With recent collapses in cryptocurrency, a few taxpayers have substantial losses, and some have crystalised these losses. However, the ATO has warned most digital currency buyers, and sellers will fail to qualify as businesses and fall under CGT rules.

Important takeaways:

• Tax agents should quiz clients closely if they intend to claim crypto transaction losses as business revenue. Real care should be taken as the ATO has data-matching systems to check.
• Around 800,000 people have invested in crypto just in the last few years, and approximately 300,000 people in the last 12 months have invested for the first time.
• The ATO has data matching protocols with a number of the Australian crypto asset exchanges.
• How taxpayers offset crypto gains, or losses depends on their facts and circumstances.
• The majority of people, most of them will be investors in crypto. So, depending on their particular facts and circumstances, they’ll either have a capital gain or a capital loss.
• This means they cannot offset any losses against their salary and wages
• Capital losses can be offset against other capital gains –crypto, shares or property.
• Capital losses can be carried forward to future income years in which they can offset those capital losses against other capital gains.

Considerations to offset against income:

If taxpayers intend to offset against income, they must convince the ATO that crypto trading is a business activity. Factors the ATO would consider include –

• Is crypto trading being undertaken for commercial reasons, in a commercially viable way?
• Are activities being conducted in a business-like manner?
• Is there a business plan involving crypto acquisitions?
• Are there good records about the acquisition and sale of crypto?
• Is the intention to make a profit or a genuine belief that profits can be made?

The ATO believes that less than 5% of people buying and selling crypto will fall within this category.

CRYPTO IS NOT TAXED AS FOREIGN CURRENCY

The Federal Treasurer, Dr Jim Chalmers, has confirmed cryptocurrencies will continue to be excluded from foreign currency tax arrangements under the Albanese Government. Capital gains tax will continue to apply to crypto assets held as investments.

This clarification will deliver a consistent tax requirement for crypto asset holders and will be backdated to 1 July 2021 for the avoidance of ambiguity following the decision by the Government of El Salvador.

WASH SALES: THE ATO IS CLEANING UP DIRTY LAUNDRY

In late June, the ATO warned taxpayers not to use ‘asset wash sales’ to increase their losses and artificially reduce gains or expected gains. Wash sales are a form of tax avoidance that the ATO is focused on during this tax time.

Wash sales typically involve the disposal of assets such as crypto and shares just before the end of the financial year. After a short time, the taxpayer reacquires the same or substantially similar assets. This is a wash sale to create a loss to offset against a gain already derived, or expected to be derived, in certain circumstances, in a tax return.

A wash sale is different from the normal buying and selling of assets because it is undertaken to generate a tax benefit for the current financial year. The taxpayer disposes of and reacquires the asset for the deliberate purpose of realising a capital gains loss and obtaining an unfair tax benefit.

The ATO’s sophisticated data analytics can identify wash sales through access to data from share registries and crypto asset exchanges. When the ATO identifies this behaviour, the capital loss is rejected, resulting in an even more significant loss to the taxpayer.

Note: You may still legitimately crystalise a loss before year-end –don’t make it a “wash sale”.

FOCUS FOR 2022 SMALL BUSINESS TAX RETURNS

• Omission of business income, for example, income from sharing economy of new business ventures.
• Record keeping – notably insufficient or non-existent records needed to substantiate claims.
• Deductions are private and not related to business income, as well as overclaiming business expenses, including taxpayers running a home-based business.

SUPER INCREASES FROM July 1, 2022

From 1.7.2022, Australian workers will benefit from a boost to their superannuation.

The permanent 0.5 percentage point rise in the Superannuation Guarantee rate from 10 per cent to 10.5 per cent will increase most employees’ super balance at retirement by around 3 per cent. For the average Australian worker, that means around an extra $15,000 at retirement.

Examples

A recent school leaver who starts their career at a local grocery store where they work their whole career until Age Pension age of 67 will retire with an extra $15,500 due to the permanent 0.5 percentage point increase in the Super Guarantee.

