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Practice Update March 2026

Tue, 03 Mar 2026 05:47:01 GMT

Cashflow red flags for small business in 2026

Why 2026 feels tough for many small businesses

If you’re feeling the pressure this year, you’re not alone. Many Australian small businesses are navigating higher interest rates than just a few years ago, rising wages and superannuation obligations, increased insurance premiums, tighter consumer spending, and stronger ATO compliance activity. At the same time, customers are taking longer to pay, while suppliers want their money faster. That squeeze, money coming in slower and going out quicker, is what’s creating real cashflow stress. Even well-run, profitable businesses are feeling it.

Profit is important. Cash is survival. In the current environment of higher interest costs, tighter margins and stronger ATO enforcement, small businesses must actively manage liquidity, not just profitability.

Before we look at real-world scenarios, there are a few important principles every business owner should understand.

Important notes before we begin

Profit does not equal cash.
Your profit and loss statement shows accounting profit. Your bank account shows reality.
GST, PAYG and super are not your money.
These amounts are collected or withheld on behalf of the government or employees.
Growth consumes cash.
More sales often require more wages, stock and supplier payments before you get paid.
Early action creates options.
Late action limits them.

Now let’s look at common red flags.

Case study 1: Growing sales but shrinking bank balance

Sarah’s Landscaping Business

Sarah invoices $220,000 in one quarter.

However:

$120,000 remains unpaid at BAS time
Payroll ($14,000 per week) has already been paid
Suppliers paid within 14 days

What Happens?

She owes $18,000 GST on invoiced sales, even though much of it hasn’t been collected.

Her bank balance falls below $10,000.

Cashflow Pressure Summary

Lesson

If debtors exceed one month of expenses, you are financing your customers.

Possible actions:

Request deposits
Shorten payment terms
Move to cash accounting (if eligible)
Tighten collections

Case study 2: The ATO as “silent financier”

Tony’s Café

When margins tighten, Tony delays:

BAS payments
PAYG withholding
Superannuation

After 12 months:

Why is this dangerous

Using the ATO as working capital creates escalating risk:

Director Penalty Notices
Garnishee notices
Denied payment plans if reporting late

ATO debt is rarely the core problem; it’s a symptom.

Lesson

If you cannot pay tax, restructure early:

Lodge on time
Enter formal payment plans
Review pricing
Reduce fixed overheads

Ignoring tax debt compounds stress.

Case study 3: Blurring personal and business finances

Family Retail Business

When business cash dips, the owners:

Redraw from a home loan
Use personal cards for stock
Skip paying themselves

What this creates

The business looks stable. The family balance sheet weakens.

Lesson

Your business must consistently pay you.

If it cannot:

Review margins
Reduce stock levels
Negotiate supplier terms
Consider downsizing

Your household should not subsidise poor cash discipline.

Case study 4: Growth without working capital

Construction Contractor

Turnover grows from $1.2M to $2.4M in one year.

But:

Materials purchased upfront
60-day payment terms
5% retention withheld

Working Capital Impact

James requires an additional $350,000 in working capital, but does not arrange financing.

Suppliers move to cash-on-delivery terms—projects stall.

Lesson

Growth consumes cash before it produces profit.

Before expanding, ask:

“How much extra cash does this growth require?”

What healthy cash flow looks like

A financially stable business generally has:

Early warning signs checklist

If you recognise two or more of these, act immediately:

Overdraft is always at the limit
• Unsure of upcoming BAS liability
• Paying super late
• Avoiding ATO mail
• Using credit cards for suppliers
• No clear break-even figure

Cash stress builds quietly, then accelerates.

Final thoughts

Running a small business today isn’t easy. Margins are tighter. Costs are higher. The ATO is more active. And there’s usually a family relying on the business to perform.

The businesses that stay strong aren’t always the biggest or the fastest growing. They’re the ones who know their numbers, plan and act early when something doesn’t feel right.

Profit might look good in a report. But cash is what pays wages. Cash is what covers taxes.

Cash is what helps you sleep at night. If you’re not completely sure where your cash flow stands right now, that’s okay; most business owners are too busy running the business to step back and assess it.

But taking the time to review it properly could be the difference between reacting under pressure and making confident, proactive decisions. And that’s a much better place to be.

Practice Update February 2026

Wed, 11 Feb 2026 03:34:46 GMT

Readiness strategies in preparation for the Payday Super

If you run a small business, paying Superannuation can feel like “one more admin job” on top of payroll, BAS and everything else. Two key changes mean Superannuation deserves a fresh look this year:

The Super Guarantee (SG) rate is 12% for 1 July 2025 to 30 June 2026 (and remains 12% after that).
From 1 July 2026, “Payday Super” starts — employers will be required to pay SG on payday , rather than quarterly, and contributions must be paid into the employee’s fund within 7 days of payday .

What does SG at 12% mean in everyday terms?

SG is calculated on an employee’s Ordinary Time Earnings (OTE) (often the base rate and ordinary hours, plus certain loadings/allowances depending on how they’re paid). The key point for most businesses is that the Superannuation cost is now 12 cents for every $1 of OTE.

If you haven’t already, it’s worth confirming whether your staff packages are “plus super” (super on top) or “inclusive of super” (rare, but it happens). A small misunderstanding here can quietly create underpayments.

What is “Payday Super” and why is it changing?

Many employers pay the Superannuation Guarantee (SG) quarterly. Payday Super changes the rhythm:

From 1 July 2026 , each time you pay OTE to an employee, it creates a new super payment obligation for that payday.
You’ll have a 7-day due date for the SG to arrive in the employee’s fund after each payday (this is designed to allow time for payment processing).
The ATO is implementing the change, and guidance is already being published to help employers prepare.

This reform is aimed at reducing unpaid super and making it easier for workers to see whether super has actually been paid, closer to when they’re paid wages.

Quarterly vs payday Super

Scenario 1: Weekly payroll at a café (the “tight cash flow” case study)

Business: Corner Café
Staff: 8 casuals + 2 full-time
Payroll cycle: Weekly (paid every Friday)
Current method: Super paid quarterly

What happens today (typical):
The café pays wages weekly, but super might be parked in a separate “later” bucket and paid in one quarterly lump. That can create a large cash outflow four times a year, and if the owner is juggling rent, suppliers, and GST, super can slip.

What changes from 1 July 2026:
Each Friday, payroll creates a super obligation, and the café must ensure the super payment reaches each employee’s fund within 7 days.

A simple numbers example (rounded for illustration):

Suppose the café pays $12,000 of OTE wages in a week.
SG at 12% is $1,440 that week.

Under Payday Super, the café can no longer treat that $1,440 as a “quarter-end problem”. It needs to be funded weekly.

Practical impact (and how many cafés will handle it):

Cash flow smoothing: The good news is the café avoids the painful “quarterly super cliff.” Instead, super becomes a predictable weekly cash flow item—like wages.
Systems matter: The payroll software or clearing house process must be fast and reliable, because the new timing expectations are tighter.
Delegation and controls: Owners who do payroll themselves often need a backup person and a simple “pay run checklist” so super isn’t missed when life gets busy.

A café-friendly control idea:
Open a separate bank account called “Tax + Super Set-Aside” and automatically transfer (for example) 12% of OTE + estimated PAYG withholding immediately after each pay run. It reduces the temptation to use super money for short-term bills.

Scenario 2: A plumbing business with monthly payroll (the “admin-heavy” case study)

Business: Rapid Response Plumbing
Staff: 6 employees
Payroll cycle: Monthly (paid on the last working day)
Current method: Super paid quarterly using a clearing house

What happens today (typical):
Monthly payroll is manageable, but super is handled as a quarterly routine. Admin time is batched up: one “super session” per quarter, usually involving checking fund details and uploading a payment file.

What changes from 1 July 2026:
That quarterly super session becomes monthly (because wages are monthly). Each monthly pay run triggers a due date within 7 days after payday.

What this business will notice first:

More frequent admin: Instead of 4 super payments a year, it becomes 12.
Less catch-up: Quarterly “cleanup” (fixing wrong fund details, chasing TFNs, sorting stapled fund issues) becomes a more continuous process.
Fewer nasty surprises: Issues show up sooner, because you’re not leaving super for 8–12 weeks.

How a plumbing business can make this painless:

Tidy the data now: Confirm each employee’s correct super fund details and ensure onboarding captures the right information up front.
Automate where possible: If your payroll system can create super payment files or integrate with your payment process, turn it on and test it well before July 2026.
Create an exception report: Each month, run a quick check for employees with changes to pay conditions (bonuses, allowances, backpay), as these can affect OTE and super.

What employees will notice (and what employers should expect)

With Payday Super, employees are likely to ask:

“Should my super show up right after I’m paid?”
“Why hasn’t last week’s super hit my fund yet?”

The 7-day window is intended to account for processing time, so there may still be a short lag between payday and when the contribution appears in the fund.

For employers, the biggest shift is that super becomes part of the normal pay-cycle discipline , not a quarterly admin job.

Readiness checklist for small business (do this before 30 June 2026)

Final takeaway

SG at 12% is already here, and Payday Super from 1 July 2026 is a genuine operational change, especially for businesses used to quarterly super. The winners will be the employers who treat this like a payroll project: tighten data, automate where possible, and adjust cash flow habits so super is funded each pay run.

Practice Update January 2026

Tue, 20 Jan 2026 06:04:23 GMT

A real-world case study on trust distributions

Mark and Lisa had what most people would describe as a “pretty standard” setup.

They ran a successful family business through a discretionary trust. The trust had been in place for years, established when the business was small and cash was tight. Over time, the business grew, profits improved, and the trust started distributing decent amounts of income each year.

The tax returns were lodged. Nobody had ever had a problem with the ATO.

So naturally, they assumed everything was fine.

This is where the story starts to get interesting.

Year one: the harmless decision

In a good year, the business made about $280,000.

It was suggested that some income be distributed to Mark and Lisa’s two adult children, Josh and Emily. Both were over 18, both were studying, and neither earned much income.

On paper, it made sense.

Josh received $40,000.
Emily received $40,000.
The rest was split between Mark, Lisa, and a company beneficiary.

The tax bill went down. Everyone was happy.

But here’s the first quiet detail that mattered later.

Josh and Emily never actually received the money.

No bank transfer. No separate accounts. No conversations about what they wanted to do with it. The trust kept the funds in its main business account and used them to pay suppliers and reduce debt.

At the time, nobody thought twice.

“It’s still family money.”
“They can access it if they need it.”
“We’ll square it up later.”

These are very common thoughts. And this is exactly where risk quietly begins.

Year two: things get a little more complicated

The next year was even better.

They used a bucket company to cap tax at the company rate. Again, a common and legitimate strategy when used properly.

So the trust distributed $200,000 to the company.

No cash moved. It was recorded as an unpaid present entitlement. The idea was that the company would get paid later, when cash flow allowed.

Meanwhile, the trust needed funds to buy new equipment and cover a short-term cash squeeze. The trust borrowed money from the company. There was a loan agreement. Interest was charged. Everything looked tidy on paper.

From the outside, it all seemed sensible.

But economically, nothing really changed.

The trust made money.
The trust kept using the money.
The same people controlled everything.

The bucket company never actually used the funds for its own business or investments.

This detail becomes important later.

Year three: circular money without anyone realising

By year three, things had become routine.

Distributions were made to the kids again.
The bucket company received another entitlement.
Loans were adjusted at year-end through journal entries.

What is really happening is a circular flow.

Money was being allocated to beneficiaries, then effectively coming back to the trust, either because it was never paid out or because it was loaned back almost immediately.

No one was trying to hide anything.
No one thought they were doing the wrong thing.
They were just following what they’d always done.

This is how section 100A issues usually arise. Slowly, quietly, and without any single dramatic mistake.

The ATO letter arrives

One day, Mark received a letter from the ATO.

It wasn’t an audit notice.
It wasn’t aggressive.
It was a “review”.

The letter asked for:

• trust deeds
• distribution resolutions
• loan agreements
• bank statements
• explanations of how beneficiaries benefited from distributions

Mark wasn’t worried at first.

“We’ve got nothing to hide.”

But when they sat down to respond, things became uncomfortable.

Josh and Emily were asked:
“Did you receive the trust distributions?”
“Did you know about them?”
“Did you decide what to do with the money?”

Their answers were honest.

“I didn’t really think about it.”
“Mum and Dad handled it.”
“I didn’t get the cash.”

That honesty, unfortunately, worked against them.

The ATO’s view

The ATO didn’t argue that the trust deed was invalid.
They didn’t argue that the resolutions were late.
They didn’t argue that tax returns were lodged incorrectly.

Instead, they focused on one simple question:

Who actually benefited from the trust income?

In the ATO’s view:

• The adult children were beneficiaries on paper only.
• The bucket company never truly benefited.
• The trust controllers enjoyed the economic benefit.
• The arrangements were not ordinary family dealings.

This pointed directly to section 100A.

The result?

The ATO proposed to ignore several years of trust distributions and assess the trustee at the top marginal rate on those amounts.

That tax bill was much larger than anyone expected.

“But we paid tax already”

This was Mark’s biggest frustration.

“The kids paid tax.”
“The company paid tax.”
“How can we be taxed again?”

This is one of the hardest parts of Section 100A to explain.

When section 100A applies, the law treats the beneficiary as if they were never entitled in the first place. That means the trustee is taxed instead, even if someone else already paid tax.

Refunds might be possible later, but cash flow damage happens immediately.

This is why section 100A is so powerful, and so dangerous if misunderstood.

What could they have done differently?

Looking back, none of the decisions were outrageous.

But small changes would have made a big difference.

Paying beneficiaries properly

If Josh and Emily had actually received the money and controlled it, the risk would have dropped significantly.

That doesn’t mean parents can’t help later.
It means the beneficiary must genuinely benefit first.

Making bucket companies real

If the company had used the funds for its own investments or working capital, rather than acting as a parking place, the arrangement would have looked very different.

A company beneficiary needs a purpose beyond tax.

Even with an accountant, trustees still make decisions.

You should always feel comfortable asking:
• Who is this distribution really benefiting?
• Will the money actually be paid?
• Does this arrangement still make sense if tax wasn’t a factor?

Good advisers welcome these questions.

The simple takeaway

Section 100A isn’t about trickery.
It’s about reality.

If trust income is allocated one way but enjoyed another way, the ATO may step in and rewrite the outcome.

The safest trust arrangements are boring ones.
Money goes where the paperwork says it goes.
Beneficiaries know what they’re receiving.
Companies act like real companies.

If your trust arrangements have evolved over time, or if you’re not quite sure where past distributions ended up, it’s worth reviewing them sooner rather than later.

Fixing things early is almost always easier than explaining them under review.

Advice warning: This update is general information only and does not constitute tax advice. Specific advice should be obtained before acting on the matters discussed.

Practice Update December 2025

Wed, 03 Dec 2025 06:21:22 GMT

Rental deductions maximisation strategies

The golden rule for maximising rental deductions is simple. If an expense directly relates to earning rental income, you can probably claim it. Things like:

Loan interest
Property management fees
Repairs that fix things (not improve them)
Insurance
Rates

Travel to inspect your property is off-limits for residential properties, and anything that improves your property counts as a capital improvement, not a repair.

Here’s your quick mental test: Does this expense help me earn rental income right now? If yes, it’s likely deductible. Does it make my property worth more or better than before? That’s probably a capital improvement you’ll need to depreciate over time.

Bottom line : Focus on ongoing expenses, keep every receipt, and learn the difference between fixing and improving. Your future self (and bank account) will thank you.

The good news: What you can claim on your tax return

Let’s start with the exciting stuff — the expenses that can legitimately reduce your tax bill. The ATO’s rental property expense guidelines are actually quite generous when you understand what qualifies.

Loan interest: Your strongest friend

For most investors, this is the heavyweight champion of deductions. Every dollar of interest you pay on loans used to buy, build, or improve your rental property is fully deductible. Whether your property is making money or bleeding cash doesn’t matter. If the loan was for investment purposes, the interest is claimable.

Property management and letting fees

Using a property manager? Every fee they charge (from tenant finding to rent collection to maintenance) is fully deductible. Even if you manage the property yourself, you can claim advertising costs for finding tenants and other direct letting expenses.

Repairs and maintenance

This is where it gets interesting. You can claim repairs that restore your property to its previous condition, but not improvements that make it better than before fixing a broken tap. Deductible. Upgrading to a fancy new mixer? That’s a capital improvement.

If replacing like with like, old carpet with a similar carpet, broken fence palings with new palings, that’s usually a repair. But if you’re upgrading from basic to premium, or adding something that wasn’t there before, that’s typically an improvement.

Insurance and ongoing Costs

All your property insurance premiums are deductible. Building insurance, contents insurance if you provide furnishings, and landlord insurance. Council rates, water rates, strata fees, and land tax are all claimable too, as long as you’re the one actually paying them.

Professional services

An accountant’s fee for preparing your rental property tax return is deductible. Legal fees for lease agreements or tenant disputes? Yes. Even the cost of getting a depreciation schedule prepared is claimable (and usually pays for itself many times over).

The reality check: What you can’t claim

Now for the part that often catches investors off guard. Some expenses that seem obviously related to your rental property are specifically excluded, and claiming them incorrectly can result in penalties that make a bad tenant look like a minor inconvenience.

Travel expenses: The big no

Since 1 July 2017, you can’t claim any deductions for the cost of travel you incur relating to your residential rental property unless you are either in the business of letting rental properties or an excluded entity (like a company). Period. Doesn’t matter if you drive across town or fly interstate, whether the inspection was urgent, or if you combined it with other business. The ATO’s travel restrictions for residential properties are crystal clear and non-negotiable.

Pre-rental repairs: Timing is everything

Did you do some work before first renting out your property? Those costs are generally considered capital improvements, not deductible repairs. The property needs to be earning income (or genuinely available for rent) for repair costs to be deductible.

Capital improvements: The long game

Added air conditioning where there was none? Built a deck? Renovated the kitchen? These improvements make your property more valuable, which means they can’t be claimed immediately. Instead, they might be eligible for depreciation over many years or added to your property’s cost base for capital gains tax purposes.

Personal Use: The honesty test

If you or your family use the property for holidays or personal purposes, you need to reduce your deductions proportionally. Did you use your beach house rental for a two-week family holiday? You can’t claim expenses for those two weeks, and you need to apportion the other annual expenses fairly.

Depreciation: The deduction that keeps on giving

Here’s where many investors miss out on serious money. Depreciation allows you to claim deductions for the decline in value of your property and its contents over time, even when you’re not spending any money out of pocket.

Two types of depreciation

Building depreciation (capital works) applies to the structure itself for properties built or renovated after specific dates. You can claim 2.5% of the construction cost each year for 40 years for most residential properties. For a building that cost $400,000 to construct, that’s $10,000 per year in deductions.

Plant and equipment depreciation covers removable items like appliances, carpets, blinds, and air conditioning. Each item has an “effective life” over which it can be depreciated.

The catch for established properties

For properties purchased after 9 May 2017, you generally can’t claim plant and equipment depreciation on second-hand items that came with the property. But here’s the opportunity: any new items you add can still be depreciated from day one.

Strategies for 2025-26 and beyond

Successful rental property tax management isn’t just about claiming deductions after you’ve spent the money. Strategic thinking about timing, record-keeping, and planning can significantly boost your investment returns.

Timing your expenses

Consider bunching deductible expenses into years when you need them most. Expecting a higher income this year? Bringing forward some maintenance work can provide valuable tax relief. Planning to be in a higher tax bracket next year? Maybe defer some discretionary repairs.

The prepayment opportunity

You can often prepay certain expenses, such as insurance premiums and property management fees, to accelerate deductions into the current year. If you prepaid a rental property expense, such as insurance or interest on borrowed money, that covers a period of 12 months or less and ends on or before 30 June 2025, you can claim an immediate deduction.

Record-keeping that actually works

Forget the shoebox approach. Modern property management apps can automatically categorise expenses, store receipts digitally, and generate reports that make tax time a breeze. Some even integrate with accounting software to streamline the whole process.

Annual strategy reviews

Your property’s tax position should be reviewed annually, not just at tax time. New purchases, renovations, and changes in tax law can create opportunities you might miss if you’re only thinking about tax once a year.

The costly mistakes we see every year

After decades of helping property investors, we’ve noticed the same expensive mistakes keep cropping up. Learning from others’ errors can save you significant money and stress.

The missing depreciation schedule

This is probably the biggest money-loser we see. Investors assume depreciation isn’t worth bothering with, or they don’t realise it exists. A professional depreciation schedule typically costs $600-800 but often identifies thousands in annual deductions.

Repair vs improvement confusion

The classic mistake: claiming a kitchen renovation as a repair when it’s clearly an improvement. The ATO has seen this before, and getting it wrong can result in penalties plus interest on the tax you should have paid.

Inadequate record-keeping

“I know I had that receipt somewhere” isn’t a defence that works well with the ATO. Poor record-keeping not only means you might miss legitimate deductions, but it also puts you at risk if your return is reviewed.

Personal use miscalculations

Some investors conveniently forget about the week they spent at their holiday rental, or they allow family to stay without charging market rent. The ATO expects honesty in apportioning expenses, and getting this wrong can be costly.

Travel expense claims

Despite clear guidance, some investors still try to claim travel costs for property inspections. This is a red flag for ATO reviews and can lead to deeper scrutiny of your entire return.

Staying compliant: Your safety net

The ATO takes rental property deductions seriously, and having proper documentation isn’t just good practice — it’s your insurance policy against penalties and stress.

The five-year rule

Keep all records related to your rental property for five years after lodging your tax return. This includes receipts, bank statements, loan documents, insurance policies, photos of repairs, and any professional reports.

What good records look like

For each expense, you should be able to show what was purchased, when, how much it cost, and how it relates to earning rental income. Photos of damage before and after repairs can be invaluable for substantiating claims.

Professional documentation

Keep detailed records of any professional advice or services. Property management agreements, legal correspondence, and tax preparation fees all need proper documentation showing the specific services provided.

Regular reviews and updates

Don’t wait until tax time to organise your records. Set up systems to capture expenses throughout the year, and review your deductions quarterly to ensure you’re not missing anything or claiming something incorrectly.

Practice Update November 2025

Tue, 28 Oct 2025 22:40:16 GMT

A Practical Guide to Running Your Family Business in Australia

Family businesses are the backbone of Australia’s economy, accounting for roughly 70% of all businesses. From farms to cafes and construction firms, many local enterprises are family-owned. Running a family business can be incredibly rewarding – you’re building a legacy and working with loved ones. However, it also brings unique challenges, as family emotions and business decisions often mix when the dining table doubles as the boardroom. This article outlines key legal, accounting, tax, and strategic tips to help small- to medium-sized family businesses succeed.

Choosing the proper business structure

One of the first steps is deciding on a structure. Common options include sole trader, partnership, company, and family trust. Each has different implications for liability, tax and control:

It’s wise to consult an accountant or lawyer when choosing a structure, as the decision affects your taxes, legal obligations and how family members can be involved. For example, a discretionary trust lets you split income tax-effectively among relatives, while a company structure makes it easier to transfer ownership to the next generation via shares.

Example: A husband-and-wife team running a café might start as a simple partnership, but as the business grows, they may incorporate a limited liability company. They could even set up a family trust to hold the company shares, allowing income to be split between them and their adult children who work in the cafe. By getting the structure right and keeping business and family arrangements clear, this family can enjoy the convenience of working together while reaping financial benefits and protecting their assets. Each family business will have its own journey, but careful planning and open communication are universally helpful in turning a family venture into a lasting success story.

Legal essentials and family governance

Running a family business professionally means putting proper legal frameworks in place. Formal agreements are crucial – document roles, ownership and decision-making processes clearly. If you have multiple family co-owners, set up a partnership or shareholders’ agreement to spell out each person’s role, decision-making authority, and what happens if someone exits. This helps prevent disputes by addressing issues such as retirement or strategic disagreements before they arise.

Set clear boundaries between family and work. Personal issues can easily spill into the business if not managed, so try to keep “shop talk” to work hours (not every family dinner) and make sure everyone understands their role in the business. Good communication is key—clarify expectations and ensure everyone feels heard.

Bring in outside talent or advisors when needed– a non-family perspective can fill skill gaps and reduce insular decision-making. Treat family and non-family staff equally and professionally to avoid any perception of nepotism. An external mentor or even a small advisory board can also help keep your business on track objectively.

Example : Australia has many enduring family businesses that chose their structures wisely. Haigh’s Chocolates, for instance, has remained a privately held family company since 1915 and is now led by the fourth generation of the Haigh family. Another iconic example is Coopers Brewery, founded in 1862, which is still family-run after six generations of Coopers at the helm. These companies show that getting the foundations right and planning for the long term can build a legacy.

Accounting, finances and tax compliance

Sound financial management keeps your family business healthy. First, keep business finances separate from personal finances—open a dedicated business bank account and avoid using it for personal expenses. This makes bookkeeping easier and is viewed favourably by the ATO. Consider using accounting software or a bookkeeper to track income and expenses, manage cash flow, and ensure bills and taxes are paid on time. Staying on top of the books also helps maintain harmony, because financial surprises or unpaid debts can strain family relationships.

If you employ family members, treat them like any other employees for legal and tax purposes. This means:

Pay legal wages at least the minimum award rate, and make superannuation contributions.
Keep proper records of their work – timesheets and employment contracts.
Avoid artificial arrangements – don’t pay family who do no real work, or pay inflated wages just to reduce tax. The ATO monitors such practices and can deny deductions.

One benefit of hiring family is that you may spread income around. For example, a lower-earning spouse or an older teenager on the team can earn up to the tax-free threshold (about $18,200) and pay no income tax – while your business still claims a deduction for their wages. Just ensure any family member in the business is actually contributing and being paid fairly for what they do.

Stay on top of tax compliance

Lodge your BAS and tax returns on time, and meet payroll reporting requirements. Remember that qualifying small companies pay a lower 25% company tax rate, and if you use a trust, follow the rules for distributing income to family members properly. An accountant can help you navigate issues like fringe benefits tax and ensure you’re getting any small-business tax concessions available.

Planning for succession and long-term success

Plan for succession early – many experts recommend starting handover plans at least 3–5 years in advance. Talk openly with your children or other potential successors about their interests. Don’t assume they’ll automatically want to take over. If not all your kids want to be involved, figure out a fair way to treat those who aren’t.

Gradually prepare the next generation by increasing their responsibilities and mentoring them. Decide how and when you will hand over leadership and ownership – whether you step back slowly or retire outright. Every family is different – some transitions are smooth, others are emotionally charged. An independent advisor can help guide tough conversations, and professional advice will ensure the transition is structured correctly.

Conclusion

Running a small-to-medium family business is a balancing act between family and commerce. By setting up the right legal structure, keeping solid accounts, staying on top of tax obligations, and planning for growth and succession, you set the stage for lasting success. Remember to communicate openly and seek professional advice when needed – accountants, tax agents and lawyers (who often advise many family businesses) can provide invaluable guidance. With passion, planning and a bit of patience, your family business can not only support your household today but also become a proud legacy for future generations. Good luck with your family business journey!

Practice Update October 2025

Mon, 27 Oct 2025 22:42:19 GMT

TI scams in Australia: how to spot them and stay safe

AI now makes it cheap and easy to fake a person’s face and voice. Scammers are using these “deepfakes” in calls, Direct Messages, emails and ads to push investment schemes, steal logins, or socially engineer payments.

Why this matters

Australians reported $2.03 billion in scam losses in 2024.
Losses were $2.74 billion in 2023.
On social media specifically, $43.4 million in losses was reported in just Jan–Aug 2024, with thousands of “celebrity-bait” deepfake pages and ads removed under Meta’s FIRE program, including those targeting Australian banks.
Globally, deepfakes now account for a significant share of biometric fraud, approximately 40% in 2024, highlighting just how convincing synthetic voice and video have become.

Real-world cases

Celebrity deepfake investment ads. Australia’s consumer watchdog has repeatedly warned about fake news pages and deepfake videos of public figures pushing trading platforms.
Deepfake video meetings. In a widely reported case, a finance employee in Hong Kong was tricked by a deepfaked CFO and colleagues on a video call into paying approximately US$25 million, illustrating the convincing and coordinated nature of these attacks.
Bank and exchange impersonation alerts. The AFP and the National Anti-Scam Centre (NASC) have issued warnings about bank impersonation scams and crypto-exchange impostors targeting Australians via text messages, emails, and phone calls.

What deepfakes look and sound like

Voice cloning: just a few seconds of audio can produce a near-perfect voice. Expect pressure, urgency and requests to move money quickly.
Video fakes: slick interviews, Zoom calls, or ads where lip-sync is almost perfect, backgrounds look subtly odd, or lighting on a face doesn’t match the room.
Image fakes: profile pics or proof screenshots with mismatched jewellery, blurred ears/hairlines, or warped text.

Tips

Avoid the urgency: Scammers create a sense of panic. Hang up or leave the chat. Call back using a number you recognise (e.g., your bank card number, official website).
Verify out of band: If a boss or family member asks for money, call a known number or set a pre-agreed safe word for video calls.
Challenge the media: Ask the caller to perform a simple action live, such as turning left or showing today’s date on paper. Watch for unusual lighting, frozen teeth/tongue, out-of-sync blinks, or jerky shadows.
Never click payment links in texts: Go directly to your bank app; don’t follow links or numbers supplied in the message.
Treat celebrity money ads as scams: ASIC-licensed financial advertisements on major platforms in Australia are moving to stricter verification; if you don’t see clear provenance, assume it’s fake.

Practical prevention

Use passkeys or app-based 2FA (prefer authenticator apps over SMS where possible).
Use a password manager and create unique passwords for every account.
Use PayID namechecking; consider transfer limits and “cooling-off” delays for new payees.
Keep devices up to date; use built-in password and website warnings.
Hide your voice and video samples from public profiles where practical; lock down who can direct message or tag you.

Scenarios based on actual scam techniques

Scenario 1: The Urgent Bank Security Call

Characters :

John, a 52-year-old teacher in Sydney
Scammer posing as “Mary from his bank” using a cloned voice

What happened

John received a call late at night. The caller, sounding exactly like his bank’s security officer (based on a voice sample lifted from an old radio interview John once did), told him that his account was under cyberattack and he needed to transfer $25,000 into a safe-holding account urgently.

The caller used urgent, fearful language: “We can see criminals draining your account right now.” John, panicked, made the transfer through the link they texted him.

Implications

John lost $25,000, unrecoverable because he authorised the transaction.
He spent weeks dealing with ID theft risks after sharing personal details with the caller.
Emotional stress: loss of sleep, anxiety about financial security.

What could have stopped it

Stop & breathe: Urgent requests = red flag.
Verify out-of-band: Call back using the number on the back of the bank card, not the one given in the text.
Channel check: Banks never ask for transfers via text links or over the phone.

Scenario 2: The Celebrity Investment Video

Characters :

Priya, a small business owner in Melbourne
Scammer running a fake crypto investment ad using a deepfake video of a famous Australian TV presenter

What happened

Priya saw a slick Facebook ad featuring a well-known TV presenter explaining how she “doubled her money” with a new crypto platform. The lip movements and voice were nearly perfect, yet clearly a deepfake.

She clicked through, spoke with support staff, and invested $10,000 via bank transfer, expecting guaranteed returns. The platform vanished after two weeks.

Implications

Total financial loss.
Ongoing spam calls targeting Priya for more investments — she was added to a victim list sold on the dark web.
No legal recourse: the ad originated offshore; complex jurisdictional issues.

What could have stopped it

Challenge the media: No genuine investment opportunity relies on urgency or secrecy.
Treat celebrity money ads as scams: ASIC warns that guaranteed returns are a scam.
Report immediately to Scamwatch and eSafety for ad takedown.

Scenario 3: The Deepfake “Boss” on Video Call

Characters :

Li Wei, accounts officer in a Brisbane construction firm
Scammers impersonating her CEO and two other managers in a deepfaked Zoom call

What happened

Li Wei joined a Zoom call where she saw her CEO and two colleagues asking her to urgently pay $250,000 to a new overseas supplier. The faces blinked, nodded, and spoke naturally — but it was a fully AI-generated video based on real LinkedIn photos and YouTube speeches.

Trusting the “CEO,” she processed the payment.

Implications

$250,000 company loss; internal investigation triggered.
Regulatory reporting obligations under anti-fraud and corporate governance rules.
Staff morale issues; fear of disciplinary action despite being a victim herself.

What could have stopped it

Challenge the media: Request a live “safe word” or a unique gesture during video calls.
Maker-checker control: Payments should require a second verification via a different channel (e.g., phone or SMS to the CEO).
Incident response drill: Staff need training for deepfake risks in payment authorisation.

Practice Update September 2025

Tue, 02 Sep 2025 03:08:07 GMT

Land tax in Australia: exemptions, tips and lessons

Land tax is one of those quiet state-based taxes that does not grab headlines like income tax or GST, but impacts property owners once thresholds are crossed. It applies when the unimproved value of land exceeds a certain amount, which differs from state to state. Principal places of residence are usually exempt, but investment properties, commercial holdings, and certain rural blocks may be subject to taxation.

For individuals and small businesses, land tax is worth paying attention to because exemptions can make the difference between a manageable annual bill and a nasty surprise. A recent case in New South Wales (Zonadi case ) has sharpened the focus on when land used for cultivation qualifies for the primary production exemption. The lessons are timely for farmers, winegrowers and anyone with mixed-use rural land.

The basics of land tax

Each state and territory (except the Northern Territory) imposes land tax. Key features include:

Assessment date : Usually determined at midnight on 31 December of the preceding year (for example, the 2026 assessment is based on ownership and use as at 31 December 2025).
Thresholds : Vary across jurisdictions. For example, in 2025, the NSW threshold is $1,075,000, while in Victoria it is $300,000.
Exemptions : Principal place of residence, primary production land, land owned by charities and specific concessional categories.
Rates : Progressive, with higher landholdings paying higher rates.

Unlike council rates, which fund local services, land tax is a revenue measure for states. It is payable annually and calculated on the total taxable value of landholdings.

Primary production exemption

Most states exempt land used for primary production from land tax. The policy aim is precise: farmers should not be burdened with land tax when using their land to produce food, fibre or similar goods. However, the details of what constitutes primary production vary.

Qualifying uses generally include:

cultivation (growing crops or horticulture)
maintaining animals (grazing, dairying, poultry, etc.)
commercial fishing and aquaculture
beekeeping

Sounds straightforward, but the catch is in how the land is used and for what purpose.

Lessons from the Zonadi case

The Zonadi case involved an 11-hectare vineyard in the Hunter Valley. The land was used for:

4.2ha of vines producing wine grapes
a cellar door and wine storage area
a residence and tourist accommodation
some trees, paddocks and access ways

During five land tax years in dispute, the taxpayer sold some grapes directly but used most of the crop to make wine off-site, which was then sold through the cellar door. Income was derived from grape sales, wine sales and tourist accommodation.

The NSW Tribunal had to decide whether the land’s dominant use was cultivation for the purpose of selling the produce of that cultivation (a requirement under section 10AA of the NSW Land Tax Management Act).

The outcome was a blow for the taxpayer. The Tribunal said:

Growing grapes was indeed a form of cultivation and amounted to primary production.
But cultivation for the purpose of making wine did not qualify, because the exemption only applies where the produce is sold in its natural state. Wine is a converted product, not the product of cultivation.
Although some grapes were sold directly, the bulk of the financial gain came from wine sales.
Therefore, the dominant use of the land was cultivation to make and sell wine, which is not exempt.

The exemption was denied, and the taxpayer was left with a land tax bill.

Why this matters

For small businesses, especially those that combine farming with value-adding activities such as processing or tourism, the case serves as a warning. The line between primary production and secondary production can determine whether a land tax exemption applies.

If most income comes from a cellar door, farmstay, or product manufacturing, the exemption may be at risk, even though cultivation is occurring on the land.

Different rules in Victoria

Victoria takes a broader view. It defines primary production to include cultivation for the purpose of selling the produce in a natural, processed or converted state. In other words, grapes sold for wine production would still be considered primary production.

The only further hurdle is the “use test”, which depends on location:

outside Greater Melbourne: land must be used primarily for primary production
within urban zones: land must be used solely or mainly for the business of primary production

Had Zonadi been in Victoria, the outcome could have been very different. The vineyard would likely have been exempt from this requirement.

State-based comparisons

Here’s a snapshot of how land tax treatment differs across states when it comes to cultivation and primary production:

Tips and strategies for individuals and small businesses

Understand the dominant use test
In NSW and SA, revenue authorities look at all uses of the land. If tourist accommodation or value-added services are the primary source of revenue, the exemption may be denied.
Document use and income streams
Keep records showing the proportion of land used for cultivation, time and labour spent, and income split between activities. This evidence can be crucial if challenged.
Consider state differences
If you own land in multiple states, be aware of the differences in laws and regulations. Victoria and Queensland are generally more generous in recognising processed or converted products as primary production.
Review structures
Using trusts or companies can change liability, but exemptions are tied to use, not ownership structure. Ensure your entity is eligible.
Timing matters
Use is assessed at a specific date (e.g., 31 December in NSW). Authorities may examine use in the months before and after, so seasonal activities should be well-documented.
Beware of mixed uses
Combining a farm with accommodation or hospitality may tip the balance. If non-farming income grows, land tax bills may also increase.

Conclusion

Land tax in Australia can be a complex and patchwork-like system. For individuals and small businesses, particularly those in farming and agribusiness, the rules surrounding the primary production exemption are crucial. The Zonadi case illustrates the fine line between cultivation for sale in its natural state and cultivation that feeds into a processing business.

The main lessons are:

In NSW and SA, be cautious if most of your income comes from processed products, such as wine, cheese, or farmstay tourism.
In Victoria and Queensland, the rules are more forgiving, recognising processed or converted products.
Documenting use, income and labour is essential if challenged.

For small landholders, a clear-eyed view of how their land is actually used and where the money comes from can save costly disputes. And if in doubt, get advice early, because once the Commissioner issues a land tax assessment, the burden is on you to prove you qualify for the exemption.

Practice Update July 2025

ian@digitalwise.com.au (Ian Campbell) — Thu, 10 Jul 2025 01:28:30 GMT

Shila is taking the leap

Shila is 58. She has worked for an engineering firm for 13 years and earns decent wages. Shila would like to work for a few more years but has yet to achieve her full potential. She certainly adds value to her role.

Her employer, No-mans-project, has been experimenting with AI-driven process optimisations for a few years and is now ready to implement the new processes. Unfortunately, implementing the new process means some redundancies, and Shila is one of the staff members who has been proposed to review a redundancy proposal.

Shila is now at a crossroads with her thoughts of retirement, staying in the workforce for a few more years with a new employer or taking a pay cut with the current employer for a different role. Her superannuation preservation age is 60, which is not too far away.

Let’s guide Shila through a few options, with some analysis and pros and cons.

Shila takes the redundancy

Let’s first find out her assessable income at the end of the financial year when the redundancy benefits are considered.

Shila’s assessable income if she takes the redundancy

Shila’s assessable income for the financial year (based on the above facts) if she takes the redundancy is –

Wage = $220,000

Long service leave payout = $38,000

Annual leave benefit = $30,000

Investment income = $ 18,000

Total assessable income = $ 306,000

Shila’s options with the after-tax money

Assume Shila paid X amount of tax this year on her assessable income. So, she is left with $396,956- X amount to plan her next step. Note that Shila has not reached her superannuation preservation age, which is 60 for her.

Superannuation contribution

Shila may consider contributing a significant part of the benefits to her superannuation account as a non-concessional contribution and may utilise the non-concessional contribution bring-forward limits. The bring forward rule allows the equivalent of 1 or 2 years of annual cap from future years.

This means she can contribute up to 2 or 3 times the annual cap amount in the first year of the bring-forward period. For 2024-25, the non-concessional contribution cap is $120k. This means Shila can make a non-concessional contribution of up to $120k*3=$360k this financial year, assuming she has not utilised the bring forward cap before. Shila must also consider her Total Superannuation Balance (TSB) cap ($1.9 million from 2023/24) to determine how much non-concessional contributions can be made. Also, Shila is 58 (a long way from age 67), so she does not need to meet the work test to make her non-concessional contribution.

Shila can consider this avenue if she does not need to access much cash for other purposes immediately. Also, note that Shila is only two years away from age 60, when she can access her superannuation benefits without paying withdrawal tax if she stays retired.

Other choices

Of course, Shila can pursue other choices. These include investing outside the superannuation environment, paying off a mortgage or other debts, and planning to return to a part-time or full-time job immediately or in the near future.

What does Shila do?

Shila’s kids are grown up, and her mortgage is nearly done. She’s been thinking about consulting or part-time project work anyway.

“I’m not rushing back into a 9–5. I might take six months off, maybe do a few contracts or take on a board gig.”

This offers her a buffer to breathe and rethink life, time to upskill, pivot or semi-retire and some solid super balance to fall back on. Shila decides to get a part-time job from July 1 next year, so her redundancy payout doesn’t push her into a higher tax bracket this year when her part-time wages are included.

Practice Update June 2025

ian@digitalwise.com.au (Ian Campbell) — Thu, 10 Jul 2025 01:24:39 GMT

Key concerns when selling a business in: A strategic guide for business owners

Selling a business is one of the most significant decisions a business owner will ever make. Whether a long-standing family operation or a recently scaled-up enterprise, the process requires detailed planning, expert advice, and a sharp understanding of the tax, legal, and commercial landscape. This article explores the most pressing concerns for business owners preparing for a sale, focusing on structural readiness, tax optimisation, timing, and macroeconomic or industry-specific influences.

Business structure and sale readiness

Is your business sale-ready?

Many business owners operate under structures that suit them initially—sole trader, partnership, trust, or private company—but may not be optimal when it’s time to exit. Buyers prefer simplicity and legal clarity; complex structures can introduce unnecessary friction during due diligence.

Example:
A logistics company structured as a discretionary trust with multiple beneficiaries found buyer interest waning due to the convoluted ownership model. When the business was restructured into a clean corporate entity with defined shareholdings, it was sold within six months.

So, align your structure with buyer expectations, often a company limited by shares with clear asset ownership and tax history, at least 2–3 years before planning a sale.

Clean up the balance sheet

Buyers scrutinise assets and liabilities closely. Loans to shareholders, non-core assets, or related-party transactions can muddy the waters.

Steps to Take:

Repay or eliminate shareholder loans.
Write off obsolete inventory.
Dispose of redundant or non-performing assets.
Finalise ongoing disputes or litigation, if possible.

Tax planning: Unlocking value and minimising liability

Understanding the Capital Gains Tax (CGT) Landscape

CGT is typically the most substantial tax liability when a business is sold. There are several small business CGT concessions, which, if used correctly, can eliminate or significantly reduce tax payable.

The key CGT concessions:

15-year exemption: No CGT if you’ve owned the business for 15 years, are over 55, and are retiring.
50% active asset reduction: Halves the capital gain on active business assets.
Retirement exemption: Up to $500,000 of capital gains can be tax-free if contributed to superannuation.
Rollover relief: Defer gains when selling one business and buying another.

Example:
A software consultancy qualified for the 15-year exemption by ensuring the shares were held by an individual over 55 and that the asset was active. Their $2.8M sale was completely CGT-free.

Important consideration:
These concessions are complex. Eligibility hinges on factors like asset use, ownership periods, turnover thresholds ($2M for some rules, $6M net asset test for others), and even the specific structure of the entity. Engage an experienced accountant early.

Trust distributions and Div 7A implications

If your business is structured using a trust or company, unpaid distributions or loans to beneficiaries/shareholders could trigger Division 7A implications, which would tax these as unfranked dividends.

Action items:

Ensure trust distributions are documented and paid.
Review shareholder loans and ensure that repayments or compliant loan agreements exist.

GST and stamp duty

GST: Business sales can be GST-free under the ‘going concern’ exemption if the buyer continues the business.
Stamp duty: While not always applicable, certain states (e.g., NSW, VIC) impose stamp duty on business asset sales.

Timing the sale: Market, tax year, and life events

Timing within a tax year

Selling in June versus July can significantly impact your personal tax return. Deferring a sale into a new financial year can provide more time to prepare, structure super contributions, or even allow a better tax planning window.

Case in point:
A café sold in late June 2024, leaving the owners little time to implement superannuation strategies or prepay expenses. A sale just weeks later in July could have reduced their overall tax bill.

Economic and industry cycles

Industry multiples fluctuate with economic confidence, legislative changes, and media narratives. Selling into a buyer’s market (high demand for acquisitions) can significantly improve valuations.

Example:
Childcare businesses saw a surge in private equity interest in 2022, driven by government subsidies and market consolidation trends. Owners who sold then realised 7–9x EBITDA multiples, versus 4–5x just three years earlier.

Retirement and Health Planning

Many owners delay sale decisions, only to be forced to exit suddenly due to health issues or burnout. Several years out, planning the sale gives flexibility to negotiate, reduce tax, and groom a successor or key employee.

Accounting and financial housekeeping

Normalising earnings

Buyers assess businesses based on ‘normalised EBITDA’ — earnings adjusted for one-off items, owners’ personal expenses, or non-recurring revenue/costs.

Action plan:

Cease running personal expenses through the business.
Identify and document add-backs transparently.
Remove reliance on key individuals, including the owner.

Updated financials and forecasting

Buyers will want:

The last three years of accountant-prepared financials.
Year-to-date management reports.
Forecasts showing future growth potential.

Best practice:
Work with your accountant to ensure accrual-based records, aged receivables/payables, and reconciled accounts. Sloppy or unclear financials may delay the deals.

Due diligence preparation

Create a virtual data room and include:

Tax returns (company/trust/individual) for 3–5 years.
Copies of key contracts (leases, supplier agreements, employment contracts).
Asset register.
IP and domain ownership records.

Tip:
Conduct your own “vendor due diligence” before going to market, identifying red flags before a buyer finds them.

Legal and regulatory compliance

Contracts, IP, and licences

Ensure all contracts are:

In the business name (not a personal name).
Assignable to a buyer.
Current and signed.

Check that:

Trademarks and domain names are registered and owned by the business.
Any government or industry licences are up to date.

Employment law

Employee entitlements (long service leave, annual leave, redundancy, etc.) must be adequately accounted for. Some buyers will require the seller to pay out entitlements at settlement.

Modern award compliance is another flashpoint. In 2020, several hospitality businesses were involved in underpayment scandals that stalled sales and required rectification.

Data and privacy laws

This is especially relevant for tech businesses, but applies to any business holding customer data. New Australian privacy reforms (proposed to strengthen penalties and compliance obligations as of 2024) may increase buyer concern over potential liabilities.

Technological, legislative and industry trends

The impact of AI and automation

Businesses that embrace tech (e.g., CRM systems, cloud accounting, and inventory tracking) are more efficient and attractive to buyers.

Example:
Two regional veterinary practices went to market in 2023. One had paper-based systems and poor records; the other had cloud-based software, automated appointment reminders, and centralised records. The second sold for 20% more.

ESG and sustainability

Environmental, Social, and Governance (ESG) practices are increasingly a factor in private equity and institutional buyer decisions. Sustainable sourcing, low emissions, and fair wages can all boost valuation or widen the pool of buyers.

Changes in law

Upcoming legal reforms — such as changes to superannuation contribution caps, company director identification rules, and increased enforcement by the ATO and ASIC can affect how you prepare for a sale.

For instance:
The 2025 tightening of Division 293 superannuation tax thresholds may make super contributions less attractive for high-income earners, shifting some tax planning strategies in the lead-up to sale.

Emotional and legacy concerns

Letting go

Many owners underestimate the emotional weight of selling a business, especially one built over decades. This can lead to overvaluation, second-guessing, or dragging out the process.

Family and Succession

If a family member buys or takes over the business, considerations shift to fairness, estate planning, and possibly staged handovers or vendor financing.

Example:
An agribusiness in regional NSW was sold to the owner’s son at a discounted valuation with a five-year earn-out and coaching period. The structure maintained harmony while allowing a generational shift.

 Practical steps to take now

Engage a tax adviser and lawyer 2–3 years before your intended sale.
Get a business valuation to understand what your business is worth today — and what you can do to increase that.
Groom a second-in-command to de-risk the business from key person dependency.
Develop a buyer profile: Is your ideal buyer a competitor, private equity investor, a customer, or a family member?
Start thinking about life after the sale. Retirement, philanthropy, consulting, or a new business?

Selling a business is a multi-faceted process beyond finding a buyer. It requires careful tax planning, legal and operational grooming, industry awareness, and emotional readiness. The sooner you start preparing, the more likely you will walk away with a higher valuation, a smoother process, and a legacy you can be proud of.

No two exits are the same. But with the proper preparation, expert guidance, and awareness of your business’s strengths and weaknesses, you can turn a potentially stressful transition into a strategic success.

Practice Update May 2025 -2

ian@digitalwise.com.au (Ian Campbell) — Wed, 28 May 2025 01:37:00 GMT

Strategies for individuals before June 30, 2025

As June 30 approaches, we focus on how individuals can reduce taxable income. Thoughtful planning can make a difference. In this article, we will explore practical strategies for maximising your deductions before the end of the 2025 financial year, backed by examples and simple explanations.

Understand what you can claim

Before diving into strategies, you must know what deductions you are entitled to claim. The ATO allows you to claim deductions for expenses directly related to earning your income. This includes:

A key principle is that the expense must not be private in nature, and you must have a record to prove it.

Case study
A freelance graphic designer, Emma bought a new laptop for her business for $2,500. She uses it 90% for work and 10% for personal use. She can claim 90% of the purchase price, or $2,250, as a deduction.

Bring forward expenses where possible

If you expect your income to be the same or lower next year, bringing deductible expenses into this financial year often makes sense.

You might:

Prepay up to 12 months of expenses, such as rent for your business premises, subscriptions, or insurance.
Purchase essential business equipment now rather than after July 1.
Pay for professional development courses or seminars early.

Example
Jason owns a plumbing business. He knows he needs to renew his $1,200 public liability insurance in July, but he can claim it in this year’s tax return by paying it in June instead.

Boost your super and enjoy tax benefits

Making extra superannuation contributions is a powerful way to reduce your taxable income. In 2025, the concessional (before-tax) contributions cap is $30,000. This includes your employer’s Super Guarantee payments and your salary sacrifice contributions.

You can also make catch-up contributions if you haven’t used your full concessional cap in the past five years and your super balance is under $500,000. The table below summarises the types of contributions and related benefits.

Case study
Lily earns $110,000 a year. She has contributed only $15,000 to her super this year (via her employer). She decides to make an extra $10,000 personal contribution before the end of June. She submits a Notice of Intent to her super fund and claims a deduction, reducing her taxable income to $100,000.

Note
You must ensure your super fund receives the contributions before June 30. Bank processing delays can cause missed opportunities.

Maximise motor vehicle deductions

If you use your car for work purposes, claim the correct deductions. There are two primary methods:

Cents per kilometre method (up to 5,000 business kms per year)
Logbook method (track business vs personal use for at least 12 weeks)

Choosing the correct method can significantly impact your deduction.

Example
Ben, a sales representative, keeps a detailed logbook and shows that 70% of his car’s use is for business. His running costs for the year are $10,000, covering fuel, registration, insurance, repairs, and other expenses. He can claim $7,000 (70% of $10,000) as a deduction.

Make donations to registered charities

If you’re feeling generous, donating to a Deductible Gift Recipient (DGR) charity before June 30 can reduce your tax bill. Donations of $2 or more are tax-deductible, but be sure to keep your receipts.

Tip
Donations must be monetary or specific, eligible items. Raffles, fundraising event tickets, and crowdfunding support often do not qualify for deductions.

Example
Joan donates $500 to the Red Cross and receives a receipt. She can claim the full $500 as a tax deduction.

Keep good records

No matter how good your deductions are, the ATO can deny them without evidence.
Make sure you:

Keep receipts, invoices, and bank statements.
Use apps or accounting software to track expenses.
Keep vehicle logbooks and work-from-home records.

The ATO generally requires records to be kept for a minimum of five years.

Tip
Keep the record if you’re unsure whether an expense is deductible. A good accountant can help clarify things at tax time.

The countdown to June 30 is on. With some planning, you can significantly reduce your tax bill, boost your savings, and set yourself up for a stronger financial year. Everyone’s situation is different, so getting personalised advice from a qualified accountant or tax agent is smart. Small moves today can lead to significant savings tomorrow.

Strategies for small businesses

Small businesses have unique opportunities to manage their tax position before the end of the financial year. By taking action now, you can legally minimise your tax, improve cash flow, and set yourself up for success in 2026. Here are several practical strategies to consider.

Take advantage of the instant asset write-off

If your business turnover is under $10 million, you may be eligible to claim an immediate deduction for assets costing less than $20,000 each.

Common examples

The asset must be installed and ready for use by June 30 to qualify.

Tip
Second-hand assets can also qualify.

Example
Tom runs a landscaping business. In May 2025, he purchased a ride-on mower for $18,500. He starts using it immediately and can claim the full cost in his 2025 tax return.

Prepay business expenses

Small businesses can generally claim a deduction for prepaid expenses covering up to 12 months. Typical prepaid expenses include:

Rent
Insurance premiums
Software subscriptions
Advertising costs

Example
A café owner prepays $4,800 for 12 months of business insurance in June 2025. They can deduct the full $4,800 this year rather than spreading it over future years.

Write off obsolete stock and assets

If your business holds stock that has become obsolete, damaged, or unsellable, writing it off before June 30 can reduce your taxable income. Similarly, scrapping old or unused equipment can generate a tax deduction.

Steps:

Conduct a stocktake and identify unsellable items.
Update your inventory records.
Remove obsolete assets from your asset register.

Example
A clothing retailer identifies $7,000 of damaged winter stock during a June stocktake. Writing it off lowers the retailer’s taxable profit for the year.

Review your debtor list and write off bad debts

If you have customers who haven’t paid and are unlikely to do so, you may be able to claim a deduction by writing off those bad debts.

Requirements:

Have made genuine attempts to recover the debt.
Decide that the debt is unrecoverable.
Write it off before June 30.

Example
A digital agency owes $12,000 to a former client that has been liquidated. After confirming the liquidation, the agency writes off the debt and claims it as a deduction.

Maximise superannuation contributions for employees

Paying employee super contributions on time meets your legal obligations and ensures you can claim the deduction this year. Importantly, contributions must be received by the super fund by June 30, not just sent.

You might consider paying the June quarter super contributions early if you have extra cash flow.

Example
A builder typically pays quarterly super in July. This year, they pay the June quarter super for employees by June 25. This payment becomes deductible in the 2025 tax year.

Set up a home office deduction properly

If you run your small business from home, you may be entitled to claim a portion of household expenses.
Options include:

Fixed rate method: a set amount per hour worked from home
Actual cost method: a share of specific expenses such as electricity, internet, rent, and cleaning

Example
Mel runs an online store from a dedicated home office. She claims 67 cents per hour under the fixed rate method for simplicity.

Small business owners have more control over their tax outcomes than most. With innovative, timely moves before June 30, you can minimise your tax bill, strengthen your cash position, and confidently head into the new financial year. Always remember that good record-keeping is as essential as making the right decisions. Talk to your accountant early to ensure all actions are properly documented and compliant with ATO rules.

Practice Update May 2025

ian@digitalwise.com.au (Ian Campbell) — Wed, 07 May 2025 03:22:11 GMT

Strategies for individuals before June 30, 2025

Understand what you can claim

Before diving into strategies, you must know what deductions you are entitled to claim. The ATO allows you to claim deductions for expenses directly related to earning your income. This includes:

A key principle is that the expense must not be private in nature, and you must have a record to prove it.

Bring forward expenses where possible

If you expect your income to be the same or lower next year, bringing deductible expenses into this financial year often makes sense.

You might:

Prepay up to 12 months of expenses, such as rent for your business premises, subscriptions, or insurance.
Purchase essential business equipment now rather than after July 1.
Pay for professional development courses or seminars early.

Example
Jason owns a plumbing business. He knows he needs to renew his $1,200 public liability insurance in July, but he can claim it in this year’s tax return by paying it in June instead.

Boost your super and enjoy tax benefits

Note
You must ensure your super fund receives the contributions before June 30. Bank processing delays can cause missed opportunities.

Maximise motor vehicle deductions

If you use your car for work purposes, claim the correct deductions. There are two primary methods:

Cents per kilometre method (up to 5,000 business kms per year)
Logbook method (track business vs personal use for at least 12 weeks)

Choosing the correct method can significantly impact your deduction.

Make donations to registered charities

Tip
Donations must be monetary or specific, eligible items. Raffles, fundraising event tickets, and crowdfunding support often do not qualify for deductions.

Example
Joan donates $500 to the Red Cross and receives a receipt. She can claim the full $500 as a tax deduction.

Keep good records

No matter how good your deductions are, the ATO can deny them without evidence.
Make sure you:

Keep receipts, invoices, and bank statements.
Use apps or accounting software to track expenses.
Keep vehicle logbooks and work-from-home records.

The ATO generally requires records to be kept for a minimum of five years.

Tip
Keep the record if you’re unsure whether an expense is deductible. A good accountant can help clarify things at tax time.

Strategies for small businesses

Take advantage of the instant asset write-off

If your business turnover is under $10 million, you may be eligible to claim an immediate deduction for assets costing less than $20,000 each.

Common examples

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Practice Update April 2025

ian@digitalwise.com.au (Ian Campbell) — Mon, 31 Mar 2025 05:03:27 GMT

A foreign entrepreneur’s guide to starting a business in Australia

Starting a business as a foreign entrepreneur can be an exhilarating way to access new markets, diversify investment portfolios, and create fresh opportunities. Many countries around the globe provide pathways for non-residents and foreign nationals to register businesses. However, understanding different countries’ legal requirements, procedures, and opportunities is crucial for success. In this issue, we will navigate the process of establishing a business in Australia to help foreign entrepreneurs looking to register a company in Australia.

