Newsletters
April 2024
Revised stage 3 tax cuts now law
With the revised stage 3 tax cuts now law, it’s a good time to understand how these changes will affect you and how to plan your taxes for the future more effectively. The new rates will apply from 1 July 2024.
For the current income year, an individual who earns $67,600 annually (the median income from the latest Australian Bureau of Statistics data) will be expected to pay around $12,437 in income tax. With the new tax rates coming in for the 2024–2025 income year, assuming they earn the same amount, they will be paying $11,068 in income tax – a tax saving of around $1,369 for the year, or around $26 per week.
An individual who earns $98,176 annually (the average income from the latest average weekly ordinary time earnings data) will have an income tax bill of around $22,374 for the 2023–2024 income year. However, this will drop to $20,240 when the new rates come into force for the 2024–2025 year, leading to a tax saving of around $2,133 for the year, or $41 per week.
Similarly, an individual who earns $180,000 can expect to see a tax saving of $3,729 for the year, or $71 per week; they will pay income tax of $51,667 for 2023–2024 versus $47,938 in 2024–2025.
These revised tax cuts were introduced as a cost-of-living relief measure by the government to put more money back in the pockets of Australian workers so they can deal with recent skyrocketing inflation. By also giving a proportional tax cut to working holiday makers and foreign residents the government is banking on more spending from that segment which will boost the economy overall.
In association with the revised income tax cuts, the government has also lifted low-income Medicare levy thresholds for eligible singles, families, seniors and pensioners to apply for the current income year, meaning more low-income earners can avoid paying the Medicare levy of 2% on top of their tax, or will pay a reduced amount of levy.
Refresher on deductibility of self-education expenses
With the return of international conferences for various occupations, the deductibility of expenses such as accommodation, meals and course fees related to self-education will once again come into play at tax time. Generally, work-related self-education expenses are tax-deductible if they enhance skills and knowledge, or lead to an income increase related to current income-producing work, for the person claiming the deduction.
Self-education expenses include the costs of courses at an education institution (whether leading to a formal qualification or not), courses provided by a professional organisation or an industry organisation, attendance at work-related conference or seminars, self-paced learning and study tours (whether within Australia or overseas).
Self-education expenses are tax-deductible if your income-earning activities are based on the exercise of a skill, or some specific knowledge, and self-education enables you to maintain or improve that skill or knowledge; and/or the self-education objectively leads to, or is likely to lead to, an increase in your income from your income-earning activities in the future (eg through a real opportunity of promotion, or eligibility for a higher pay grade or bonus).
You cannot deduct self-education expenses if the education is undertaken or designed to obtain employment, obtain new employment, or open up a new income-earning activity (whether in a business or in current employment).
A deduction is also not available if you weren’t undertaking income-earning activities to derive assessable income (either by employment, carrying on a business or other means) at the time you incurred the self-education expense. Additionally, you can’t claim a deduction for any government assistance you receive in the form of rebatable benefits (eg Youth Allowance, Austudy, ABSTUDY).
For self-education expenses that are only partly deductible, you need to apportion the amounts spent and claim only the part that relates to an income-earning purpose.
ATO scrutinising novated leases
The ATO will once again be running its data matching program on novated leases in 2024, covering the 2023–2024 to 2025–2026 income years. This program first commenced in 2021, collecting data from the 2018–2019 income year.
Novated lease data will be collected from various fleet and leasing groups, including McMillian Shakespeare Group, Smartgroup Corporation, SG Fleet Group, Eclipx Group, LeasePlan, Toyota Fleet Management, LeasePLUS and Orix Australia.
The data collected from providers will consist of a range of lessee/employee identification details, employer identifying details and lease transaction details, and it’s estimated that around 240,000 individuals will be affected by the latest data matching program each financial year. The program will allow the ATO to identify and address tax risks such as employers claiming GST credits incorrectly for paying the GST on the purchase of vehicle, risks related to FBT compliance, and employees incorrectly claiming motor vehicle related tax deductions.
The ATO also uses data from this type of program to provide tailored advice and guidance through online messaging prompts when people are completing their tax return, and for targeted prompter campaigns to identify any taxpayers with novated leases who have claimed work-related expenses on their tax returns.
Paying super on expanded government paid parental leave
The Treasurer has announced that the Federal Government will pay superannuation on paid parental leave from 1 July 2025. The intention is that the superannuation will be administered by the ATO, meaning that employers will not have to process these payments on the government’s behalf. Further details of this measure, including cost, will be released in the Federal Budget due to be handed down in May 2024.
The Treasurer has said that this reform builds on the government’s work to “modernise” paid parental leave and expand the payment to cover a full six months by 2026. The expansion to Australia’s Paid Parental Leave Scheme will give families an additional six weeks of paid parental leave in total: an extra two weeks of leave (for 22 weeks total) from 1 July 2024, increasing to 24 weeks from July 2025 and 26 weeks from July 2026.
Employers will continue to be involved in the administration of payments if an employee elects to take eight or more weeks of their entitlement consecutively. For any shorter periods, Services Australia will pay the individual directly.
Small Business Superannuation Clearing House and SMSF bank account validation
To safeguard retirement savings held in self managed superannuation funds (SMSFs) from fraud and misconduct, the ATO is rolling out new security features. One new feature consists of checking for a match between an employee’s SMSF bank account details and the SMSF record when electronic payments are made via the Small Business Superannuation Clearing House (SBSCH). Where there’s a mismatch, the SBSCH cannot accept payments to an employee’s SMSF until the error is resolved.
The SBSCH is a free, online superannuation payments service (part of ATO Online Services) that small businesses can use to pay their super contributions in one transaction. It’s designed to simplify the process of making super contributions on behalf of employees, and is available to small businesses with 19 or fewer employees, or businesses with an annual aggregated turnover of less than $10 million. This service helps reduce the time and paperwork associated with making super contributions for multiple employees across different super funds.
The new security feature, from 15 March 2024, will check whether an employee’s SMSF bank account details match their SMSF records. Where there’s a mismatch, or where an employee has not listed their bank account details, the employer will receive an “invalid super fund bank details” error on the SBSCH payment instruction. According to the ATO, where this error occurs, the SBSCH cannot accept payments to an employee’s SMSF until the issue is resolved.
Once the discrepancy is resolved, employers will be able to update the employee’s SMSF bank details in SBSCH and submit payment instructions. To avoid delays for other employees, however, the ATO notes that SBSCH payment instructions can still be submitted for employees with valid super fund details ahead of resolution of any individual discrepancy.
This security feature is just one of many that the ATO has been rolling out recently to safeguard retirement savings in SMSFs. For example, the ATO now sends rollover alerts to members of SMSFs when a super fund uses the SMSF verification service to verify a fund’s details with the intention to roll super benefits into an SMSF. This can alert members of SMSFs to an unauthorised rollover so they can act to stop it.
March 2024
Are you receiving personal services income?
Do you earn personal services income (PSI)? While most people may think that it only applies to builders or tradies, the truth is that may also apply to any instance where individuals work and earn income using their personal effort or skills.
PSI generally only applies to individuals who receive more than 50% of their ordinary or statutory income from a contract as a reward for their personal effort or skills. An example that most people would be familiar with is a sole trader tradesperson using their skills to earn income, either directly or through an interposed entity (a PSE). However, PSI can apply to any industry, trade or profession where individuals use their personal effort or skills. This includes so-called “white collar” professionals in IT, finance and medicine, in addition to the construction industry and related trades.
If you earn PSI during the income year, the deductions that can be claimed will be limited to the deductions that you could have claimed if you were an employee (rather than someone earning PSI) and the income earned was salary and wages. This means that, for example, you would be unable to deduct rent, mortgage, interest, rates or land tax in relation to a residence or part of a residence that you use to gain or produce your PSI. This rule applies to all PSI, regardless of whether it is earned as a sole trader or through a company, partnership or trust. To avoid that outcome, individuals/personal services entities (PSEs) can generally self-assess whether they conduct a personal services business (PSB) against four tests. If any one of the four tests is met during an income year, the PSI rules will not apply to limit the deductions available to the individual or PSE.
How much does negative gearing really cost?
Since the government’s announced changes to the Stage 3 tax cuts to give lower income earners more benefits, the chorus of voices advocating for changes to other aspects of the tax system, such as negative gearing, has grown steadily stronger. So how much does negative gearing actually cost the nation each year? The answer to this can be gleaned from the 2023–24 Tax Expenditures and Insights Statement (TEIS) which, somewhat confusingly, contains figures relating to the 2020–2021 financial year.
Put simply, a tax expenditure arises where the tax treatment of a class of taxpayer or an activity differs from the standard tax treatment or the tax benchmark. These expenditures include tax exemptions, some deductions, rebates and offsets, concessional or higher tax rates applying to a specific class of taxpayers, and deferrals of tax liability.
The TEIS contains detailed breakdown of various categories, including rental property deductions. The ATO estimates that some 2.4 million rental property investors claimed deductions for expenses associated with maintaining and financing property interests, including interest, capital works and other deductions. Collectively for the 2020–2021 financial year, $48.1 billion worth of rental deductions were claimed, resulting in a total tax reduction of $17.1 billion.
Only around half, or 1.1 million, of these rental property investors had a rental loss (negative gearing), which added up to total rental losses of $7.8 billion and provided a tax benefit of around $2.7 billion for the 2020–2021 income year. The other rental deductions category (eg property maintenance, council rates etc) accounted for more than 50% of the amount claimed, with the next largest deduction being interest expenses, coming in at 39%.
Further analysis of the $2.7 billion negative gearing tax benefit (or tax reduction) reveals that 80% went to individuals with above median income (those earning above $41,500) and 37% went to individuals in the top income decile (those earning over $128,000).
Although the TEIS doesn’t provide data on the status of those claiming rental deductions, this can be somewhat inferred by the ages of those claiming the deduction. According to the ATO, more than half of the total negative gearing tax reduction went to individuals between the ages of 40 and 59 years old. Presumably a majority of individuals in this cohort have families, and a good proportion may be either the sole income earner or the primary income earner in their family. This means the bulk of the commentary regarding negative gearing benefiting the rich may be on shaky ground.
However, these contentions aside, with the tax reduction on rental deductions expected to blow out to $28.2 billion by the 2026–2027 income year (from $17.1 billion in the 2020–2021 income year) and it being the second largest tax expenditure (second only to concessional taxation of employer super contributions), it’s likely the calls for changes to negative gearing will only grow stronger in time.
Estate planning considerations
Estate planning is a complex area which requires careful consideration of tax implications. Many issues that affect the distribution of assets to beneficiaries will need to be considered before an individual dies, to ensure undesirable tax consequences are avoided for both the individual and their potential beneficiaries. These include the timing on the transfer of the assets, potential gifts, transfer duties and the use of testamentary trusts.
Typically in terms of capital gains tax (CGT), the transfer of assets upon the death of an individual does not immediately trigger a CGT event; rather, a CGT “rollover” applies. This means that the beneficiaries of the estate do not have to pay CGT at the time of inheritance. Instead, CGT implications are deferred until the beneficiary decides to dispose of the asset.
Generally, beneficiaries inherit the deceased’s assets at their market value as of the date of death, which becomes the cost base for future CGT calculations when the asset is eventually sold. One important exemption to note is the main residence exemption, which can fully or partially shield the deceased's primary home from CGT, provided certain conditions are met.
While gifts can be made as a part of estate planning before an individual dies, remember that if the gift is an asset (eg property, cryptoassets, shares, etc), CGT will still apply.
Another consideration in terms of the timing of transfers (in particular, of property) is the transfer duty involved at the state or territory level. For example, in New South Wales, if property is received from a deceased estate in accordance with the terms of a will, the beneficiary will pay transfer duty at a concessional rate of $100. However, if the transfer occurs before an individual’s death or not in accordance with a will, normal rates of transfer duty will apply. In that scenario, it would be better to wait to transfer the property. The rules for each state and territory differ, so it’s important to check before making decisions.
For individuals looking to exert more control after their own death, a testamentary trust may be one way of providing a flexible and tax-efficient way to manage and distribute the assets of the estate to beneficiaries. Generally, the terms and conditions of the testamentary trust are outlined in the will of the deceased, including the appointment of trustees and beneficiaries and how the trust assets are to be managed and distributed. The trust itself comes into existence upon the death of the person making the will, and it is separate from the deceased estate for legal and tax purposes.
However, establishing and managing testamentary trusts can involve significant costs, and there is a requirement to carefully draft the trust deed so it includes clear instructions for the establishment and operation of the testamentary trust, in order to avoid possible future disputes. There may also be ongoing legal, accounting and administrative expenses, making testamentary trusts the most complex route to head down.
The specific tax implications of estate planning can vary widely depending on individual circumstances and the state or territory in which an individual lived. This is a complex area where seeking professional advice tailored to the situation is crucial.
FBT electric vehicle home charging rate
With the rise in businesses purchasing electric vehicles (EVs) for the use of their employees, the ATO has finalised its guidelines setting out the methodology for calculating the cost of electricity for FBT purposes when an eligible EV is charged at an employee’s or an individual’s home. The rate of 4.20 cents per kilometre now applies (from 1 April 2022 and for later FBT years). To use this rate, employers will need to keep a record of the distance travelled by the car, and a valid logbook must be maintained if the operating cost method is used.
In terms of FBT, the employer now has the choice of either using the methodology outlined in the guidelines or determining the cost of the electricity by determining the actual cost incurred. Once made, this choice applies to each vehicle for the entire year, although the choice can be changed from one FBT year to another.
.Tip: These ATO guidelines only apply to zero emission EVs and not to plug-in hybrid vehicles which have an internal combustion engine, or to electric motorcycles or electric scooters |
A transitional approach applies for the 2022–2023 and 2023–2024 FBT years, whereby if odometer records have not been maintained, a reasonable estimate may be used based on service records, logbooks or other available information. After the transitional period ends, employers will need to keep a record of the distance travelled by each car and a valid logbook must be maintained if the operating cost method is used.
Employers are reminded that even if an EV is eligible for an FBT exemption, the benefit must still be included in an employee’s reportable fringe benefits amount. Therefore, the taxable value must be
February 2024
Proposed changes to stage 3 tax cuts announced
With the government finally caving into pressure to change the stage 3 income tax cuts despite its previous promises to keep the already legislated measures, new proposed tax rates have been flagged to come into place from 1 July 2024, largely – in comparison to the legislated measures – benefiting those earning less than $45,000.
The talk about the stage 3 income tax cuts has reached fever pitch in recent weeks. The changes were originally legislated by the previous Coalition government in 2019 with support of the then Labor opposition. During the 2022 election campaign and since coming into government, Prime Minister Anthony Albanese had reassured voters on multiple occasions that the stage 3 tax cuts would remain. However, with the recent inflationary stressors, the government has been under increasing pressure to scrap the already legislated tax cuts in favour of cost-of-living relief for low to middle income earners, which would require the introduction of amending legislation.
As a refresher, the original stage 3 tax cuts are due to come in place from 1 July 2024, and would benefit individuals that earn above $45,000 of taxable income.
From 1 July 2024 under the already legislated stage 3 tax measures, those earning taxable income between $45,000 and $200,000 will be taxed at $5,092 plus 30% of excess over $45,000. In addition, individuals who earn $200,001 and more will taxed at $51,592 plus 45% of excess over $200,000.
According to the latest ABS data, the median earnings of full-time Australian workers are around $1,600 per week, equating to $83,200 per year. Under the current rates a worker on this median wage would be paying $17,507 in tax, and under the already legislated stage 3 rates for the 2024–2025 income year the same worker would be paying $16,552 (a tax saving of $955).
Of course, as critics of the legislated tax cuts have pointed out, those who earn more will be saving more. For example, the same ABS data indicates that individuals earning $2,820 per week are in the 90th percentile of workers in Australia. This figure equates to annual earnings of $146,640. Under the current tax rates a worker on this wage would be paying around $39,323 in tax, and under the already legislated stage 3 tax rates the same worker would only be paying $35,584 (a tax saving of around $3,739).
This effect becomes even more pronounced at the edge of the stage 3 threshold of $200,000. As currently legislated these individuals would experience a tax saving of a whopping $9,075 ($60,667 in tax under the current rates versus $51,592 in 2024–2025 under the stage 3 tax cuts).
Under the government’s most recent proposed changes, those earning between $18,201 and $45,000 would see their tax rate reduced from 19% to 16%. In addition, those who earn between $45,001 and $135,000 would be taxed at the new marginal tax rate of 30%, and the existing 37% marginal rate would be retained but would apply to individuals earning between $135,001 and $190,000. The top marginal rate of 45% would remain for those who earn $190,001 and above.
An average worker earning $83,200 per year will be better off under the government’s proposed changes, paying around $15,748 in tax (versus $16,552 under stage 3 and $17,507 under the current rates), and those in the 90th percentile of earners would be slightly worse off under the proposed changes ($35,594 in tax) compared to stage 3 ($35,584 in tax), but would still be better off than under the current system ($39,323 in tax).
The government will now be working to get the proposed changes passed before 1 July 2024 (when the original stage 3 changes were due to apply).
ATO areas of focus on businesses for the coming year
As we move into 2024, the ATO has highlighted three areas of focus for businesses: taking steps to address cyber security and increased protection of personal data, addressing the growth in the collectable debt book – particularly for small businesses – and improving overall tax performance.
With increased cyber-crimes, scams and hacks occurring in Australia in recent times, like any other large organisation the ATO has taken additional steps to address cyber security and increase protection of personal data to deal with an unprecedented rise in identity-related fraud attempts. For all businesses, the ATO has introduced “client-to-agent linking”, which requires all entities with ABNs (excluding sole traders) to digitally nominate their agent through ATO’s secure online services before the agent can access any data. This will cover approximately 4.7 million businesses.
For all individuals interacting with the tax system, the ATO encourages the use of myGovID. This coincides with the government announcing a tightening of the way in which individuals access their myGov account. Individuals who use their myGovID to access the ATO’s services will need to use that myGovID for future logins from now on. In other words, it will not be possible to access an ATO account without it.
In 2024, the ATO will also be seeking to address the growth in the collectable debt book. Currently, the collectable component of debt sits at about $50 billion and consists of mostly self-assessed debt, with small businesses owing 67% of this. According to the ATO, its more lenient approach during the height of the pandemic, under which it chased fewer lodgments and recovered less debt, has now led to a concerning behavioural pattern from some businesses where they deprioritise paying tax and super and increasingly rely on unpaid tax and super to prop up cashflow.
One of the ways the ATO is seeking to level the playing field on uncooperative businesses is the reporting of debt information to credit reporting bureaus. Since 1 July 2023, it has disclosed the debts of more than 10,500 businesses that have significantly overdue undisputed tax debts of at least $100,000.
The takeaway message for businesses, especially small businesses, for this year is to be proactive and engaged with the ATO in terms of any unpaid tax or super debts and keeping data secure.
Employees versus contractors: new rules
Following two prominent High Court decisions which dealt with the distinction between employees and independent contractors, the ATO has sought to provide guidance to businesses in the form of a taxation ruling. The most significant departure from its previous position is that the ATO now considers that various indicators of employment identified in case law, while relevant, should only be considered in respect of the legal rights and obligations between the parties, with the most important factor the holistic consideration of the contract between the parties.
In brief, the High Court’s decisions deal with the distinction between employees and independent contractors in the context of a labour-hire company and two truck drivers operating through partnerships to provide delivery services to their former employer. In the first case, the High Court ruled that a labourer engaged by a labour-hire company to work on construction sites under the supervision and control of a builder was an employee of the labour-hire company.
The High Court noted that this right of control, and the ability to supply a compliant workforce, was the key asset of the business as a labour-hire agency and constituted an employment relationship. That the parties chose the label “contractor” to describe the labourer did not change the character of that relationship, the High Court said. This decision also overruled a earlier Full Federal Court decision which held, after applying a “multifactorial approach”, that the labourer was an independent contractor.
In the second case, the High Court held that two truck drivers were not employees of a company for the purposes of the Fair Work Act 2009 and Superannuation Guarantee (Administration) Act 1992. The Court also observed that the provision of such services has consistently been held, both in Australia and in England, to have been characteristic of independent contractors (and not of employees).
The ATO’s Taxation Ruling 2023/4 now states that whether an individual worker is an employee of an entity under the term's ordinary meaning is a question of fact to be determined by reference to an objective assessment of the totality of the relationship between the parties, having regard only to the legal rights and obligations which constitute that relationship.
In addition, where the worker and the engaging entity have comprehensively committed the terms of their relationship to a valid written contract, it is the legal rights and obligations in the contract alone that are relevant in determining whether the worker is an employee of an engaging entity.
The ruling notes that evidence of how the contract was performed, including subsequent conduct and work practices, cannot be considered for the purpose of determining the nature of the legal relationship between the parties. However, this evidence can be considered to establish the contractual terms or to challenge the validity of a written contract with general contract law principles.
In conjunction with the ruling, the ATO has also released a practical compliance guideline which sets out its compliance approach for businesses that engage workers and classify them as employees or independent contractors.
ATO’s continued focus on illegal early release of super
As a new calendar year commences, the ATO’s priorities in the self-managed super fund (SMSF) sector remain consistent. As in previous years, the greatest area of concern for the ATO continues to be taxpayers illegally accessing their super before meeting a condition of release. While it notes that the vast majority of SMSFs follow the rules, those that do not are having a significant impact on the system.
According to the ATO, early withdrawal of super seriously impacts a member’s retirement savings, which can lead to an increased reliance on taxpayer-funded pensions (such as the Age Pension) in the future. This is in addition to significant financial and regulatory impacts for individuals, because illegally accessed benefits are assessable as income, and the ATO may apply and seek penalties, interest charges and disqualifications.
In order to weed out the few bad apples, the ATO implemented a program late in 2023 called “illegal early access estimate” which allows it to estimate the amount of retirement money leaving the system before it should. The information from the program informs the ATO of the size, scale and trajectory of the illegal early access risk and gathers intelligence to assist in addressing the issue.