While a 40‑year‑old construction worker who retires at 60 due to the physical demands of their job retires and accesses their super until they are eligible for the Age Pension will have an extra $7,800 higher at retirement as a result of the permanent 0.5 percentage point increase in the Super Guarantee.

SIMPLIFIED TRADING STOCK RULES

The ATO has reminded taxpayers they can use the simplified trading stock rules if:

• either you are a small business with an aggregated turnover of less than $10 million a year, or you would be a small business except your aggregated turnover is $10 million or more but less than $50 million – for income, years starting on or after 1 July 2021, and
• you estimate that the value of your trading stock changed by $5,000 or less in the year.

If you use the simplified rules, you do not have to:

• conduct a formal stocktake
• account for the changes in your trading stock’s value.

Your estimate will be considered reasonable if either:

• you maintain a constant level of stock each year and have a reasonable idea of the value of your stock on hand.
• your stock levels fluctuate, but you can make an estimate, based on your records, of the stock you have purchased.

Use the general trading stock rules if the difference in your trading stock’s value during the year varied by more than $5,000. An increase in your trading stock’s value over the year is assessable income, while a decrease is an allowable deduction.

Example: the value of trading stock changes

Joel runs a knitwear store, and the value of his opening stock for 2021–22 is recorded as $5,600. If Joel makes a reasonable estimate that the value of his closing stock at the end of 2021–22 is:

• $8,000 – as the difference is no more than $5,000, he doesn’t need to do a stocktake or include the increase in value of his stock in his assessable income
• $12,000 – as the difference between the opening stock ($5,600) and his reasonable estimate of the closing stock ($12,000) is greater than $5,000, Joel must do a stocktake and include the increase in value of his stock in his assessable income for 2020–21.

EXPANSION OF HOME GUARANTEE SCHEME

From July 1, .2022, the scheme has expanded to include:

• 35,000 places each financial year to support first home buyers to purchase a home with a deposit of as little as five per cent (the First Home Guarantee); and
• 5,000 places each financial year to support single parents with dependents to purchase a home with a deposit of as little as two per cent (the Family Home Guarantee).

From 1.7.2022, updated property price caps have been applied to reflect recent property price increases and make more properties available for purchase using the scheme. Further information on the scheme, including eligibility criteria and the complete list of participating lenders, is available from the National Housing Finance and Investment Corporation website.

The Federal Government will also provide targeted support to Australians living in regional areas through a new Regional First Home Buyer Support Scheme. This new scheme will join the Home Guarantee Scheme. The Federal Government is committed to introducing a suite of policies to make it easier for Australians to buy homes and deliver more social and affordable housing.

Policies aimed to make it easier for Australians to buy a home include:

• The $10 billion Housing Australia Future Fund will build 30,000 social and affordable housing properties in its first five years;
• Help to Buy, a new program to make it cheaper and more accessible for Australians to own their own home;
• Establishing a National Housing Supply and Affordability Council; and
• Developing a new National Housing and Homelessness Plan.

DOWNSIZER CONTRIBUTIONS AGE CHANGES FROM JULY 1, 2022

The ATO has reminded superannuation funds that from 1 July 2022, people aged 60 years and over will be eligible to make downsizer contributions of up to $300,000 per person ($600,000 per couple) from the sale proceeds of their home into their super. Eligible downsizer contributions won’t impact or count towards the member’s concessional or non-concessional super contribution caps.

Members of superannuation funds must send the downsizer contribution form either before they make their downsizer contribution or when they make their downsizer contribution.

PAYMENT RETAINS ITS CHARACTER AS ASSESSABLE ROYALTY INCOME

GQRW and FCT [2022] AATA 1779, 17 June 2022
In this Administrative Appeals Tribunal case, it was an amount of $43,000 paid to a taxpayer that retains its character as assessable royalty income. The taxpayer and others ran a business through a unit trust dealing with intellectual property. Several family trusts, including one associated with the taxpayer, were the unit holders. Following a disagreement involving the parties, it was agreed to pay the taxpayer and his wife the family trust’s share of royalty payments from the business for the relevant income year. The AAT found that the agreement under which the payment was made to the taxpayer did not change its character as assessable royalty income in his hands in the circumstances.

