The government has introduced a Temporary Flood and Cyclone Reconstruction Levy (flood levy) applying to taxable income for the 2011-12 year only.

It is designed to assist affected communities to recover from the recent natural disasters by providing additional funding to rebuild essential infrastructure - for example, roads, bridges and schools.

If you are an employer, please ensure that you are using the updated Tax Tables for the 2012 financial year.

The flood levy will only apply to taxable income derived between 1 July 2011 to 30 June 2012

The Tax Office has provided the following information concerning its action on detecting overstated or fraudulent tax refund claims:

"Since 1 July 2011, we have stopped over 49,000 returns [that had risen to 77,000 returns as at 1 September 2011] with total refunds claimed of around $190m [over $220m as at 24 August 2011] that are believed to include overstated claims or be potentially fraudulent.

Each return stopped has been identified as containing some information that requires verification prior to issuing a notice of assessment.

As data supplied by other parties continues to become available (such as payment summaries from employers) we regularly re-examine these returns and to date have released some 5,600 returns where we have been able to verify the information contained in the return that we were unable to do at the time of lodgement.

To date some 12,000 reviews have commenced or are currently with compliance officers with the review letters about to issue.

Given the increased numbers of refunds that have been stopped so far this year compared to last year we are developing strategies to vastly increase this number in the coming weeks, focussing on those returns where tax agents may have the documentation and explanations to verify claims.

We expect to commence reviewing the remaining taxpayers within the 12 weeks from lodgement timeframe previously advised."

Again we urge all our clients to have the appropriate level of audit insurance protection in case of an audit.

Please call Jill on 03 9578 3733 to arrange the cover.

The ATO has issued a warning to Trustees of Self-Managed Super Funds to ensure loan terms comply with the law and are in the best interests of retirement.

The ATO says it is concerned that some trustees are lending money on favourable terms from their SMSFs to people who provide advice or assist in the running of the fund. It warns that this arrangement may lead to the loss of the complying status of the fund and concessional tax rates.

Before lending any money, the ATO says trustees should consider the fund's investment strategy and seek advice before entering into such arrangements. Should the trustee decide to lend money from their SMSF, it says the following appropriate documentation should be retained:

• an appropriate loan agreement signed by all parties specifying all the terms of the loan, such as:

o the security for the loan;
o the repayment period;
o repayment due dates;
o the amount of the repayments;
o the interest rate.

The ATO notes the trustee should ensure the conditions of the loan agreement do not provide the borrower with favourable terms. Further, the trustee should also ensure the interest and repayments received by the fund accord with the loan agreement, the ATO says. Should the loan agreement not be followed, it says the trustee should take appropriate action to ensure that members' benefits are not put at risk.

As part of ATO approach to managing risks in the cash economy, this financial year the Tax Office will send 110,000 letters to taxpayers who may be participating in the cash economy. These letters are designed to increase voluntary compliance.

The ATO will mostly send the letters to business operators reporting outside the small business benchmarks for their industry or to those identified because they reported insufficient business income to meet their expected living expenses.
The letters will alert businesses that these are part of a range of indicators the Tax Office use to:

• identify businesses that may be participating in the cash economy by failing to report all of their transactions
• select businesses for an audit or review.

The letters under this program are advisory letters. They identify potential compliance risks and prompt taxpayers to review their records, returns and income. Please contact us as soon as possible if you are in receipt of an ATO cash economy letter. We again urge all our clients to check if they took out audit insurance to avoid unnecessary accounting fees payable in case of an audit.