This program will be used in conjunction with preventative approaches such as providing support and guidance products and education courses for new trustees. For example, the ATO continuously improves publications available on its website to support trustees in meeting their obligations at different stages of the SMSF lifecycle. It has also developed several online learning modules focused on the lifecycle of SMSFs, which will go live very soon.
Another preventative strategy employed by the ATO is an initial review of new registrants, which involves a risk assessment of all SMSF registrations to ensure trustees are entitled to set up a fund, and acts as a safeguard against identity fraud.
For new entrants into the SMSF system, the ATO has also tailored the first-time non-lodgers program, which identifies and takes actions against funds that have received a rollover from a member but have not yet lodged their first annual return.
On the topic of compliance action, the ATO has warned that it uses increasingly sophisticated risk detection models which resulted in a significant number of sanctions being applied last year. In 2023, it disqualified 753 trustees – triple the number from 2022 – and raised around $29 million in additional tax, penalties and interest. The use of this detection model is set to continue in 2024.
December 2023
As a part of the government strategy to target investment scams, ASIC and the Australian Competition and Consumer Commission (ACCC) – through the newly formed National Anti-Scam Centre – have published an investor alert list which may help consumers to identify whether entities they are considering investing with could be fraudulent, running a scam or unlicensed. While the list is not exhaustive, as new scams are appearing every day, any reduction of consumer harm, financially and non-financially, is surely a positive step.
According to the National Anti-Scam Centre, which commenced operation on 1 July 2023, Australians reported a record $3.1 billion of losses to scams the previous year. The Centre is already making inroads by highlighting the most harmful scams and making it easier for Australians to report scammers, and it will build its capabilities over the next three years, working on a new system to improve scam data-sharing across government and the private sector.
The new investor alert list replaces the previous list of “companies you should not deal with” issued by ASIC, and has the advantage of including both domestic and international entities that regulators are concerned about. These concerns largely relate to entities operating and offering services to Australians without appropriate licenses, exemptions, authorisation or permission. The alert list also includes entities that run impersonation scams, falsely claiming to be associated with legitimate and often well-known businesses.
ASIC recommends conducting the following checks before handing over any investment money:
- Check whether the company or person is licensed or authorised: generally, a company or finance professional must hold an Australian financial services (AFS) licence to issue or sell investments in Australia, or they must be an authorised representative of an AFS licence holder.
- Understand how the investment works: ASIC recommends obtaining a product disclosure statement (PDS) or prospectus from the public website for the company, speaking to a financial adviser and/or searching ASIC’s Offer Noticeboard.
- Check for common signs of an investment scam: confirm the company’s details through open-source searches and consider calling the number on the public website. Be wary of any offer documents sent by email.
Tip: You can consult the investor alert list at https://moneysmart.gov.au/check-and-report-scams/investor-alert-list.
In response to community feedback and perhaps to negative commentary in the media, the ATO has announced it is pausing its “awareness campaign around tax debts on hold”. It notes that the purpose of the letters it sent was to ensure that taxpayers had full visibility of their existing tax debts. Nonetheless, it will undertake a review into its overall approach to debts on hold before progressing any further.
If your small business has tax amounts owing to the ATO and hasn’t received a letter thus far, keep in mind that you may still have a debt on hold.
Many small business debts were put on hold entirely by the ATO (meaning debt amounts were not deducted from tax refunds or credits) during the COVID-19 pandemic’s rapidly changing business conditions, with the intention of giving these businesses a chance to recover and rebuild. The Australian National Audit Office reviewed this approach and found it to be inconsistent with the law, and the ATO then received clear advice that by law, any credits or refunds that a small business becomes entitled to must be used to pay off (offset) its tax debt. This action is generally automatic, and should apply even where the ATO is not actively pursuing the debt (such as was the case during the height of the pandemic).
Due to the legal requirement for offsetting, small businesses with debts on hold may now find that any credits or refunds from lodged tax returns or BASs may be less than expected, or may even be reduced to zero. After the offsetting, any balance payable relating to your business’s debt on hold will remain on hold until it is paid in full.
You don’t need to actively do anything in relation to offsetting of debts, and you will only need to contact the ATO if you’d like to make payments towards your debt on hold or make a request for the ATO not to offset.
Tip: There are very limited circumstances where the ATO has the discretion not to offset a debt and to instead issue a refund. Contact us to find out more.
The easiest way to check whether a debt on hold exists is through ATO online services. You may need to download a file with all transactions on the applicable account to check, as debts on hold will not show as an outstanding balance on the account (because of their “on hold” status).
It’s important to be aware that debts on hold can be reactivated at any time where the ATO believes that there’s capacity for your business to pay. You will be notified if this is going to happen, usually in writing. A reactivated debt will show as an outstanding balance on the relevant account in ATO online services.
While the ATO acknowledges that its approach to communicating about debts on hold caused “unnecessary distress”, particularly to taxpayers whose debts were incurred several years ago, it has verified that all debts exist and that all taxpayers were previously informed when the debt was originally incurred through their notice of assessment.
While Single Touch Payroll Phase 2 (STP Phase 2) started on 1 January 2022, many digital service providers have a deferral in place to enable them to transition their customers over time. Under STP Phase 2, businesses report certain information directly to the ATO through their payroll software, such as:
- details of the remuneration they pay (eg salary and wages to employees, directors' remuneration);
- details of PAYG withholding, including how the amounts are calculated; and
- superannuation liability information.
STP Phase 2 doesn’t change which payments employers need to report through STP, but it does change how those amounts need to be reported.
Employers need to take note that STP Phase 2 changes require your input. Carefully review your payroll reporting codes to ensure accurate data submission to the ATO through STP.
You will now start to see BAS data pre-filling by the ATO.It’s important to cross-check the pre-filled information with your payroll records to prove the correct data has been submitted to the ATO and ensure correct withholdings are remitted. Any anomalies you identify may highlight errors in your system configuration.
Don't forget that when an employee leaves a job, information must be provided in the employer’s STP Phase 2 report, including the employment cessation date and the correct code indicating why the employee left. Details of termination payments must also be reported to the ATO.
Legislation is currently before Federal Parliament that proposes to allow a deduction of $20,000 (up from $1,000) for the instant asset write-off of depreciating assets acquired by small business entities in the period from 1 July 2023.These new rules were previously announced by the Federal Government in its May 2023 Federal Budget.
In the period from March 2020, as part of tax relief measures arising out of the COVID-19 pandemic, temporary full expensing of certain depreciation assets allowed many businesses to write off the entire cost of certain assets. The latest Bill proposes that from 1 July 2023, under simplified depreciation rules, depreciating assets costing less than $20,000 (excluding GST), may be immediately deducted, where the asset is first used or ready for use in the year ending 30 June 2024. Note that depreciating assets that are first used or installed ready for use for a taxable purpose on or after 1 July 2024 will be subject to the $1,000 threshold.
The $20,000 threshold will apply on a per-asset basis, so small businesses will be able to instantly write off multiple assets.
The instant asset write-off rules are available to entities that meet the definition of “small business entity” and where the entity carries on a business with an aggregate turnover of less than $10 million. Connected entities to a small business taxpayer may also need to be considered to qualify for a deduction under the $20,000 instant asset write-off.
Depreciating assets that cost $20,000 or more are allocated to a small business entity general small business pool and can then be deducted at the rates of 15% in the year the asset is allocated to the pool and 30% in subsequent years.
If the balance of a small business entity's general small business pool is less than $20,000 at the end of the income year ending 30 June 2024, the small business entity will be able to claim a deduction for the entire balance of the pool.
Treasury has released the Independent Evaluation of the JobKeeper Payment Final Report. The report considers both the impact and processes of JobKeeper. The evaluation assesses the effectiveness of JobKeeper in achieving its objectives, and records lessons learned from the design and implementation of JobKeeper, with a view to informing future policy responses.
JobKeeper was a central pillar of the policy response in Australia to the COVID-19 pandemic. It was a wage subsidy and income support program announced on 30 March 2020, as the third instalment in a series of economic support packages introduced in the space of three weeks. Modifications to policy design, including changes to eligibility criteria and the payment rate and structure, were made following a three-month review. JobKeeper remained in place until 28 March 2021.
The report finds that JobKeeper provided certainty during a crisis, and its take-up was high. It provided support to around four million employees – almost one-third of Australia’s pre-pandemic employment population – and around one million businesses. Credible estimates suggest that JobKeeper preserved between roughly 300,000 and 800,000 jobs.
With a total cost of $88.8 billion, JobKeeper was the one of the largest fiscal and labour market interventions in Australia’s history. The initial six months of the program cost approximately $70 billion. The first and second three-month extensions cost around $13 billion and $6 billion respectively.
JobKeeper was implemented with incredible speed and was well managed, the report finds. The incidence of fraud was low, and in particular lower than for other ATO-administered programs and taxes such as the cashflow boost, GST tax receipts and large corporate groups income tax.
However, the report says, narrow recipient eligibility and exclusions reduced the effectiveness of JobKeeper and had negative economic consequences.
Exclusions based on employee characteristics such as being a short-term casual or temporary migrant worker compromised the efficacy of JobKeeper and “led to worse outcomes”. In particular, the exclusion of short-term migrants from JobKeeper likely reduced the productive capacity of the Australian economy and constrained recovery in some sectors.
The report states that transparency requirements should be built into policy design to “build public trust and enable appropriate scrutiny of public expenditures”. JobKeeper did not include in its design a public registry or disclosure requirement for entities that received the payment.
JobKeeper was a policy designed for an extraordinary situation. While it was justified during the pandemic, such a policy should be reserved for a macroeconomic crisis and is not appropriate for industry or region-specific shocks or downturns in Australia, the report says.
November 2023
As a part of the government’s strategy to get more people back into work to solve skills shortages being experienced by many industries, a permanent enhancement to the pensioner work bonus has been announced, along with a doubling of the employment income nil rate period to reduce barriers for income support recipients to take up work.
Under the Age Pension income tests, a single individual can earn up to $204 per fortnight and a couple up to $360 per fortnight before the amount of pension starts to reduce at a rate of 50 cents for every dollar over the respective thresholds. The work bonus for pensioners reduces the amount of eligible income that is included in the income test, meaning that pensioners can earn more before their pensions are reduced. It accrues at a rate of $300 per fortnight up to the maximum limit.
The maximum work bonus balance limit is $11,800 from the period 1 December 2022 to 31 December 2023. During this period, pensioners are also eligible for a one-off increase of $4,000 to their work bonus balance. The maximum work bonus balance limit was temporarily increased from the previous limit of $7,800 as a result of the Jobs and Skills Summit and was set to expire 1 January 2024 without the introduction of legislation to extend it.
To enable to continuation of the measure, the government has announced that, pending the passage of legislation, all new pension entrants over the Age Pension age and eligible veterans will have a starting work bonus income bank balance of $4,000. In addition, existing and new eligible recipients will retain the current elevated maximum work bonus limit of $11,800, all set to commence from 1 January 2024.
To complement the work bonus measure, the government has also announced the doubling of the employment income nil rate period to 12 fortnights and will expand access to those who enter full-time employment from 1 July 2024, pending the passage of legislation. Currently, if an income support recipient earns employment income over a certain amount, the income support payment is reduced to nil, and after six fortnights the support payment is cancelled if the employment income is still too high.
Individuals participating in the sharing economy should be aware that transactions for supplying taxi travel/ride sourcing and short-term accommodation are now required to be reported under the sharing economy reporting regime (SERR). Generally, all operators of electronic distribution platforms (EDPs) must report transactions made through their platform. While the reporting requirements ostensibly apply to the platforms, the regime is expected to heavily affect individual taxpayers who work in the sharing economy, with the information obtained through the program to be used in ATO data matching and compliance projects.
The SERR has now commenced for the 2023–2024 income year. Only transactions for supplying taxi travel/ride sourcing and short-term accommodation need to be reported under the regime. However, from 1 July 2024, the SERR will apply to all other reportable transactions of EDP operators, including hiring of assets (consisting of hire of personal assets, storage or business space), food delivery and professional performing tasks and activities will need to be reported.
Generally, all operators of EDPs must report transactions made through their platform. An EDP is defined as any service that allows sellers to make supplies available to buyers and is delivered via electronic communication (eg website, internet portal, gateway, application, online store, marketplace).
According to the ATO, compliance profiles of individuals participating in the sharing economy will be created using the SERR data to generally improve ATO intelligence. In addition, the data will be used to improve tax compliance, both voluntarily through education programs and/or through enforcement measures.
The ATO has flagged a return to firmer debt collection actions after seeing a trend of profitable businesses that have the capacity to pay their tax debts but are actively choosing not to do so. It warns business taxpayers not to treat tax liabilities like a free loan, and reiterates that businesses are only temporary custodians of GST, PAYG withholding and super guarantee amounts. In addition to its ability to apply general interest charge (GIC) to unpaid debts, the ATO has stronger enforcement actions in its arsenal, including issuing garnishee notices and legal action.
With less than six months left in his tenure as the Commissioner of Taxation, in a recent speech Chris Jordan has unapologetically flagged the ATO’s shift to firmer debt collection actions where appropriate. This coincides with reactivation of debts that the ATO previously put on hold during the 2020 COVID-19 pandemic.
The Commissioner noted that most collectable debts with the ATO are self-assessed and include not only income tax debt, but also unremitted GST and unpaid PAYG withholding, as well as super guarantee charges related to businesses. In addition, he noted that small businesses continue to be over-represented in the ATO’s debt book, owing over $33 billion of the $50.2 billion of collectable debt, with $23 billion of that being unpaid business activity statement debt.
In general, if taxpayers do not pay their tax by the due date or engage with the ATO by the due date to work out a payment plan, GIC will be applied to any unpaid amounts. GIC is automatically calculated on a daily compounding basis on the amount outstanding and added to taxpayers’ accounts periodically.
The ATO is also legally required by law to use any credits or refunds taxpayers become entitled to, to pay off any debt that is owed (including any debts that are “on hold”) by way of offsetting. This includes any refund that individuals may receive in relation to income tax, and any GST refunds that businesses may receive.
The ATO has previously referred debts to external debt collection agencies, although it no longer does so. However, it has not ruled out doing so for future debts.
In case you might have forgotten, following an announcement in the 2021 Federal Budget, organisations that used to have the option of self-assessing their income tax exemption status will soon be required to submit an annual self-review report (a return) to the ATO.
Impacted organisations will include non-charitable entities – those not endorsed by the Australian Charities and Not-for-profits Commission (ACNC) – that fall into the following eight categories:
community services;
sporting;
cultural;
educational;
health;
employment;
scientific; and
resource development (eg agricultural, horticultural, industrial, manufacturing, etc).
The new rules come into effect from the 2023–2024 income year. For June year-ends, the first year affected is therefore the year ending 30 June 2024. Typically, organisations with December year-ends are “early balancers” and therefore will first need to lodge a return for the year ending 31 December 2023. The return forms will become available from 1 July 2024 and will need to be lodged by 31 October 2024.
There is no change for not-for-profits that are subject to income tax, such as some membership organisations that mainly provide benefits to members, and are already required to lodge income tax returns.
Lodgment will be via an online form that can be completed by either the entity themselves, or their tax agent. Once an organisation has lodged its first return, the ATO will produce a pre-populated form for future years. In future, organisations will need to either simply lodge their pre-filled annual confirmation or update the return with any new information before lodging.
Where entities don’t lodge the required form, they face possible consequences, including being ineligible for income tax exemption, as well as financial penalties.
The ATO has indicated that the questions included in the return form will be designed to guide organisations in the consideration of their purpose and activities.
For many organisations, these requirements will be a minor extension of their regular self-review procedure, which they may already be conducting. For others, this may be very new, and perhaps an escalation in terms of the organisation’s governance practices.
In an effort to reduce wage theft and prevent losses in retirement income for many Australians, the government is seeking to legislate its payday super measure, as first proposed in the 2023–2024 Federal Budget. As the first step, a consultation paper has been released which proposes two models that could be used to implement the measure.
Unpaid superannuation is equivalent to wage theft and is detrimental to the retirement income of many Australians. That’s why the government proposed measures to reduce the structural drivers of unpaid super guarantee (SG), including increasing the payment frequency of SG to occur at the same time as when salary and wages are paid (payday super), and increasing the ATO’s data matching capabilities to target SG compliance.
The consultation paper proposes two models that could be used to implement the payday super measure: the employer payment model and the due date model. Under both models, the SG charge, which is currently designed for quarterly payments, will need to be updated to align with a more frequent payment schedule. Essentially, the SG charge is a penalty that applies if an employer does not pay an employee’s SG amount in full, on time and to the right fund.
Under the employer payment model, it’s proposed that the SG charge would be based on a requirement that the employer make the payment of an SG contribution on payday, and where a payment is not made, the employer would become liable to pay the SG charge from that date (ie nominal interest would be calculated from this date). The ATO will be required to make reconciliations between the STP (Single Touch Payroll) and Member Account Transaction Service (MATS) data to ensure that the correct amount of super has been received by an employee’s super fund.
For the due date model, the current model of the SG charge would possibly be retained, with an employer becoming liable to pay the SG charge if their employee’s super contribution is not with their fund by a specified due date. Contributions would need to be received by a super fund within a certain number of days following an employee’s payday.
Regardless of the model used, the ATO will use enhanced reporting by employers and funds to ensure that super payments have been paid on payday or received by the funds by the due date. It will then initiate SG charge assessment through compliance activities more frequently, with lower reliance on and need for cases to be raised through employee notifications.
Based on the outcomes of the consultation, the government will redesign the super compliance framework to incorporate payday super, which is proposed to commence from 1 July 2026.
October 2023
ASIC calls on lenders to support customers
With the cost of living crisis and increase in interest rates hitting Australian households, there is growing evidence that many are falling into financial stress. It is with this background that the Australian Securities and Investments Commission (ASIC) has issued an open letter to various banks, credit institutions, and lenders, calling on them to ensure that their customers have the appropriate level of support.
ASIC has reminded lenders that under s 72 of the National Credit Code, providers must consider varying a customer’s credit contract if they are notified that these credit obligations are unable to be met. Credit providers must also ensure that credit activities authorised by their licence are engaged in efficiently, honestly and fairly. First and foremost, to meet their obligations, lenders must proactively communicate to customers about the circumstances in which they can seek hardship assistance and the options that are available.
Hardship options may be temporary (eg deferring a payment) or permanent (eg setting up a payment plan or altering/varying loan repayments). Applications for financial hardship will usually be required to provide proof of hardship including reasons for the hardship, current income and other major financial expenses, as well as the level of repayments that can be afforded at the current time.
Customers worried that seeking hardship arrangements will permanently affect their future credit scores can rest easy knowing the effects are only temporary. While hardship arrangements for certain credit products such as loans or credit cards can appear in credit reports, the report will only show the months the arrangement is in place, or if the arrangement is permanent, the month the loan is varied, no other details are included and the listing will be deleted after 12 months.
Where a hardship application is granted, lenders should contact customers as the period of assistance comes to an end, to understand their most up-to-date financial circumstance and consider whether further assistance is required. This includes ensuring that customers understand what happens to any arrears that may exist at the end of the hardship assistance period.
Where a customer’s hardship assistance is denied, written reasons must be provided along with other options including making a complaint to the Australian Financial Complaints Authority (AFCA) about the decision.
Subscriptions included in digital adoption boost: ATO clarification
The ATO has advised that new and ongoing subscription costs can also qualify as eligible expenditure for the purposes of the digital adoption boost. This was not specified in the ATO’s original release on the measure.
The additional 20% tax deduction applies to eligible expenditure incurred by small and medium business entities between 7:30 pm AEDT on 29 March 2022 and 30 June 2023. The boost is for business expenses and depreciating assets and is capped at $100,000 of expenditure per income year. Eligible claimants can receive a maximum bonus deduction of $20,000 per income year.
In its latest release, the ATO states that a good rule of thumb is to consider “if the small business would have incurred the expense if they didn’t operate digitally. That is, if they hadn’t sought to adopt digital technologies in the running of their business”.
Using this rule of thumb, the ATO confirms that these costs are eligible:
- advice about digitising a business;
- leasing digital equipment; and
- repairs and improvements to eligible assets that aren’t capital works.
Whether some expenditure is eligible for the boost will depend on its purpose and its link to digitising the operations of the specific small business. For example, “the cost of a multifunction printer would not be eligible if it were intended to only make copies of paper documents. However, it would be claimable if being used to convert paper documents for digital use and storage”.
Importantly, , the ATO states that new and ongoing subscription costs can also qulaify as an eligible expenditute if it relates to a taxpayer's digital operations; for example, an ongoing subscription to an accounting software platform for the business would qualify, as would a new subscription for digital content that is used in developing web content to advertise the business.
Small business litigation funding: improvements recommended
A recent Inspector-General of Taxation and Taxation Ombudsman (IGTO) report has recommended improvements to the small business litigation funding program, aimed at delivering better access to justice and fairness for small businesses.
The original intention of the funding program was to mitigate the disadvantage that small business taxpayers face against the ATO, which is a well-resourced and experienced litigant in proceedings which are often complex and costly.
Taxpayers that are self-represented in the Administrative Appeals Tribunal Small Business Taxation Division in disputes with the Commissioner of Taxation are generally eligible for litigation funding where the ATO engages external legal representation. Eligible small business taxpayers will have reasonable costs of engaging an equivalent level of legal representation covered.
The report from the IGTO was mainly based on two completed dispute investigations, where taxpayers expressed concerns that the ATO had attempted to cap the funding to levels below that necessary to run their matter.
There were also questions as to the ATO’s calculation basis for reimbursements which taxpayers were not made aware of when entering these agreements, and the ATO’s “numerous emails to the taxpayers’ legal representatives questioning the bills which … detracted from case preparation”.
The IGTO notes that without the adoption of its suggested improvements to litigation funding by the ATO, further dispute investigations should be expected. Meanwhile, in response, the ATO considers itself to be no longer bound by the original policy intent of the program, and has continued to confine the findings of the report to the two cases investigated, notwithstanding similar ATO actions and decisions that have been subject to further complaints to the IGTO.