Key takeaways

Foreign entrepreneurs can fully own Australian businesses with no restrictions on ownership.
Registered office and resident director requirements are key legal considerations.
ABN and ACN are essential for business registration.
The application process can be done online, simplifying the process for foreign entrepreneurs.

Why register a business as a foreign entrepreneur?

There are various reasons why a foreigner may want to register a company in another country. These reasons include expanding into a foreign market, taking advantage of favourable tax laws, leveraging local resources, or benefiting from business-friendly regulatory environments.

Before registering, conducting thorough market research to assess whether establishing a business abroad aligns with your objectives is essential. Understanding the country’s political and economic climate, legal framework, and tax system will help ensure the success of your venture.

The general process for registering a business as a foreign entrepreneur

While the exact requirements may differ from country to country, some common steps apply to most jurisdictions when registering a company as a foreign entrepreneur:

Choosing the business structure

The first step is deciding on the appropriate business structure. The structure determines liability, taxation, and governance. Common types of business structure include:

Sole proprietorship: A single-owner business where the entrepreneur has complete control and entire liability.
Limited Liability Company (LLC): Offers liability protection to the owners, meaning their assets are not at risk.
Corporation (Inc.): A more complex structure that can issue shares and offers limited liability to its shareholders.

Different countries have varying rules regarding foreign ownership, so understanding the options available is essential before registering a company.

Registering with local authorities

Regardless of the jurisdiction, most countries require you to register your company with the relevant local authorities. This process typically includes submitting documents such as:

Company name and business activities: You need to choose a unique company name that adheres to local naming regulations.
Articles of incorporation: This document outlines the company’s structure, activities, and bylaws.
Proof of identity : As a foreign entrepreneur, you will likely need to provide a passport and other identification documents.
Proof of address: Many countries require a physical address for the business, which may be the address of a registered agent or office.

Tax Identification Number (TIN) and bank accounts

After registering the company, you will typically need to apply for a tax identification number (TIN), employer identification number (EIN), or equivalent, depending on the jurisdiction. This number is used for tax filing and reporting purposes.

Opening a business bank account is another critical step. Some countries require a local bank account for business transactions, and you may need to visit the bank in person or appoint a local representative to help with the process.

Complying with local regulations

Depending on the type of business, specific licenses and permits may be required to operate legally. For example, food service, healthcare, or transportation companies may need specific licenses. Compliance with local labour laws and intellectual property protections may also be necessary.

Appoint directors and shareholders

To register a company, you’ll need to appoint at least one director who resides in Australia. The director will be responsible for ensuring the company meets its legal obligations. You will also need to appoint shareholders, who can be either individuals or corporations.

For foreign entrepreneurs, the requirement for a resident director is one of the key challenges. If you don’t have a trusted individual in Australia to act as the director, you can engage a professional service to fulfil this role. This ensures your business remains compliant with local regulations.

Choose a company name

Next, you need to choose a company name. The name should reflect your business but must be unique and available for registration. You can check the availability of a name through the Australian Securities & Investments Commission (ASIC) website.

Remember that the name must meet legal requirements and cannot be similar to an existing registered company. If you’re unsure, seeking professional advice is always a good move.

Apply for an Australian Business Number (ABN) and Australian Company Number (ACN)

Once you’ve selected your business structure and appointed your directors, it’s time to apply for an Australian Business Number (ABN) and an Australian Company Number (ACN). These are essential for running your business in Australia.

ABN: This unique 11-digit number allows your business to interact with the Australian Taxation Office (ATO) and other government agencies.
ACN: This 9-digit number is allocated to your company upon registration with ASIC and serves as your business’s unique identifier.

You can easily apply for both numbers online through the Australian Business Register (ABR) and the ASIC websites.

Register for Goods and Services Tax (GST)

If your business expects to earn more than $75,000 in revenue annually, you must register for GST. This means your business will charge customers an additional 10% on goods and services. The GST registration threshold for non-profit organisations is higher at $150,000 annually. If your company is below these thresholds, registering for GST is optional, but registration becomes mandatory once it exceeds the limit.

Set up a registered office

Every Australian company must have a registered office in Australia. This is where all official government documents, including legal notices, are sent. You can use your premises or hire a foreign company registration service to provide a virtual office address.

Common challenges for foreign entrepreneurs

While the process is relatively simple, there are a few hurdles that foreign entrepreneurs may encounter when registering a company in Australia:

Resident director requirement: You’ll need a director residing in Australia. If you don’t have one, you’ll need to engage a service provider to fulfil this role.
Understanding local tax laws: Australia has a corporate tax rate of 25% for small businesses with annual turnovers of less than $50 million. However, larger companies with turnovers exceeding $50 million are subject to a standard corporate tax rate of 30%. Foreign entrepreneurs must also understand the implications of the Goods and Services Tax (GST) and payroll tax.
Compliance with Australian regulations: Navigating Australia’s various regulations and compliance requirements can be time-consuming. An accountant or adviser can help you in this regard.

FAQs

Can I register a company in Australia as a foreigner?
Yes, foreign entrepreneurs can register a company in Australia. The only requirement is to have a resident director.
Do I need to be in Australia to register a company?
No, you can complete the registration process online. However, you must appoint a resident director.
Do I need an Australian bank account to start a business in Australia?
You will need an Australian bank account to handle your business’s finances and transactions.
Can I operate my Australian company from abroad?
Yes, you can operate your company remotely, but you must comply with all local tax laws and regulations.

Practice Update March 2025

ian@digitalwise.com.au (Ian Campbell) — Wed, 05 Mar 2025 01:47:06 GMT

Do bucket companies help build wealth at retirement?

Bucket companies are familiar with wealth-building strategies, particularly as individuals approach retirement. By distributing profits to a bucket company, individuals can benefit from reduced tax liabilities and enhanced investment growth opportunities. This essay explores how bucket companies influence wealth building at retirement, their impact on age pension eligibility and tax positions, and strategies to maximise economic outcomes.

Understanding bucket companies

A bucket company is used to receive distributions from a family trust. Instead of distributing profits directly to individuals, which may attract high marginal tax rates, the trust distributes income to the bucket company, which is taxed at the corporate tax rate (currently 30% or 25% for base rate entities). The company can then retain the after-tax profits for reinvestment or distribution.

Impact on wealth building at retirement

Tax efficiency and compounding growth

Using a bucket company can result in significant tax savings compared to personal marginal tax rates, reaching up to 47% (including the Medicare levy). Retained earnings within the bucket company are taxed lower, allowing more capital to compound over time.

Example of Tax Efficiency:

Income DistributedPersonal Marginal Tax (47%)Bucket Company Tax (25%)Savings $100,000$47,000$25,000$22,000

Over 20 years, if the tax savings of $22,000 per year are reinvested at an annual return of 7%, they would accumulate to approximately $1,012,000.

Age pension and means testing

The age pension is subject to both an income test and an assets test. Holding wealth in a bucket company can impact these tests:

Income Test: Distributions to individuals count as assessable income. Retained profits within the company do not.
Assets Test: The value of the bucket company shares is counted as an asset, which may affect pension eligibility.

Strategic use of the company can help individuals control their assessable income, potentially increasing their age pension entitlement.

Strategies to maximise economic outcomes

Timing of Distributions

By deferring distributions from the bucket company until retirement, individuals can benefit from lower marginal tax rates or effectively use franking credits.

Dividend Streaming

Using franking credits from company-paid tax can reduce personal tax liabilities when distributed dividends.

Investment within the Company

Reinvesting retained earnings within the bucket company in diversified assets can enhance compounding returns.

Family Trust Distribution Planning

Strategically distributing income to lower-income family members before reaching the bucket company can reduce overall tax.

Winding Up or Selling the Company

Carefully planning an exit strategy to wind up the b ucket company or sell its assets can minimise capital gains tax liabilities.

Example of a retirement strategy with a bucket company

Assume that John and Mary, aged 65, have distributed $100,000 annually from their family trust to their bucket company over 20 years.

Corporate tax paid: 25%
Annual return on reinvestment: 7%
After-tax reinvested earnings annually: $75,000

YearAnnual ReinvestmentTotal Accumulated Amount (7% p.a.)5$75,000$435,30010$75,000$1,068,91420$75,000$3,867,854

At retirement, they can distribute dividends with franking credits to minimise personal tax and supplement their income while potentially qualifying for some age pension benefits due to strategic income timing.

FAQ

What is a bucket company? A bucket company is a corporate entity that receives trust distributions, taxed at the corporate rate rather than personal marginal rates.
How does a bucket company impact my age pension eligibility? While retained earnings do not affect the income test, the value of the company shares is considered an asset under the assets test.
Can bucket companies help reduce tax during retirement? Yes, by using franking credits and strategic distribution timing, bucket companies can minimise tax liabilities.
Are there risks associated with using bucket companies for retirement planning? Yes, risks include changes in tax laws, corporate compliance costs, and potential capital gains tax upon winding up the company.
Should I consult a professional before using a bucket company? Absolutely. Professional advice is essential to ensure compliance with tax laws and optimise wealth-building strategies.

Personal super contribution and deductions

ian@digitalwise.com.au (Ian Campbell) — Tue, 11 Feb 2025 22:18:23 GMT

Personal super contribution and deductions

In this issue, we discuss how to make personal super contributions, including claiming a tax deduction to make them concessional contributions.

What are personal super contributions?

You can boost your super fund by adding your personal contributions, which are the amounts you contribute directly to your super fund. If you claim a tax deduction, they’re concessional contributions effective from your pre-tax income. They are taxed in the fund at a rate of 15% unless you have an adjusted taxable income of $250,000.

They’re non-concessional contributions from your after-tax income or savings if you don’t claim a tax deduction. They are not further taxed.

Personal contributions:

are in addition to any compulsory super contributions your employer makes on your behalf

do not include super contributions made through a salary-sacrifice arrangement.

Personal contributions are subject to the contributions caps that apply to concessional and non-concessional contributions.

Concessional contributions cap

The concessional contributions cap is the maximum before-tax contributions you can contribute to your super each year without contributions being subject to extra tax.

From 1 July 2024, the concessional contributions cap is $30,000.
From 1 July 2021 to 30 June 2024, the concessional contributions cap for each year was $27,500.
From 1 July 2017 to 30 June 2021, the concessional contribution cap for each year was $25,000.

The cap increases in increments of $2,500, which aligns with the statistical measure of average weekly ordinary time earnings (AWOTE). If you have unused cap amounts from previous years, you may be able to carry them forward to increase your contribution caps in later years.

Non-concessional contributions cap

The non-concessional contributions cap is the maximum after-tax contributions you can contribute to your super each year without contributions being subject to extra tax.

From 1 July 2024, the non-concessional contributions cap is $120,000. This is now reviewed annually to align with average weekly ordinary time earnings (AWOTE). If you contribute more, you may have to pay extra tax.

Non-concessional contributions caps from 2021–22 onwards.

Financial year Non-concessional cap

2024–25 $120,000

2023–24 $110,000

2022–23 $110,000

2021–22 $110,000

If you make contributions above the annual non-concessional contributions cap, you may be eligible to access future year caps automatically. This is known as the bring-forward arrangement. It allows you to make extra non-concessional contributions without paying additional tax if you meet certain eligibility conditions.

Suppose your total super balance is equal to or more than the general transfer balance cap ($1.7 million from 2021–22, $1.9 million from 2023–24) at the end of the previous financial year. In that case, your non-concessional contributions cap is nil ($0) for the current financial year.

Claiming deductions for personal super contributions

To claim a deduction for your personal super contributions, you must give your super fund a notice in the approved form and get an acknowledgement from the fund. There are other eligibility criteria you must meet.

The personal super contributions you claim as a deduction will count towards your concessional contributions cap. When deciding whether to claim a deduction for super contributions, you should consider the possible impacts, including whether:

you will exceed your concessional (before-tax) contributions cap, which limits the amount that can be contributed to your super fund that is taxed at the concessional rate of 15%
you will have to pay Division 293 tax, which applies when your combined income and concessional super contributions for Division 293 purposes are more than $250,000
you wish to split your contributions with your spouse
it will affect your super co-contribution eligibility.

If you exceed your cap, you must pay extra tax, and any excess concessional contributions you leave in super will count towards your non-concessional contributions cap.

Example: effects of claiming a deduction for a personal super contribution

From 2019 to 20, Christie will be employed as a hairdresser and earn $35,000 in assessable income.

Christie makes a personal contribution of $5,000 to her super fund. To claim an income tax deduction for the entire contribution, she must give her fund a notice of intent and get an acknowledgement.

Having done this, Christie could claim a tax deduction of $5,000, reducing her taxable income to $30,000. However, her fund would pay a 15% tax on the $5,000, so only $4,250 would be credited to Christie’s super fund account. Additionally, Christie would be eligible for the low-income superannuation tax offset, so the government would refund her offset into her super account. However, she would not qualify for a super co-contribution.

If Christie decided to claim a personal income tax deduction of $4,000 instead of the entire $5,000, this would mean:

her taxable income would be $31,000
her fund would have to pay a 15% tax on the $4,000, so $3,400 would be credited to her account
she may be eligible for the super co-contribution in respect of the $1,000 that was not claimed as a deduction, in which case the government would pay her co-contribution entitlement ($500) into her super account
she would be eligible for the low-income superannuation tax offset so that the government would refund her offset into her super account.

Work and age restrictions

Suppose you’re under 18 at the end of the income year and you contributed. In that case, you can only claim a deduction for your personal super contributions if you also earned income as an employee or business operator during the year.

If you’re between 67 and 74 years old:

For the 2020–21 and later years, you must meet the work test (or exemption) to claim a tax deduction for personal contributions and have them treated as concessional contributions.
From 1 July 2022, you can make or receive non-concessional personal and salary sacrifice contributions without meeting the work test (or exemption). However, you must still meet the work test (or exemption) to claim a deduction for personal superannuation contributions to ensure they are treated as concessional contributions.

If you are 75 or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month you turned 75.

Work test and work test exemption

To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period each income year. However, if you don’t meet the above condition, you can use the exemption to the work test on a one-off basis if you have:

satisfied the work test in the income year preceding the year in which you made the contribution
a total super balance of less than $300,000 at the end of the previous income year
Do not rely on the work test exemption from a previous financial year.

Example: work test to claim a deduction for personal super contributions

In 2021–22, Kumiko turned 66 years old. She did not need to satisfy the work test or meet the work test exemption criteria to claim a deduction for personal super contributions. However, she still had to give her fund a notice of intent and receive an acknowledgement from the fund.

In 2022–23, Kumiko turned 67 years old. Before that, she did not need to satisfy the work test or work test exemption to contribute to her super fund. In that case, she must satisfy the work test or meet the work test exemption criteria to claim a deduction for personal super contributions. She must also continue to provide her fund with a notice of intent and get an acknowledgement from the fund.

Personal super contributions for self-employed

If you’re self-employed as a sole trader or in a partnership, you don’t have to pay a super guarantee for yourself.

You can choose to make personal super contributions to save for your retirement. Make sure your super fund has your tax file number (TFN). If not:

contributions are taxed an additional 32%
your fund may not accept personal contributions
you may miss out on a super co-contribution if you are eligible
it will be harder to keep track of your super.

You can choose to make personal super contributions from your after-tax income. For example, you can contribute directly from your bank account to your super fund. Most people can claim a tax deduction for personal super contributions until they turn 75. Contributions you make may attract extra tax if they exceed the contribution cap for that year.

Example 1: Self-employed with moderate Income Earner

Scenario:

John’s taxable income is $80,000 in the financial year 2023-24, and he wishes to make personal superannuation contributions to reduce his tax liability.

Key Limits for 2024-25:

Concessional contributions cap: $30,000 per year.
Contributions to this cap are taxed 15% within the super fund.
Non-concessional contributions cap: $120,000 annually (provided the concessional cap is not exceeded).

Step-by-step Calculation:

1.Concessional Contribution:

John decides to contribute $20,000 as a concessional contribution.
Tax within the super fund: $20,000 × 15% = $3,000.
The remaining $17,000 is invested in their super fund.

2.Tax Savings on Income:

Without contribution, taxable income = $80,000.
After claiming the $20,000 contribution as a tax deduction, taxable income was reduced to $60,000.
At a marginal tax rate of 32.5% (plus 2% Medicare levy), the tax saved:
20,000 × (32.5%+2%)=20,000×34.5%=6,900
Net tax saving after considering the 15% tax in the super fund: 6,900−3,000=3,900.

3. Non-Concessional Contribution:

He also contributes an additional $10,000 as a non-concessional contribution. In year 2024-25, John can contribute this amount as a concessional contribution, being self-employed and also the limit of concessional contribution in 2024-25 is $30,000. In this case, John can get a tax dedution for the extra $10,000 contribution.
No tax is applied to this contribution within the super fund.

Result:

John reduces his taxable income to $60,000, saving $3,900 in tax.
His super fund receives $27,000 ($17,000 concessional + $10,000 non-concessional).

Example 2: Self-employed who has high income

Scenario: Kerry is self-employed and has a taxable income of $200,000 in 2023-24. She wishes to maximise their concessional contributions.

Key Limits for 2024-25:

Concessional contributions cap: $30,000

Additional Division 293 tax (15%) applies for individuals with income over $250,000.

Step-by-step Calculation:

1.Concessional Contribution:

Kerry contributes the maximum concessional amount of $30,000.
Tax within the super fund: $30,000 × 15% = $4,500.
Remaining: $25,500 goes into their super fund.

2.Tax Savings on Income:

Without contribution, taxable income = $200,000.
After claiming the $30,000 contribution as a tax deduction, taxable income is reduced to $170,000.
At a marginal tax rate of 47% (including Medicare levy), the tax saved: $30,000 x 47% = $14 100.
Net tax saving after considering the 15% tax in the super fund: $14,100 – $4,500 = $9,600.

3.Additional Division 293 Tax:

Kerry’s adjusted income = $170,000 + $30,000 = $200,000 (below the $250,000 threshold).
No additional Division 293 tax is payable in this scenario.

Result:

Kerry reduces her taxable income to $170,000, saving $9,600 in tax.

Her super fund receives $25,500 after tax.

January 2025

ian@digitalwise.com.au (Ian Campbell) — Wed, 18 Dec 2024 05:25:50 GMT

Don’t let taxes dampen your holiday spirit!

Just like Santa carefully checks who’s naughty or nice, businesses need to watch the tax rules when spreading Christmas cheer. Hosting festive parties for employees or clients can lead to Fringe Benefits Tax (FBT).

FBT is a tax employers pay when they provide extra perks to employees, their families, or associates. It’s separate from regular income tax and is based on the value of the benefit. The FBT year runs from 1 April to 31 March, and businesses must calculate and report any FBT they owe. With a bit of planning—just like Santa’s perfect delivery route—you can celebrate while keeping your tax worries in check!

FBT exemption: A little Christmas gift from the taxman

The tax rules include a “minor benefit exemption”—like a small stocking stuffer. If the benefit given to each employee costs less than $300 and isn’t a regular thing, it’s exempt from Fringe Benefits Tax (FBT).

Christmas parties fit perfectly here because they’re one-off events. Businesses can avoid FBT hassles if the cost per employee stays under $300. Remember: the more often you give out perks, the less likely they’ll qualify for this exemption. Thankfully, Christmas only comes once a year!

Christmas parties at the office

If you host your Christmas party at your business premises during a regular workday, costs like food and drinks are FBT-free, no matter how much you spend. However, you can’t claim a tax deduction or GST credits for those expenses.

If employees’ family members join and the cost per person is under $300, there’s still no FBT, but again, no tax deduction or GST credits can be claimed. However, FBT will apply if the cost is over $300 per person. The good news is that you can claim both a tax deduction and GST credits in that case.

FBT check for Christmas parties at the office

Who attendsCost per personDoes FBT applyIncome tax deduction/Input Tax Credit available? Employees onlyUnlimitedNoNoEmployees and their familyLess than $300NoNoMore than $300YesYesClientsUnlimitedNoNo

Think of it like this: at your Christmas party, the food and drinks are like Santa’s bag of gifts – no dollar limit exists for employees enjoying them on business premises. But if you add a band or other entertainment, the costs can add up quickly, and if the total cost per employee exceeds $300, FBT kicks in. Keep it under $300 per person, and you’re in the clear.

Christmas parties outside the office

If you hold your Christmas party at an external venue, like a restaurant or hotel, it’s FBT-free as long as the cost per employee (including their family, if they come) is under $300. But remember, you can’t claim a tax deduction or GST credits in this case.

FBT will apply if the cost exceeds $300 per person, but you can claim a tax deduction and GST credits.

Good news: employers don’t have to pay FBT for taxi rides to or from the workplace because there’s a special exemption.

FBT check for Christmas parties outside the office

Who attendsCost per personDoes FBT applyIncome tax deduction/Input Tax Credit available? Employees onlyLess than $300NoNoMore than $300YesYesEmployees and their familyLess than $300NoNoMore than $300YesYesClientsUnlimitedNoNo

Clients at the Christmas party

If clients attend the Christmas party, there’s no FBT on the expenses related to them, no matter where the party is held. However, you can’t claim a tax deduction or GST credits for part of the costs that apply to clients.

Christmas gifts

Many employers enjoy giving gifts to their employees during the festive season. If the gift costs less than $300 per person, there’s no FBT, as it’s usually not considered a fringe benefit.

FBT check for Christmas gifts

Who attendsCost per personDoes FBT applyIncome tax deduction/Input Tax Credit available? Entertainment giftsLess than $300NoNoMore than $300YesYesNon-entertainment giftsLess than $300NoYesMore than $300YesYes

However, FBT might apply if the gift is for entertainment. Entertainment gifts include things like tickets to concerts, movies, or holidays. Non-entertainment gifts—like gift hampers, vouchers, flowers, or a bottle of wine—are usually FBT-free if under $300. So spread the festive cheer, but keep an eye on the taxman to avoid surprises!

Christmas hours

ian@digitalwise.com.au (Ian Campbell) — Thu, 28 Nov 2024 23:15:28 GMT

Practice Update November 2024

ian@digitalwise.com.au (Ian Campbell) — Wed, 06 Nov 2024 04:53:58 GMT

6-year rule

Usually, you do not pay any Capital Gain Tax (CGT) when you sell your Principal Place of Residence (PPR). A property stops being your primary residence when you stop living in it. However, for CGT purposes, you can continue treating this property as your primary residence under the conditions below.

If you have used it to produce income for up to 6 years,
Indefinitely, if you didn’t use it to produce income.

You can continue to treat the property as your primary residence after you stop living there, and it will continue to be exempt from CGT only if you are not treating any other property as PPR (except for up to 6 months if you are moving house).

Criteria for principal residence exemptions

The 6-year exemption period only applies to the period during which the property stays as your principal residence. If you rented out your home before you lived in it, the principal residence exemption doesn’t apply to the period you rented it out.
The usual rules for the main residence exemption apply if the property is continuously your principal residence. This means that if you use it to produce income, such as rent, you will be entitled to only a partial main residence exemption from CGT.
Generally, if you are a foreign resident when the primary residence is sold, you aren’t entitled to claim the principal residence exemption.

Former home not used for income

If you don’t use your former home to produce income (for example, you leave it vacant or use it as your holiday house), you can treat it as your primary residence for an unlimited period after you stop living there. This only applies if you aren’t treating another property simultaneously as your primary residence.

Example:

Bill bought a unit and lived in it for 3 years. He then moved out to live with a friend while his son occupied the unit rent-free. Bill didn’t treat any other property as his primary residence. He sold the unit twelve years later and claimed the principal residence exemption from CGT.

Multiple absences from the primary residence

If you’re absent more than once when owning the property, the 6-year period applies to each period of absence. A period of absence stops when you either stop renting your home and move back in or leave it vacant.

Example:

James signed a contract to buy a house in Brisbane on 15 September 2012 and moved in as soon as the contract settled. He moved to Perth on 10 October 2014 and rented out his Brisbane house. He signed a contract to buy a new home in Perth on 3 October 2019 and moved in as soon as the contract was settled. The house in Brisbane was sold on 1 March 2024.

When he completed his 2023–24 tax return, James decided to treat the Brisbane house as his main residence for the period after he moved out in October 2014 until he purchased his new primary residence in Perth in October 2019. This is less than six years. James can claim a partial principal residence exemption under the ‘6-year rule’.

James decided not to treat the Brisbane house as his primary residence after he bought the Perth house, so he is subject to CGT for that period. This means James must include a capital gain or loss in the period not covered by the principal residence exemption in his 2024 tax return (from October 2019 until March 2024).

Dwelling used to produce income during multiple absences

Jez signed a contract to purchase a house in 2004 and moved in as soon as the contract settled. He stopped living in the house in 2013 because he had to move for work, so he rented it for five years. Jez:

moved back into the house in 2018 and treated it as his primary residence for 2 years.
moved out again in 2020 and rented the house for 3 years.
entered into a contract to sell the house in 2023.

While Jez lived in the house, he did not use it to produce income.

The 6-year limit applies separately to each period of absence immediately following a period Jez lived in the property. This means Jez can treat the house as his principal residence for both rental periods and disregard his capital gain or loss on the sale. Jez must include the CGT event in his tax return in the year of the contract sale date and claim the ‘Main residence exemption’ in his tax return.

What happens if the 6-year limit is exceeded

If you use your former home to produce income for more than 6 years in one absence, it is subject to CGT for the period after the 6-year limit. To work out your CGT when you dispose of your home:

You need to work out your cost base, which is the market value of your home at the time you first used it to produce income, plus any allowable costs since then (this is the home first used to produce income rule)
Your capital gain or loss is based on the period after first using your home to produce income, that is, over the 6-year limit.

Former home used for income before you move out.

If you use any part of your home to produce income before you stop living in it, you can’t apply the continuing principal residence exemption to that part. You can’t get the principal residence exemption for that part of your home before or after you stop living there.

Example:

Helen signed a contract to buy a house in 2006 and moved in immediately after the settlement. Helen:

used 75% of the house as her primary residence and the remaining 25% as a doctor’s surgery
moved out and rented out the house in 2018
signed a contract to sell the house in 2024, making a capital gain of $400,000.

Helen chose to treat the house as her main residence for the 6 years it was rented out. As 25% of the house was used to produce income during the period before Helen stopped living in it, the same proportion of the capital gain is assessable:

$400,000 × 25% = $100,000

When does a property stop being your primary residence?

A property usually stops being your primary residence when you stop living in it. There are a number of factors that indicate whether a property is no longer your primary residence:

you and your family no longer live in it
your personal belongings are not kept in it
it is no longer the address your mail is delivered to
it is no longer your address on the electoral roll
services such as gas and power are no longer connected.

The weight given to each of these factors depends on individual circumstances. The time you are absent from the property and your intention to re-occupy it may also be relevant.

Example:

Duc has lived in his house with his family for 5 years. It has been his primary residence for the whole period he has owned it. Duc accepts a 2-year posting overseas for work. During this period:

Duc’s family will travel and live with him overseas
Duc cancels his utility connections and places all of his personal belongings in storage
His mail has been redirected to his overseas address, and his address has been updated on the electoral roll.

The house ceases to be Duc’s primary residence during his absence. Depending on his other circumstances, he may choose to continue to treat it as his primary residence while he is away.

Practice Update October 2024

ian@digitalwise.com.au (Ian Campbell) — Tue, 08 Oct 2024 05:07:41 GMT

Aged care strategies

Considering evolving policies and retirement needs, this issue navigates tax strategies, funding and transitions to aged care and discusses key considerations for this transition.

Key Superannuation Strategies for Aged Care

Superannuation is critical to funding aged care services in retirement. Proper planning around accessing superannuation can minimise tax impacts and optimise retirement income. Some of the key strategies are as follows:

Transition to Retirement (TTR) Strategy
If you’re between the preservation age and 65, you can access part of the super while working through a Transition to Retirement (TTR) income stream. This can provide an income boost or a way to gradually reduce working hours while receiving a steady income from super.
Earnings on assets supporting a TTR pension are tax-free if you are 60 or over. Also, from age 60, withdrawals from the superannuation income stream are tax-free.
Re-contribution Strategy:
If the superannuation balance includes taxable and tax-free components, you can withdraw a lump sum and re-contribute it as a non-concessional (after-tax) contribution. This can reduce the taxable portion of the super, which can lead to lower taxes on super death benefits to non-dependents (such as adult children).
Downsizer Contributions:
If you’re 55 or older (since 1 January 2024), you can make a one-off, non-concessional contribution of up to $300,000 (per person) from the sale of the primary residence. This can help increase super savings and fund future aged care needs.
Downsizer contributions are not subject to the usual super contribution caps and don’t require meeting a work test.
Age Pension and Superannuation:
Once you reach the pension age (increasing to 67), the superannuation balance will be counted in the assets and income tests for Age Pension eligibility. Effective super management may allow you to receive a partial Age Pension alongside superannuation income.

Tax Considerations for Aged Care

Various costs are involved in residential aged care, such as accommodation payments, means-tested care fees, and basic daily care fees. Proper planning is essential to manage these costs tax-efficiently.

Accommodation Payments: Refundable Accommodation Deposits (RADs) are lump-sum payments to aged care facilities. They are not subject to tax. However, if you choose a combination of RAD and Daily Accommodation Payment (DAP), the DAP is paid from income and superannuation, which may have tax implications.
Means-Tested Care Fees: Means-tested fees depend on assets and income, which includes superannuation. Careful planning can help reduce these fees by efficiently structuring income and asset withdrawals.
Gifting: Assets to family members may reduce the assessable assets and income, helping to minimise aged care fees or increase pension eligibility. However, gifting rules apply, meaning you can only gift $10,000 per financial year or $30,000 over five years without affecting the Age Pension or aged care fees.
Pension Income: If you’re receiving a pension from the super fund, income drawn from a tax-free pension account (for individuals aged 60 and over) will not be taxed. This can help manage tax obligations while covering aged care costs.
Rental Income: If you rent out a family home to pay for aged care fees, rental income may be taxable. However, you may be able to offset some of this income through deductions for expenses such as interest on a mortgage, repairs, and maintenance.
Using Super for Aged Care Costs: Drawing down superannuation in lump sums or as an income stream to cover aged care costs may be a tax-effective way to manage expenses, mainly if you are over 60 and withdrawals are tax-free.
Retaining or Selling the Family Home
When transitioning to residential aged care, one of the most significant decisions is whether to sell the family home or rent it out to fund the Refundable Accommodation Deposit (RAD) or other aged care fees.
Selling may free up cash to pay a RAD, while renting may provide ongoing income but could have tax implications (assessable income) and impact Age Pension.
Aged Care and Centrelink
When calculating aged care fees or pension eligibility, superannuation and other assets will be assessed using Centrelink’s means tests.
Deeming rates apply to financial assets, including superannuation income streams and bank accounts, to calculate income for Centrelink purposes. Lowering assessable income can help reduce aged care fees or increase government support.
Home as an Exempt Asset: While you remain living in the home, it is exempt from Centrelink’s asset test. However, once you move into permanent residential aged care, the home is only partially exempt (up to a capped value), potentially increasing the assessable assets for aged care fees and Age Pension calculations.

Transitioning to Aged Care – Key Considerations

Transitioning to aged care in Australia is a significant life decision, and several key considerations need to be addressed to ensure a smooth and appropriate transition. These considerations include:

Assessment and Eligibility

Aged Care Assessment Team: An ACAT (Aged Care Assessment Team) or ACAS (Aged Care Assessment Service in Victoria) assessment is required to determine government-subsidised aged care services eligibility. The assessment evaluates the level of necessary care (home care, residential care, respite care).
Types of Care: There are different care options, including:
In-home care (for those who want to stay at home with support).
Residential aged care (for full-time care in an aged care home).
Respite care (short-term care to provide caregivers with a break).
Retirement villages (offering independent living with access to services).

Costs

Upfront Fees and Ongoing Costs: Understanding the cost of aged care services is essential. This can include:
Accommodation fees (refundable or non-refundable deposits for residential aged care).
Means-tested care fees (based on financial situation).
Basic daily fees (contribution toward care services).
Additional services (for extra services, like premium amenities).
Government Subsidies: The government heavily subsidises aged care services, but the level of subsidy is based on the individual’s financial assessment.

Choosing the Right Aged Care Provider

Location and Facility: Proximity to family and friends, the quality of the facility, and availability of activities and services should be considered. Visit different facilities to get a feel for the environment, staff, and overall care quality.
Staffing and Services: Investigate staff-to-resident ratios, qualifications, and the quality of care services (e.g., medical care, recreational activities, and specialised services for conditions like dementia).

Emotional and Psychological Impact

Adjustment to Change: Moving to aged care can be an emotional process for the individual and their family. A support system is crucial to ensure the emotional well-being of the person transitioning, as they may feel a loss of independence or experience anxiety about the change.
Family Involvement: Involving family members in decision-making can help ease the transition and provide emotional support.

Legal and Administrative Issues

Enduring Power of Attorney (EPOA): Legal arrangements for managing finances and healthcare decisions are essential. An EPOA allows someone trusted to manage financial and legal matters if the person cannot do so.
Advanced Care Directives: These guide medical treatments and care preferences should the individual become unable to communicate their wishes.

Health and Care Needs

Medical Considerations: If the individual has specific health needs (e.g., dementia, physical disabilities, or chronic illnesses), it is essential to choose an aged care facility or home care provider that can meet these requirements with the appropriate medical care and support.

Cultural and Personal Preferences

Culturally Appropriate Care: Many aged care providers offer culturally sensitive services, including language support and community connections for non-English-speaking people.
Personalization of Care: It’s important to consider how much the aged care provider can cater to personal preferences, such as dietary needs, religious practices, and lifestyle choices.

Government Resources and Support

My Aged Care: This government portal is crucial for information about aged care services, providers, and financial assistance. It helps individuals navigate the aged care system, guiding eligibility, services, and funding options.

Considering these factors and seeking appropriate professional advice, the transition to aged care in Australia can be planned with care and sensitivity, ensuring the individual’s better quality of life.

Superannuation Changes

Reduction of the Downsizer Age to 55: Effective 1 January 2024, the eligibility age for downsizer contributions was reduced from 60 to 55. This allows more individuals to bolster their super balance by selling their family home.
Legislative Cap on Superannuation Balance
The government introduced a $3 million balance cap on superannuation, effective 1 July 2025. Individuals with super balances exceeding this cap will pay an additional tax of 15% on earnings on the excess.

Conclusion

Developing an effective aged care tax strategy involves carefully managing the superannuation, pension entitlements, and assets. Understanding the tax impacts of superannuation withdrawals, managing aged care costs, and planning around Centrelink and income tests can optimise the financial situation during retirement and aged care transitions. Consulting with a financial advisor can provide tailored advice to ensure compliance with regulations and maximise the benefits.

Consulting an expert in aged care can help you make informed decisions about funding options, using assets (like the family home), and managing ongoing costs. They can also advise on government entitlements, such as the Age Pension.

INVESTMENT PROPERTY TAX - September 2024

ian@digitalwise.com.au (Ian Campbell) — Wed, 28 Aug 2024 23:45:25 GMT

INVESTMENT PROPERTY TAX

Benefits, costs and key considerations

If you’re considering investing in property, you must understand the tax consequences. In Australia, like many other parts of the world, owning an investment property offers potential tax benefits and costs. From claiming deductions on interest payments and holding costs to understanding the nuances of Capital Gains Tax (CGT), property investors need a comprehensive grasp on these matters to make the most out of their investments.

Investing in property can be a wise financial move, but it’s essential to understand the benefits and costs involved, especially regarding taxes. Here, you’ll get an overview of how owning an investment property can impact your taxes, helping you make informed decisions.

Property investment tax benefits

Interest payments and holding costs

Owning a rental property comes with its share of expenses. The list goes on, from interest payments, updates, upkeep, and local council fees to fees for property management. But here’s some positive news: many of these costs can be claimed as tax deductions if your property is up for rent or already rented out.

For many property owners, the interest accumulating on a mortgage used to purchase a rental property can be claimed as a tax deduction. Other often-claimed deductions include fees for property management, land taxes, and upkeep-related costs. This upkeep can range from general cleaning and landscaping to insurance coverage and repairs.

Learn to grow your business and better understand your finances. Schedule a complimentary consultation with us today.

Claiming depreciation on rental assets

When you purchase items for your rental property, such as new appliances, they lose value over time due to wear and tear. This decline in value is known as depreciation. You can claim this loss in value as a tax deduction, often referred to as tax depreciation or capital allowance, spread across the useful lifespan of that item.

Claiming for construction and renovations

You can claim these expenses as deductions if you’ve undertaken construction or renovation projects at your rental property. Typically, these capital works deductions are spread out throughout 25 to 40 years. The exact time frame will depend on the construction’s start date, purchase date, and intended use.

Offsetting losses with negative gearing

When your rental property’s expenses exceed earnings, resulting in a net loss, this is termed “negative gearing.” The upside to negative gearing is that you might be able to leverage this loss to counterbalance income from other sources, ultimately lowering your taxable income for the year.

A table summarises the tax benefits of property investment in four categories: holding costs, depreciation on assets, construction/renovation deductions, and negative gearing advantages.

Tax implications of property investment

Owning an investment property brings with it various tax considerations.

Capital Gains Tax (CGT)

If you decide to sell your investment property, any profit you realise could be subject to Capital Gains Tax. We’ll discuss CGT in more detail in this article.

Tax on rental income

The revenue generated from your rental property is subject to taxation. This rental income is added to any other income you may have, such as wages or investment earnings, and the total is taxed according to your income tax bracket.

Asset depreciation

Assets such as appliances and furniture can be claimed as depreciation for tax deductions on your tax return; however, it’s essential to maintain detailed records and a depreciation schedule.

Deductibility of property expenses

Certain expenses related to your property are tax-deductible, while others are not. Expenses associated with the depreciation of assets or improvements to the property’s structure can be claimed as deductions at the rate allowed by the ATO. On the other hand, expenses incurred during the purchase or sale of the property are generally not eligible for tax deduction.

GST considerations

If you lease a commercial property to another business for rental income, you may have to pay Goods and Services Tax (GST). Tax regulations can be complex, so if you’re ever uncertain, it’s wise to consult with us or refer to the Australian Taxation Office for guidance.

Tax considerations for property investment:

Capital Gains Tax (CGT)
Tax on rental income
Asset depreciation
Deductibility of property expenses
GST considerations

Four types of tax on investment property

Income tax

The income from your rental property is subject to tax, just like your regular income. When lodging your income tax return, you must include the rental income alongside any other earnings, such as your salary or profits from other investments.

Suppose your property’s expenses exceed its rental income, creating a loss (known as “negative gearing”). In that case, you can deduct this loss from your overall income, potentially reducing your tax liability. Some investors favour this strategy over “positive gearing,” where the property generates a profit because it can decrease the taxes they owe.

Fortunately, the Australian Tax Office (ATO) allows property investors to deduct various property-related expenses from their rental income, which can help maintain the profitability of their investment.

Immediate deductions

Immediate deductions refer to expenses you can claim as tax deductions in the same financial year. These include costs for advertising for tenants, council and water rates, land tax, interest on your mortgage, and expenditures for repairs and maintenance, etc.

Long-term deductions

Some costs can be spread out over multiple years. A good example is “depreciation,” which lets you subtract a portion of the property’s value each year to account for wear and tear and the aging of the building and its fixtures.

Remember, not every expense is deductible. You can’t subtract costs like the initial tax paid when buying the property (stamp duty), your mortgage payments, or any expenses your tenant covers.

Capital Gains Tax (CGT)

Are you thinking of selling your rental property? Be prepared for the potential of Capital Gains Tax. If you make money when selling your rental property, that profit is seen as a “capital gain.” This profit needs to be reported on your yearly tax return. The extra tax you owe because of this added profit is called Capital Gains Tax or CGT.

The ATO has rules that might let property investors avoid paying some or all of the CGT. Here are some of the exceptions and special rules:

Main Residence (MR) Exemption

This rule applies if the property is your primary home.

Capital Gains Tax Property 6-Year Rule

This rule allows you to treat a property as your primary residence and apply the principal residence exemption from Capital Gains Tax. Note that a family can only have one principal place of residence at any given time.

The Six-Month Rule

A rule that offers some flexibility when moving between properties.

50% CGT Discount

The 50% Capital Gains Tax (CGT) Discount allows you to halve the capital gain on your property when calculating tax, provided the property was held for more than 12 months. This discount is designed to encourage long-term property investment.

Stamp Duty Tax

When you buy an investment property, you must pay a stamp duty tax. Think of it as sales tax for purchasing property. This tax is due when the property’s ownership changes hands from the seller to the buyer. That’s why some also call it transfer duty.

The Australian Taxation Office (ATO) doesn’t let you claim this as a tax deduction on your income tax return, but it can be added to the asset’s cost base for CGT purposes. So, property investors should check how much they’ll have to pay before buying a property, as it can affect their rental income and expenses.

Stamp duty varies depending on:

The state you’re in
The property’s price
If you’re a first-time buyer

Generally, every property transfer, even among families or different ownership structures, requires stamp duty. Only a few exceptions exist.

While stamp duty is an immediate concern for property investors, you should also be aware of other tax obligations. These can include capital gains tax, land tax, and claiming various tax deductions.

Land Tax

Land tax is different from stamp duty. While you pay stamp duty just once when you buy a property, land tax is an ongoing charge based on the land’s value unless the property is your primary home (often referred to as Principal Place of Residence or PPOR).

Every state and territory has a land tax rate based on the land’s “unimproved value.” This means that the value of buildings, walkways, landscaping, or fences on the land is not included when calculating land tax.

Land tax rates and thresholds for each state or territory are available on the Revenue Office websites for each state.

It’s worth noting the Northern Territory is unique because property investors there don’t have to pay land tax. If you’re a property investor, you must know these ongoing tax obligations, which can affect your rental income and expenses.

Practice Update August 2024

ian@digitalwise.com.au (Ian Campbell) — Wed, 31 Jul 2024 04:34:03 GMT

FAMILY LAW FINANCIAL SETTLEMENTS

Capital gain tax considerations

Capital gain tax or CGT involves the calculation of a net capital gain (or loss) on the sale, transfer or disposal of a piece of property to another party. This can include real estate, shareholdings, leases or other types of assets. Items exempt from CGT include:

Principal place of residence.
Assets acquired before 20 September 1985.
Cars and motor vehicles.
Collectables worth less than $500.
Some personal assets are less than $10,000.
Sale of a small business asset if specific tests are met.

The Australian Taxation Office offers divorcing couples some tax relief through a marriage or relationship breakdown rollover, which means that capital gains (or losses) are disregarded in this particular instance.

The marriage or relationship breakdown rollover relief will only apply when a property transfer (from one spouse to another) results from a formal court order, binding financial agreement or court award.

This rollover ensures the transferor spouse disregards a capital gain or loss that would otherwise arise. In effect, the one who receives the asset (the transferee spouse) will make the capital gain or loss when they dispose of the asset. The asset’s cost base is transferred to you if you are the transferee spouse.

Timing of the CGT event

It is essential to know when specific marriage or relationship breakdown rollover rules changes apply to CGT events after 12 December 2006. If an asset was transferred under a contract, the CGT event happened when the contract was entered into.

A binding financial agreement may be a contract. The time a contract is entered depends on the terms and conditions of the agreement and the relevant legislation being satisfied so that the agreement can take effect. In the case of a binding financial agreement, a separation declaration has to be made under section 90DA of the Family Law Act 1975 before the agreement can take effect.

A binding agreement used by a marriage or relationship breakdown couple may be a contract. The time a contract is entered depends on the terms and conditions of the agreement and the satisfaction of the relevant legislation so that the agreement can take effect.

If there is no contract, the CGT event happens when the asset’s ownership change occurs.

Transfers made according to a court order or arbitral award are not made under a contract. Therefore, no CGT event occurs until the asset is transferred under the order or award. Binding financial agreements can be entered into before, during or after marriage or relationship. Arbitral awards allow property and financial matters of separating couples to be settled using arbitration. These arrangements allow separating couples to settle their affairs without going through court processes, which are often costly and protracted.

Calculation of CGT

To calculate your capital gain or loss when a later CGT event happens, the first element of your cost base and reduced cost base are the same as the cost base and reduced cost base of your spouse (or the company or trustee) at the time of the transfer. Your cost base and reduced cost base also include any costs incurred by you or the previous owner (your spouse, the company or trustee) in transferring the particular asset on the breakdown of your marriage or relationship, such as conveyancing costs and stamp duty. General legal costs relating to the breakdown or incurred in seeking a property settlement and payments made under a Family Court order representing the increase in value of the CGT asset are not included.

Consequences of the rollover

You transfer the asset

If you transferred the asset, the consequences of the rollover are:

you disregard any capital gain or capital loss for assets acquired before 20 September 1985
for assets acquired on or after 20 September 1985, the marriage or relationship breakdown rollover ensures you disregard any capital gain or loss you make from the CGT event involving you and the transferee spouse.

The asset is transferred to you

Assets acquired before 20 September 1985 – Suppose a CGT asset, including a share of a jointly owned asset, was transferred to you because of the breakdown of your marriage or relationship and was acquired by the transferor before 20 September 1985. In that case, you are also taken to have acquired the asset before that date. You disregard any capital gain or loss you make when you dispose of the asset later.

However, suppose you made a significant capital improvement to that asset after 20 September 1985. In that case, you may be subject to CGT when you dispose of it, or another CGT event happens to that asset.

Assets acquired on or after 20 September 1985 – The rules differ if the transferor acquired the asset on or after 20 September 1985. In this case, if you received the CGT asset (or a share of a jointly owned asset) and there was a marriage or relationship breakdown rollover, you are taken to have acquired the asset (or share of the asset) at the time it was transferred from your spouse (or the company or trustee).

Cash settlements

Changes to the law ensure that no CGT liability arises about ending spouses’ rights that directly relate to their marriage or relationship breakdown, including if they receive cash as part of a breakdown settlement. No CGT liability arises if the spouses are separated when the rights end, and there is no reasonable likelihood of cohabitation being resumed.

How superannuation is viewed in a divorce

The Family Law Act 1975 views superannuation as property that should be split during a divorce. This differs from other assets as superannuation is usually held within a trust, meaning it won’t be converted into a cash asset.

How the court divides superannuation depends on whether the fund is self-managed or regulated by the Australia Prudential Regulation Authority (APRA).

If the fund is self-managed, the parties involved have to abide by their fund deeds. Different super funds have different rules. Some will allow an immediate division of assets, while other funds require that the parties involved wait until retirement or preservation age before they can access superannuation.

Individuals who were party to a marriage can apply to the court for superannuation orders up to 12 months after the divorce orders are issued. Parties who are separated and seeking or waiting for divorce orders to be made by the court may apply for superannuation at any time during the process.

For de facto relationships, parties can seek superannuation orders within 24 months from the date of separation. To be eligible, the party must have been in a de facto relationship for two years. If a child is involved, the two-year rule does not apply. Even if you are outside these periods, the court may grant leave to one of the parties to obtain superannuation orders if they are experiencing significant hardship and have a strong claim.

The amount of superannuation to be split

Generally, agreement is reached between the parties without going to the family court, but matters the court takes into account include:

The length of the relationship (marriage or De Facto)
Valuation of the Superannuation of each party
Financial contributions of each party during the partnership
Domestic (and other) contributions made during the partnership
The welfare of children or dependents
Differences in income between the parties
The financial responsibilities of each party

While the division of the entire asset pool is seldom 50/50, superannuation may sometimes be the exception to that rule. If the parties’ relationship commenced before accumulating much superannuation, the superannuation may be distributed between the parties in a manner that leaves each party with a similar amount.

Of course, variations in superannuation division will occur, but it will depend on the abovementioned factors and the negotiations between the parties involved, their legal representatives, and the court.

Tax traps arising from family breakdowns

CGT issues

The transfer will usually occur for no monetary or non-monetary consideration, meaning that the market value substitution rules will have application. The application of the market value substitution rules implies that:

The beneficial owner will be taken to have received the property’s market value.
The acquiring party will obtain a market value cost base.

However, various exemptions, concessions, and CGT rollovers are possible.

Main residence exemption

Most of us know that capital gain from a dwelling is disregarded to the extent that the dwelling is the primary residence of the individual taxpayer throughout ownership. There are specific rules that deal with absences, which may need to be considered, including:

Spouses living permanently, separately, and apart cannot have different primary residences.
The principal residence analysis can be applied separately if multiple residences are owned independently.
To avoid future disputes, an assessment of any elections necessary to obtain from the transferee spouse must occur at the relevant time and be mutually understood by both parties.

Individuals and Business Checklists

ian@digitalwise.com.au (Ian Campbell) — Mon, 08 Jul 2024 02:49:50 GMT

Individuals and Business Checklists to the website

Practice Update July 2024

ian@digitalwise.com.au (Ian Campbell) — Mon, 08 Jul 2024 02:45:33 GMT

P r a c t i c e U p d a t e

July 2024

ATO's 'main residence exemption tips'

The main residence exemption needs to be considered in a variety of situations when a taxpayer sells a property they have lived in. The ATO hopes that the following tips will help in this regard:

Taxpayers should consider if they have started earning income from their home (in which case they may need to get a market valuation for CGT purposes).
When renting out a property that was their main residence, taxpayers need to consider whether to use the 6-year absence rule when they sell their property.
Taxpayers can only have one property as their main residence at a time. The only exception is the 6-month period when they move from one home to another.
Has the taxpayer's residency changed? If so, this may affect eligibility for the exemption.

Reminder of June 2024 Quarter Superannuation Guarantee ('SG')

Employers are reminded that employee superannuation contributions for the 1 April 2024 to 30 June 2024 quarter must be received by the relevant super funds by 28 July 2024 (which is a Sunday), in order to avoid being liable to pay the SG charge.

Notice of Medicare levy exemption data-matching program

The ATO will acquire Medicare Exemption Statement data from Services Australia for the 2024 to 2026 income years, including individuals' full names, dates of birth, residential addresses, entitlement status, and approved entitlement details.

The objectives of this program are to (among other things) ensure individuals are correctly claiming an exemption from payment of the Medicare levy and Medicare levy surcharge.

Family trust elections and interposed entity elections

Family trust distribution tax ('FTDT') is a special, 47%, tax sometimes payable by a trustee, director or partner. It applies when a trust has made a family trust election ('FTE'), or an entity has made an interposed entity election ('IEE'), and makes a distribution outside the 'family group' (as defined) of the specified individual in the election.

Where such an election has been made by a trustee or another entity, it is important that the original election is retained in the approved form. FTEs and IEEs can be lodged with the ATO.

Where elections are involved, taxpayers should consider the following on an annual basis:

if the election is needed and whether it can, and should be, revoked;
whether the specified individual remains the most suitable person and, if not, whether the specified individual can and should be varied; and
the timeframes to vary or revoke elections (noting these are limited and that, outside these periods, the elections and the specified individuals cannot be changed).

It is important to recognise who the members of the specified individual's family group are when making annual trustee resolutions, as distributions outside the family group will result in FTDT of 47%.

ATO may cancel inactive ABNs

The ATO regularly reviews, and sometimes cancels, inactive Australian Business Numbers ('ABNs'). The ATO may review a taxpayer's ABN if the taxpayer has not reported business activity in their tax return, or there are no signs of business activity in other lodgments or third-party information.

If the ATO thinks a taxpayer is no longer using their ABN, it will contact them by email, letter or SMS.

If the taxpayer is still running a business, the ATO will tell them what they need to do to keep their ABN. If they are no longer in business, they do not need to do anything -— the ATO will cancel their ABN.

Taxpayers who think they are still entitled to an ABN that has been cancelled need to reapply for it. If they restart their business activities, they should be able to reapply for the same ABN, provided that their business structure is not changing.

New lodgment obligation for income tax exempt organisations

Non-charitable not-for-profits ('NFPs') with an active ABN, including community service organisations, need to lodge an annual NFP self-review return to notify their eligibility for income tax exemption.

To be eligible to self-assess as income tax exempt, the organisation's main purpose must be a community service purpose. Any other purpose must be incidental, ancillary or secondary.

Community service purposes are altruistic, which means the organisation must be established and operated for the wellbeing and benefit of others, and not for political or lobbying purposes.

For example, a club or association that has been set up principally to improve the welfare of the community would be regarded as a community service organisation. This would not be the case, however, if its main purpose was to advance the professional interests of its members.

Taxpayers able to apply CGT small business concessions

The Administrative Appeals Tribunal ('AAT') recently held that a trust was entitled to apply the CGT small business concessions and, therefore, it could reduce a capital gain it made down to nil.

In March 2015, a family trust entered into an agreement for the sale of its shares in a company for $3,500,000.

In June 2015, the trustees of the trust passed a resolution apportioning the trust's income for that year between the four taxpayers (two brothers and their wives), and also distributing the capital gain made on the sale equally between those four taxpayers.

The determination of the trust's net income for distribution to the beneficiaries took into account the 50% CGT discount and CGT small business concessions, relying on a valuation of the shares (and underlying business) being $3,500,000.

The ATO, however, deemed the shares sold by the trust to have been disposed of for a market value of $10,640,000, based on an updated valuation report. This also meant that the trust was not entitled to the CGT small business concessions, as this valuation meant that it did not satisfy the CGT maximum net asset value ('MNAV').

The ATO relied on the 'market value substitution' rule to substitute the value of $10,640,000 in place of the sale price of the shares. This meant that each taxpayer's share of the 2015 trust distribution was increased from $321,989 to $1,194,174.

In relation to the MNAV test, the AAT needed to determine whether the net value of the CGT assets of the trust (and its connected entities) exceeded $6,000,000.

The AAT preferred the approach taken by the valuers for the taxpayers, partly because they had given "more attention and consideration to this particular business and the circumstances and location in which it operates."

The AAT accordingly concluded that the total net value of the CGT assets of the trust (and connected entities) was below $6,000,000, and so the MNAV test was satisfied, and the taxpayers' objections to the amended assessments should be allowed.

Please note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

EOFY 2023-2024

ian@digitalwise.com.au (Ian Campbell) — Thu, 20 Jun 2024 23:58:24 GMT

Ways to get ready for tax time

The end of the financial year on 30 June 2024 is fast approaching, so here’s a quick checklist to help you prepare in advance and maximise your tax time benefits.

Understand your sources of income

Income can come from all sorts of areas.

Interest earned from bank accounts
Dividends received from shares
Employee share options
Capital gains received from the sale of an asset
Rental income from an investment property
Redundancy payments
Any taxable Centrelink payments

Deductions

Undoubtedly, it is the most contentious area of tax returns. This could include expenses incurred and not reimbursed, which may reduce tax liability. Some common deductions are:

Work-related expenses
Home office expenses
Self-education and professional development
Registrations, subscriptions, memberships
Vehicle and travel expenses
Protective clothing, laundry and dry-cleaning expenses
Tools and equipment, including depreciable assets (such as laptops)
Accountant or tax agent fees
Personal super contributions
Investment income expenses
Income protection insurance premiums

Offset capital gains against capital losses

Disposal of shares or any other form of investment may cause capital gain. You may consider disposing of any assets you know are trading at a loss. The resulting capital losses can be offset against the capital gain. Don’t forget the upcoming tax changes may mean that from 1 July, you’re paying less tax, which might affect when you decide to divest any investments and incur a capital gain – this year or next.

Also, be careful if you sell shares at a loss and buy them back in the new tax year. The ATO takes a hard line against so-called “wash sales”. This refers to the sale of an asset before the year-end and the purchase of a substantially identical asset immediately after the year-end. The ATO regard the purchase and the sale as effectively the same asset and has issued a Tax Ruling, which states that they can apply the anti-avoidance provisions to cancel any tax benefits and apply penalties.

Document your donations

It’s great to give to your charity of choice, but don’t forget your potential tax deductions. So, hang on to your receipts and record your donations. Ensure that the charity is a deductible gift recipient.

Understand the Medicare levy

If you earn over a certain amount, you must pay the 2% Medicare levy to help fund the private health system. But there’s a potential rebate available if you are a high income earner and take out private health insurance. So, you might want to work out your best approach, particularly if you have earned more than last year.

Get your retirement income right

If you’re retired, the good news is you can earn a higher income level before you start paying taxes. But it can depend on your age and the type of income you receive, so it’s a good idea to get across all the rules with your accountant.

Get your investment property affairs in order

If you’re renting a property out, you’ll probably be aware that there are plenty of tax deductions you can claim for things like depreciation, the cost of repair and maintenance, interest costs on your loan and fees that you pay for a real estate agent to manage your property. As usual, the rules can (and do) change, so check all the latest expenses you can claim here.

Home Office

If you are employed but work from home, occasionally or all the time, you are entitled to deductions for costs arising from working at home. The expenses that you can claim include:

Heating, cooling and lighting
Cleaning costs
Decline in value (depreciation) of home office furniture and fittings, office equipment and computers (for items over $300)
Computer consumables, stationery, telephone and internet costs
Items of capital equipment (such as furniture, computers and associated hardware and software) which cost less than $300 can be written off in full immediately

With many retailers running End of Financial Year specials, any purchases you make now can be deducted from this year’s tax return, so from a cash flow point of view, you can minimise the time between purchase and tax deduction!

Alternatively, you can claim the ATO’s concessional 67 cents per hour fixed rate to include several working-from-home deductions in one simple, easy-to-use amount. The rate includes the additional running expenses you incur for:

home and mobile internet or data expenses
mobile and home phone usage expenses
electricity and gas (energy expenses) for heating, cooling and lighting
stationery and computer consumables, such as printer ink and paper.

