Superannuation
Minimum Pension Drawdown Increase
In response to COVID-19, the government temporarily reduced superannuation minimum drawdown requirements for account-based pensions.
From 1 July 2023 the 50% reduction in the minimum pension drawdown rate will no longer apply. This means that on 1 July 2023 the minimum annual payment on your pension balance the following factors will apply:
| Age | 2023–24 income year |
| Under 65 | 4.0% |
| 65–74 | 5.0% |
| 75–79 | 6.0% |
| 80–84 | 7.0% |
| 85–89 | 9.0% |
| 90–94 | 11.0% |
| 95 or more | 14.0% |
The minimum annual payment amount is worked out by multiplying the member’s pension account balance by the applicable percentage factor above.
The amount is rounded to the nearest 10 whole dollars. If the amount ends in an exact five dollars, it is rounded up to the next 10 whole dollars.
The member's age is determined at either:
Account balance means one of the following:
Where the pension commences after 1 July, the minimum payment amount for the first year is calculated proportionately to the number of days remaining in the financial year, starting from the commencement day.
Concessional Contributions Cap
Concessional contributions are contributions that you or your employer make to your super with before-tax income or claim as a tax deduction. They are also referred to as employer or before-tax contributions .the maximum tax deductible contribution in this 2023-24 year is $27,500 which is unchanged from the previous year .
Note that from 1 July 2018, if you do not use all of your concessional cap, you may be able to carry forward any unused amounts and increase your cap in future years (if you are eligible – less than $500,000 in super).
Non-Concessional Contributions Cap
Non-concessional contributions are contributions you or your spouse make to your super from your after-tax income. They are also referred to as personal or after-tax voluntary contributions. The maximum contribution is 4110,000 unchanged from the previous year
Anyone that has super worth over their total superannuation cap is not eligible to make non-concessional contributions to super.
Depending on your total superannuation balance, if you’re aged under 75, you may be able to bring forward up to two years of contributions, giving you a total maximum non-concessional cap of $330,000 for the three years.
Tax Changes from 1 July 2023
Employers & business
Superannuation
For you and your family
The cents per kilometre rate for motor vehicle expenses for 2023-24 has increased to 85 cents.
Incorrect Wage calculating = theft
For employers, incorrectly calculating wages is not portrayed as a mistake, it’s “wage theft.” Beyond the reputational issues of getting it wrong, the Fair Work Commission backs it up with fines of $9,390 per breach for a corporation. In 2021-22 alone, the Fair Work Ombudsman recovered $532 million in unpaid wages recovered for over 384,000 workers.
On 1 July 2023, award rates of pay and the National Minimum Wage increased by 5.75%.
It is critically important that all employers review their payroll systems and ensure they are applying the correct rates and Awards.
The National Minimum Wage applies to workers not covered by an Award or registered agreement. From 1 July 2023, the National Minimum wage has increased to $23.23 per hour ($882.80 per week for a full time employee working a standard 38 hours week).
For casuals, the minimum wage including the 25% casual loading is a minimum of $29.04 per hour.
For workers under an Award, adult minimum award wages increase by 5.75% applied from the first full pay period on or after 1 July 2023. Proportionate increases apply to junior workers, apprentice and supported wages.
In addition, the superannuation guarantee increased from 10.5% to 11% on 1 July 2023.
If the employment agreement with your workers states the employee is paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then their take home pay might be reduced by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund. For employees paid a rate plus superannuation, then their take home pay will remain the same and the 0.5% increase will be added to their SG payments.
Technology and skills ‘boost’ deduction – 120% Deduction
The 120% skills and training, and technology costs deduction for small and medium business have passed Parliament.
Almost a year after the 2022-23 Federal Budget announcement, the 120% tax deduction for expenditure by small and medium businesses (SME) on technology, or skills and training for their staff, is finally law. There are a few complexities in the timing - to utilise the technology investment boost, you had to of purchased the technology and when it comes to acquiring eligible assets, installed it ready for use by 30 June 2023; that’s just seven days from the date the legislation passed Parliament.
Who can access the boosts?
The 120% skills and training, and technology boosts are available to small business entities (individual sole traders, partnership, company or trading trust) with an aggregated annual turnover of less than $50 million. Aggregated turnover is the turnover of your business and that of your affiliates and connected entities.
$20k technology investment boost
The Technology Investment Boost provides SMEs with a bonus deduction for expenses and depreciating assets for digital operations or digitising from 7:30pm (AEST) on 29 March 2022 until 30 June 2023.
You ‘incur’ an expense when you are in debt for it; this might be a tax invoice or it might be a contract where you are legally liable for the cost.
For depreciating assets, like computer hardware, there is an extra step. The technology needs to have been purchased and installed ready for use. For example, if you ordered 10 computers, you need to have received the computers and had them set up ready to use by at least 30 June 2023. Ordering them on 29 June won’t be enough to claim the boost if you did not receive them.