However, it is understood that the ATO does intend to consult with stakeholders before committing to any improvements and that the IGTO recommendations contained in the report will be considered as a part of this process. While changes may not be forthcoming for the small business litigation program, the takeaway for taxpayers is that they can always turn to the IGTO, which provides an independent body to investigate the ATO’s decisions.
SMSF compliance activity escalation
The ATO has ramped up compliance activity in the self managed super fund (SMSF) space in response to an increasing number of funds that have been identified as not complying with superannuation obligations. For the 2023 year, the ATO says it has issued double the amount of tax and penalties when compared with the 2022 income year, and the number of disqualifications has tripled.
For the 2023 year, ATO compliance actions included issuing an additional $29 million in income tax liabilities, administrative and tax shortfall penalties, and interest on SMSF trustees and/or members, which is double the amount of tax and penalties the ATO issued in 2022. In addition, a total of 753 trustees were disqualified in the 2023 income year, and that is more than triple the amount of disqualifications in the 2022 income year.
According to the ATO, the most common reason for applying penalties was the illegal early access of super benefits by fund members. It reminds SMSF trustees that they have a responsibility to ensure that members have met a condition of release before any funds are released. Trustees should also be aware that some conditions of release have cashing restrictions which restrict the form of benefit (ie lump sum or pension) or the amount of benefit that can be paid.
Common conditions of release include the fund member having reached preservation age and retired, or commenced a transition-to-retirement income stream; ceasing an employment arrangement on or after the age of 60; being 65 years old even though they haven’t retired; or having died.
If the common conditions of release aren’t met, where a member meets eligibility requirements under certain special circumstances, they are able to have at least part of their super benefits released before reaching preservation age. These special circumstances include that the fund member:
- has terminated gainful employment;
- is temporarily or permanently incapacitated;
- is suffering severe financial hardship;
- meets conditions for compassionate grounds;
- has a terminal medical condition; or
- is taking part in the first home super saver scheme.
Besides targeting illegal early release, the ATO has reminded trustees of SMSFs that their fund must be audited every year by a suitably qualified auditor and an annual return must be lodged by the due date. This blitz on the SMSF compliance is set to continue all through until the end of the 2024 income year, with the ATO explicitly stating it will take “firm action” against trustees who persistently fail to comply with their obligations and seriously breach the superannuation laws.
September 2023
Tax time 2023: lodgement period underway
The ATO has given the green light for taxpayers with uncomplicated financial affairs to lodge their returns. It says that the information it collects from employers, banks, private health insurers, share registries and other institutions has now been pre-filled and is ready to go on either myTax (accessed through myGov) if you’re lodging your own return, or through tax portals of registered agents, if you’re using those services.
The ATO notes that income such as amounts from rental properties, government payments, capital gains from the sale of investments, or other income from “side hustles” – in particular sharing economy platforms and any cash received for work performed – can’t be pre-filled, so will need to be manually entered. There are multiple current ATO data-matching programs running, for example in the areas of residential property and ride-sourcing, so it’s important to get your income reporting right the first time this year.
You should also be aware of some changes this year which may negatively affect the amount of refund you receive, and in some cases may result in tax amounts payable. These include the cessation of the low and middle income tax offset (LMITO), and the replacement of the “shortcut” method for calculating working from home (WFH) with the revised fix rate method, which allows claiming 67 cents per hour instead of 80 cents for each hour you work from home.
Due to these and other changes, the ATO reminds that the initial tax estimate you receive from myTax or your registered tax agent may not match the final tax outcome. It’s best to wait for your finalised notice of assessment before making any plans for spending an anticipated tax refund.
Simplifying individual tax residency: government consultation
Movement may be afoot on the complex issue of individual tax residency in Australia. In 2019, the Board of Taxation released a report which contained a proposed model for modernising individual residency. The new framework was designed to simplify the tax system and reduce compliance costs for individuals and employers.
The model proposed uses a two-step approach of primary tests and secondary tests. Apart from the government official test, which would replace the Commonwealth superannuation test, the main primary “bright line” test will be the 183-day test, in which a person who is physically present in Australia for 183 days or more in any income year would be considered an Australian tax resident.
One of the secondary tests proposed would require an individual to be physically present in Australia for a minimum of 45 days in an income year before commencing residency, or a maximum of 45 days in an income year before ceasing residency. However, due to various global factors (eg the COVID-19 pandemic), the government is seeking views on whether this 45-day threshold is still appropriate and whether there are any circumstances where days spent in Australia should be disregarded for this threshold.
In addition to the 45-day threshold, the proposed secondary test includes the factor test, which focuses on four specific types of connection an individual may have to Australia. Any individual whose circumstances meet any of the four factors will be deemed to have a stronger connection to Australian than someone who does not.
The Federal Government is now soliciting public feedback on the proposed model before making a decision about whether to proceed with the changes.
ATO crackdown on TPAR lodgments
This tax time, the ATO is cracking down on taxpayers not lodging their taxable payments annual report (TPAR) on time. It has recently issued more than 16,000 penalties for businesses who failed to lodge their TPARs for previous years despite receiving multiple reminders. The average penalty for non-lodgment was approximately $1,110.
TIP: The deadline to lodge TPARs was 28 August 2023; businesses that have not yet lodged should do so as soon as possible.
As a reminder, the TPAR applies to businesses in the building and construction industry as well as businesses that provide cleaning, courier and road freight, information technology and security, investigation or surveillance services and have paid contractors in relation to those services.
Businesses that may have received a reminder from the ATO to lodge a TPAR but do not actually need to lodge still need to submit a TPAR non-lodgment advice form to avoid an unnecessary follow-up. The form allows entities to notify the ATO about multiple years, as well as to advise that they will not need to lodge in the future.
Around $400 billion in payments made to almost 1.1 million contractors were reported in the TPAR system in the last financial year. The ATO uses the information obtained to check for red flags, including non-reporting of income, non-lodgment of tax returns or activity statements, overclaiming of GST credits or misusing of ABNs.
The ATO will also include information reported in the TPAR in its pre-filling service to help contractors get their income right in their tax returns. The pre-filled data will give taxpayers transparency about the data that has been provided to the ATO about their business transactions.
Small business bonus deduction: technology investment
Small businesses may be able to get a bonus 20% tax deduction for any business expenses and depreciating assets used to improve their digital operations. This includes digital enabling items such as computer software and hardware, digital media and marketing, e-commerce related goods or services, and systems or monitoring services related to cyber security. The bonus deduction applies to up to $100,000 of eligible expenditure incurred in each relevant period, with a maximum bonus deduction amount of $20,000 per income year or specified time period. This bonus deduction is available to all entities that meet the definition of a small business entity.
Any private-use portion of expenditure is not eligible for the bonus deduction. Also, the bonus deduction does not cover general operating costs related to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells. Training and education costs are also excluded, as they are specifically covered under the skills and training boost measure (which provides a separate 20% bonus deduction).
Small business energy incentive
The Federal Government has released plans to introduce a small business energy incentive to help small and medium businesses electrify and save on their energy bills. The proposal was in the consultation stage until late July, but once implemented it may see businesses with an aggregated annual turnover of less than $50 million gain access to a bonus 20% tax deduction for the cost of eligible depreciating assets that support electrification and more efficient use of energy. It is projected to apply for the 2023–2024 income year.
Eligible depreciating assets would include any asset that:
- uses electricity and there is a new reasonably comparable asset that uses a fossil fuel available in the market – for example, a electric reverse cycle air-conditioner in place of a gas heater may considered to be a eligible depreciating asset;
- uses electricity and is more energy efficient than the asset it is replacing or, if not a replacement, a new reasonably comparable asset available in the market – an asset that uses electricity may be eligible for the bonus deduction even if there is no comparable asset available on the market which uses a fossil fuel, in which case the energy efficiency of the asset will determine its eligibility. Otherwise the energy rating label could be used the compare energy efficiency; or
- is an energy storage, demand management or efficiency-improving asset – an asset may be eligible for the bonus deduction if it enables the storage of electricity, or the storage of energy that is generated from a renewable source (eg batteries). Assets can also qualify if they allow energy to be used at a different time (eg time-shifting devices) or are used in monitoring energy use (eg data-logging devices).
In order to claim the bonus deduction, the business must make the expenditure for a taxable purpose; therefore, costs will need to be apportioned if the asset has a mix of private and business use.
If both the small business and the asset meets eligibility requirements, the amount of bonus deduction is 20% of the total eligible cost, up to a maximum of $20,000 across the bonus period.
August 2023
ATO motor vehicle data matching program extended
The ATO has extended its motor vehicles data matching program once again to encompass the 2022–2023 to 2024–2025 financial years. For each financial year, the ATO will acquire information from all eight of the state and territory motor registries regarding where a vehicle has been transferred or newly registered during the applicable period, and where the purchase price or market value is $10,000 or more. Records relating to approximately 1.5 million individuals will be obtained each financial year.
While the program is being used to obtain intelligence about taxpayers that buy and sell motor vehicles so the ATO can identify risks and trends of non-compliance with various tax and super obligations, the ATO will also be using the data obtained as an indicator of risk. For example, the motor vehicle data (along with other data) will be used to identify taxpayers who have purchased vehicles with values that don’t align with the income they have reported.
Other uses of the data will include identifying taxpayers who may have not met their obligations in terms of GST, FBT, luxury car tax, fuel schemes and income tax.
Using the cents per kilometre method for claiming car expenses |
The cents per kilometre method is a simple way to work out how much you can deduct for car-related work or business expenses. Only individuals, including sole traders, or partnerships (where at least one partner is an individual) can use the cents per kilometre method. So if you operate your business through a company or trust, the business will have to use the actual costs method to claim car and vehicle running expenses.
The cents per kilometre rate takes into account all your car running expenses (including registration, fuel, servicing and insurance) and depreciation.
To work out how much you can claim, you simply multiply the total work/business kilometres you travelled by the appropriate rate. The rate for the 2022–2023 tax year is 78 c/km, and the rate for the 2023–2024 tax year is 85 c/km.
Importantly, you can’t claim more than 5,000 work/business kilometres per car, per year using this method – if you use your car for more than 5,000 kilometres a year for work or business, you need to use the logbook method to calculate your deductible car expenses.
You don’t need formal written evidence to show exactly how many kilometres you travelled, but if you use the same vehicle for both work/business and private use, you must be able to correctly identify and justify the percentage that you claim for work/business. You can’t claim a deduction for the private use. You can use a logbook or diary to record private versus work/business travel.
Tip: Travelling between your home and your place of work/business is considered private use, unless your home is considered your place of work, or you operate a home-based business and your trip was for work/business purposes.
Paying contractors? Get ready for your TPAR
Businesses that make payments to contractors may need to report these payments and lodge a taxable payments annual report (TPAR).
You will need to lodge a TPAR if your business made payments in the last financial year (ending 30 June 2023) to contractors providing the following services:
- building and construction;
- cleaning;
- courier and road freight;
- information technology (IT); or
- security, investigation or surveillance.
Contractors can include subcontractors, consultants and independent contractors. They can operate as sole traders (individuals), companies, partnerships or trusts.
If reportable services are only part of the services your business provides, you need to work out what percentage of the payments you receive are for taxable payment reporting (TPR) services each financial year. You do this to determine if you need to lodge a TPAR.
This doesn’t apply to building and construction services you provide.
If the total payments you receive for TPR services are 10% or more of your business income, you must lodge a TPAR. If they are less than 10% of your business income, you don’t need to lodge a TPAR.
TPARs are due on 28 August each year. If you don’t lodge on time, you may have to pay a penalty. You can help prepare for your TPAR by keeping records of all contractor payments.
If you’ve previously lodged a TPAR but you don’t need to lodge one this year, you can submit a TPAR Non-lodgment advice to let the ATO know.
Instant asset write-off: is your business eligible? |
Remember temporary expensing, which allowed just about every business (unless annual turnover was at least $5 billion) to immediately write off the cost of an eligible depreciating asset? Well, that is no longer available. To use temporary full expensing, you had to acquire and use, or install ready for use, an eligible depreciating business asset by 30 June 2023.
The good news for small businesses is that the instant asset write-off is still available.
What is the instant asset write-off?
Eligible businesses can claim an immediate deduction for the business portion of the cost of a depreciating asset in the year the asset is first used or installed ready for use.
Any small business that uses the simplified depreciation rules can claim the instant asset write-off. A small business is a business with an aggregated annual turnover of less than $10 million.
The instant asset write-off applies to eligible depreciating assets costing less than the specified threshold (these are called low-cost assets).
For 2023–2024, the low-cost asset threshold will be $20,000. To take advantage of the $20,000 threshold, you will need to acquire the asset and first use it, or install it ready for use, between 1 July 2023 and 30 June 2024.
The $20,000 threshold applies on a per-asset basis, so small businesses can instantly write off multiple assets. In certain circumstances, the instant asset write-off also applies to additional expenditure incurred on a low-cost asset.
Developments in GST guidance for crypto assets
The ATO has recently issued new GST guidance specifically relevant to crypto assets.
For GST purposes, the ATO considers that digital currency is a crypto asset utilising cryptography and distributed ledger technology to make secure transactions. The ATO has excluded loyalty points, in-game tokens, non-fungible tokens (NFTs), stablecoins, and initial coin offerings (ICOs) (if they fall under securities or derivatives) from this definition.
Digital currency as payment
If receiving digital currency as payment for a taxable supply, the GST amount must be reported in Australian dollars on the business activity statement. Don’t forget: the tax invoice should include the GST payable in Australian dollars or provide sufficient information to calculate it accurately.
When using digital currency for purchases and claiming GST credits, be sure to report the GST amount in Australian dollars on your business activity statement. Remember, your tax invoice is key and must providing the necessary information.
Buying or selling digital currency
Identifying the location of your trading partners can be difficult. Thankfully, the ATO accepts using the location of the digital currency exchange as a reliable indicator.
When you trade with Australian residents, it falls under the category of input-taxed financial supply. You don’t need to pay GST on these supplies.
When your trades extend beyond Australian borders or involve foreign digital currency exchanges, GST takes a back seat. Trading with non-residents qualifies as a GST-free supply, freeing you from GST obligations.
Be warned! While GST-free supplies spare you from paying GST, there’s a vital checkpoint to remember. If you supply digital currency, carry on an enterprise and exceed the GST annual turnover threshold (generally $75,000), you must register for GST.
Beware SMSF schemes: residential property purchase |
The ATO has warned taxpayers against entering into a scheme through their self-managed superannuation fund (SMSF) which claims to allow individuals to purchase property using money from their super.
This sort of scheme typically involves the rollover of a member’s super benefits from an existing fund into a new or existing SMSF, which then invests in a property trust for a fixed period and rate of return, being a contributory fund with other investors. However, the money from the property trust is then on-lent to individuals from a third-party in the form of a loan to assist in the purchase of real property secured by mortgages over the property.
Depending on the type of scheme, the money on-lent to the individual may be used for all or part of the deposit, the balance of the purchase price, costs relating to the purchase, or even to help consolidate a member’s personal debts to enable them to secure a home loan. The scheme promoter will usually charge a high fee to the fund and establish both the SMSF and the property investment, as well as organising the purchase of the property (in some cases house and land packages).
The ATO notes that these arrangements are established and promoted under the guise of a genuine SMSF investment with the added benefit of
helping individuals purchase a home, but they are not in fact legitimate investments. They often contravene one or more of the super laws by providing members with a current day benefit while also being set up in ways that don’t comply with the sole purpose test.
Tip: The “sole purpose test” means that the SMSF needs to be maintained for the sole purpose of providing retirement benefits to members, or to their dependants if a member dies before retirement.
The ATO will apply a “look through” approach when considering this type of scheme. That means if an SMSF’s fund money is used to help purchase a property for a member, whether it be indirectly through the SMSF’s investment in other entities, it will be treated as an illegal early access of super benefits by the member. The amount used to help purchase a property will be included in the member’s assessable income and taxed at their marginal rate, and tax shortfall penalties may apply.
People who may have been persuaded by slick marketing or promoters and inadvertently entered into these schemes are urged to contact the ATO to make a voluntary disclosure, which will be taken into account.
June 2023
Key tax considerations this tax time
As the financial year draws to a close, it’s time to start thinking about whether your year-end tax planning is in order. Tax planning requires considering your income and deductions for the whole financial year, as well as you’ve met your obligations – for example, whether you’ve made tax-related elections on time and prepared other appropriate documentation and records. Here are some key considerations for this tax time.
Working from home deductions
The shortcut method of claiming a rate of 80 cents per hour worked from home is no longer available – the measure was temporarily introduced during the COVID-19 pandemic and ended on 30 June 2022.
Instead, you can now claim deductions using the revised fixed-rate method, at a rate of 67 cents per hour, as long as you incur deductible expenses while genuinely carrying out work from home, and keep appropriate records, like timesheets for your work hours and receipts for the expenses.
If your work from home doesn’t meet these conditions, you won’t be able to rely on the fixed-rate method and will need to calculate and apportion the actual expenses. You can also simply choose the actual expenses method if it suits your situation better.
The fixed-rate method covers work-related costs like electricity/gas, stationery, your mobile/landline phone and internet. If you use the fixed-rate method you can’t also claim additional deductions for any of these categories. Depreciation of furniture and equipment (eg if you buy a desk, computer and printer for work) may be calculated separately (and in addition) to the fixed rate.
Rental properties and holiday homes
The ATO has flagged rental properties and holiday homes as an area of particular focus for this 30 June.
It’s important to remember that the ATO receives information from sources like sharing economy platforms, rental bond agencies and state and territory revenue authorities that enables it to detect under-reporting of income and inappropriate deduction claims.
Temporary full expensing
The immediate deduction for the cost of eligible depreciating business assets that has been available under the temporary full expensing concession since 2020 is coming to an end. To access the concession, your business must use the depreciating asset or have it installed ready for use by 30 June 2023.
From 1 July 2023, an immediate deduction will only be available to small business entities (with aggregated turnover less than $10 million) for assets costing less than $20,000.
Loss carry-back for corporate tax entities
Subject to certain rules being satisfied, corporate tax entities may be entitled to claim a refundable tax offset by carrying back a tax loss arising in the 2022–2023 income year to one or more of the four previous income years (that is, as far back as 2018–2019).
Deductions for superannuation contributions
For an employer to be entitled to a deduction for superannuation contributions, the contribution must be received by the fund on or before 30 June. The super guarantee contribution rate increased to 10.5% of an employee’s ordinary time earnings from 1 July 2022.
Individuals wishing to claim a deduction for personal contributions must provide their fund with a notice of intention to claim a deduction and have that acknowledged by the fund before the earlier of the day the individual’s tax return is lodged and 30 June of the next income tax year.
Stay alert for tax time scams
The Federal Government has warned of scammers targeting Australians ahead of tax time 2023. The number of scam reports received to date this year has topped 19,843 and impersonation scams are becoming increasingly commonplace. These scams typically consist of unsolicited contact through SMS, email, or on social media offering refunds or help to solve tax issues. The ATO recommends not engaging with any unsolicited contact, ending any conversations as soon as possible and independently looking up the ATO’s number to initiate contact in order to verify any communication is genuine.
Tax time scams typically involve the impersonation of the ATO to obtain personal information or solicit unlawful payment. The common tricks tax scammers are using recently include:
- posing as the ATO on social media and offering to help individuals with tax and super questions, which require the individuals to hand over personal information such as tax file numbers, dates of birth, names, addresses etc;
- luring unsuspecting individuals with an offer of a fake tax refund in return for the provision of personal information;
- initiating conversations via phone, social media private messages, email and SMS, attempting to keep the individual engaged for as long as possible through various means including threats and intimidation, offers to help and so on, to either collect personal information or solicit payment.
Many scammers will use spoofing technology to show a real ATO or Australian phone number in the caller ID or call log. The ATO’s genuine calls will be in fact be shown as No Caller ID. The ATO will also never insist on a conference call with a third party, not even your own tax agent or law enforcement officers.
In terms of SMS and emails, the ATO will never send an unsolicited message asking you to return personal identifying information through these channels. It also does not send links or attachments for you to open or download.
If you think you may have fallen victim to a scam, you should contact your bank or financial institution, make an official report to local police, and report the scam through either the ATO’s phone hotline or its specific scams email address.
Tip: The ATO now has a dedicated team that monitors queries and assists taxpayers who have fallen victim to scammers. You can look up and use the ATO’s phone numbers and other contact details on the official ATO website, www.ato.gov.au.
Small business lodgement amnesty: reminder
The ATO has reminded eligible small business taxpayers to take advantage of the lodgment penalty amnesty program announced in the recent 2023–2024 Federal Budget. The amnesty applies to tax obligations covering income tax returns, business activity statements or FBT returns that were originally due between 1 December 2019 and 28 February 2022. Superannuation obligations and penalties associated with the taxable payments reporting (TPAR) system are not included as a part of the program. The amnesty is running for the period 1 June 2023 to 31 December 2023.
To be eligible for the amnesty, your small business must have had an annual turnover of less than $10 million at the time the original lodgment was due, and lodge the relevant overdue forms and returns during the amnesty period.
Where your eligible business lodges relevant overdue forms and returns during the amnesty period, any associated failure to lodge (FTL) penalties will be proactively remitted – you won’t need to separately request a remission.
Although FTL penalties will be remitted, the ATO emphasises that no other administrative penalties or general interest charge (GIC) amounts will be remitted as a part of the amnesty. So, businesses with an existing debt or that accrue a new debt through late lodgement may still have GIC applied to those debts.
The ATO is also encourages businesses outside of the amnesty to lodge any overdue forms or returns to avoid being classified as “not being actively engaged with the tax system”, which is a red flag that may lead to other action. While FTL and other penalties may apply to those businesses, the ATO will consider the unique circumstances and may remit penalties on a case-by-case basis.
The ATO has a range of support options available for businesses where debts arise out of their lodgement activity, including payment plans, compromise of tax debt, or deferring repayments.