To use the fixed rate, you must have kept a record of all your working from-home hours for the entire year (e.g., a diary, timesheets or rosters), and you must have one item of substantiation for each item claimed (e.g., a heating bill).

The fixed-rate does not include deductions for work-related use of technology and office furniture such as chairs, desks, computers, bookshelves or repairs to these items. Cleaning costs are also excluded. These costs can be claimed separately, so remember to keep those receipts.

Car expenses

If you use the log-book method, now is the time to check that your logbook is current and that you have all the receipts, invoices and journey records you need to calculate and substantiate your claim. Using the cents per kilometre method, you will still need a record of all work-related journeys during the year.

Mobile Phone

If you used your mobile phone for work purposes, you could claim a deduction for the business-related use. Ensure you have compiled your phone bills and have kept a log of your business/personal use over four weeks. That percentage can then be applied to the whole year.

It’s important to remember that you can’t claim a separate deduction for mobile phones if you have claimed the 67 cent/hour fixed rate for working from home.

Prepay expenses

You can claim a tax deduction this year for expenses which wholly or partly relate to next year. So, if you have some spare cash, consider paying things like union fees, professional subscriptions and annual insurance premiums in advance to accelerate the deduction.

If you have a geared asset like a rental property and have capital to inject, some lenders may allow you to prepay 12 months of interest on your investment loan. This will effectively bring forward your tax deduction into the current year and could help offset any capital gains or additional income you’ve earned.

Make a tax-deductible super contribution

If you have some spare cash, consider contributing to your super fund. Suppose your contributions (including those made on your behalf by your employer) do not exceed $27,500. Your cap may be higher if unused concessional contribution cap amounts are unused. This can be a great way to boost your retirement savings and claim a tax deduction for the personal contribution.

Co-contributions: Low or middle-income earners who make personal super contributions may receive a government co-contribution, up to a maximum of $500.

Employee salary sacrifice: an agreement with your employer to give up part of your salary (thereby reducing your taxable income) and invest it into super to boost your retirement savings.

Spouse contributions: A tax rebate (up to $540) may be available for after-tax contributions to super on behalf of a low-income spouse.

Timing: Contributions must be in your super account before 30 June, or they will count against the next financial year’s limits.

If you’re between 67-74, you won’t need to satisfy the ‘work test’ before making non-concessional contributions. However, you’ll still need to satisfy the work test requirement if you want to claim a tax deduction on your personal contribution.

The payment must be made by June 30th, and you must advise your super by providing a valid ‘notice of intent to claim a deduction for personal superannuation contributions’ to your super fund and have received written acknowledgement.

Small business Initiative during EOFY

Checklist of to-do before year-end

Review year-to-date figures to determine likely tax liability
Consider strategies for management of the likely tax position
Determine dividends to be declared for companies
Prepare distribution minutes for trusts
Consider owners’ remuneration and optimise tax outcome
Small Business Entities – cash vs. accruals/prepayments/depreciation
Make superannuation payments as they are only deductible when paid
Debtor analysis – consider bad debts/timing of invoicing
Creditor analysis – bring forward expenses to get a tax deduction
Stocktake – undertake a stock take and consider obsolete stock
Plant and equipment – consider any new equipment needed and ensure it is available and ready for use before June 30
Fringe Benefits Tax – if FBT return is not lodged, consider a private portion of expenses and GST adjustments
Capital Gains Tax – consider the sale of any investments and prepare likely tax calculations

Asset write off

If so, look to utilise the “instant asset write-off” measure. Provided your business has a turnover of less than $10 million, this allows you to claim an immediate tax deduction for all capital purchases costing less than $20,000 rather than depreciating the cost over several years, as used to happen.

This is great for tech items such as computers, tablets and phones, as well as tools and equipment for tradies, office furniture and even motor vehicles (though any cars will probably need to be second-hand, given the $20,000 limit!).

Remember, besides purchasing, the asset you acquire must be used or available in your business. So, realistically, you need to get the item delivered and installed by 11:59 PM on 30 June 2024 to secure the tax deduction. If you order something now for delivery and installation in July, you won’t be able to claim the deduction this tax year. Note that the instant asset write measure will also be available in 2025.

Maximise your tax-deductible debt

Loans for private purposes are not tax deductible. Review whether refinance options may be available to split your deductible vs non-deductible debt. Determine whether loan repayments can be restructured, as the new rules limit the deductions available against vacant land.

Write off bad debts

If debtors are not recoverable after all action has been taken, write off the bad debt before June 30 to account for the expense. Ensure GST is adjusted.

Write off slow-moving or obsolete stock

Review your stock holding. If the market value is lower than the cost of the stock, you can obtain a deduction for the difference.

Utilise unrealised capital losses

Ensure you take advantage of capital losses within your group. Consider preparing distribution minutes that use group losses.

Check depreciation rates on plants and equipment

Review depreciation schedules for any scrapped plant and equipment that can be written off. Review the effective lives of equipment and consider whether you can increase the depreciation rate.

Check your access to refundable franking credits

Look for opportunities before June 30 to access any refundable franking credits. Consider whether any loss entities could result in a flow of highly franked income, resulting in a refund.

Claim eligible research and development activities

When engaged in research and development activities, clearly document the activities and costs relating to those activities to take advantage of R&D Tax Offsets.

Plan for your tax position before June 30

Understand your options to reduce or defer tax payments. Plan your cash flow for tax instalments and the tax due on tax return lodgements. Identify opportunities to vary tax instalments and improve cash flow. Implement the tax planning measures listed above, as well as other savings.

Other considerations

Planning for one-off transactions – e.g. Business sales or purchases.
Self-managed Super Fund (SMSF) – do you have an SMSF? Consider the impact on the business.
Purchase of property or business premises.
Consider the relevance of existing accounting systems and consider new technology.

Practice Update June 2024

ian@digitalwise.com.au (Ian Campbell) — Sat, 01 Jun 2024 03:40:17 GMT

Practice Update - June 2024

ATO's three focus areas this tax time

The ATO will be taking a close look this 'tax time' at the following common errors made by taxpayers:

Work related expenses: Taxpayers using the 'revised fixed rate method' of calculating a working from home deduction must have comprehensive records to substantiate their claims, including records that show the actual number of hours they worked from home, and the additional running costs they incurred to claim a deduction.

Rental properties: Performing general repairs and maintenance on a rental property can be claimed as an immediate deduction. However, expenses which are capital in nature (such as initial repairs on a newly purchased property) are not deductible as repairs or maintenance.

Failing to include all income in tax return: The ATO warns taxpayers against rushing to lodge their tax return on 1 July. If they have received income from multiple sources, they need to wait until this is pre-filled in their tax return before lodging.

End of financial year obligations for employers

The ATO reminds employers they need to keep on top of their payroll governance. This includes:

using their tax and super software to record the amounts they pay;
withholding the right amount of tax; and
calculating superannuation guarantee ('SG') correctly.

As 30 June gets closer, employers should check their reporting obligations, along with any upcoming key dates, including for:

PAYG withholding — From 1 July, the individual income tax rate thresholds and tax tables will change, which will impact their PAYG withholding for the 2025 tax year;
SG rate change — From 1 July, the SG rate will increase to 11.5%. Employers must pay their SG contributions by 28 July in full, on time and to the right fund; and
Single touch payroll ('STP') reporting — Employers should remember to make STP finalisation declarations by 14 July for all employees the employer has paid during the financial year, and also check their employees' year-to-date amounts are correct.

Getting trust distributions right

As trustees prepare for year-end distributions, they should do the following:

review the relevant trust deed to ensure they are making decisions consistent with the terms of the deed;
consider who the intended beneficiaries are and their entitlement to income and capital under the trust deed;
notify beneficiaries of their entitlements, so that the beneficiaries can correctly report distributions in their tax returns;
consider whether the trust has any capital gains or franked distributions they would like to stream to beneficiaries; and
check any requirements under the trust deed governing the making of trustee resolutions (e.g., that the resolution must be in

writing). In any case, resolutions regarding distributions need to be made by the end of the income year.

Editor: If you need any assistance in relation to your trusts, please contact our office.

Support available for businesses experiencing difficulties

By paying their tax bill in full and on time, taxpayers can avoid paying the general interest charge ('GIC'), which is currently 11.34%, and which accrues daily for any overdue debts.

The ATO advises taxpayers that, if their business is dealing with financial difficulties, there are some options to help make their tax bill "less taxing".

Taxpayers who are struggling to pay in full or on time may be eligible to set up a payment plan. If they owe $200,000 or less, they may be able to do this themselves using online services. If they cannot do so, or they owe more than $200,000, they can contact the ATO to discuss their options.

Taxpayers can ask the ATO to remit their GIC. The ATO will then consider whether the tax bill was paid late because of circumstances that were:

beyond the taxpayer's control, and what steps the taxpayer took to relieve the effects of those circumstances; or
within the taxpayer's control, but led to results that the taxpayer could not foresee.

Editor: If you need assistance in relation to paying your tax bill, please contact our office.

Minimum yearly repayments on Division 7A loans

To avoid an unfranked dividend under the Division 7A rules, loans from a private company to its shareholders or their associates must be either repaid in full or be covered by a 'Division 7A complying loan agreement' before the company's lodgment day.

Complying loan agreements require minimum yearly repayments ('MYRs') comprising of interest and principal to be made each year, starting from the income year after the loan is made.

Taxpayers must ensure they can meet the required MYRs on complying loans.

If they miss the MYR or do not pay enough in an income year, the shortfall may be treated as an unfranked dividend.

Note also that borrowing additional amounts from the same company, directly or indirectly, to make repayments on complying loans may result in the repayment not being taken into account in working out if the MYR has been made.

When making MYRs, borrowers need to:

start repayments in the income year after the complying loan was made;
use the correct benchmark interest rate (8.27% for the 2024 income year) to calculate the MYR for the current year; and
make the required payments on the loan by the due date — the end of the income year (i.e., usually by 30 June).

ATO issues notice of crypto assets data-matching program

The ATO has advised that it will acquire account identification and transaction data from crypto designated service providers for the 2024 to 2026 income years.

This data will include the following:

client identification details (names, addresses, dates of birth, phone numbers, social media accounts and email addresses); and
transaction details (bank account details, wallet addresses, transaction dates, transaction times, transaction types, deposits, withdrawals, transaction quantities and coin types).

The ATO estimates that records relating to approximately 700,000 to 1,200,000 individuals and entities will be obtained each financial year.

The data will be acquired and matched to ATO systems to identify and treat clients who failed to report a disposal of crypto assets in their income tax return.

Budget Overview 2024-2025

ian@digitalwise.com.au (Ian Campbell) — Mon, 20 May 2024 03:04:56 GMT

BUDGET 2024-25 OVERVIEW

The Federal Budget was handed down by the Hon. Dr Jim Chalmers, MP, on 14.5.2024.

Key areas of focus for the Albanese Government include:

easing cost-of-living pressures.
building more homes for Australians.
investing in a Future Made in Australia.
strengthening Medicare and the care economy.
broadening opportunity and advancing equality.

We acknowledge that the primary sources for the analysis below include the Treasury Budget Overview and the Treasury Minister’s media releases.

INDIVIDUAL

Tax cuts confirmed

As announced in January, changes in the stage 3 tax cuts will deliver tax cuts for all 13.6 million Australian taxpayers from 1.07.2024. This aims to ease cost-of-living pressures for middle Australia, return bracket creep, support women and boost labour supply.

From 1 July this year, the Government will:

reduce the 19 per cent tax rate to 16 per cent.
reduce the 32.5 per cent tax rate to 30 per cent.
increase the income threshold above the 37 per cent tax rate from $120,000 to $135,000.
Increase the income threshold above the 45 per cent tax rate, which applies from $180,000 to $190,000.

Thresholds in 2023–24 ($)Rates in 2023–24 (%) 0 – 18,200Tax-free18,201 – 45,0001945,001 – 120,00032.5120,001 – 180,00037Over 180,00045 Thresholds in 2024–25 ($)Rates in 2024–25 (%) 0 – 18,200Tax-free18,201 – 45,0001645,001 – 135,00030135,001 – 190,00037Over 190,00045

The following table shows the tax savings that taxpayers will receive after the revisions to the Stage 3 tax cuts are implemented.

Taxable incomeTax liability FY24Tax liability FY25Tax reduction $100,000$22,967$20,788$2,179$150,000$40,567$36,838$3,729$200,000$60,667$56,138$4,529

Medicare levy and surcharge changes

The government has increased the Medicare levy surcharge low-income thresholds, effective from 1 July 2023, to reflect the increase in inflation. Individuals will see the impact of these changes when they lodge their 2024 income tax returns.

These legislative changes and revisions to the Stage 3 tax cuts received Royal Assent on 5 March 2024.

SMALL BUSINESS

Asset write-off

The $20,000 instant asset write-off has been extended.

Despite the delay in passing legislation for last year’s 12-month extension to the instant asset write-off, 2024 has extended the scheme for another year.

This proposed measure will allow Australian businesses with less than $10 million in annual turnover to claim an immediate tax deduction for asset purchases up to $20,000 in the year ending 30 June 2025.

The government also confirmed that the $20,000 asset threshold will continue to apply on a per-asset basis, allowing small businesses to write off multiple assets instantly.

Further, assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15 per cent in the first income year and 30 per cent each income year after that.

In addition, the Government confirmed that the provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2025.

Energy bill relief

It was first mentioned in MYEFO, and the proposed energy bill relief for small businesses extends the existing Energy Bill Relief Fund.

Eligible small businesses will receive $325 to help pay their energy bills.

Around one million businesses on small customer electricity plans benefit from this.

Legislation to change how ‘on hold’ tax debts are treated:

The government plans to amend the tax law to give the Commissioner of Taxation discretion not to use a taxpayer’s refund to offset old tax debts in cases where those tax debts were put on hold before January 1, 2017.

This follows complaints regarding a letter campaign in 2023 in which the ATO told small business owners that it may seek to recover ‘on hold’ historical tax debts.

Apprentices and tradies

The federal budget also included measures to help increase the number of Australian apprentices and tradies.

This includes funding to provide 20,000 new fee-free TAFE, VET, and pre-apprentice courses related to the housing sector and $1.8 million to help fast-track the assessment of potential migrants who may have relevant construction-related qualifications.

The federal government has also pledged to expand its ‘new energy’ apprenticeship scheme to encourage greater uptake.

E-invoicing gets funding in scam-fighting measures

Small and medium businesses may benefit from a $67.5 million funding package to help fight digital scams. The ATO will receive $23.3 million to continue operating the nation’s e-invoicing network.

Electronic invoices can mitigate against the many cyber risks involved with SMEs sending and receiving invoices over email. The ATO has encouraged SMEs to adopt the practice in recent years.

The government plans to develop mandatory “Scams Code Framework” industry codes.

Regulators will spend $37.3 million over the coming four years and $8.6 million annually to develop and enforce these codes.

The regulators that play a role include the Australian Competition and Consumer Commission (ACCC), the Australian Securities and Investments Commission (ASIC), and the Australian Communication and Media Authority (ACMA).

The telecommunications, banking, and digital platforms will initially be targeted, focusing on scams involving social media, paid search engine advertising and direct messaging. The ACCC aims to improve public awareness of scams and will receive $6.3 million in the 2024-25 financial year to help the public identify, avoid and report scams.

Freezing social security deeming rates

Social Security deeming rates for financial investments will remain at current levels until 30 June 2025. This will benefit approximately 876,000 income support recipients, including 450,000 age pensioners.

CHANGES TO SUPERANNUATION

These budget measures included previously announced changes, including payday super and paid parental leave. The $3 million super cap and changes to non-arm’s length expenditure did not rate a mention.

About Division 296 tax

The Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, which contains the Division 296 tax measures dealing with superannuation balances over $3 million, is still before the House of Representatives. The proposed method to calculate earnings and its effect of taxing unrealised capital gains have been controversial. However, a recent Senate committee report has recommended it be passed unchanged.

The Government made no further announcement about Division 296 tax in last night’s budget.

Payday super plus paid parental leave

Limited announcements were made in this 2024-25 Budget relating to the Government’s proposed payday super, following consultation by the Treasury in late 2023. Under the proposals, employers must pay their employees’ superannuation guarantee entitlements on the same day they pay salary and wages. Subject to the passage of legislation (to be introduced), this change will apply from 1 July 2026.

Moreover, the Treasurer announced that parents accessing the government-funded paid parental leave scheme will receive $1.1 billion in superannuation and their payments from 1.7.2025. Under this proposal, super will be paid 12 per cent of the paid parental leave rate for an estimated 180,000 families annually.

Super recovery program

From 1.7.2024, the government will enhance the Fair Entitlements Guarantee Recovery Program to pursue unpaid superannuation entitlements employers owe in liquidation or bankruptcy. This will increase Government revenue over the forward estimates.

Changes to superannuation guarantee entitlements

All employees will benefit from an already-legislated minimum superannuation guarantee (SG) entitlement increase. Specifically, the minimum SG rate will increase from 11% to 11.5% from 1 July 2024.

Thresholds Changes

Although not announced in the Budget, the following key superannuation threshold changes take effect from 1.7.2024.

Key Superannuation threshold changesPrevious thresholdKey threshold Concessional contribution$27,500

$30,000Non-concessional contribution$110,000$120,000Non-concessional contributions bring forward$330,000$360,000General superannuation guarantee rate11%11.50%

GST and superannuation fraud

The ATO has been given $187 million in new funding to tackle tax and superannuation fraud. This includes tools to block suspicious activity in real-time and a task force to recover lost revenue and take action when scammers attempt to claim false refunds. The ATO’s capacity to manage “peak fraud events” like the massive GST fraud scam that led to Operation Protego has also been strengthened.

The two-billion-dollar scam involved thousands of individuals attempting to claim false GST refunds, largely driven by social media, including TikTok.

If the ATO intends to retain a business activity statement (BAS) refund for further investigation, it has to notify the taxpayer within 14 days. The government will extend this mandatory notification period to 30 days, in line with mandatory notification periods for non-BAS refunds.

The federal government maintains most legitimate refunds will not be affected by the change, but the extra time will allow the ATO to better combat large-scale fraud events.

Legitimate BAS refunds that are retained for longer than 14 days will continue to attract interest, payable to the taxpayer, and the ATO will be required to publish BAS processing times online. This change will come into effect from the start of the first financial year after the relevant legislation receives Royal Assent.

EASING COST OF LIVING PRESSURES

Returning bracket creep

The above tax cuts return bracket creep and lower average tax rates for all taxpayers.

The Government maintains that the changes provide taxpayers with greater protection against bracket creep, particularly low—to middle-income taxpayers and support the progressivity of the tax system.

Boosting labour supply with more benefits for women

The tax cuts designed to encourage greater participation in the workforce are expected to increase labour supply by 930,000 hours per week, equivalent to around 25,000 full-time jobs. Women and individuals drive this increase in the low‑to middle-income range, particularly those earning between $25,000 and $75,000.

All 6.5 million women taxpayers will receive a tax cut in 2024–25, with an average benefit of around $1,650. This will increase the financial return from work and support participation.

CASE STUDY

Frances is a full-time barista earning $50,000 per year. Frances’ tax cut in 2024–25 will be $929.

Jeremy and Sarah work full-time, earning $75,292 and $60,000 annually. They have two children, aged two and three, who attend a long daycare centre three days a week.

Under the Government’s changes, they will receive a combined tax cut of $2,740 and an additional $2,430 in Childcare Subsidy. They will also receive $300 in energy bill relief in 2024–25. Their net benefit from these changes is $5,470, equivalent to a 5.5 per cent increase in their disposable income.

Increasing the Medicare levy low-income thresholds

The Government has increased the Medicare levy low-income thresholds for 2023–24, ensuring more than one million low-income taxpayers continue to be exempt from the Medicare levy or pay a reduced levy rate. For a single individual taxpayer, this increases to $26,000 (increased from $24,276)

New power bill relief

$300 energy rebates for every household.

The Government provides $3.5 billion in energy bill relief for all Australian households and around one million small businesses.

From 1 July 2024, more than 10 million households will receive a total rebate of $300, and eligible small businesses will receive $325 on their electricity bills throughout the year.

This is estimated to directly reduce headline inflation by around 1/2 of a percentage point in 2024–25 and is not expected to add to broader inflationary pressures.

CASE STUDY

Merryn lives alone and works full-time on the national minimum wage ($45,906). Under the Government’s changes, Merryn will receive a tax cut of $827 and $300 in energy bill relief in 2024–25. Her net benefit from these changes is $1,127, equivalent to a 2.8 per cent increase in her disposable income.

Support for renters

Boosting Commonwealth Rent Assistance.

The government has provided $1.9 billion over five years to increase the maximum rates of Commonwealth Rent Assistance by 10 per cent.

This builds on the 15 per cent increase in September 2023 and will take maximum rates over 40 per cent higher than in May 2022 – a combined result of indexation and the actions of this Government.

CASE STUDY

Gillian is the sole parent of a nine-year-old child, pays $400 in rent a week and is not in the labour force. Under the Government’s changes, Gillian is now eligible for Parenting Payment Single instead of JobSeeker Payment and will receive an additional $5,677 in income support. She will also benefit from an additional $1,215 in Commonwealth Rent Assistance and $300 in energy bill relief in 2024–25. Her net benefit from these changes is $7,193, equivalent to a 19.6 per cent increase in her disposable income.

Debt relief for students

The Government will cut $3 billion in student debt for more than 3 million Australians.

This will relieve everyone with the Higher Education Loan Program (HELP) and other student loan debt. In response to the Australian Universities Accord, the Government will cap the HELP indexation rate to be the lower of either the Consumer Price Index or the Wage Price Index.

The Government will backdate this relief to all HELP, vocational education and training (VET) Student Loans, Australian Apprenticeship Support Loans and other student support loan accounts that existed on 1 June 2023.

CASE STUDY

Changing the calculation of HELP indexation applied from 1 June 2023 means that the indexation rate is reduced from 7.1 per cent to 3.2 per cent in 2023 and from 4.7 per cent to around 4 per cent in 2024.

Julian had an average outstanding HELP loan of $26,500 in 2023. Following the Government’s changes in calculation, he will receive a credit to his HELP account of $1,190 across the 2023 and 2024 years, subject to the passage of legislation. Over the life of his loan, Julian’s debt would be reduced by around $1,600.

More homes for Australians

The Budget builds more homes for Australians, with more social and affordable housing, more infrastructure and removal of red tape, better transport for more accessible cities and suburbs and increased housing for students:

$1 billion to get homes built sooner, with funding for states including to provide roads, services and parks, essential for additional housing supply.
A new five-year National Agreement on Social Housing and Homelessness for states and territories to deliver crisis support and social housing.
$1 billion is directed to support women and children experiencing domestic violence, as well as youth.
Training more tradies and construction workers to build more homes by boosting construction skills with fee-free TAFE places.
Expanding the Affordable Housing Bond Aggregator program.
Bolstering community housing providers to support the first tranche of homes delivered under the Housing Australia Future Fund and National Housing Accord.
Delivering funding for new and existing infrastructure projects.

Enhancing multinational tax and foreign resident tax integrity

The Federal Government aims to achieve this by:

Strengthening the foreign resident capital gains tax rules to ensure foreign residents pay their fair share of tax in Australia and bring our rules into line with international best practices, which will improve the Budget by $592 million over the forward estimates; and
Introducing a new penalty for multinationals that attempt to avoid Australian royalty withholding tax by understating royalty payments or seeking to disguise them as something else to ensure they pay their fair share of tax.

The new multinational penalty will be supported by reforms to strengthen transparency about the use of subsidiaries and stop multinationals from claiming excessive debt deductions to reduce or wipe out tax in Australia, which has passed Parliament.

INVESTING IN A FUTURE MADE IN AUSTRALIA

This budget initiative will invest in a Future Made in Australia plan to bring new jobs and opportunities to communities in every part of our country.

Making our future here in Australia is about maximising our nation’s potential and ensuring everyone shares in the benefits. This aims to maximise the economic and industrial benefits of the international move to net zero and secure Australia’s place in a changing global economic and strategic landscape.

The 2024-25 Budget will invest $22.7 billion over a decade to help Australia succeed and remain an indispensable part of the global economy as the world undergoes the biggest transformation since the Industrial Revolution.

This plan will help Australia build a stronger, more diversified and more resilient economy powered by clean energy, create more secure, well-paid jobs and encourage and facilitate the private sector investment required to take advantage of this opportunity.

It will invest in innovation and technology that will help ensure we remain globally competitive and recognise the vital role of regional Australia in our national prosperity.

The Future Made in Australia plan is about attracting and enabling investment, making Australia a renewable energy superpower, value-adding to our resources and strengthening economic security, backing Australian ideas and investing in the people, communities and services that will drive our national success.

Attracting and enabling investment

Creating a new ‘front door’ for investors with major, transformational investment proposals to make it simpler to invest in Australia and attract more global and domestic capital, complementing the functions of the Net Zero Economy Authority;
$168.1 million to better prioritise approval decisions for renewable energy projects of national significance and support faster decisions on the environment, cultural heritage and planning approvals, including $20.7 million to improve engagement with communities involved in the energy transition and $15.7 million to deliver a stronger, more streamlined, and more transparent approach to foreign investment;
$17.3 million to implement a comprehensive agenda to mobilise private investment in sustainable activities; and
$1.3 million to develop and release best practice guidance for disclosing net zero transition plans.

Making Australia a renewable energy superpower

$3.2 billion over the next decade through the Australian Renewable Energy Agency to support the commercialisation of technologies that are critical to net zero, including through a new $1.7 billion Future Made in Australia Innovation Fund for the deployment of innovative technologies and facilities linked to priority sectors, including green metals, batteries and low carbon liquid fuels.
Implementing a Hydrogen Production Tax Incentive to provide a $2 incentive per kilogram of renewable hydrogen produced between 2027-28 to 2039-40, for up to ten years per project, at an estimated cost to the Budget of $6.7 billion over the medium term.
Over the next decade, $1.3 billion in the Hydrogen Headstart program will provide additional support to early-movers investing in the industry’s development.
We need $17.1 million to implement our National Hydrogen Strategy, which will help Australia become a global leader in hydrogen by 2030.
Fast-tracking the initial phase of the Guarantee of Origin Scheme to measure and certify emissions intensity across the supply chain of key products, providing an additional $32.3 million to support the expansion of the program to green metals and low-carbon liquid fuels, and consulting on additional incentives to support production in these industries.
$15.4 million in foundational activities to support the development of green metals production.
$27.7 million to better integrate consumer energy resources (like rooftop solar and household batteries) into the grid.
$63.8 million to reduce emissions in the agriculture and land sectors.
$48 million to deliver other reforms to the Australian Carbon Credit Unit Scheme; and
Unlocking $65 billion of renewable energy capacity through the Capacity Investment Scheme’s continued rollout.

Value-adding to our resources and strengthening economic security

Implementing a Critical Minerals Production Tax Incentive to provide a production incentive valued at ten per cent of relevant processing and refining costs for Australia’s 31 critical minerals, for critical minerals processed and refined between 2027-28 to 2039-40, for up to ten years per project, at an estimated cost to the Budget of $7 billion over the medium term.
$10.2 million to work with states and territories to develop pre-feasibility studies of common-use infrastructure, which promotes a competitive and productive critical mineral sector.
$1.5 billion to strengthen battery and solar panel supply chains via the Solar Sunshot Program and Battery Breakthrough Initiative.
$165.7 million to support businesses scaling up and delivering the Sovereign Defence Industrial Priorities.
$14.3 million to work with trade partners to strengthen our global competitiveness and support benchmarks for trade in high-quality critical minerals.

Innovation, digital and science capabilities

$466.4 million to build quantum computing capabilities in partnership with the Queensland Government and PsiQuantum;
$566.1 million in open science by supporting Geoscience Australia to map Australia’s endowments of critical minerals and national groundwater systems and
Undertaking a strategic examination of Australia’s research and development system to grow R&D and build a more resilient and dynamic economy.

Investing in people and places

$91 million to accelerate the development of the clean energy workforce by upgrading training facilities, supporting teachers and trainers, and expanding access to the New Energy Apprenticeship Program.
$55.6 million in the Building Women’s Careers program to expand support for women training in clean energy and other key industries.
$38.2 million to support science, technology, engineering, and maths diversity.
$64.8 million to attract and retain the skilled industrial workforce needed to support defence industrial priorities.
$209.3 million into the Net Zero Economy Authority will catalyse private and public investment, major project development, employment transition, skills, and community development.
$178.6 million in additional employment and skills support for regions in transition, including the Energy Industry Jobs Plan and place-based Regional Workforce Transition Plans.

These policies complement the Government’s broader growth agenda, including competition reforms, investments in infrastructure, housing, human capital and the defence industry, and support for small businesses.

A new National Interest Framework, established under a Future Made in Australia Act, will guide the Future Made in Australia agenda and better align economic incentives with national interests.

Under the Framework, priority industries will be identified under two streams. The ‘net zero transformation’ stream will identify sectors that can significantly contribute to achieving net zero, where Australia has grounds to build enduring sources of comparative advantage. The ‘economic security and resilience’ stream will identify sectors that are critical to our resilience, vulnerable to supply disruptions and require support to unlock sufficient private investment.

This Framework will guide Government decision-making on significant public investments, particularly those used to incentivise private investment at scale. Further details are outlined in the National Interest Framework supporting paper available on the Treasury website.

The Government will also apply the Community Benefit Principles to significant investments in priority industries. These investments will focus on boosting investment in local communities, supply chains, and skills, promoting diverse workforces, and securing jobs.

Practice Update May 2024

ian@digitalwise.com.au (Ian Campbell) — Mon, 06 May 2024 02:57:08 GMT

Business valuation

Putting a price on a business is challenging. In this issue, we discuss a few basics to give you guidelines for estimating its value. Note that a prospective buyer of your business might use similar principles to estimate its value. Also, note that there is no single formula for valuing a business. Rather, a few different models can be used for business valuation based on the nature and the size of the businesses and concerned risk factors.

Reasons for valuing a business

There are many reasons for the valuation of a business –
The business is up for sale.
You’re trying to find investors.
You plan to sell stock in your company.
A bank loan is required against the business.
Changes in ownership/capital structure.
Company divestments/acquisitions.

Factors to consider when valuing a business for a sale

If you’ve decided it is time to sell your small business, there are several factors you will have to consider first.

Lease – If your business rents premises, you will need to liaise with your landlord to discuss the state of your lease. You may ‌transfer it to the new owner, or if it is due to expire, they may need to be granted a new lease. If you own your premises, you will need to consider whether to sell it to the new owner or have them lease it from you.

Licences – The licences for certain businesses, like restaurants and cafes, are usually included in its sale. You will need to gather all the documentation for your current licences to include in your sale contract.

Stock—Will you be including your remaining stock in the sale of your business? If so, you will need to value it and factor that into the contract.

Tax Implications—Selling a business can lead to complex taxation issues. These include calculating GST for the sale price of the business and considering Capital Gains Tax implications. These matters are best discussed with an accountant who can guide you through the process.

Contracts & Suppliers—Your business may have ongoing contracts with suppliers and customers. These may be short-term orders to fulfil or long-term service contracts. You will need to decide whether to transfer these contracts to the new owner or terminate them. Be sure to check with your lawyer regarding the contracts’ specific details, including termination clauses.

Business History—Important information that will affect your business’s value includes its duration of operation, how it started, its reputation, the condition of its facilities and whether or not its goal has remained the same.

Employees – Employee pay rates, morale, job descriptions, and whether or not technical/ specialist skills are required to operate the business. A critical piece of information here is whether or not the business relies on a few people, as this shows which skill sets will serve as the foundation of operation.

Legal & Commercial Issues – Nobody wants to purchase a business with pending legal or commercial problems. Involvement in pending legal proceedings, compliance with work, health, safety, and environmental laws, long-term commercial contracts (including their period of validity and value), and whether or not the business has the necessary permits, registrations, and licences will greatly affect value.

Goodwill & Intangible Assets—Does the business include certain intellectual properties, other intangible assets, or goodwill? Depending on the industry, the value of intangible assets can play a major part in determining the business’s market value.

Financial information—Financial Information includes profitability, working capital, sufficient cash flow, the amount of debt that the cash flow can service, recent annual turnover, whether profit is increasing or decreasing, and the value of key tangible assets. It is also important whether there is enough working capital to pay shareholders’ dividends.

Types of valuation methods

An obvious starting point for valuation is the business’s profitability, balanced by the risks involved. Other valuation methods are asset valuation, price-earnings ratio, and entry cost valuation. There are also industry rules of thumb that you can consider for business valuation.

Capitalised future earnings method:

Capitalised future earnings are the most common method for valuing small businesses. When you buy a business, you’re buying its assets and the right to all future profits it might generate, known as future earnings. The future earnings are capitalised or given an expected value. The capitalisation rate can be an expected return on investment (ROI), shown as a percentage or ratio. A higher ROI is a better result for the buyer. This method lets the buyer compare different businesses to determine which would give them the best ROI.

To calculate value based on the capitalised future earnings method, first, calculate the business’s average net profit for the past three years, considering whether any conditions might make this figure difficult to repeat. Then, divide the business’s average profit by using an expected ROI considering the sector and the business.

For example, if the expected ROI is at least 50% and the average profit is $100,000, the value of the business can be calculated using the formula below.

Value or selling price = (100,000/50) x 100 = $200,000.

Multiples of revenue method:

The multiples of revenue method is a simple valuation method for finding a business’s maximum value. Annual revenue can be considered for a set period of time, and then a multiplier can be used to determine value. The multiple varies by industry and other factors; however, it usually varies from less than one to three or four.

Small business valuation often involves finding the lowest price someone would pay for the business, known as the “floor.” This is often the liquidation value of the business’s assets. Then, a ceiling is set. This is the maximum amount that a buyer might pay, such as a multiple of current revenues. However, the growth potential of a specific business can impact the multiplier. For example, the multiplier might be higher if the company or industry is poised for growth and expansion. A high percentage of recurring revenue and good margins can also boost the multiplier. The multiplier might be one if the business is slow-growing or doesn’t show much growth potential. Economic and industrial conditions can also impact the multiplier.

Earnings multiple method:

The earnings multiple method is similar to multiples of revenue. This valuation method can be used to value larger businesses. The earnings before interest and tax (EBIT) are multiplied to give a number, the multiplier. The multiplier can be found by dividing the stock price by earnings per share (EPS) to find the P/E ratio.

The simplicity of multiples makes it easy for most to use. However, this simplicity can also be considered a disadvantage because it simplifies complex information into a single value.

Asset valuation method:

This method adds assets such as cash, stock, plant, equipment and receivables. Liabilities, like bank debts and payments due, are deducted from this amount, leaving the net asset value. For example, Raymond wants to buy a manufacturing business. It has $300,000 worth of assets and $200,000 of liabilities. With the asset valuation method, its net asset value is $100,000, so this business is worth $100,000.

The asset valuation method may consider the business’s goodwill on top of the net asset value. Goodwill represents features of a business that aren’t easily valued, such as location, reputation and business history. It’s not always transferred when you buy a business since it can come from personal factors like the owner’s reputation or customer relationships. The asset valuation method may not consider goodwill if the business is underperforming.

Discount cash flow method:

The discount cash flow (DCF) valuation method does not consider other companies’ results. Instead, it focuses on your company’s projected cash flow. You’ll give your best cash flow forecast for three to five years. Then, using a formula, you will calculate the present value of those cash flows.

Present value is a concept that compares the business’s current value in terms of future cash flows to how much the purchaser would pay now. This method uses a discount rate, which is the likely interest rate the business purchaser could have gotten from saving the money in a bank account. If your company’s present value exceeds the investment amount, it’s a good investment for the business purchaser.

The projection of cash flow sometimes requires assumptions of future business conditions. Hence, it can be complex and prone to error. This valuation method can be used in conjunction with the other methods.

Practice Update April 2024

ian@digitalwise.com.au (Ian Campbell) — Mon, 08 Apr 2024 02:04:58 GMT

How do Bucket Companies work?

What is a Bucket Company?

Ensuring a business remains profitable is one of the most important responsibilities of a business owner. So, if the business starts to generate a healthy profit, there needs to be a plan.

While maximising deductions has its place in any tax planning strategy, a tax minimisation strategy that solely relies on deductions can result in sacrificing profit to lower tax when other options are available. With you and your family relying on the profits generated by your business to fund your lifestyle, it’s essential to understand the most tax-effective manner for distributing income and the best business structures that allow you to do so.

Consider how a bucket company might fit into your overall tax planning strategy.

Uses of Bucket Companies

A bucket company (otherwise known as a corporate beneficiary) is a company set up as a trust beneficiary. This arrangement allows any income the trust distributes to the bucket company to be payable at the company tax rate, currently 25% (only if it is a base-rate entity), as opposed to the individual marginal tax rate (the top tax rate for individuals for 2023-2024 is proposed to be 47%, including the Medicare levy).

They’re called bucket companies because they sit below a trust like a bucket and are used to distribute income to it. It is important to remember that there are rules around family trusts and structures within a family group. Otherwise, family trust distributions tax may apply.

How do Bucket Companies work?

There are generally three elements present for a bucket company:

There is usually a trust with surplus income to distribute.
The corporate beneficiary must fall within the definition of ‘beneficiary’ under the trust deed.
Consider whether the bucket company is part of a family group.

Who should hold the company’s shares?

One of the main reasons bucket companies are used is to access the tax benefits they provide, and you should keep this in mind when deciding who holds the company’s shares.

If an individual holds the shares, there is less flexibility in how the dividends can be distributed; they will need to be distributed according to the shareholder percentage. However, if another kind of trust holds the shares, the excess profits may be distributed, allowing for less total tax paid.

Tax rates of bucket companies

The bucket company pays the corporate tax rate, which could be 25% or 30%, depending on the type of company. If the company is a base rate entity, a company tax rate of 25% will apply; however, if it is not, the company tax rate will likely be 30%.

Taxing trust income

The general principle is that a trust’s net income is taxed by its beneficiaries; individuals and company beneficiaries pay tax on their portion of the trust’s income at the rates that apply to them.

The highest marginal tax rate for individuals (not including the Medicare levy) at the time of writing this article is 45% for people with taxable income of $180,000 or more. There is a flat tax rate of 30% for non-base rate entity companies. Due to the discrepancy between the highest marginal tax rate for individuals and the company tax rate, there is at least a 15% savings potential. To illustrate, on an income distribution of $100,000, a corporate beneficiary would pay at least $15,000 less tax.

Commit to distributions

You must ensure that when you distribute to the bucket company for the financial year, you also distribute the same amount to the company’s bank account before lodging the tax return. In particular, trusts must distribute to corporate beneficiaries; otherwise, the Unpaid Present Entitlement (UPE) rules may be triggered.

What can be done with the money in the Bucket Company?

So far, in this article, we have looked at how bucket companies can help individuals save tax by paying out dividends at company tax rates. However, this is not the only bucket company strategy available.

A bucket company can also hold long-term investments, such as shares, properties, or investments. In this regard, the bucket company becomes an investment company that can generate another source of income for the owner. Companies cannot access the 50% Capital Gains Tax discount, but other compelling reasons exist to use a company structure.

Getting money out of the Bucket Company

As has been established, the trust distributes the income to the bucket company, which begs the question: How do you get money from a bucket company?

There are three ways to extract money from a bucket company:

Pay dividends to the shareholders. Because the dividend has been taxed at the company rate, the shareholder will receive a franking credit to the extent that the tax has already been paid. An individual will include the dividend income as taxable income. Any excess franking credits are refundable, or top-up tax may be required depending on the shareholder’s marginal tax rate.
A loan from the bucket company. As with any other loan, you must pay back the principal and interest to the bucket company. The loan is a special type called a Division 7a Loan, with requirements you will need to be mindful of.
A separate discretionary trust structure can receive the dividends. Whereas the first method requires profits to be distributed according to shareholding and the second method incurs interest, this last method distributes profits according to the Trust deed. For example, using a discretionary trust as a shareholder of the bucket company allows you to make the largest distribution to an individual with the lowest marginal tax rate. Note that there may be other rules to satisfy or consider, such as Section 100A.

Will a family trust structure allow a Bucket Company?

To function as intended, a bucket company must be an eligible beneficiary of a family trust. As a result, you must read the trust deed to ensure the bucket company falls within the general class of beneficiaries.

Additionally, a Family Trust Election may be needed depending on the structure. Consider the family group, which may define or impact who the beneficiaries are.

Appropriate bucket Company strategy

While bucket companies are generally useful for investors and business owners, and there is no doubt that they can be one of the most tax-effective strategies, they may not be ideal for your unique situation.

A bucket company strategy may be of benefit if you are any of the following:

A business owner who wants to build a nest egg for their family.
A business owner who experiences significant fluctuations in income from one financial year to the next.
For business owners coming up to retirement or looking to sell their business and who won’t be earning as much business income moving forward as a result

Using a bucket company will not work if caught under the Personal Services Income (PSI) rules. These rules prevent individuals from reducing or deferring their income tax by diverting income they receive from their personal services through companies, partnerships, or trusts. We encourage you to seek professional advice when deciding whether a bucket company suits you.

Practice Update March 2024

ian@digitalwise.com.au (Ian Campbell) — Mon, 04 Mar 2024 01:48:57 GMT

Practice Update March 2024

Super contribution caps to rise

The big news story for those contributing to super is that the contribution caps are set to increase from the 2025 income year.

The concessional contribution cap will increase from $27,500 to $30,000.

This 'CC' cap is broadly applicable to employer super guarantee contributions, personal deductible contributions and salary sacrificed contributions.

The non-concessional contribution cap will increase from $110,000 to $120,000.

This 'NCC' cap is generally applicable to personal non-deductible contributions.

The increase in the NCC cap also means that the maximum available under the three-year bring forward provisions will increase from $330,000 to $360,000. This is provided that the 'bring forward' is triggered on or after 1 July 2024.

The 'total superannuation balance' threshold for being able to make non-concessional contributions (and the pension general transfer balance cap) will remain at $1.9 million.

Small business concessions

The ATO has recently issued a reminder that small business owners may be eligible for concessions on the amount of tax they ultimately pay.

This depends on their business structure, their industry and their aggregated annual turnover.

For example, small business owners who have an aggregated annual turnover of less than:

$2 million can access the small business CGT concessions;
$5 million can access the small business income tax offset; and
$10 million can access the small business restructure roll-over.

The ATO expects small business owners to check their eligibility each year before they apply for any of these concessions.

Furthermore, taxpayers generally need to keep records for five years to prove any claims they make.

Editor: We are always on the look-out for what tax concessions may be of use to our clients based on their individual circumstances. These small business concessions in particular, can be very beneficial when applicable.

FBT time is fast approaching!

The ATO has advised employers that 'FBT time' is just around the corner, and they need to stay on top of their fringe benefits tax (FBT) obligations.

Employers need to ensure they have attended to the following matters this FBT time:

Identify if they have an FBT liability regarding fringe benefits they have provided to their employees or their associates between 1 April 2023 and 31 March 2024.
Identify if they have an FBT liability as they will need to lodge an FBT return and pay the amount due by 21 May.
Identify if they are currently registered for FBT and let the ATO know if they do not need to lodge an FBT return (Editor: by asking us to lodge an FBT non-lodgment notice) to prevent the ATO seeking a return from them at a later date.
Employers should also remember that when the new FBT year starts on 1 April, they can choose to use existing records instead of travel diaries and declarations for some fringe benefits.

Furthermore, the ATO has released PCG 2024/2 which provides a short cut method to help work out the cost of charging electric vehicles ('EV') at an employee's home for FBT purposes.

Eligible employers can choose to use either the EV home charging rate of 4.2 cents per kilometre or the actual cost.

Ultimately, all employers need to make sure they understand their FBT obligations and the records they need to keep to avoid an FBT liability.

Jail sentence for fraudulent developer

A developer who conspired to lodge fraudulent business activity statements has been convicted and sentenced to 10 years in jail with a non-parole period of six years and eight months.

The developer was involved with two companies that formed part of a group known as the 'Hightrade Group' which developed properties such as a hotel and golf course in the Hunter Valley, NSW.

The developer fraudulently obtained GST refunds by using three tiers of companies (developers, building companies and suppliers) to grossly inflate the construction costs of his developments.

The companies he was involved with also claimed to have purchased goods when no such purchases had occurred. In total, the developer intended to cause a loss to the Commonwealth of more than $15 million.

His sentencing has closed a complex case, known as Operation 4. The ATO noted that "Tax crime, like the fraud uncovered in Operation 4, affects the whole community."

Penalties soon to apply for overdue TPARs

Businesses that pay contractors to provide certain services may need to lodge a Taxable Payments Annual Report (TPAR) by 28 August each year.

From 22 March, the ATO will apply penalties to businesses that:

have not lodged their TPAR from 2023 or previous income years;
have received three reminder letters about their overdue TPAR.

Taxpayers that do not need to lodge a TPAR can submit a 'non-lodgment advice form'. Taxpayers that no longer pay contractors can also use this form to indicate that they will not need to lodge a TPAR in the future.

Avoiding common Division 7A errors

Private company clients who receive payments, benefits or loans from their private companies need to ensure compliance with their additional tax obligations (which are often referred to as their 'Division 7A' obligations).

There are multiple ways in which business owners may access private company money, such as through salary and wages, dividends, or what are known as complying Division 7A loans.

Division 7A is an area where the ATO sees many errors and the ATO is currently focused on assisting taxpayers in managing their obligations when receiving payments and benefits from their private companies.

In this regard, the ATO has recommended that business owners do the following:

keep adequate records;
properly account for and report payments and use of company assets by shareholders and associates; and
comply with rules around Division 7A loans.

Understanding these Division 7A obligations is essential in order to:

make informed decisions when receiving private company money and using private company assets; and
avoid unexpected and undesirable tax consequences.

IMPACTS OF THE REVISED STAGE 3 PERSONAL TAX CUTS

ian@digitalwise.com.au (Ian Campbell) — Sun, 03 Mar 2024 22:33:28 GMT

IMPACTS OF THE REVISED STAGE 3 PERSONAL TAX CUTS

Summary of the changes to the tax brackets and tax rates

On 27 February 2024, Parliament passed the Treasury Laws Amendment (Cost of Living Tax Cuts) Bill 2024 (the Bill) containing the Government’s revisions to the Stage 3 personal tax cuts, which take effect from the 2024–25 financial year. At the time of writing, the Bill is awaiting Royal Assent.

This article summarises the changes to the tax brackets and tax rates and illustrates the potential implications for taxpayers with a range of taxable incomes. The Government will also increase the Medicare levy low-income thresholds for 2023–24. This article will not cover this proposed change.

From 1 July 2024, the revised Stage 3 tax cuts will:

reduce the 19% tax rate to 16%
reduce the 32.5% tax rate to 30%
Increase the threshold above the 37% tax rate from $120,000 to $135,000.
Increase the threshold above the 45% tax rate from $180,000 to $190,000.

There will be no change to the current tax-free threshold of $18,200 or $416 on eligible income under the taxation of minor rules. No taxpayer will pay more tax than that which would apply under the 2023–24 rates, but higher-income taxpayers will receive a lower tax cut than under the previous Stage 3 plan.

Taxpayers with taxable incomes up to $45,000 will benefit from a reduction of their marginal tax rate from 19 per cent to 16 per cent (maximum tax saving of $804). Under the previous Stage 3 plan, there was no change to the current (2023–24) tax bracket ($18,201 to $45,000) or marginal tax rate (19 per cent).

Middle-income taxpayers will receive an extra tax cut of $804 (on top of the tax cut they would have received under the previous plan).

The benefit of the changes (in comparison to the previously legislated Stage 3 plan) cuts out at taxable incomes of approximately $147,000 — taxpayers at this income level will be $36 worse off under the changes (albeit with a saving of $3,729 from 2023–24 rates).

For taxpayers with taxable incomes of $200,000 and above, the tax cut will be worth $4,529 instead of $9,075 — i.e. the Stage 3 benefit will be cut by half.

How the changes will affect resident taxpayers

The following examples set out the tax liability for a given taxable income under the current (2023–24) tax rates and the revised Stage 3 rates from 2024–25. Assume that each taxpayer’s taxable income is the same in 2023–24 and 2024–25.

Note that the Treasury’s tax cut calculator considers the basic tax scales, low-income tax offset (as applicable) and the Medicare levy. The following illustrative examples only consider the basic tax rates. Therefore, the outcomes from the Treasury’s calculator will not be the same as what is represented below.

Practice Update February 2024

ian@digitalwise.com.au (Ian Campbell) — Wed, 31 Jan 2024 23:45:53 GMT

CGT discount

If you are selling a CGT asset, delaying the sale may be worthwhile to qualify for the CGT discount.

CGT assets include land, buildings, shares, rights and options, leases, units in a unit trust, goodwill, contractual rights, licences, foreign currency, cryptocurrency, convertible notes, etc.

Under the discount rules, when you sell or otherwise dispose of an asset (for instance, give the asset away), you can reduce your capital gain by 50% if both of the following apply:

You owned the asset for at least 12 months, and
You are an Australian resident for tax purposes.

Regarding the first requirement, you must own the asset for at least 12 months before the ‘CGT event’ (usually a sale) happens. The CGT event is the point at which you make a capital gain or loss. You exclude the day of acquisition and the day of the CGT event when working out if you owned the CGT asset for at least 12 months before the ‘CGT event’ happens.

To be clear:

If you sell the asset and there is no contract of sale , the CGT event happens at the time of sale.
If there is a contract to sell the asset , the CGT event happens on the date of the contract, not when you settle. Property sales usually work this way.
If the asset is lost or destroyed , the CGT event happens when:
you first receive an insurance payment or other compensation.
if there is no insurance payment or compensation when the loss occurred or was discovered.

You could count an asset’s previous ownership towards your 12-month ownership period if you acquired it:

through a deceased estate if the asset was acquired by the deceased on or after 20 September 1985
through a relationship breakdown – you will satisfy the 12-month requirement if the combined period your spouse and you owned the asset was more than 12 months.
as a rollover replacement for an asset that was lost, destroyed or compulsorily acquired if the period of ownership of the original asset and the replacement asset was at least 12 months.

From 8 May 2012, the full CGT discount is not available for capital gains made by foreign or temporary residents.

Returning to the theme of the article, if you held an asset for 11 months and were upon sale on track to make a capital gain of $30,000, then by delaying the sale by one month, you could reduce that gain to $15,000 by taking advantage of the 50% discount. Note that as well as non-residents, the 50% discount is not available to companies. SMSFs and trusts are both eligible (though the discount is 33% for SMSFs).

Super tax offset

If your spouse is a low-income earner, adding to their superannuation could benefit you financially.

If you’d like to help them by putting money into their super, you might be eligible for a tax offset while potentially creating additional opportunities for both of you.

Eligibility

To be entitled to the spouse contributions tax offset:

You must make a non-concessional (after-tax) contribution to your spouse’s super. This is a voluntary contribution made using after-tax dollars, which you don’t claim a tax deduction for.
You must be married or in a de facto relationship.
You must both be Australian residents.
The receiving spouse’s income must be $37,000 or less for you to qualify for the full tax offset and less than $40,000 for you to receive a partial tax offset.

Benefits

If eligible, you can generally contribute to your spouse’s super fund and claim an 18% tax offset on up to $3,000 through your tax return.

To be eligible for the maximum tax offset, which works out to be $540, you need to contribute a minimum of $3,000, and your partner’s annual income needs to be $37,000 or less. If their income exceeds $37,000, you’re still eligible for a partial offset. However, once their income reaches $40,000, you’ll no longer be eligible for any offset but can still make contributions on their behalf.

Contribution limits

You can’t contribute more than your partner’s non-concessional contributions cap, which is $110,000 per year for everyone, noting any non-concessional contributions your partner may have already made.

However, if your partner is under 75 and eligible, they (or you) may be able to make up to three years of non-concessional contributions in a single income year under bring-forward rules, which would allow a maximum contribution of up to $330,000.

Another thing to be aware of is that non-concessional contributions can’t be made once someone’s super balance reaches $1.9 million or above as of 30 June 2023. So, you won’t be able to make a spouse contribution if your partner’s balance reaches that amount. There are also restrictions on the ability to trigger bring-forward rules for certain people with large super balances (more than $1.68 million as of 30 June 2023).

Joint tenants and tenants in common

When buying a property with another person, you are given the option of how to be registered on the title of the property with them: joint tenants vs tenants in common. But what is the difference between the two, and is one better than the other? In this article, we explain everything you need to know.

What is Joint Tenants?

Joint tenants (also known as joint proprietors) means you own 100% of the property jointly with the people registered as joint tenants with you.

Practically this means:

When joint tenants die, the surviving owner(s) automatically become entitled to be registered as the sole owner(s) of the whole of the interest in the property. This means that any property owned in joint tenancy do not form part of a deceased’s estate, rather their interest automatically goes to the surviving owner(s). This is called “the right of survivorship”.
You even split the property’s profits, losses, and risks.
You cannot have an uneven share of the property. All joint tenants own the property 100% jointly. For tax purposes, the shares are even.

What is Tenants in Common?

Tenants in common means you have a defined ownership share of a property title. This can be 50-50, 60-40, 99-1 or any other combination.

Practically this means:

On the death of either of the owners, the deceased’s interest in the property passes to his or her beneficiary (not necessarily the surviving owner on the title). The beneficiary is dictated by the deceased’s Will or if they do not have a Will by State law.
The defined ownership share splits the property’s profits, losses, and risks.

Can you do both Tenants in Common and Joint Tenants at the Same Time?

Yes, you can if you have three or more owners on the title. For example, persons A and B hold a 50% share of the property as tenants in common jointly, while person C holds their 50% share as a tenant in common individually.

Practically this means:

On the death of either person A or B, who holds their 50% share jointly, the survivor of A or B will get the full interest of the deceased share. Person C will not have any claim to this share as they did not hold that 50% share jointly.
If Person C passes away, Persons A and B will have no automatic interest in Person C’s share of the property. Rather, person C’s share in the property will go to their beneficiary in accordance with their Will or State law if no Will exists.

Touch base with us if you would like more advice about the ownership structure you should adopt when acquiring property.

Superannuation downsizer

Are you looking to boost your superannuation balance as you near retirement?

Put simply, the intention of the downsizer contribution rules is to allow older Aussies to sell their current home and use the proceeds to contribute to their super account.

Starting 1 January 2023, new rules have lowered the minimum eligibility age to allow people aged 55 and over to access downsizer contributions. Originally, the minimum age was 65, but this has progressively been lowered to age 55.

The lower age limit (55 years) is based on your age when you make the contribution, and there is no upper age limit . Normally, once you reach age 75, the super rules prevent you from making voluntary contributions, so a downsizer contribution presents a rare opportunity to top up your super.

There is no work test requirement to make a downsizer contribution. In fact, there is no requirement for you to have ever been in paid employment. However, you can’t claim a tax deduction for a downsizer contribution.

Contribution limits

Under the downsizer rules, you are allowed to contribute up to $300,000 ($600,000 for a couple) from the sale proceeds of your eligible family home.

The contribution limit is the lesser of $300,000 and the gross actual sale proceeds. This means if you gift your home to a family member and the sale proceeds are $0, you cannot make a contribution.

Any debt or remaining mortgage on the property does not impact the amount you are permitted to contribute to your super account.

Eligible homes

While the downsizer rules are generous, ensuring your home is eligible before you sell is essential.

The key criteria are:

You must have owned your property for a continuous period of at least 10 years. This is usually measured from the date of your original settlement when you purchased the property to the settlement date when you sell it.
The property being sold must be your family home (main residence) at the time of the sale, or it must be partially exempt from capital gains tax (CGT) under the main residence exemption.
The home you sell must be in Australia.

Some types of property are not eligible under the downsizer rules. These include an investment property you have not lived in, caravans, houseboats and other mobile homes. Vacant blocks of land are also ineligible.

If you sell your home and want to make a downsizer contribution, you are not required to buy a new home with any sale proceeds. That is, there’s no requirement to buy a cheaper or smaller home after making your downsizer contribution, so you can even decide to purchase a more expensive replacement home.

Caution

The costs involved in selling a family home can be substantial. If you purchase another home, sales commissions, moving costs, stamp duty, and land taxes mount up, so think carefully before deciding to downsize. Remember, selling a large home and downsizing to a smaller property does not always release much excess capital (particularly in a capital city), so do careful calculations on how much you will have left to contribute to super before selling.

Practice Update January 2024

ian@digitalwise.com.au (Ian Campbell) — Wed, 31 Jan 2024 23:41:41 GMT

ATO Debt Alert

The federal government’s Mid-Year Economic and Fiscal Update (MYEFO), released in December, announced that the general interest charge (GIC) would soon no longer be deductible for individuals and businesses.

By way of background, GIC is imposed by the ATO, and it applies to unpaid tax liabilities, such as when:

an amount of tax, charge, levy or penalty is paid late (or is unpaid)
there is an excessive shortfall in an incorrectly varied or estimated income tax instalment.

GIC is calculated on a daily compounding basis on the amount outstanding.

Generally, the amount of GIC applied is notified in a:

statement of account
late payment notice
GIC notice.

The annual rate of GIC is 11.15%, increasing to 11.38% for the January to March 2024 quarter. With such a high-interest rate and daily compounding, it is prudent to prioritise ATO debts over other debts.

This new MYEFO measure means taxpaying entities, including individuals and small businesses, will have to face up to their GIC penalties without the prospect of a tax deduction.