The types of expenses that might be eligible for the technology boost include:
The technology also must be “wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations”. That is, there must be a direct link to your business’s digital operations. For example, claiming the drone you bought at say Christmas 2022 won’t be deductible unless your business is, for example, a real estate agency that needed a drone to take aerial images of client homes to market on their website. The expense needs to relate to how the business earns its income, in particular its digital operations.
Repair and maintenance costs can be claimed as long as the expenses meet the eligibility criteria.
Where the expenditure has mixed use (i.e., partly private), the bonus deduction applies to the proportion of the expenditure that is for business use.
There are a few costs that the technology boost won’t cover such as costs relating to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells. The boost will not apply to:
Let’s look at the example of A Co Pty Ltd (A Co) that purchased multiple laptops on 15 July 2022 to help its employees to work from home. The total cost was $100,000. The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use.
As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense. A Co can claim the cost of the laptops ($100,000) as a deduction under the temporary full expensing in its 2022-23 income tax return. It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return.
The $20,000 bonus deduction is not paid to the business in cash but is used to offset against A Co’s assessable income. If the company is in a loss position, then the bonus deduction would increase the tax loss. The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies.
The good news for many eligible businesses is that your technology subscriptions and other products you use in your business might qualify for the boost.
The boost is claimed in your tax return with the extra 20% sitting on top your normal claim. That is, however the way the expense or asset is claimed (immediately or over time), the bonus 20% applies in the same way.
The Skills and Training Boost
The Skills and Training Boost gives you a 120% tax deduction for external training courses provided to employees. The aim of this boost is to help SMEs grow their workforce, including taking on less-skilled employees and upskilling them using external training to develop their skills and enhance their productivity.
Sole traders, partners in a partnership, independent contractors and other non-employees do not qualify for the boost as they are not employees. Similarly, associates such as spouses or partners, or trustees of a trust, don’t qualify.
As always, there are a few rules:
Training expenditure can include costs incidental to the training, for example, the cost of books or equipment necessary for the training course but only if the training provider charges the business for these costs.
Let’s look at an example. Animals 4U Pty Ltd is a small entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 for the employee to undertake external training in veterinary nursing. The training meets the requirements of a GST-free supply of education. The training is delivered by a registered training provider, registered to deliver veterinary nursing education.
The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct. In this case, the full $3,500 is deductible as a business operating expense. Assuming the other eligibility criteria for the boost are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.
In this example, the bonus deduction available is $700. That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700. If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175. This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.
What organisations can provide training for the boost?
Not all courses provided by training companies will qualify for the boost; only those charged by registered training providers within their registration. Typically, this is vocational training to learn a trade or courses that count towards a qualification rather than professional development.
Qualifying training providers will be registered by:
While some training you might want to have engaged might not be delivered by registered training organisations, there is still a lot out there, particularly the short-courses offered by universities, or the flexible courses designed for upskilling rather than as a degree qualification. If you have recently completed performance reviews for staff and training is part of their development pathway, it might be worth exploring.
Digital games tax
The digital games and interactive entertainment sector is the largest creative sector in the world and one of the fastest growing industries worldwide. The global digital games industry is worth around $250 billion and in Australia, grew 22% between 2020 and 2021 generating $226.5 million in income and employing over 1,300 fulltime workers. And, it’s an industry the Government wants to support with a new tax offset.
The Digital Games Tax Offset is equal to 30% of the company’s total qualifying Australian development expenditure incurred from 1 July 2022. Companies can claim up to $20 million per company (or group of companies) per year (to reach the cap a company would need to spend around $66.7 million in eligible expenditure).
State based tax incentives are also available in South Australia, Victoria and New South Wales offering an additional 10% and Queensland offering 15% on top of the federal support. Globally, a 40% tax offset is standard for this industry so the tax offset brings Australia back into a competitive position.
Who is eligible?
Companies that are Australian tax residents or foreign tax residents with a permanent establishment in Australia can qualify.
To access the offset, the company needs a certificate issued by the Arts Minister following the completion of a new digital game, the porting of a digital game to a new platform, or for ongoing development of one or more existing digital games during the income year. This certificate then determines the offset claimed in the tax return with the Minister determining the amount of qualifying expenditure. More information will be available on the arts.gov.au website in early July 2023.
The company’s qualifying Australian development expenditure incurred needs to be at least $500,000 (could be over multiple years).
What is development expenditure?
The way the rules work is that any expenditure that a company incurs in relation to the development of the qualifying game is eligible expenditure…unless it is specifically excluded. A company develops a game by doing any of the activities necessary to complete, port, update, improve or maintain an eligible game.
The legislation takes a further step by specifically including employee remuneration or independent contractors engaged by the company to carry out work on the development of the game (excluding bonuses linked to the performance of the company or the game). Prototyping is also specifically included as is underlying game technology.
Employees that are not developing the game, for example admin staff or overseas contractors, are excluded. As are corporate costs like business overheads, marketing, travel, entertainment etc.
What games are eligible?
