Assessing attribution income 043-04050010

Assessment of attribution and distribution income for trusts and companies

$\\INTERNAL.DEPT.LOCAL\Shared\NAT\SERDELEXCEL\WORKPRODIMP\Operation Blueprint Migration\RDT Release Icons\32w\icon-attachment.png$ Assessment of attribution and distribution income for trusts and companies

Calculators

$\\INTERNAL.DEPT.LOCAL\Shared\NAT\SERDELEXCEL\WORKPRODIMP\Operation Blueprint Migration\RDT Release Icons\32w\icon-attachment.png$ Interim profit and loss calculator for trusts and companies

$\\INTERNAL.DEPT.LOCAL\Shared\NAT\SERDELEXCEL\WORKPRODIMP\Operation Blueprint Migration\RDT Release Icons\32w\icon-attachment.png$ Excess superannuation calculator

Examples

$\\INTERNAL.DEPT.LOCAL\Shared\NAT\SERDELEXCEL\WORKPRODIMP\Operation Blueprint Migration\RDT Release Icons\32w\icon-attachment.png$ Adjusting the profit and loss for excess superannuation expenses paid on behalf of controllers or associates Note: pre 16 March 2017

Examples of calculating an attribution period

Example	Description
1	John On 31 January 2017, John signed the tax return and financial reports from a business accountant. The information was for the derivation period of 1 July 2015 to 30 June 2016. John provides a copy of the financial report on 12 February 2017. The attribution period for income derived in the 2015-16 financial year is from 31 January 2017 to 30 January 2018. This information is maintained until the provision of the next financial reports.
2	Jo Won On 31 January 2018, Jo Won signed the tax return and financial reports from a business accountant. The information was for the derivation period 1 July 2016 to 30 June 2017. Jo Won does not provide a copy of the financial reports until 15 May 2018. The attribution period for income derived in the 2016-17 financial year is from 31 January 2018 to 30 January 2019. This information is maintained until the provision of the next financial reports. Sometimes a debt may result. The debt attribution period should be the same as the attribution period for trusts and companies' rules. This is to compare the difference for the same period. In this case, there is a possible debt for the period 31 January 2018 to 14 May 2018.
3	Abdul Abdul is the attributable stakeholder of a private company. Details of the company income generally become available every May. Centrelink conducts an annual review at that time every year. The relevant attribution period is therefore May to April using the last financial year as the derivation period. Abdul provided the 2018-19 tax return and financials to Centrelink on 20 June 2020. The assessor noted that the company tax returns were signed on 10 May 2020. This was the date of event (DOV) used to update the company's income and assets. The assessable income for 2018-19 was higher than 2017-18. A debt resulted for the period 10 May 2020 to 19 June 2020.
4	Bob and Mary Attributed income referable to attribution periods Bob and Mary operate their own private company and Mary receives Parenting Payment. They provide their company tax returns to Centrelink every April when they become available. The following table shows Mary's ongoing entitlement based on attributed income referable to attribution periods as follows: Period 1 Date supplied: 2 April 2015 Date assessed: 2 April 2015 Derivation period: 2013-14 Attribution period: 2 April 2015 to 10 April 2016 Attributed income $ per annum: $5,000 Period 2 Date supplied: 11 April 2016 Date assessed: 21 April 2016 Derivation period: 2014-15 Attribution period: 11 April 2016 to 29 April 2017 Attributed income $ per annum: $11,500 Period 3 Date supplied: 30 April 2017 Date assessed: 8 May 2017 Derivation period: 2015-16 Attribution period: 30 April 2017 to when the next tax returns are completed, 20 April 2018 Attributed income $ per annum: $7,200