The federal government states the changes will enhance incentives for all entities to self-assess their tax liabilities and pay on time correctly and level the playing field for individuals and businesses who already do so.

In effect, removing tax-deductible status will eke away at what is left of the ATO’s leniency towards overdue tax obligations.

The change is expected to result in extra tax revenues of $500 million annually from 1 July 2025.

TIP

After an extended period of leniency shown to individuals and businesses struggling through COVID-19 and its aftermath, 2022 and 2023 marked a reversion to the norm. If taxpayers fail to engage with the ATO to satisfy their outstanding debts, enforcement actions may be escalated accordingly. In that respect, the ATO has the discretion to:

Issue garnishee notices and director penalty notices (‘ DPNs ’)
Report outstanding tax debts to a Credit Reporting Bureau if action to manage the debt is not taken within 28 days of receipt of a notice of intent. This can have a crippling effect on your and your business’s ability to borrow and
Otherwise, commence legal action, including issuing summons for non-lodgements, and otherwise progressing personal and caproate insolvency action, including creditors’ petitions and winding-up proceedings.

The surest way to prevent the above action from being taken is to enter into (and comply with) a payment arrangement with the ATO about your debts. Contact us if you would like us to do this on your behalf.

Christmas Shutdowns

With Christmas on our doorstep, some new rules exist around annual leave during business shutdowns.

To recap, a shutdown is when a business temporarily closes during specific periods, such as between Christmas and New Year. By contrast, a stand down is when an employer tells employees not to work because they can’t be usefully employed for reasons outside the employer’s control.

Reasons for a stand down can include:

equipment breakdown if the employer isn’t responsible for it.
industrial action, when the employer does not organise it.
a stoppage of work for a reason the employer can’t be held responsible, such as a natural disaster.

An employee can be directed to take annual leave during a shutdown if their award or registered agreement allows it. Suppose an Award or registered agreement does not cover an employee. In that case, they can be ordered to take annual leave if it is reasonable in the circumstances and their employment instrument (such as a contract) does not prohibit it.

From 1 May 2023, many awards have updated the rules on taking annual leave during a shutdown. The new rules mean:

employers may require employees to take paid annual leave during a temporary shutdown.
employers must provide at least 28 days written notice of the temporary shutdown period to all impacted employees.
the requirement to take annual leave must be reasonable.
the notice period can be reduced through an agreement between the employer and most impacted employees.
an employee who doesn’t have enough paid annual leave to cover the whole period can form an agreement with their employer for other options for the days not covered, such as:
using accrued time off.
annual leave in advance, or
leave without pay.

Note that during shutdowns, the employee must be paid for any public holidays during the shutdown period that fall on days they would typically work. These new rules apply to employees and employers covered by one of the affected awards.

Fair Work has updated its website with directions to take annual leave during a shutdown. This includes popular awards and industries like:

building and construction
hair and beauty
hospitality (including fast food and restaurants)
real estate.

Access your industry from Fair Work’s Direction to take annual leave during a shutdown page. Just select your industry from the drop-down menu to get award-specific information.

Christmas Tips for Retail Businesses

Here are some tips to employ this holiday season for businesses operating in the retail sector as follows:

Last-minute adjustments to inventory.

Executive director for the Australian Retailers Association says now is an ideal time to ensure you have the right balance of stock on hand to meet your customers’ needs:

“Whether you’re a single shopfront or a nationwide chain, you probably should have planned your inventory up to five or six months in advance.

But now is a great time to make tweaks to your inventory.”

Carefully balance foot traffic, wages, and opening hours

Retailers in shopping centres generally must play by the facility’s rules; otherwise, every retailer should try to assess their opening hours according to their needs.

Everyone knows to expect extended shopping hours generally begin in December, but that doesn’t mean every business should attempt to match those hours.

Wages increase by up to 25% after 6 pm, and there’s no point paying those extra wages if you won’t realise a proportional increase in foot traffic.

Christmas is also the ideal time to trial new and junior staff members who can help with odd jobs like stacking and packing.

Make the most out of digital marketing

Modern marketing techniques like email direct marketing, search engine marketing and social media can all achieve great results – even if you’re not selling online.

Social media is how to get advertising out there at a minimal price.

All retailers should ensure they’re present and active on their local community Facebook page to promote their offerings, hours and any special events they might have come up with.

Review your pricing strategy – it’s not always about the most significant discount

With the likes of Amazon in the market, many retailers are responding by dropping their prices – but that’s not always the best approach.

For example, suppose you are looking to buy a nice shirt. In that case, you may be happy to pay a little extra at your local store if it can offer free alterations with the purchase, which is generally better value than spending a little less at one of the more prominent brands that don’t provide this service.

People are likely to look at different products for different reasons, which must be considered when determining how to price your products.

Most importantly, retailers must know the consumer law around advertising discounts.

The ubiquitous “WAS $X, NOW $Y” is something that can catch retailers out because the ‘was’ price must be proven to be offered in the store or at some point sold at that price; otherwise, you may get stung by the Australian Consumer and Competition Commission (ACCC).

Share the Festive Cheer – Especially With your best customers

It’s an age-old retail tenet, and it’s as accurate today as it ever has been, it’s much cheaper to retain an existing customer than to acquire new ones.

Christmas is the ideal time to celebrate the people who support you, and it doesn’t have to be a costly exercise.

Rather than offering special customer discounts, consider adding something to your regular customers’ basket at no cost.

The customer may see an extra 10 dollars of retail value in their basket, but that item probably only cost your business five dollars – and the more thought you’ve put into the gift, the more they’ll appreciate you for it.

Other Festive Season Tips

From a tax standpoint, keep good records of your work Christmas party – receipts, cost per head, who attended, the venue, etc. This will significantly assist your accountant in determining the party’s tax deductible and any potential fringe benefits tax (FBT) liability, including any applicable exemptions.
Notify critical customers and suppliers of the dates of any shutdown period that your business may have.
All staff should set up automatic, out-of-office replies on their email, notifying recipients of their leave dates over Christmas and noting that the leave period may differ between employees.
Make a mental note of your computer passwords. These are easy to forget if you are away for a few weeks. However, please don’t make a handwritten note and leave it on your desk ready for your return!
Use your phone mainly just for texting and calling over the holidays – allowing you to give your full attention to the family and friends you are with over the break. In other words, reconnect!

P r a c t i c e U p d a t e December 2023

ian@digitalwise.com.au (Ian Campbell) — Tue, 05 Dec 2023 04:19:19 GMT

Stage 3 Tax Cuts

The Federal government has reaffirmed its commitment to the so-called Stage 3 Tax Cuts. By way of background, the previous government legislated these tax cuts. They will abolish the current 37 per cent tax bracket, lower the existing 32.5 per cent bracket to 30 per cent, and raise the threshold for the top tax bracket from $180,001 to $200,001. You can see what that means by looking at the table below.

It shows how the personal income tax rates and thresholds will change in the 2024-25 financial year.

Tax RateCurrent 2023/24 ThresholdsTax RateNew thresholds from 1 July 2024

Nil Up to $18,200 Nil Up to $18,200

19% $18,201-$45,000 19% $18,201 – $45,000

32.5% $45,001-$120,000 30% $45,000 to $200,000

37% $120,001-180,000

45% $180,001 and over 45%. $200,001 and over

The result will be that the first $18,200 you earn will be tax-free (as it is currently), and every dollar you earn between that and $45,000 will be taxed at 19% (as it is presently). But then things change.

From July 1, 2024, every taxable dollar you earn from $45,001 to $200,000 will be taxed at 30%, and every dollar you earn above $200,000 will be taxed at 45%. That’s very different from what currently happens.

On the face of it, lowering the 32.5% bracket to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper-middle-income earners. But it will be a much bigger win for higher-income earners in dollar terms.

Please reach out to us when these cuts begin in July next year to figure out your tax position.

Advantages of company structure

There are many advantages of operating your business via a company structure, including:

Liability for shareholders is limited.
It’s easy to transfer ownership by selling shares to another party.
The company can employ shareholders (often family members).
The company can trade anywhere in Australia.
Taxation rates can be more favourable.
You’ll have access to a broader capital and skills base.
Reduced personal responsibility for any business debts incurred.
Legal liability also becomes reduced since a company is a separate legal entity from you as an individual.
Company tax rates are lower compared to higher marginal tax rates.
It can be much easier to raise finance and capital to grow and expand your business.

Director Liability

Chief among the advantages of company structure benefit these is asset protection. Broadly speaking, company owners are protected from creditors if their company fails. However, there are two notable exceptions!

The first of these is where a director offers a personal guarantee. Companies often require financial support to secure loans, leases, or credit facilities to foster growth and development in the dynamic business world. To assure lenders or creditors, directors of companies in Australia may be asked to offer personal guarantees. These guarantees, known as “Directors’ Guarantees”, play a crucial role in ensuring that the obligations of a company are met.

Such guarantees are essential for three reasons:

Access to Funding: By providing a personal guarantee, directors can help their companies access financing that might otherwise be difficult to obtain, especially for new businesses.
Credibility: A director’s willingness to guarantee a company’s obligations can enhance the company’s credibility and trustworthiness in the eyes of creditors and prospective business partners.
Risk Mitigation: For creditors, a Directors’ Guarantee serves as a safety net, ensuring that someone personally takes responsibility for the company’s obligations, reducing the risk of financial loss.

Directors should know that providing a Directors’ Guarantee carries significant personal risk. If the company defaults on its obligations and the director cannot cover the debt, its personal assets may be at risk. Along with director guarantees, owners of companies may also be personally liable under the director penalty notice regime.

As a company director, you become personally liable for your company’s unpaid amounts of:

Pay as-you-go withholding (PAYGW)
Gods and services tax (GST)
Super guarantee charge (SGC).

These amounts that you are personally liable for are called director penalties. The ATO can recover the penalty amounts once they issue a director penalty notice. To be clear, a director is responsible for ensuring the company meets its PAYGW, net GST and SGC obligations in full by the due date.

If these obligations are not met, directors become personally liable for director penalties unless they take steps to ensure the company lodges and pays its:

PAYGW by the due date,
Net GST (as well as Luxury Car Tax and Wine Equalisation Tax amounts) by the due date and
Superannuation guarantee (SG) to employees’ superannuation funds by the due date – if that doesn’t occur, the company must lodge a superannuation guarantee statement and pay the resulting SGC liability.

Talk to us if you are still determining your director’s liabilities.

Business Plan

The upcoming Christmas break is an opportune time to review a business plan.

A business plan can be used to:

help you start a new business.
help you improve the performance of an existing business.
attract funding for an investment.
communicate business progress to stakeholders.
communicate business goals and objectives to internal staff members.
attract potential buyers for the business.

A business plan is a ‘living’ document, so it should evolve and change—think of it an operating guide for your business throughout the start-up, operations and succession phases.

The elements of a business plan will vary depending on:

phase of the business is in (starting, running, selling).
the industry a business is in.
the use of the plan (e.g. for internal development purposes).

Every business plan will be different but generally include the elements below.

Executive summary

This section provides an overview of the business concept. It should be attention-grabbing and concise—the content will be covered in more detail in future sections. While this is the first section of the plan, it can often help to write it last after the other sections have been finalised. This helps to ensure that the executive summary covers all the key information within the plan. It should define:

business vision
legal structure
products and services
customers
competitors
market and products or services
operation
financial projections
evolution of the business and the industry
structure of the business
short-term and long-term goals

Product, service and market analysis

In this section, you should highlight your business products and services and describe what makes them unique, such as their:

features
benefits
limitations
cost and sale price.

You can also include details of any business plans to introduce new products and services. Your market analysis should describe your target market (e.g., local, international) and target customers. Add in the research you have done about your industry and the market trends. In this section, you will also complete a SWOT analysis (strengths, weaknesses, opportunities, threats).

Sales

Explain your sales forecasts and targets in this section and how you will manage customer records and payments—understanding what sales strategies will work for you and the best channels to market your products or services. You will also need to know your current sales, volume and market share and what you expect them to be for the coming year. You should also identify your break-even point – the sales volume required to keep the doors open.

Operating plan

This section will cover all you know about how you do things in your business—for example, your standard operating procedures and how to ensure the quality of your products and services.

Financial plan

Summarise your key financial details, including:

costs for establishing or operating the business.
sales needed to break even.
projected cash flow.
funding arrangements.
payment plans.

Action plan

The final section of the business plan should include a set of actions to take before you review your business plan and check your progress. This should be over 6–12 months, based on the business goals outlined in your plan.

Set a regular review date for the actions and the business plan. Assess which actions have been completed, which remain outstanding, and require updating to help your business plan remain relevant.

Review

As noted, the Christmas break is an excellent time to review your business plan to ensure that it’s relevant, achievable and up to date with any changes in your business.

To help you review your plan, ask yourself the following questions:

What will the review schedule be?
Is the plan up to date?
Have the business goals changed?
Does the plan still match the business goals?
Are market trends changing?
Have significant political, environmental, social or technological changes affected your business?
Have there been significant changes in your finances or need for capital?

Benchmarking your business

Have you benchmarked the performance of your business?

The ATO provides a high-level benchmark tool for business owners to compare their company’s performance to a broader range of similar businesses. There are essentially three purposes behind the ATO Small Business Benchmark Tool. These are:

encourage business owners to perform annual health checks to see if their costs are above or below their peers.
enable businesses to assess whether any discrepancies may be flagged for an audit by the ATO and
to alert the ATO to investigate businesses outside the benchmarking norm.

Financial benchmarking has been a valuable tool for businesses across various industries for decades, as it is an effective way of identifying issues and facilitating sound business decisions.

The ATO says: “When we see a business significantly outside the key benchmark range for their industry, it doesn’t necessarily mean you have done anything wrong. But it indicates something unusual and may prompt us to contact you for further information”.

In conclusion, the ATO Benchmark Tool is a valuable resource for small businesses to see how you’re tracking against businesses of a similar type. Access the benchmarks on the ATO website and contact us if you have any questions.

P r a c t i c e U p d a t e November 2023 - 2

ian@digitalwise.com.au (Ian Campbell) — Mon, 13 Nov 2023 03:15:31 GMT

Tax issues for businesses that have received a support payment

Taxpayers who have received a government support grant or payment recently to help their business recover from COVID-19 or a natural disaster should check if they need to include the payment in their assessable income.

Grants are generally treated as assessable income, and taxpayers may be able to claim deductions if they use these payments to:

purchase replacement trading stock or new assets;
repair their business premises and fit out; or
pay for other business expenses.

However, some grants are declared non-assessable, non-exempt ('NANE') income. This means taxpayers don't need to include them in their tax return if they meet certain eligibility requirements.

NANE grants include but are not limited to:

COVID-19 business support payments;
natural disaster grants; and
water infrastructure payments.

Taxpayers can only claim deductions for expenses associated with NANE grants if they relate directly to earning their assessable income, including wages, dividends, interest and rent.

Taxpayers cannot claim expenses related to obtaining the grant, such as accountant's fees.

Care required in paying super benefits

Generally, before SMSF trustees pay a member's super benefits, they need to ensure that:

the member has reached their preservation age;
the member has met one of the conditions of release; and
the governing rules of the fund (e.g., the trust deed) allow it.

Benefit payments to members who have not met a condition of release are not treated as super benefits. Instead, they will be taxed as ordinary income at the member's marginal tax rate.

If a benefit is unlawfully released, the ATO may apply significant penalties to:

the SMSF trustee;
the SMSF; and
the recipient of the early release.

The ATO may also disqualify the trustee(s) involved.

Investment restrictions and other rules that apply to SMSFs in the accumulation phase continue to apply when members begin receiving a pension from the SMSF.

Where a member has met a condition of release, the trustee can either pay the benefit as a lump sum or super income stream (i.e., a pension). If a member has died, the trustee will generally pay a death benefit to a dependant or other beneficiary of the deceased, subject to the applicable rules.

Notice of visa data-matching program

The ATO will acquire visa data from the Department of Home Affairs for the 2024 to 2026 income years, including the following:

n address history and contact history for visa applicants, sponsors, and migration agents;

n active visas meeting the relevant criteria, and all visa grants;

n visa grant status by point in time;

n migration agents who assisted the processing of the visa;

n all international travel movements undertaken by visa holders; and

n sponsor details, and visa subclass name.

The ATO estimates that records relating to approximately nine million individuals will be obtained each financial year.

The objectives of this program are to (among other things) help ensure that individuals and businesses are fulfilling their tax and super reporting obligations, and identify potentially new or emergent approaches to fraud and those entities controlling or exploiting the visa framework.

ATO says: "Be cyber wise, don't compromise"

Throughout the 2022 income year, one cybercrime was reported every seven minutes. The ATO encourages taxpayers to implement the following four quick steps to protect themselves.

Step 1: Install updates for your devices and software

Regular updates ensure taxpayers have the latest security in place which can help prevent cyber criminals from hacking their devices. They should also make sure they are downloading authorised and legitimate programs.

Step 2: Implement multi-factor authentication

Multi-factor authentication ('MFA') is a security measure that requires at least two proofs of identity to grant access. Businesses as well as individuals should implement MFA wherever possible. MFA options can include a physical token, authenticator app, email or SMS.

Step 3: Regularly back up your files

Backing up copies of files to an external device or the 'cloud' means taxpayers can restore their files if something goes wrong.

It is a precautionary measure that can help avoid costly data recovery.

Step 4: Change your passwords to passphrases

By using passphrases, taxpayers can boost the security of their accounts and make it harder for cyber criminals to access their information.

Passphrases use four or more random words and can include symbols, capitals and numbers. A password manager can help generate or store passphrases.

Losses in crypto investments for SMSFs

Over the last few income years, the ATO has seen some instances of SMSF trustees losing their crypto asset investments.

These losses have been caused by:

crypto scams, where trustees were conned into investing their superannuation benefits in a fake crypto exchange;
theft, where fraudsters would hack into trustees' crypto accounts and steal all their crypto;
collapsed crypto trading platforms, many of which were based overseas; and
lost passwords, resulting in trustees being locked out of their crypto account and being unable to access their crypto.

Trustees thinking of investing in crypto need to be aware of the ways that crypto can be lost, including through scams, and how these scams can be avoided.

Many crypto assets are not commonly considered to be financial products, which means the platform where crypto is bought and sold may not be regulated by ASIC.

Therefore, trustees may not be protected if the platform fails or is hacked. When a crypto platform fails they will most likely lose all of their crypto.

Investing in crypto can be complex and risky, and so the ATO recommends that trustees seek financial advice before investing.

P r a c t i c e U p d a t e November 2023

ian@digitalwise.com.au (Ian Campbell) — Mon, 30 Oct 2023 23:03:49 GMT

Christmas Parties and FBT

With work Christmas parties just around the corner, we look at the tax treatment of such occasions.

Key concepts

To begin with, there are two critical issues to understand.

Entertainment

Typically, fringe benefits tax (FBT) will only apply to a party if it involves the provision of ‘entertainment’. This means the provision of (a) entertainment by way of food, drink, or recreation, or (b) accommodation or travel in respect of such entertainment, such as taxis, hotel accommodations, etc.

In this case, recreation includes amusement, sport and similar leisure-time pursuits and provides recreation and entertainment in vehicles, vessels or aircraft (for example, joy flights, sightseeing tours, harbour cruises).

Minor Benefits

In simple terms, a minor benefit is provided to an employee/associate (spouse) if done so on an infrequent or irregular basis (typically, no more than twice per year), and the cost is less than $300 inclusive of GST per employee/associate. This is $300 per expense (i.e., $300 per meal and drinks and a separate $300 per accommodation, etc.).

Note that for this piece, we will assume the employer (like most employers) uses the Actual method to calculate FBT, whereby FBT is paid only to employees and their associates (not clients or other outside individuals).

Venue

Business premises

Holding your Christmas party on the business premises on a working day (logically, Friday after work) usually gives an employer the most tax-effective outcome. Expenses such as food and drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. The reason why FBT does not apply is because there is typically no “recreational” component in play. Thus, the following rules apply to parties on the business premises:

EmployeesTax TreatmentFood and drink per person (no dollar limit) –No FBT applies, no tax deduction, and no GST credit is claimable.Recreation (e.g., band) per person < $300 –No FBT, no deduction, no GST credit.Recreation $300 or more –FBT applies, is tax deductible, and GST credit is available.AssociatesFood and drink <$300 per person –No FBT, no deduction, no GST creditd and drink $300 or moreFBT applies, is tax deductible and GST credit availableRecreation <$300-No FBT, no tax deduction, no GSTRecreation >$300-FBT applies, is tax deductible and GST credit available.

EXAMPLE – Christmas party on business premises

A company holds a Christmas lunch on its business premises on a working day.

Employees, their partners and clients attend.
The company provides food and drink and taxi travel home.
The cost per head is $125.

Entertainment is being provided. A party for employees, associates and clients is entertainment because the purpose of the function is for the people attending to enjoy themselves.

Employees – no FBT; exemption applies.

The employer doesn’t pay FBT for the following:

food and drink for employees, because it is provided and consumed on a working day on the business premises.
taxi travel because there is a specific FBT exemption for taxi travel directly to or from the workplace.

Associates – no FBT; exemption applies.

The employer doesn’t pay FBT for the food, drink and taxi travel provided to the employees’ partners (associates) because it is a minor benefit – that is, it has a value of less than $300, and it would be unreasonable to treat it as a fringe benefit.

Clients – no FBT

There is no FBT on benefits provided to clients.

Income tax and GST credits

The employer can’t claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates, or clients.

Offsite (e.g., restaurant)

The party is held offsite, and the tax treatment is slightly different as follows:

EmployeesTax TreatmentFood and drink <$300 per person –No FBT, no deduction, no GST credit.Food and drink $300 or more –FBT applies, tax-deductible, GST credit available.Recreation (e.g., band) <$300 – No FBT, no deduction, no GST credit.Recreation $300 or more –FBT applies, tax-deductible, GST credit available.AssociatesFood and drink <$300 per person-No FBT, no deduction, no GST credit.Food and drink $300 or more –FBT applies, tax-deductible, GST credit available.Recreation <$300 –No FBT, no deduction, no GST.Recreation >$300 or more –FBT applies, tax-deductible, GST credit available.

Clients

Irrespective of the cost or the party’s location (business premises or offsite) under the Actual method, there is no FBT, nor is there a tax deduction or GST credit available for food and drink or any recreation component provided to clients or suppliers. The reason for this is that FBT applies to employment. As a result, clients and suppliers fall outside the FBT system (except where the employer elects to use the 50/50 method to calculate their FBT liability).

Christmas Gifts and FBT

To correctly determine the tax treatment of a gift given to an employee or their associate, e.g., spouse (not just at Christmas time but at any time during the year), a distinction needs to be drawn as to whether the gift is categorised as a “non-entertainment gift” or on the other hand as “entertainment”.

“Entertainment” type gifts include movie theatre tickets, sporting tickets, holiday vouchers or admission to an amusement centre. Whereas “Non-Entertainment” type gifts include Christmas hampers, a bottle of whiskey or wine, gift vouchers, perfume, flowers or a pen set.

For gifts given to entertainment-based clients, no FBT is applicable nor a tax deduction is available. However, these would be tax deductible if you give a client a bottle of wine, a carton of beer or a Christmas ham rather than movie tickets.

Mindful of this, the treatment is as follows:

Entertainment gifts

EmployeesTax TreatmentCost <$300 per person –No FBT, no deduction, no GST credit$300 or more –FBT, tax-deductible, GST credit availableAssociates<$300 –No FBT, no deduction, no GST credit> $300 or more –FBT applies, tax-deductible, GST credit available

Non-entertainment gifts

EmployeesTax TreatmentCost <$300 per person –No FBT, no deduction, No GST credit$300 or more –FBT, deduction deductible, GST credit availableAssociates<$300 –No FBT, tax-deductible, GST credit available$300 or more-FBT applies, tax-deductible, GST credit available

No FBT would apply for gifts costing less than $300 to employees and associates, but these are tax-deductible, so feel free to hand out Christmas hams, perfume or shopping vouchers. This is the most tax-effective and economic option.

The rules regarding the minor benefit exemption have changed, so you should feel free to give the gifts at the Christmas Party rather than a few weeks before, as was previously the case. This is because the gift and the cost of the function are considered separate benefits and have their own $300 threshold.

The FBT implications for Christmas parties and gifts can be quite complicated. There are many different variables and combinations that can change the tax-deductible nature and the fringe benefits implications for having an event or giving a gift. Speak with us if you have any questions.

Refinancing is the process of replacing an existing loan with a new one, usually with better terms and interest rates.

Pros

Some lenders are offering up to $5,000 in refinance cashbacks. These, however, are subject to qualifying criteria regarding the loan amount and LVR, etc.
Borrowers may be able to secure lower interest rates elsewhere. If you’re refinancing to a lower interest rate, lower repayments can help you manage your finances.
Access to more loan features. Your current home loan may not have the parts you require, like redraw and offset, or one that gives you flexible repayment options so you can pay off your mortgage faster.

Cons

When you’re refinancing to another lender, there are fees involved. It could amount to thousands of dollars, from discharge fees to setting up a new loan.
If you have less than 20% equity, you might have to pay Lenders Mortgage Insurance (LMI) fees, even if you’re refinancing with the current lender.
When you refinance, you are applying for another home loan, which will make a credit enquiry. If you keep making refinancing applications, it will leave too many questions quickly, lowering your credit score.
When you refinance, it resets the loan term. If you’ve already paid off five years of your 30-year loan term, if you refinance to another lender, then you’re potentially back to paying 30 years’ worth of interest again.

Tax

From a tax standpoint, refinancing with another loan does not change interest deductibility. For example, Jack has a loan with ANZ bank, which was used to acquire an investment property. He refinances this with AMP. Because the interest was deductible before, it is deductible after the refinance (see Taxation Ruling TR 95/25 in paragraph 47).

Furthermore, interest on a new loan will be deductible if the new loan is used to repay an existing loan which, at the time of the second borrowing, was being used in an assessable income-producing activity or used in a business activity which is directed to the production of assessable income (Taxation Ruling TR 2000/2).

Consolidating Your Superannuation

You may be able to transfer your existing super account(s) to another complying fund (known as a rollover), depending on the rules of your super funds.

For example, you can transfer your super to consolidate multiple accounts. Putting all your super in one account means paying only one set of account fees. Differences in fees can significantly affect the amount you have when you retire. Having fewer accounts also makes it easier to keep track of your super.

Think about the possible consequences before deciding to roll over your super. Ask your existing super fund about any fees or charges that will apply or any loss of entitlements such as life insurance.

You should also consult the receiving super fund to ensure they will accept a rollover of your super.

The preservation rules apply to benefits rolled over to another complying super fund. This means benefits can only be accessed once you meet a condition of release, such as reaching 65.

Sometimes, your super may be rolled over to another super fund without you requesting it, such as when two super funds merge.

Tax

No tax is payable on the amount rolled over to another complying super fund until you withdraw your super, when tax may apply.

If a super benefit is paid directly to you before being born into another fund, the payment is considered outside the excellent system. It will be treated as a super benefit rather than a rollover, in which case it may be taxed.

If you roll over an amount wholly or partly of an untaxed element that exceeds the untaxed plan cap amount, the transferring fund will withhold the tax payable on the excess amount.

Considerations

Check with both super funds, particularly the transferring fund, so you know of any applicable fees or charges, any effect on your benefits, and any loss of entitlements such as insurance.

The fund you want to transfer to may not accept transfers from other funds or ATO-held super–checks before starting your transfer. There are no fees or charges for transferring ATO-held super money into a super fund account.

Check that both the account you’re planning to transfer super from and the account you’re planning to move it to are still open, as there can be delays in funds reporting closed accounts to us. Check that neither of the funds has restrictions on actioning the transfer.

There are some essential factors to consider before transferring your super:

Differences in fees can significantly affect the amount you have when you retire.
The fund you want to leave could charge administrative, exit, or withdrawal fees.
The fund you want to transfer may charge entry or deposit fees.
The fund you want to leave may insure you against death, illness or an accident that prevents you from returning to work. If you leave this fund, you may lose these entitlements – check if the other fund offers comparable cover. ATO online services flag any super account with insurance with a ‘Yes’ indicator.

Transferring your funds will not change the super fund your employer pays your contributions to. Speak with your employer about whether you can choose a different fund and advise them of the new fund account details for future contributions.

If unsure what to do, seek independent financial advice or contact your super fund.

How?

You can request a transfer of the whole of a super account balance online by:

sign in to myGov.
select the Australian Taxation Office.
select Super, then Manage, then Transfer Super.

Completing the rollover or transfer request using ATO online services lets you view all your super accounts in one place.

You can only transfer a whole account balance from one super fund to another using ATO online services or the paper form, as this process involves closing the account. If you want to transfer part of your super account balance, contact the super fund from which you wish to transfer money.

P r a c t i c e U p d a t e October 2023

ian@digitalwise.com.au (Ian Campbell) — Tue, 10 Oct 2023 01:14:36 GMT

Cryptocurrency

Crypto assets are a digital representation of value that you can transfer, store, or trade electronically.

Crypto assets are a subset of digital assets that use cryptography to protect digital data and distributed ledger technology to record transactions. They may run on their blockchain or use an existing platform such as Ethereum. A blockchain is a secure digital ledger used to store a record of crypto transactions.

Crypto generally operates independently of a central bank, authority, or government. However, crypto asset transactions usually are subject to the same tax rules as assets. There are no special tax rules for crypto assets. The tax treatment will depend on how you acquire, hold, and dispose of the purchase.

For tax purposes, crypto assets are not a form of money.

Taxation

You can acquire or dispose of a crypto asset on a crypto trading platform or directly from a digital or hardware wallet. You can exchange or swap crypto assets for other crypto assets, fiat currency or goods and services.

Using or transacting with crypto assets will determine how you treat them for tax purposes. The most common use of crypto assets is as an investment (investors acquire and hold crypto assets to make a financial profit from holding or disposing of them).

Generally, for investors:

crypto assets are taxed as CGT assets, including for self-managed super funds (SMSFs) investing in crypto assets.
rewards for staking crypto are ordinary income for tax purposes.

Businesses transacting in crypto assets may need to account for them as trading stock or ordinary income (that is, on the revenue account rather than as investment capital gains or losses). In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income or a deductible expense, depending on the nature of the transaction.

In some circumstances, crypto assets are not kept mainly for investment but for personal use. Where specific conditions are met, crypto assets are not subject to CGT because they are considered personal use assets.

Tax Calculation

As with other CGT assets, if your crypto assets are held as an investment, you may pay tax on your net capital gains for the year. This is:

total capital gains.
less any capital losses.
less entitlement to any CGT discount on your capital gains.

Before you calculate CGT on your crypto assets, you will need to:

check you have records for your crypto assets and crypto transactions.
convert the value of the crypto assets into Australian dollars.

You need to keep details for each crypto asset as they are separate CGT assets. You can work out your CGT using the ATO’s online calculator and record-keeping tool .

This can be a complex area of the taxation law. For this reason, reach out to us if you are still determining your crypto tax position and the records you are required to keep.

Cashflow Forecasting

Cashflow forecasting is critical for small businesses.

What is it?

Cash flow forecasting is a method of predicting cash inflows and outflows to see how much money you’ll have in the future. It provides a window into your business’s financial health and can help plan spending.

A cash flow forecast is in contrast to a cash flow statement. A statement focuses on past cash flows; a forecast predicts the future. It’s essential that you understand your cash flow cycle, which boils down to whether you’ve got more money coming in than going out. If you have more cash going out, you must address it quickly.

Staying on top of your business cash flow helps you pay bills on time and helps ensure you can pay yourself. When costs are rising (as per the current climate), it becomes even more imperative that businesses get their cash flow management right, and cash flow forecasting is one way to do it.

Benefits

The benefits include:

spotting cash shortages and giving you time to work on contingency plans, whether delaying spending, requesting extra credit from suppliers, or securing a business loan .
assessing the affordability of your growth plans – for example, they can show if there will be enough money to buy new tools or hire a new employee.
ensuring you have enough money to pay you, the business owner!
identifying quickly if expenses are climbing or income is slumping.
highlighting fixable cash flow problems such as slow-paying customers, impractical payment terms, seasonal cycles, or over-reliance on high-cost finance.

Key Components

The key components are –

starting position (cash in the bank).
expected cash in (hopefully mostly from sales but may also be from loans or sales of assets).
expected cash out.
net cash flow shows if cash reserves have grown or shrunk.
closing balance.

How often?

Businesses can do cash flow forecasting for any timeframe and duration. As you might imagine, it gets harder to accurately predict incomings and outgoings the further into the future you go. But whatever range you choose, it’s a good idea to keep refreshing your forecast.
If you run a 12-month forecast, for example, with a column for each month, you might refresh it at the end of each month. Drop the last month off, add another month to the future, and check all the forecasts in between to see if anything needs updating.
Ways to increase profitability.
For most businesses, the easiest way to improve profits isn’t landing the next big client. Instead, it’s improving the little things, such as:
Increasing prices by 5% (or a small enough margin that doesn’t cause alarm).
Collecting money owed to you faster.
Checking that you’re not paying too much for overheads like power, the Internet and office supplies. These can be small amounts, but they add up over time. Now that you’ve been in business, you can probably look to renegotiate some of your earlier agreements.

CGT Discount

One of the most generous features of the capital gains tax (CGT) regime – which may apply to the disposal of assets such as property, shares, rights and options, foreign currency, goodwill in a business, units in a unit trust, certain personal use assets such as boats etc. – is the CGT general discount. It can reduce your CGT liability by up to 50% if applicable.

Eligible taxpayers include individuals, superannuation funds, and trusts (depending on the beneficiary’s eligibility). The most notable omission is companies – they do not qualify for the 50% discount. The discount’s unavailability should be considered when contemplating whether to hold CGT assets with a company structure.

Having established the structure’s eligibility, the entity must have held the asset for at least 12 months before the CGT event (i.e., the sale) to qualify for the discount. Interestingly, the ATO takes the view in Taxation Determination TD 2002/10 that the day of acquiring and selling the asset must be excluded from the 12-month holding period…thus, 12 months and two days! For example, if you acquired property on 1 October 2023, to be eligible for the 50% discount, the day of sale must be no earlier than 3 October 2024.

TIP – Retention

As noted, eligibility can be failed by days! For this reason, if you are nearing the 12-month holding period, you may wish to delay the asset’s sale to quality for the required 12-month period. By doing so, you can dramatically reduce your CGT liability.

As well as companies, non-residents are also now ineligible for the CGT discount. Foreign and temporary resident individuals, including beneficiaries of trusts and partners in a partnership:

are subject to CGT on taxable Australian property.
aren’t entitled to the 50% capital gains tax (CGT) discount for assets acquired after 8 May 2012.

Taxable Australian property includes:

Australian real property, such as a house, apartment, commercial building or land
an indirect interest in Australian real property.
a mining, quarrying or prospecting right in Australia.
a CGT asset that you have used to carry on a business through a permanent establishment in Australia.
an option or right over one of the above – for example, a contract to purchase property off the plan.

If the CGT asset was purchased after 8 May 2012, and you remain a foreign or temporary resident for the entirety of ownership, you aren’t entitled to any CGT discount when you sell the asset.

However, you may apply a discount to your capital gain on assets acquired on or before 8 May 2012. There are two methods; if both apply, you can choose which one to use:

If you had a period of Australian residency after 8 May 2012, you may pro rata the discount for the number of days you were an Australian resident after 8 May 2012.
If you were a foreign or temporary resident on 8 May 2012, you can use the market value method to calculate your discount instead of the pro rata method.

Please contact us to discuss your eligibility for the discount or any other strategies to reduce your CGT liability.

Deduction for superannuation contributions

Did you know you can make retirement provisions while improving your tax position? This can be achieved by creating a personal, after-tax contribution to your superannuation fund.

You’re eligible to claim a deduction for personal super contributions if:

You made the contributions to your fund that was not a:

Commonwealth public sector super scheme in which you have a defined benefit interest.
constitutionally protected fund (CPF) or other untaxed fund that would not include your contribution in its assessable income.
super fund that notified us before the start of the income year that they elected to treat all member contributions to the super fund as non-deductible.
defined benefit interest within the fund as non-deductible.

You meet the age restrictions. If you are under 67, you meet the limits. If you are 67 to 74, you must meet the work test, meaning you must work 40 hours or more in a consecutive 30-day period in the financial year to make contributions.
You have given your fund a notice of intent to claim in the approved form.
Your fund has validated your notice of intent form and sent you an acknowledgement.

Example

Narrelle is a fulltime teacher. During 2022/23, she earned $85,000 before tax.

She makes a personal $15,000 contribution to an eligible superannuation fund during the income year and notifies it that she intends to claim a deduction.

Narrell’s superannuation fund acknowledges that she will claim a $15,000 deduction and taxes the contribution at 15% ($2,250).

Narrelle is eligible to claim a deduction for $15,000 and does this in her 2022/23 income tax return. This deduction will increase her tax refund by $5,175, an overall tax saving of $2,925.

Please feel free to contact us if you have any questions about this strategy or the taxation of superannuation more generally.

Gifts and Donations

With statistics indicating that Australia is one of the most philanthropic nations in the world (per capita), did you know that – if the rules are followed – you can claim a deduction for donations you make?

Deductible Gift Recipient (DGR)

You can only claim a tax deduction for a gift or donation to an organisation with the status of a deductible gift recipient (DGR). A DGR is an organisation or fund that registers to receive tax-deductible gifts or donations.

Not all charities are DGRs. For example, crowdfunding campaigns are a popular way to raise money for charitable causes. However, many of these crowdfunding websites are not run by DGRs. Donations to these campaigns and platforms aren’t deductible.

You can check the DGR status of an organisation at ABN Look-up: Deductible gift recipients.

No Benefits

The second condition is that you must not receive any material benefit from your donation. You voluntarily transfer money or property without obtaining or expecting any material benefit or advantage in return. A material use is something that has a monetary value.

Example

Robbie is an office worker. Each year, his workplace gets involved in the Daffodil Day appeal to raise money and awareness for the Cancer Council. Robbie buys a teddy bear toy on Daffodil Day for $30.

Robbie can’t claim a deduction for the cost of the toy as he has received a material benefit in return for his contribution to the Cancer Council.

Money or property

The donation must be in the form of money or property. This can include financial assets such as shares.

Conditions

Your donation must comply with any relevant gift conditions – for example, for some DGRs, the income tax law adds conditions affecting the types of deductible gifts they can receive.

Records

Most DGRs will issue you a receipt for your donation, but they’re optional, too. You can still claim a deduction using other records, such as bank statements if you don’t have a ticket.

If a DGR issues a receipt for a deductible gift, the ticket must state:

the name of the fund, authority or institution to which the donation has been made.
the DGR’s Australian business number (ABN) (some DGRs listed by name in the law may not have an ABN).
that it is for a gift.

TIP

If you and your spouse (and children) make donations throughout the year, you can pool the amounts and have the highest-income earner donate. This will maximise your deduction.

eInvoicing

eInvoicing is the digital exchange of standardised invoice information between suppliers’ and buyers’ software through the secure Peppol network. eInvoicing is more efficient, accurate and safe and is different from sending and receiving invoices as PDFs and emails.

Functionality of eInvoicing:

suppliers don’t need to print, post or email paper-based or PDF invoices.
buyers don’t need to manually enter or scan invoices into their software.
businesses can connect once and immediately transact with everyone on the same network, no matter what eInvoicing-enabled software they use.

Australia has adopted the Peppol framework as the expected standard and network for eInvoicing. The government nominated the ATO as Australia’s Peppol Authority based on its experience with similar digital initiatives such as Single Touch Payroll.

Benefits of eInvoicing:

Money: eInvoicing reduces manual data entry and enables process automation. It can save you time and let you focus on running your business. eInvoicing will also help reduce your administration costs. Paper and PDF invoices cost between $27 and $30 to process. eInvoicing can reduce this to less than $10 an invoice.
Reliable and secure: According to the Australian Competition and Consumer Commission, payment redirection and false billing scams were some of the most common scams reported. More than $227 million was lost to these scams in 2021. eInvoicing can help make your business more secure.
Reduce payment times: eInvoicing can improve your cash flow with faster processing and quicker payments. Australian Government agencies are paying eInvoices in 5 days, where both the supplier and buyer use Peppol eInvoicing . For more information, see the Australian Government Supplier Pay On-Time or Pay Interest Policy External Link .

State governments are also encouraging eInvoicing. The NSW Government mandated eInvoicing for all government agencies from 1 January 2022. Other states are working on their approach.

Talk to us if you would like to adopt eInvoicing.

P r a c t i c e U p d a t e September 2023

ian@digitalwise.com.au (Ian Campbell) — Fri, 01 Sep 2023 04:20:51 GMT

Appointing an SMSF auditor

The ATO reminds SMSF trustees that they need to appoint an approved SMSF auditor for each income year, no later than 45 days before they need to lodge their SMSF annual return.

An SMSF’s audit must be finalised before the trustees lodge their SMSF annual return, as the trustees will need some information from the audit report to complete the annual return.

An SMSF’s auditor is to perform a financial and compliance audit of the SMSF’s operations before lodging.

An audit is required even if no contributions or payments are made in the financial year.

An approved SMSF auditor must be independent, which means that an auditor should not audit a fund where they hold any financial interest in the fund, or have a close personal or business relationship with members or trustees.

If a fund doesn’t meet the rules for operating an SMSF, the auditor may be required to report any contraventions to the ATO.

ATO gives 'green light' to lodge

The ATO is giving taxpayers with simple affairs the ‘green light’ to lodge their annual income tax returns.

ATO Assistant Commissioner Tim Loh said that most taxpayers with simple affairs will find the information they need to lodge has now been pre-filled in their tax return.

Mr Loh also reminded taxpayers that some income may need to be manually added – for example, income from rental properties, some government payments or income from ‘side hustles’.

As taxpayers prepare to lodge, they should keep ‘Tim’s tax time tips’ in mind:

Include all income: If a taxpayer picked up some extra work, e.g., through online activities, the sharing economy, interest from investments, etc, they will need to include this in their tax return;
Assess circumstances that occurred this year: If a taxpayer’s job or circumstances have changed this year, it is important they reflect this in their claims;
Records, records, records: To claim a deduction for a work-related expense, taxpayers must have a record to prove it.
Wait for notice of assessment: Taxpayers should wait for their notice of assessment before making plans for how they will use any expected tax refund this year;
Stay alert to scams: The ATO would never send taxpayers a link to log into the ATO’s online services or ask them to send personal information via social media, email or SMS.

Editor: The ATO advises that, when taxpayers lodge their own return, the due date for payment is 21 November, regardless of when they lodge, but If they use a registered agent, their due date can be much later.

Different meanings of 'dependant' for superannuation and tax purposes

On a person’s death, their superannuation benefits can only be paid directly to one or more ‘dependants’ as defined for superannuation purposes, unless they are paid to the deceased’s legal personal representative to be distributed in accordance with the deceased’s Will.

Super death benefits can be tax-free to the extent that they are paid (either directly or indirectly) to persons who are ‘dependants’ for tax purposes.

However, the meaning of ‘dependant’ differs slightly for superannuation and tax purposes. For superannuation purposes, a ‘dependant’ of the deceased comprises:

their spouse (including de facto spouse);
heir child (of any age);
a person in an ‘interdependency relationship’ as defined with the deceased; and
a person who was financially dependent on the deceased.

However, for tax purposes, a ‘dependant’ (or ‘death benefits dependant’) of the deceased includes their spouse or former spouse (including de facto spouse) and only children under the age of 18.

Therefore, super death benefits generally cannot be paid directly to a former spouse, as they are not a dependant for super purposes.

Also, while a child of any age is a dependant for super purposes, only children under the age of 18 are dependants for tax purposes. This means that, while a child of any age may receive super death benefits directly, those benefits will generally only be tax-free if the child is under 18.

Editor: If you are thinking about estate planning with your superannuation, please contact our office.

NALI provisions did not apply to loan structure

The Administrative Appeals Tribunal (‘AAT’) has held that interest income derived by a self-managed superannuation fund (‘SMSF’) as the sole beneficiary of a unit trust was not non-arm’s length income (‘NALI’), and so this income could still be treated as exempt current pension income.

During the 2015, 2016 and 2017 financial years, the unit trust lent money through two related entities to independent third parties who undertook development activities, through a series of loan arrangements.

The interest income derived by the unit trust through these loan arrangements was distributed to the SMSF as sole unitholder and was treated as exempt current pension income.

Following an audit, the ATO determined that the income was NALI, and therefore should not have been included as exempt current pension income.

The ATO then issued amended assessments for the relevant financial years, along with penalties.

While the AAT found that the parties were not dealing with each other at arm’s length, it also concluded that the income that the unit trust derived was not more than the amount it might have been expected to derive if the parties had been dealing at arm’s length.

Accordingly, the relevant interest income received by the SMSF was not NALI, and so the taxpayer’s objections to the amended tax assessments and penalties were allowed.

Luxury car tax: determining a vehicle's principal purpose

The ATO recently explained how to determine the principal purpose of a car for ‘luxury car tax’ (‘LCT’) purposes (since LCT is not payable on the supply or importation of cars whose principal purpose is the carriage of goods rather than passengers).

Broadly, a luxury car (i.e., a car subject to LCT) is a car whose LCT value exceeds the LCT threshold. However, a commercial vehicle that is not designed for the principal purpose of carrying passengers is specifically excluded as a luxury car.

The ATO’s new determination sets out various factors to be considered in determining the principal purpose of a car, as well as factors to consider when assessing a car’s modifications.

The determination states that commercial vehicles are unlikely to have the body types of station wagons, off-road passenger wagons, passenger sedans, people movers or sports utility vehicles, and the supply of these vehicles for an amount above the LCT threshold without LCT being paid may well attract the ATO’s scrutiny.

P r a c t i c e U p d a t e August 2023

ian@digitalwise.com.au (Ian Campbell) — Wed, 02 Aug 2023 04:14:27 GMT

Trusts – are they still worth it?

The recent ATO crackdown on trusts will no doubt have some business owners questioning the merit of this structure for business or investment purposes.

Trust distributions have been under the ATO microscope in recent years. The latest ATO crackdown was in February 2022, when it updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities carrying losses. The ATO chiefly targets arrangements under section 100A of the Tax Act, specifically where trust distributions are made to a low-rate tax beneficiary.

However, the real benefit of the distribution is transferred or paid to another beneficiary, usually with a higher tax rate. The ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the common scenario where a parent benefits from a trust distribution to their adult children.

Despite this new ATO interpretation, the choice of a trust as a business or investment structure still has many benefits, as follows.

Asset protection – limited liability is possible if a corporate trustee is appointed. Usually, when a person owes money and cannot meet the repayment requirements, the creditor can access the person’s assets to recoup the debt payable. However, the beneficiary assets cannot be accessed if a trust is in place.

50% CGT discount – A family trust receives a 50% discount on capital gains tax for profits from selling assets the trust has held for more than 12 months. This contrasts with a company structure. Companies cannot access the 50% discount.

Tax planning – Income in the family trust not distributed by year-end is taxed at the highest income tax rate. However, any trust income distributed to the beneficiaries is taxed at the income tax rate of the beneficiary who receives the distribution. The way to get around the ATO’s section 100A crackdown is to ensure the distributed money goes to the nominated beneficiary and is enjoyed by the beneficiary rather than another taxpayer.

Carry-forward losses – A trust does not distribute losses to beneficiaries. This means the beneficiaries will not be called upon to contribute money to the trust to meet any loss. Instead, losses from each year can be carried forward to the following year, subject to certain conditions being met.

Gifting to employees

Some employers, especially at Christmas or birthdays, give small gifts to their employees or associates such as spouses. These gifts typically take the form of bottles of wine, movie tickets and gift vouchers. The tax treatment of these gifts, from an employer standpoint, depends upon a range of factors, including:

To whom the gifts are provided (e.g., employees or clients?)
Whether the gifts constitute entertainment
The dollar value of the gifts, and
The frequency with which they are provided.

Use the following steps as a guide.

Does the gift constitute entertainment?

If the answer is yes, go to 2.
If the answer is no, go to 3.

Gifts that constitute entertainment include tickets to the movies/plays/theatre, restaurant meals, holiday airline tickets, admission tickets to amusement parks etc. Gifts that do not constitute entertainment include Christmas hampers, bottles of alcohol, gift vouchers, perfume, flowers, pen sets etc.

2. Does it cost less than $300 (GST-inclusive) and is provided infrequently?

If the answer is yes, no FBT, deduction, or GST credit.
If the answer is no, FBT applies, is deductible and can claim any GST.

Does it cost less than $300 (GST-inclusive) and is provided infrequently?

If yes, no FBT deduction can be claimed, as can any GST credits.
If the answer is no, FBT applies, and a deduction can be claimed, as can any GST credits.

From a tax standpoint, it’s best to buy employees and their associate’s non-entertainment gifts that cost less than $300. That way, no FBT is payable, yet a deduction and GST credits can be claimed. Alternatively, you can put the tax burden back on the employee and pay them a cash bonus, in which case the amount will be assessed and deductible to the employer.

SMSFs and higher interest rates

SMSF trustees with limited recourse borrowing arrangements (LRBAs) now feel the impact of ten interest rate rises since May 2022 in one hit, from July 2023. SMSF trustees relying on the ATO’s safe harbour terms to ensure that an LRBA remains always at arm’s length will face an increase in monthly interest and principal repayments from 1 July 2023.

The arm’s length annual interest rate for 2023/24, as determined under the ATO’s safe harbour terms, is based on the published rate for the month of May 2023 of the Reserve Bank of Australia’s Indicator Lending Rate for banks providing standard variable housing loans for investors.

Following the ATO’s safe harbour, where an LRBA is funding the purchase of real property, the relevant interest rate for 2023/24 will increase to 8.85%. This is an increase of 3.5% from the former rate of 5.35%. Where the LRBA funds the purchase of listed shares or listed units in a unit trust, safe harbour requires an additional margin of 2%, meaning the relevant interest rate for 2023/24 has increased to 10.85%. This will make SMSF cash flow more important than ever.

Conversely, higher interest rates result in super funds pilling more money into cash and bonds as they look for low-risk investments. Funds have been increasing their exposure to cash and cash products from 18% of their savings pools last year to 22% this year, a new report shows. [1]

Their exposure to the share market through direct investment dropped by 5% simultaneously as they funnelled their money into less volatile assets such as term deposits. A reminder, though, that such a change in strategy must be consistent with the overall SMSF investment strategy and may or may not be in the best interests of younger members whose circumstances may call for a higher-risk, bolder investment strategy.

R&D reminder

The ATO has reminded companies wishing to claim a tax offset for their R&D (research and development) activities. The reminder was issued regarding the ATO’s success in the Federal Court decision TDS Biz Pty Ltd v FCT. [2] By way of background, the research and development tax incentive (R&DTI) helps companies innovate and grow by offsetting some of the costs of eligible R&D.

The incentive aims to boost competitiveness and improve productivity across the Australian economy by:

Encouraging the industry to conduct R&D that may not otherwise have been conducted.
Improving the incentive for smaller firms to undertake R&D.
Providing businesses with more predictable, less complex support.

The eligibility to claim the tax offsets will depend on whether the business:

is an R&D entity.
incurred notional deductions of at least $20,000 on eligible R&D activities.

The business is not eligible for an R&D tax offset if it is either:

an individual
a corporate limited partnership
an exempt entity (where your entire income is exempt from income tax)
a trust (except a public trading trust with a corporate trustee).

For income years commencing on or after 1 July 2021, entities engaged in R&D may be entitled to:

A refundable tax offset equal to the entity’s company tax rate plus an 18.5% premium for eligible entities with an aggregated turnover of less than $20 million annually, provided income tax-exempt entities do not control them.
A non-refundable tax offset for all other eligible entities equal to the entity’s company tax rate plus a two-tiered premium determined on the notional R&D expenditure as a proportion of total expenditure for the income year. The new rates are the company tax rate plus
8.5% for R&D expenditure up to 2% of total expenditure.
16.5% for R&D expenditure above 2% of total expenditure.

Turning back to the case above, the ATO successfully contended that the taxpayer conducted significant R&D activities outside Australia by purchasing components designed, developed and fabricated overseas without an Advance Overseas Finding from the Department of Industry, Science and Resources.

The ATO states that while companies can claim an offset for R&D expenditure incurred by them on R&D activities conducted overseas, there is a requirement to hold an Advance Overseas Finding for those activities.

Super withdrawal options

For individuals who have retired and met a condition of release or who have turned 65 and are still working, you can receive your superannuation as a super income stream, a lump sum, or a combination of both. This third option is widely utilised by those who have not paid out their house. For example – a lump sum is withdrawn to pay off the remainder of the mortgage, and the balance is used to commence a super income stream.

Lump sum

If your super fund allows it, you may be able to withdraw some or all your super in a single payment. This payment is called a lump sum. You may be able to withdraw your super in several lump sums. However, if you ask your provider to make regular payments from your super, it may be classed as an income stream.

The downside to lump sums from a tax perspective is that once you take a lump sum out of your super, it is no longer considered to be super and thus no longer enjoys the superannuation tax concessions (15% on earnings and capital gains and tax-free if you convert your super into an income stream). If you invest the lump sum outside of super, earnings on those investments are not taxed as super and may need to be declared in your tax return. Further, if you are over 60, super money you access from super will generally be tax-free, but if you’re under 60, you might have to pay tax on your lump sum.

2. Super income stream

You receive a super income stream as a series of regular payments from your super provider (paid at least annually). The payments must be made over an identifiable period and meet the minimum annual payments for super income streams.

The payments do not need to be at the same interval, and the amount paid may also vary. However, a single payment does not qualify as a super income stream. For example, your super payment will not qualify as an income stream if you received a single payment in 2023 but no payments in 2022 and 2024. Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.

One of the most common income streams is an account-based income stream, which is made up of money you have accumulated in super, allowing you to draw a regular income once you retire. An account-based income stream includes market-linked pensions that started on or after 1 July 2017.

Your provider or SMSF typically continues to invest the money in your super account and adds investment returns to your account. Your account balance fluctuates with market performance. Each year you can withdraw as much as you like through your account-based super income stream (unless you’re receiving a transition to retirement income stream).

You must withdraw a minimum amount each year – based on your age and account balance. There may be income tax implications if your provider does not pay you the minimum amount each year. You can continue to receive your super income stream until there is no money in your account. How long your super income stream lasts depends on how much you take out each year and what investment returns you receive. There is a limit on the amount you can transfer into the retirement phase, known as the transfer balance cap. The chief advantage of this type of withdrawal is that earnings on the remainder of your account inside of superannuation are taxed concessionally.

Tax Time – Unexpected first-time debts

For the first time, many Australians are finding themselves in a position where they are being told they owe the ATO money after completing their tax return this year. A significant number of taxpayers in this position are those that are still paying off their HECS/HELP debts – many of them young Australians. Following are some myths and facts about why this may be the case.

Fact or Myth?

When PAYGW is deducted from salaries and wages to take account of HELP liabilities, the withheld amount is not applied against the HELP debt until after the end of the income year, when the tax return is lodged. This means that indexation is applied to the debt without considering any PAYGW withheld during the year.

Fact or myth?

This is a myth.

Indexation only affects the loan balance. It does not affect the amount of the year-end tax liability.

When an employee has a salary sacrificed, the lower salary will reduce the PAYGW withheld. Still, the reportable fringe benefit is included in the repayment income used to determine liability to HELP repayments.

Fact or Myth?

This is a fact.

HELP repayment income is the total sum of the following amounts from a person’s income tax return for the income year:

taxable income
total net investment loss
reportable fringe benefits (as reported on their payment summary)
total net investment loss (which includes net rental losses)
reportable super contributions (including salary sacrificed contributions); and
any exempt foreign employment income amounts

Negative gearing amounts are added back and included in HELP repayment income. The rapid rise in interest rates will flow through to negative gearing amounts, increasing the repayment income.

Fact or Myth?

This is a fact.

However, this will only affect those engaged in negative gearing, which may not be many young Australians with a HELP debt.

The high indexation applied to HELP debts this year of 7.1% compared to prior years (3.9% in 2022 and 0.6% in 2021) has caught taxpayers off-guard. Before 2022, the rate had not exceeded 2.6% over the last ten years and was often around 2%.

Fact or Myth?

This is a myth.

Again, indexation only affects the loan balance. It does not affect the amount of the year-end tax liability.

The end of LMITO after 2021/22 is only just being realised by taxpayers now, despite two years of talking about this. The message did not get through, or the impact was not fully understood.

Fact or Myth?

This is a myth.

For employees, the PAYGW rates were increased to take the LMITO abolition into account, so yes, no refund, but there should not be tax payable due to just the LIMITO ending.

Personal Property Securities Register

What is it?

The personal property securities register (more commonly known as the PPSR) is an official government register. It’s effectively a public noticeboard of security interests in personal property that the Registrar of Personal Property Securities manages.

Security interests are most created when a secured party (such as a lender) takes an interest in the personal property of a grantor (such as a borrower) as security for a loan or other obligation. The security interest means the secured party can take the personal property (known as the collateral) if the secured obligation is not met, such as defaulting on a loan.

Personal property to which the PPSR applies is property other than land, buildings and fixtures to the ground. It includes goods, motor vehicles, planes, boats, intellectual property such as copyright/patents/designs, shares, bank accounts and debts.

The debts or other obligations secured by personal property are shown on the register (if registered). The PPSR is accessible to the public 24/7. The PPSR began on 30 January 2012, replacing many state-based registers, such as REVS and other vehicle registers and the ASIC Register of Company Charges, to form one national register.

The register assists those with a security interest over property and consumers/businesses purchasing property as follows.

