8-year jail sentences in the Supreme Court of NSW for attempting gold bullion fraud.

The investigation revealed their scheme involved purchasing GST-free gold bullion, converting it into scrap, and selling it inclusive of GST to a refiner. Both individuals falsely claimed GST input tax credits, asserting that the GST-free gold bullion was bought inclusive of GST under the GST second-hand rules.

Despite their attempt to avoid detection, the SFCT’s expert investigators, as part of Operation Nosean, exposed the fraud. This operation targeted network participants in the gold bullion and precious metals industry, aiming to prevent exploitation of GST rules.

The comprehensive case, built on thousands of documents and multiple data sets, demonstrated that fraudulent activities in the gold bullion industry would not go unnoticed. New laws introduced in April 2017 further strengthen efforts to combat fraud in this sector.

This serves as a clear message to those attempting to evade or cheat the tax system: there is no place to hide, and such behavior will not be tolerated.

To stay updated on the latest developments and outcomes from the SFCT, feel free to subscribe to the general email updates of the ATO.

🔶 UPDATE ON FUNDRAISING FOR DISASTER RELIEF BY NOT-FOR-PROFIT ORGANIZATIONS 🔶

Not-for-profit organizations (NFP) play a crucial role in collecting funds for disaster relief efforts. If your organization falls under the NFP category but is not a Deductible Gift Recipient (DGR), and you wish to raise funds for disaster relief, you have two options: collaborate with an established DGR or establish your own DGR.

It’s important to note that you can also collect funds to aid victims without donors being eligible for a tax deduction.

Advantages of Collecting for an Established DGR

Opting to collect funds for an established DGR comes with several benefits. These organizations already have systems in place to efficiently handle gifts and provide prompt assistance to disaster victims. This streamlined process ensures that support reaches those in need promptly.

Support for Both Australian and Overseas Disasters

Whether the disaster is local or international, your NFP organization has the flexibility to collect funds for various relief efforts. For overseas disasters, permissible collection avenues include:

1. A developing country relief fund or organization

2. A developed country disaster relief fund

3. A public ancillary fund

For Australian disasters, your organization can collect funds through:

1. A necessitous circumstances fund

2. A public benevolent institution

3. An Australian disaster relief fund

4. A public ancillary fund

Stay committed to making a positive impact by contributing to disaster relief initiatives and providing crucial support to those affected.

🔶 TAX-DEDUCTIBLE GIVING: SUPPORTING ENVIRONMENTAL CAUSES THROUGH DGR-ENDORSED ORGANIZATIONS 🔶

Environmental organizations can receive tax-deductible gifts if endorsed as deductible gift recipients (DGR). Eligible organizations focus on protecting the natural environment, providing education, or conducting research related to it, including land, wildlife, and rainforest conservation.

Prior to 1 January 2024, environmental organizations and their public funds had to be registered on the Register of Environmental Organizations, which was administered by the Department of Climate Change, Energy, the Environment and Water to have their public fund endorsed as a deductible gift recipient (DGR).

From 1 January 2024, we administer the DGR category for environmental organizations (item number 6.1.1) and assess eligibility for endorsement.

If you were endorsed as a public fund on the Register of Environmental Organizations prior to 1 January 2024, transitional provisions apply.

Eligibility criteria include an active Australian business number, must be located in Australia, and must have the characteristics of an environmental organization, including:

1. registration with the Australian Charities and Not-for-profits Commission as a charity, being an Australian government agency,

2. having a principle purpose that is one of the following:

The protection and enhancement of the natural environment or of a significant aspect of the natural environment, or
The provision of information or education, or the carrying on of research, about the natural environment or a significant aspect of the natural environment.

3. Having a policy against serving as a mere conduit for donations, and

4. Maintaining a gift fund with an appropriate DGR winding up and revocation clause.

Characteristics of eligible institutions and principal purposes are outlined, emphasizing a holistic approach to evaluating an organization’s purpose. The natural environment encompasses various aspects, excluding certain constructions and cultural sites.

Organizations must have a policy against acting as a mere conduit, maintain a gift fund, and meet specific requirements for the fund. There are two ways to apply for DGR endorsement, either through the Australian Charities and Not-for-profits Commission or directly if already registered or a government agency.

Once endorsed, organizations can update their status on the ABN lookup, and responsibilities include record-keeping, reporting changes, and conducting regular eligibility reviews.

Tax-deductible gifts and donations must meet specific criteria, and it is the donor’s responsibility to determine the deductibility of their contribution. Accepted donations include money over $2, property valued over $5,000, and trading stock.

🔶 DISALLOWING ATO INTEREST CHARGE DEDUCTIONS 🔶

Effective July 1, 2025, taxpayers will lose the ability to claim deductions for ATO interest charges.

In the 2023-2024 Mid-Year Economic and Fiscal Outlook (MYEFO) released on December 13, 2023, the Government revealed its intention to modify tax laws, preventing taxpayers from claiming deductions for ATO interest charges. It’s important to note that this measure has not yet become law.

Under this amendment, taxpayers will no longer be eligible to deduct general interest charges (GIC) and shortfall interest charges (SIC) incurred on or after July 1, 2025. The denial of deductions implies that any later remission of GIC or SIC will no longer be considered as assessable income.

🔶 NAVIGATING NEW REGULATIONS ON FIXED TERM CONTRACTS 🔶

It’s essential to understand the crucial changes in regulations for fixed-term contracts starting December 6, 2023. Employers must now provide a Fixed Term Contract Information Statement (FTCIS) to employees engaged in fixed-term contracts, ensuring compliance with the new rules. The limitations on these contracts include time, renewal, and consecutive contract restrictions, with exceptions for specific scenarios. Anti-avoidance protections are in place to prevent intentional circumvention of these rules.

Employers are exempt from limitations for contracts made before December 6, 2023. Effective July 1, 2023, the high income threshold is set at $167,500. Part-time employees or those who are working less than a year have specific calculations to determine their income threshold: required annual hours, divided by the full-time equivalent, and multiplied by the annual high income threshold. To identify the full time equivalent, identify the hours specified in the agreement or award applicable to the employee. If unavailable, consider the hours of comparable full-time employees within the same employer. In cases where both methods don’t apply, assume a standard 38 hours per week for a full-time employee.

Additional exceptions apply to various sectors. Disputes should be initially resolved through discussion, with the Fair Work Commission available for mediation, if needed. Fixed-term employees are entitled to the same benefits as permanent employees, and termination of employment usually does not involve notice or redundancy pay. Distinguishing between fixed-term employees and independent contractors is crucial.

Employers are encouraged to seek specific advice for individual circumstances from unions, employer associations, or legal professionals.

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If you have concerns and questions regarding these issues, feel free to contact the Lynden Group at info@lyndengroup.com.au or give us a call at (03) 8548 1843.