“Buy now pay later” sector facing more regulation
As foreshadowed last year, the “buy now pay later” (BNPL) market will soon be facing more regulation. Assistant Treasurer Stephen Jones recently announced that the government will be moving forward to bring BNPL within the Credit Act’s application to apply a tailored version of the responsible lending obligations to BNPL products.
Late in 2022, the Federal Government released a consultation paper seeking views on options to regulate the BNPL market. The paper outlined three increasingly rigorous options for the regulation of the BNPL market, consisting of: strengthening the BNPL industry code plus an affordability test; limited BNPL regulation under the Credit Act; or full regulation under the Credit Act.
Consultation has since ended, and the Assistant Treasurer has announced that the government will moving forward with law changes to bring in limited BNPL regulation under the Credit Act, applying a tailored version of the responsible lending obligations to BNPL products so that BNPL providers must hold an Australia credit licence or be a representative of a licensee with a requirement to comply with most general obligations, including internal/external dispute resolution, hardship provisions, compensation arrangements and marketing rules.
Under the proposed changes, providers would be required to assess that credit is not unsuitable for an individual, and would be prohibited from increasing a consumer’s spending limit without explicit instructions from that consumer. Fee caps for charges relating to missed or late payments would be required, combined with additional warning and disclosure requirements. Merchants who offer BNPL products to consumers would not be required to be an authorised credit representative of the BNPL provider.
The government will be consulting with the industry and consumer groups in the coming months to bed down the details of the potential legislation. Draft legislation is expected to be released for consultation later this year, and the final Bill is expected to be introduced into Parliament by the end of the year.
Minimum pension payment changes
Retirees who draw an account-based pension from their super need to be aware that the 50% reduction in the minimum pension drawdown rate for superannuation and annuities which applied for previous years will no longer apply from 1 July 2023.
This temporary measure was introduced by the previous Federal Government as part of its response to the COVID-19 pandemic, which was negatively impacting super and pension/annuity balances.
Most income streams paid from a super account held in an individual member’s name are account-based pensions. These pensions are required to meet minimum standards, including not being able to increase the capital supporting the pension using contributions or rollover amounts once the pension has commenced, and paying a minimum amount at least once a year.
In general, minimum payments need to be made at least once a year and are determined by the age of the beneficiary and the value of the account balance as at 1 July each year. For example, people aged between 65 and 74 will need to apply a 5% standard percentage factor to work out the minimum pension amount for 2023–2024.
While the minimum annual payments are mandated, there are no maximum annual payments, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year. This means that retirees can draw a pension above the minimum pension payment amount, which may be especially welcome given the current cost of living pressures.
Tip: With the cost of living going up every day, you may find that your pension arrangement is no longer fit for your lifestyle. Contact us today – we can help you work out the best strategy for your situation.
May 2023
Is your content making you income?
The ATO has warned content creators that they need to be aware of their income tax and GST obligations.
Tip: Examples of content creators are individuals who write a blog, post make-up tutorials to social media or stream gaming or other activities for others to watch.
If you start making money from your online content, you will have income to declare. You will also need to consider whether you are in business. If you are, or you want to start your own business, it’s important you know what income you need to report, the deductions you can claim and what registrations you may need.
The income you receive could be cash, money for advertising or appearance fees, or goods like a gaming console, clothes or make-up.
It doesn’t matter whether the income comes from Australia or overseas. It is all taxable in Australia, as long as you are considered to be a tax resident of Australia.
Some of your supporters may purchase your merchandise or pay a subscription fee to access your content. They may send tips or gratuities (often called gifts). All of these are likely to be income and should be declared.
There are some important things to think about if you’re a content creator. Can you afford to accept the gifts? A new handbag or a free holiday may be enticing, but because it’s regarded as income, you’ll need to pay tax on it.
Consider how the income you earn will affect your other amounts payable. Sole trader income counts towards your total assessable income, so it could impact your study loans or Medicare calculation.
If you’re in business, and you have a GST turnover of $75,000 or more, you’ll need to register for GST. You will be liable to pay GST on your taxable supplies, even if you don’t pass it on to your supporters. However, you can claim input tax credits on what are called “creditable acquisitions”.
You will be able to claim deductions for business-related expenses. You may also be eligible for various small business concessions.
Home charging rate guideline for EVs released
With the increasing popularity and uptake of electric vehicles (EVs), the ATO has now released a draft compliance guideline which contains the methodology for calculating the cost of electricity when an eligible electric vehicle is charged at an employee’s or an individual’s home. The methodology can be applied for FBT from 1 April 2022 and for income tax purposes from 1 July 2022.
According to the ATO, the EV home charging rate will be 4.20 cents per kilometre. If charging costs are incurred at a commercial charging station, a choice must be made: if the EV home charging rate is used, the commercial charging station cost will be disregarded, and vice versa. However, records such as receipts must still be kept to substantiate any claims, and the choice to rely on the guideline applies for the entire FBT or income year.
For the 2023 FBT and income tax year, the ATO will accept a reasonable estimate based on service records, logbooks, or other available information where odometer records have not been maintained as a transitional measure. This approach is only available for the opening odometer reading at 1 April or 1 July 2022.
Businesses that can rely on this guideline include those that provide electric vehicles to their employees (or associates) for private use, where that results in the provision of a car fringe benefit, residual benefit or car expense payment fringe benefit and the business is required to calculate the value of benefit as a part of FBT obligations. For example, the EV home charging rate can be used to determine the recipient contribution component for the statutory formula method for car fringe benefits. Similarly, it can be used to determine both the operating cost and recipient contribution if the operating cost method is used.
For individuals, the guideline can only be relied on to calculate the cost of charging an electric vehicle if a zero emissions electric vehicle was used in carrying out income-earning activities and relevant records have been kept during the year.
Tip: Plug-in hybrids (vehicles powered by a combination of liquid fuel and electricity) aren’t considered zero emission vehicles, so if you use one you can’t rely on the guideline even if the vehicle is used in income-earning activities.
The guideline is currently in draft form but is expected to apply to the 2023 FBT and income tax year.
Property investors beware: new data matching program
Individual property investors should be aware that the ATO has announced a new data matching program that will obtain data from various financial institutions for the 2021–2022 to 2025–2026 income years. Records relating to approximately 1.7 million individuals will be obtained each financial year and used to identify relevant cases for administrative action, including compliance activities and education strategies.
Recent results of sample audits across individuals conducted under the ATO’s random enquiry program appeared to show a net tax gap of $9 billion for the 2020 income year, with the incorrect reporting of rental property income and expenses being a significant driver of the gap. Specifically, the estimated net tax gap for rental property expenses contributed around $1 billion or 14% of the total individuals gap, with a common driver being the incorrect apportioning of loan interest costs where the loan was refinanced or redrawn for private purposes.
The data providers for the new program include the big four banks (ANZ, Commonwealth, Westpac and NAB), as well as other providers and their subsidiaries, including Adelaide Bank, Bank of Queensland, Bendigo Bank, Bankwest, ING, Macquarie Bank, Suncorp, RAMS, Ubank, St George, Bank of South Australia, Bank of Melbourne and ME Bank. The ATO will be the matching agency and the sole user of the data.
According to the ATO, after a return is lodged, it will use the data collected to identify relevant cases for administrative action including compliance activities and education strategies. If a discrepancy is identified, taxpayers will be contacted by phone, letter or email, and will then have 28 days to respond.
The ATO will also use the data to gain insights to help develop and implement treatment strategies to improve voluntary compliance. The data may also be made available to individual self-preparers through myTax, specifically the rental property schedule interest on loans and/or borrowing expense labels and rental income tax return labels.
Super tax concession changes: consultation
As flagged earlier in the year when the announcement was made, the Federal Government recently released a consultation paper on its proposal to reduce super tax concessions for individuals with super balances over $3 million, including those with self managed super funds (SMSFs). Some important questions the paper asked included whether the proposal would create any unintended consequences and whether the current proposed proportioning methods are appropriate. The new measure is not yet law.
To recap, the government proposed in late February that individuals with a total super balance (TSB) of more than $3 million combined in all the super accounts will have their super concessional tax rate changed to 30% from the 2025–2026 financial year onwards. This means from 30 June 2026, the earnings of those individuals on the part of their TSB over $3 million will attract an additional 15% tax. The additional tax will be applied directly to the individual and there will be no change to the tax arrangements within super funds.
The ATO will continue to calculate the TSB of all individuals annually using existing information provided by super funds and SMSFs. Individuals will be able to quickly identify whether they will be subject to the new tax by reference to their TSB at the end of each financial year through myGov. As it is proposed, the threshold will not be indexed and is not shared between spouses, family members or between other individuals who have interests in the same fund such as an SMSF.
The additional 15% tax will be determined by the ATO and levied directly on individuals. This will also be imposed separately to personal income tax, and it is intended that the amount of tax payable would not be reduceable by deductions, offsets or losses available under the personal income tax system (ie only prior year negative earnings could be applied).
Superannuation and independent contractors: fresh Full Federal Court guidance
In February 2022, the High Court handed down a landmark decision in ZG Operations v Jamsek, which clarified the test for determining whether a worker is an employee or an independent contractor.
The High Court remitted the question of whether the workers were “employees” under the extended definition of that term in s 12(3) of the Superannuation Guarantee (Administration) Act 1992 (the SGA Act) back to the Full Federal Court.
In deciding that the relevant workers were not “employees” under the extended definition in s 12(3), the Full Federal Court determined that s 12(3) does not apply to an independent contractor relationship where the worker uses a company, trust or other service vehicle to contract with the putative employer instead of doing so in their personal capacity. This confirms the ATO’s guidance in Superannuation Guarantee Ruling SGR 2005/1.
Additionally, in determining whether a worker is an “employee” under the extended definition in s 12(3), the Full Federal Court has confirmed that a worker will not be taken to work under a contract that is “wholly or principally for [their] labour” in the following circumstances.
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Employers are required to provide their employees with a minimum level of superannuation support (currently 10.5%) each quarter, otherwise the employer will become liable to pay the superannuation guarantee charge. An “employee” for these purposes includes an employee at common law.
The SGA Act also includes a number of provisions which extend the meaning of “employee”. Relevantly, s 12(3) of the SGA extends the meaning of “employee”, so that: “If a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”
This provision is broad and captures many independent contractor relationships. An entity that engages an independent contractor under a contract of this nature is required to provide the contractor with superannuation support (otherwise they will become liable to pay the superannuation guarantee charge).
April 2023
Cheaper child care on the horizon
Families struggling with the current cost of living crisis could soon have some relief with cheaper child care coming mid-year. The recently passed child care subsidy reforms were a component of Labor’s election platform, with a promise to make early childhood education and child care more affordable. According to the government, with the passing of the legislation, 96% of families with children in early childhood education and care will benefit, with no family being worse off.
From 1 July 2023, the rate of child care subsidy (CCS) that Australian families are entitled to receive will increase. Currently, the highest CCS percentage families can receive for their first child in care is 85%. With the passing of the legislation, families that earn up to $80,000 will receive a CCS rate of 90%, which will taper down until it reaches 0% for families earning $530,000.
The existing measure that provides a higher CCS rate for families with multiple children under five years old in child care will continue to apply, so that for second and younger children five years and under in care, families will receive an additional 30% up to a maximum of 95%.
The new rates will apply from the first CCS fortnight starting on 1 July 2023 and the base rate threshold of $80,000 will be indexed annually with CPI increases, although the amount will not be indexed in 2023.
FBT reminder: electric cars exemption
It’s FBT time again, and for the 2022–2023 FBT year it’s important to remember that your business may be able to get an exemption for certain eligible electric vehicles made available for the private use of your employees.
To meet the conditions for exemption, the car must be either a battery electric vehicle, a hydrogen fuel cell electric vehicle or a plug-in hybrid electric vehicle used for the first time on or after 1 July 2022, even if it was held (owned or leased) before that date, and must be valued under the luxury car tax (LCT) threshold for fuel efficient cars.
For FBT purposes, motorcycles and scooters are not considered to be cars and therefore would not be eligible for the exemption even if they happened to be electric.
If an electric vehicle meets all of the conditions, car expenses such as registration, insurance, repairs and maintenance, and the fuel/electricity to charge cars, will also be exempt. However, a home charging station is not considered a car expense associated with providing a car fringe benefit, so those costs will not be exempt. Businesses will also need to include the value of any eligible electric cars benefits provided when working out whether an employee has a reportable fringe benefits amount.
Tax-records education direction measure now in place
Late in 2022, amendments to the tax law passed Parliament that, among other things, included a measure to allow the ATO to issue a “tax-records education direction” where the Commissioner of Taxation reasonably believes that an entity has failed to comply with one or more specified record-keeping obligations. As an alternative to imposing a financial penalty, such an education direction will require the entity to complete an approved record-keeping course. Successful completion of the course will mean the relevant entity will no longer be liable for a penalty.
According to the ATO, the purpose of the tax-records education direction is to help educate businesses about their tax-related record-keeping obligations. This type of direction will only be issued to entities that are carrying on a business, and will be best suited to small business entities. A direction will most likely be issued where the ATO believes an entity has made a reasonable and genuine attempt to comply with, or had mistakenly believed they were complying with, their tax record-keeping obligations.
Entities that have been or are disengaged from the tax system or deliberately avoiding obligations to keep records will not be eligible for this alternative to penalties. Factors that point to disengagement or deliberate avoidance include poor compliance history, poor engagement with the ATO regarding information requests, deliberate loss or destruction of documents, or fabrication of documents.
To comply with the education direction, a relevant individual to the entity (a director, public officer, partner, etc), must be able to show evidence that they have completed the ATO-approved online record-keeping course by the end of the specified period. Successful completion of the course by the due date means the entity will no longer be liable to a penalty. If the course is not completed by the due date, the entity will be liable to a penalty of up to 20 penalty units (currently $5,500).
Have you checked for lost and unclaimed superannuation?
The ATO has recently reported there is now $16 billion in lost and unclaimed super across Australia, and is urging Australians to check their MyGov account to see if some of the money is theirs.
Super becomes “lost super” when it’s still held by the fund but the member is uncontactable or the account is inactive. All lost member accounts with balances of $6,000 or less are transferred to the ATO, which means the ATO is holding large sums of money waiting for people to claim it.
Super providers are also required to report and pay unclaimed super to be held by the ATO once the money meets certain criteria.
Deputy Commissioner Emma Rosenzweig said finding your lost or unclaimed super is easy and can be done in a matter of minutes.
“People often lose contact with their super funds when they change jobs, move house, or simply forget to update their details. This doesn’t mean your super is lost forever – far from it. By accessing ATO online services through myGov, you can easily find your lost or unclaimed super.”
While the ATO says it’s doing all it can to get this money back where it belongs, this relies on people keeping their contact information up to date. The best thing you can do to ensure you’re getting what you’re entitled to is check that your super fund and MyGov account have your current contact information and correct bank account details.
Almost one in four Australians also hold two or more super accounts, which can contribute to forgetting about or losing super. If you’ve unknowingly got multiple accounts, you could be losing hundreds of dollars a year to fees and duplicated insurance costs. If you’re unsure whether to consolidate your accounts, check with your super funds, which can advise if there are any exit fees and whether you’ll lose any valuable insurance.
Tip: For information on how to manage super and view super accounts, including lost and unclaimed super, visit www.ato.gov.au/checkyoursuper.
ASIC: insurance in super improvements
The Australian Securities and Investments Commission (ASIC) has released results of its recent review on improving arrangements for life insurance in super funds. The review was conducted as a follow-up to issues first identified in 2019, when ASIC found that some super trustees offered insurance that unnecessarily erodes a member’s retirement balance, inappropriate coverage of insurance due to restrictive definitions and exclusions, and unreasonably onerous or lengthy claims handling processes.
To find out whether improvements had been made in the industry, ASIC used its compulsory information-gathering powers to examine the actions of 15 selected trustees. In total, approximately three million super accounts in these trustees’ funds had death and/or total and permanent disability (TPD) cover, and approximately 800,000 accounts had income protection (IP) cover at 30 June 2022. This information was further supplemented with industry-level data from the Australian Prudential Regulation Authority (APRA) and the Australian Financial Complaints Authority (AFCA) to gauge the overall level of improvement.
Overall, the report concluded that while the changes observed are a positive step towards reducing risks of members receiving insurance that does not meet their needs or paying for cover they cannot claim on, trustees need to continue improving how they monitor and respond to those risks. ASIC says it will continue to work closely with APRA to drive better practices in the super industry, and will use its regulatory powers where trustees and insurers are not complying with their obligations.
Tip: If you’re not sure what insurance policies you have in super or whether there are any restrictive obstacles to potential claims, we can help you work it out – contact us today.
March 2023
Working from home expenses: new fixed rate
A new revised fixed-rate method for calculating working from home expenses will soon apply.
From 1 July 2022, employees who work from home can no longer use the 80 cents per hour “shortcut” method for claiming their related expenses. The revised fixed-rate method allows claiming 67 cents per hour, to cover energy expenses; internet, mobile and home phone usage, and stationery and computer consumables costs.
If you don’t wish to use the revised fixed-rate method for calculating your working from home claims, you can still use the actual costs method instead – this involves calculating and documenting in detail the actual expenses you incur.
To use the new revised fixed-rate method and claim a tax deduction of 67 cents for each hour of working from home, you must work from home while carrying out your employment duties or carrying on a business. Minimal tasks such as occasionally checking emails or taking phone calls while at home will not qualify as working from home.
Doing this work must involve incurring additional running expenses that your employer does not reimburse you for. And you must keep relevant records in respect of the whole time spent working from home and for the additional running expenses incurred – an estimate for the entire income year or an estimate based on the number of hours worked from home during a particular period and applied to the rest of the income year will not be accepted.
While the new revised fixed rate of 67c per hour is lower than the previously available shortcut method, the new rate does not include the work-related decline in value of any depreciating assets used during the income year or any other running expenses not specifically covered.
Upcoming FBT related changes
Employers that have provided FBT car parking benefits for the 2022–2023 FBT year should be aware that the ATO has finalised the changes to its ruling on car fringe benefits – specifically on the concept of “primary place of employment”. A broad test of primary place of employment now applies. Considerations of whether a place is an employee’s primary place of employment may include where their duties are performed, the place at which is primary to the employee’s conditions of employment.
Determining the primary place of employment for FBT car parking purposes is important because, among other things, benefits are only fringe benefits taxable where a car is used by an employee to travel between home and their primary place of employment and is then parked at or in the vicinity of that primary place of employment.
The ATO is also working on a new area: a guideline for calculating electricity costs for FBT purposes when charging an employer-provided electric vehicle (EV) at an employee’s home. This is expected to be released sometime in March.
For an eligible EV that is exempt from FBT, car expenses such as registration, insurance, repairs/maintenance and fuel (including electricity to charge and run electric cars) are also exempt. However, providing a home charging station is not a car expense associated with providing a car fringe benefit, and may be a property or an expense payment fringe benefit.
Tip: With the end of the FBT year approaching fast, now is the time to get your documents and declarations in order to ensure smooth FBT return preparation and lodgement. Contact us today to get the ball rolling.
ATO targeting private not-for-profit schemes
As a part of its ever-tightening compliance net, the ATO has recently announced it is targeting specific tax avoidance behaviour in the not-for-profits sector.
The first area of focus is private foundations used to operate businesses or income-producing activities on which no tax is paid. This type of tax-avoidance scheme using not-for-profit foundations first surfaced in the 2015–2016 income year. The basic premise is that an adviser or promoter helps individuals to set up a “private foundation” which is claimed to be exempt from all taxes. The “private foundation” is then used by individuals to operate businesses or for income-producing activities. Unlike genuine not-for-profit foundations, individuals stream their untaxed employment, contractor or business income through their sham foundations, pay no tax on the income and use the funds for their own benefit. In some cases, a small portion of the income made may be paid to humanitarian or social causes, such as through charities, which is used as justification for the foundation’s purported tax-free status. The ATO is taking this matter seriously and has already commenced investigations of potential promoters.
The second area of focus is registered public benevolent institutions (PBIs) using schemes to avoid or reduce FBT. The ATO is concerned with arrangements where employees of PBIs are used to undertake charitable or commercial work activities of other entities that are not themselves benevolent in nature. The ATO will be reviewing these arrangements to determine if any have the sole and dominant purpose of avoiding or reducing FBT.
Outcomes of quality of financial advice review
In a bid to increase the accessibility and affordability of quality financial advice, the government had previously commissioned a report into possible changes in the regulatory framework. The final report has now been released, containing 22 recommendations. According to the author of the report, Ms Michelle Levy, the current regulation of financial product advice focuses on providers and not consumers, and is itself an impediment to consumers getting useful guidance and good financial advice.
The recommendations are therefore more consumer-focused, and are wide-ranging. The following offers just a snippet of the relevant recommendations in relation to financial services:
- Broaden the definition of personal advice: The definition of personal advice in the Corporations Act 2001 should be broadened so that all financial product advice will be personal advice if it is given to a client in a personal interaction or personalised communication by a provider who has information about the client’s financial situation or their objectives and needs.
- Personal advice must be provided by a relevant provider: The Corporations Act should be amended to indicate that personal advice must be provided by a relevant provider where the provider is an individual and either the client pays a fee for the advice, or the issuer of the product pays a commission for the sale of the product to which the personal advice relates.
- Introduce a good advice duty: An individual who provides personal advice to retail clients must provide good advice. “Good advice” means personal advice that is, at the time it is provided, fit for purpose and, in all circumstances, good.
- Introduce a new statutory best interests duty: The new best interest duty would be a true fiduciary duty that reflects the general law and does not include a safe harbour. This duty would apply only to financial advisers.
- Implement new ongoing fee and consent arrangements: Providers would still need to obtain their clients’ consent on an annual basis to renew an ongoing fee arrangement, but they should be able to do so using a single “consent form”. The consent form should explain the services that will be provided and the fee the adviser proposes to charge over the following 12 months.
- Change the requirement to provide a statement of advice: The existing requirement to provide a statement of advice should be replaced with the requirement for a provider to maintain complete records of the advice provided and to give written advice on request by their client. Clients should be asked whether they would like written advice, before or at the time the advice is provided.