Take out:

The takeout here is that you cannot change the character of the income supply by calling it something else.

ELECTRIC CAR DISCOUNT BILL INTRODUCED TO PARLIAMENT

On 27.7.2022, the Government introduced the Treasury Laws Amendment (Electric Car Discount) Bill 2022 into Parliament. It implements the Government’s plan to remove the fringe benefits tax (FBT) to make electric cars cheaper so that more families who want them can afford them.

The legislation will amend the Fringe Benefits Tax Assessment Act 1986 to exempt the use of eligible electric cars made available by employers to employees from FBT. This FBT exemption will apply to battery electric cars, hydrogen fuel cell electric cars and plug-in hybrid electric cars.

The exemption will be available for eligible electric cars with a first retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 for 2022 23) first made available for use on or after 1 July 2022. If an employer provides a model valued at about $50,000 through this arrangement, the fringe benefits tax exemption will save the employer up to $9000 a year. Individuals using a salary sacrifice arrangement to pay for the same model would save up to $4700 a year.

This measure forms part of the Government’s Electric Car Discount, which will reduce the upfront and ownership cost of electric vehicles, addressing a significant barrier to their uptake. The FBT exemption will be implemented as an ongoing measure and reviewed after three years in light of electric car take-up to ensure it remains effective.

On top of today’s bill, the Government will also introduce changes to remove the five per cent import tariff for eligible electric cars and the extremely overdue development of Australia’s first national Electric Vehicle Strategy.

The transport sector is one of Australia’s fastest-growing sources of emissions, and the stronger uptake of electric vehicles can substantially impact our efforts to tackle climate change.

Importantly – as families struggle with the rising cost of fuel – encouraging more affordable EVs into the market is an important step in addressing transport costs over the medium term and building resilience to global oil prices.

TAX CONSEQUENCES FOR LEGALLY VALID TRUST DISCLAIMERS

ATO provides clarity following Commissioner of taxation v Carter

In June, the ATO released a Decision Impact Statement following Commissioner of Taxation v Carter. The High Court clarified the tax consequences of situations involving legally valid trust disclaimers.

The High Court’s decision in Carter settled a practical question as to how trust income is to be taxed when a beneficiary validly disclaims relevant trust entitlements sometime after year-end. Importantly, the Court’s decision does not adversely impact people who are beneficiaries of a trust and wish to retain their trust entitlements.

The ATO funded the taxpayer’s costs in this matter because the uncertainty in how the tax law operated when a beneficiary disclaims an entitlement was significant to tax administration.

• In particular, the ATO was concerned that a beneficiary could intentionally avoid the incidence of tax by disclaiming an entitlement after year-end and that, in some instances, a late disclaimer could have been part of a scheme with the effect that the underlying income was never taxed to anyone.
• The actions of such a beneficiary could have adverse implications for others with interest in the trust, without them knowing or having a say in this.

Awareness is needed for beneficiaries of trust entitlements

Beneficiaries need to be aware of their trust entitlements and the steps they can take to call for payment of their entitlement. Trustees and beneficiaries must be aware of the taxation consequences of trust entitlements.

The ATO encourages trustees and taxpayers with trusts in their family groups to consider the tax implications from proposed entitlements and to give themselves time to seek advice, if necessary, so that the tax implications are understood by both the trustee and the beneficiaries before the proposed entitlements are made.

The ATO also encourages beneficiaries of trusts to exercise particular caution before disclaiming an entitlement from a trust. Further, if they have a tax obligation arising from entitlement and the entitlement is not subsequently distributed to them, seek advice on compelling the trust to distribute that amount.

This is consistent with the reality that trustees have broad obligations to act in the interests of their beneficiaries and cannot act to manufacture unfair outcomes for them deliberately.