Registering

When someone registers a security interest on the PPSR, they are letting the world know that they claim to have a security interest over certain personal property. Registering on the PPSR is a way to notify others if personal property such as cars, goods or company assets have security interests over them. Registering your security interest correctly on the PPSR can protect you and give you extra rights in the property it’s registered over. This is especially important if the person who gave you the interest goes insolvent. Registration also offers other protections, such as ranking you at a higher priority over other security interests.

Searching

Consumers, including businesses, can search the PPSR to see if someone has registered a security interest over personal property (which they may want to do before buying property or lending money to someone). When you search, you will receive a certificate that you can retain as proof of whether a security interest was registered during your search. If you don’t do a search and then purchase property with an existing security interest registered over it, you place yourself at risk of the goods being repossessed even though you have paid for them. Millions of searches and registrations take place on the PPSR every year.

To access the PPSR, visit www.ppsr.gov.au

Superannuation and age pension eligibility

During retirement, many people rely on a combination of their superannuation savings and their age pension to sustain them moving forward financially. Accordingly, a front-of-mind issue for individuals is at what point do the superannuation savings and payments impact your eligibility for the age pension?

While someone is underage pension age, concerning any Centrelink payment, Centrelink does not count your or your partner’s superannuation balance in the income or assets test if your fund is not paying you a superannuation pension. However, that pension is considered if your fund pays you a superannuation pension.

Once you reach age pension age, Centrelink counts your super (a) in the assets test and (b) in the income test under the deeming rules. The same rules apply to your partner and their super when they are age pension age, even if they are not receiving a Centrelink payment.

Deeming is a set of rules determining the income your financial assets create. It assumes these assets earn a set rate of income, no matter what they earn. The main types of financial assets are:

savings accounts and term deposits
managed investments, loans and debentures
listed shares and securities
some income streams
some gifts you make.

Centrelink includes any deemed income as your income under the income test. The income test helps Centrelink determine how much income support it can pay you. Taking money out of superannuation doesn’t affect your Centrelink payments, but you may be impacted by the deeming rules (see earlier) depending on where that money is invested outside super.

Recent research into retirement confidence by Monash University found that people aged 50 and over – who take time to understand and plan their finances – are less anxious about transitioning into retirement. It found that they were more confident overall about their retirement options. Knowing how much of the age pension you could be eligible for can help you understand your finances in retirement. For many, a qualified financial adviser with superannuation and retirement planning knowledge can help you get the balance right.

[1] The Vanguard and Investments Trend annual survey of SMSFs

[2] [2023]

P r a c t i c e U p d a t e July 2023

ian@digitalwise.com.au (Ian Campbell) — Sun, 02 Jul 2023 23:26:53 GMT

P r a c t i c e U p d a t e July 2023

Court penalises AMP $24 million for charging deceased customers

The Federal Court has found that four companies that are or were part of the AMP Group breached the law when charging life insurance premiums and advice fees from the superannuation accounts of more than 2,000 deceased customers.

The Federal Court ordered two of these AMP companies to pay a combined penalty of $24 million for the breaches.

Both AMP Life Limited and AMP Financial Planning admitted that they engaged in unconscionable conduct by deducting and/or failing to properly refund insurance premiums and advice fees respectively from superannuation members after being notified of their deaths. Both companies also admitted that they accepted insurance premiums and advice fees despite there being reasonable grounds for believing that they would not be able to supply the insurance or advice.

The Court also found all four AMP companies contravened their overarching obligations as Australian financial services licensees to act efficiently, honestly and fairly.

The super guarantee rate is increasing

Businesses that have employees, or hire eligible contractors, will need to ensure that their payroll and accounting systems are updated to reflect the new super guarantee rate of 11% for payments of salary and wages that are made from 1 July 2023.

Businesses need to calculate super contributions at 11% for their eligible workers for payments of salary and wages they make from this date.

Super contributions for the quarter ending 30 June (due by 28 July 2023) are still calculated at the 10.5% rate for payments of salary and wages made prior to 1 July.

Minimum annual payments for super income streams

The ATO reminds taxpayers that an SMSF must pay a minimum amount each year to a member who is receiving a pension that commenced on or after 20 September 2007 (e.g., account based pensions). If the minimum payment is not made by 30 June, this can result in adverse taxation consequences for the member

In response to COVID-19, the government temporarily reduced superannuation minimum drawdown requirements for account-based pensions and similar products by 50% for the 2020, 2021, 2022 and 2023 financial years.

However, for the 2024 financial year, the 50% reduction in the minimum pension drawdown rate will no longer apply.

This means that, from 1 July 2023, when taxpayers calculate the minimum annual payment for their pension, the 50% reduction will not apply to the calculated minimum annual payment.

Editor: Contact our office if you require assistance in determining the minimum pension payment that must be made in the 2024 financial year.

Know your private company loan arrangements before you lodge

The ATO advises taxpayers that, if they or an associate take a loan from their private company, they should not forget the requirements of repaying a private company loan for income tax purposes. Otherwise, they could find the loan treated as a Division 7A deemed dividend and included in their, or their associates', assessable income.

Taxpayers should consider the following in particular before lodging their private company tax return:

ensure their loan is a Division 7A complying loan and make minimum yearly repayments; and
they can’t borrow further money or assets from the same company, directly or indirectly, to make minimum yearly repayments or repay the loan – if they do, these payments may not be taken into account and could result in an assessable deemed dividend.

The ATO encourages taxpayers to check their loan repayments and, if they are concerned a payment will not be taken into account, they should speak to their registered tax adviser or contact the ATO.

Editor: Please contact our office if you require assistance in relation to your loan arrangements.

Proportional indexation of transfer balance caps from 1 July 2023

The ATO reminds taxpayers that, on 1 July 2023, the general transfer balance cap will be indexed. Individuals will have a personal transfer balance cap between $1.6 and $1.9 million, based on the highest ever balance of their transfer balance account between 1 July 2017 and 30 June 2023.

While indexation will occur on 1 July 2023, the ATO won't be displaying member’s updated personal transfer balance caps until 11 July 2023.

The ATO encourages all SMSFs to report any events that occurred prior to 1 July 2023 by 30 June 2023, to ensure member’s personal transfer balance cap calculations are based on correct and up to date information.

From 11 July, both members and their agents will be able to view the member’s personal transfer balance cap on the ATO’s website.

After 11 July 2023, a member's personal transfer balance cap will be recalculated if the ATO receives reporting of events effective prior to 1 July 2023.

Individuals can continue to report transfer balance cap information to the ATO between 1 July 2023 and 11 July 2023, however these will not be processed until after this period.

This means the ATO won't be able to issue or revoke excess transfer balance determinations it has sent to a member, or commutation authorities it has sent to a fund.

Processing of any reported events will continue as normal after 11 July 2023.

Masters course fees not deductible as self-education expenses

The Administrative Appeals Tribunal (‘AAT’) has held that tuition fees for a public policy Masters course were not deductible, on the basis that the course did not relate to the taxpayer's work as a music teacher.

The taxpayer was a qualified teacher who specialised in teaching music. He had commenced a Masters Course at the University of Melbourne (the Masters course), and subsequently claimed a deduction for work-related education expenses in relation to the subject tuition fees. The taxpayer submitted that the Masters course would expand the breadth of subjects he could teach and therefore help him secure management positions.

However, the ATO disallowed the deduction as it was not satisfied that a real and direct connection existed between the study and the taxpayer's work.

The AAT confirmed the ATO’s decision that the fees were not deductible as self-education expenses, as the tuition fees were not incurred in gaining or producing the taxpayer's assessable income. The subjects undertaken by the taxpayer in the 2021 year, for which he was seeking to claim a deduction, "did not maintain or improve his skills or knowledge as either a music teacher or relief teacher".

The AAT also noted that, in incurring the claimed self-education expenses, the taxpayer’s intention “of being able to expand his ability to teach in subjects outside of music and to gain leadership positions relate to new employment or new income-earning activities and as such is not sufficient basis for those expenses to be deductible”.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

2022/23 Individual Tax Return Checklist

ian@digitalwise.com.au (Ian Campbell) — Sun, 02 Jul 2023 23:19:21 GMT

2022/23 Individual Tax Return Checklist

Click here to down load the check list

Practice Update #2 June 2023

ian@digitalwise.com.au (Ian Campbell) — Sun, 02 Jul 2023 23:14:48 GMT

P r a c t i c e U p d a t e June 2023

2023/24 Budget Update

On 9 May 2023, Treasurer Jim Chalmers handed down the 2023/24 Federal Budget.

Some of the measures announced by the Government (including some which were actually announced prior to the Budget), include:

from 1 July 2026, employers will be required to pay their employees’ superannuation at the same time as their salary and wages;
providing businesses with annual turnover of less than $50 million with an additional 20% deduction on spending that supports electrification and more efficient use of energy (the 'Small Business Energy Incentive'); and
increasing the capital works tax deduction depreciation rate for eligible new build-to-rent projects from 2.5% to 4% per year.

In addition to these, one of the most important aspects of this Budget was that the Government has provided some further depreciation relief for small businesses once temporary full expensing comes to an end on 30 June 2023.

Specifically, from 1 July 2023 until 30 June 2024, the Government will temporarily increase the instant asset write-off threshold for small businesses (with an aggregated annual turnover of less than $10 million) from $1,000 to $20,000. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool.

Also, the provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024.

Other important measures the Government announced include:

amending (and limiting) the non-arm’s length income (‘NALI’) provisions which apply to expenditure incurred by superannuation funds;
reducing the tax concessions available to individuals with a total superannuation balance exceeding $3 million; and
exempting lump sum payments in arrears from the Medicare levy.

In the ATO's sights this Tax Time

The ATO has announced its three key focus areas for this Tax Time:

rental property deductions;
work-related expenses; and
capital gains tax.

ATO Assistant Commissioner Tim Loh said the ATO is continuing to prioritise areas where they often see mistakes being made:

"Within these areas, we have identified common mistakes, and are particularly focused on addressing these and supporting taxpayers and registered tax agents to get their claims right this year."

However, the ATO also recognises that many people are "doing it tough" this year, and expects fewer people will receive a refund, or they may receive smaller refunds than they were expecting, and more may have tax debts to manage.

Editor: Mr Loh also recommends that any taxpayers feeling overwhelmed, or getting behind with their tax, should let the ATO know as early as possible or "have a chat with your registered tax agent so we can work with you to find a solution. Don’t bury your head in the sand".

ATO advice regarding year-end trustee resolutions

The ATO has advised that, in the lead up to 30 June, trustee clients who wish to make beneficiaries presently entitled to trust income for the 2023 income year should ensure their trustee resolutions are effective.

This includes where trustees may want to make beneficiaries 'specifically entitled' to franked dividends and capital gains included in that income (i.e., where trustees want to 'stream' those classes of income to certain beneficiaries).

It is important that trustee clients:

check their trust deed to ensure that the intended beneficiaries are within the class of persons entitled to trust income (or of trust capital, if they intend to stream a capital gain that is not income of their trust) and are not excluded from being beneficiaries;
comply with any requirements in the trust deed that concern how to validly 'appoint' (or distribute) trust income to beneficiaries;
recognise that, for tax law purposes, beneficiaries need to be made presently entitled to trust income by 30 June of the relevant year;
are aware that, if they fail to do what is required in a trust deed, or fail to appoint income by 30 June, this may cause outcomes to arise that differ to what they intended. This could include other beneficiaries being assessed on the relevant share of the trust's net (taxable) income (or the trustee being assessed at the top rate of tax); and
ensure that resolutions are unambiguous.

'Side hustles' in the ATO's sights

Editor: A recent ATO article highlights the fact that it is increasingly trying to bring more modern techniques of money-making into its tax net . . .

‘Side hustles’ have really grown over the past few years — everything from the gig economy and drop shippers, to content creators and influencers.

The ATO recognises that it can be hard to know how to treat income when earning money from side hustles, especially when an individual has several, so the ATO has prepared some tips.

First, the individual needs to know if they are 'in business'. If so, they may need to think about registration and tax obligations. If they are not in business, but are looking to start one, they should know how to "set themselves up for success".

Also, if a side hustle means the individual is now a director of a company, they must make sure they apply for a director ID (which is free).

Editor: Please contact our office if you require any assistance in relation to your 'side hustles'.

ATO ride sourcing data-matching program

The ATO will acquire ride sourcing data relating to approximately 200,000 individuals to identify individuals that may be engaged in providing ride sourcing services during the 2022/23 financial year.

The data items include:

identification details (driver identifier, ABN, driver name, birth date, mobile phone number, email address and address); and
transaction details (bank account details, aggregated payment details, gross fares, net amount paid to driver, and all other income to which GST may or may not apply) of all payments received in the relevant period.

The data will be used to identify and inform ride sourcing providers of their tax obligations as part of information and education campaigns.

The intelligence obtained will increase the ATO’s understanding of the behaviours and compliance profiles of individuals and businesses that provide ride sourcing services, and may also be used as part of the methodologies by which the ATO selects taxpayers for compliance activities.

Practice Update June 2023

ian@digitalwise.com.au (Ian Campbell) — Fri, 09 Jun 2023 04:36:42 GMT

The generous depreciation in its final days

This month’s federal budget confirmed that temporary full expensing (TFE) is now in its final days. To recap, TFE will cease and be replaced by a $20,000 instant asset write-off (IAWO) from 1 July 2023.

Under this change, small businesses (aggregated annual turnover of less than $10 million) can immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. Assets valued at $20,000 or more (which cannot be immediately deducted) will be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

The write-off threshold for larger businesses is cut to $1,000 from 1 July 2023.

Eligibility for TFE

TFE, which allows eligible businesses with a turnover of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, is, however, still available until 30 June 2023. To take advantage of it, and assist your cashflow, note the following dates for 2022-23, whereby an eligible business can claim a deduction for the business portion of the cost of-

eligible new assets first held first used, or installed ready for use for a taxable purpose between 1 July 2022 and 30 June 2023 with a turnover of less than $5 billion

eligible second-hand assets where both were first held, first used or installed ready for taxable purposes between 1 July 2022 and 30 June 2023 for entities with an aggregated turnover of less than $50 million.

Ineligible asset for TFE

Most business assets are eligible, including machinery, tools, furniture, and equipment. There are, however, some ineligible assets, as follows.

buildings and other capital works for which a deduction can be claimed under the capital works provisions in division 43 of the Income Tax Assessment Act (ITAA) (1997)

trading stock

CGT assets

assets not used or located in Australia

where a balancing adjustment event occurs to the asset in the year of purchase (e.g. the asset is sold, lost or destroyed)

assets not used for the principal purpose of carrying on a business

assets that sit within a low-value pool or software development pool, and

certain primary production assets under the primary production depreciation rules (facilities used to conserve or convey water, fencing assets, fodder storage assets, and horticultural plants (including grapevines)).

Tips

TFE assists cash flow. No extra deductions are available under TFE; however, they are available sooner, which helps a business’s cash flow. Because extra deductions are not available, your business should continue to only purchase assets within your business plan – rather than purchasing assets just because of TFE.

Cash flow maximization for businesses

The predicted slowing of the economy in 2023/24, along with the payday super guarantee (SG) proposal, are sure to make cash flow more important than ever for businesses over the coming months and years, noting that it is one of the biggest difficulties faced by businesses.

To recap, from 1 July 2026, employers will be required to pay their employees’ super simultaneously as their salary and wages. Currently, SG is payable quarterly – allowing the business more time to make provisions for this obligation.

Strategies to improve cashflow

There are a number of strategies that may improve the cash flow of your business.

PAYG instalment assistance

In the recent federal budget, it was announced that there is PAYG instalment relief on the way. Currently, most small to medium-sized businesses are required to make pay-as-you-go (PAYG) instalments that go towards their annual income tax liability. Entities that are liable to pay GST may also elect to pay by instalments.

A 6% GDP uplift rate will apply to small to medium-sized businesses (and some individuals) who are eligible to use the relevant instalment method (this being up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) for instalments relating to the 2023-24 income year and which fall due after the enabling legislation receives royal assent.

This uplift factor is lower than the 12% rate that would have been applied under the statutory formula, freeing up cash for businesses.

Reconsider the terms on which you deal with customers

If a customer regularly cannot pay or cannot pay the full amount, you should consider the terms you deal with that customer. For instance, to protect yourself against future non-payment, you might like to only deal with that customer on an upfront payment basis. Decisions in this regard should be made on a case-by-case basis.

Send invoices immediately

By delaying the filling out of your invoices until the end of the week or the end of the month, for example, you are unnecessarily creating cash flow problems for yourself. When you make the supply, send out the invoice.

Bank amounts that you receive

By banking amounts, as soon as you receive them, you will be better able to monitor your true cash situation at any point in time. Not banking amounts lead to estimation and confusion as to the true cash position of your business.

Discounts for early payers

Offer discounts to customers who pay early. A word of caution – it is important to strike a balance between a reasonable discount and your desire for early payment. Offering sizeable discounts for money that may have been paid in full a few days later will end up causing its own cash flow problems! In most cases, it is best to keep the discounts small and require the payment well before the due date.

Insurance for debtors

If you are a business that relies heavily on a few clients, you should consider taking out insurance. By insuring against the failure of your major debtors, you can safeguard against their potential collapse.

Increase your time to pay

Try to get creditors to extend their due dates for payment, for example, from 14 days to 30 days, from 30 days to 60 days, or from 60 days to 90 days. Any extra time you must pay amounts owing is effectively interest-free. It also allows you to collect your money before paying the amounts owed.

Consider charging deposits

Consider charging deposits for significant orders. Not only does this guarantee at least part payment, but it also makes customers think twice before cancelling their orders for goods that are in the process of being made available.

Excess stock

Businesses need to make sure that they do not have excessive stock. Ideally, businesses should aim to have enough stock to keep customers happy and not have (if applicable) their store looking empty. Beyond that, any excess stock is merely tying up cash.

Year-end deductible, personal super contributions

As we approach the end of the financial year, are you looking to optimise your tax position and provide for your retirement? You may be able to claim a tax deduction for personal super contributions that you made to your super fund from your after-tax income – for example, from your bank account directly to your super fund.

Before you can claim a deduction for your personal super contributions, you must give your super fund a Notice of intent to claim or vary a deduction for personal contributions and receive an acknowledgment from your fund.

People eligible to claim a deduction for personal contributions include those who get their income from

salary and wages

a personal business (for example, people who are self-employed contractors or freelancers)

investments (including interest, dividends, rent and capital gains)

government pensions or allowances

superannuation

partnership or trust distributions

a foreign source.

The personal super contributions that you claim as a deduction will count towards your concessional contributions cap. When deciding whether to claim a deduction for super contributions, you should also consider the super impacts that may arise from this, including whether –

You will exceed your contribution caps

Division 293 tax applies to you

you wish to split your contributions with your spouse

it will affect your super co-contribution eligibility.

If you exceed your cap, you must pay extra tax, and any excess concessional contributions will count towards your non-concessional contributions cap. If you are 75 or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month you turned 75.

Suppose you are under 18 at the end of the income year you contributed. In that case, you can only claim a deduction for your personal super contributions if you also earned income as an employee or a business operator during the year. Various other conditions may apply, and timing is important to claim a deduction and optimise your tax position this financial year. Chat with us for more information.

ATO Tax Time focus areas

The ATO has announced its three key focus areas for this 2022/23 Tax Time – rental property deductions, work-related expenses, and capital gains tax (CGT). To maximise your claims in this area and protect yourself from ATO audits and adjustments, be sure to keep the appropriate records.

Work-related expenses

This year the ATO is particularly focused on ensuring taxpayers understand the changes to the working-from-home methods and are able to back up their claims. To claim your working-from-home expenses as a deduction, you can use the actual cost or the revised fixed rate method, provided you meet the eligibility and record-keeping requirements as follows.

RECORD-KEEPING –

REVISED FIXED RATE METHOD

RECORD-KEEPING –

ACTUAL COST METHOD

A record of all the hours you work from home for the entire year (e.g. a timesheet, roster, diary or similar document)

You will need to keep a record of every expense you claim

evidence you paid for the expenses covered by the revised fixed rate method (for example, if you use your phone and electricity when you work from home, keep one bill for each of these expenses)

receipts, bills or invoices which show the supplier, amount of the expense, nature of the goods, date it was paid and the date of the document

records for items you claim as a separate deduction

evidence of your personal and work-related use of the items or services you buy and use

From 1 July 2022 to 28 February 2023, the ATO will accept a record that represents the total number of hours worked from home (for example, a four-week diary).

You can work out your work-related expenses using records for the entire year or over a four-week period that represents your work use – for example, using a diary or itemised bill

From 1 March 2023, a record of all the hours you worked from home is required.

In relation to the depreciating of assets and equipment, you will need records that show the following.

When and where you buy the item and its cost

When you started using the item for a work-related purpose

How do you work out your percentages of work-related use, such as a diary that shows the purpose and use of the item for work.

Chat with us if you have any questions about which method to use and the records to keep.

Capital gains tax

Capital gains tax (CGT) occurs when you dispose of assets such as shares, crypto, managed investments or properties. Inform us as your accountant if you have disposed of such assets from 1 July 2022 to 30 June 2023. On the disclosure front, be mindful that the ATO has extensive data-matching capabilities and, as such, will likely be able to detect the sale of most CGT assets.

Rental property deductions

Many landlords expect large amounts of deductions to be claimed when their returns are lodged. However, your record-keeping will significantly impact the deductions that can be claimed. Talk with us about the record-keeping requirements if you are unsure. Keep records of the following.

bank statements showing the interest charged on money you borrowed for the rental property

loan documents

land tax assessments

documents or receipts that show the amounts you pay for

advertising (including efforts to rent out the property)

bank charges

council rates

gardening

property agent fees

repairs or maintenance

documents showing details of expenses related to

the decline in value of depreciating assets

any capital work expenses, such as structural improvements

before and after photos for any capital works

travel expense documents, if you are eligible to claim travel and car expenses such as

travel diary or similar that shows the nature of the activities, dates, places, times and duration of your activities and travel (you must have this if you travel away from home for six nights or more)

receipts for flights, fuel, accommodation, meals and other expenses while travelling

receipts for items you use for repairs and maintenance that you bought when you travel to or stay near the rental property.

documents that show periods of personal use by you or your friends

a document that shows periods the property is used as your main residence

loan documents if you refinance your property

documents, receipts and before and after photos for capital improvements

tenant leases

when you sell a property

contract of sale

conveyancing documents

sale of property fees.

This year, the ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was refinanced with some private purpose).

Director penalty notices

If your company is falling behind with the payment of certain taxes, directors may be held personally liable. There are a number of advantages to operating a business through a company structure. Chief among them is asset protection. Because a company is a separate legal entity, it is liable for any debts incurred while trading.

Directors, it is widely believed, are protected – they have no personal liability for the debts or actions of the company they run, and therefore their personal assets are not at risk from creditors if their business folds or is sued. While this is largely true, Director Penalty Notices (DPNs) stand as an exception to this general rule and can see directors held personally liable for certain ATO-related debts owed by their company.

Liabilities under the DPN regime

Originally, the DPN regime applied only to PAYGW liabilities. These include PAYGW amounts withheld (or that should have been withheld) from payments made to –

∙ Employees (from salary, allowances etc.)

∙ Other workers that you have a PAYGW voluntary agreement with, such as contractors, and

∙ Businesses that failed to quote their ABN but were required to do so.

In 2012, the DPN regime was extended to Superannuation Guarantee (SG) amounts from the 1 April 2012 quarter onwards. SG amounts can be payable to not only employees but also certain contractors. The DPN regime also now applies to outstanding GST, Luxury Car Tax, and Wine Equalization Tax (WET) as part of Activity Statements.

Applicability of DPN

DPNs can be issued to directors in relation to liabilities/debts that arose prior to their appointment as well as after their appointment. New directors have 30 days (commencing on the day of their appointment) before they become liable for the above types of debt. Given this strict liability regarding amounts that pre-date appointment, prospective directors need to do the company’s due diligence before accepting their appointment. Does the company have DPN amounts or lodgments outstanding?

The DPN regime can also apply to former directors. If you are no longer a director, you remain liable for director penalties equal to the unpaid PAYG withholding or SGC liabilities of the company that were due before the date of your resignation.

The DPN will typically be posted to either the director’s home or business address held by ASIC. The 21-day deadline commences from when the DPN is posted (not from when it’s received). Even if it is not actually received (for example, the directors may not have updated their address), liability applies from 21 days after the DPN is posted. It’s important. Therefore, the director’s addresses with ASIC remain up to date.

Defence against director penalty notices

Directors will not be liable for amounts contained in a DPN if they successfully invoke any of the following three defences.

You did not take part (and it would in the circumstances have been unreasonable to take part) in the management of the company during the relevant period because of illness or another good reason

Corrective action is taken by taking all reasonable steps to ensure one of the following three things happens.

The company paid the outstanding liability

An administrator was appointed to the company, or

The directors began winding up the company (within the meaning of the Corporations Act).

In the case of unpaid SG, the company interpreted the law as applying in a way that could be reasonably argued was in accordance with the law. For example, a defence may be available if a company has not paid an employee SG because it reasonably believed that the worker was a contractor.

Take-home message

Company owners are not immune from liability for certain ATO-related debts owed by their business

Ensure SG, PAYGW, GST/LCT/WET payments and lodgements are up-to-date

Before becoming a company director, do due diligence and ensure payments and lodgements are up-to-date

Keep address details up-to-date with ASIC

Explore the option of reimbursement from the company or other directors if you have paid a DPN personally

The ATO is cracking down on outstanding liabilities

If you have outstanding debts of this type or receive a DPN, contact us if you need assistance.

Budget 2023-2024

ian@digitalwise.com.au (Ian Campbell) — Mon, 15 May 2023 01:18:38 GMT

2023-24 Budget Report
The 2023-24 Federal Budget was handed down on 9 May. It contains changes to business and personal taxation, superannuation, social security entitlements, as well as the cost of living relief. Following are some of the headline measures, many of which are subject to enabling legislation.

Business

Less generous depreciation

Temporary full expensing (TFE) will cease and be replaced by a $20,000 instant asset write-off (IAWO) from 1 July 2023.

Under this change, small businesses (aggregated annual turnover of less than $10 million) will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that is first used or installed ready for use between 1 July 2023 and 30 June 2024. Assets valued at $20,000 or more (which cannot be immediately deducted) will be placed into a small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

For larger businesses, the write-off threshold is cut to $1,000.

TFE, which allows eligible businesses with a turnover of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, is however still available up to 30 June 2023.

Small Business Energy Incentive: 20% bonus deduction

This incentive will provide businesses with an annual turnover of less than $50 million and an additional 20% deduction on spending that supports electrification and more efficient use of energy.

It applies to a range of depreciating assets, as well as upgrades to existing assets. These will include assets that upgrade to more efficient electrical goods, such as energy-efficient

fridges, assets that support electrification, such as heat pumps and electric heating or cooling systems, and demand management assets, such as batteries or thermal energy storage.

Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.

Small business lodgement penalty amnesty

A lodgment penalty amnesty program will be provided for small businesses with aggregate turnover of less than $10 million to encourage them to re-engage with the tax system. The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.

Extension of anti-avoidance rules

From 1 July 2024, the scope of the general anti-avoidance provisions in Pt IVA of the ITAA 1936 will be expanded so that they can apply to (a) schemes that reduce the tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents. Part IVA already applies to schemes that produce a tax benefit by not having any withholding tax liability in respect of an amount paid to a foreign resident; and (b) schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.

Patent box proposals scrapped

The following patent box changes announced in the two previous Budgets will not be proceeding:

the introduction of concessional tax treatment for eligible corporate income associated with new patents in the medical and biotechnology sectors
extension of the patent box income measures to provide the same concessional tax treatment for corporate taxpayers who: commercialise their eligible patents linked to certain agricultural and veterinary chemical products; or commercialise their patented technologies, which have the potential to lower emissions.

Build-to-rent properties: building allowance up; MIT withholding rate down

Aimed at increasing the supply of housing for eligible new build-to-rent projects where construction commences after 7:30 PM (AEST) on 9 May 2023 (Budget night), new laws will:

increase the rate for the capital works tax deduction (depreciation) to 4% per year. his measure will apply to build-to-rent projects consisting of 50 or more apartments or dwellings made available for rent to the general The dwellings must be retained under single ownership for at least 10 years before being able to be sold and landlords must offer a lease term of at least 3 years for each dwelling
reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%. This will apply from 1 July 2024.

FBT and electric vehicles: sunset for plug-in hybrids

The new legislation will sunset the eligibility of plug-in hybrid electric cars from the FBT exemption for eligible electric cars. This change will apply from 1 April 2025. Arrangements involving plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025 remain eligible for the Electric Car Discount.

To recap, in the October 2022 Federal Budget, the government announced that it would exempt from FBT the private use, or availability for use, of cars to current employees that are zero or low emissions vehicles with a value at first retail sale below the luxury car tax threshold for fuel-efficient vehicles. This is aimed at encouraging a greater take up of electric cars by Australian road users to reduce Australia’s carbon emissions from the transport sector by making electric cars more affordable. The new law applies to fringe benefits provided on or after 1 July 2022 for cars that are eligible for zero or low emissions vehicles that are first held and used on or after 1 July 2022

Changes to PRRT

The Budget confirms the major changes to the Petroleum Resource Rent Tax (PRRT) as it applies to the LNG industry.

The government is proposing a cap on the use of deductions from 1 July 2023. The cap will limit deductible expenditure to the value of 90% of each taxpayer’s PRRT assessable receipts in respect of each project interest in the relevant income year and apply after mandatory transfers of exploration expenditure. The amounts that are unable to be deducted because of the cap will be carried forward and uplifted at the Government long-term bond rate.

The cap will only apply to PRRT projects that produce LNG. Projects would not be subject to the cap until seven years after the year of first production or from 1 July 2023, whichever is later.

Individuals

No change to the Stage 3 tax cuts

The government did not propose any changes to the legislated Stage 3 tax cuts whereby 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. The 37% tax bracket will be entirely abolished at this time.

On the face of it, lowering the 32.5% to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper- middle-income earners. But it will actually be a much bigger win for higher-income earners in dollar terms. For example, an individual who earns:

$75,000 will be better off by $750 per year compared to now
$125,000 will be better off by $2,225
$200,000 will be better off by $9,075.

The changes are as follows:

2022-23 Thresholds 2022-23 Tax rates

Up to $18,200 Nil

$18,201 – $45,000 19%

$45,0001 – $120,000 13.2%

$120,000 – $180,000 37%

$180,000 and over 45%

2024-25 Thresholds 204-25 Tax rates

Up to $18,200 Nil

$18,201 – $45,000 19%

$45,001 – $200,000 30%

$200,001 and over 45%

Low-and middle-income tax offset (LMITO) not extended

This tax offset ceased from 1 July 2022. The LMITO was introduced by the former Coalition government in 2018. It was only meant to be paid out once but was twice extended due to the pandemic. This offset was not extended on Budget night, and no replacement tax relief was offered to low- and middle-income earners.

Consequently, low-income earners may face an increased tax liability of up to $1,500 when upcoming 2022/23 tax returns are lodged.

Superannuation

The 15% additional tax on superannuation “earnings” for individuals with account balances above $3 million from 1 July 2025 has been confirmed. This will be in addition to the current superannuation income tax rate of 15%, applying to the whole of fund earnings. No further details were provided in the Budget papers.

This is an extra tax impost for individuals, though it is forecast to impact less than 0.5% of people with a superannuation account. The tax can be paid by the superannuation fund or the individual. The $3 million threshold is not indexed.

Super Guarantee payable on payday from 1 July 2026

This will require all employers to pay their employees’ super guarantee at the same time as their salary and wages (e.g. weekly or fortnightly etc., instead of every three months) from 1 July 2026.

This may impact employer cash flow. From an employee standpoint, however, it will increase the transparency of SG payments and also boost retirement savings. For example, the Treasurer says that a 25-year-old median income earner currently receiving their super quarterly and wages fortnightly could be around $6,000, or 1.5% better off at retirement.

No reduction to the minimum drawdown for super pensions for 2023/24

The temporary 50% reduction in the minimum annual payment amounts for superannuation pensions and annuities will not be extended into 2023/24.

Pension recipients will need to drawdown minimums of 50% more than applies this financial year. Minimum payments are determined by the age of the beneficiary and the value of the account balance as of 1 July each year. Failure to meet the minimum drawdown amounts may mean that the pension will be treated as having ceased at the start of that income year for tax purposes.

NALI changes – proposed multiple reduced

The government is proposing to amend the non-arm’s length income (NALI) provisions that apply to certain expenses incurred by superannuation funds. Specifically relevant to SMSF trustees, the government is proposing to limit the level of a fund’s income that is

potentially taxable as NALI to twice the level of an impacted ‘general’ expense.

The government had previously proposed that the maximum amount of income, subject to the highest marginal rate, would be five times the level of the general expenditure breach. A reduction to a multiple of two (instead of five) is welcome.

Social security and cost of living

Boost to Centrelink payments

A base-rate increase of $40 per fortnight for about 1.1 million Australians on support payments, including JobSeeker, Austudy and Youth Allowance.

Jobseeker increased

A JobSeeker payment increase of $92.10 per fortnight will kick in for about 52,000 people aged over 55 who have been on the allowance for nine or more straight months. This currently applies only to those aged over 60.

Power bill rebates

$500 energy rebates for 5.5 million households and 1 million businesses. Relief will be targeted to pensioners, Commonwealth Seniors Health Card holders, and households receiving income support, including Family Tax Benefit A and B. Income limits apply.

Sole parents

Sole parents will be able to receive the single parenting payment until their youngest child turns 14 – up from the current age of eight.

Rent assistance

15% increase to the rate of Commonwealth. Rent Assistance, providing up to an additional $31 a fortnight for about 1.1 million eligible households.

Practice Update May 2023

ian@digitalwise.com.au (Ian Campbell) — Mon, 01 May 2023 04:15:14 GMT

Temporary Full Expensing (TFE)

This could be the final opportunity for your business to take advantage of Temporary Full Expensing (TFE) but get in before 1 July!

To recap, TFE encourages and supports businesses by allowing an immediate deduction for the business portion of the cost of a depreciating asset. There is an unlimited cost threshold – the whole cost of the asset can be written off, with limited exceptions such as motor vehicles (which can only be claimed up to the motor vehicle cost limit). TFE assists cash flow by allowing upfront deductions rather than those deductions being spread out over many years. Cash flow is a real business challenge, particularly in the current environment.

Until 30 June 2023, under TFE, businesses can claim new and second-hand depreciating assets where those assets are used or installed ready for use for a taxable purpose. From a timing standpoint, this means you will not be eligible for TFE in this financial year if you merely order or pay for the asset before 1 July 2023 – instead, the asset must be used or installed and ready for use in your business before this date.

Most business assets are eligible, including machinery, tools, furniture, and equipment. There are, however, some ineligible assets, as follows:

buildings and other capital works for which a deduction can be claimed under the capital works provisions in division 43 of the Income Tax Assessment Act (ITAA) (1997)
trading stock
CGT assets
assets not used or located in Australia
where a balancing adjustment event occurs to the asset in the year of purchase (e.g. the asset is sold, lost or destroyed)
assets not used for the principal purpose of carrying on a business
assets that sit within a low-value pool or software development pool, and
certain primary production assets under the primary production depreciation rules (facilities used to conserve or convey water, fencing assets, fodder storage assets, and horticultural plants (including grapevines)).

Provided these exclusions do not apply, the asset will be eligible where the business has an aggregated turnover of less than $5 billion for the relevant year and no balancing adjustment event happens to the asset in that year.

Make early SG contributions

Some employers look to improve their current year tax position by bringing forward June quarter superannuation guarantee (SG) contributions before 1 July (not due until 28 July). From a technical standpoint, the income tax rules allow an employer to claim income tax deductions for contributions made to a super fund or retirement savings account (RSA) on behalf of employees, subject to certain conditions being met. The income tax deduction, however, is only available in the income year the contribution is made. Super contributions are deemed to be made when the fund receives the payment or RSA – as distinct from when it is paid.

While this is clear-cut where an employer pays SG directly to an employee-nominated fund or the employer’s default fund, what of the common case where SG contributions are made to a superannuation clearing house? Employer payments made to an approved clearing house are taken to be contributions made on the day they are accepted by the approved clearing house. Importantly, however, this is only to determine whether an employer is liable for the SG Charge…it does not extend to determining the timing of the employer tax deduction.

To recap, ATO’s free Small Business Superannuation Clearing House (SBSCH) is the only ‘approved’ clearing house – none of the many commercial clearing houses have this status. The SBSCH is a free service that small businesses with 19 or fewer employees or an annual aggregated turnover of less than $10 million may use to make super contributions to employees. The SBSCH aims to reduce compliance costs for small business employers by simplifying and streamlining employee super contributions by allowing employers to make a single lump payment of their contributions to the SBSCH each quarter. That lump sum payment is broken into individual payments by the SBSCH and then contributed to each employee’s respective super fund or RSA.

The ATO itself concedes that there may be a period of time between an employer’s payment to the SBSCH and the trustee of a complying super fund receiving the contribution. Further, the SBSCH may be unavailable over a weekend close to the end of the financial year for scheduled system maintenance. This means that payments made towards the end of an income year may not be received by the trustee of a complying super fund or an RSA in the same income year. This may impact when an employer is entitled to an income tax deduction for the super contributions.

For its part, the ATO’s position is that it will not apply compliance resources to consider whether the contribution an employer made was received by the trustee of the super fund or RSA in the same income year in which you made the payment to the SBSCH, provided the employer made the payment to the SBSCH before the close of business on the last business day on or before 30 June.

For those employers who do not use the SBSCH but instead use commercial clearing houses, for the contributions to be deductible this financial year (in 2022/23), it is recommended that it be made up to 21 days before the end of the financial year.

For employers who make contributions directly to employee super funds, the contributions should be made a few days before the end of the financial year to ensure they are received before 1 July and, therefore, deductible in the current financial year.

Director bonuses

It’s not an uncommon strategy for companies to resolve to pay director fees or director/employee bonuses in the current financial year but not physically pay them until the following financial year. The aim of this is a degree of tax deferral, whereby a company commits itself to pay director fees or bonuses in the current financial year and accordingly claims a tax deduction. However, it does not pay the amount in that year but the following year. A deduction is claimed, but the company incurs no expense.

For the recipient director/employee’s part, the law is settled. The bonus, fee, salary, wages, and other similar types of income are derived for income tax purposes when the income is paid or otherwise made available to the director/ employee. This is so notwithstanding that the services giving rise to the income may have been rendered in a previous year. Therefore, although the director/employee is entitled to the payment (because the company has made a resolution to pay it), they only need to declare the income in the year it is received.

What of the ATO’s position? To claim a deduction in the current 2022/23 financial year, there must be a definite liability to pay the amount in question, which must arise on or before 30 June. This can be achieved by the company passing a properly authorised resolution by this date. Those amounts must be paid in the following months and at least by the end of the following year. When those amounts are paid, the standard PAYG rules must be complied with for a deduction to be claimed.

Trust distributions

If you have a discretionary trust, you need to complete trust distribution resolutions by 30 June to avoid paying extra tax of up to 47% on undistributed amounts (i.e. the top marginal tax rate, plus Medicare levy). This deadline has not always been such, and the Commissioner previously allowed a two-month window until the end of August. That window now, however, only applies to trust capital gain distributions that have not already been dealt with by 30 June.

Although 30 June is the deadline, there are a couple of caveats:

It’s important to note that the Commissioner will accept records created after this date as evidence of making a resolution by that date. For example, assume an individual trustee writes a note on 25 June resolving to distribute trust income in a certain way. Then in early July, they type a note reflecting the 25 June resolution and provide a copy to the beneficiaries. In this scenario, the Commissioner will accept the handwritten or typed note as evidence of the resolution made by the 30 June cut-off.
Likewise, trust accounts need not be prepared by 30 June to make beneficiaries entitled to trust income. Resolutions do not need to specify dollar amounts for the resolution to be effective in making a beneficiary presently entitled – this is unless the trust deed specifically requires it. Provided there is a clear methodology for calculating a beneficiary’s entitlement (for example, a percentage of the trust income, whatever that turns out to be), the resolution will generally be effective.

Resolutions made after 30 June will not be effective.

Regarding what needs to be done by 30 June, resolutions must meet all the trust deed requirements. Distributions of income and capital must be consistent with the deed. There is no standard format for a resolution – there is a wide variety of trust deeds with differing requirements for resolutions. Most importantly, the resolution makes one or more of the trust’s beneficiaries entitled to the trust income by 30 June.

If the deed allows for it, resolutions can be made orally. Therefore, it is conceivable to make an oral resolution to distribute trust income in a particular way. The problem is that the Commissioner, should enquiries be made, will look for objective evidence that a resolution was made. This may take the form of, for example:

A diary entry
Meeting minutes
Correspondence, such as emails
Memos
Draft minutes.

This can be a complex area. Contact us if you are in any doubt about distributions before 1 July.

Write off bad debts

If a business accounts for income on an accruals (non-cash) basis, it should review its debtors to write off bad debts before 1 July (and, in doing so, claim a deduction this financial year).

If it is determined there is no or little likelihood that an amount included in your assessable income will be recovered from the debtor, you may claim that amount as a tax deduction.

You need to write off the unpaid amount as a bad debt to claim a deduction for the assessable income that cannot be recovered.

This means you must have decided to write off the debt and recorded that decision in writing before the end of the income year in which you claim a deduction. For example, you may have removed the debt from the customer’s account and recognised it as a bad debt expense.

The debt must still exist and not be otherwise dealt with when you write it off and claim a deduction. For example, you must not have waived or forgiven the debt, extinguished the liability in another way, or sold the debt.

If you subsequently recover an amount you wrote off as a bad debt and claim it as a tax deduction, the amount you recover must be included in your assessable income when you receive it.

Crystalise capital losses

It has been a tough year for investors.

CoreLogic’s capital city index declined 8.8% from its May 2022 peak to December, down 7.1% in calendar year terms, being the worst calendar year results in 42 years. The share market, too, has struggled.

Suppose you have already sold assets and made capital gains during the year and are contemplating selling other capital assets that would result in a capital loss. In that case, you may wish to consider doing so before 1 July.

You can deduct allowable capital losses from your capital gains to reduce or eliminate your 2022/23 CGT liability.

Capital losses must be used at the first opportunity.

If you have any capital losses in the current year or unused capital losses from previous years, you must:

use these losses to reduce any capital gains in the current year, and
use the earliest losses first.

Example

For 2022/23, a taxpayer has:

capital gains of $20,000
capital losses of $12,000.

The taxpayer also has prior year net capital losses of $6,000 from 2021/22 and $4,000 from 2020/21.

How are the capital losses applied?

The 2022/23 net capital gain of $8,000 is reduced to zero by applying the net capital losses in the order in which they arose. The 2021/22 capital loss of $6,000 is applied.

The remaining $2,000 gain is reduced by the 2020/21 loss of $4.000. This leaves a net capital loss of $2,000 to be carried forward.

Prepay business expenditure

In certain circumstances, an SBE taxpayer (Small Business Entity with an aggregated annual turnover of less than $50 million) can claim an immediate deduction for prepaid business expenses where the payment is for a period of service that is 12 months or less and ends in the following income year.

You are permitted to claim expenditure straight away under this rule unless the expenses are excluded expenses such as:

amounts of less than $1,000
amounts required to be incurred by a court order or law of the Commonwealth, state or territory (such as fines or penalties)
payments of salary or wages (under a contract of service) » amounts that are capital, private or domestic in nature (except certain research and development amounts), and
certain amounts incurred by a general insurance company in connection with the issue of policies or the payment of reinsurance premiums.

Examples of prepaid expenses include but are not limited to:

Rent
Airfares and accommodation
Subscriptions
Contract payments
Insurance
Advertising
Service agreements for IT
Bookings for conferences, major events etc.

EXAMPLE

Bradshaw Pty Ltd is a small business taxpayer. On 1 June 2023, Bradshaw prepays $15 000 for its next 12 months’ rent. The expenses cover the period from 15 June 2023 to 1 June 2024. Bradshaw can take advantage of the prepayment rules because:

the period covering the prepayment does not exceed 12 months (i.e. 15 June 2023 – 1 June 2024)
the period for which the prepayment was made ends before the last day of the income year following the prepayment (i.e. it ends before 30 June 2024).

Federal Budget

Moving away from tax planning, it’s less than a fortnight until the Federal Budget.

In the days following, please get in touch with us if you have any questions about how the Budget may impact your business, investments, or as an individual. Some of the things to look out this year include:

Temporary full expensing

Under current legislative settings, TFE is set to cease on 1 July 2023, with the write-off set to revert to just $1,000 from that date. Suppose no action is taken in the Budget to extend TFE. In that case, this will impact businesses’ cash flow because depreciation deductions will be spread out over many years rather than being claimed upfront.

Stage three tax cuts

The fate of these tax cuts is also expected to be revealed. If they are to proceed, they will abolish the current 37% tax bracket, lower the existing 32.5% bracket to 30%, and raise the threshold for the top tax bracket from $180,001 to $200,001. The following table illustrates how the rates and thresholds will change if the tax cuts proceed:

Tax RateThresholds in 2022-23Tax RateNew thresholds in 2024-25Nil Up to $18,200NilUp to $18,200 19% $18,201-$45,00019%$18,201-$45,000 32.5% $45,001-$120,00030%$45,001-$200,000 37% $120,001-$180,000 45% $180,001 and over45%$200,001 and over

On the face of it, lowering the 32.5% to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper-middle-income earners. Nevertheless, it will be a much bigger win for higher-income earners in dollar terms.

Low and middle-income tax offset (LMITO) replacement?

This $1,500 tax offset ceased on 1 July 2022. The LMITO was introduced by the former Coalition government in 2018, and it was only meant to be paid out once but was twice extended due to the pandemic. We will wait until Budget night to see what, if any, alternative tax relief is offered to low and middle-income earners, or indeed whether the LMITO is reinstated. If not, low-income earners may face an increased tax liability of up to $1,500 when upcoming 2022/23 tax returns are lodged.

Were CGT concessions trimmed?

While it is unlikely the CGT main residence concession on the family home will be reduced, the 50% CGT discount for other investments held more than a year could be partially on the chopping block for some people. It is possible to imagine a reduction in the discount for capital gains over a certain threshold – say $3 million, in line with the threshold for the recent increase to superannuation earnings – limiting the impacts to a smaller, wealthier cohort of individuals.

Practice Update April 2023

ian@digitalwise.com.au (Ian Campbell) — Mon, 03 Apr 2023 03:24:58 GMT

Lost super

Did you know there is around $16 billion in lost and unclaimed superannuation across Australia?

The ATO recently indicated an increase of $2.1 billion in lost and unclaimed superannuation since the last financial year. ATO urges Australians to check their accounts.

How to find lost or unclaimed super

Finding lost or unclaimed superannuation is easy and can be done in minutes.

To find and manage your superannuation using ATO online services:

Sign in or create a myGov account
Link your myGov account to the ATO
Select ‘Super’.

You can then find and consolidate your superannuation.

Alternatively, if you cannot access ATO online services, call ATO’s lost super search line on 13 28 65. You must provide your personal details, contact details and superannuation fund details.

Who can have lost super?

People often lose contact with their superannuation funds when they change their job, name, address, live overseas, or forget to update their details.

Lost super is superannuation money held by superannuation funds. You become a ‘lost member’, and your superannuation becomes ‘lost’ if you are:

Uncontactable – the fund has lost contact with you, and your account hasn’t received a contribution or rollover for at least 12 months.
Inactive – your account hasn’t received a contribution or rollover in five years.

Your fund will hold your lost super until they find you. If they can’t find you, some lost super will be transferred to the ATO.

Who can have unclaimed super?

Unclaimed super money funds are required to transfer to the ATO twice a year.

Generally, superannuation will be transferred to the ATO from superannuation providers for any of the following:

Unclaimed super of members aged 65 years or older, non-member spouses and deceased members
Superannuation of former temporary residents who have left Australia for six months or more and their visa has expired
Small lost member accounts (with balances of less than $6,000)
Insoluble lost member accounts (i.e., lost accounts that have been inactive for a period of five years and have insufficient records ever to identify the owner of the account)
Inactive low-balance accounts
Accounts held in eligible rollover funds that were transferred to the ATO before they wind up
Amounts your fund transferred to the ATO voluntarily when they determine that it is in your best interest.

Don’t wait. Start looking!

Superannuation is one of the most important investments many Australians will have during their lifetime. Make sure you search for any lost or unclaimed super you may have, as bringing it all together may help you save on fees and make it easier to manage your retirement savings.

The proposed tax on $3m super balances

Individuals with large superannuation balances may soon be subject to an extra 15% tax on earnings if their balance exceeds $3m at the end of a financial year.

What has been proposed?

Recently, the Government announced it would introduce an additional tax of 15% on earnings for individuals whose total superannuation balance (TSB) exceeds $3m at the end of a financial year.

Those affected would continue to pay a 15% tax on any earnings below the $3m threshold but will also pay an extra 15% on earnings for balances over $3m.

The proposal will not impose a limit on superannuation account balances in the accumulation phase, and rather it is about how generous the tax concessions are on higher balances.

The Government has confirmed the changes will not be applied retrospectively and will apply to future earnings, coming into effect from 1 July 2025. This means your balance in superannuation on 30 June 2026 is what matters initially.

What counts towards the $3m threshold?

The $3m threshold is based on your TSB and includes all your superannuation accounts. This includes your accumulation and pension accounts and all superannuation funds you may have (such as your SMSF and any APRA-regulated superannuation funds you have).

Further, the $3m threshold is per member, not per superannuation fund. This means a couple could have just under $6m in the superannuation/pension phase before being impacted by the proposals.

How will earnings be calculated?

Put, the extra 15% tax is unrelated to the actual taxable income generated by your superannuation fund. Instead, it is a tax on earnings or increases in account balances over $3m (including unrealised gains and losses).

This means any growth in balances will include anything that causes your account balance to go up – such as interest, dividends, rent, and capital gains on assets that have been sold, including any notional or unrealised gains on assets that increase in value, even if your fund hasn’t sold them.

Apart from the extra 15% tax, the taxation of unrealised gains has caused a stir, as currently, individuals do not pay tax on income or capital gains on assets that have not been sold.

When looking at how to capture growth in a person’s TSB over a financial year, earnings will be calculated based on the difference in TSB at the start and end of the financial year. They will be adjusted for withdrawals and contributions.

It is also worth noting that negative earnings can be carried forward and offset against this tax in future years’ tax liabilities.

How is the extra 15% tax calculated?

Superannuation funds, including SMSFs, will not be required to calculate the earnings attributable to a member’s balance above $3m.

Instead, the ATO will use a three-step formula to calculate the proportion of total earnings, which will be subject to the additional 15% tax.

How will the extra tax be paid?

The ATO will notify individuals of their liability to pay the extra tax. This means the ATO will issue members with a tax assessment, not their superannuation fund.

Individuals can either pay the tax themselves or from their superannuation fund(s) (if they have multiple funds).

The tax will be separate from the individual’s personal income tax liabilities.

Don’t fret just yet

The measure will start on 1 July 2025, so superannuation funds and members still have time to consider their options.

Remember, this measure is still a proposal and must be passed into legislation by Parliament to become law. So don’t rush to remove benefits below the $3m limit just yet, as once amounts have been withdrawn from superannuation, it’s hard to get them back in.

FBT exemption for electric vehicles

With car fringe benefits one of the most common benefits provided by employers to employees, a new ATO fact sheet shines lighter on the FBT exemption for electric vehicles.

To recap, in the October 2022 Federal Budget, the Government announced that it would exempt from FBT the private use, or availability for use, of cars to current employees that are zero or low emissions vehicles with a value at first retail sale below the luxury car tax threshold for fuel-efficient vehicles. This aims to encourage a greater take up of electric cars by Australian road users to reduce Australia’s carbon emissions from the transport sector by making electric cars more affordable.

The new law applies to fringe benefits provided on or after 1 July 2022 for cars eligible for zero or low-emissions vehicles that are first held and used on or after 1 July 2022 (see examples 1 and 2 in the fact sheet).

To be clear, the new rules apply to cars that are collectively referred to as zero or low-emissions vehicles, namely:

battery electric vehicles
hydrogen fuel cell electric vehicles, and
plug-in hybrid electric vehicles.

For such vehicles, an FBT exemption should normally apply where both: the value of the car is below the luxury car tax threshold for fuel-efficient vehicles ($84,916 for the 2022/23 financial year), and the car is both first held and used on or after 1 July 2022.

From 1 April 2025, private use of a plug-in hybrid EV is no longer eligible for the exemption unless: (i) use of the plug-in hybrid electric vehicle was exempt before 1 April 2025, and (ii) the employer has a financially binding commitment to continue providing private use of that vehicle on and after 1 April 2025.

Other key points in the facts sheet are:

An FBT exemption may apply to a car benefit arising if either:
you allow your current employees, or their associates, to use a zero or low emissions vehicle (electric vehicle) for their private use, or
the electric vehicle is considered available for your current employees or their associates’ private use under FBT law.
If an employer or lessor provides an employee with the use of a car by means of a lease arrangement, the benefit provided is only a car benefit if the car lease arrangement is a bona fide car leasing arrangement.
Associated benefits arising from the provision of certain car expenses provided with the electric vehicle are also exempt from FBT. These are not included when working out if an employee has a reportable fringe benefits amount. These benefits may be provided as an expense payment, property or residual benefit, and include registration and road user charges, insurance, repairs and maintenance, and fuel (including electricity to charge and run electric vehicles).
Providing your employee with a home charging station is a fringe benefit – the benefit is not an exempt associated benefit.
If the use of the car and the associated car expenses are provided under a salary sacrifice arrangement, the exemption can still apply.
Even if an exemption applies for the electric vehicle car benefit, you still need to work out the taxable value of the car benefit provided. This is because the car benefit’s value is used in working out if the employee has a reportable fringe benefits amount. This does not include the value of any associated car expense benefits.
Employees’ reportable fringe benefits amount is reported on their income statement or payment summary. Employees do not pay income tax on this amount, but it does impact their income tests and thresholds for family assistance, child support assessments and some other government benefits and obligations.
The Government will complete a review of this exemption by mid-2027 to consider electric vehicle take-up.

The Trust distribution landscape IS now more settled

If you carry on your business affairs through a trust structure, there is more clarity around the law on distributions following much uncertainty throughout the year.

Neither the taxpayer, Mr Springer, nor the Commissioner has appealed against the Full Federal Court decision handed down in January 2023 (Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3).

Readers will recall that the Full Court ruled against the Commissioner on the section 100A issue but upheld his Part IVA determination for the 2013 year on the basis that the taxpayer had not demonstrated that absent the scheme (involving a distribution to a corporate beneficiary that was paid back to the trust as a franked dividend and on-paid to the non-resident Mr Springer without any top-up tax) the trust would have done something other than making a distribution directly to Mr Springer. The Commissioner was unsuccessful with his Part IVA appeal for 2012 when events were still said to be evolving.

Mr Springer may have decided he’s done well enough, having succeeded in challenging all but one of the income years attacked by the Commissioner.

The Commissioner may have been disappointed with the section 100A outcome but will probably rationalise the decision on the basis that it turned very much on its own facts – at the time the 2013 resolution was made to appoint trust income, there was no certainty that the corporate beneficiary would pay a franked dividend back up to the trust.

But he would have been pleased with the Part IVA result, which confirms that the 2013 amendments have been effective in disposing of the “do nothing” alternative postulate that was successfully relied on by RCI, News Corp and Futuris.

The legal and practical upshot of the Part IVA decision is that taxpayers can now be taxed on notional transactions with a very high tax cost that they would not have contemplated entering in a million years. It shows that the stroke of a legislative pen can undo taxpayer success in the courts.

The Full Federal Court ducked the issue of the ordinary dealing exception, which it was entitled to do, given its conclusion that there was no reimbursement agreement. But that outcome is regrettable at a broader level. Absent further guidance from the Full Court, we are left with some encouraging comments from Logan J at first instance (about the lack of artificiality), which the Commissioner reads down in TR 2022/4.

Hopefully, the Full Court’s decision in a case known as BBlood, expected later this year, will shed further light on the issue. Given the decision at first instance, it seems unlikely the taxpayer will succeed on the ordinary dealing question in that case. However, the appeal decision may include helpful guidance from the Full Court, even if the taxpayer is unsuccessful.

Reducing the risk of crypto scams

ASIC has released new and timely information about crypto scams.

Scammers use cryptocurrencies, like bitcoin or ether, because they are not easily recovered. Crypto can be sent overseas quickly with limited oversight. If you lose your money to a crypto scam, your money is likely gone. If you buy crypto, only invest what you can afford to lose, as it’s a somewhat volatile investment.

How to spot a crypto scam

If you’re investing in crypto, watch out for these potential red flags:

Unexpected contact

Someone you don’t know contacts you with investment advice or offers:

through phone, email, social media or text message
claiming to be an investment manager or broker
through an online forum discussing crypto.

Recommendations from someone familiar

You may hear about it through:

an advertisement or fake celebrity endorsement on social media
an online influencer promoting a token and claiming to have made huge, quick profits
family and friends who have unknowingly been scammed themselves
an online romantic partner who asks for money paid in crypto or suggests an investment opportunity.

Pressure to take action

You are being pushed to:

transfer crypto off your currency exchange and invest through their site
use crypto to pay an individual or for a financial service
download an investment app not listed on Google Play Store or Apple Store
deposit money to invest in different bank accounts
pay tax or invest more to access your funds.