Superannuation tax break changes
In an attempt to repair the Federal Budget and lower the overall national debt, the government is seeking to introduce changes to the way superannuation in accumulation phase is taxed over the threshold of $3 million.
Currently, earnings from super in the accumulation phase are taxed at a concessional rate of 15% regardless of the super account balance. It is now proposed that from the 2025–2026 income year, the concessional tax rate applied to future earnings for those with super account balances above $3 million will be 30%. This change would not apply retrospectively to earnings in previous years, and would not impose a limit on the size of super account balances in the accumulation phase.
This measure would affect an estimated 0.5% of people who have money in Australian super accounts, or around 80,000 individuals, so the government considers it a “modest” adjustment which is in line with its proposed objective of superannuation – to deliver income for a dignified retirement in an equitable and sustainable way.
To illustrate just how little the change would affect ordinary Australians: in the latest ATO taxation statistics (relating to the 2019–2020 income year), the average super account balance for Australian individuals is around $145,388, with a median balance of only $49,374. In addition, according to ASFA (Association of Superannuation Funds of Australia) estimates, for a comfortable retirement, a single homeowner individual aged 67 at retirement will need $65,445 per year. If that individual lives to the ripe old age of 100, their required balance would only equate to an amount of $1.5 million in super – well below the $3 million threshold proposed.
With younger Australians increasingly facing cost of living pressures, astronomical house prices, slow wages growth and uncertain international headwinds, most have no hope of contributing up to the maximum concessional cap every year and attaining a super balance even close to $3 million, short of winning the
lotto or receiving a lucky inheritance. This effect is amplified for women, who are usually more likely to take time away from work, or move to part-time opportunities, in order to raise children and take on caring responsibilities.
According to the latest Expenditure and Insights Statement released by the Treasury, government revenue foregone from super tax concessions amount to $50 billion per year, and the cost of these concessions is projected to exceed the cost of the Age Pension by 2050. With this single proposed change, the government estimates that around $2 billion in revenue will be generated in its first full year of implementation, which can be used to reduce government debt and ease spending pressures in health, aged care and the National Disability Insurance Scheme (NDIS).
According to Treasurer Jim Chalmers, the government will seek to introduce enabling legislation to implement this change as soon as practicable. Consultation will still be undertaken with the super industry and other relevant stakeholders to settle the implementation of the measure.
February 2023
Non-deductible threshold removed for self education expenses
Self education expenses are generally tax-deductible or individuals if there’s a sufficient connection with your income-producing activities. However, until new legislation was recently passed, the amount you could deduct was limited by s 82A of the Income Tax Assessment Act 1936 so that only the amount spent over a $250 threshold was deductible.
This threshold was an artefact from when the self education deduction measure was first introduced more than 40 years ago, alongside a long-repealed concessional tax rebate of $250. The original intention of the deduction limit was to ensure that taxpayers didn’t receive both the tax rebate and a tax deduction for the same set of expenses.
With the non-deductible threshold removed, you will only need to ensure the following applies when you claim a self education deduction:
- you incurred the expense in gaining or producing your assessable income;
- the expense isn’t private, domestic or capital in nature; and
- the deduction isn’t prevented by another provision of the tax law (eg such as some childcare and travel expenses that would previously have been useable to reduce the $250 threshold).
The change applies for tax assessments for the 2022–2023 income year and onwards.
Tip: This change doesn’t affect the types of self education expenses that are deductible. The costs of textbooks, stationery and professional journals will still be deductible, while certain student contributions and payments to reduce HELP, financial supplement and other higher education debts stay non-deductible, as do expenses you incur before commencing an occupation or to help you obtain a new occupation
Tax debts and relationship breakdowns: a warning
The ability of the Family Court to divide the assets owned personally by a couple – including superannuation – on a relationship breakdown is largely without question. A recent case has now shed further light on the ability of the Family Court to allocate responsibility for payment of the tax debts of either spouse.
A High Court decision in 2018, Commissioner of Taxation v Tomaras, confirmed that tax debts can be apportioned by the courts where a couple’s relationship has broken down. In that case, the wife had failed to pay her tax debts and was out of time to challenge the debt assessments. The husband had been declared bankrupt. As part of the property settlement proceedings, the wife asked the court to order that the husband should become the debtor who would have to pay the ATO.
The court found that one spouse could indeed be substituted for the other in relation to a tax debt like this, but it also confirmed this isn’t always appropriate. Given that the husband was bankrupt and there was no time left to challenge the debt assessments, the court did not exercise its powers to make him liable for the tax debts that had been assessed to the wife.
More recently, the case of Cao & Trong in 2022 further explored the Family Court’s powers in relation to tax debts. In this case, allocation of an amount in the region of $3.1 million was in dispute between the former spouses, the ATO and the Child Support Register.
The ATO was owed more than $7 million in unpaid tax, and in the end the court found that it was entitled to 100% of the disputed amount. In making this finding, the court said that the parties had enjoyed an opulent lifestyle while the debt was due to the ATO, and in fact this lifestyle was mainly possible because they avoided paying the large amounts they owed.
This recent finding is a timely reminder that the ATO can and will intervene in family law disputes to protect the revenue due to the Commonwealth, and that the courts will actively ensure the rights of the ATO are protected and enforced.
Sharing economy reporting regime commences soon
As a part of the Federal Government’s strategy to combat the tax compliance risks posed by the sharing economy, it has passed into law new requirements for operators of electronic distribution platforms to provide information to the ATO on transactions made through their platforms.
An “electronic distribution platform” is one that delivers services through electronic communication (ie over the internet, including through applications, websites or other software) and allows entities to make supplies available to end-user consumers through the platform. A service isn’t considered an electronic distribution platform if it only advertises or creates awareness of possible supplies online, operates as a payment platform or serves a communication function.
Examples of sharing economy electronic platform operators include Uber, Airbnb, Car Next Door, Menulog, Airtasker and Freelancer.
Tip: The new reporting regime applies to platform operators rather than to individuals who use their sites or apps, but if you’re part of the sharing economy it’s still important to give the ATO the right information. If you rent out your home for short stay accommodation, work as a delivery driver or take on side jobs as a freelancer, we can help you keep your tax affairs in order.
Electronic platform operators will soon be required to regularly provide transaction information to the ATO through the Taxable Payments Reporting System (TPRS). The information obtained will be used in ATO data-matching to help identify entities that may not be meeting their tax obligations.
Administrative Appeals Tribunal to be replaced
The Federal Government has announced that it will abolish the Administrative Appeals Tribunal (AAT) and replace it with a new Federal administrative review body. According to Attorney-General the Hon Mark Dreyfus, the AAT’s dysfunction has had a very real cost to the tens of thousands of people who rely on it each year to independently review government-body decisions. A dedicated taskforce within the Attorney-General’s department has been formed, and stakeholder consultation will be held on the design of the new body.
The government has said it will implement a transparent and merit-based appointment process. It has committed to providing additional capacity to enable the rapid resolution of existing backlogs, and to implementing consistent funding and remuneration arrangements to enable the new system to respond flexibly to fluctuating case numbers. Thus far, it has committed to appointing an additional 75 new members to the AAT to deal with existing backlogs.
To ensure the new body is user-focused, accessible, fair and efficient, the government says it will also improve additional support services and emphasise early resolution where possible. A single, modern, reliable and fit-for-purpose case management system will be introduced.
Current cases before the AAT will continue. Taxpayers who have already applied to the AAT for a review of a decision will not need to submit a new application. The government envisages that many current cases before the AAT will be decided or finalised before the establishment of the new Federal administrative review body. Any undecided remaining cases will transition to the new review body when it is established.
SMSF changes and reminders for 2023
If you’re thinking of starting a self managed superannuation fund (an SMSF) in 2023, you need to be aware of the recent changes made by the ATO on fund registration, and the application of the Director ID regime to funds with corporate trustees.
Previously, after an SMSF was established and trustees were appointed, the trustees had 60 days to register the SMSF with the ATO by applying for an Australian Business Number through the Australian Business Register. That application included a section where bank account details of the SMSF could be added, along with other information such as the fund’s Tax File Number.
Due to the recent explosion in fraudulent schemes targeting SMSFs, this feature has been removed in a bid to protect the retirement savings of Australians. New SMSFs will now need to provide the ATO with their bank account details after the SMSF registration process, using the online portal for businesses, via phone, or through a registered tax agent.
If you’re contemplating starting an SMSF with a corporate trustee, you’ll also need to ensure the directors of the corporate trustee apply for Director IDs before their appointment is made through Australian Business Registry Services (ABRS). The Director ID is a unique 15-digit identifier that will follow each individual through their business life and was introduced as a part of a suite of measures to combat phoenixing and other illegal activities. The process is free, simple, online and only requires individuals to confirm their identity. Every individual must apply for their own Director ID, and no one else can apply on their behalf.
SMSF-ATO Quarterly Statistical Report
The ATO has published the latest statistics on the self-managed super fund (SMSF) sector.
The highlights of this include:
- There are some 603,432 SMSFs.
- There are 1,123,430 members of SMSFs.
- The total estimated assets of SMSFs are $868.7 billion.
- The top asset types held by SMSFs (by value) are
- listed shares (29% of total estimated SMSF assets)
- cash and term deposits (16%).
- 53% of SMSF members are male and 47% are female.
- 87% of SMSF members are 45 years or older.
The ATO’s report also provides an update of the annual SMSF population analysis tables for 2016–17 to 2020–21, based on SMSF annual return data.
Highlights for 2020–21 include:
- the average assets per SMSF member were $791,000
- the average assets per SMSF were $1.5 million
- member contributions into SMSFs were $13.5 billion
- employer contributions into SMSFs were $5.4 billion.
Read the ATO report at:
October 2022
Personal Taxation
Personal tax rates unchanged for 2022–2023
In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.
The 2022–2023 tax rates and income thresholds for residents are unchanged from 2021–2022:
- taxable income up to $18,200 – nil;
- taxable income of $18,201 to $45,000 – nil plus 19% of excess over $18,200;
- taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
- taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
- taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.
Stage 3: from 2024–2025
The Budget did not announce any changes to the Stage 3 personal income tax changes, which are set to commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Low and middle income tax offset (not extended)
The 2022–2023 October Budget did not announce any extension of the low and middle income tax offset (LMITO) to the 2022–23 income year. The LMITO has now ceased and been fully replaced by the low income tax offset (LITO).
The March 2022–2023 Budget had increased the LMITO by $420 for the 2021–2022 income year so that eligible individuals (with taxable incomes below $126,000) received a maximum LMITO up to $1,500 for 2021–2022 (instead of $1,080).
With no extension of the LMITO announced in this October Budget, 2021–2022 was the last income year for which that offset was available.
As a result, low-to-middle income earners may see their tax refunds from July 2023 reduced by between $675 and $1,500 (for incomes up to $90,000 but phasing out up to $126,000), all other things being equal.
Low income tax offset (unchanged)
No changes were made to the LITO in the 2022–2023 October Budget. The LITO will continue to apply for the 2022–2023 income year and beyond. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022–2023, but the new LITO was brought forward in the 2020 Budget to apply from the 2020–2021 income year.
The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Paid parental leave to be expanded
The Government will expand the paid parental leave (PPL) scheme from 1 July 2023 so that either parent is able to claim the payment, and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.
From 1 July 2024, the Government will start expanding the scheme by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026. Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.
The amount of PPL available for families will increase up to a total of 26 weeks from July 2026, benefiting over 180,000 families each year. An additional two weeks will be added each year from July 2024 to July 2026, increasing the overall length of PPL by six weeks.
To further increase flexibility, from July 2023 parents will be able to take Government-paid leave in blocks as small as a day at a time, with periods of work in between, so parents can use their weeks in a way that works best for them.
Further changes to legislation will also support more parents to access the PPL scheme. Eligibility will be expanded through the introduction of a $350,000 family income test, which families can be assessed under if they do not meet the individual income test. Single parents will be able to access the full entitlement each year. This will increase support to help single parents juggle care and work.
Increased Child Care Subsidy rate for household income up to $530,000
The Government will provide $4.7 billion over four years from 2022–2023 (and $1.7 billion per year ongoing) to deliver cheaper child care and reduce barriers to workforce participation. This includes $4.6 billon over four years from 2022–2023 to:
- increase the maximum Child Care Subsidy (CCS) rate from 85% to 90% for families for the first child in care and increase the CCS rate for all families earning less than $530,000 in household income. From July 2023, CCS rates will lift from 85% to 90% for families earning less than $80,000. Subsidy rates will then taper down one percentage point for each additional $5,000 in income until it reaches 0% for families earning $530,000. Families will continue to receive existing higher subsidy rates for their second and subsequent children aged five and under in care, up to 95%;
- maintain current higher CCS rates for families with multiple children aged five or under in child care, with higher CCS rates to cease 26 weeks after the older child's last session of care, or when the child turns six years old;
- task the ACCC to undertake a 12-month inquiry into the cost of child care and the Productivity Commission to conduct a comprehensive review of the child care sector to improve the transparency of the child care sector by requiring large providers to publicly report CCS-related revenue and profits.
The Government will also provide $43.9 millon over four years from 2022–2023 for measures to improve early childhood outcomes for First Nations children.
Business Taxation
Previously announced measures: eight abandoned, three deferred
The Labor Government has reviewed a number of tax and superannuation related measures that had been announced by the previous Government, but not enacted. It states in the Budget papers that it will abandon eight of these, while three others will have deferred start dates.
While most of the measures relate to “business taxation”, note that these proposals also include superannuation and personal tax measures.
Finance-related proposals
The following finance-related proposed changes have been abandoned:
- the 2013–2014 Mid-Year Economic and Fiscal Outlook (MYEFO) measure that proposed to amend the debt/equity tax rules;
- the 2016–2017 Budget measure that proposed changes to the taxation of financial arrangements (TOFA) rules;
- the 2016–2017 Budget measure that proposed changes to the taxation of asset-backed financing arrangements; and
- the 2016–2017 Budget measure that proposed introducing a new tax and regulatory framework for limited partnership collective investment vehicles.
Taxation of financial arrangements technical amendments: start date deferred
The 2021–2022 Budget measure that proposed making technical amendments to the TOFA rules has been deferred from 1 July 2022 to the income year commencing on or after the date of assent of the enabling legislation.
Superannuation and retirement
The following proposed superannuation and retirement related measures have been abandoned:
- the 2018–2019 Budget measure that proposed changing the annual audit requirement for certain self managed superannuation funds (SMSFs);
- the 2018–2019 Budget measure that proposed introducing a requirement for retirement income product providers to report standardised metrics in product disclosure statements.
Residency requirements for certain self managed super funds: start date deferred
The 2021–2022 Budget measure that proposed relaxing residency requirements for SMSFs will be deferred from 1 July 2022 to the income year commencing on or after the date of assent of the enabling legislation.
Tax compliance: third-party reporting for electronic distribution platforms, cash payments
The Government intends to defer the start date for the following proposed third-party reporting rules:
- transactions relating to the supply of ride sourcing and short-term accommodation – from 1 July 2022 to 1 July 2023; and
- all other reportable transactions (including but not limited to asset sharing, food delivery and tasking-based services) – from 1 July 2023 to 1 July 2024.
The Government proposes to extend the third-party reporting regime to the operators of electronic distribution platforms (EDPs) that facilitate supplies from one entity to another entity. It will cover platforms operating over the internet, including through applications, websites or other software. However, a service will not be considered to be an electronic distribution platform if it only advertises or creates awareness of possible supplies, operates as a payment platform or serves a communications function.
Transactions will need to be reported to the ATO if they involve the provision of consideration by a buyer to a seller for a supply made through the platform by the seller. Transactions that only involve the sale of goods or real property (the transfer of legal title to the goods or real property) or financial supplies will not be captured. The supply must also be connected to the indirect tax zone (ie Australia).
Cash payments proposal abandoned
In addition, the 2018–2019 Budget measure that proposed introducing a limit of $10,000 for cash payments made to businesses for goods and services has been abandoned.
Deductible gifts: pastoral care in schools
The 2021–2022 MYEFO measure that proposed establishing a deductible gift recipient (DGR) category for providers of pastoral care and analogous wellbeing services in schools has been abandoned.
Tax Compliance and Integrity
Increased funding for ATO compliance programs
As appears to be standard practice in modern Budgets, the Government will increase funding for the ATO in the following areas. The moral for taxpayers and their advisors is that the ATO will be getting better and better at detecting variances which will require explanation.
Personal Income Taxation Compliance Program
The Government will provide $80.3 million to the ATO to extend the Personal Income Taxation Compliance Program for two years from 1 July 2023. This will focus on key areas of non-compliance, including overclaiming of deductions and incorrect reporting of income (which was the subject of a recent key address by the Second Commissioner). The funding will enable the ATO to modernise its guidance products, engage earlier with taxpayers and tax agents and target its compliance activity.
Shadow Economy Program
The Government will extend the existing ATO Shadow Economy Program for a further three years from 1 July 2023 (read “cash payments”).
Tax Avoidance Taskforce
The Government has boosted funding for the ATO Tax Avoidance Taskforce by around $200 million per year over four years from 1 July 2022, in addition to extending this Taskforce for a further year from 1 July 2025.
The boosting and extension of the Tax Avoidance Taskforce will support the ATO to pursue new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.
Modernising Business Registers Program
In a slightly different category, the Government will provide additional ATO and ASIC funding of $166.2 million over four years from 2022–2023 to continue delivery of the Modernising Business Registers program that will consolidate more than 30 business registers onto a modernised registry platform.
Digital currencies not foreign currency
The Budget Papers confirm that the Government is to introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. The measure has already been released in draft legislation.
By way of background and as a reminder, this will maintain the current tax treatment of digital currencies, including the CGT treatment where they are held as an investment. This measure removes uncertainty following the decision of the Government of El Salvador to adopt Bitcoin as legal tender, and will be backdated to income years that include 1 July 2021.
The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which will continue to be taxed as foreign currency.
Superannuation
SMSF residency changes delayed
The Government confirmed that the changes to the SMSF residency rules, previously announced in the 2021–2022 Budget to commence from 1 July 2022, will now start from the income year commencing on or after the date of assent of the enabling legislation (yet to be introduced).
These measures propose to relax the SMSF residency rules by extending the central management and control test safe harbour from two to five years, and removing the active member test for both SMSFs and small APRA funds.
Until this 2021–2022 Budget measure is enacted, SMSF trustees need to ensure that they satisfy the current requirements. Even if the central management and control safe harbour is extended to five years from the date of assent, an SMSF trustee still needs to establish (before they leave) that their planned absence from Australia will be “temporary”.
Three-year cycle for SMSF audits will not proceed
The Government will not proceed with the former government’s proposal to change the annual audit requirement for certain SMSFs to allow a three-yearly cycle for funds with a history of good record-keeping and compliance.
The measure, previously announced in the 2018–2019 Budget, was proposed to apply to SMSF trustees that have a history of three consecutive years of clear audit reports and that have lodged the fund’s annual returns in a timely manner.
While the Government did not provide any reasons in the Budget papers for abandoning this proposal, the SMSF audit industry has previously flagged concerns that moving to a three-yearly audit cycle could result in increased non-compliance. The SMSF audit industry had also expressed concern that altering its workflow (and reducing profitability) could potentially lead to a reduction in the number of businesses specialising in SMSF audits and lower quality audits.
Standardised disclosure for retirement income products
The Government also announced that it will not proceed with the proposal to report standardised metrics in product disclosure statements (PDS) for retirement income products.
The former government had proposed to mandate a simplified disclosure document to support the development of the comprehensive income product for retirement (CIPR) framework. The related consultation paper proposed a simplified disclosure document with a range of standardised metrics to assist retirees to assess how a retirement income product aligns with their own preferences in relation to potential income, variations in income, access to capital, death benefits and risk management. The proposed metrics would have been presented as fact sheets to supplement existing disclosure documents.
Super downsizer contributions eligibility age reduction to 55 confirmed
The Government confirmed its election commitment to lower the minimum eligibility age for making superannuation downsizer contributions to age 55 (down from age 60).
The reduction in the eligibility age will allow individuals aged 55 or over to make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their main residence outside of the existing contribution caps. Either the individual or their spouse must have owned the home for 10 years.
As under the current rules, the maximum downsizer contribution is $300,000 per contributor (ie $600,000 for a couple), although the entire contribution must come from the capital proceeds of the sale price. A downsizer contribution must also be made within 90 days after the home changes ownership (generally the date of settlement).
Assets test exemption for two years; deeming rates frozen
The Government also confirmed its election commitments to assist pensioners looking to downsize their homes, by extending the social security assets test exemption for principal home sale proceeds from 12 months to 24 months; and changing the income test to apply only the lower deeming rate (0.25%) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.
Housing Measures
Regional First Home Buyers Guarantee Scheme; Housing Australia Future Fund
The Government has announced that it will establish a Regional First Home Buyers Guarantee. Its aim will be to encourage home ownership in regional locations.
It will apply to eligible citizens and permanent residents who have lived in a regional location for more than 12 months to purchase their first home in that location with a minimum 5% deposit. It aims to reach 10,000 places per year to 30 June 2026. It will fund this by redirecting funding from the Regional Home Guarantee component of the 2022–2023 March Budget measure titled Affordable Housing and Home Ownership.
In other measures, the Government will invest $10 billion in the newly created Housing Australia Future Fund, to be managed by the Future Fund Management Agency. Its aim will be to generate returns to fund the delivery of 30,000 social and affordable homes over five years and allocate $330 million for acute housing needs.
The Government will also “broaden the remit” of the National Housing Infrastructure Facility to directly support new social and affordable housing in addition to financing critical housing infrastructure.
New Housing Accord: $350 million in Government funding
The Government announced that it has struck a new national Housing Accord between state and territory governments, investors and other key stakeholders. This Housing Accord sets an initial, aspirational target of 1 million new homes over five years from 2024.