5	Gordon Non-disclosure of trust or company involvement Gordon commenced operating a transport business through a private trust on 1 October 2017. On 5 March 2018, Gordon suffered an injury which resulted in him needing to employ a driver to undertake the transport work. On 29 November 2019 Gordon claimed and was granted Disability Support Pension. Gordon failed to declare the trust as part of his claim. On 1 November 2022, Gordon’s partner makes a claim for Age Pension and declares the trust as part of her claim. The trust income tax returns and financial statements were prepared on the following dates: 2018/2019 - 23 October 2019 2019/2020 - 30 October 2020 2020/2021 – 3 December 2021 2021/2022 – 6 October 2022 Gordon confirms that the 2019 income tax return and financial statements reflected the reduction in income for the trust following his injury. The derivation and periods will be as follows: Period 1 2018/2019 Income Tax Return and Financial Statements 29 November 2019 to 29 October 2020 Period 2 2019/2020 Income Tax Return and Financial Statements 30 October 2020 to 2 December 2021 Period 3 2020/2021 Income Tax Return and Financial Statements 3 December 2021 to 5 October 2022 Period 4 2021/2022 Income Tax Return and Financial Statements 6 October 2022 ongoing until next change in circumstances (including next income tax return and financial statements)
6	Mary Non-disclosure of new business Mary failed to disclose that she and Bob began a new business within the private company on 1 December 2015. She notified when they lodged their 2014-15 income tax return on 11 April 2016. This means the previously assessed derivation periods of 2013-14 or 2014-15 tax years are not relevant. New derivation periods apply for the attribution periods from 1 December 2015 onwards. Interim accounts (covering period 1 December 2015 to 11 April 2016) are used to assess attributed income for the company including the new business. The following information shows Mary's ongoing entitlement based on attributed income referable to attribution periods as follows: Period 1 Date of event: 2 September 2015 Event: Date of claim Derivation period: 1 July 2013 to 30 June 2014 Attribution period: 2 September 2015 to 30 November 2015 Attributed income $ per annum: $5,000 Period 2 Date of event: 1 December 2015 Event: New business started Derivation period: 1 December 2015 to 11 April 2016 Derivation period retrospectively reassessed to the period of the interim accounts. Attribution period: 1 December 2015 to 11 April 2016 Income from reassessed derivation period applied retrospectively Attributed income $ per annum: $15,000 The attributed income is applied retrospectively. A debt results from the retrospective change of the derivation and attribution period. This is from 1 December 2015 to 11 April 2016. This now takes into account the new business and that Mary did not notify her change of circumstance within the notification period. Period 3 Event: 2014-15 income tax return supplied, but interim accounts requested for the period 1 December 2015 to 11 April 2016 Derivation period: 1 December 2015 to 11 April 2016 Interim period now best estimate of income current as at 11 April 2016. Update 30 June 2015 balance sheet details only. Attribution period: 11 April 2016 to 1 June 2016 Continues until next update Attributed income $ per annum: $15,000 applied until next interim accounts are provided Period 4 Date of event: 1 June 2016 Event: 6 months of new business, new interim profit and loss requested for 1 December 2015 to 30 May 2016. Derivation period: 1 December 2015 to 30 May 2016 6 months now best estimate of income current as at 1 June 2016 Attribution period: 1 June 2016 to 30 November 2016 Continues until next update Attributed income $ per annum: $20,000 Period 5 Date of event: 1 December 2016 Event: Full year of new business interim profit and loss requested Derivation period: 1 December 2015 to 30 November 2016 Full year now best estimate of income current as at 1 December 2016 Attribution period: 1 December 2016 to 19 April 2018 Continues until next update Attributed income $ per annum: $28,000 Period 6 Date of event: 30 April 2017 Event: 2015-16 income tax return supplied but disregarded as does not include full year profit of new business. Update 30 June 2016 balance sheet details only. Derivation period: 1 December 2015 to 30 November 2016 Continues using 1 July 2016 to 30 June 2017 Attribution period: 1 December 2016 to 19 April 2018 Continues until next update Attributed income $ per annum: $28,000 Period 7 Date of event: 20 April 2018 Event: the date 2016-17 income tax return completed and includes full year profit for all businesses. Documents supplied within 14 days of the event. Derivation period: 1 July 2016 to 30 June 2017 Attribution period: 20 April 2018 onwards and continues until next update Attributed income $ per annum: $32,000

Super Expense equal to Super Guarantee (SG) amount

The following examples are based on an SG rate of 10% as applicable for the 2021/22 financial year. See ATO Super guarantee percentage.