Something doesn’t feel right

You’re not sure about:

the crypto investment offers ‘guaranteed’ high returns or ‘free’ money
crypto service providers that withhold investment earnings for ‘tax purposes.’
strange tokens appear in your digital wallet that you did not trade yourself
there is a little paper trail for crypto investments you make
the document describing the crypto investment (sometimes called a ‘whitepaper’) is poorly written or non-existent
online searches indicate that an entity may be a scam or has bad reviews
a work-from-home job offer that requires you to purchase cryptocurrency.

How crypto scams work

There are three main types of crypto scams:

Investing in a fake crypto exchange, website or app

Scammers create fake crypto trading apps to steal your money. The giveaway is usually that they ask you to download the app from their website. They may appear on legitimate platforms like Google Play and Apple but are usually promptly removed. If you find one on an app store, check for overly positive reviews and be cautious.

Fake crypto tokens, investments or jobs trading crypto

Scam tokens in crypto wallets – A mystery token appears in your crypto wallet, seemingly worth thousands. If you sell it, a ‘smart contract’ is activated. This transfers your legitimate crypto tokens and private keys to the scammer.
Crypto Ponzi scheme – You are promised large ‘returns’ by investing in crypto. But the promoter uses money from other investors to pay your ‘earnings’ for more on how these scams work.
Jobs ‘trading crypto’ – You apply for a job ad for ‘crypto traders’ for a fake or impersonated financial services firm. You are told to set up multiple bank and crypto accounts and are paid well for a few work hours a week. You think you’re trading crypto for the entity’s investors or clients, but you’re actually money laundering for the scammers. You could be charged by state or federal police.

Using crypto to pay scammers

Requests for payment in crypto – An online romantic partner, job recruiter, work-from-home job, or fake financial services firm asks for payment in crypto only.
Giveaway scams – Fraudulent posts on social media offer to match or multiply crypto invested with them in a crypto giveaway scam. Often, this uses fake celebrity endorsement.
Blackmail/extortion – You’re told by a scammer they have your internet browsing history, compromising photos or videos. They demand payment in crypto.

Take-home message

If you’re uncertain whether you’re being scammed by unsolicited contact, keep your powder dry and abstain from acting. Contact your advisors before acting.

Fending off GST audits

The Government has welcomed the actions of an ATO-led task force in relation to what is termed “the biggest GST fraud in Australia’s history”.

The ATO states that the fraud was first detected in early 2022 and involved offenders inventing fake businesses and ABN applications, then submitting fictitious Business Activity Statements to gain a false GST refund. In response, the ATO’s Serious Financial Crimes Taskforce set up “Operation Protego” in partnership with the Australian Federal Police. Warrants were executed in three States against ten individuals suspected of promoting fraud (including social media use).

Some of the numbers involved are simply staggering in terms of the perpetrators’ audacity:

The ATO has taken compliance action on more than 53,000 “clients”.
It has stopped approximately $2.5 billion in fraudulent GST refunds from being paid (as of 31 December 2022).
Two individuals have been sentenced to jail following their arrest in 2022.
There have been 87 arrests nationwide, “with many more to come”.
The ATO has commenced writing to over 20,000 individuals involved in the fraud.

The purpose of informing clients of this operation is to GST audits conducted by the ATO and what they will be looking for should you or your business be selected. As a starting point, generally, the ATO will apply at least some level of scrutiny to Activity Statements where there is a refund of $5,000 or more or where the refund is uncharacteristically large for the taxpayer involved.

The key to staving off a GST audit is obtaining and retaining tax invoices. As your tax agent, there is no requirement for us to view each and every tax invoice you hold before we make a claim for GST credits on your behalf on your Activity Statement. However, no claim can be made without you being in possession of a tax invoice.

Tax invoices for purchases of less than $1,000 must include enough information to determine the following seven details clearly:

document is intended to be a tax invoice
seller’s identity
seller’s Australian business number (ABN)
date the invoice was issued
brief description of the items sold, including the quantity (if applicable) and the price
GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement that says, ‘Total price includes GST.’
extent to which each sale on the invoice is a taxable sale.

Tax invoices for sales of $1,000 or more must also show the buyer’s identity or ABN.

The following example shows:

GST included in each line item
the sale is clearly identified as being fully taxable by the words ‘Total price includes GST.’
the buyer’s identity for sales of $1,000 or more.

Practice Update March 2023

ian@digitalwise.com.au (Ian Campbell) — Mon, 06 Mar 2023 03:21:07 GMT

THE IMPORTANCE OF CASHFLOW FORECASTS

With many economists predicting a slowing economy, planning your business’s cash flow is more critical than ever. Studies suggest that the failure to plan cash flow is one of the leading causes of small business failure. To this end, a cashflow Forecast is a crucial cash management tool for operating your business effectively.

Specifically, a cash flow forecast tracks the sources and amounts of cash coming into and out of your business over a given period. It enables you to foresee peaks and troughs of cash amounts your business holds and whether you have sufficient cash to cover your debts at a particular time.

Moreover, it alerts you when you may need to take action – by discounting stock or getting an overdraft, for example – to ensure your business has sufficient cash to meet its needs. On the other hand, it also allows you to see when you have significant cash surpluses, which may indicate that you have borrowed too much or have money to invest.

Cashflow forecasts can also:

make your business less vulnerable to external events in the economy, such as interest rate rises
reduce your reliance on external funding
improve your credit rating
assist in the planning and re-allocation of resources, and
help you to recognise the factors that have a significant impact on profitability.

A distinction should be drawn between budgets and cash flow forecasts. While budgets are designed to predict how viable a business will be over a given period, unlike cash flow forecasts, they include non-cash items, such as depreciation and outstanding creditors. By contrast, a cash flow forecast focus on the cash position of a business at a given period, and Non-cash items do not feature. In short, budgets can give you the profit position; cashflow forecasts can give you the cash position.

Cashflow forecasting can be used by, and be of great assistance to, the following entities especially:

business owners
start-up business
financiers

Cashflow forecasts are usually prepared for the coming quarter or year. Whether you divide the forecast into weekly or monthly segments depends on when most of your fixed costs arise (such as salaries, for example). When you are making forecasts, it is important to use realistic estimates. This will usually involve looking at last year’s results and combining them with economic growth and other factors unique to your line of business.

When accounting for overheads, usually a forecast lists:

receipts
payments
excess receipts over payments (with negative figures displayed in brackets)
opening balance
closing bank balance.

CRYSTALISING LOSSES

It’s been a tough 12 months for investors.

On the superannuation front, two major reports assess how super accounts fared in 2022. SuperRatings issued its average balanced return recently and found it was minus 4.8%. Late last year, ChantWest did a similar exercise – reporting a figure of minus 4.6%. We have had four negative years since 2000. In 2002, we had an identical return of minus 4.8%, and in the horror GFC year of 2008, the average super fund fell 20%.

Regarding property, CoreLogic’s capital city index declined 8.8% from its May 2022 peak to December, down 7.1% in calendar year terms and the worst calendar year result in 42 years.

It’s important, however, to be mindful that these losses are merely paper losses. That is, these losses are only realised and locked in if:

in the case of property or shares, you sell the asset, or
in the case of superannuation, selling assets or withdrawing super when investment balances are down.

If you retain the asset, you can ride things out, and hopefully, the market will bounce back. For example, the average return for the average balanced fund since 2000 is 6.1% (a period that considers the aforementioned 20% downturn during the GFC) – that’s $30,500 a year for every $500,000 you can get into super. Things should improve!

If you determine that an asset has little potential for future growth and decide to sell and happen to make a capital loss, there is a silver lining from a tax standpoint! You can deduct capital losses from your capital gains to reduce your capital gains tax (CGT). Capital losses must be used at the first opportunity. If you have any capital losses in the current year, or unused capital losses from previous years, you must use these losses to reduce any capital gains in the current year and use the earliest losses first.

Of course, tax is not the only consideration when weighing up whether to retain or dispose of a capital asset. You can talk to your advisors before selling.

NEW WORK-FROM-HOME RECORD-KEEPING REQUIREMENTS

Are you one of the five million Australians who claim work-from-home deductions? If so, stricter record-keeping requirements now apply.

For this financial year, there are now only two methods to calculate your work-from-home claim:

Revised fixed rate method (with new rules applying)
Actual costs method.

The actual costs method has never been popular because, under that method, you need to keep records of every expense incurred or depreciating asset purchased and evidence to show the work-related use of the expenses or depreciating asset. By way of example, to claim electricity expenses, the ATO suggests that you need to find out the cost per unit of power used, the average amount of units used per hour (power consumption per kilowatt hour for each appliance) and the number of hours the appliance used for work-related purposes to calculate their claim.

For this reason, the fixed rate method has been preferred (or, in recent years, the COVID shortcut method where you could claim 80 cents for each hour worked from home). This COVID method is no longer available).

The fixed-rate method has now been revised. The revised fixed-rate method increases the claim from 52 cents to 67 cents per hour. However, this rate now includes internet, phone, stationery and computer consumables. Therefore, you can’t claim them separately from your home office fixed-rate deduction. Cleaning and depreciation on office furniture are no longer included; therefore, you can now claim these expenses separately.

The record-keeping requirements are now more onerous, and you now need to keep a record of actual hours worked from home. The ATO will accept a record in any form, but they suggest either: timesheets, rosters, logs of time spent accessing systems, time-tracking apps, or a diary. The ATO will no longer accept estimates or a four-week representative diary. This new strict record-keeping requirement applies from 1 March 2023. For the period before it (1 July 2022 to 28 February 2023), the ATO will accept a four-week representative diary).

Under the revised fixed rate method, you must provide at least one document for each type of expense to demonstrate that you incurred the expense. For example, if you receive electricity bills quarterly, you must keep one of those as a record to represent that year’s electricity expenses.

FIVE KEY DECISIONS WHEN STARTING OUT BUSINESS

Research indicates that the majority of small businesses that fail do so in the first couple of years. Following are some critical pillars for those starting out. Much of the following information will also be helpful for those already in business.

Funding and equity decisions

There are many ways to fund a new business:

bootstrap (essentially, building a business from personal finances or the operating revenues of the new business)
family and friends
personal loans
business loans
asset loans
debtor financing
angel capita
venture capital, and

Your circumstances typically dictate what’s possible, but do your homework and take advice.

Another way of obtaining funding is to take on a business partner. This leads us to a discussion of the very tricky issue of equity. Taking on a business partner or granting equity to another person in your business is not a decision to be taken lightly. Equity can be forever. Once a person has equity, you will forever share profits and/or ownership with them and report and be accountable to them. You should think long and hard about who can offer your business genuine, long-term strategic value and who is merely undertaking a task or filling a role. If it’s the latter, they should not be a candidate for equity. The key here is to reward value, not time.

There are no ‘hard and fasts’, but here are some questions that should be asked when considering whether someone is deserving of equity in a business:

Will they deliver long-term value and be instrumental to the business’s success?
Will they take the business to heights it couldn’t otherwise get to?
Will they solve a crisis that threatens the business’ livelihood?
Will they cause greater damage by doing their own thing?

Having decided that someone deserves equity, the style of equity they should receive is a separate consideration. There are several options which include: full equity; dividend (profit) participation but not capital participation; phantom equity (in other words, a bonus scheme of sorts); vesting equity (i.e., equity that vests gradually over time-based on targets being met).

Choice of trading structure

Sole trader, partnership, trust or company? Every circumstance is different, and the right answer will sometimes be a combination of more than one entity. Utilising the wrong structure and needing to rectify it later can lead to significant disruption and transaction costs, including capital gains tax and stamp duty. It pays to seek professional advice to develop a structure that suits your circumstances and is scalable and effective.

Among the considerations when choosing a trading structure or considering changing it are:

income Tax effectiveness
capital gains tax-friendliness in the event of a future sale
asset protection (both personal and for the business)
liability
estate and succession planning
costs (establishment and ongoing)
complexity
ownership requirements.

Understanding your statutory obligations

When starting in business, the excitement and frenetic pace can sometimes mean that the more mundane tasks can be neglected.

It is crucial to understand which government identifiers you will need. These may include: Tax File Number (TFN); Australian Business Number (ABN); GST & PAYG-W registrations; business name registrations.

Similarly, try to develop an awareness of your reporting obligations and their timings. This refers to financial statements; monthly or quarterly Activity Statements; annual Income Tax Returns; ASIC filings (companies only).

And then, of course, there is arguably the trickiest area of all – employing staff. This spawns a myriad of issues on which you should seek expert advice, including distinguishing employees from contractors; determining the status of employees, i.e. casual vs part-time vs full-time; ascertaining rates of pay (including Awards); understanding leave entitlements; obtaining TFN Declarations and Choice of super forms; making quarterly superannuation payments.

Embrace cloud accounting

Cloud accounting, sometimes called ‘online accounting’, serves the same function as accounting software that you would install on your computer, except it runs on hosted servers, and you access it using a web browser or app. Your data is thus stored and processed “in the cloud”.

Cloud accounting can benefit business owners, stakeholders and advisors, including real-time; reduced data entry; intelligent software; no more filing; automatic back-ups; one version; mobility and flexibility.

Surround yourself with good advisors

Being new to business is not for the faint-hearted; it can be a lonely and incredibly daunting space. You need to pick a good team, and that includes professional advisors who understand your mission and passion and want to take the journey with you.

Regardless of the space that they operate in – whether it be accounting, legal, financial services or any other – the aim should be to choose advisors who are as much your partners in business as they are your supplier of services.

EARLY ACCESS TO SUPER

The federal government is moving to legislate the objective of superannuation as follows:

The objective of superannuation is to preserve savings to deliver income for a dignified retirement alongside government support equitably and sustainably.

This purpose is to encourage current and future governments to assess any policy changes to the superannuation regime through this prism. That is, does a change to the law align with the above objective? If not, then perhaps it should not be pursued.

Despite this, the government has not indicated that it will repeal existing legislation that allows individuals to access their superannuation before retirement. There are many ways you can qualify to access your superannuation, including:

You were reaching preservation age (between 55 and 60, depending on when you were born) and retiring.
You are reaching preservation age and commencing a transition to the retirement income stream. You can draw on this superannuation pension stream while you’re still working. It can be a way to scale back your working hours yet retain your financial quality of life.
Reach 60 and cease an employment arrangement. If you later return to work, this is ok, provided you had originally not intended to return when the prior employment arrangement ceased.
Reach 65. This is irrespective of whether you are still working.
When someone passes away, their dependents or nominated beneficiaries will be entitled to receive what’s left of your super.
Compassionate grounds

pay for your medical treatment or transport (or for the treatment or transport of one of your dependents, such as a spouse or child)
make a mortgage or council rates payment to prevent you from losing your home
pay expenses to accommodate yourself or a dependent with a severe disability
pay for the palliative care of yourself or a dependent
pay for the death, funeral or burial expenses of a dependent.

7. Severe financial hardship. It would help if you met strict eligibility criteria, including receiving government welfare payments from the Department of Human Services for at least 26 consecutive weeks.

8. Terminal medical condition. Two medical practitioners must certify that you have an illness or injury that will result in your death within 24 months of the date of the certificate.

9. Temporary incapacity. It would help if you were unable to work at all or unable to work the hours you normally would through mental or physical ill-health.

10. Permanent incapacity.

11. First home-saver super scheme. The First Home Super Saver Scheme (FHSSS) is a recently introduced government scheme that encourages people to save money for a deposit on their first home in the lightly taxed super environment. Super contributions and fund earnings are taxed at the concessional rate of 15%.

Practice Update February 2023

ian@digitalwise.com.au (Ian Campbell) — Sun, 05 Feb 2023 21:20:07 GMT

Director IDs – There is still time

Are you yet to apply for your director identification number (director ID)? You must apply personally. As your advisor, we cannot apply on your behalf. However, we can assist with any questions you may have, for example, around eligibility etc.

If you missed the deadline, you could still apply. The ATO says it will take a reasonable approach with directors who are trying to do the right thing. Directors who need additional time to apply (beyond 14 December 2022) can request an extension of time by completing an Application for an extension of time to apply for a director ID .

To recap, a director ID is a unique 15‑digit identifier that a company director will apply for once and keep forever. By allowing regulators to trace directors’ relationships with companies over time, director IDs will help prevent illegal activity and level the playing field for businesses.

Director IDs are administered by the Australian Business Registry Services (ABRS), which the ATO manages.

Who?

You need a director ID if you are an ‘eligible officer’ of

a company, a registered Australian body or a registered foreign company under the Corporations Act (2001)
an Aboriginal and Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).
An ‘eligible officer’ is a person who is appointed as:
a director
an alternate director who is acting in that capacity.
You also need a director ID if you are a director of a:
corporate trustee, for example, of an SMSF
charity or not-for-profit organisation that is a company or Aboriginal and Torres Strait Islander corporation
registered Australian body, for example, an incorporated association that is registered with the Australian Securities and Investments Commission (ASIC) and trades outside the state or territory in which it is incorporated, or
foreign company registered with ASIC and carrying on a business in Australia (regardless of where you live).

Who doesn’t?

A director ID is not required if you are a director of an incorporated association (with no ABRN) registered with the Australian Charities and Not-for-profits Commission (ACNC), a company secretary but not a director, acting as an external administrator of a company, run your business as a sole trader or partnership.

It has also recently been clarified by the ABRS that directors who resigned their directorship before 31 October 2021 are not required to obtain a director ID. Deceased directors, who cannot apply personally, are also exempt.

In summary, if you run a company that is a small business, have a corporate trustee of your SMSF, or are heading up a not‑for‑profit or even a large sporting club, it’s quite likely that you’re a director, and you’ll need to apply for your director ID.

The fastest way to apply for a director ID is online at Australian Business Registry Services (ABRS website – www.abrs.gov.au/directorID ). To access the online application, use the myGovID app with at least a standard identity strength to log in to ABRS Online.

Remember, you must apply personally.

Scam ATO emails – Four things to remember

An ever-increasing number of email and SMS scams are doing the rounds in 2023, but perhaps most troubling is the fact that they are becoming increasingly believable.

In our industry, they are typically sent from scammers purporting to be the ATO and seeking additional information from you as the taxpayer. There is even anecdotal evidence to suggest that one scam doing the rounds somehow had the specifics of taxpayers’ refunds in the email’s wording.

We thought it timely to pass on four key things to remember if you are confronted with a suspicious email or SMS:

The ATO will never ask you for your tax file number (TFN), bank details or other personal information in an electronic communication (including email or text message).
Be cautious when clicking on hyperlinks embedded in SMS and emails. You should always access ATO services by visiting ato.gov.au or my.gov.au, or via the ATO app.
If you are unsure about the legitimacy of a myGov notification you have received, you should go directly to the myGov homepage and sign in to check your Inbox.
Ensure you keep your tax file number (TFN) and passwords secure. Don’t share your password with others, and never reply to emails with your password or other sensitive information, such as your TFN, including to prospective employers or new clients.

ATO new-year resolutions

The ATO has just released its new year’s resolutions, and no gym is in sight! According to the ATO, the five new year’s resolutions to keep if you want to stay on top of your tax and super in 2023 are:

Know if you’re in business or not

Are you earning an increasing or decent income from a hobby? If so, you might already be in business for tax purposes. The more of the following questions you answer yes to, the more likely it is your activities constitute a business:

do you intend to be in business?
do you intend and have a prospect of making a profit from your activities?
is the size or scale of your activity enough to make a profit?
are the activities repeated and continuous?
are your activities planned, organised and carried out in a business-like manner? For example, do you:
keep business records and have a separate business bank account?
advertise and sell your goods and services to the public rather than just to family or friends?
operate from business premises?
maintain required licences or qualifications?
have a formal business plan or budget?
have a business name or an ABN?

Keep business details and registrations up to date

It’s important to keep your ABN details up to date as emergency services, and government agencies use this information to support businesses during disasters. Also, if you earn over $75,000 this financial year, you’ll need to register for GST. We can assist you with that. Be mindful that it may be advantageous to register even where your turnover is below this threshold.

Keep good records

Good record-keeping helps you manage your business and its cash flow. It is also your defence should the ATO enquire about your affairs or select your business for an audit. Feel free to approach us if you need assistance with your record-keeping practices.

Work out if the PSI rules apply to you

The Personal Services Income (PSI) rules are a suite of ATO provisions designed to prevent persons who derive income from their personal services from “splitting” or “alienating” that income with other persons and therefore minimising the overall tax payable.

If you cannot pass one of the tests within the PSI Rules and do not have a personal services business determination (PSBD) from the ATO, then regardless of the trading structure you choose, your PSI income derived will be classified as PSI, which means:

you will be unable to claim certain deductions against your PSI (basically, your deductions will be limited to those of a normal employee)
your PSI, less allowable deductions, will be attributed to you and therefore included in your individual tax return and taxed at an individual marginal tax rate as though you were an employee.

Look after yourself

The last few years have thrown some curve balls at a small businesses, so it’s good to be prepared. If you’re struggling, the NewAccess program can help. It’s free, confidential and designed for small businesses doing it tough.

How much do you need to start an SMSF?

In a complete backflip, ASIC has now moved from indicating that those who wish to commence an SMSFs need $500,000 and a commitment of 100 hours a year to not nominating a minimum balance. The superannuation industry has welcomed this change.

By way of background, back in 2019, ASIC issued guidance that stated that $500,000 was a suitable starting point for an SMSF. This was based on the premise that running a fund takes 100 hours per year and costs $13,900 per year. The position was based on data from the ATO and another industry research firm.

ASIC’s original guidance also noted that “balances under $500,000 have lower returns after expenses and tax” and will often be uncompetitive compared with APRA-regulated funds.

This guidance was controversial with the SMSF industry believed ASIC’s position was flawed, notably, as fund administration costs have reduced significantly over the years, which means that SMSFs can be competitive at all sizes.

ASIC’s view was also in conflict with two research papers commissioned by the SMSF Association. Rice Warner conducted the first research paper in 2020 on the ‘Cost of operating SMSFs’. The second research paper was conducted by the University of Adelaide in February 2022 and focused on how SMSF performance at different fund balances compares to APRA-regulated funds.

Putting aside the one-off establishment costs, the research reports show that the annual running costs for an SMSF will generally fall between $1,189 for a low-cost fund and up to $3,088 for a high-cost fund with full administration costs in the accumulation phase (or up to $3,373 for a high-cost fund with full administration costs in pension phase). These running costs will logically be higher if you add financial advisor fees, costs for managing non-standard assets, and any potential insurance premium costs.

Although the research reports confirm $200,000 is an appropriate threshold, certain individuals, such as those who do not take an active interest in their retirement savings, should avoid establishing their SMSF, irrespective of their superannuation balance.

Estate planning – The key questions

Few things are more important than having your estate’s affairs in order.

Death can strike at any time. We all know this, right? Why is it that so few of us have this stuff sorted then? Maybe it’s because the subject matter doesn’t bear thinking about.

Take a different view. Peace of mind comes from knowing that your estate planning is in proper order and that your wealth will be passed on and protected as you intend. So rather than putting this off, make it a priority.

Here are a few questions to help you decide whether you might have some gaps that need filling in your estate planning:

Do you have a Will? If you do, when was it last updated?
Could you (or your spouse) locate your Will if you had to?
Do you have a Power of Attorney in place if you cannot make your own decisions?
If you and your spouse leave everything to one another in your will, have you considered what would happen in the event of your simultaneous death?
Do you realise that superannuation and family trusts don’t form part of your Estate, and thus other strategies (besides a Will) are needed to deal with these properly?
Do you know that tax-effective structures known as Testamentary Trusts can be used to pass on wealth securely to family members, but they are most effective when documented in your Will?
Have you adequately considered who should be the Executor of your Will (sometimes the people closest to you, such as a spouse, maybe in no fit state to take on the role)?

The critical steps of estate planning are:

Which assets?

Which assets are to be dealt with as part of your estate plan?

Who owns them?

Assets may be owned individually, jointly, within superannuation, or by related entities such as companies or trusts.

How do you want them distributed upon your death?

This is a question only you can answer: who should get what and when?

How do you bring about the outcome?

An estate plan brings together the answers to the above questions. It will usually include Wills and Powers of Attorney but, in many cases, will also involve succession planning strategies to deal with related entities and superannuation balances. Additional steps may also be necessary to provide for children or blended families.

ATO finalises Section 100A guidance

The ATO released its final guidance material on the application of s 100A on 8 December 2022. In doing so, it has clarified a number of issues and examples in the draft material, much of which is welcome.

To recap, the ATO in February 2022 updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities carrying losses. Depending on the structure of these arrangements, there is a potential that the ATO may take an unfavourable view of what were previously understood to be legitimate distribution arrangements.

The ATO chiefly targets arrangements under section 100A of the Tax Act, specifically where trust distributions are made to a low-rate tax beneficiary. Still, the real benefit of the distribution is transferred or paid to another beneficiary, usually with a higher tax rate. In this regard, the ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

The final guidance is not the law and represents no more than the ATO’s view about how the law applies. It carries no legal authority, and taxpayers in consultation with us as your advisor may consider adopting a bolder approach to distributions, depending on their circumstances.

We also note that on 24 January 2023, the Full Federal Court handed down its much-anticipated decision on a case in this area. This decision, however, did not shed much light on what constitutes “an ordinary family or commercial dealing” in this trust distribution space which is what many in the industry have been keen to hear more about.

Practice Update January 2023

ian@digitalwise.com.au (Ian Campbell) — Mon, 23 Jan 2023 01:15:27 GMT

DEDUCTION FOR ADDITIONAL RUNNING COSTS WHILE WORKING FROM HOME

In November, the ATO released a draft Practical Compliance Guideline PCG 2022/D4 setting out the approach that taxpayers who work from home can use from 1.7.2022. Taxpayers will continue to have a choice by claiming their actual expenses or being able to use the revised fixed rate method for calculating the deduction for work-related additional running expenses incurred as a result of working from home.

The revised fixed-rate method uses a fixed rate of 67c per hour for each hour worked from home during the income year for the following expenses:

internet expenses
stationery and computer consumables
energy expenses for lighting, heating/cooling and electronic items used while working from home
mobile and/or telephone expenses

The Guideline can be relied on to calculate the deduction for additional running expenses using this method if the taxpayer:

works from home while carrying out employment duties or carrying on a business on or after 1.7.2022
• incurs additional running expenses as outlined above, which are ordinarily deductible as a result of working from home, and
• keeps and retain relevant records regarding the time spent working from home and for the additional running expenses (covered by the rate per hour) incurred.

A separate home office or dedicated work area is not required to rely on this Guideline.

ELECTRIC VEHICLES TO BE EXEMPT FROM FBT

In November, amendments were made to the Bill during its passage which provided that the exemption for petrol-based plug-in hybrids will end on 1 April 2025 and that a review of the amendments relating to the exemption for FBT and customs purposes must be undertaken within three years.

Electric cars exemption

In December, the ATO provided valuable guidance on this. From 1.7.2022, employers do not pay FBT on eligible electric cars and associated car expenses.

Eligibility

You do not pay FBT if you provide private use of an electric car that meets all the following conditions:

the car is a zero or low-emissions vehicle
the first time the car is both held and used is on or after 1.7.2022
the car is used by a current employee or their associates (such as family members)
luxury car tax (LCT) has never been payable on the importation or sale of the car.

Benefits provided under a salary packaging arrangement are included in the exemption.

The Government will complete a review of this exemption by mid-2027 to consider electric car take-up. We will provide an update when this review begins.

Zero or low emissions vehicle

A vehicle is a zero or low-emissions vehicle if it satisfies both of these conditions:

It is a:

battery electric vehicle
hydrogen fuel cell electric vehicle, or
plug-in hybrid electric vehicle.

It is a car designed to carry a load of less than 1 tonne and fewer than 9 passengers (including the driver).

Motorcycles and scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.

Plug-in hybrid electric vehicles – 1 April 2025 onwards

From 1 April 2025, a plug-in hybrid electric vehicle will not be considered zero or low-emissions vehicle under FBT law.

However, you can continue to apply for the exemption if both the following requirements are met:

Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.
You have a financially binding commitment to continue providing private vehicle use on and after 1 April 2025. For this purpose, any optional agreement extension is not considered binding.

Example: exemption applies to the original agreement without extension

Simon enters into a novated lease with his employer and a finance company that entitles him to use a plug-in hybrid electric vehicle.

The lease begins on 1 April 2024 and lasts 3 years, to 31 March 2027. Extending the lease for a further 2 years is available from 1 April 2027.

Simon’s private use of the vehicle is exempt from FBT up to 31 March 2027 because:

He starts using the vehicle before 1 April 2025, and the requirements of the electric car exemption are met.
A binding commitment is to continue providing the vehicle until 31 March 2027.

However, the exemption will not apply after 31 March 2027, even if the option is taken to extend the lease for an additional 2 years. This is because when the exemption for plug-in hybrid vehicles ends (just before 1 April 2025), the extension is conditional on being exercised at a future time. Therefore, the agreement at that time was not binding beyond 31 March 2027.

‘Held and used’ electric car

The practical effect of this requirement is that the electric car must be used for the first time on or after 1.7.2022 – even if it is held before this date.

An electric car is ‘held’ when it is:

owned (includes cars acquired under hire-purchase arrangements)
leased (or let on hire), or
otherwise made available by another entity.

An electric car is considered ‘used’ when it is used or available for use by any entity or person.

DODGY SALES SUPPRESSION TECHNOLOGY

There is a global crackdown on businesses suspected of supplying and using illegal electronic sales suppression tools (ESST) or software to avoid paying taxes.

This Australian Taxation Office (ATO) initiative is undertaken in Australia and supported by the Australian Federal Police (AFP) in Victoria, New South Wales, Queensland, Western Australia, and Tasmania. Officers conducted raids at 35 separate premises suspected of supplying and using ESST.

ATO officers worked closely with counterparts in His Majesty’s Revenue and Customs (HMRC) in the United Kingdom and the Internal Revenue Service (IRS) in the United States as part of a lengthy and comprehensive investigation into the use of tax avoidance technology.

Globally, the coordinated action by the ATO, IRS and HMRC involved collecting evidence, intelligence gathering, search warrants, notices to produce, interviews, taxation assessments, and subpoenas.

At a meeting, ATO Deputy Commissioner said, “These dodgy sales suppression tools allow retailers to keep a separate set of books and launder the money in one transaction. They conceal and transfer this income anonymously, sometimes offshore.”

It has been illegal to produce, supply, possess, use or promote ESS tools (ESST) or software in Australia since October 2018.

EMPLOYEE VS INDEPENDENT CONTRACTOR – ATO DRAFT GUIDANCE

The ATO has released for consultation the following draft guidance on classifying employees and independent contractors:

Taxation Ruling TR 2022/D3 Income tax: pay as you go withholding – who is an employee?
Practical Compliance Guidance PCG 2022/D5 Classifying workers as employees or independent contractors – ATO compliance approach

While professional associations and key stakeholders will no doubt be making submissions, tax practitioners and their clients will await finalisation with some interest.

So many SMEs remain at risk by wrongfully classifying workers as contractors. If an individual work under your control and direction, being paid an hourly rate, is not able to determine their hours or delegate their work, then on the face of it, they are an employee. The ATO website contains decision trees to assist in this.

The exposures can be significant and are not limited to

Having to remit Pay as You Go tax at a later date
Historical Superannuation Guarantee Charge (SGC) payments at a later date
Personal injury claims if the worker was not covered under your workers’ compensation policy due to them being wrongfully classified as a contractor.

These exposures could result in payments significant enough to threaten the ongoing viability of the business. Real care needs to be taken.

RETHINKING STAGE THREE TAX CUTS

As reported in the Sydney Morning Herald (S.M.H.), some of the nation’s most respected economists have called on the Federal Government to reconsider the size, shape and timing of the $254 billion stage three tax cuts, saying they pose a risk to the budget and will push up inflation.

The tax cuts, legislated by the previous Government with Labor support in 2019, have come under increased scrutiny since Treasurer Jim Chalmers revealed in October that their expected cost over the decade to 2032-33 has climbed $11 billion in less than six months.

This was before the Covid-19 pandemic led to government spending blowouts. Higher interest rates in the last 12 months have also led to a significant deterioration in the Budget outlook.

Parts of the ALP want the cuts to commence on 1.7.2024 to be ditched. Chalmers has said they will impose a growing cost on a budget already struggling under the weight of increasingly expensive programs. The Government has indicated it intends to honour its election promise to deliver them.

The stage three tax cuts will eliminate the 37% marginal tax rate for those earning between $120,000 and $180,000. They will also reduce the 32.5% tax rate to 30% for people earning between $45,000 and $200,000.

This places the Federal Government in a challenging position. In our view, the tax cuts are only viable if the Federal Government increases the GST rate to 15% while compensating the more vulnerable in our society. This might increase our GST rate with most OECD nations and help solve the budget deficit issue.

R&D TAX INCENTIVE FOR ACTIVITIES CONDUCTED OVERSEAS

In the Administrative Appeals Tribunal case of TDS Biz Pty Ltd and Commissioner of Taxation [2022] AATA 3543, it was held that the taxpayer was not entitled to the research and development (R&D) tax incentive for supporting R&D activities conducted overseas.

The AAT held that the supporting R&D activities were not merely supplying components, effectively affirming the Commissioner’s Decision. As such, the activities were not covered by paragraphs 355–210(1)(d) or 355–210(1)(e) of the Income Tax Assessment Act 1997 (ITAA 1997). Accordingly, there were no notional deductions under section 355–205 of the ITAA 1997 arising from the expenditure on the supporting R&D activities and no entitlement to a tax offset.

ANTI-AVOIDANCE RULE FOR TRUST ENTITLEMENT (SECTION 100A)

In December, the ATO finalised essential public advice and guidance products for trustees and advisers on trust reimbursement agreements where section 100A may apply. Section 100A is an anti-avoidance rule applicable where a beneficiary’s trust entitlement arose from a reimbursement agreement.

Taxation Ruling TR 2022/4 provides the ATO’s view about reimbursement agreements for section 100A, including the exceptions for agreements that:
don’t have a tax reduction purpose
are entered in the course of ordinary family or commercial dealing
this was initially released in February 2022 as Draft Taxation Ruling TR 2022/D1 Income tax: section 100A reimbursement agreements and takes into account feedback received from the community and tax professionals on the draft ruling
applies to trust arrangements before and after its issue and should be read in conjunction with PCG 2022/2.

Practical Compliance Guideline PCG 2022/2 Section 100A reimbursement agreements – A.T.O. compliance approach:

sets out how the ATO assesses risk for a range of trust arrangements which section 100A might apply and aims to provide more certainty to taxpayers and advisers by setting out how we will engage with them
applies before and after its date of issue – for entitlements arising before 1 July 2022, the ATO will apply the guidance first published on their website in 2014 to the extent it is more favourable to the taxpayer’s circumstances
provides more examples to help taxpayers understand how the ATO will dedicate compliance resources for the low-risk arrangements (green zone) or high-risk (red zone)
should be read in conjunction with TR 2022/4.

The ATO stresses that they have not retrospectively changed their views on how the law operates. This includes taxpayers who entered into arrangements between 1 July 2014 and 30 June 2022 and relied on their previous guidance.

The ATO recommends that if taxpayers rely on the finalised PCG, they should retain records of why their agreement would fall outside the red zone to resolve any potential disputes readily.

NEW LEGISLATIONS

Treasury Laws Amendment (2022 Measures No.4) Bill 2022, passed by the House of Representatives on 23.11.2022 and then put before the Senate on 1.12.2022. The Bill proposes a range of measures, including some first announced by the former Government, including:

The digital games tax offset

The digital games tax offset applies to qualifying Australian development expenditure incurred concerning eligible game development from 1.7.2022.

Amendments to clarify digital currencies

amendments to clarify that digital currencies (such as bitcoin) continue to be excluded from the income tax treatment of foreign currency for income years that include 1.7.2021 and later income years and in the context of the goods and services tax, about supplies or payments made on or after 1.7.2021.

Reducing compliance burden for FBT

measures to reduce the compliance burden for employers finalising their fringe benefits tax returns by allowing the Commissioner of Taxation to exercise discretion, allowing them to rely on adequate alternative records holding all the prescribed information.

Skills and training boost for small businesses

the skills and training boost for small businesses (with an aggregated annual turnover of less than $50 million) in the form of a bonus deduction equal to 20% of eligible expenditure for external training provided to employees incurred from 29.3.2022 until 30.6.2024.

Technology investment boost for small businesses

the technology investment boost for small businesses (with an aggregated annual turnover of less than $50 million) in the form of a bonus deduction equal to 20 per cent of eligible expenditure on expenses and depreciating assets for purposes of their digital operations or digitising their operations and incurred 29.3.2022 until 30.6.2023.

Practice Update December 2022

ian@digitalwise.com.au (Ian Campbell) — Thu, 01 Dec 2022 03:27:52 GMT

ATO warning to SMSFs: "Paying the price for non-compliance"

There are various courses of action available to the ATO when trustees of self-managed super funds ('SMSFs') have not complied with the super laws, including applying administrative penalties.

A number of factors determine the amount of the administrative penalty, including:

the type of contravention;
when it occurred; and
the number of penalty units that apply.

For example, if an SMSF contravenes a provision in relation to borrowings during the 2021/22 financial year, the ATO may apply a penalty of 60 penalty units and, at $222 per unit for that year, this would result in the SMSF trustee having to pay $13,320. This could be even more if there are multiple contraventions.

Editor: Note that the Government recently introduced a Bill to increase the value of a penalty unit for Commonwealth offences committed on or after 1 January 2023 from $222 to $275.

The ATO imposed total administrative penalties of around $3.4 million on SMSF trustees last year for contraventions such as trustees illegally accessing super benefits, loans, or financial assistance given to members.

Also, just because a trustee receives an administrative penalty doesn’t mean the ATO won't undertake any other compliance action, such as issuing a notice of non-compliance or disqualifying the relevant entity as a trustee.

ATO's record-keeping tips

The ATO has reminded taxpayers that they should understand the record-keeping requirements for their business and keep accurate and complete records as they occur, as this should help them avoid penalties that may apply and reduce the possibility of the ATO denying their expense claims.

The following are some of the ATO's top tips to help businesses get it right and avoid record-keeping errors (based on common record-keeping errors the ATO sees):

Keep accurate records of all cash and electronic transactions.
Reconcile cash and EFTPOS sales regularly (by ensuring payments recorded internally match external records) and enter the amounts into the main business accounting software system.
Check for mistakes if things don't add up.
For expenses that are for both business and private use, work out and record the business portion accurately.
f the taxpayer has used trading stock for private purposes, remember to account for the stock as if the business sold it, and include the value in the business’s assessable income.
Don't use estimates to prepare tax returns and business activity statements ('BASs').
If claiming credits for GST, set aside the GST in a separate ledger account to make record-keeping and calculations easier.
Most records must generally be kept for at least 5 years — from when the record was prepared or obtained, or the transaction or related acts were completed, whichever is later. Records relating to the calculation of losses may need to be kept longer, depending on when that loss is deducted (or offset against a capital gain).
Accurate and detailed records must also be kept when paying contractors to provide certain services on behalf of the business (so the business can easily complete its taxable payments annual report at the end of each year).
Use the ATO's Record-keeping evaluation tool to find out how well the business is currently keeping its records.

If businesses aren't sure how this information applies to their situation, the ATO recommends they ask their registered tax or BAS agent, or contact the ATO for help. The ATO says it will help businesses get back on track if they make an error.

Input tax credits denied due to lodging BASs late

The Administrative Appeal Tribunal ('AAT') has held that a taxpayer could not claim $91,239 of input tax credits ('ITCs') at least partly because it lodged the relevant BASs more than 4 years too late.

Specifically, the GST Act operates such that, if an extension of time to lodge a BAS has not been granted prior to the expiry of 4 years after the day on which it was required to be given to the ATO, the entitlement to ITCs immediately ceases.

The AAT also noted that there is no discretion to circumvent this part of the GST Act, and the ATO cannot provide further time to lodge a BAS retrospectively outside of the relevant 4 year period .

It did not matter that the taxpayer was (for example) involved in a dispute with a franchisor nor that they were impacted by lockdown restrictions.

Therefore, the taxpayer was no longer entitled to claim ITCs in relation to the BASs lodged by the taxpayer 4 years after they were required to have been given (and was also denied other ITCs for BASs that were lodged within the required 4 year period, as a substantial amount of the ITCs claimed remained unsubstantiated by a valid tax invoice).

Chef spending most of a year on cruise ships still a 'resident'

The AAT has also held that a taxpayer, an Australian chef with over 20 years’ experience both in Australia and overseas, was an Australian resident for taxation purposes in the 2016 income year.

During that year, he spent only 86 days in Australia, being the period prior to him leaving Australia to commence employment with a cruise ship company, and a period during which he visited his family between deployments.

However, the AAT noted that he had no intention that any new place of residence be indefinite, and he did not become a resident of a new place.

Importantly, his 'domicile' for tax purposes (being Australia) did not change (and the AAT stated that "a ship cannot be a domicile").

Requesting stapled super fund details for new employees

The ATO is reminding employers that, when they have new employees that have not provided them with their choice of super fund, super contributions should be made into:

the employee's stapled super fund; or
the employer's nominated account (but only if the ATO advises that the employee does not have a stapled super fund).

Editor: A stapled super fund is an employee's existing super account which is linked, or 'stapled', to them and follows them as they change jobs.

In December 2022, the ATO is releasing a solution that enables employer software and payroll products to request stapled super funds. That is, stapled super enabled software will allow the employer to request stapled super details from within their business software, so they will no longer have to request them separately via ATO online services.

Employers should contact their software provider to find out if their software solution will incorporate the stapled super functionality.

The ATO also encourages employers using the 'bulk request process' to begin discussions with their software providers, as the ATO's current bulk request process will be decommissioned from mid-2023.

Newsletter December 2022

ian@digitalwise.com.au (Ian Campbell) — Wed, 30 Nov 2022 22:50:12 GMT

Christmas celebrations and FBT implications

With summer and Christmas celebrations just around the corner, you may plan a party or a day on the green with your employees. Before you fire up the BBQ, consider your celebration’s fringe benefits tax (FBT) implications.

Fringe Benefits Tax (FBT) applies when an employer provides benefits to an employee other than their regular salary or wage. The circumstances that determine an FBT event include:

the amount you spend on each employee
when and where your party is held
who attends – is it just employees, partners, clients, or suppliers also invited?
the value and type of gifts you provide.

Don’t forget to keep all records relating to the entertainment-related fringe benefits you provide, including how you worked out the taxable value of benefits.

Christmas party held on the business premises

The below tables contain general information on the different types of Christmas parties that may be held and the FBT implications for such parties.

Your business decides to have a party on its premises on a working day before Christmas, and you provide food, beer and wine. The implications would be as follows:

If…When… Current employees only attend For employees – there is no FBT implication as it is an exempt property benefit. There is no tax deduction and no GST claimable.Current employees and their families attend at the cost of less than $300 per head (GST inclusive) For employees and family – there will be no FBT implications as the benefit is considered minor and infrequent. There is no tax deduction and no GST claimable.Current employees, their families and clients attend at the cost of $300 or more per head (GST inclusive) For employees – there are no FBT implications as it is an exempt property benefit. There is no tax deduction and no GST claimable.

For a family – a taxable fringe benefit arises where the value is $300 per person or more.

For clients – considered entertainment, however, no FBT implications but no income tax deduction either and no GST claimable.

Christmas party held off the business premises

You decide to hold your Christmas function at a restaurant on a working day before Christmas and provide meals, drinks and entertainment. The implications would be as follows:

If…Then… Current employees only attend at the cost of less than $300 per head (GST inclusive)There will be no FBT implications as the benefit is considered minor and infrequent. There is no tax deduction and no GST claimable.Current employees and their families and clients attend at the cost of less than $300 per head (GST inclusive) For employees – there will be no FBT implications as the benefit is considered minor and infrequent. There is no tax deduction and no GST claimable.

For a family – there will be no FBT implications as the benefit is considered minor and infrequent. There is no tax deduction and no GST claimable.

For clients – considered entertainment, no FBT implications, no income tax deduction, and no GST claimable.

Current employees, their families and clients attend at the cost of $300 or more per head (GST inclusive) For employees – a taxable fringe benefit arises where the value is $300 per person or more. A tax deduction and GST credit can be claimed.

For a family – a taxable fringe benefit arises where the value is $300 per person or more. A tax deduction and GST credit can be claimed.

For clients – considered entertainment, however, no FBT implications but no income tax deduction either and no GST claimable

Christmas gifts

The following table briefly summarises the general FBT (and other tax) consequences for an employer providing Christmas gifts based on the ATO’s guidelines.

Type of giftGifts to employees and their familyGifts to non-employees (clients, suppliers, contractors, etc.)Non-entertainment gifts.

For example:

■ Christmas hamper

■ Bottle of wine or whisky

■ Gift voucher

■ Bottle of perfume

■ Flowers

■ Pen set

Subject to FBT (unless exempt – e.g., the minor benefits exemption applies) and income tax deductible*. To be an exempt minor benefit, the total cost of a gift must be less than $300 (GST inclusive) and provided infrequently. If the gift is FBT exempt, no income tax deduction and no GST credit can be claimed.No FBT applies.

An income tax deduction is allowed.*

GST input tax credits can generally be claimed.

Entertainment gifts.

For example:

■ Theatre/movie tickets

■ Tickets to a sporting event

■ Holiday Accommodation

Subject to FBT (unless exempt – e.g., the minor benefits exemption applies) and income tax deductible*. The total cost of a gift must be less than $300 (GST inclusive) and provided infrequently to be an exempt benefit. If the gift is FBT exempt, no income tax deduction and no GST credit can be claimed.Not subject to FBT.

No income tax deduction can be claimed.

GST input tax credits cannot be claimed.

* No deduction is allowed for any GST input tax credit entitlement

Key takeaways

In summary, the key here is to know your limits keeping in mind that the $300 “minor and infrequent” benefit threshold for FBT is the key to your Christmas party and gifts remaining tax-free. Note that the $300 threshold applies to each benefit provided, not to the total value of the associated benefit. Where does taxi travel stand in all of this? Any benefit arising from taxi travel by an employee is exempt if the travel is a single trip beginning or ending at the employee’s place of work.

How to protect yourself online

Throughout October, the Australian Cyber Security Centre (ACSC) is sharing guides and resources that will help you protect all your information from cyber criminals.

Update your devices and applications

Cybercriminals hack devices by using known weaknesses in systems or apps. Check your devices for updates, and turn on automatic updates so that future updates are made immediately when charging and in Wi-Fi.

Turn on multi-factor authentication

Multi-factor authentication (MFA) is a security measure that requires at least 2 proofs of identity to grant access. MFA options can include a physical token, random pin or fingerprint. Using MFA significantly boosts your protection against criminals. While they might steal one proof of identity, like your password, they will be locked out of your account without the other.

Set up backups

Backing up your data means saving copies of your files to an external storage device or an online server like the cloud. It means you can restore your important information if something goes wrong. Setting up automatic backups in your system or application settings will give you peace of mind.

Why you must lodge on time

If your entity is more than 12 weeks late in lodging BAS, you automatically become subject to a Directors Penalty Notice (DPN). If the business cannot pay its debts, you may become personally liable for your entity’s unpaid PAYG withholding, GST, and Superannuation.

Also, the Government will increase the amount of the Commonwealth penalty unit from $222 to $275 from 1 January 2023. The increase will apply to offences committed after the relevant legislative amendment comes into force. The amount will continue to be indexed every 3 years in line with the CPI as per the pre-existing schedule, with the next indexation occurring on 1 July 2023.

Penalty units describe the amount payable for fines under Commonwealth laws, including in relation to communication, financial, tax and fraud offences. Fines are calculated by multiplying the value of one penalty unit by the number of penalty units prescribed for the offence. This measure ensures that financial penalties for Commonwealth offences continue to remain effective in deterring unlawful behaviour and contribute to budget repair.

Estimates for the value of goods taken from trading stock for private use

Taxation Determination TD 2022/15, published on 19.10.2022, provides an update of amounts the Commissioner will accept as estimates of the value of goods taken from trading stock for private use by taxpayers in named industries. The updated amounts are contained in the schedule for the value of goods taken from trading stock (the schedule) in paragraph 2 of this Determination. The schedule for the value of goods taken from trading stock for private use in the 2022-23 income year is as follows:

Type of businessAmount (excluding GST) for adult/child over 16 yearsAmount (excluding GST) for children 4 to 16 years old Bakery$1,360$680Butcher$990$495Restaurant/café (licensed)$4,830$1,950Restaurant/café (unlicensed)$3,900$1,950Caterer$4,120$2,060Delicatessen$3,900$1,950Fruiterer/greengrocer$1,010$505Takeaway food shop$4,030$2,015Mixed business (includes milk bar, general store and convenience store)$4,870$2,435

Motor vehicle expenses for a home-based business

Generally, a taxpayer cannot claim a tax deduction for travel for continuing from commuting from home to their place of work. However, if you’re operating a home-based business, you can claim the cost of trips between your home and other places if the travel is for business purposes. For example, you could claim the cost of travel to:

a client’s premises, if you’re working there or delivering some documents
purchase equipment or supplies
the bank to do your banking
the post office to mail out invoices or get mail from a PO Box
see your business tax agent or BAS agent.

Depending on your business structure, you can use different methods to calculate motor vehicle expenses.

Superannuation over summer

The holiday season is fast approaching, and your holiday casuals may now be eligible for super.

From 1 July 2022, you need to pay super for employees at a rate of 10.5%, regardless of how much you pay them. This is because the $450-per-month threshold for super guarantee (SG) eligibility has been removed.

Take Jane, for instance. She is a 22-year-old employee working a short-term job at a restaurant over the holiday season, and she works 23 hours a month, earning $430 before tax.

In the past, holiday employees such as Jane would not be paid super as they earned below the $450 threshold. Now, Jane will be eligible for super pay on her ordinary time earnings at 10.5%.

This change doesn’t affect other eligibility requirements for SG. Workers who are under 18 still need to work more than 30 hours a week to be eligible.

For example, Anish is a 17-year-old employee working at a hotel over the holiday season. Anish works 32 hours weekly at the hotel and earns $800 before tax. He also works 5 hours at his local café, earning $150. As Anish worked more than 30 hours in one week at the hotel, his employer must pay him super on the $800 earned. As Anish works less than 30 hours a week at the café, he is not entitled to super from this employer . Likewise, Anish isn’t entitled to super for any weeks he works less than 30 hours at the hotel.

Check your payroll and accounting systems are up to date, so you are correctly calculating your employees’ SG payments.

P r a c t i c e U p d a t e November 2022

ian@digitalwise.com.au (Ian Campbell) — Thu, 03 Nov 2022 01:00:50 GMT

Director ID deadline is approaching

The Government has launched an awareness campaign to help company directors get their director identification number ('director ID') as the 30 November deadline approaches.

A director ID is a unique 15‑digit identifier that a company director will apply for once and keep forever. Director IDs are administered by the Australian Business Registry Services ('ABRS'), which is managed by the ATO.

All directors of companies registered with ASIC will need a director ID and must apply by the 30 November deadline (although directors of Aboriginal and Torres Strait Islander corporations may have additional time to apply).

Some people may not realise they are directors, so the campaign is targeting those that run small businesses, self‑managed superannuation funds, charities, not‑for‑profits, and even some sporting clubs.

The fastest way to apply is online at abrs.gov.au, and the director ID will be issued instantly once the application is complete. It is free to apply and directors must apply themselves, as they are required to verify their identity (and it is this "robust identification process" that will help prevent the use of false and fraudulent director identities).

More information about director IDs, including who must apply, is available on the ABRS website.

Editor: Feel free to contact our office if you need more information about this but, as noted above, we cannot actually make the application for you.

Why are credits and refunds being offset?

The ATO has reached out to small businesses who may have recently received a letter advising that they have a debt on hold and any credits or refunds would be offset against this debt.

As a result, such a small business may find that their refund or credit is less than expected.

Editor: The ATO has advised that this process of offsetting refunds or credits temporarily paused due to the pandemic and its financial impact on taxpayers. However, the ATO has restarted offsetting refunds and credits to pay off debts on hold since June 2022.

The ATO also sent out 'awareness letters' to some not-for-profits and individuals in September 2022, similarly advising them they had a debt on hold and any credits or refunds would be offset against this debt.

Taxpayers can use Online services for business to search for debts that were previously put on hold and not included in their account balance.

A debt on hold remains payable and collection action may recommence if:

the taxpayer's circumstances change, and the ATO has reason to believe they are now able to pay the debt;
the taxpayer agrees to pay their debt; or
the taxpayer has a refund or credit balance which will automatically be offset to their debt on hold.

ATO advice for SMSFs thinking about investing in crypto assets

The ATO recommends that trustees of self-managed super funds ('SMSFs') thinking about investing in crypto assets should seek professional advice from a licensed financial adviser.

There are organisations who offer trustees help to set up a fund or use their existing fund to invest in crypto assets. However, the ATO notes that some of these organisations are not licensed to provide financial advice, which means the usual consumer protections and access to the Australian Financial Complaints Authority ('AFCA') are not available for using these services.

There are many things to consider before deciding to invest in crypto assets, so it's important to get it right, especially since trustees are ultimately responsible for ensuring the investment complies with the super and tax laws.

When investing in crypto assets, trustees must ensure it is allowed under the fund’s trust deed, is made in accordance with the fund’s investment strategy, and the trustee has considered the level of investment risk given the highly volatile nature of the investment.

From a regulatory perspective it's important that:

The crypto assets are owned by the fund and are held separately from the trustee's own personal or business assets. This means the fund must have its own digital wallet, separate to any used by the trustee for personal or business purposes.
The investment is valued at market value in line with the ATO's valuation guidelines.
Any crypto assets that a member or related party hold personally are not sold to the fund or transferred to the fund as a contribution.
The investment is consistent with the sole purpose test, and does not involve the giving of financial assistance to a member.

Check that holiday employees get the right super

The ATO is reminding employers that the holiday season is fast approaching, and that their holiday casuals may now be eligible for super.

From 1 July 2022, employers need to pay super for employees at a rate of 10.5%, regardless of how much they are paid, because the $450-per-month threshold for super guarantee ('SG') eligibility has been removed.

This change doesn’t affect other eligibility requirements for SG. In particular, workers who are under 18 still need to work more than 30 hours in a week to be eligible.

For example, Anish is a 17-year-old employee working a job at a hotel over the holiday season. Anish works 32 hours in a week at the hotel and earns $800 before tax. He also works 5 hours at his local café, earning $150.

As Anish worked more than 30 hours in one week at the hotel, his employer will need to pay him super on the $800 earned. However, as Anish works less than 30 hours a week at the café and is under 18, he is not entitled to super from this employer.

The ATO recommends that employers check their payroll and accounting systems are up to date so they are correctly calculating their employees' SG payments, and that registered tax agents and BAS agents can help with their tax and other obligations.

Optus data breach

The ATO is aware of the recent Optus data breach and that people who have been affected might be concerned about their personal data, and is assuring people that ATO systems have not been affected by the Optus data breach.

The ATO recommends that anyone who thinks they have been affected by the Optus data breach should contact Optus Customer Service on 13 39 37.

Information for those caught up in the data breach is available from the Australian Cyber and Security Centre at cyber.gov.au.

The ATO also reminds the community that it is important to always be vigilant for suspicious activity. The following tips can help protect accounts and keep personal information safe:

Use multi-factor authentication for accounts where possible.
Be careful when clicking on links and providing personal information.
Make sure contact details are up to date when using online services.

Federal Budget 2022-23

ian@digitalwise.com.au (Ian Campbell) — Mon, 31 Oct 2022 04:52:58 GMT

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FEDERAL BUDGET

The Federal Budget was handed down on 25 October 2022. Labour ruled out making any changes to the contentious stage three tax cuts package. The third tranche of tax cuts is set to be the biggest expense to the budget at $20bn a year when it comes into effect in 2024. The cuts mean anyone earning $45,000 to $200,000 will pay no more than 30c in tax for every dollar they earn.

Powering Australia – Electric Car Discount

The Government will cut taxes on electric cars so that more Australians can afford them. From 1 July 2022, the measure will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from fringe benefits tax and import tariffs if they have a first retail price below the luxury car tax threshold for fuel-efficient cars. The car must not have been held or used before 1 July 2022. Employers will need to include exempt electric car fringe benefits in an employee’s reportable fringe benefits amount.

Superannuation – expanding eligibility for downsizer contributions

The Government will allow more people to make downsizer contributions to their superannuation by reducing the minimum eligibility age from 60 to 55 years of age. The measure will have effect from the start of the first quarter after the Royal Assent of the enabling legislation.

The downsizer contribution allows people to make a one-off post-tax contribution to their superannuation of up to $300,000 per person from the proceeds of selling their home. Both members of a couple can contribute, and contributions do not count towards non-concessional contribution caps.

This measure provides greater flexibility to contribute to superannuation and aims to encourage older Australians to downsize sooner to a home that better suits their needs, thereby increasing the availability of suitable housing for Australian families.

New Energy Apprenticeships

The Government will provide $95.6 million over 9 years from 2022–23 to support 10,000 people to complete a New Energy Apprenticeship. Eligible apprentices will be able to claim a New Energy Apprentice Support Payment of up to $10,000 over the duration of the apprenticeship, comprising $2,000 on commencement, $2,000 per year for up to 3 years, and $2,000 on completion.

Additional in-training support places will be made available for all New Energy Apprentices, with extra support for targeted groups, including First Nations peoples, mature-age apprentices, regional and remote Australians, and people from culturally and linguistically diverse backgrounds.

Shadow Economy Program

The Government will extend the existing ATO Shadow Economy Program for a further 3 years from 1 July 2023.