Under the Accord, the Government will commit $350 million over five years to deliver 10,000 affordable dwellings at an energy efficiency rating of seven stars or greater (or a state or territory’s minimum standard). This commitment is in addition to the 30,000 new social and affordable dwellings delivered through the Housing Australia Future Fund. The states and territories will also build on this commitment by providing in-kind or financial contributions that enable delivery of up to an additional 20,000 homes in total.
By delivering an ongoing funding stream to help cover the gap between market rents and subsidised rents, the Government believes it will make more projects commercially viable to attract much-needed investor capital to the sector.
The Government said it has secured endorsement from institutional investors, including superannuation funds, for the Accord. Investors will work constructively with Accord parties to optimise policy settings that facilitate institutional investment in affordable housing.
- Allowing the SMSF to be wound up – following a contravention, the trustee may decide to wind up the SMSF and roll over any remaining benefits to an APRA regulated fund. However, the ATO may continue to issue the SMSF with a notice of non-compliance or apply other compliance treatments.
- Freezing the SMSF’s assets – the ATO may give a trustee or investment manager a notice to freeze an SMSF’s assets where it appears that conduct by the trustees or investment manager is likely to adversely affect the interests of the beneficiaries to a significant extent. This is particularly important when the preservation of benefits is at risk.
September 2022
Beware of payment redirection scams
The Australian Securities and Investment Commission (ASIC) has warned small and micro businesses to be alert for payment redirection scams, which have caused some of the highest losses to businesses in 2021, to the tune of $13.4 million reported. In fact the true figure is likely much higher, as an estimated one-third of scam victims do not report their loss.
These scams typically involve scammers impersonating legitimate businesses or their employees and redirecting upcoming payments to a fraudulent bank account. The most common contact method reported was phone or text message, and bank transfers were the most common payment method.
In some cases, the scam may involve the actual hacking of legitimate business email accounts to send scam emails. Other methods include intercepting legitimate invoices and amending bank details before releasing the email to the unsuspecting business customer or registering email addresses that are very similar to ones from a legitimate business.
TIP: Take immediate action if you or your business inadvertently fall prey to a scam. Start by contacting your financial institution to see if anything can be done to recover the money, and then report the scam to either Scamwatch or the Australian Cyber Security Centre.
Businesses should also beware of falling victim to a follow-up money recovery scam, where victims of previous scams are contacted with the promise of recovering lost money for an up-front payment and/or retrieving detailed personal information.
These money recovery scammers often pose as trusted organisations such as a law firm, the fraud taskforce or a government agency. Some more sophisticated scams will have official-looking websites with fake testimonials.
TPAR due soon: is your business ready?
The taxable payments annual report (TPAR) must be lodged every year by businesses that have made payments to contractors for building and construction services, cleaning services, courier services, road freight services, IT services and security, investigation or surveillance services.
TIP: The TPAR for 2021–2022 is due to be lodged by 28 August 2022.
The ATO uses TPAR information in its data analytics to identify non-compliance with a range of tax obligations, such as lodging income tax returns, reporting the correct amount of income, lodging BASs, being registered for GST when required, and using valid ABNs. The ATO also uses it in pre-filling tax return data, to assist contractors in lodging correctly.
According to the ATO, around $11 billion a year goes missing in taxes. The TPAR system is just one of the tools used to identify non-compliance and keep things fair for all businesses. Last financial year, around $350 billion in payments made to 950,000 contractors was reported through the TPAR.
Tax time focus on rental properties
Rental property income and deduction mistakes continue to be one of the main focus areas for the ATO this tax time. This is no surprise, considering that a recent ATO random enquiry program found 90% of tax returns that report rental income and deductions contain at least one error.
One of the income categories for rental properties that may be important for this year, but that many landlords may not know to include, is insurance payouts. With recent events such as the major flooding in large parts of the country, if you obtained insurance payments in relation to loss of rental income or repairs, those amounts will need to be included in your tax return.
If you rent out your investment property, your home, or even part of your home on a short-term basis on platforms such as AirBnB, that income also needs to be included, and you’ll need to apportion any expenses according to the space rented out. Joint owners of properties need to ensure that their income and deductions are in line with the rental property’s ownership interest.
As for expenses, while some expenses such as rental management fees, council rates, repairs, interest on loans, and insurance premiums can be deducted in the year they are incurred, other expenses, such as borrowing costs, capital works, and some depreciating assets, can only be claimed over a number of years.
If you’ve sold a property during the 2021–2022 income year you’ll need to be extra cautious, as capital gains is another of the ATO’s focus areas for this year.
Remember that the ATO receives rental income data from a wide range of sources, including share economy platforms, rental bond authorities of various states, property management software providers and state and territory revenue and land title authorities. This information can of course be matched and compared to the information provided on tax returns, meaning that there is no hiding income from the all-seeing eye of the ATO.
SMSF COVID-19 relief measures have now ceased
The ATO has reminded trustees of self managed superannuation funds (SMSFs) that COVID-19 relief measures that previously applied for the 2019–2020, 2020–2021 and 2021–2022 income years no longer apply from 1 July 2022. The relief measures covered a wide range of areas, including residency requirements, rental reductions and waivers, rental deferrals, in-house assets, loan repayments, limit recourse borrowing arrangements, and related party transactions.
Until 30 June 2022, individuals who became stranded overseas due to COVID-19 and so were out of Australia for more than two years could rely on the SMSF residency relief. This meant the ATO wouldn’t take compliance action to determine whether a particular SMSF met the residency test, provided there were no other changes in the SMSF or member/trustee circumstances. Since this relief no longer applies, SMSFs may risk failing to meet some of the residency conditions to be an Australian super fund for tax purposes, which may see it lose its complying super fund status and associated tax concessions.
One of the other prominent relief measures now ended is rental relief provided to related parties. The ATO had confirmed that no compliance action would be taken and no auditor contraventions needed to be reported for rental reductions and waivers to related parties, provided they were on commercial terms, relief was due to COVID, and the arrangement was property documented. Again, now that the rental relief has ended, if an SMSF provides rental reductions or waivers to related parties, it may give rise to a reportable contravention of the super laws.
Similarly, the relief measures relating to loan repayment relief provided by an SMSF and SMSF limited recourse borrowing arrangements relief no longer apply. Therefore, from 1 July 2022, approved SMSF auditors must report contraventions via the auditor/actuary contravention report. Before that happens, SMSF trustees are encouraged to use the ATO’s voluntary disclosure service to report any identified contraventions and plan to rectify the contravention as soon as possible. Voluntary disclosures will be taken into account when determining what action the ATO will take.
Thinking of ditching your SMSF?
Are you having doubts about using your self managed superannuation fund (SMSF) for your retirement? Whatever your age, if recent market conditions, cost or the amount of administration involved are getting to be too much and you would like to wind up the SMSF, there are several steps involved. Winding up an SMSF is not a simple process and requires the trustee to understand the terms set out in the trust deed, dispose of the fund’s assets and finalise compliance obligations, among other things.
Even if you are happy with your SMSF, it may be prudent to ensure that there are no impediments to winding up if something unforeseen happens. An exit plan should be in place as a matter of course. In some complex cases it may be prudent to seek professional advice.
For most SMSFs, the first step in a winding up is to find out what the fund’s trust deed requires in that event. For example, the trust deed may require all of the assets of the fund to be sold, or all ownership to be transferred to members.
Trustees are then required to meet to ensure they agree with the winding up decision and to sign the winding up agreement. Decisions and details about asset sales should be carefully documented.
The next step is to finalise outstanding tax and compliance obligations, and final invoices and expenses due to assets sales and outstanding tax liabilities need to be paid before the calculation and distribution of member benefits. Where a member meets a condition of release, their benefits can either be paid out in cash or rolled over into another complying super fund. Where a condition of release is not met, the member benefit must be rolled over into another complying super fund.
Finally, after member benefits have been distributed, the trustee needs to ensure the SMSF has been audited every year since its establishment and complete one final audit.The final SMSF annual return can then be lodged. The ATO will confirm by letter that the SMSF has been wound up, close the SMSF records on its system, and cancel any associated ABNs.
August 2022
ATO reminder to small businesses this tax time
Small businesses are again in the ATO’s sights this tax time, with a focus on stamping out deductions not related to business income, overclaiming of expenses, omission of business income and insufficient records to substantiate claims.
The ATO receives external data from a variety of sources, including the taxable payments reporting system for certain industries. This data can be used to data-match information included in tax returns to ensure completeness and accuracy.
Businesses can only claim what they are entitled to, and the claiming method may differ depending on the type of business structure. For example, sole traders need to claim deductions in their individual tax return in the “Business and professional items” schedule, while partnerships, trusts, and companies need to claim deductions in their respective tax returns.
ATO warns against asset wash sales
With COVID-19 lockdowns and restrictions in the rear-view mirrors of most of the country, the ATO is also beginning to resume ordinary compliance activity levels. One of the many areas it will be paying close attention to this tax time is “asset wash sales”.
Tip: An asset wash sale involves a person or business disposing of assets just before the end of the financial year. After a short period of time, they then reacquire the same or substantially similar assets. The ATO views these transactions as a form of tax avoidance.
Although there may be legitimate reasons for selling and then reacquiring the same or substantially similar assets, a wash sale is different from normal buying and selling as it is usually undertaken for the artificial purpose of generating a tax benefit – such as a capital loss – in the current financial year.
The assets involved in wash sales are not necessarily traditional assets such as shares. Taxpayers could also be disposing of crypto-assets and reacquiring them later as a part of a wash sale. With the price of many crypto-assets at a low ebb, people looking to rid themselves of these assets need to be careful they do not inadvertently attract the attention of the ATO.
To stamp out this behaviour this tax time, the ATO will use analytics to identify wash sales through data from various share registries and crypto-asset exchanges. Where the system identifies a wash sale, the capital loss claimed by the taxpayer in their tax return will be rejected. The Commissioner of Taxation may then make a determination to adjust their tax situation, and compliance action and additional tax, interest and penalties may be applied.
ATO protocol for legal professional privilege
As a part of the ATO’s extensive information-gathering powers, it can compel taxpayers to furnish or produce certain documents. However, information and documents where the underlying communication is privileged do not have to be provided. Legal professional privilege (LPP) operates as an immunity from any obligation to disclose documents created by these powers.
Recently, the ATO released a protocol which contains its recommended approach for identifying communications covered by LPP and making LPP claims. While it’s voluntary to follow the steps outlined, it’s more likely that the ATO will accept LPP claims without further enquiries if the protocol is followed.
The protocol applies to both legal practitioners and non-legal practitioners and all LPP claims, regardless of the firm or business structure within which the service or engagement is provided.
The protocol itself contains three steps for taxpayers who receive an information-gathering notice and wish to make an LPP claim:
- assessing the full situation and all of the communications involved;
- explaining the basis of the LPP claim; and
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advising the ATO how the LPP claim was approached
Tip: Legal professional privilege is a highly contested area and whether a document or information is subject to LPP can depend on the facts of your individual case. If you’ve been issued a notice under the ATO’s formal information-gathering powers, we can save you time and help you work out which documents are subject to LPP under the new protocol.
Is this the end for stamp duty in New South Wales?
In the NSW Budget handed down on 21 June 2022, the State Government announced plans to make some transfer duty optional from January 2023. However, the scope of the proposal is quite limited at this stage.
The key features announced are as follows:
- First home buyers purchasing properties for up to $1.5 million on or after 16 January 2023 will be able to choose to pay an annual property tax instead of stamp duty.
- There will be a higher rate of annual property tax for investors than for owner occupiers, with rates indexed annually to wage growth.
- The tax will be based on a financial year, unlike land tax, which is based on a calendar year.
- The existing First Home Buyers Assistance Scheme duty concessions for properties valued up to $800,000 will remain.
- The property tax will only be payable by first home buyers who choose it, and will not apply to subsequent purchasers of a property.
Of course, legislation must first be enacted and the details remain to be seen, including the transitional provisions that will apply.
If the announcements become law, by next January NSW will have the existing transfer duty regime, the existing land tax regime and a new annual property tax all running in parallel.
Current compliance issues in the SMSF space
The self managed superannuation fund (SMSF) space has always been a complex area for trustees, beneficiaries and advisers. In the past few years, the ATO has made many concessions and has put compliance action on hold because of COVID-19. However, for the 2022–2023 year and beyond it’s looking to scale up its compliance program as a reaction to indicators of heightened risk in the sector.
Recent statistics indicate that there are around 600,000 SMSFs, with over 1.1 million members holding an estimated total asset value of $876 billion.
While the ATO’s main compliance focus will always be on any activity that puts retirement savings at risk or inappropriately takes advantage of the concessional tax environment, in the near-term it will focus specifically on illegal early release of super in all forms. This is when individuals access their retirement savings before a condition of release has been met. This type of activity is currently on the rise.
One of the big red flags that the ATO looks out for is when individuals establish their SMSF and initiate a rollover but then fail to lodge a corresponding first annual return. This is a good predictor that an illegal early release has occurred, either as a result of deliberate behaviour or participation in a scheme.
New registrants that do not lodge will now be targeted with a “three strikes and you’re out” compliance campaign. The ATO will first issue a “blue letter” that encourages the SMSF trustees to take immediate action to lodge, offering a pathway for those who need support. If no response is received from the blue letter, the ATO will follow up with an “amber letter” warning trustees of the consequences of failing to lodge their return. Finally, if no response is received from the amber letter, a final warning or “red letter” will be issued advising the trustees that the ATO has commenced the disqualification process and will consider other enforcement action.
The ATO issued its first and second batches of “red letters” to funds in early April and June 2022.
SMSF TBAR to be streamlined
In good news for trustees of self-managed superannuation funds (SMSFs) and after much community consultation, transfer balance account event-based reporting (TBAR) will soon be streamlined for convenience.
The TBAR allows the ATO to record and track an individual’s balance for both their transfer balance cap and total superannuation balance. That information is not extracted from the SMSF annual return, or any information shared through a rollover. Under the existing framework, an SMSF must report common events that affect a member’s transfer balance account when they happen.
An SMSF may be required to report earlier if a member has exceeded their personal transfer balance cap. For individuals who start their first retirement phase income stream on or after 1 July 2021, their personal transfer balance cap will be $1.7 million.
From 1 July 2023, the TBAR will be streamlined by removing the total super balance threshold and requiring all SMSFs to report 28 days after the end of the quarter in which a reportable event occurred. Some obligations to report earlier will continue.
Under the new streamlined framework, trustees of SMSFs will still be allowed to report transfer account balance events more frequently if they wish. This may be beneficial in instances where members are close to their personal transfer balance cap, and will avoid excess transfer balance determinations.
June 2022
What’s next on the agenda for the government?
With the election campaign finally over and a new government sworn in, many Australians will be wondering what a Labor government is likely to tackle over the next term. A helpful starting point is Labor’s election promises, which provide a useful indication of possible areas that will be targeted over the next few years.
One of the big tax policies that Labor took to the election was the party’s commitment to ensuring that multinationals pay their fair share of tax in Australia.
During the election campaign, Labor also promised to reduce the cost of child care by lifting the maximum child care subsidy rate to 90% for those with a first child in care and retaining the higher child care subsidy rates for second and additional children in care. For those with school-aged children, the promise of the increased child care subsidy will be extended to outside school hours care.
Labor also made announcements which will affect individuals and businesses, both big and small. These include more security for gig economy workers, making wage theft illegal, and training more apprentices.
Tax time 2022: ATO focus areas
Tax time 2022 is fast approaching, and this financial year, the ATO will again be focusing on a few key areas to ensure Australians are doing the right thing and paying the right amount of tax.
Like last year, the ATO recommends that people wait until the end of July to lodge their tax returns, rather than rushing to lodge at the beginning of July. This is because much of the pre-fill information will become available later in the month, making it easier to ensure all income and deductions are reported correctly the first time. People who lodge early often forget to include information about interest from banks, dividend income and payments from government agencies and private health insurers.
While the ATO receives and matches information on rental income, foreign sourced income and capital gains, not all of that information will be pre-filled for individuals, so it’s important to ensure you include it all as well.
Tip: If you need help this tax time, we have the expertise to help you report all the right information and maximise your deductions. Contact us today.
Some of the traditional areas the ATO is focusing on this year include record-keeping, work-related expenses and rental property income and deductions, as well as capital gains from property and shares.
Any deductions you claim must be backed by evidence – people who deliberately attempt to increase their refunds by falsifying records or don’t have evidence to substantiate their claims will be subject to “firm action”.
For people who are working from home or in hybrid working arrangements and claim related expenses, the ATO will be expecting to see a corresponding reduction in other expenses you claim, such as car, clothing, parking and tolls expenses.
With the intense flooding earlier this year, some rental property owners may have received insurance payouts. These, along with other income received such as retained bonds or short-term rental arrangement income, need to be reported.
Lastly, the ATO’s keeping a close eye on people selling property, shares and cryptocurrency, including non-fungible tokens (NFTs). Any capital gains need to be included in your tax return so you pay the right tax on them. But if you’ve recently sold out of cryptocurrency assets you may have a capital loss, which can’t be offset against other income such as salary and wages, only against other capital gains.
Single Touch Payroll: Phase 2
While Single Touch Payroll (STP) entered Phase 2 on 1 January 2022, many employers might not yet be reporting the additional information required under this phase because their digital service providers (DSPs) have deferrals for time to get their software ready and help their customers transition. However, once these deferrals expire, employers will need to start reporting additional information in their payroll software.
TIP: Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting software solution directly to the ATO when the payroll is run.
Entering STP Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems needs to be reported through the payroll software. For example, while many newer businesses may have employee start date information handy, older businesses may have trouble finding exact records, particularly for long-serving employees. In those instances, a default commencement date of 01/01/1800 can be reported.
Employers need to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN isn’t available, a TFN exemption code must be used. If a payee is a contractor and an employee within the same financial year, both their ABN and their TFN must be reported.
Employers also need to report the basis of employment according to work type. That is, whether an individual is full-time, part-time, casual, labour hired, has a voluntary agreement, is a death beneficiary, or is a non-employee. The report generated for STP Phase 2 includes a six-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from their payments. Most STP solutions will automatically report these codes, but it’s a good idea to understand what the codes are to ensure that they’re correct.
Income and allowances are also further drilled down – instead of reporting a single gross amount of an employee’s income, employers need to separately report on their gross income, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payments and salary sacrifice amounts.
If your DSP has a deferral in place, you don’t need to apply for your own deferral and will only need to start reporting STP Phase 2 information from your next pay run after your DSP’s deferral expires. However, if your business needs more time in addition to your DSP’s deferral, you can apply for your own deferral using ATO Online Services.
Operation Protego: detecting GST fraud
The ATO has lifted the lid on its most recent operation to stamp out GST fraud, Operation Protego, to warn the business community not to engage with fraudulent behaviour and to encourage those who may have fallen into a criminal’s trap to make a voluntary disclosure.
Recently, the ATO has seen a rise in the number of schemes where people invent fake businesses in order to submit fictitious business activity statements (BASs) and obtain illegal GST refunds. The amounts involved in these schemes are significant, with $20,000 being the average amount in fraudulently obtained GST refund payments. The ATO is currently investigating around $850 million in payments made to around 40,000 individuals, and is working with financial institutions that have frozen suspected fraudulent amounts in bank accounts.
It’s possible that not all of the individuals involved in these refund schemes know they’re doing something illegal. Ads for schemes falsely offering to help people obtain loans or government disaster payments from the ATO have been on the rise on social media platforms. But ever-changing content about all sorts of pandemic and disaster related support has become commonplace online, and many people don’t have detailed knowledge about all the requirements of Australian business and tax law. It’s really not surprising that it can be difficult to distinguish scam promotions from genuine support measures.
Tip: The ATO wants to make it clear that it does not offer loans or administer government disaster payments. Any advertisement indicating that the ATO does these things is a rort.
Government disaster payments are administered through Services Australia if they are Federal government payments, or through various state and territory government bodies if they are state or territory government payments.
Scheme promoters will also sometimes require individuals or businesses to hand over their myGov details. People who may have shared myGov login details for themselves or their businesses with scheme operators are encouraged to contact the ATO for assistance.
More ATO action on super guarantee non-compliance
Employers should take note that the ATO is now back to its pre-COVID-19 setting in relation to late or unpaid superannuation guarantee (SG) amounts. Firmer SG-related related recovery actions that were suspended during the pandemic have now recommenced, and the ATO will prioritise engaging with taxpayers that have SG debts, irrespective of the debt value.
The Australian National Audit Office (ANAO) recently issued a report on the results of an audit on the effectiveness of ATO activities in addressing SG non-compliance. While the ANAO notes that the SG system operates largely without regulatory intervention, because employers make contributions directly to super funds or through clearing houses, the ATO does have a role as the regulator to encourage voluntary compliance and enforce penalties for non-compliance.
Overall, the ANAO report found that the ATO activities have been only partly effective. The report notes that while there is some evidence that the ATO’s compliance activities have improved employer compliance, the extent of improvement couldn’t be reliably assessed.
Among other things, the ANAO recommends that the ATO maximise the benefit to employees’ super funds by making more use of its enforcement and debt recovery powers, and consider the merits of incorporating debtors that hold the majority of debt into its prioritisation of debt recovery actions.
The ATO has responded to say that while it paused many of its firmer SG related recovery actions through the COVID-19 pandemic, those have now recommenced, and its focus will generally be on taxpayers with higher debts, although it will be prioritising taxpayers with SG debts overall, irrespective of the debt value.
The ATO says it’s already begun implementing a preventative compliance strategy using data sources such as Single Touch Payroll (STP) and regular reporting from super funds. It will continue to investigate every complaint in relation to unpaid SG amounts, and take action where non-payment is identified. The actions available include imposing tax and super penalties, as well as recovering and back-paying unpaid super to employees. The ATO will also be increasing transparency of compliance activities and employer payment plans, so that affected employees can be aware when to expect super back-payments.
TIP: If you have issues with making super guarantee payments to your employees or would like to make a voluntary disclosure before a potential ATO audit, we can help. Contact us today.