No salary sacrifice to super

In many instances, the superannuation expense is equal to the SG levy. Simply multiply the wage expense by the SG rate applicable for the tax year.

For example, the 2021/22 entity tax return shows the following:

Wage expense of $20,000
Superannuation expense of $2,000

CAOs can also check personal superannuation statements of the customer and partner for any SG amount(s).

The mandated SG contribution levy for wages of $20,000 is 10%, or $2,000. This is the same as the superannuation expense of the entity so there is no excess super contribution. No further action is required in this example.

Employment income salary sacrificed to super

Amounts salary sacrificed to super are employment income and are subject to the SG levy. Where the superannuation expense of an entity appears greater than the SG Levy amount, for example, wage expense is $20,000 and superannuation expense is $7,500 (10% of $20,000 is $2,000, not $7,500), CAOs need to determine the actual SG Levy amount by deducting any salary sacrificed amounts.

For example, the customer’s personal tax return shows:

Reportable super contributions (salary sacrifice) of $5000 on their tax return
Employer Contributions of the same amount on their super statement

The entity tax return shows:

Wage expenses of $20,000
Superannuation expense of $7,500

As the personal tax return and super statement show an amount of $5,000 sacrificed to super, the total employment income of the controller or their associate is $25,000 ($20,000 wages plus $5,000 salary sacrifice). Deduct the salary sacrifice amount of $5,000 from the superannuation expense of the entity. This leaves an amount of $2,500.

The SG levy amount is applied to the total wages of $25,000, which equals $2,500 (10% of $25,000). This amount is equal to the super expense of the entity less the salary-sacrificed amount. No further action is required in this example.

Super expense greater than Superannuation Guarantee (SG) amount

The entity (employer) may pay an amount to superannuation that is greater than the mandated SG levy. The controller or associate may also choose to direct some or all of their pay to super before tax (salary sacrifice).

CAOs need to determine the SG levy amount, which is not considered income from employment, and therefore the excess super contributions to determine the assessable employment income of the controller or associate. See Assessing salary sacrificing/salary packaging arrangements for employment income.

CAOs should first check the personal superannuation statement of the customer and partner for any SG amounts. These will show as Employer superannuation guarantee contributions. The personal income tax return(s) must be obtained to determine salary-sacrificed amounts which are shown as Reportable Superannuation Contributions. They will also display as Employer Contributions on the superannuation statement. Salary sacrificed amounts are added to the customer’s employment income and deducted from the superannuation expense of the entity

For example: the 2021/22 entity tax return shows:

Superannuation expense: $12,500
Wage expense: $20,000.

The SG rate for the 2021/22 financial year is 10%. See ATO Super guarantee percentage. The SG rate is applied to all earnings, including salary sacrificed amounts. As such, the excess super contributions need to be determined in order to calculate the correct SG amount.

Use the Excess super calculator to determine these amounts. Previously, the calculator only applied to pre 16 March 2017 cases to determine excess super contributions that were not an allowable deduction of the entity. The calculator can also determine excess super contributions to calculate assessable employment of the controller or associate under the post 16 March 2017 assessment rules.

Alternatively, the following formula can be used to calculate the SG amount and excess super contributions:

E = S - {P/(P+100} X (S + W) where:

P = superannuation guarantee expressed as a percentage
S = superannuation expense claimed
W = wage or salary expense
E = Excess superannuation not allowable

Applying the formula to the amounts:

E = $12,500 - {10/(10+100) X ($12,500 + $20,000)}
E = $12,500 - {10/110 X ($32,500)}
E = $12,500 - (0.0909090 X $32,500)
E = $12,500 - $2954.54
E = $9545

Assessable employment income is the employment income expense shown on the tax return, plus the excess super contributions: $29,545 ($20,000 + $9,545). The formula also shows that the SG amount is $2954. This can be checked by applying the SG rate (in this case 10%) against the adjusted employment income amount: $29,545 x 10% = $2954

If the customer has salary sacrificed an amount super as evidenced by Reportable super contributions on their tax return and/or Employer contributions on their super statement, deduct this amount from the entity superannuation expense and add it to the wage expense. The same method still applies after this adjustment.