The extension of the Shadow Economy Program will enable the ATO to continue a strong and coordinated response to target shadow economy activity, protect revenue and level the playing field for those businesses that are following the rules.

Tax Avoidance Taskforce

The Government has boosted funding for the ATO Tax Avoidance Taskforce by around $200 million per year over 4 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 in pursuing new priority areas of observed business tax risks, complementing the ongoing focus on multinational enterprises and large public and private businesses.

Personal Income Taxation Compliance Program

The Government will provide $80.3 million to the ATO to extend the Personal Income Taxation Compliance Program for 2 years from 1 July 2023.

This extension will enable the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, including overclaiming of deductions and incorrect reporting of income. The funding will enable the ATO to modernise its guidance products, engage earlier with taxpayers and tax agents and target its compliance activity.

Digital currency – clarifying that digital currencies are not taxed as foreign currency

The Government will introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency. This maintains the current tax treatment of digital currencies, including the capital gains tax 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 continues to be taxed as foreign currency.

New Energy Skills Program

The Government will provide $9.6 million over 5 years from 2022–23 to support Australia’s workforce to transition to a clean energy economy. This funding will support a new mentoring program to help train and support new energy apprentices, the development of fit-for-purpose training pathways, and a capacity study by Jobs and Skills Australia to evaluate Australia’s workforce needs to transition to a clean energy economy.

Housing Accord

The Australian Government will provide $350.0 million over 5 years from 2024–25 to support funding of an additional 10,000 affordable homes under a Housing Accord with state and territory governments and other key stakeholders.

The Commonwealth support will include availability payments over the longer term to facilitate institutional investment, including by superannuation funds, in affordable homes.

This measure complements the Government’s investment in the Housing Australia Future Fund, which will provide a further 30,000 social and affordable homes over 5 years.

Safer and More Affordable Housing

The Government will invest $10 billion in the newly created Housing Australia Future Fund, managed by the Future Fund Management Agency, to generate returns to fund the delivery of 30,000 social and affordable homes over 5 years and allocate $330 million for acute housing needs.

In the first 5 years, these investment returns will fund:

$200 million for the repair, maintenance and improvements of housing in remote Indigenous communities, where some of the worst housing standards in the world are endured by our First Nations people
$100 million for crisis and transitional housing options for women and children fleeing domestic and family violence and older women on low incomes who are at risk of homelessness
$30 million to build more housing and fund specialist services for veterans who are experiencing homelessness or are at‑risk of homelessness.
The Government remains committed to ensuring that of the $10 billion fund, the returns from $1.6 billion will be directed to long-term housing for women and children fleeing domestic and family violence and older women on low incomes who are at risk of homelessness.

In addition, the Government will provide $348.6 million over 4 years from 2022–23 for a number of further initiatives to deliver more social and affordable housing. Funding includes:

$324.6 million over 4 years from 2022–23 to establish the Help to Buy scheme to assist people on low to moderate incomes to purchase a new or existing home with an equity contribution from the Government
$15.2 million over 4 years from 2022–23 (and $4.4 million per year ongoing) to establish a National Housing Supply and Affordability Council to support the Australian Government in developing housing supply and affordability policy through research and advice
$0.5 million over 4 years from 2022–23 (and $0.1 million per year ongoing) to establish Housing Australia by renaming and expanding the remit of the National Housing Finance and Investment Corporation to deliver the Australian Government’s social and affordable housing programs
$8.3 million over 4 years from 2022–23 to the Treasury and Housing Australia to administer the Housing Australia Future Fund.

The Government will also:

establish the Regional First Home Buyers Guarantee to support 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 per cent deposit, with 10,000 places per year to 30 June 2026, by redirecting funding from the Regional Home Guarantee component of the 2022–23 March Budget measure titled Affordable Housing and Home Ownership, with no financial impact
broaden the remit of the National Housing Infrastructure Facility to directly support new social and affordable housing in addition to financing critical housing infrastructure, with no financial impact, as announced at the Jobs and Skills Summit.

See the related payment measures titled Housing Accord in the Treasury Portfolio and National Housing and Homelessness Plan in the Social Services Portfolio.

HOME AFFAIRS

Migration Program – 2022–23 planning levels

As announced at the Jobs and Skills Summit, the Government will increase the 2022–23 permanent Migration Program planning level from 160,000 to 195,000. This will help ease widespread, critical workforce and skills shortages. Priority will be given to offshore applicants and on-hand applications for the Skilled Independent visa – New Zealand stream.

Jobs and Skills Summit – incentivise pensioners into the workforce

The Government will provide $61.9 million over two years from 2022–23 to provide aged and veteran pensioners a once-off credit of $4,000 to their Work Bonus income bank.

The temporary income bank top-up will increase the amount pensioners can earn in
2022–23 from $7,800 to $11,800 before their pension is reduced, supporting pensioners who want to work or work more hours to do so without losing their pension.

Personal income tax receipts are also expected to increase by $15.0 million in 2023–24 as a result of this measure. This measure implements an outcome from the Jobs and Skills Summit.

Lifting the Income Threshold for the Commonwealth Seniors Health Card

The Government will provide $69.6 million over 4 years from 2022–23 to increase the income threshold for the Commonwealth Seniors Health Card from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.

The Government will also freeze social security deeming rates at their current levels for a further two years until 30 June 2024 to support older Australians who rely on income from deemed financial investments, as well as the pension, to deal with the rising cost of living.

The cost of this measure will be partially met from within the existing resourcing of the Department of Veterans Affairs.

Making COVID-19 business grants non-assessable non-exempt

In response to COVID-19, payments from certain state and territory business grants made before 30 June 2022 can be made non-assessable, non-exempt (NANE) for income tax purposes, subject to eligibility. This tax treatment is only provided in exceptional circumstances, such as businesses’ severe economic consequences during the COVID-19 pandemic.

The Government has made the following state and territory COVID-19 grant programs eligible for NANE treatment, which will exempt eligible businesses from paying tax on these grants:

Victoria Business Costs Assistance Program Four – Construction,
Victoria Licenced Hospitality Venue Fund 2021 – July Extension,
Victoria License, Hospitality Venue Fund 2021 – Top Up Payments,
Victoria Business Costs Assistance Program Round Two – Top Up,
Victoria Business Costs Assistance Program Round Three,
Victoria Business Costs Assistance Program Round Four,
Victoria Business Costs Assistance Program Round Five,
Victoria Impacted Public Events Support Program Round Two,
Victoria Live Performance Support Program (Presenters) Round Two,
Victoria Live Performance Support Program (Suppliers) Round Two,
Victoria Commercial Landlord Hardship Fund 3,
Australian Capital Territory HOMEFRONT 3, and
Australian Capital Territory Small Business Hardship Scheme.

SOCIAL SERVICES

Fraud Fusion Taskforce

The Government will provide $126.3 million over 4 years from 2022–23 to establish a cross-agency Fraud Fusion Taskforce to address fraud and serious non-compliance in the National Disability Insurance Scheme (NDIS).

The Taskforce will comprise a range of Commonwealth agencies delivering government programs, with the support of law enforcement, regulatory and intelligence agencies. The Fraud Fusion Taskforce replaces the existing NDIS Fraud Taskforce. As part of this measure, the Government will also extend funding for the existing Taskforce Integrity within Services Australia until 30 June 2024 as it transitions into the Fraud Fusion Taskforce.

Boosting Parental Leave

The Government will enhance economic security, improve gender equality, and enhance and provide more flexibility for shared care arrangements at a cost to the budget of
$531.6 million over 4 years from 2022–23 (and $619.3 million per year ongoing).

The Government will introduce reforms from 1 July 2023 to make the Paid Parental Leave Scheme flexible for families 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.

Case Study

Next year, Grace and Chris plan to have a child and want to share work and care responsibilities. Under the expanded Paid Parental Leave scheme, they can access PPL for 22 weeks from July 2024 and use it flexibly. Grace will take leave to recover from the birth and breastfeed when the baby arrives. Once she is ready to return to work, Grace will take leave two days a week, and Chris will take leave three days a week, with each accessing a total of 11 weeks of leave.

Incentivising Pensioners to Downsize

The Government will provide $73.2 million over 4 years from 2022–23 (and $0.4 million per year ongoing), including:

extending the assets test exemption for principal home sale proceeds from 12 months to 24 months for income support recipients
changing the income test to apply only the lower deeming rate (0.25 per cent) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.
This measure will reduce the financial impact on pensioners looking to downsize their homes to minimise the burden on older Australians and free up housing stock for younger families.

Child Care Subsidy

From July 2023, Child Care Subsidy rates will lift from 85 per cent to 90 per cent 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 zero per cent 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 per cent.

Case Study

Gita and Matt have a combined income of $120,000. Their 2-year-old child attends centre-based daycare 3 days a week, costing $4,700 a year in out-of-pocket childcare fees. From July 2023, Gita and Matt will receive a Child Care Subsidy of 82 per cent, an increase from the current 71 per cent. This will save them $1,780 in out-of-pocket childcare fees in 2023–24.

CORPORATE TAX MEASURES

Improving the integrity of off-market share buybacks

The Government will improve the integrity of the tax system by aligning the tax treatment of off-market share buybacks undertaken by listed public companies with the treatment of on-market share buybacks. This measure will apply from an announcement on Budget night (7:30 pm AEDT, 25 October 2022). This measure is estimated to increase receipts by $550.0 million over the 4 years from 2022–23.

Multinational Tax Integrity Package – amending Australia’s interest limitation rules

The Government will strengthen Australia’s thin capitalisation rules to address risks to the corporate tax base arising from excessive debt deductions. This measure will apply to income years commencing on or after 1 July 2023.

The current thin capitalisation regime limits debt deductions to the maximum of three tests: a safe harbour (debt to asset ratio) test, an arm’s length debt test, and a worldwide gearing (debt to equity ratio) test. The Government will replace the safe harbour and worldwide gearing tests with earnings-based tests to limit debt deductions in line with an entity’s activities (profits).

This measure includes changes to:

limit an entity’s debt-related deductions to 30 per cent of profits (using EBITDA —earnings before interest, taxes, depreciation, and amortisation – as the measure of profit). This new earnings-based test will replace the safe harbour test
allow deductions denied under the entity‑level EBITDA test (interest expense amounts exceeding the 30 per cent EBITDA ratio) to be carried forward and claimed in a subsequent income year (up to 15 years)
allow an entity in a group to claim debt-related deductions up to the worldwide group’s net interest expense level as a share of earnings (which may exceed the 30 per cent EBITDA ratio). This new earnings-based group ratio will replace the worldwide gearing ratio
retains an arm’s length debt test as a substitute test which will apply only to an entity’s external (third party) debt, disallowing deductions for related party debt under this test.

The changes will apply to multinational entities operating in Australia and any inward or outward investor, in line with the existing thin capitalisation regime. Financial entities will continue to be subject to the existing thin capitalisation rules.

This measure is estimated to increase receipts by $720.0 million and increase payments by $5.4 million over the 4 years from 2022–23.

Deductions for payments relating to intangibles held in low‑ or no-tax jurisdictions

The Government will introduce an anti-avoidance rule to prevent significant global entities (entities with global revenue of at least $1 billion) from claiming tax deductions for payments made directly or indirectly to related parties in relation to intangibles held in low‑ or no‑tax jurisdictions. For the purposes of this measure, a low‑ or no‑tax jurisdiction is a jurisdiction with:

a tax rate of less than 15 per cent or
a tax preferential patent box regime without sufficient economic substance.

The measure will apply to payments made on or after 1 July 2023. This measure is estimated to increase receipts by $250.0 million and increase payments by $6.7 million over the 4 years from 2022–23.

TREASURY

Modernising Business Registers

The Government will provide additional funding of $166.2 million over 4 years from
2022–23 to continue delivery of the Modernising Business Registers program that will consolidate over 30 business registers onto a modernised registry platform. Funding includes:

$80.0 million in 2022–23 for the Australian Taxation Office (ATO) and the Australian Securities and Investments Commission (ASIC) to continue the design and delivery of the modernised registry platform
$86.2 million over 4 years from 2022–23 ($119.5 million over 6 years from 2022–23 and $15.9 million per year ongoing) for ATO and ASIC to operate and regulate the Director Identification Numbers regime and maintain ASIC’s registry systems.

Improving the NBN

The Government will provide an equity investment of $2.4 billion to NBN Co over 4 years from 2022–23 to upgrade the National Broadband Network (NBN) to deliver fibre-ready access to a further 1.5 million premises by late 2025.

The additional investment will support nearly 90 per cent of Australia’s fixed line footprint to have access to world-class gigabit speeds by late 2025.

The Government will also provide $4.7 million over 3 years from 2022–23 to support the delivery of free broadband for up to 30,000 unconnected families with school-aged students during the 2023 calendar year.

Multinational Tax Integrity Package – improved tax transparency

The Government will introduce reporting requirements for relevant companies to enhance the tax information they disclose to the public for income years commencing from 1 July 2023.

The Government will require:

large multinationals, defined as significant global entities, to prepare for the public release of certain tax information on a country-by-country (CbC) basis and a statement on their approach to taxation for disclosure by the ATO
Australian public companies (listed and unlisted) to disclose information on the number of subsidiaries and their country of tax domicile and
tenderers for Australian Government contracts worth more than $200,000 to disclose their country of tax domicile (by supplying their ultimate head entity’s country of tax residence).

This measure is estimated to have an unquantifiable impact on receipts and increase payments by $5.1 million over the 4 years from 2022 to 23.

Providing certainty on unlegislated tax and superannuation measures

The Government has reviewed and will not proceed with the following legacy tax and superannuation measures that were announced but not legislated by the previous Government:

The 2013-14 MYEFO measure proposed to amend the debt/equity tax rules.
The 2016–17 Budget measure proposed changes to the taxation of financial arrangements (TOFA) rules (a delayed start date was announced in the 2018–19 Budget).
The 2016–17 Budget measure proposed changes to the taxation of asset-backed financing arrangements.
The 2016–17 Budget measure proposed introducing a new tax and regulatory framework for limited partnership collective investment vehicles.
The 2018–19 Budget measure proposed changing the annual audit requirement for certain self-managed superannuation funds (SMSFs).
The 2018–19 Budget measure proposed introducing a limit of $10,000 for cash payments made to businesses for goods and services (a delayed start date was announced in 2018–19 MYEFO).
The 2018–19 Budget measure proposed introducing a requirement for retirement income product providers to report standardised metrics in product disclosure statements.
The 2021–22 MYEFO measure proposed establishing a deductible gift recipient category for providers of pastoral care and analogous well-being services in schools.

Further, the Government will defer the start dates of the following legacy tax and superannuation measures to allow sufficient time for policies to be legislated and implemented:

The 2019–20 MYEFO measure that proposed introducing a sharing economy reporting regime from:
1 July 2022 to 1 July 2023 for transactions relating to the supply of ride-sourcing and short-term accommodation, and
1 July 2023 to 1 July 2024 for all other reportable transactions (including but not limited to asset sharing, food delivery and tasking-based services).
The 2021–22 Budget measure proposed relaxing residency requirements for SMSFs, from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.
The 2021–22 Budget measure proposed making technical amendments to the TOFA rules from 1 July 2022 to the income year commencing on or after the date of Royal Assent of the enabling legislation.

This measure is estimated to increase receipts by $29.4 million and decrease GST payments to the States and Territories by $4.1 million over the 4 years from 2022–23.

Reverse the measure to self-assess the effective life of intangible depreciating assets

The Government will not proceed with the measure to allow taxpayers to self-assess the effective life of intangible depreciating assets, announced in the 2021–22 Budget. Reversing this decision will maintain the status quo – effective lives of intangible depreciating assets will continue to be set by statute. This will avoid the potential integrity concerns with the previously announced measure and contribute to budget repair. This measure is estimated to increase receipts by $550.0 million over the 4 years from 2022–23.

Australia’s Foreign Investment Framework – increase fees and penalties

The Government has increased foreign investment fees and will increase financial penalties for breaches that relate to residential land. Fees doubled on 29 July 2022 for all applications made under the foreign investment framework. The maximum financial penalties that can be applied for breaches in relation to residential land will also double on 1 January 2023.

Fees ensure Australians do not bear the cost of administering the foreign investment framework, and penalties encourage compliance with these rules.

Commonwealth Penalty Unit – increase in the amount

The Government will increase the amount of the Commonwealth penalty unit from $222 to $275 from 1 January 2023. The increase will apply to offences committed after the relevant legislative amendment comes into force. The amount will continue to be indexed every 3 years in line with the CPI as per the pre-existing schedule, with the next indexation occurring on 1 July 2023.

Penalty units are used to describe the amount payable for fines under Commonwealth laws, including in relation to communication, financial, tax and fraud offences. Fines are calculated by multiplying the value of one penalty unit by the number of penalty units prescribed for the offence. This measure ensures that financial penalties for Commonwealth offences continue to remain effective in deterring unlawful behaviour and contribute to budget repair.

This measure is estimated to increase receipts by $31.6 million over the 4 years from
2022–23. This substantial increase means more than ever, and it is vital to lodge income tax returns and BAS on time. Make sure you comply with other Commonwealth Statutes.

Heavy Vehicle Road User Charges increase

The Government will increase the Heavy Vehicle Road User Charge rate from 26.4 cents per litre to 27.2 cents per litre of diesel fuel. This will decrease the Fuel Tax Credit expenditure by $215.7 million over 4 years from 2022–23.

The change to the Road User Charge was a decision of the Infrastructure and Transport Ministers in April 2022. The Road User Charge contributes to road maintenance and repair.

P r a c t i c e U p d a t e October 2022

ian@digitalwise.com.au (Ian Campbell) — Tue, 04 Oct 2022 04:16:10 GMT

Banking business income to a private account

The ATO has stated that it has "no concerns" with business owners banking their business takings or other sales in private accounts, but that this may become an issue when this income isn't reported.

Therefore, the ATO notes that a good way to avoid this problem is to establish a separate business bank account and only deposit sales and other business income into this account, as this can help with record keeping and monitoring the business’s cash flow.

The ATO uses many tools to identify income earned and to check if it matches income reported, and reminds taxpayers that business income includes all sales, whether they're cash or electronic (for example, internet sales), and they must all be reported on the business’s tax return (as well as any earnings for services the business provides).

Editor: If you are unsure about what income you need to declare, feel free to contact our office.

Talking tax' with new workers

The ATO is reminding employers that have taken on new employees that those employees can complete a TFN declaration through ATO online services, and that this is an easy way for them to provide both their employer and the ATO with the information needed.

If a new employee has a myGov account linked to the ATO, they can:

access ATO online services;
go to the ‘Employment’ menu; and
select ‘New employment’ and complete the form.

This sends the TFN declaration details straight to the ATO, so the employer doesn't have to.

Employees will need their employer's ABN to complete the form and, once they’ve submitted it, they need to print it and give their employer the summary of their tax details so the employer can input the data into their system.

If an employer's payroll software can link to the online commencement forms, it will automatically receive any new employees' information from the ATO, saving them time spent otherwise entering the information manually.

Employers can also use the New employment form to collect a range of information contained in other forms, and employees can use it to authorise variations to the amount to be withheld from their pay for tax or the Medicare levy, or to advise of their choice of super fund.

They can also use it to update their tax circumstances with their employer; for example, if their residency status has changed or they are claiming the tax-free threshold from a different employer.

However, employers can continue to use their current processes when preferred, including providing a paper TFN declaration where employees can't create a myGov account or don’t have access to the internet.

How the myGov update affects taxpayers

Clients using myGov will see that it has recently been updated with a new look and more features.

When signed in to myGov, clients might receive notifications through ‘Payments and claims’ from other government services, such as Centrelink.

However, the ATO has stated that it will not communicate using this feature. Instead, the ATO will continue to send messages to the myGov Inbox, and to tax agents on behalf of their clients, if that’s their communication preference.

Therefore, clients don’t need to do anything different, and can still:

ind myGov at the same website address (i.e., my.gov.au);
sign in using their current sign-in details; and
have access to all their linked services, including the ATO.
Input tax credits denied due to lodging BASs late

The AAT has held that a partnership’s entitlement to $16,361 of input tax credits claimed for the quarterly periods of 1 July 2012 to 31 March 2017 had ceased by the time the associated BASs were lodged with the ATO on 21 June 2021, and therefore the ATO did not need to pay the taxpayer a refund.

The operation of the GST Act means that, unless an extension of time to lodge a BAS has been granted prior to the expiry of 4 years after the day on which it was required to be given to the ATO, the entitlement to input tax credits immediately ceases.

The ATO has no discretion to get around this.

Valuing fund assets for an SMSF's annual return

Editor: The ATO has provided the following reminder and general advice for SMSF trustees regarding their obligations to value the assets annually.

One of many responsibilities trustees have when managing an SMSF is valuing the fund's assets at market value.

This must be done every income year, so the ATO knows the SMSF has complied with super laws.

The market value of an asset is the amount someone could be reasonably expected to pay if the asset was for sale.

Each year, the asset valuations will be reviewed by the fund's approved SMSF auditor as part of the annual audit prior to lodgment of the SMSF's annual return ('SAR'). The auditor will check that assets have been valued correctly, and assess and document whether the basis for the valuation is appropriate given the nature of the asset.

Trustees are reminded to get their valuations done before they go to the auditor, as this will streamline the process and avoid delays. It is also the trustees' responsibility to provide objective and supportable evidence to the auditor for the valuation of the fund's assets, including all relevant documents requested by the auditor.

Failure to do so could result in a delay in auditing the fund and potential late lodgment of the fund's annual return (and could also result in a contravention if the auditor believes mistakes have been made).

The ATO says trustees should "start researching now" to find who can value the fund's assets and what type of evidence is needed to support the valuation, as this can take time. In some instances, the law requires valuations to be undertaken by a qualified, independent valuer.

Super guarantee contribution due date for September 2022 quarter

The due date for employers to make super guarantee contributions for their employees for the September 2022 quarter is 28 October 2022.

Varying PAYG instalments

The ATO is reminding taxpayers that they can vary their pay as you go ('PAYG') instalments if they think the amount they pay now will be more or less than their expected tax liability for the year, by lodging a variation through myGov or Online services for business.

Instalments for those who are PAYG instalment amount payers have been increased by the gross domestic product ('GDP') adjustment factor of 2% for the 2022/23 income year.

P r a c t i c e U p d a t e September 2022

ian@digitalwise.com.au (Ian Campbell) — Mon, 05 Sep 2022 03:30:45 GMT

WHAT’S NEW IN THE 2020-21 AND 2021-22 INCOME YEARS

The temporary shortcut method, introduced to help employees working from home during the COVID-19 pandemic, was extended to 30 June 2022. It is therefore available to use to work out deductions for working from home expenses for the 2020-21- and 2021-22-income years.
Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees’ transport expenses? was released. This Ruling provides guidance on when an employee can and can’t claim a deduction for the cost of travel by airline, train, taxi, car, bus, boat or other vehicles.
Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employee accommodation, food and drink expenses, travel allowances, and living-away-from-home allowances were released. This Ruling provides guidance on when an employee is entitled to claim a deduction for accommodation, food and drink expenses.
Section 25-125 of the Income Tax Assessment Act 1997 (ITAA 1997) was introduced. This section allows employees to claim a deduction for the cost of COVID-19 tests incurred after 1 July 2021 for the purpose of testing to determine whether they can attend or remain at their workplace.

COMMON MYTHS ABOUT WORK EXPENSE DEDUCTIONS

Many taxpayers hold many misconceptions – some results of pub talk or discussions from backyard barbeques…

Myth: Everyone can automatically claim $150 for clothing and laundry expenses, 5000 km under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they did not spend the money.

Fact: There is no such thing as an automatic or standard deduction. Substantiation exceptions provide relief from the need to keep receipts in certain circumstances. While you do not need receipts for claims under $300 for work-related expenses, $150 for laundry expenses (note: this is for laundry expenses only and doesn’t include clothing expenses) or if you are claiming 5,000 km or less for car expenses under the cents per kilometre method:

you must have spent the money
it must be related to earning your income, and
you must be able to explain how you calculated your claim.

Myth: I do not need a receipt; I can just use my bank or credit card statement.

Fact: To claim a tax deduction, you need to show that you spent the money, what you spent it on, who the supplier was and when you paid. Bank or credit card statements alone don’t have this information. You don’t need these details only if substantiation exceptions apply.

Myth: I can claim makeup that contains sunscreen if I work outside.

Fact: Cosmetics are usually a private expense, and adding sun protection doesn’t make it deductible. However, it may be deductible if the product’s primary purpose is sunscreen (that is, it has a high SPF rating), the cosmetic component is incidental, and you need to work outdoors in the sun.

Myth : I can claim my gym membership because I need to be fit for work.

Fact: Very few people can claim gym membership fees. To be eligible, your job would have to depend on you maintaining a very high level of fitness, for which you are regularly tested, for example, special operations personnel in the Australian Defence Force.

Myth: I can claim all my travel expenses if I add a conference or a few days’ works to my holiday.

Fact: If you decide to add a conference or work to your holiday or a holiday to your work trip, you must apportion the travel expenses between the private and work-related components and only claim the work-related component.

Myth: I can claim my work clothes because my boss told me to wear a certain colour.

Fact: Unless your clothing is a unique and distinct uniform to your employer or protective or occupation-specific clothing you are required to wear to earn your income, you won’t be able to claim it. Plain clothes, like black pants, aren’t deductible even if your employer tells you to wear them.

Myth: I can claim my pay television subscription because I need to keep up to date for work.

Fact: A subscription to pay television is not ordinarily deductible. Keeping up to date on the news, current affairs and other general matters usually won’t have a sufficiently close connection with your employment activities to provide a basis for deducting these subscriptions. They are essentially private expenses.

Myth: I can claim home-to-work travel because I need to get to work to earn my income.

Fact: For most of us, home-to-work travel is a private expense.

Myth: I’ve got a capped phone and internet plan to claim both business and private phone calls and internet usage.

Fact: Unless you only use your phone and internet for work, you have to apportion the cost between work-related and private usage and only claim the work-related portion of your expenses.

SHARING ECONOMY REPORTING BILL INTRODUCED

Electronic distribution platforms

This legislation requires operators of electronic distribution platforms to report information to the ATO relating to transactions facilitated through their platform.

The Treasury Laws Amendment (2022 Measures No.2) was introduced into the House of Representatives on 3.8.2022 and proposed to:

empower the Commissioner to direct an entity to complete an approved record-keeping course where the Commissioner reasonably believes the entity has failed to comply with its tax-related record-keeping obligations as an alternative to existing financial penalties
require electronic platform operations to provide information on transactions made through the platform to the ATO
removes the $250 non-deductible threshold for work-related self-education expenses;
enable small business entities to apply to the small business Taxation Division of the Administrative Appeals Tribunal (AAT) for an order staying or otherwise affecting the operation or implementation of decisions of the Commissioner that are being reviewed by the AATO; and
allow individuals aged 55 and above to make downsizer contributions to their superannuation plan from the proceeds of selling their main residence.

If all this sounds familiar… similar legislation was introduced during the last parliament but lapsed in the Senate before the May Federal Election.

SHINING A LIGHT ON ‘OFF-THE-BOOKS’ PAYMENTS

Building & construction, cleaning, courier, road freight, IT, security, surveillance industries

Dodgy contractors trying to keep income ‘off-the-books’ and businesses helping them do so are being put on notice as the Australian Taxation Office (ATO) continues to shine a light on shadow economy behaviour.

Paying cash in hand to avoid paying taxes is a significant part of the shadow economy. However, the taxable payment reporting system (TPRS) allows the ATO to investigate this conduct.

Around $350 billion in payments made to 950,000 contractors were reported to the ATO in the last financial year. The ATO expects more than 270,000 businesses to complete a taxable payment annual report (TPAR) for 2021-22 years.

TPRS obligations apply to businesses in the building and construction industry, as well as businesses that provide cleaning, courier, road freight, information technology and security, investigation, or surveillance services and have paid sub-contractors in relation to these services.

The ATO is reminding these businesses that they will have to lodge a TPAR with the ATO by 28 August, setting out payments to their contractors.

Sole-traders

The ATO uses information reported on the TPAR to make sure that businesses are complying with their tax obligations, for example, reporting the correct amount of income, lodging business activity statements (BAS) and income tax returns, paying the right amount of tax, being registered for GST if required, and using a valid Australian business number (ABN).

Businesses and tax professionals can view the data the ATO receives about their business, like taxable payments reported under the TPRS, as a reported transaction on ATO Online platforms.

The ATO’s new reported transactions services can help businesses and their tax professionals to view their data to make it easier to meet tax obligations.

ATO reminds sole traders any payments reported to the ATO through TPRS will be pre-filled in their tax return at tax time.

If you’re a sole trader, any payments you received as a contractor reported in a TPAR will be available as a pre-fill information report in your tax return. Whether you lodge your tax return yourself or through an agent, just remember to double-check that the pre-fill information is complete and correct before lodging, especially as not all your income may have been reported to the ATO.

The ATO reminds businesses and tax professionals lodging on behalf of their clients to contact the ATO if they need additional time to lodge their TPAR.

UNFAIR CONTRACT TERMS LEGISLATION

The Government intends to make unfair contract terms illegal, protecting small businesses and the hard-working Australians they employ.

Small businesses and consumers often lack the resources and bargaining power to effectively review and negotiate terms in standard contracts. Existing laws haven’t stopped the use of unfair terms, which remain prevalent in standard form contracts.

The Government has introduced legislation to strengthen unfair contract terms protections for small businesses and consumers.

The amendments will introduce civil penalty provisions outlawing the use of, and reliance on, unfair terms in standard form contracts. This will enable a regulator to seek a civil penalty from a court.

Additionally, a larger number of small business contracts will be afforded protection. This will occur by increasing the small business eligibility threshold for the protections from less than 20 employees to less than 100 employees and introducing an annual turnover threshold of less than $10 million as an alternative threshold for determining eligibility.

These reforms will help to improve consumer and small business confidence, allowing the small business sector to grow with confidence.

SMALL BUSINESSES URGED TO SAFEGUARD DOMAIN NAMES

The Australian Small Business and Family Enterprise have implored small businesses to take urgent action to safeguard their brand and identity on the internet or risk seeing impersonators, web-name campers or cyber criminals take up domain names just like theirs. With all the challenges small business owners and leaders are facing, the last thing anyone needs is someone ripping off their domain name.

With only a handful of weeks left before owners of .com.au, .net.au and similar domain names lose their priority access to the abridged .au domain name equivalents, there are significant concerns about plans to allow an open slather sale of business internet names under the new .au domain.

All business owners must take a few minutes to work out if they want the shortened .au domain or will be unhappy for someone else to have it. If the .au domain name is important, small business owners are urged to take a few minutes and few dollars to register it or potentially face someone else grabbing it and using it to digitally ambush your business, to demand big dollars later to surrender it to you or misuse it to masquerade as you or to help them engage in cyber-crime.

The Australian Small Business and Family Enterprise mentioned the change imposed by the non-government regulator, .au Domain Administration (auDA), had potentially momentous consequences that could see businesses lose their customer base or be at the mercy of cyber criminals impersonating them if they did not proactively sign up to the new system.

The auDA introduced the new system on 24 March, allowing anyone with a connection to Australia, such as businesses, associations, and individuals, to register a new domain name category. Instead of ending with .com.au, .net.au, asn.au, etc., people could register the shorter .au name. For example, shoes.com.au could be shoes.au

It also decided that Australian businesses with an existing domain name would only have until 20 September to reserve or register their equivalent .au domain name before it became available to the general public.

P r a c t i c e U p d a t e August 2022

ian@digitalwise.com.au (Ian Campbell) — Tue, 09 Aug 2022 03:40:46 GMT

CAREFUL WITH CRYPTO LOSSES

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

Important takeaways:

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

Considerations to offset against income:

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

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

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

CRYPTO IS NOT TAXED AS FOREIGN CURRENCY

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

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

WASH SALES: THE ATO IS CLEANING UP DIRTY LAUNDRY

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

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

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

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

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

FOCUS FOR 2022 SMALL BUSINESS TAX RETURNS

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

SUPER INCREASES FROM July 1, 2022

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

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

Examples

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

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

SIMPLIFIED TRADING STOCK RULES

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

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

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

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

Your estimate will be considered reasonable if either:

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

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

Example: the value of trading stock changes

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

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

EXPANSION OF HOME GUARANTEE SCHEME

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

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

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

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

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

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

DOWNSIZER CONTRIBUTIONS AGE CHANGES FROM JULY 1, 2022

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

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

PAYMENT RETAINS ITS CHARACTER AS ASSESSABLE ROYALTY INCOME

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

Take out:

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

ELECTRIC CAR DISCOUNT BILL INTRODUCED TO PARLIAMENT

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

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

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

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

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

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

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

TAX CONSEQUENCES FOR LEGALLY VALID TRUST DISCLAIMERS

ATO provides clarity following Commissioner of taxation v Carter

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

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

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

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

Awareness is needed for beneficiaries of trust entitlements

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

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

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

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

P r a c t i c e U p d a t e August -1 2022

ian@digitalwise.com.au (Ian Campbell) — Mon, 01 Aug 2022 05:31:54 GMT

Tax time focus on rental property income and deductions

The ATO is focusing on four major concerns this tax season when it comes to rental properties.

Concern 1: Include all rental income

When preparing tax returns, make sure all rental income is included, such as from short-term rental arrangements, renting part of a home, and other rental-related income like insurance payouts and rental bond money retained.

Concern 2: Accuracy of expenses

Not all expenses are the same – some can be claimed straight away, such as rental management fees, council rates, repairs, interest on loans and insurance premiums.

Other expenses such as borrowing expenses and capital works need to be claimed over a number of years.

Depreciating assets such as a new dishwasher or new oven costing over $300 are also claimed over their effective life.

Concern 3: Capital Gains Tax upon sale of a rental property

When selling a rental property, capital gains tax (‘CGT’) needs to be considered and any capital gains or capital losses need to be reported.

When calculating a capital gain or capital loss, it’s important to get the cost base calculation right.

It is also important to note that when selling any property for $750,000 or more, vendors/sellers must have a clearance certificate otherwise 12.5% will be withheld.

These clearance certificate applications can take up to 28 days to process so to avoid delays, sellers should apply as early as practical using the online form.

Concern 4: Record keeping

Records of rental income and expenses should be kept for five years from the date of tax return lodgments or five years after the disposal of an asset, whichever is longer.

Sessional lecturer entitled to superannuation support

The Federal Court has agreed with the ATO that a lecturer providing services to a higher education provider was a common law employee and therefore entitled to superannuation support, despite being engaged as an independent contractor.

The ATO reviewed the situation and concluded that the lecturer was entitled to receive superannuation support. This was on the basis that for superannuation guarantee purposes they were either an ‘employee’ within the ordinary meaning of that term, or was what is referred to as an ‘extended definition employee’ as someone engaged primarily for the provision of their labour services.

Some of the factors which indicated the lecturer was in an employment relationship with the higher education provider included:

that the lecturer was engaged in his personal capacity and not through an interposed entity (such as a company or trust);
hat the higher education provider had a right of control over the lecturer, including the question of how, when and where he was required to provide the relevant teaching services; and
the mode or manner by which the lecturer was to be remunerated was clearly expressed by reference to the time that the lecturer was engaged in delivering lectures and marking, not by reference to any readily identifiable or quantifiable product or result.

Editor: Please feel free to discuss with our office any scenarios where a ‘contactor’ is engaged personally, remunerated on an hourly basis for hours worked and is not provided with superannuation support.

TD 2022/11 – Discretionary trusts and corporate beneficiaries

When a trustee of a trust makes a decision to create an entitlement to income of the trust in favour of a corporate beneficiary (i.e., a privately held company), certain steps need to be taken to ensure that if the entitlement to the distribution remains unpaid (that is, no cash equal to the amount of the entitlement is paid to the corporate beneficiary), that this does not trigger what is called a ‘deemed dividend’ in the hands of the trust.

A deemed dividend is likely to give rise to unwanted taxation consequences for the trust.

Historically, one way to avoid triggering a deemed dividend in such circumstances was to place the amount representing an unpaid distribution in a sub-trust for the benefit of the corporate beneficiary.

With these sub-trust arrangements, the relevant funds are generally being invested in the main trust to be used for working capital or to make plant and equipment or real property acquisitions.

These sub-trust arrangements were typically based on interest only loan arrangements, with the requirement that the principal be repaid at the end of either seven years (i.e., as an Option 1 arrangement) or ten years (i.e., to as an Option 2 arrangement).

The ATO has now formed the view that for entitlements to trust income that come about from 1 July 2022 (effectively from the 2023 income year) that these interest only Option 1 and Option 2 arrangements are no longer sufficient to avoid the potential triggering of a deemed dividend with respect to any unpaid present entitlements.

Broadly speaking, from 1 July 2022, in relation to an unpaid distribution payable to a corporate beneficiary, one way to avoid the unpaid distribution giving rise to a potential deemed dividend is for the unpaid distribution to be replaced with what is referred to as a complying Division 7A loan.

These Division 7A loans are made under S.109N of the Income Tax Assessment Act 1936 (‘ITAA 1936’).

Ordinarily, such a loan is repaid on a principal and interest basis, over seven years, based on an interest rate provided by the ATO for each year of the loan, with annual minimum loan repayments calculated based on a formula provided by the income tax legislation.

Editor: We are happy to advise whether this recently issued Tax Determination has any implications for the way your family group distributes its income.

Pandemic Leave Disaster Payment reinstated

In recognition of the risks associated with more infectious new Covid-19 variants through the winter period, the Federal Government has agreed to reinstate the ‘Pandemic Leave Disaster Payment’ to 30 September 2022, which was otherwise set to end as of 30 June 2022.

Eligibility for the payment will be backdated to 1 July 2022, to ensure that anyone unable to work owing to isolation requirements in this period, without access to paid sick leave, is supported.

Access to these payments will commence from Wednesday 20 July 2022, with existing eligibility requirements to continue.

The Commonwealth and the States and Territories have agreed to share the costs of the payment 50:50.

For each 7-day period of self-isolation, quarantine or caring, the Pandemic Leave Disaster payment is:

$450 if you lost at least 8 hours or a full day’s work, and less than 20 hours of work: or
$750 if you lost 20 hours or more of work.

As a reminder, Pandemic Leave Disaster Payments are assessable income and should be reported in the tax return of the recipient in the year of receipt.

P r a c t i c e U p d a t e July 2022

ian@digitalwise.com.au (Ian Campbell) — Fri, 01 Jul 2022 05:37:45 GMT

ATO’s small business focus for 2022 income year

The ATO announced that it will be focussing on the following matters for small business tax returns for the 2021/22 year:

Deductions that are private in nature and not related to business income, as well as overclaiming of business expenses (especially for taxpayers running a home-based business).
Omission of business income (e.g., income from the sharing economy or new business ventures).
Record keeping – including insufficient or non-existent records that are needed to substantiate claims.

The ATO acknowledges that it has been a tough couple of years for many small business owners and encourages taxpayers to act early to find a solution if they are getting behind in their tax obligations, either by contacting their tax agent or the ATO.

ATO targeting SMSFs that fail to lodge annual returns

The ATO has observed an increase in the number of SMSFs that fail to lodge their first annual return and become what the ATO refers to as ‘NEVER’ lodgers. The ATO is particularly concerned where there has been a roll-over into these SMSFs, as this is a strong indicator illegal early release of superannuation benefits may have occurred.

A minority of SMSF trustees continue to ignore ATO reminders about lodging annual returns. This group is now being targeted with a compliance campaign the ATO calls ‘3 strikes and you’re out’.

Under this campaign, the ATO will take the following action:

The ATO’s compliance action starts with a blue letter, that encourages trustees to take immediate action and lodge their return and provides a pathway for those in need of support.
If the ATO does not receive a response to the blue letter, it will issue an amber letter warning the trustees of the consequences of failing to lodge their return.
If the ATO still does not receive a response, it will issue a final warning, a red letter advising the ATO is commencing the disqualification process and considering other enforcement action.

Last year the ATO issued red letters to trustees who had never lodged their first annual return and has now commenced disqualifying the 95 trustees that did not respond.

ATO updates ‘cents per kilometre’ rate for individuals

The ATO has updated the cents per kilometre rate relating to individual car expenses for the 2023 income year to 78 cents per business kilometre.

The cents per kilometre method:

uses a set rate for each kilometre travelled for business;
allows taxpayers to claim a maximum of 5,000 business kilometres per car, per year;
does not require written evidence to show exactly how many kilometres were travelled (but the ATO may ask taxpayers to show how they worked out their business kilometres, for example by means of diary records); and
uses a rate that takes all vehicle running expenses (including registration, fuel, servicing and insurance) and depreciation into account.

The cents per kilometre rate was 72 cents for the 2020 and 2021 income years.

ATO to target ‘wash sales’ this Tax Time

The ATO is warning taxpayers to not engage in ‘asset wash sales’ to artificially increase their losses to reduce gains (or expected gains). Wash sales are a form of tax avoidance that the ATO is focussed on this tax time.

Wash sales typically involve the disposal of assets (e.g., cryptocurrency and shares) just before the end of the financial year, where after a short period of time, the taxpayer reacquires the same or substantially similar assets. Such sales are usually done to create a loss to be offset against a gain already derived, or expected to be derived, in certain circumstances, in a tax return.

The ATO has warned taxpayers engaging in wash sales that they are at risk of facing swift compliance action and additional tax, interest and penalties may apply. Taxpayers are urged to ignore any advice encouraging a wash sale of any asset. The clear advice from the ATO is to check the ATO website or check with an independent registered tax professional and not to rely on advice received through media, social media, or advertisements.

Downsizer contributions age changes from 1 July 2022

From 1 July 2022, people aged 60 years and over will be eligible to make downsizer contributions of up to $300,000 per person ($600,000 per couple) from the sale proceeds of their home into their super. For downsizer contributions made prior to 1 July 2022, eligible individuals must have been aged 65 years or older at the time of making their contribution.

Eligible downsizer contributions do not impact or count towards the member’s concessional or non-concessional super contribution caps.

During the 2022 Federal election, the previous Coalition Government announced it would support a further reduction to the downsizer eligibility age to 55 years. However, this announcement has not become law. Accordingly, contributions received on or after 1 July 2022 from members who are 55 to 59 will:

be ineligible for treatment as downsizer contributions; and
generally count towards either the member’s non-concessional or concessional superannuation contributions caps.

Super guarantee contribution due date for June 2022 quarter

The due date for employers to make super guarantee contributions for their employees for the June 2022 quarter is 28 July 2022. Note that the super guarantee rate in relation to salary and wages paid on or before 30 June 2022 is 10%.

Employers that do not pay an employee’s superannuation guarantee amount on time (and to the right fund) are liable to pay the ‘superannuation guarantee charge’ (‘SGC’). The SGC is more than the superannuation amount that is otherwise payable for the employee and is not tax deductible.

As we reported last month, the super guarantee rate increases to 10.5% in relation to salary and wages paid on or after 1 July 2022 (even if they are paid in relation to work performed before that date).

Note also, contributions received by superannuation funds after 30 June 2022 will not be deductible in the 2022 income year, even if they are made in relation to work performed during the 2022 income year.

2021/22 Individual Tax Return Checklist

ian@digitalwise.com.au (Ian Campbell) — Wed, 29 Jun 2022 23:05:32 GMT

CLICK HERE TO DOWNLOAD YOUR CHECKLIST

Practice Update June 2022

ian@digitalwise.com.au (Ian Campbell) — Wed, 29 Jun 2022 23:00:26 GMT

P r a c t i c e U p d a t e June 2022

ATO priorities this tax time

The ATO has announced four key areas that it will be focusing on for Tax Time 2022:

Record-keeping.
Work-related expenses.
Rental property income and deductions.
Capital gains from crypto assets, property, and shares.

Before claiming income tax deductions for their expenses, taxpayers must ensure:

they spent the money themselves and were not reimbursed;
if an expense is for both income-producing and private use, only the portion relating to producing income is claimed; and
they have a record to prove it.

Avoid double dipping on your deductions

Taxpayers are reminded not to make the mistake of ‘double dipping’ on deductions (that is, claiming expenses twice) in their tax return this year.

Some of the ‘double dipping’ mistakes commonly made relate to the following deductions:

Working from home expenses

A common mistake involves using the 'shortcut method' to claim working from home expenses and then claiming additional amounts for expenses such as mobile phone and internet bills, as well as the decline in value of equipment and furniture.

The working from home shortcut method is all-inclusive.

There are three methods available to claim a deduction for working from home expenses depending on individual circumstances; namely, the shortcut, fixed rate and actual cost methods.

The method that gives the best outcome can be used, as long as the eligibility and record-keeping requirements for the chosen method are observed.

Car expenses

A common mistake involves using the 'cents per kilometre' method to claim car expenses, and then double dipping by separately claiming expenses such as fuel, car insurance, and registration.

The cents per kilometre rate is all-inclusive and already covers decline in value, registration, insurance, maintenance, repairs, and fuel costs.

Reimbursed expenses

Taxpayers cannot claim expenses that have already been reimbursed by their employer.

Get ready for super changes from 1 July 2022

As the new financial year approaches, employers need to be aware of two important super changes.

From 1 July 2022, employees can be eligible for super guarantee (‘SG’), regardless of how much they earn, because the $450 per month eligibility threshold for when SG is paid has been removed.

Employers only need to pay super for workers under 18, when they work more than 30 hours in a week.

Furthermore, the SG rate will increase from 10% to 10.5% on 1 July 2022. Employers will need to use the new rate to calculate super on payments made to employees on or after 1 July, even if some or all of the pay period is for work done before 1 July.

Employers should update their payroll and accounting systems to ensure they continue to pay the right amount of super for their employees.

ATO to start clearing backlog of ENCC release authorities

Due to "unavoidable delays caused by improvements to" its systems, the ATO will start issuing requests to release excess contributions and other charges for individuals who did not make an election on the tax treatment of their excess non-concessional contributions ('ENCC') for prior financial years.

This may result in a higher than normal number of release authorities for members of superannuation funds over the coming months while the ATO works through the backlog.

ATO warns about GST fraud

Taxpayers are being warned to be on the lookout for dodgy online ads, often on social media platforms, promising easy GST refunds.

The ATO recently issued a media release about large-scale GST fraud attempts exceeding $850 million, that involve customers setting up an ABN without operating a business, and then submitting fictitious BAS statements to get a GST refund.

The ATO said it has already successfully stopped $770 million in attempted fraud before payment.

“The people who are involved in these activities aren’t accidentally ticking a box on an online form. They’re signing to say that they’ve set up an ABN for a business that doesn’t exist, then lodging a BAS with false information on it, to receive GST refunds that they are not entitled to,” the ATO said.

Taxpayers who think they’ve been involved in this arrangement are urged to let the ATO know (before the ATO contacts them) by calling 1300 130 017.

Confidential reports of suspected tax evasion or crime can be made online (visit ato.gov.au/tipoff) or by calling the ATO’s Tax Integrity Centre on 1800 060 062.

Employers need to prepare for changes under STP expansion

Single Touch Payroll ('STP') reporting has been expanded.

This expansion, known as ‘STP Phase 2’, means that employers will need to start reporting extra information to the ATO each time they run their payroll.

Some digital service providers (‘DSPs’) needed more time to update their products and applied for deferrals, which cover their customers – therefore, when an employer can start Phase 2 reporting depends on when their payroll product is ready.

Employers that have not already started Phase 2 reporting should ask their DSP when their product will be ready (if they don't already know).

Employers need to be across the changes and get ready to start Phase 2 reporting. This includes:

checking if changes need to be made to payroll pay codes/categories so they align with Phase 2 requirements;
reviewing allowances employers pay and how they need to be reported in Phase 2;
understanding changes to salary sacrifice reporting; and
understanding how to assign an income type to each payment.

The ATO is also reminding employers that amounts paid to 'closely held payees' should now be reported through STP.

A ‘closely held payee’ is an individual directly related to the entity they receive payments from. For example, family members of a family business, directors or shareholders of a company and beneficiaries of a trust..

There are concessional reporting options for closely held payees reporting which include the following:

Reporting actual payments on or before the date of payment (along with arm's length employees).
Reporting actual payments quarterly.
Reporting a reasonable estimate quarterly.

Editor: Should you have any questions (or require any assistance) about any of the issues raised in this update, please feel free to contact our office.

JUNE 22 TAX UPDATE

ian@digitalwise.com.au (Ian Campbell) — Tue, 31 May 2022 06:35:44 GMT

IMPORTANT CHANGES FOR YOU AND FOR YOUR BUSINESS

Superannuation changes from July 1, 2022

From July 1, 2022 employees can be eligible for Super Guarantee (SG), regardless of how much they earn. This is because the $450 per month eligibility threshold for when SG is paid is being removed. You only need to pay super for workers under 18 when they work more than 30 hours in a week.

The SG rate will also increase from 10% to 10.5% on July 1, 2022. You’ll need to use the new rate to calculate super on payments you make to employees on or after 1 July, even if some or all of the pay period is for work done before 1 July. The SG rate is legislated to increase to 12% by 2025.

Make sure you update your payroll and accounting systems so that you continue to pay the right amount of super for your employees.

What attracts ATO’s attention to high-net-worth individuals

The ATO has updated their website with information about the behaviours, characteristics and tax issues of privately owned and wealthy groups that may attract their attention.

This includes information about:

taxpayers who avoid or delay paying taxes by not lodging their tax returns when required, or fail to report all of their income. Improved data matching processes better detect undeclared or disguised income (including foreign income)
taxpayers who provide incomplete information or fail to disclose their interest in foreign entities or incorrectly report foreign income
incorrectly claimed tax exemptions, treaty relief, transfer pricing benefits or economic stimulus measures
arrangements that mischaracterise transactions or incorrectly calculate turnover or income to obtain a tax benefit.

Keeping business safe with eInvoicing

Every year Australian businesses fall victim to sophisticated false billing scams and fraud executed via email. According to the ACCC’s Scam Watch, Australian businesses lost nearly $128 million to business email compromise scams in 2020.

Electronic invoicing (eInvoicing) is the new, standardised way to send and receive invoices through your software. Peppol is the common eInvoicing standard in Australia, with the Peppol network providing a more secure channel to exchange invoices.

By shifting to eInvoicing, businesses can reduce the risk posed by emailing invoices and at the same time secure their cash and ability to fulfil their reporting obligations.

eInvoicing can help keep your business safe by:

using a channel that offers stronger security controls than email, such as encryption
reducing the risks of fake, unsolicited or compromised invoices and other false billing scams
exchanging eInvoices through the network of approved service providers, called access points, who implement security controls to prevent, detect and mitigate the risk of invoice fraud
using your trading partners’ ABNs, which are validated, to ensure invoices are sent to legitimate businesses
preventing lost or delayed invoices.

The ATO manages the Peppol standard and network in Australia but they have no access or visibility of eInvoices transmitted via the Peppol network.

The security benefits of eInvoicing over traditional printed or PDF email invoices not only help protect your business from external threats but also offer an added layer of security to your internal checks and controls.

With more Australian businesses choosing eInvoicing every day, and businesses in 40 countries around the world also connected to the network, it’s a good time to give eInvoicing a go.

Talk to your trusted business advisers and software providers about how to get started.

COVID-19 tests are not subject to FBT

Following the 2022-23 Federal Budget, the Treasury Laws Amendment (Cost of Living Support and Other Measures) Act 2022 now allows an income tax deduction for COVID-19 tests undertaken by employees before attending their place of work. This facilitates the removal of FBT for employers providing COVID-19 tests to employees through the ‘otherwise deductible’ rule provided conditions are met, and documentation requirements are satisfied. The new measures will apply with effect from 1.7.2021.

YEAR-END TAX PLANNING TIPS 2021-22 FOR SMALL BUSINESSES

While many of us have struggled due to COVID-19, tax minimisation is still very important.

Overview

The Fringe Benefits Tax (FBT) year ended on 31.3.2022. If you operate through a company or trust, carefully consider whether all FBT matters have been attended to and whether FBT return needs to be lodged. The most common fringe benefit supplied to staff is a motor vehicle benefit. In a small business audit, the two main areas of ATO focus are fringe benefits and Division 7A loans – see below.

Also carefully consider the effect COVID-19 has had on the calculation of the taxable fringe benefits, in particular motor vehicle and car parking fringe benefits. Carefully consider what has transpired over the year and do not pay any more FBT than you need to.

Check eligibility for the small business tax regime

Small businesses (sole traders, partnerships, companies, and/or trusts with a turnover of less than $10 million) may be eligible for a range of tax benefits including the instant asset write-off a 25 per cent company tax rate, simplified depreciation, capital gains tax concessions (turnover less than $2 million) and accounting on a cash basis.

Review salary sacrifice arrangements

Employees can consider salary sacrifice arrangements under which their gross salary may be foregone to obtain either packaged car for FBT purposes, or they can make additional superannuation contributions.

We note that the option for employees to make tax-deductible superannuation contributions themselves became law on 29.11.2016 and took effect from 1.7.2017.

Make trust resolutions by June 30

Trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2021-2022 financial year by 30 June.

In the event, a valid distribution is not made then a default beneficiary may be assessable. If there are no default beneficiaries, then the trustee will be assessable at the highest marginal rate.

Seeking professional advice when starting a business

Professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the year those expenses are incurred rather than deducted over a five-year period as was the case prior to 1.7.2015.

Small business restructure rollover relief

Since 1.7.2016, small businesses have been able to change the legal structure of their business without incurring any income tax liability when active assets are transferred from one entity to another. This rollover applies to active assets and depreciating assets used or held ready for use, in the course of carrying on a business. Seek professional advice.

Stream trust capital gains and franked dividends

Trustees of discretionary trusts may be able to stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts, the trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.

It may be necessary to make a family trust election for this to be effective.

Private company loans

Income Tax law can potentially treat a payment or loan by a private company to a shareholder or an associate as an unfranked deemed dividend unless an exemption applies.

The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term, which may be seven or 25 years depending on whether or not the loan is secured.

Prior to 30 June, you should carefully review such debit loans on the company’s balance sheet.

Prevent deemed dividends in respect of unpaid trust distributions

An unpaid distribution owed by a trust to a related private company beneficiary that arises from 1.7.2017 will be treated as a loan by the company if the trustee and the company are controlled by the same family group. In these circumstances, the associated trust may be taken to have derived a deemed dividend for the amount of the unpaid trust distribution in 2019-2020 and prior.

However, a deemed dividend may be prevented if the unpaid distribution is paid out, or a complying loan agreement is entered into before the company’s 2021-2022 income tax return needs to be lodged. Alternatively, a deemed dividend will not arise if the amount is held in an eligible sub-trust arrangement for the sole benefit of the private company, and other conditions are satisfied. These rules are complex and professional advice should be sought.

Write-off bad debts

Businesses can only obtain income tax deductions for bad debts, if the debt still exists at the time it is written off. Thus, if the debt is forgiven or compromised before it is written off as a bad debt in the accounts no deduction will be available. The debt must also be unrecoverable and written off in the accounts as bad prior to 30 June. The bad debt must have been previously brought to account as assessable income or lent in the ordinary course of carrying on a money-lending business.

This is particularly relevant for small business entities that use cash accounting (not accruals) when reporting revenue for taxation purposes.

Year-End “Tax Effective” Investment Products

Proceed with caution and make sure you get independent professional advice.

Other business deductions

Defer Income

Cash or accruals reporting – recognition of income on a receipt’s basis will generally defer the point of derivation.
Review service contacts – do the terms of the contract mean income can be recognised periodically when the services are performed?

Bonuses

Ensure all bonuses are determined and properly documented before year-end.

Depreciation

Scrap obsolete items of plant and equipment.
Utilise depreciation pools to their full extent; and

From 7.30 pm AEDT on 6.10.2020 until 30.6.2023, temporary full expensing allows a deduction for:

The business portion of the cost of new eligible depreciation assets for businesses with an aggregated turnover under $5 billion or for corporate tax entities that satisfy the alternative test.
The business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million.
The balance of a small business pool at end of each income year in this period for businesses with an aggregated turnover under $10 million.

Trading Stock

Consider obsolete stock to write off and note closing stock can be valued at year end at a lesser cost, market value, or the replacement value.

Generally, an entity must perform a stock take to determine the physical quantity and value of each item at year-end.

Prepayment of Expenses

In some circumstances, small businesses (with a turnover of less than $10 million) should consider prepaying expenses prior to 30 June 2022. A tax deduction can be brought forward into this financial year for expenses like insurance premiums, subscriptions and memberships, travel advertising, and interest. A deduction for prepaid expenses will generally be allowed where the payment is made before 30 June 2021 for services to be rendered within a 12-month period.

YEAR-END TAX PLANNING TIPS 2021-22 FOR INDIVIDUALS

In general, individual income is derived and deductions are incurred on a receipt basis. The following suggestions may reduce your current tax year liability.

Prepayment of deductible expenses

An individual can claim a deduction for prepaid expenditure for a period not exceeding 12 months. The most common types of prepayment include:

Income protection insurance
Interest on investment loans
Interest on share portfolio loans
Membership and subscriptions
Investment property expenses
Corporate Body levies
Insurance
Repairs and maintenance
Rates

Before year-end, an individual should review the gains and losses on each asset within their investment portfolio. There may be opportunities to:

Make sure assets have been held greater than 12 months before sale so the 50% discount can be applied to the gross capital gain – remember this is from “contract” to “contract” not a settlement.
Realise capital losses to offset any capital gains that were made earlier in the income year.
Defer realisation of capital gains until July.