May 2022
Employees vs contractors: more clarity coming
For many businesses, the line between employees and contractors is becoming increasingly blurred, partly due to the rise of the gig economy. However, businesses should be careful, as incorrectly classifying employees as contractors may be illegal and expose the business to various penalties and charges.
Recently, the High Court handed down a significant decision in a case involving the distinction between employees and contractors. In the case, a labourer had signed an Administrative Services Agreement (ASA) with a labour hire company to work as a “self-employed contractor” on various construction sites. The Full Federal Court had initially held that the labourer was an independent contractor after applying a “multifactorial” approach by reference to the terms of the ASA, among other things. The High Court, however, overturned that decision and held that the labourer was an employee of the labour hire company.
The High Court held that the critical question was whether the supposed employee performed work while working in the business of the engaging entity. That is, whether the worker performed their work in the labour hire firm’s business or in an enterprise or business of their own.
As a result of the decision, the ATO has said it will review relevant rulings, including super guarantee rulings on work arranged by intermediaries and who is an employee, as well as income tax rulings in the areas of PAYG withholding and the identification of employer for tax treaties.
Movement at the FBT station: COVID-19 tests, car parking
FBT is generally seen as a relatively slow-moving and quiet area of tax law. But Budget day this year saw some movement at the FBT station, specifically regarding COVID-19 tests provided to staff, and also car parking benefits.
RATs for employees
The 2022–2023 Federal Budget included a measure, now passed into law, to make costs for taking a COVID-19 test to attend their workplace tax-deductible for individuals from 1 July 2021.
COVID-19 tests, including rapid antigen tests (RATs), provided by employers to employees are considered benefits under the FBT regime.
However, by allowing for an individual tax deduction, the new measure also allows for the operation of the “otherwise deductible” rule to reduce the taxable value of the benefit to zero. The result? By introducing a specific individual income tax deduction, employers would also not have to pay FBT.
Neat solution. Well, apart from the catch: employee-level declarations could be required when the provision of a RAT is a property fringe benefit (that is, legal ownership of the item passes from the employer to the employee).
Where a RAT is provided as an expense reimbursement or residual benefit, an employer-level declaration is available (that is, one declaration signed by the public officer on behalf of each employing entity lodging an FBT return to declare that there is no private use).
In case collecting hundreds or thousands of employee-level paper declarations is not how you’d like to spend your time, we see three options at this stage:
- assess the potential application of the minor benefit rule to your situation;
- explore your policy and processes to determine whether the benefit provided could meet an exemption or documentation exception; and
- use an automated, electronic declaration tool to take some pain out of the process.
“Commercial parking station” definition
As a reminder:
- a car parking fringe benefit can only arise where the employee parks their car for at least four hours during a daylight period in an employer-provided space in the vicinity of the principal workplace;
- there must be a commercial parking station that charges more than a threshold amount (currently $9.25) for all-day parking within one kilometre of the entrance to the employer’s car park; and
- “all-day parking” means parking continuously for at least six hours between 7 am and 7 pm.
The scope of the term “commercial parking station” is therefore fundamental to determining if an employer has taxable car parking benefits.
Broadly, a commercial parking station is one where car parking spaces are, for payment of a fee, available in the ordinary course of business to members of the public for all-day parking.
The ATO issued a ruling in 2021 that no longer applied the interpretation that car parking facilities with a primary purpose other than providing all-day parking (usually charging significantly higher rates) are not commercial parking stations. This was to apply from 1 April 2022.
In effect, this would bring facilities like shopping centre car parks and hospital car parks into the definition of a “commercial parking station”. For employers with only that type of parking within a one-kilometre radius, the consequences were significant, potentially bringing previously non-taxable employer-provided car parking within the scope of FBT.
The Federal Government has announced it will be undertaking consultation with the intent of restoring the previously understood application of FBT to car parking fringe benefits, which is closer to the original policy intent of the car parking FBT provisions. The readjusted definition would then apply from 1 April 2022 instead.
ATO urges vigilance new TFN and ABN scams
The ATO is urging people and businesses to be vigilant following an increase in reports of fake websites offering to provide tax file numbers (TFN) and Australian business numbers (ABN) for a fee, but failing to provide those services.
The fake TFN and ABN services are often advertised on Facebook, Twitter or Instagram. The scammers use the fraudulent websites they advertise to steal both money and personal information.
Tip: The ATO and Australian Business Register (ABR) do not charge fees for providing a TFN or an ABN. It’s free, quick and easy to use government services online to apply for a TFN through the ATO, or apply for an ABN through the ABR.
The ATO is also still seeing scammers impersonating the ATO, making threats, demanding the payment of fake tax debts or claiming a TFN has been “suspended” due to fraud.
In 2021, more than 50,000 people reported various ATO impersonation scams, with victims losing a total of more than $800,000.
Tips to protect yourself from scammers
- Know your tax affairs – You will be notified about your tax debt before it is due. Check if you have a legitimate debt by logging into your myGov account or calling your tax agent. Find the contact details for the ATO or your tax agent independently by searching online or using your own paper records – don’t trust details provided by possible scammers.
- Guard your personal and financial information – Be careful when clicking on links, downloading files or opening attachments. Only give your personal information to people you trust and don’t share it on social media.
- If you’re not sure, don’t engage – If a call, SMS or email leaves you wondering if it’s genuine, don’t reply. You can phone the ATO’s dedicated scam line on 1800 008 540 to check if it is legitimate. You can also verify or report a scam online at www.ato.gov.au/scams and visit ScamWatch at www.scamwatch.gov.au to get information about scams (not just tax scams).
- Know legitimate ways to make payments – Scammers may use threatening tactics to trick you into paying fake debts via unusual methods. For example, they might demand pre-paid gift cards or transfers to non-ATO bank accounts. To check that a payment method is legitimate, visit www.ato.gov.au/howtopay.
Federal Budget fuel excise reduction: will all businesses benefit?
The uncertainty around availability of fuel has seen fuel prices soar across Australia. The 2022–2023 Federal Budget proposed an answer for this by way of a temporary (six-month) reduction to fuel excise.
The six-month reduction is now law, and will end at midnight on 28 September 2022. For petrol and diesel, this means an excise reduction from 44.2 to 22.1 cents per litre, which is already being felt by users at the pump. But who will actually benefit from this Budget promise and what does it mean for businesses claiming fuel tax credits (FTCs)?
Snapshot: who will benefit?
Individuals:
- all fuel uses of individuals – benefit of 22.1 cents per litre.
Businesses:
- businesses operating light vehicles on public roads – benefit of 22.1 cents per litre;
- businesses operating heavy vehicles on public roads – benefit of 4.3 cents per litre;
- businesses operating vehicles on private roads – no benefit; and
- businesses using fuel for non-vehicle use (auxiliary, machinery, plant and equipment) – no benefit.
What should businesses do?
For businesses that currently claim FTCs, it’s important to understand the impact of these changes on their FTC entitlement and to adjust their FTC process accordingly.
We expect there will be increased complexity for businesses claiming FTCs in the first few weeks of the temporary measure and the weeks following its conclusion. This is because the changes in fuel excise are expected to trickle through from fuel suppliers depending on where businesses are located and how they purchase their fuel. Businesses will be required to determine which rate of fuel excise has been applied to fuel purchases to determine the rate of fuel tax credit available.
ATO’s COVID related support for SMSFs
Because of the financial impacts of COVID-19, trustees of a self-managed superannuation fund (SMSF), or a related party of the fund, may provide or accept certain types of relief, which may give rise to contraventions of the super laws. Some trustees may also have been stranded overseas because of travel bans, which can affect their fund’s residency status.
In recognition of these issues, the ATO is offering support and relief to SMSF trustees for the 2019–2020, 2020–2021 and 2021–2022 income years.
This generally includes not taking any compliance action against an SMSF and not requiring the SMSF auditor to report related contraventions in the following areas:
- where an SMSF trustee or a related party of the SMSF offered rental relief to a tenant due to COVID-19;
Tip: Temporary changes to a lease agreement for rental relief need to be properly documented, together with the reasons for those changes. A formal variation of the lease may need to be executed.
- where a plan to get the value of SMSF’s in-house asset holdings below 5% of the fund’s total assets couldn’t be executed in time because of COVID-19;
- where a fund offered loan repayment relief because the borrower was experiencing difficulty repaying the loan because of COVID-19;
- where a fund no longer satisfies the residency rules because the trustee/s were stranded overseas for an extended period; and
- where a fund has a limited recourse borrowing arrangement (LRBA) with a related party lender, and the lender offered COVID-19 loan repayment relief to the fund.
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Trustees must properly document all of these sorts of relief and provide their approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.
April 2022
Support for flood-ravaged areas
The recent devastating flooding in South East Queensland and parts of New South Wales has left many people homeless, caused vast amounts of property damage and has sadly led to loss of life. While the clean-up effort continues in many areas, there is some immediate financial help available for those affected, including the Disaster Recovery Payment and Disaster Recovery Allowance.
Those who need immediate help can apply for the Australian Government Disaster Recovery Payment. This is one-off financial assistance of $1,000 per eligible adult and $400 for each eligible child aged under 16. This includes Australian resident individuals in various local government areas who have been seriously injured, lost their homes, have had their homes/major assets directly damaged, or those who have lost immediate family members as a direct result of the floods. The payment is also available to eligible New Zealand visa holders (Subclass 444) who have been affected by the floods.
Australian residents and eligible New Zealand visa holders may also be eligible to apply for the Disaster Recovery Allowance. This is a short-term payment for a maximum of 13 weeks. Eligible individuals will need to be 16 years or over, have lost income as a direct result of the storms/floods, and earn less than the average Australian weekly income in the weeks after the income loss.
Flood-impacted small businesses will receive an automatic BAS lodgement deferral – although general interest charge (GIC) may still apply to deferred payments – and can apply for a refund of previously paid PAYG instalments. Any GST refunds will also be “fast-tracked”.
Tip: If your small business needs help in deferring your tax obligations due to the floods, we can help liaise with the ATO on your behalf and work out the best plan for your situation. We can also help guide you through information about the available support payments for individuals and families.
Temporary full expensing of assets extended
The availability of temporary full expensing of depreciating assets for business has been extended for another year until 30 June 2023. This measure was originally introduced in 2020 as a part of the Federal Government’s COVID-19 business rescue package, aimed at encouraging business investment by providing a cash flow benefit. As originally introduced, the measure was due to end on 30 June 2022.
Businesses with an aggregated turnover below $5 billion or those that meet an alternative eligibility test can deduct the full cost of eligible depreciating assets of any value that are first held and first used or installed ready for use for a taxable purpose from 6 October 2020 until 30 June 2023.
For small business entities with an aggregated turnover of less than $10 million, the temporary full expensing of depreciating asset rules has been effectively replaced with simplified depreciation rules for any assets first held and used or installed ready for use for a taxable purpose between 6 October 2020 and 30 June 2023. This means that the full cost of eligible depreciating assets, as well as costs of improvements to existing eligible depreciating assets, can be fully deducted.
Not all costs relating to assets qualify for temporary full expensing. For example, building and other capital works, as well as software development pools do not generally qualify. Second-hand assets that would otherwise meet the eligibility conditions also do not qualify for temporary full expensing if the entity that holds them has an aggregated turnover of $50 million or more.
Special rules also apply to cars, where the temporary full expensing is limited to the business portion of the car limit.
Tip: If you want to take advantage of temporary full expensing, contact us first to make sure the assets your business is planning to purchase will meet the eligibility requirements.
Record-keeping education in lieu of ATO financial penalties
If you run a small business and are found by the ATO to have made unintentional record-keeping mistakes, you could face having to pay an administrative penalty. However, this could soon change under a proposed new law that would give ATO the power to issue a direction to complete an approved record-keeping education course instead. Legislation to implement this measure has been introduced into Parliament but not yet passed.
This proposed change originated as a part of the Black Economy Taskforce’s final report, which found that tax-related record-keeping obligations should be made clearer for businesses, and that the ATO should have a range of administrative sanctions available at its discretion for breaches of the rules.
Under the proposed new law, the ATO may issue a tax-records education direction in appropriate situations, which will require the appropriate person within a business to take a specified, approved course of education and provide the ATO with evidence of completion. This would be applied in circumstances where the record-keeping mistakes were unintentional, due to knowledge gaps or variations in levels of digital literacy, or where the ATO reasonably believes that the entity has made a genuine attempt to comply with their obligations.
The tax-records education direction would not be available to businesses that deliberately avoid record-keeping obligations. In those cases, financial penalties will still be applied, and if there is evidence of serious non-compliance, the ATO may also consider criminal sanctions.
FHSS maximum releasable amount increased
The maximum amount that individuals can take out of their superannuation under the First Home Super Saver Scheme (FHSS) will be increased to $50,000 for any release requests made on or after 1 July 2022. The scheme was originally envisaged as a tax-effective way for first home buyers to save for a deposit, and the increase in the maximum releasable amount presumably reflects the rapidly escalating housing price increases. The scheme is available to both first home buyers and those intending to build their first home, subject to certain conditions of occupation.
The first step in releasing eligible funds is to obtain a FHSS Determination from the ATO which sets out the maximum amount that an individual can have released under the scheme. It’s imperative to make sure you’ve finished making all your voluntary contributions under the scheme before applying for a Determination, and of course, to check the accuracy of the Determination issued by the ATO.
There is a limit of $15,000 of eligible contributions that can be released each financial year (up to a total limit of $30,000 currently, or $50,000 from 1 July 2022).
TIP: To access part your super under the scheme, you must have a FHSS Determination from the ATO before any contract to purchase or build is signed.
When you have a FHSS Determination and subsequently sign a contract to purchase, a valid release request must be given to the ATO within 14 days. After the release of money, if you haven’t signed a contract to purchase or construct a home within 12 months, the ATO will generally grant an extension for a further 12 months automatically. You also have the choice to recontribute the amount back into your super fund, or to keep the money and pay a flat 20% tax on assessable FHSS released amounts.
Downsizer contributions: age limit change
To help those nearing retirement boost their super balances, people aged 65 and over can currently make downsizer contributions to their super of up to $300,000 from the proceeds of the sale of their home.
Tip: Downsizer contributions don’t count towards the super contribution caps, but do count towards the transfer balance cap, which applies when your super is moved into the retirement phase.
As part of a suite of measures introduced to provide more flexibility for those contributing to super, from 1 July 2022 the age limit for those making downsizer contributions will be decreased to include individuals aged 60 years or over. Optimistically, the government expects this decrease in the age threshold will encourage more older Australians to downsize sooner and “[free] up the stock of larger homes for younger families”.
If you or your spouse are thinking of selling the family home to capture a premium, especially in regional areas, some other criteria must be satisfied so you can to make a downsizer contribution to your super, including:
- the location of the home must be in Australia;
- the home must have been owned by your or your spouse for at least 10 years;
- the home must not be a caravan, houseboat or other mobile home;
- the disposal must be exempt or partially exempt from CGT under the main residence exemption; and
- a previous downsizer contribution must not have been made from the sale of another home or from the part sale of the current home.
Each person individual can make the maximum contribution of $300,000, so for a couple a total contribution of $600,000 can be made. However, the total contribution amount cannot be greater than the total proceeds from the sale of the home. If a home is owned only by one spouse and is sold, the spouse who didn’t have ownership can also make a downsizer contribution or have one made on their behalf, provided all other requirements are met.
Work test scrapped for super contributions: under 75s
From 1 July 2022, people aged between 67 and 75 will be able to make non-concessional and salary-sacrificed contributions to their superannuation without the need to pass the work test or satisfy the work test exemption criteria. The removal of the work test from that date also allows people aged under 75 to access the bring-forward of non-concessional contributions in some cases, which may allow you to access up to three times the annual non-concessional contributions cap in a single year. Personal contributions will also be affected, although now instead of having to pass the work test to contribute, the work test only applies if a deduction is sought.
These changes are designed to provide older Australians with more flexibility to contribute to their super and add to their comfort in retirement. Contribution caps will still apply to any contributions made to your super.
To pass the work test, an individual must be gainfully employed for at least 40 hours during a consecutive 30-day period in each income year in which contributions were made. It’s an annual test, which means that once it is met, the individual can make contributions for that entire income year.
Tip: If you’re between the ages of 67 and 75, now is the perfect time put a plan in place to grow your super. Contact us to find out more about how you can take advantage of these changes.
March 2022 - Federal Budget
PERSONAL TAXATION
In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.
The 2022–2023 tax rates and income thresholds for residents are unchanged from 2021–2022:
- taxable income up to $18,200 – nil;
- taxable income of $18,201 to $45,000 – 19% of excess over $18,200;
- taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
- taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
- taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.
Stage 3: from 2024–2025
The Stage 3 tax changes will commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.
Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.
Low income offsets: LMITO temporarily increased, LITO retained
The low and middle income tax offset (LMITO) will be increased by $420 for the 2021–2022 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021–2022 (up from the current maximum of $1,080).
This one-off $420 cost of living tax offset will only apply to the 2021–2022 income year. Importantly, the Government did not announce an extension of the LMITO to 2022–2023. So, it remains legislated to only apply until the end of the 2021–2022 income year (albeit up to $1,500 instead of $1,080).
The Government said the LMITO for 2021–2022 will be paid from 1 July 2022 to more than 10 million individuals when they submit their tax returns for the 2021–2022 income year. Other than those who do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. That is, the proposed one-off $420 cost of living tax offset will increase the maximum LMITO benefit in 2021–2022 to $1,500 for individuals earning between $48,001 and $90,000 (but phasing out up to $126,000). Those earning up to $48,000 will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37,001 and $48,000).
All other features of the current LMITO remain unchanged (including that it will only apply until the end of the 2021–2022 income year). Consistent with the current LMITO, taxpayers with incomes of $126,000 or more will not receive the additional $420.
As already noted, the Government has proposed that eligible taxpayers with income up to $126,000 will receive the additional one-off $420 cost of living tax offset for 2021–2022 on top of their existing LMITO benefit.
Currently, the amount of the LMITO for 2021–2022 is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.
The low income tax offset (LITO) will also continue to apply for the 2021–2022 and 2022–2023 income years. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022–2023, but the new LITO was brought forward in the 2020 Budget to apply from the 2020–2021 income year.
The maximum amount of the LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.
Medicare levy low-income thresholds increased
For the 2021–2022 income year, the Medicare levy low-income threshold for singles will be increased to $23,365 (up from $23,226 for 2020–2021). For couples with no children, the family income threshold will be increased to $39,402 (up from $39,167 for 2020–2021). The additional amount of threshold for each dependent child or student will be increased to $3,619 (up from $3,597).
For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $36,925 (up from $36,705 for 2020–2021). The family threshold for seniors and pensioners will be increased to $51,401 (up from $51,094), plus $3,619 for each dependent child or student. Legislation is required to amend these thresholds, and a Bill will be introduced shortly.
COVID-19 test expenses to be deductible
The Budget papers confirm that the costs of taking COVID-19 tests – including polymerase chain reaction (PCR) tests and rapid antigen tests (RATs) – to attend a place of work are tax deductible for individuals from 1 July 2021. In making these costs tax deductible, the Government will also ensure FBT will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose. This measure was previously announced on 8 February 2022.
COST OF LIVING MEASURES
One-off $250 cost of living payment
The Government will make a $250 one-off cost of living payment in April 2022 to six million eligible pensioners, welfare recipients, veterans and eligible concession card holders.
The $250 payment will be tax-exempt and not count as income support for the purposes of any Government income support. A person can only receive one economic support payment, even if they are eligible under two or more of the eligible categories.
The payment will only be available to Australian residents who are eligible recipients of the following payments, and to concession card holders:
- Age Pension;
- Disability Support Pension;
- Parenting Payment;
- Carer Payment;
- Carer Allowance (if not receiving a primary income support payment);
- Jobseeker Payment;
- Youth Allowance;
- Austudy and Abstudy Living Allowance;
- Double Orphan Pension;
- Special Benefit;
- Farm Household Allowance;
- Pensioner Concession Card (PCC) holders;
- Commonwealth Seniors Health Card holders; and
- Eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.
Temporary reduction in fuel excise
The Government will reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for six months. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50% for six months.
The Treasurer said this measure will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents. Mr Frydenberg said a family with two cars who fill up once a week could save around $30 a week, or around $700 over the next six months. The Treasurer made a point of emphasising that the Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on.
The measure will commence from 12.01 am on 30 March 2022 and will remain in place for six months, ending at 11.59 pm on 28 September 2022.
BUSINESS TAXATION
Deduction boosts for small business: skills and training, digital adoption
The Government announced two support measures for small businesses (aggregated annual turnover less than $50 million) in the form of a 20% uplift of the amount deductible for expenditure incurred on external training courses and digital technology.
External training courses
An eligible business will be able to deduct an additional 20% of expenditure incurred on external training courses provided to its employees. The training course must be provided to employees in Australia or online, and delivered by entities registered in Australia. Some exclusions will apply, such as for in-house or on-the-job training.
The boost will apply to eligible expenditure incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2024. The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.
Digital adoption
An eligible business will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets that support its digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services. An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.
The boost will apply to eligible expenditure incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2023.
The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.
PAYG instalments: option to base on financial performance
The Budget papers confirm the Treasurer’s earlier announcement that companies will be allowed to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software (with some tax adjustments).
The commencement date is “subject to advice from software providers about their capacity to deliver”. It is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date. There are no details yet as to what tax adjustments will be required (although presumably this will involve a reverse, modified form of tax effect accounting).
PAYG and GST instalment uplift factor
The Budget papers confirm the Treasurer’s earlier announcement that the GDP uplift factor for PAYG and GST instalments will be set at 2% for the 2022–2023 income year. The papers state that this uplift factor is lower than the 10% that would have applied under the statutory formula.
The 2% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2022–2023 income year and fall due after the enabling legislation receives assent.
More COVID-19 business grants designated NANE income
The Government has extended the measure which enables payments from certain state and territory COVID-19 business support programs to be made non-assessable, non-exempt (NANE) income for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.