Salary packaging arrangements

An effective salary sacrifice arrangement will reduce an individual’s marginal rate of tax.

The contractual arrangements should be documented or amended before year-end as an individual cannot make a retro perspective salary sacrifice arrangement for income already earned. A typical salary sacrifice arrangement may include the following components:

Motor vehicle expense
Additional superannuation contributions
School fees

The top marginal tax rate is applied on income in excess of $180,000. With the “mark-up” factors, fringe benefits tax effectively applies the top marginal rate regardless of your income. However, for taxpayers not on the top marginal rate it is still possible to take advantage of FBT concessions.

2022 Contributions Caps:

Concessional contributions (employer contributions) $27,500.
Non-concessional contributions (personal contributions) $110,000 or 3-year limit of $330,000.
Again, if you want to contribute more than $110,000 in non-concessional contributions contact your accountant as this involves a 3-year average and you need to be certain you are eligible.

Note that there is no tax deduction for the non-concessional contribution.

Salary sacrifice bonus into superannuation

You may be able to optimise your tax position by salary sacrificing any prospective end-of-year bonus into super. Seek advice to ensure it is tax effective and that the contributions caps are not breached.

Superannuation – Income

Individuals aged over 60 and retired are generally not taxed on any payments from a superannuation fund. Individuals aged between 55 and 60 will generally be taxed concessionally.

Superannuation – Rebate

A rebate up to $540 is available for superannuation contributions made during the 2022 year for your spouse where your spouse’s income is less than $37,000 p.a. (this rebate reduces for income amounts up to $40,000 p.a.).

The age limits for spouse contribution were increased from 69 to 75 years from 1.7.2020.

Superannuation – Government co-contributions

The maximum co-contribution amount that you received is $500, based on an after-tax contribution of $1,000 (i.e., for every $1 contribution made, the government contributes $0.50). This is reduced by 3.33 cents for each $1 of income over $41,112 p.a. up to $56,112 p.a. As there are also other qualifying criteria, you should contact your accountant if you wish to access this benefit in 2022.

Eligibility for super concessional contributions

The 2021-2022 financial year is the fourth year when carrying forward provisions come into effect, where you can carry forward unused contributions for five consecutive years.

To be eligible, your Total Superannuation Balance (TSB) must be less than $500,000 at 30 June of the previous year. This is assessed in June of the prior year for each year in the rolling five-year period in which you intend to use the unused cap.

This strategy can be used for taxpayers expecting to have higher taxable income in an income year and would like to reduce the tax liability they have to pay, whether it is for work bonuses, large capital gains, retirement payouts, or large trust distributions.

Individuals aged 65 to 74 who meet the work test (and TSB test) will also be eligible to access the catch-up concessional contributions.

Transition to retirement income streams

If you are 55 or older on 30 June 2022, you may be eligible to commence a “Transition to retirement” pension. Benefits may include:

Receiving pension income while still working.
Ability to salary sacrifice to superannuation to access lower tax rates; and
Concessional tax treatment within your super fund.

Note that up to 30.6.2017, the income from assets supporting a transition to retirement income stream was tax-exempt. Since 1.7.2017 this exemption no longer applies.

Medicare Levy Surcharge (MLS) and Private Health Insurance Rebate (PHIR)

The threshold for the imposition of the MLS (If not covered by private hospital insurance) is broadly as follows:

Singles (no dependants) – $90,000 pa; and
Families – $180,000 pa (plus $,500 for each dependent child after the first)

There are a number of income amounts such as reportable fringe benefits, reportable superannuation contributions, and investment losses counted in calculating these thresholds.

Further, there is a “tiered” system for calculating MLS in the 2022 income year. The rate of the rebate will be between 1% and 1.5% depending on the extent to which income exceeds the relevant threshold.

In addition, PHIR is also means-tested in the 2022 income year under a “tiered” system. The rate of the rebate will be between 0% and 30% depending on income levels. This means some taxpayers who have claimed a full 30% rebate from their health insurance provider on their premiums will have an additional liability upon lodgement of their return.

ATO Recovery from Higher Education Loan Program and Trade Support Loan Debt

The Higher Education Loan Program (HELP) and Trade Support Loan (TSL) repayment rules to debtors who reside overseas have been extended by assessing their repayment obligations on their worldwide income. Repayment obligations commenced from July 2017.

Since January 2016, HELP and TSL debtors who are going overseas for more than 6 months were required to register with the ATO. Debtors already living overseas are expected to register.

Incur expenses before year-end

Expenses that are incurred before year-end can reduce taxable income. Consider forthcoming liabilities and the value in incurring them before year-end.

If you have rental property, consider whether you are maximising claims for capital works deductions on the property. A report from a quantity surveyor or suitably qualified specialist will maximise your entitlements.

Pay income protection insurance premiums before year-end.

Motor vehicle expenses

There are now only two methods that can be used to claim a deduction for motor vehicle expenses. There are:

The cents per km method (for up to 5,000 business kilometres travelled); and
The logbook method (logbook kept over 12 weeks and updated every 5 years)

For the year ended 30 June 2022, the single rate of deduction determined by the Commissioner is 72 cents per kilometre. Detailed records assist in maximising deductions.

Zone tax offset

Since 1 July 2015, the zone tax offset has been limited to those taxpayers whose usual place of residence is within the designated zones. The zone tax offset is a concessional tax offset available to individuals against their income tax liability in recognition of the isolation, extreme climate, and high cost of living associated with living in designated zones.

This means “fly-in-fly-out” and “drive-in-drive-out” employees, whose usual place of residence is located outside of the zone, are ineligible to claim the zone tax offset for the 2016 income year and later income years.

Claiming Travel Allowance Deductions

An audit focus by the ATO continues on travel allowance expenses being claimed by individual taxpayers. If you intend to use the exception for retaining substantiation of these claims the following must apply:

You must be receiving a bona fide travel allowance from your employer.
You must be working away from home (on overnight stays) in the course of performing employment duties.
You must calculate the claim correctly for your salary level and location of work; and
You must be able to show that you are incurring travel expenses.

ATO Data Matching

The ATO’s extensive data matching capabilities are based on the information it receives from various sources including banks, share registers, employers, government agencies, and via its network of global information exchange agreements.

In terms of focus areas for compliance activities, the ATO continues to closely monitor:

Claims for work-related expenses are usually high relatively close to others across comparable industries and occupations.
Excessive rental property expenses.
Non-commercial rental income received for holiday homes.
Interest deductions claimed for the private proportions of loans; and
People who have registered for GST but are not actively carrying on a business.

In 2022 an area of ATO focus is contractors not declaring income detectable under the Taxable Payments Reporting System (TPRS).

ATO DETERMINATIONS

False claims land swimming teacher in hot water – May 2022

A former swimming teacher has been sentenced to three years in jail for obtaining and attempting to obtain more than $250,000 in fraudulent GST refunds.

Ms Sasha Cordes lodged several original and amended business activity statements for her swim school business. In each case, she knowingly overstated the purchase amounts to obtain a financial advantage.

In total, $97,114 worth of fraudulent GST refunds were paid into her bank account. She also tried to obtain an extra $181,947 but the ATO stopped these refunds.

Ms Cordes will be released from jail after 15 months, on entering into a $1,000 recognisance on the requirement that she be of good behaviour for 2 years. She was also ordered to repay the full $97,114.

In sentencing, His Honour noted that the offending involved both deception and dishonesty and had been committed over an extended period.

As this case highlights, people who deliberately cheat the tax system will be caught and held to account.

XGPH v Commissioner of taxation [2022] AATA 567

In XGPH v Commissioner of Taxation [2022], AATA 567 expenses claimed by a therapeutic care worker and aspiring actor were only partially allowable as deductions. These expenses were:

work-related car expenses. The taxpayer didn’t maintain documentation required under the logbook method and was therefore only entitled to the maximum allowable deduction of AUD 3,400 under the cents per kilometre method
rental expenses for an office space. Here the AAT found the office space was used equally for both work and non-work-related purposes meaning the taxpayer could reasonably deduct 50 per cent of the rental expense of the office space that he incurred in gaining or producing his assessable income
phone expenses and internet expenses for which the AAT accepted the amount allowed as a deduction by the ATO in the absence of evidence from the taxpayer, and
an audiobook and physical training expenses to prepare for a paid ballet role which the AAT accepted was an allowable deduction.

LONDON V Commissioner of taxation [2022] AATA 644

In this AAT case, the taxpayer claimed work-related deductions for his employment by Correctional Services as a dog handler (he was responsible for training and caring for the dogs after work hours) and as a member of the Emergency Response Group. Initially, the ATO disallowed the deductions.

It was held that:

Gym membership fees were deductible as they were incurred to maintain the high fitness level required for his work and there was no evidence of a private purpose. This taxpayer could rely on the TR 95/13 which applies to police officers.
Expenses directly relating to working and caring for dogs, as well as a waterproof jacket and waterproof boots, were allowed.
Expenses not allowed included car expenses for trips to the gyms, mobile phone costs for checking emails and other clothing expenses due to a lack of nexus with earning assessable income.

2022-23 Budget

ian@digitalwise.com.au (Ian Campbell) — Mon, 16 May 2022 00:11:11 GMT

BUDGET OVERVIEW

More Australians are in work than ever before, and the unemployment rate is now forecast to reach 3¾ per cent in 2022, the lowest rate in close to 50 years.

Risks to the outlook remain, with the pandemic and the invasion of Ukraine all putting pressure on the cost of living for Australian households.

As part of the Budget 2022‑23, the government is:

providing temporary and targeted cost of living relief for households and tax relief for small businesses,
delivering more jobs and working towards an unemployment rate below 4 per cent,
making record investments in health, education, and other essential services,
building roads, rail, dams, and the renewable energy technology required for our future, and
investing in stronger defence, borders, and security.

Cost of living relief

The government is introducing a new temporary, targeted, and responsible Cost of Living Package to take the pressure off household budgets.

One-off Cost of Living Tax Offset – From 1 July this year, more than 10 million individuals will receive a one-off $420 cost of living tax offset. As a result, eligible low- and middle-income earners will be up to $1,500 better off for a single income household or $3,000 better off for a dual-income household.
One-off Cost of Living Payment – To help Australians most in need, the government is providing a one-off, income-tax-exempt payment of $250 to 6 million eligible pensioners, welfare recipients, veterans, and eligible concession card holders in April 2022.
Temporary fuel excise relief – The Government will reduce fuel excise by 50 per cent for 6 months. This will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents per litre. The reduction in excise will flow through to lower petrol prices over the next two weeks, as petrol stations replenish their stocks.

Jobs

The government is investing in measures to expand and upskill the workforce to secure the workers we need now and for the future.

This will also help Australians into more highly skilled and better-paying jobs.

The government is transforming Australia’s manufacturing sector and building resilient supply chains with over $1 billion in new investment, building on the $1.5 billion Modern Manufacturing Strategy announced in the 2020-21 Budget.
The government has committed $2.8 billion to support Australian apprenticeships, building on the $13.3 billion spent on apprenticeships and traineeships since 2013.
The government has committed $3.7 billion in Commonwealth funding for a new skills agreement, which has the capacity to deliver up to 800,000 additional training places for Australians.
To develop the next generation of innovative Australian companies, this Budget includes $2.2 billion for a research commercialisation action plan (including $1.6 billion for a new economic accelerator) to bring industries and universities together.

Backing small businesses

Small businesses will have access to a new 20 per cent bonus deduction for eligible external training courses for upskilling employees.

The Skills and Training Boost will apply to expenditure incurred from Budget night until 30 June 2024, providing $550 million in tax relief.

The government is also providing $1 billion for a new Technology Investment Boost to encourage small businesses to go digital.

Small businesses will be able to deduct a bonus 20 per cent of the cost of expenses and depreciating assets that support digital uptake.

This new measure will support spending up to $100,000 per year, which applies from Budget night until 30 June 2023.

Essential services

The government has allocated $6 billion for the COVID-19 Health response, including support for the Governments’ Winter Response Plan to prepare for the next wave of COVID‑19 and influenza.

$3.0 billion over five years for cheaper medicines to support a healthier Australia.
$1.3 billion to support the delivery of the next National Plan to End Violence against Women and Children 2022-32.
$165.0 million for wellbeing programs and $104.2 million for health services to support veterans and families

Infrastructure

The government is investing an unprecedented $37.9 billion in regional Australia and priority infrastructure across the nation to create jobs and unlock the economic potential in our regions.

This includes $7.1 billion for transformative investments, including in the Northern Territory, North and Central Queensland, the Pilbara, and the Hunter, to unlock new economic frontiers of production in agriculture, low emissions manufacturing, and renewable energy.

The government has increased its 10-year transport infrastructure pipeline to a record $120 billion, with an additional $17.9 billion committed to road, rail and community infrastructure projects supporting around 40,000 jobs.

Through its $8.9 billion National Water Grid Fund, the government will provide a further $7.4 billion to improve Australia’s water security and open new land for irrigation.

As well as projects in each state and territory, the government is investing:

$2.0 billion through the Regional Accelerator Program to drive growth and productivity in regional areas.
$501.7 million for local councils to deliver priority road and community infrastructure projects across Australia
$2.0 billion in additional funding for the Northern Australia Infrastructure Facility, bringing total funding to $7.0 billion.

Keeping Australians Safe

We are living in a time of uncertainty.

The pandemic, the invasion of Ukraine and extreme weather events have and continue to cause enormous disruption.

To keep Australians safe, the government will:

Increase the Australian Defence Force by up to 18,500 by 2040.
Provide $9.9 billion over 10 years to significantly enhance Australia’s offensive and defensive cyber and intelligence capabilities.
Support households and businesses impacted by recent floods in parts of Queensland and New South Wales, with over $6 billion expected to be spent.

The Budget aims to deliver the next stage of the government’s plan to build a strong economy and a stronger future.

COMMENTARY FROM BUSINESS LEADERS

While welcoming low unemployment figures, Business Council of Australia Chief Executive Jennifer Westacott expressed concern over labour shortages and the need to encourage skilled migration.

Australian Chamber of Commerce and Industry CEO Andrew McKellar said

‘We are without a long-term agenda for Australia to realise its economic potential”.

He made similar comments about the need for more skilled migrants going on to say

“Regrettably, this year’s Budget doesn’t address some of the more pressing challenges facing the Australian economy, including a far-reaching agenda for Tax Reform, stronger focus on innovation, and building business investment, supply chain capability and productivity. Presumably, these will have to wait until next year”.

ECONOMIC POSITION

The government maintains its plan for a stronger future is working and that the Australian economy has outperformed all major advanced economies, experiencing a stronger recovery in output and employment compared to pre-pandemic levels.

Economic growth forecasts have been revised upwards, driven by stronger-than-expected momentum in the labour market and consumer spending.

Real GDP is expected to grow by 4¼ per cent in 2021‑22, 3½ per cent in 2022-23 and 2½ per cent in 2023-24.

The unemployment rate is at 4 per cent, and this Budget will see it go even lower, delivering more jobs and higher wages.

The unemployment rate is forecast to reach 3¾ per cent in late 2022, nearly 3 percentage points below the Budget forecast from 2 years ago and the lowest rate in close to 50 years.

The strong labour market is expected to see wages growth accelerate to its fastest pace in almost a decade, with wage growth forecast to increase from 2¾ per cent in 2021‑22 to 3¼ per cent in 2022-23.

Since MYEFO, the underlying cash balance has improved by a substantial $103.6 billion over the 5 years to 2025‑26.

The Budget shows the deficit more than halving to 1.6 per cent of GDP by 2025-26 before falling to 0.7 per cent of GDP by the end of the medium term.

Consistent with the Fiscal Strategy, the stronger economy and smaller deficits are expected to see gross debt as a share of the economy peak at 44.9 per cent of GDP at 30 June 2025, 5.4 percentage points lower and 4 years earlier than at MYEFO.

Gross debt is then projected to fall to 40.3 per cent of GDP by the end of the medium-term, 9.6 percentage points, or $236 billion lower than at the end of the medium-term in the 2021-22 MYEFO.

Despite having faced the largest economic shock since the Great Depression, Australia’s debt to GDP levels, even when they peak, are still low by international standards, below all major advanced economies and less than half that of the United States and Japan.

The government’s economic plan is working, with Australia one of only 9 countries to maintain a AAA credit rating from major rating agencies.

The 2022‑23 Budget sets out the next stage of our plan for a stronger future.

ONE-OFF COST OF LIVING TAX OFFSET

From 1 July this year, over 10 million individuals will receive a one-off $420 cost of living tax offset. Combined with the low- and middle-income tax offset (LMITO), eligible low- and middle-income earners will receive up to $1,500 for a single income household or up to $3,000 for a dual-income household.

Case Study

Kate and Dan live together in their house in Toowoomba. Dan works in construction and earns $63,000 in 2021‑22, and Kate works as an emergency nurse earning $90,000 in 2021‑22. With the one-off cost of living tax offset, Kate and Dan will receive a total reduction in their tax liability of $3,000 when they lodge their tax return, $840 more than they would have received without the increase. With the cost of living tax offset, and the Government’s Personal Income Tax Plan, Kate and Dan will pay $5,295 less tax when compared to 2017‑18 tax settings.

Comment

Enjoy while you can…

While taxpayers will undoubtedly be grateful for this tax relief, this is confined to the year ending 30 June 2022. Of course, the “one-off” tax benefit of $420 will not continue, and LMITO will not continue until 2022-23.

The one-off cost of living payment

To help Australians meet the cost of living pressures, the government is providing a one-off, income tax-exempt payment of $250.

This payment will help 6 million people at a cost of $1.5 billion.

More than half of those who will benefit are pensioners.

It will be paid automatically to all eligible pensioners, welfare recipients, veterans, and eligible concession card holders in April 2022.

This is on top of the higher income support payments from existing indexation arrangements. Income support payments increased by 2.1 per cent in March 2022, benefiting almost 5 million Australians. The Age Pension, Disability Support Pension and Carer Payment rates increased by more than $20 a fortnight for singles and $30 a fortnight for couples. They will receive a similar increase again in September. Payments are regularly increased to help shield people from the rising cost of living.

Case Study

Kath and Marilyn are a retired couple who live together and are both Age Pension recipients. Kath and Marilyn will each receive a one-off cost of living payment of $250, so their household will receive $500 in April 2022. Their combined pension will also be more than $390 higher over the next six months before it is increased again.

TEMPORARY FUEL EXCISE RELIEF

Cost of living relief at the petrol pump

The Russian invasion of Ukraine has seen fuel prices increase, adding to the cost of living pressures families face and the cost of doing business for small businesses.

The government is taking decisive, responsible, and temporary action to cut fuel excise and reduce the pressure of high fuel prices on household budgets.

As part of Australia’s plan for a stronger future, the government will reduce fuel excise by 50 per cent for 6 months. This will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents per litre.

Fuel subject to a lower excise rate is expected to flow through to the majority of service stations and Australian consumers within a few weeks as stations replenish their stocks.

Case Studies

Viv is a teacher and commutes to the classroom with her small petrol hatchback. On average, she needs to fill her tank of 40 litres once every week. Under the changes, Viv would be expected to save up to $10 in excise and GST per tank of fuel or up to $250 over the 6-month period.

Morgan owns a small electrical business that employs 10 people. They each drive Utes with 80L fuel tanks. Under the changes, Morgan’s business would save a combined total of up to $215 in excise and GST expenses at the bowser when filling up all 11 vehicles. If this business filled all 11 cars on a fortnightly basis, the business would save up to $2,780 in excise and GST expenses over the 6-month period.

TAX RELIEF TO SUPPORT INVESTMENT AND CREATE JOBS

The coalition maintains its record on providing relief to small businesses is as follows:

Cutting taxes for small businesses

Reduced the company tax rate for small businesses from 30 per cent in 2013‑14 to 25 per cent from 2021‑22.
Introduced the unincorporated small business tax discount and lifted the rate from 5 per cent in 2015‑16 to 16 per cent from 2021‑22 (up to a cap of $1,000).
Combined, these changes will deliver more than $21 billion in tax cuts to small businesses from 2015‑16 to 2024‑25, with around $2.6 billion flowing in 2022‑23.

Encouraging business investment and supporting cash flow

Reducing the GDP uplift rate for 2022‑23, delivering $1.85 billion in cash flow support for 2.3 million taxpayers, including small businesses.
Introduced rules to allow businesses with annual turnover or total income less than $5 billion to instantly write off assets to strengthen business investment and create more jobs and extended them to 30 June 2023.
Enabled companies with an annual turnover of less than $5 billion to offset losses against previously taxed profits to generate a refund and extended it to include the 2022‑23 income year.

Greater access to tax concessions

Expanded access to 10 small business tax concessions by lifting the annual turnover threshold from $10 million to $50 million, providing tax relief and reducing red tape.

Incentives to upskill staff

The government is continuing to deliver for small businesses by introducing the Skills and Training Boost.

Small businesses with an annual turnover of less than $50 million will have access to a new bonus 20 per cent deduction for the cost of external training courses delivered to their employees by providers registered in Australia .

The boost will apply to eligible expenditures incurred from Budget night until 30 June 2024, such as a cyber security course delivered by a registered training provider.

This initiative will provide $550 million in tax relief for small businesses, supporting them in investing in their employees and growing their business.

Case Study

Andrew owns a transport company, Distribute R Us Pty Ltd, that has an annual turnover of $30 million and 120 employees.

In April 2022, Distribute R Us pays for a registered training provider to upskill their employees to run supply chain training courses, costing $200,000.

Distribute R Us pays for its employees to undertake specialist logistics training, costing a further $400,000, across the 2022‑23 and 2023‑24 income years.

Under the government’s new Skills and Training Boost, Distribute R Us can claim a bonus deduction of $120,000, reducing its tax bill by $30,000 . This is extra money that Distribute R Us can use to reinvest and grow the business.

SUPPORTING BUSINESSES TO GO DIGITAL

Lifting digital capability and adoption to boost productivity

The government is providing $1.0 billion to support small businesses to go digital by introducing the Technology Investment Boost.

Small businesses with an annual turnover of less than $50 million will have access to a new bonus 20 per cent deduction for the cost of expenses and depreciating assets that support digital uptake, up to $100,000 of expenditure per year.

Around 3.6 million small businesses are eligible to access the new boost, which will apply from Budget night until 30 June 2023.

These changes will benefit small businesses by supporting them to invest in items such as an online sales platform, cyber security enhancements, cloud computing and digital tracking for livestock.

The government is also investing in digital capabilities through its Digital Economy Strategy. This will support businesses in boosting productivity, becoming more globally competitive, and generating rewarding and high-paying jobs.

Case Study

Harley owns a furniture manufacturing company, Star Sofas Pty Ltd, that has an annual turnover of $35 million and 120 employees.

In April 2022, as part of an overseas expansion, Star Sofas invested $100,000 to develop an online presence and build a digital inventory tracking system.

In July 2022, Star Sofas purchases multiple software subscriptions to enhance customer data analytics and marketing. Star Sofas incurs a total expenditure of $100,000.

The government’s new Technology Investment Boost means that Star Sofas can deduct an extra $40,000, reducing their tax bill by $10,000 . The company can use the extra money to reinvest and grow.

PERSONAL TAXATION MEASURES

The government will deliver tax relief to help Australians with rising cost of living pressures.

Through the legislated Personal Income Tax Plan, an estimated $40 billion in tax relief has flowed to households since the start of the pandemic.

The new cost of living offset, together with the low- and middle-income tax offset (LMITO) for 2021‑22, will provide around $12 billion in support when taxpayers lodge their tax returns from 1 July 2022.

This is on top of around $16 billion in permanent tax relief that will flow to households in 2022-23.

In 2022-23, more than 12 million taxpayers are expected to benefit from lower taxes under the plan, worth up to $2,565 for individuals or $5,130 for dual-income couples.

As a result of the Personal Income Tax Plan, an individual earning $90,000 each year, around the average full-time income, will benefit by a total reduction in tax of $8,655 from 2018‑19 to 2022‑23. By putting more money in their pockets, families will keep more of what they earn, allowing them to spend more on what they need.

When Stage 3 of the plan delivers further tax cuts in 2024‑25, around 95 per cent of taxpayers will face a marginal tax rate of 30 per cent or less. This aims to simplify the tax system, improve incentives for working Australians and increase rewards for effort.

Case Study

Sangeetha works as a web programmer, and her husband Mitchell works as a city planner for the local council. Sangeetha and Mitchell earn $86,000 and $92,000, respectively. In 2022‑23, Sangeetha and Mitchell together will pay $2,385 less than they would have paid without the Government’s Personal Income Tax Plan. In 2024-25, with Stage 3 of the plan, Sangeetha and Mitchell will see a further $2,200 reduction in their tax bill if they earn the same income, leaving them $4,585 better off.

PLANNING

CASH FLOW SUPPORT AND RED TAPE REDUCTION TO HELP SMALL BUSINESSES

As part of the 2022-23 Budget, the government has announced a package of measures to slash red tape and boost the cash flow of more than 2.3 million small businesses and sole traders.

These measures generate an annual compliance saving of $800 million every year, money that businesses can use to invest, innovate, and create more jobs for Australians.

Lowering tax instalments in 2022-23

The government will set the GDP uplift rate that applies to pay-as-you-go (PAYG) instalments and GST instalments to two per cent for the 2022-23 income year. This rate is significantly lower than the 10 per cent rate that would have applied under the statutory formula.

A lower uplift rate will mean lower instalments, delivering $1.85 billion in cash flow support for 2.3 million small to medium businesses, sole traders, and individuals with passive income (including some self-funded retirees) that are eligible to use the instalment amount method.

This measure will apply to the 2022-23 income year in respect of instalments that fall due after the enabling legislation receives Royal Assent.

Aligning instalment payments with financial performance

The 2022-23 Budget includes new measures to leverage technology to automate tax reporting requirements and align instalment payment obligations with financial performance. These measures will reduce compliance costs, improve processing times, and support cash flow management for SMEs.

Improved cash flows through an improved pay as you go instalment system

The government is also supporting companies to manage cash flows by allowing companies to calculate PAYG instalments based on financial performance. If financial performance declines, companies may be able to get refunds of instalments paid automatically.

The measure will initially support over 500,000 companies with PAYG instalment obligations.

New systems to implement this measure are expected to be in place by 31 December 2023 for implementation by 1 January 2024.

Facilitating pre-filling of payroll tax returns through data sharing

The government will facilitate sharing single touch payroll data with State and Territory Governments on an ongoing basis to cater for pre-filling payroll tax returns. This will facilitate further investments by States and Territories in their own systems to improve lodgement accuracy, reduce compliance costs and save time for the approximately 170,000 businesses that have payroll tax reporting obligations.

New South Wales, Victoria, Western Australia, South Australia, Queensland, and the Australian Capital Territory are already participating in a trial data transfer to understand how STP data can deliver benefits to their payroll-tax clients.

The government is on track to complete its IT system implementation by late 2023.

Smarter reporting of taxable payments

The government will allow eligible businesses the option to report taxable payments reporting system data via software at the same time as activity statements. Businesses that opt into automatic reporting will no longer need to invest time and money filling out the yearly Taxable Payments Annual Report.

Currently, approximately 190,000 businesses that contract for services relating to building and construction, cleaning, road freight and courier, security, investigation, surveillance, or information technology services are required to fulfil this obligation on an annual basis.

New systems are expected to be in place by 31 December 2023 for implementation by 1 January 2024.

Digitalising trust income reporting

The government will develop systems to ensure all trusts will have the option to lodge income tax returns electronically. Digitalising the reporting of trustee and beneficiary obligations will reduce errors and processing times and create the capacity to pre-fill beneficiaries’ tax returns.

This measure will facilitate electronic lodgement for up to 30,000 trusts currently lodging by paper. There are just under 1 million trusts and around 1.8 million beneficiaries in the Australian tax system.

New systems are expected to be in place by 1 July 2024.

Aligning the excise and other reporting requirements

The government is lowering the costs of doing business for manufacturers, importers and distributors in the alcohol and fuel sectors by enabling businesses with an annual turnover of less than $50 million to lodge and pay excise and excise-equivalent customs duty on a quarterly basis from 1 July 2023.

Currently, most of these businesses report monthly, with some reporting weekly. The new quarterly lodgement schedule will better align with the reporting and payment schedule of other indirect taxes, with returns and payments required no later than the 28th day of the month after the end of each quarter.

SUPPORT TO INCREASE APPRENTICESHIPS

The Federal Budget involves a $365.3 million investment that will support an extra 35,000 apprentices, and trainees get into a job.

The extension of the successful Boosting Apprenticeship Commencements and Completing Apprenticeship Commencements wage subsidies aim to build on the record number of Australians currently in trades training.

According to Prime Minister Scott Morrison

Right now, there are more than 350,000 apprentices and trainees in training, and a record 220,000 of these are trade apprentices. These investments are about making those numbers go even higher.

Enrolments for the Boosting Apprenticeship Commencement wage subsidy, which provides employers with 12 months of wage subsidy support, are being extended to the end of the 2021-22 financial year (30 June 2022).

Any business that receives the Boosting Apprenticeship Commencement (BAC) wage subsidy will be eligible for extended support through the Completing Apprenticeship Commencements (CAC) wage subsidy for the second and third years of a Boosting Apprenticeship Commencement-supported apprenticeship.

As of 24 March 2022, over 73,000 businesses have been supported to put on an apprentice or trainee through Boosting Apprenticeship Commencements subsidy.

Any employer who takes on an apprentice or trainee up until 30 June 2022 can gain access to:

50 per cent of the eligible Australian Apprentice’s wages in the first year, capped at a maximum payment value of $7,000 per quarter per Australian Apprentice,
10 per cent of the eligible Australian Apprentice’s wages in the second year, capped at a maximum payment value of $1,500 per quarter per Australian Apprentice, and
5 per cent of the eligible Australian Apprentice’s wages in the third year, capped at a maximum payment value of $750 per quarter per Australian Apprentice.

ASSISTANCE TO ASPIRING HOMEOWNERS

The Federal has increased its successful Home Guarantee Scheme in the 2022‑23 Budget.

To date, almost 60,000 Australians have benefited from the scheme. The Federal Government is expanding the Home Guarantee Scheme to make available up to 50,000 places each year. This includes a new Regional Home Guarantee open to non-first home buyers, enabling even more Australians to achieve their aspirations of owning a home.

Under the expanded Home Guarantee Scheme, the government will make available:

35,000 guarantees each year, up from the current 10,000, from 1 July 2022 under the First Home Guarantee, to support eligible first home buyers to purchase a new or existing home with a deposit as low as five per cent.
10,000 guarantees each year from 1 October 2022 to 30 June 2025 under a new Regional Home Guarantee to support eligible homebuyers, including non-first home buyers and permanent residents, to purchase or construct a new home in regional areas, subject to the passage of enabling legislation; and
5,000 guarantees each year from 1 July 2022 to 30 June 2025 to expand the Family Home Guarantee announced in last year’s Budget. Australia’s first-ever specifically targeted single-parent family housing scheme supports eligible single parents with children to buy their first home or re-enter the housing market with a deposit of as little as two per cent.

The Home Guarantee Scheme ensures that part of an eligible buyer’s home loan is guaranteed by the government, enabling Australians to buy a home sooner with a smaller deposit and without paying lenders’ mortgage insurance.

The scheme has particularly supported women and front-line workers, with one in five guarantees issued to essential workers, almost 35 per cent of which were nurses and 34 per cent were teachers.

Of total guarantees issued, 52 per cent of guarantees went to women, well above the market average of 41 per cent women, while single mums took up 85 per cent of Family Home Guarantees.

EMPLOYEE SHARE SCHEMES

The government aims to increase the utility of employee share schemes as a tool for certain Australian businesses to incentivise their employees. Unlisted companies will be able to make larger offsets to participants, which would allow them, in some cases, to invest up to $30,000 each per year, plus 70 per cent of dividends and cash bonuses.

Regulatory requirements will also be removed for offers made to independent contractors issued with shares or options that they do not have to pay for.

SUPERANNUATION

While there were no major changes to Superannuation, the following should be noted:

The 50% reduction of the minimum superannuation pension drawdown requirements will be extended for the 2022-23 income year. Given the ongoing volatility in financial markets, this measure will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.
The Super Guarantee rate will continue to rise to 10.5% for 2022-23. The Budget did not contain any change to the legislated Super Guarantee rate rise from 10% to 10.5% for 2022-23.

BUSINESS TAX INCENTIVES

Enhanced Paid Parental Leave initiative

To be introduced no later than 1 March 2023, the expanded initiative will see 20 weeks of paid leave accessible to either parent during the first two years of their child’s birth or adoption and a widening of eligibility based on a household income threshold of $350,000.

Extension of ATO Tax Avoidance Taskforce (Taskforce)

The Taskforce, formed in 2016, has been extended for a further 2 years to 30 June 2025 with a renewed period of funding to continue tax assurance and compliance activities targeted at multinational enterprises, large public and private businesses (and associated individuals). The government anticipates the extension of the Taskforce will increase receipts by $2.1 billion and increase payments by $652.6 million over the forward estimates period.

Expansion of the Patent Box regime

The government will expand the patent box regime to the agricultural sector and low emissions technology innovations. Eligible corporate income will be subject to an effective income tax rate of 17 per cent for patents granted or issued after 29.5.2022 and for income years starting on or after 1.7.2023.

The patent box regime for Australian medical and biotechnology innovations will now allow patents granted or issued after 11.5.2021 to be eligible for the patent box regime. Formerly this only covered patents which were applied for after 11.5.2021. The government will also now allow standard patents granted by IP Australia, utility patents issued by the United States Patent and Trademark Office, and European patents granted under the European Patent Convention to be eligible to the extent R&D occurs in Australia.

CLAIMING A TAX LOSS FOR YOUR BUSINESS

ian@digitalwise.com.au (Ian Campbell) — Wed, 04 May 2022 01:17:27 GMT

CLAIMING A TAX LOSS FOR YOUR BUSINESS

With the challenges posed by the COVID-19 pandemic and the recent floods, many businesses have sustained severe losses. The ATO has issued some guidance that our professional advice should augment.

Before you claim a tax loss, make sure you have correctly claimed the expenses that you are entitled to. Overclaiming expenses can put your business in an incorrect tax loss situation.

It’s also important to remember to apportion your expenses correctly so that only the business portion of the expense is claimed and not any personal component of the expense.

Keeping accurate and complete records will help you keep track of your tax losses. It can help you avoid incorrectly carrying back a tax loss or carrying forward tax losses to deduct in future years.

If your business makes a tax loss in the current year, you can generally carry forward that loss and claim a deduction for your business in a future year.

You may be able to offset current year losses if you’re a sole trader or an individual partner in a partnership and meet certain conditions.

If you’re an eligible corporate entity (company, limited corporate partnership or public trading trust), you may be able to claim the loss carry-back tax offset. You can check your eligibility for this tax offset using the ATO loss carryback offset tool.

CENTS PER KM RATE: DRAFT LEGISLATIVE INSTRUMENT

On 3.3.2022, the ATO issued draft Legislative Instrument LI 2022/D8TD, which applies to eligible taxpayers who elect to use the cents per kilometre method and then calculate income tax deductions for their work-related car expenses. The Commissioner has determined that the rate is 75 cents per kilometre. It will apply to the income year commencing 1.7.2022 and remains applicable to subsequent income years until it is varied.

ELIGIBILITY AGE CHANGE FOR DOWNSIZER CONTRIBUTIONS

The ATO has issued a reminder on downsizing contribution.

As part of the 2021–22 federal Budget, the Australian government announced it would reduce the eligibility age for downsizer contributions from 65 to 60 years old. This measure has now become law, with the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 received royal assent on 22 February 2022.

What does this mean?
From 1 July 2022, eligible individuals aged 60 years or older can choose to make a downsizer contribution into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home. There are no changes to the remaining eligibility criteria.
For contributions made before 1 July 2022, eligible individuals must still be aged 65 years or older when making their contribution.

What is the purpose of downsizer contributions?
The downsizer measure began on 1 July 2018, increasing the flexibility of older Australians to contribute to their super. This allows eligible individuals to contribute up to $300,000 from the proceeds of the sale of their home without impacting their contributions caps.

VARYING PAY AS YOU GO INSTALMENTS AND TAX SUPPORT

PAYG instalments allow you to make regular repayments towards the expected tax on your business and investment income throughout the year. By paying regular instalments throughout the year, you should not have a large tax bill when you lodge your tax return.

You can vary your PAYG instalments if you think your current payments will result in you paying too much or too little tax for the income year. You must make variations on or before the payment due date, and your varied amount will apply to all your remaining instalments unless you make another variation before the end of the income year.

If you continue to be affected by COVID-19, the ATO will not apply penalties or charge interest to varied instalments relating to the 2021-22 income year. This applies if you have taken reasonable care to estimate your end of year tax liability.

You must make variations on or before the payment due date. Your varied amount or rate will apply for the remaining instalments for the income year or until you make another variation.

The ATO recognises that many businesses in local government areas in Queensland and New South Wales have been affected by the floods. The ATO aims to support the community’s recovery efforts during this difficult time by providing administrative support to help taxpayers.

The ATO encourages taxpayers to regularly review their PAYG instalments so the amount you prepay is closer to your expected tax for the year.

Support is available if your small business is having financial difficulties and can’t pay tax or super on time. The ATO may be able to set up an affordable payment plan or offer interest-free periods for eligible overdue activity statement amounts.

If you have outstanding debt, can meet the requirements of a payment plan, or require additional assistance, contact them for further help. The ATO may ask for evidence that your business is experiencing financial difficulty to support your claim, such as:

bank notices (for example, overdraft call)
an eviction notice
a disconnection notice
a repossession notice
a notice of impending legal action
staff pay records
contract payment schedules
legal documents

They take many factors into account when assessing a claim. Sometimes the ATO may change their requirements depending on your circumstances.

Even if you can’t pay on time, keeping lodgements up to date is important. This will give you a clear idea of your tax position, and the ATP can tailor help, such as advice, payment plans, or deferrals, to your situation.

DIGITAL GAMES TAX OFFSET

On 21.3.2022, the Federal Government released draft legislation and explanatory material to implement a new Digital Games Tax Offset (DGTO).

As part of the Digital Economy Strategy, the government announced a 30 per cent refundable tax offset which will be capped at $20 million per year. The DGTO will be available to eligible companies that spend a minimum of $500,000 on qualifying Australian development expenses related to the development of new games or the expansion of existing eligible games. The DGTO will apply from 1 July 2022.

The DGTO will strengthen the domestic digital games industry and make Australia a more attractive and competitive destination for international games development. It will also support investment and highly skilled, transferable jobs.

The government is seeking stakeholder views on the draft legislation and explanatory memorandum to ensure that it is fit for its purpose and meets the aims of the DGTO.

Further information on the draft bill and explanatory memorandum can be found, and submissions can be made through the Treasury website.

DISCLOSURE OF BUSINESS TAX DEBT

The ATO has started writing to all their clients that may be eligible to have their tax debts disclosed to credit reporting bureaus (CRBs). This is to raise awareness of the actions they can now take under the Disclosure of Business tax debts measure. The letter will be sent to all clients with business tax debts that currently meet the criteria for disclosure.

This letter provides information on how to engage with them to manage their debt effectively. Taxpayers can avoid disclosure by making payments in full or negotiating a payment plan.

If you do not take steps to manage their debt actively, they will remain eligible for disclosure. Before the ATO take any final action to disclose their tax debt, they will issue a formal Intent to Disclose Notice.

If you receive an Intent Notice asking to ‘Act now or your tax debt will be reported to credit reporting bureaus’, you must contact the ATO within 28 days of receiving the notice to avoid the debt being reported. The ATO will then work with you to manage their debt or help them understand the next steps.

There is information on the ATO website if you need help with paying and support in difficult times. You must engage with the ATO early before your debts become unmanageable.

You can access the payment plan estimator to work out an affordable plan.

DIRECTOR PENALTY NOTICES

In March, the ATO began contacting relevant clients via letter about their potential personal liability for company tax debts under the Director Penalty Notice (DPN) program.

The letter will be sent to directors of companies if the company has not met their debt obligations regarding PAYG withholding, Superannuation Guarantee Charge and GST.

Directors will be notified that the ATO is considering issuing them with a DPN, which makes them personally liable for their business debts if the company does not actively manage their debt.

The ATO’s focus is on making directors aware of their obligations and personal liabilities and the actions that may be taken if they don’t engage. The ATO maintains it will be providing clear pathways for clients to re-engage, work with them, and avoid escalation.

There is information on their website if a director needs help with paying and support in difficult times. You must engage with the ATO early before their debts become unmanageable.

You can access the ATO payment plan estimator to work out a plan.

Generally, general interest charges continue to apply when you have a debt. It is essential to bring all their lodgments up to date to avoid further penalties.

While your client has a debt, general interest charges continue to apply. Encourage your client to bring all their lodgments up to date to avoid further penalties.

CASH FLOW SUPPORT AND RED TAPE REDUCTION TO HELP SMALL BUSINESSES

On 23 March 2022, the government announced a package of new measures to slash red tape and provide cash flow support for millions of small and medium businesses.

Treasury and the ATO will consult on the following measures to automate tax administration:

Aligning instalment payments with financial performance and Improved cash flows through an improved pay as you go instalment system
Smarter reporting of taxable payments
Digitalising trust income reporting

Consultation with the community, tax practitioners and digital service providers to finalise the policy scope, design and specification will take place over the coming months. Further information on the consultation process will be provided shortly.

Subject to completion of consultation and advice from software providers about their capacity to deliver, the measures are proposed to apply from 1 January 2024 for Aligning instalment payments with financial performance, and Improved cash flows through an improved pay as you go instalment system; and 1 July 2024 for Digitalising trust income reporting.

Lowering tax instalments in 2022–23

The government will set the GDP uplift rate that applies to pay-as-you-go (PAYG) instalments and GST instalments to two per cent for the 2022–23 income year. This measure will apply to instalments due after 31 March 2022. This measure is now law.

Facilitating pre-filling of payroll tax returns through data sharing

The government will facilitate sharing of single touch payroll data with State and Territory Governments on an ongoing basis to cater for pre-filling payroll tax returns.

Aligning the excise and other reporting requirements

FEDERAL BUDGET 2022-2023 KEY ISSUES OVERVIEW

Cost of living relief

The government is introducing a new temporary, targeted, and responsible cost of living package to take the pressure off household budgets.

One-off Cost of Living Tax Offset – From 1 July this year, more than 10 million individuals will receive a one-off $420 cost of living tax offset. As a result, eligible low- and middle-income earners will be up to $1,500 better off for a single income household or $3,000 better off for a dual-income household.
One-off Cost of Living Payment – To help Australians most in need, the government is providing a one-off, income-tax-exempt payment of $250 to 6 million eligible pensioners, welfare recipients, veterans and eligible concession cardholders in April 2022.
Temporary fuel excise relief – The Government will reduce fuel excise by 50 per cent for six months. This will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents per litre. The excise reduction will flow through to lower petrol prices over the next two weeks, as petrol stations replenish their stocks.

Backing small businesses

Small businesses will have access to a new 20 per cent bonus deduction for eligible external training courses for upskilling employees.

The Skills and Training Boost will apply to expenditure incurred from Budget night until 30 June 2024, providing $550 million in tax relief.

The government also provides $1 billion for a new Technology Investment Boost to encourage small businesses to go digital.

Small businesses will be able to deduct a bonus 20 per cent of the cost of expenses and depreciating assets that support digital uptake.

This new measure will support spending up to $100,000 per year, which applies from Budget night until 30 June 2023.

One-off cost of living tax offset

From 1 July this year, over 10 million individuals will receive a one-off $420 cost of living tax offset. Combined with the low and middle-income tax offset (LMITO), eligible low- and middle-income earners will receive up to $1,500 for a single income household or up to $3,000 for a dual-income household.

Case Study

Kate and Dan live together in their house in Toowoomba. Dan works in construction and is earning $63,000 in 2021‑22, and Kate works as an emergency nurse earning $90,000 in 2021‑22. With the one-off cost of living tax offset, Kate and Dan will receive a total reduction in their tax liability of $3,000 when they lodge their tax return, $840 more than they would have received without the increase. With the cost of living tax offset, and the Government’s Personal Income Tax Plan, Kate and Dan will pay $5,295 less tax when compared to the 2017‑18 tax settings.

Comment

While taxpayers will undoubtedly be grateful for this tax relief, this is confined to the year ending 30 June 2022. Of course, the “one-off” tax benefit of $420 will not continue, but LMITO will not continue until 2022-23.

Tax relief to support investment and create jobs

The coalition maintains its record on providing relief to small businesses is a follows:

Cutting taxes for small businesses

Reduced the company tax rate for small businesses from 30 per cent in 2013‑14 to 25 per cent from 2021‑22.
Introduced the unincorporated small business tax discount, and lifted the rate from 5 per cent in 2015‑16 to 16 per cent from 2021‑22 (up to a cap of $1,000).
Combined, these changes will deliver more than $21 billion in tax cuts to small businesses from 2015‑16 to 2024‑25, with around $2.6 billion flowing in 2022‑23.

Encouraging business investment and supporting cash flow

Reducing the GDP uplift rate for 2022‑23, delivering $1.85 billion in cash flow support for 2.3 million taxpayers, including small businesses.
Introduced rules to allow businesses with annual turnover or total income less than $5 billion to instantly write‑off assets to strengthen business investment and create more jobs, and extended them to 30 June 2023.
Enabled companies with annual turnover of less than $5 billion to offset losses against previously taxed profits to generate a refund and extended it to include the 2022‑23 income year.

Greater access to tax concessions

Expanded access to 10 small business tax concessions by lifting the annual turnover threshold from $10 million to $50 million, providing tax relief and reducing red tape.

Incentives to upskill staff

The government continues to deliver for small businesses by introducing the Skills and Training Boost.

Small businesses with an annual turnover of less than $50 million will have access to a new bonus of 20 per cent deduction for the cost of external training courses delivered to their employees by providers registered in Australia.

The boost will apply to eligible expenditures incurred from Budget night until 30 June 2024, such as a cyber security course delivered by a registered training provider.

This initiative will provide $550 million in tax relief for small businesses, supporting them in investing in their employees and growing their businesses.

Case Study

Andrew owns a transport company, Distribute R Us Pty Ltd, that has an annual turnover of $30 million and 120 employees.

In April 2022, Distribute R Us pays for a registered training provider to upskill their employees to run supply chain training courses, costing $200,000.

Distribute R Us pays for its employees to undertake specialist logistics training, costing a further $400,000, across 2022‑23 and 2023‑24 income years.

Under the government’s new Skills and Training Boost, Distribute R Us can claim a bonus deduction of $120,000, reducing its tax bill by $30,000. This is extra money that Distribute R Us can use to reinvest and grow the business.

Supporting businesses to go digital

The government is providing $1.0 billion to support small businesses to go digital by introducing the Technology Investment Boost.

Small businesses with an annual turnover of less than $50 million will have access to a new bonus of 20 per cent deduction for the cost of expenses and depreciating assets that support digital uptake, up to $100,000 of expenditure per year.

Around 3.6 million small businesses are eligible to access the new boost, which will apply from Budget night until 30 June 2023.

These changes will benefit small businesses by supporting them to invest in items such as an online sales platform, cyber security enhancements, cloud computing and digital tracking for livestock.

Case Study

Harley owns a furniture manufacturing company, Star Sofas Pty Ltd, that has an annual turnover of $35 million and 120 employees.

In April 2022, as part of an overseas expansion, Star Sofas invested $100,000 to develop an online presence and build a digital inventory tracking system.

In July 2022, Star Sofas purchased multiple software subscriptions to enhance customer data analytics and marketing. Star Sofas incurs a total expenditure of $100,000.

The government’s new Technology Investment Boost means that Star Sofas can deduct an extra $40,000, reducing their tax bill by $10,000. The company can use the extra money to reinvest and grow.

Practice Update May 2022

ian@digitalwise.com.au (Ian Campbell) — Mon, 02 May 2022 03:01:29 GMT

Practice Update May 2022

No reduction in the Private Health Insurance rebate as of 1 April 2022

An event that we have become accustomed to every 1 April, is that the amount of the Private Health Insurance (‘PHI’) rebate decreases.

The Australian Government rebate on PHI is annually indexed on 1 April by a Rebate Adjustment Factor (‘RAF’) representing the difference between the Consumer Price Index and the industry weighted average increase in premiums.

The RAF for 2022 has been calculated as 1.

This means there will be no changes to the PHI rebate on 1 April 2022.

Editor: With inflation at levels Australians have been unaccustomed to over the last 20 years, at least there is one very small piece of good news.

Disclosure of business tax debts

The ATO is in the process of writing to taxpayers that may be eligible to have their tax debts disclosed to credit reporting bureaus (‘CRBs’).

The ATO can potentially report outstanding tax debts to a CRB where the following criteria are satisfied:

The taxpayer has an Australian business number and is not an excluded entity;

The taxpayer has one or more tax debts and at least $100,000 is overdue by more than 90 days;

The taxpayer is not engaging with the ATO to manage their tax debt; and

The taxpayer does not have an active complaint with the Inspector-General of Taxation about the ATO’s intent to report its tax debt information.

Excluded entities are a deductible gift recipient, a complying superannuation fund, a registered charity and a government entity.

The purpose of this letter from the ATO is to raise awareness of the actions that the ATO can now take under the Disclosure of Business Tax Debts measure.

The letter will be sent to all taxpayers with business tax debts that currently meet the criteria (discussed above) for disclosure.

This letter from the ATO provides business taxpayers with information on how to effectively engage with the ATO to manage their tax debt.

Taxpayers can avoid disclosure to a CRB by making payment in full or negotiating a payment plan.

If an eligible taxpayer does not take steps to actively manage their debt, they will remain eligible for disclosure.

Before the ATO takes any final action to disclose a tax debt, it will issue the taxpayer with a formal Intent to Disclose Notice.

If a taxpayer receives an Intent Notice, asking them to 'Act now or your tax debt will be reported to credit reporting bureaus', the taxpayer or their tax agent must contact the ATO within 28 days of receiving the notice to avoid the debt being reported.

It is crucial for taxpayers to engage with the ATO early before their debts become unmanageable.

Editor: If the ATO reports a taxpayer that has an outstanding debt to a CRB, this can have a negative impact on the client’s credit rating.

This in turn may affect the client’s ability to borrow from banks and other financial institutions.

High Court rejects attempt to disclaim interest in trust distribution

The High Court has rejected a taxpayer’s attempt to disclaim an interest in trust income that arose as a result of a default beneficiary clause being triggered.

Facts

The taxpayer, Ms Natalie Carter, was one of five default beneficiaries of the Whitby Trust, a discretionary trust.

For the 2014 income year the trustee had failed to appoint or accumulate any of the income of the Trust.

The Trust Deed contained a default beneficiary clause, nominating Ms Carter and four other beneficiaries, as the default beneficiaries, in the event that the trustee had failed to allocate trust income for the benefit of beneficiaries by 30 June of a particular year.

The ATO issued each of Ms Carter and the four other default beneficiaries with an assessment for one-fifth of the income of the Whitby Trust for the 2014 income year on October 2015.

This was done on the basis that they were “presently entitled” to that income within the meaning of S.97(1) of the Income Tax Assessment Act 1936.

An initial unsuccessful attempt was made by the default beneficiaries to disclaim their entitlement to default distributions in November 2015.

A further attempt by t

he default beneficiaries to disclaim their interest in trust income for the 2014 income year was made in September 2016 in what was referred to as the “Third Disclaimers”.

The Administrative Appeals Tribunal held that the Third Disclaimers were ineffective whereas the Full Federal Court found in the taxpayers’ favour that they were effective.

The High Court was then asked to consider the legal status of the Third Disclaimers.

Decision

It was the unanimous decision of the High Court that the Third Disclaimers were ineffective.

The High Court carefully analysed the words of S.97(1).

In particular, the phrase “is presently entitled to a share of the income of the trust estate” in S.97(1) is expressed in the present tense.

The plurality found that expression "is directed to the position existing immediately before the end of the income year for the stated purpose of identifying the beneficiaries who are to be assessed with the income of the trust – namely, those beneficiaries of the trust who, as well as having an interest in the income of the trust which is vested both in interest and in possession, have a present legal right to demand and receive payment of the income."

The High Court took the view that the question of the "present entitlement" of a beneficiary to income of a trust must be tested and examined "at the close of the taxation year", not some reasonable period of time after the end of the taxation year.

Accordingly, Ms Carter and the other four beneficiaries had been appropriately assessed by the ATO under S.97(1) given their status as default beneficiaries under the Trust Deed.

For the sake of completeness, the High Court also rejected the taxpayers’ argument that a beneficiary of a discretionary trust, with reference to events that may occur in a “reasonable period” after the end of an income year, can trigger an event that would disentitle the beneficiary to a distribution.

Editor: This decision is significant, because it backs the proposition that disclaimers of trust income cannot be effective if they occur after the end of the income year that gave rise to a present entitlement.

It will be interesting to see in any subsequent Decision Impact Statement how the ATO intends to apply the decision in Carter’s case.

As we head towards the end of another income year, this case serves as a timely reminder to ensure for discretionary trusts, that steps are taken before the end of the income year to effectively distribute trust income.

This is done to avoid the operation of default beneficiary clauses, or the situation where no beneficiary is presently entitled to trust income and the trustee is assessed at the highest marginal rate.

2022-23 Budget

ian@digitalwise.com.au (Ian Campbell) — Mon, 04 Apr 2022 00:13:03 GMT

BUDGET OVERVIEW

More Australians are in work than ever before, and the unemployment rate is now forecast to reach 3¾ per cent in 2022, the lowest rate in close to 50 years.

Risks to the outlook remain, with the pandemic and the invasion of Ukraine all putting pressure on the cost of living for Australian households.

As part of the Budget 2022‑23, the government is:

providing temporary and targeted cost of living relief for households and tax relief for small businesses,
delivering more jobs and working towards an unemployment rate below 4 per cent,
making record investments in health, education, and other essential services,
building roads, rail, dams, and the renewable energy technology required for our future, and
investing in stronger defence, borders, and security.

Cost of living relief

The government is introducing a new temporary, targeted, and responsible Cost of Living Package to take the pressure off household budgets.

One-off Cost of Living Tax Offset – From 1 July this year, more than 10 million individuals will receive a one-off $420 cost of living tax offset. As a result, eligible low- and middle-income earners will be up to $1,500 better off for a single income household or $3,000 better off for a dual-income household.
One-off Cost of Living Payment – To help Australians most in need, the government is providing a one-off, income-tax-exempt payment of $250 to 6 million eligible pensioners, welfare recipients, veterans, and eligible concession card holders in April 2022.
Temporary fuel excise relief – The Government will reduce fuel excise by 50 per cent for 6 months. This will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents per litre. The reduction in excise will flow through to lower petrol prices over the next two weeks, as petrol stations replenish their stocks.

Jobs

The government is investing in measures to expand and upskill the workforce to secure the workers we need now and for the future.

This will also help Australians into more highly skilled and better-paying jobs.

The government is transforming Australia’s manufacturing sector and building resilient supply chains with over $1 billion in new investment, building on the $1.5 billion Modern Manufacturing Strategy announced in the 2020-21 Budget.
The government has committed $2.8 billion to support Australian apprenticeships, building on the $13.3 billion spent on apprenticeships and traineeships since 2013.
The government has committed $3.7 billion in Commonwealth funding for a new skills agreement, which has the capacity to deliver up to 800,000 additional training places for Australians.
To develop the next generation of innovative Australian companies, this Budget includes $2.2 billion for a research commercialisation action plan (including $1.6 billion for a new economic accelerator) to bring industries and universities together.

Backing small businesses

Small businesses will have access to a new 20 per cent bonus deduction for eligible external training courses for upskilling employees.

The Skills and Training Boost will apply to expenditure incurred from Budget night until 30 June 2024, providing $550 million in tax relief.

The government is also providing $1 billion for a new Technology Investment Boost to encourage small businesses to go digital.

Small businesses will be able to deduct a bonus 20 per cent of the cost of expenses and depreciating assets that support digital uptake.

This new measure will support spending up to $100,000 per year, which applies from Budget night until 30 June 2023.

Essential services

The government has allocated $6 billion for the COVID-19 Health response, including support for the Governments’ Winter Response Plan to prepare for the next wave of COVID‑19 and influenza.

$3.0 billion over five years for cheaper medicines to support a healthier Australia.
$1.3 billion to support the delivery of the next National Plan to End Violence against Women and Children 2022-32.
$165.0 million for wellbeing programs and $104.2 million for health services to support veterans and families

Infrastructure

The government is investing an unprecedented $37.9 billion in regional Australia and priority infrastructure across the nation to create jobs and unlock the economic potential in our regions.

Through its $8.9 billion National Water Grid Fund, the government will provide a further $7.4 billion to improve Australia’s water security and open new land for irrigation.

As well as projects in each state and territory, the government is investing:

$2.0 billion through the Regional Accelerator Program to drive growth and productivity in regional areas.
$501.7 million for local councils to deliver priority road and community infrastructure projects across Australia
$2.0 billion in additional funding for the Northern Australia Infrastructure Facility, bringing total funding to $7.0 billion.

Keeping Australians Safe

We are living in a time of uncertainty.

The pandemic, the invasion of Ukraine and extreme weather events have and continue to cause enormous disruption.

To keep Australians safe, the government will:

Increase the Australian Defence Force by up to 18,500 by 2040.
Provide $9.9 billion over 10 years to significantly enhance Australia’s offensive and defensive cyber and intelligence capabilities.
Support households and businesses impacted by recent floods in parts of Queensland and New South Wales, with over $6 billion expected to be spent.