Consistent with this, the Government has made the following state and territory grant programs eligible for this treatment since the 2021–2022 Mid-Year Economic and Fiscal Outlook:
- New South Wales Accommodation Support Grant
- New South Wales Commercial Landlord Hardship Grant
- New South Wales Performing Arts Relaunch Package
- New South Wales Festival Relaunch Package
- New South Wales 2022 Small Business Support Program
- Queensland 2021 COVID-19 Business Support Grant
- South Australia COVID-19 Tourism and Hospitality Support Grant
- South Australia COVID-19 Business Hardship Grant.
The changes are part of an ongoing series of announcements which will continue to have effect until 30 June 2022.
TAX COMPLIANCE AND INTEGRITY
Digitalising trust income reporting
The Budget confirms the Government’s previously announced intention to digitalise trust and beneficiary income reporting and processing.
It will allow all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes. There are no other additional details in the Budget papers than in the earlier announcement. The measure will commence from 1 July 2024 – “subject to advice from software providers about their capacity to deliver”.
The Government advises that it will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications.
Taxable payments data reporting: option to link to BAS cycle
The Budget confirms the Treasurer’s earlier announcement that businesses will be provided with the option to report taxable payments reporting system data on the same lodgment cycle as their activity statements, via accounting software. The rules for the taxable payments reporting system are contained in Subdiv 396-B of Sch 1 to the Taxation Administration Act 1953.
The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications of the measure. Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024.
SUPERANNUATION
Super guarantee: rate rise unchanged
The Budget did not announce any change to the timing of the next super guarantee (SG) rate increase. The SG rate is currently legislated to increase from 10% to 10.5% from 1 July 2022, and by 0.5% per year from 1 July 2023 until it reaches 12% from 1 July 2025.
With the SG rate set to increase to 10.5% for 2022–2023 (up from 10%), employers need to be mindful that they cannot use an employee’s salary-sacrificed contributions to reduce the employer’s extra 0.5% of super guarantee. The ordinary time earnings (OTE) base for super guarantee purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement (defined in s 15A of the Superannuation Guarantee (Administration) Act 1992) are not treated as employer contributions which reduce an employer’s charge percentage.
Super Guarantee opt-out for high-income earners
The increase in the SG rate to 10.5% from 1 July 2022 also means that the SG opt-out income threshold will decrease to $261,904 from 1 July 2022 (down from $275,000). High-income earners with multiple employers can opt-out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap ($27,500 for 2021–2022 and 2022–2023). Therefore, the SG opt-out threshold from 1 July 2022 will be $261,904 ($27,500 divided by 0.105).
Superannuation pension drawdowns
The temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities will be extended by a further year to 30 June 2023.
The 50% reduction in the minimum pension drawdowns, which has applied for the 2019–2020, 2020–2021 and 2021–2022 income years, was due to end on 30 June 2022. However, the Government announced that the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) will be amended to extend this temporary 50% reduction for minimum annual pension payments to the 2022–2023 income year. Given ongoing volatility, the Government said the extension of this measure to
2022–2023 will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.
Minimum drawdowns reduced 50% for 2022–2023
The reduction in the minimum payment amounts for 2022–2023 is expected to apply to account-based, allocated and market linked pensions. Minimum payments are determined by age of the beneficiary and the value of the account balance as at 1 July each year under Sch 7 of the SIS Regulations.
No maximum annual payments apply, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year.
For the purposes of determining the minimum payment amount for an account-based pension or annuity for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed), the minimum payment amount is half the amount worked under the formula in clause 1 of Sch 7 of the SIS Regs. The relevant percentage factor is based on the age of the beneficiary on 1 July in the financial year in which the payment is made (or on the commencement day if the pension commenced in that year).
For market linked income streams (MLIS), the minimum payment amount for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed) must be not less than 45% (and not greater than 110%) of the amount determined under the standard formula in clause 1 of Sch 6 of the SIS Regs.
Note that the 50% reduction in the minimum annual pension payments are not compulsory. That is, a pensioner can continue to draw a pension at the full minimum drawdown rate or above for 2019–2020, 2020–2021, 2021–2022 (and 2022–2023 proposed), subject to the 10% limit for transition to retirement pensions. However, it will generally be inappropriate to take more than the minimum annual drawdowns in the form of a pension payment given the pension transfer balance cap. Rather, it generally makes more sense to access any additional pension amount above the minimum drawdown in the form of a partial commutation of the pension instead of taking more than the minimum annual drawdowns. This is because a commutation will generate a debit for their pension transfer balance account, while an additional pension payment above the minimum will not result in a debit.
February 2022 - COVID-19 vaccination rewards: tax implications
COVID-19 vaccination rewards: tax implications
Amidst the Omicron COVID-19 wave and with our governments shortening booster dose intervals, many businesses are encouraging their employees and customers to get either vaccinated or get their booster dose by offering rewards or incentives. While this is an effective way to help employees and customers stay safe and businesses to stay open, it’s important to consider that there may be some tax consequences involved.
If your business provides free or discounted goods, services, vouchers, gift cards, rewards points or other non-cash benefits to everyone who has had their COVID-19 vaccinations, those benefits will not be subject to FBT, even if your employees take part in the program. This is because the benefit isn’t provided in respect of your employees’ employment. Providing these types of non-cash benefits only to your employees may be subject to FBT; however, a benefit with a value under $300 may qualify for a minor benefit exemption.
If a non-cash benefit provided to your employees doesn’t qualify for the minor benefit exemption, a reduction in taxable value of FBT may be available if the benefit is an “in-house” one. Generally, an in-house benefit is something identical or similar to the benefits you provide to customers in the ordinary course of business – for example, clothes given by a clothing retailer.
TIP: If your business provides transport or pays for an employee’s transport to get their COVID-19 vaccination or booster, the travel would be considered work-related preventative health care, which is exempt from FBT.
If you give your employees a cash payment for getting vaccinated, your business will need to report it via Single Touch Payroll (STP) as part of each employee’s salary or wages, withhold tax from the amount under PAYG withholding, and include the amount in each employee’s ordinary time earnings for the purposes of determining super contributions.
TIP: If you’ve already given vaccination-related benefits or payments to your employees, it’s likely the ATO will need to know. We can assist – contact us today.
Free mental health support for small business
The Federal Government has announced additional funding to extend the availability of free mental health support to small business owners dealing with the current pandemic and recent natural disasters.
The NewAccess for Small Business Owners Program, developed and provided by Beyond Blue, provides free, confidential, one-on-one mental health support by phone or video call to small business owners, including sole traders. The coaches are former small business owners themselves, so they understand the unique challenges that small businesses face, including family and financial pressures.
The sessions use Low-intensity Cognitive Behavioural Therapy (LiCBT) work, tailored to your needs, to help you recognise the ways you think, act and feel, and to separate from unhelpful thoughts. You’ll learn practical skills to manage stress and get back to feeling like yourself.
More information about the NewAccess for Small Business Owners program is available by calling 1300 945 301 or on the Beyond Blue website at www.beyondblue.org.au/newaccess-sbo.
The Small Business Debt Helpline is run by Financial Counselling Australia. It’s a free service for small business owners in financial difficulty, and offers independent, confidential and impartial support to navigate issues including avoiding bankruptcy, negotiating payment plans, debt waivers, grant applications and insolvency.
The helpline’s professional financial counsellors offer a listening ear and practical business advice. They don’t sell anything or work on commission.
You can contact the Small Business Debt Helpline by calling 1800 413 828 or see the Small Business Debt website at https://sbdh.org.au/.
Changes to recovery loan scheme for small and medium enterprises
As a part of an economic package to help businesses recover from the impacts of the COVID-19 pandemic, the Federal Government provided low-cost credit to qualifying small and medium enterprises (SMEs) through the SME Recovery Loan Scheme. When it was first introduced, and until 31 December 2021, the government essentially guaranteed 80% of the loan amount. However, from 1 January 2022, as restrictions have eased, the government guarantee has been reduced from 80% of the loan amount to 50% of the loan amount. The eligibility conditions have also been slightly fine-tuned, with the scheme now due to end on 30 June 2022.
Eligible small and medium businesses with up to $250 million turnover can access up to $5 million in total from participating lenders.
Loans can be unsecured or secured and will generally be for terms of up to 10 years, with an optional repayment holiday period of up to 24 months. A loan can be used for a range of business purposes, including investment support or refinancing the pre-existing debt of an eligible borrower.
The maximum rate will be capped at around 7.5%, with flexibility for interest rates on variable rate loans to increase if market interest rates rise over time. Participating lenders can offer any suitable product to eligible businesses except for credit cards, charge cards, debit cards or business cards.
Need more money in retirement?
Retirees who own their own home and need more money in retirement can now access the Home Equity Access Scheme, run through Services Australia. The scheme was previously known as the Pensions Loans Scheme. Along with its new name, the scheme’s fortnightly interest rate has been lowered to 3.95% per annum. To access the scheme, there’s no need for you or your partner to be on the Age Pension, although certain other requirements need to be met, including being of at Age Pension age and owning real estate in Australia that can be used as security for the loan.
There are costs associated with starting and stopping the scheme – for example, Services Australia will place a charge or caveat on the property offered as security for the loan, and you’ll need to pay the costs involved. These costs don’t need to be paid upfront but can be added to the loan balance.
TIP: The scheme is flexible, which means you can stop receiving payments at any time and make repayments at any time, but regular repayments aren’t required. Rather, you have the choice to wait to pay the loan, legal costs and accrued interest in full when you sell the property you’ve used as security.
Payments under the scheme will continue until you reach your maximum loan amount. This amount depends on your age, your partner’s age (if you have one), and the market value of the property used as security. For example, for a single person aged 70 who has a home with a market value of $800,000, the maximum loan amount available under the scheme is $246,400.
Income protection insurance in super: beware of offsets
Insurance within super is usually the most cost-effective way for an individual to cover themselves in the event of a mishap. Most super funds typically offer three types of insurance for their members: life cover, total and permanent disability (TPD) and income protection insurance (or salary continuance cover).
Life cover (death cover) pays a lump sum or income stream to beneficiaries upon your death, or in the event of a terminal illness. TPD insurance pays you a benefit if you become seriously disabled and are unlikely to work again. Income protection insurance pays a regular income for a specified period, ranging from two years to five years, or up to a certain age, if you can’t work due to temporary disability or illness.
Recently, the Australian Securities and Investments Commission (ASIC) reviewed the practices of five large super funds that provide default income protection insurance on an opt-out basis to their members, accounting for around 2 million MySuper member accounts.
Overall, ASIC found that most income protection insurance policies contain “offset” clauses, which mean that the insurance benefit is reduced or “offset” if you receive other kinds of income support. This is used as a way to reduce incentives for you to delay your return to work as a result of receiving more income while disabled than when working.
The review also found large variations between super funds in the types of income offset against income protection benefits.
ASIC found that trustees were not proactively giving members clear explanations about when insurance benefits would or would not be paid as a result of offsets. This information is obviously relevant when you’re considering whether to opt out of default income protection insurance, and if you make an insurance claim.
ASIC’s concern isn’t that the offset clauses exist, but that relevant information to explain the clauses was not available in website communications or in welcome packs, and the clauses were only described in technical and legalistic language in insurance guides.
TIP: You can get more information on ASIC’s MoneySmart website about what to look for when considering income protection insurance through super: see https://moneysmart.gov.au/how-life-insurance-works/income-protection-insurance.
January 2022 - ATO Medicare exemption data-matching continues
ATO Medicare exemption data-matching continues
The ATO has announced the extension of its Medicare exemption statement data-matching program. This program has been conducted for the last 12 years and has now been extended to collect data for the 2021 through to 2023 financial years. It is estimated that information relating to approximately 100,000 individuals will be obtained each financial year.
If you live in Australia as an Australian citizen, a New Zealand citizen, an Australian permanent resident, an individual applying for permanent residency or a temporary resident covered by a ministerial order, then you are eligible to enrol in Medicare and receive healthcare benefits. However, this also means you need to pay Medicare levy at 2% of your taxable income to partly fund the federal scheme.
The Medicare exemption statement (MES) is a statement that outlines the period during a financial year that an individual was not eligible for Medicare. It can be obtained from Services Australia. Individuals who are not eligible for Medicare will then be exempt from paying the Medicare levy in their tax returns.
The information that will be obtained as part of the ATO’s extended data-matching program includes MES applicants’ identification details, entitlement status and approved entitlement period details.
In previous years of this data-matching program, the ATO was able to verify around 87% of the Medicare exemptions claimed in individual tax returns without needing to contact the taxpayers directly. However, the remaining 13% of taxpayers (around 11,000 individuals) who claimed Medicare exemptions were subjected to ATO review.
Building delays may cost you in more ways than one
Most of Australia has been experiencing a building boom, fuelled by government policy such as the HomeBuilder scheme and a general desire to make our living spaces better as we spend more time working, educating and living at home. However, with global supply chains and transport routes disrupted due to the effects of COVID-19, there have been well publicised material shortages and builder collapses in the sector. If you’re building or substantially renovating your home, any related delays you experience may also end up costing you when you decide to sell.
For most individual Australian tax residents, there’s an automatic exemption from CGT for the capital gain (or loss) that arises when you sell your home, known as the “main residence exemption”. Generally, the home must have been your main residence for the entire ownership period; however, exemptions may apply where you’ve had to move out while building, renovating or repairing.
The related building concession allows you to treat a dwelling as your main residence from the time that the land was acquired for a maximum period of up to four years, applying from either the time you acquire the ownership interest in the land or the time you cease to occupy a dwelling already on the land. If it takes more than four years to construct or repair the residence, you may only be entitled to a partial main residence exemption. This means that if you later sell the residence, the period when you didn’t live there during construction or renovation will be subject to CGT.
If you’re unable to complete your main residence construction or renovation project within the four-year maximum timeframe either due to the builder becoming bankrupt or due to severe illness of a family member, you may be able to apply to the ATO for discretion to extend the four-year period so you don’t get penalised financially.
Cryptocurrency scams on the rise
As investing in cryptocurrency becomes more popular in Australia, there is also a corresponding increase in the number of scams being reported. Due to the unregulated nature of cryptocurrency and the recent failure of two Australian cryptocurrency exchanges, this investment space has become a risky free-for-all, with Scamwatch estimating that around $35 million was lost to cryptocurrency scams in the first half of 2021. If you’re one of the unlucky ones to have been scammed, depending on the circumstances you may be able to claim a capital loss deduction.
Cryptocurrency scams come in a variety of forms, the most common being impersonation, where scammers pretend to be from a reputable trading platform and have legitimate-looking digital assets – like fake trading platforms which look like the real thing and email addresses that impersonate a genuine company – to lure people in. Investors who fall into this trap will usually see the initial money they invested skyrocket on fake trading platforms and may even be allowed to access a small return. Once people are hooked, though, the scammers will typically ask for further investments of large sums of money before cutting off contact and disappearing completely.
Tip: If you think you’ve been scammed, you should contact your bank or financial institution as soon as possible. You can also make reports to Scamwatch and to the Australian Securities and Investments Commission (ASIC). Finally, you can contact IDCARE, a free, government-funded service, if you suspect identity theft.Contact us for more information and assistance.
Are crypto scam losses tax deductible?
Whether you can deduct a loss all boils down to whether you actually owned an asset. For example, if you actually owned cryptocurrency such as Bitcoin in a digital wallet and due to the collapse of an exchange all the cryptocurrency you owned has disappeared, then it is likely you can claim a capital loss. This is likely to also apply if the cryptocurrency you own is stolen in a scam.
Unfortunately, it’s unlikely that a deduction can be claimed for people who have been scammed into handing over money for supposed “cryptocurrency investment” in schemes where no actual cryptocurrency ownership occurred. This is because they have not technically lost an asset, as they did not own the cryptocurrency in the first place, and the money invested is not considered a capital gains tax (CGT) asset under Australian tax law.
Take care with small business CGT concessions
Recently, the ATO has noticed that some larger and wealthier businesses have mistakenly claimed small business capital gains tax (CGT) concessions when they weren’t entitled. By incorrectly applying the concessions, these businesses were able to either reduce or completely eliminate their capital gains. The ATO has urged all taxpayers that have applied the small business CGT concessions to check their eligibility. Primarily, this means that the business should meet the definition of a CGT small business entity or pass the maximum net asset value test.
Australia’s tax law provides four concessions to enable eligible small businesses to eliminate or at least reduce the capital gain on a CGT asset, provided certain conditions are met.
Tip: If you run a small business and are thinking of retiring or selling the business, we can help you work out whether you qualify for the CGT concessions, and how to use them optimally to reduce or eliminate potential capital gains.
To be eligible to apply these CGT concessions, the business must have a maximum net asset value of less than $6 million. Failing that, the business must qualify as a “CGT small business entity”. That is, it must be carrying on a business, and have an aggregate turnover of less than $2 million.
The CGT asset that gives rise to the gain must be an active asset, which just means it is an asset used in carrying on a business by either you or a related entity. Shares in a company or trust interests in a trust can also qualify as active assets.
Once the basic conditions are satisfied, your small business can choose to apply one or all of the four CGT concessions provided the additional conditions to each concession is also met. Meeting all the conditions means that the concessions can be applied one after another, in some cases eliminating the entire capital gain.
ATO concerns on luxury car tax
The ATO has issued an alert warning taxpayers that it is investigating certain arrangements where entities on-sell luxury cars without remitting the requisite luxury car tax (LCT) amount.
Businesses and individuals who sell cars valued over a certain threshold (the luxury tax threshold) in the course of their business are subject to luxury car tax (LCT). This is a requirement if your business is registered or required to be registered for GST. LCT doesn’t just apply to instances where a dealer is selling a car to an individual or a business – it also applies in instances where a business sells or trades in a car that is a capital asset.
Tip: For the 2021–2022 financial year, the luxury car thresholds are $79,659 for fuel-efficient vehicles and $69,152 for all other vehicles. If your business buys a car with a GST-inclusive value above these thresholds, you are generally liable to pay LCT.
If you’re the seller of a luxury car, whether or not it’s within your usual course of business, you’re required to charge LCT to the recipient, report the associated LCT amount in your BAS and remit it to the ATO by your BAS payment date. You can’t legitimately avoid LCT by selling a luxury car to an employee, associate, or employee of your associate for less than market value, or by giving it away. The LCT value of the car in those situations will always be the GST-inclusive market value.
The ATO is currently investigating arrangements where a chain of entities that progressively on-sell luxury cars have improperly obtained LCT refunds and evaded remitting LCT. Usually, in this arrangement, one of the entities claims a refund of LCT while creating a consequential liability to another entity in the supply chain. One or more of the participating entities down the chain will then not correctly report and pay their LCT liabilities. Finally, these entities will be liquidated to thwart ATO compliance or recovery action.
These arrangements are concerning because they can result in luxury cars being sold without income tax and GST obligations being met. For example, luxury cars could be sold to end-users at more competitive prices with generally higher profit margins, disadvantaging legitimate businesses in the market that are meeting all their tax obligations.
Up and coming changes to super
Recently, a number of significant superannuation changes were proposed in Parliament as a part of the government’s plan to enhance super outcomes for Australians.
Work test and bring-forward rule changes
Currently, individuals aged between 67 and 75 either need to pass the “work test” or satisfy the work test exemption criteria if they want to make non-concessional and salary sacrifice contributions to their super. The amendments would allow individuals aged between 67 and 75 to make certain non-concessional contributions and salary sacrifice contributions without meeting the work test. Also, individuals aged under 75 could access bring-forward non-concessional contributions.
Lowered downsizer contributions age
Current downsizer contribution measures allow individuals aged 65 or over to make a contribution into super of up to $300,000 from the proceeds of selling their home. The government is seeking to reduce the lower eligibility age to 60.
Increased maximum releasable amount for first home buyers
The First Home Super Saver Scheme was designed to help first home buyers save for a deposit by allowing them to make voluntary concessional and non-concessional contributions into super, and later withdraw those eligible contributions and associated earnings to purchase a home.
Currently, the maximum amount releasable from super is $30,000. The proposed changes would increase that maximum to $50,000, although the amount of voluntary contributions eligible to be released in any single financial year would not change from $15,000.
Removing super guarantee minimum threshold
Currently, an employer does not have to pay super guarantee for an employee who earns less than $450 in a calendar month with that employer. This threshold was originally introduced to minimise employers’ administrative burden. However, with the technological advancement of single touch payroll (STP), the government no longer sees a need for the threshold, which is increasingly affecting young, lower-income, part-time and female workers, and has proposed removing it, so that employers must pay super guarantee to all employees.
SMSF trustees: reminder to apply for director IDs
Directors of corporate trustees of self managed superannuation funds (SMSFs) should be aware that the director identification regime is now in force. Depending on when you became a director, the deadline for application is either November 2022 or within 28 days of the appointment. The application process itself is easy and can be done online through the new Australian Business Registry Services (ABRS). Once you receive it, your 15-digit identification number will be permanently linked to you even if you change companies, stop being a director, change your name or move interstate or overseas.
The director ID regime was implemented as a way to prevent the use of false or fraudulent director identities, make it easier for external administrators and regulators to trace directors’ relationships with companies over time, and identify and eliminate director involvement in unlawful activity, such as illegal phoenix activity.
Tip: Each director needs to submit a separate application for their own director ID.
To apply for your director ID, you first need to set up myGovID, which is different to myGov. The myGovID is an app that you need to download onto your smart device and confirm your identity in using standard documents (drivers licence, passport, etc). You’ll then be able to log on to a range of government services, including the online director ID application with the ABRS.
To complete the director ID application, you need to provide additional information such as your tax file number (TFN), residential address, and/or details from two additional specified documents to verify your identity, such as: bank account details; ATO notice of assessment; super account details; a dividend statement; Centrelink payment summary; or PAYG payment summary.
Once you receive your director ID, you need to pass it onto the record-holder of the corporate trustee, which may be the company secretary, another director, a contact person or an authorised agent of the company. If the corporate trustee changes or you become the director of another company, you will need to pass on this information to the new corporate trustee or the other company.