A digital game that can receive a classification and is made available to the general public over the internet (i.e., games developed for in-house purposes don’t qualify). The game does not include gambling or gambling like elements (loot boxes are likely to make a game ineligible if for example, the virtual items can be sold for currency) nor is used for advertising or for commercial purposes.
Australian digital games successes
Remember Fruit Ninja? Fruit Ninja, founded by HalfBrick, became a sensation in 2015 with over 1 billion downloads. Who knew a game that slices fruit with a sword would capture so much attention. Anyone with kids would have seen Crossy Road developed by Melbourne based Hipster Whale. Ninety days after it release it had 50 million downloads, earning over $10m. The Sims Freeplay was created by a merger of Melbourne studios Iron Monkey and Firemint when they were purchased by EA Games. Then there is Melbourne based Big Ant Studios, one of the world’s biggest sports game developers and known for games such as the Tennis World Tour Game, Cricket 22 and an upcoming Rugby World Cup 2023 game.
Dear Valued Client,
The MVA Bennett team are very excited to inform you about our imminent change in software and what that means for you.
Over the past 9 months, we have been exploring software platforms that would enable us to better serve our clients in a more sustainable, effective, and safe manner. We have also been strategically aiming for a greater cloud presence to allow our team a more seamless platform and one with greater flexibility and scalability.
Our decision was to partner with Xero, whom many of you will be familiar with having used their software. They are a global provider, located in the cloud and certified as compliant with ISO/IEC 27001:2013. This means not only is the software available to our team wherever they are, but the level of security ensures your data is protected to one of the highest security standards. Additionally, because Xero also has a small to medium business focus, that means our connectivity with clients on Xero is enhanced and ensured.
Beyond security, connectivity and accessibility, Xero is a platform that partners with a range of other providers to enable addon products to provide more solutions to our valued clients. It is also a simpler and more intuitive platform which is attractive to our team.
We are very confident that this change will enhance the service we offer to all our clients and allow our team greater satisfaction in their day-to-day work.
In addition to our change in software, we are also changing our banking provider to one of the leading Australian institutions. Whilst this will not have an impact on our service offering to you, it may cause some disruption in the change process, so needs to be communicated.
Whilst we go through these enhancements both in software as well as banking provider, there will be some changes in how we interact with you. For example, the format of the financial reporting and tax returns will change, however the substance and compliance requirements of both will remain as they were. Our communications with you through our billing system and payments system will also change. These are not substantial but simply changes in the format of how we communicate to you.
Over the coming months, there will be more changes which we will communicate to you as they arise.
We hope you enjoy the journey with us and greatly appreciate your patience and understanding. Should you encounter any issues, please do not hesitate to reach out to us so we can address any concerns you have.
Small businesses given unique opportunity to get back on track with tax
The Australian Taxation Office (ATO) is encouraging small businesses that have overdue income tax returns, fringe benefits tax returns or business activity statements to take advantage of a new amnesty to get their lodgements back on track.
The amnesty was announced in the 2023–24 Budget. It applies to tax obligations that were originally due between 1 December 2019 and 28 February 2022 and runs from 1 June 2023 to 31 December 2023.
To be eligible for the amnesty, the small business must be an entity with an aggregated turnover of less than $10 million at the time the original tax return lodgement was due.
During this time, eligible small businesses can lodge their eligible overdue forms and the ATO will then proactively remit any penalties associated with failure to lodge.
When forms are lodged with the ATO under the amnesty, businesses or their tax professionals will not need to separately request a remission of Failure To Lodge (FTL) penalties.
Businesses are encouraged to lodge any overdue forms even if they are outside the eligibility period. Whilst forms outside the amnesty eligibility criteria will attract late lodgement penalties, the ATO will consider your circumstances and may remit such penalties on a case-by-case basis.
The ATO acknowledges that some small businesses may be worried about paying tax amounts owing on their overdue lodgements. However, the ATO makes best endeavours to work together with you or your registered tax agent to figure out the right solution for you.
The ATO wants to make this process easy and encourage small businesses to do the right thing and believes it is a good time to reach out to your tax agent to make sure you are up to date with your tax affairs.
The ATO offers a range of support options, including payment plans. Many small businesses are also able to set up their own payment plan online.
The amnesty applies to income tax returns, business activity statements, and fringe benefits tax returns. It does not apply to superannuation obligations and excludes other administrative penalties such as penalties associated with the Taxable Payments Reporting System.
Year end tips – 30th June deadlines
Instant Asset Write Off
There are three temporary tax depreciation incentives available to businesses with an aggregated turnover of up to $500 million:
In broad terms, depreciating assets purchased before 30 June 2023 can be written off under one of the above rules. There are exclusions and limits that apply to car purchases.
From 1st July 2023, the amount that can be written off has been reduced to $20,000 and only for businesses with annual turnover less than $10 million.
Loss Carry-Back
The temporary loss carry-back measure ends on 30 June 2023
Other Business Considerations
At this time of the year,it is review time to look for opportunities to defer or lower tax imposts which may include:
Personal Tax
The rules for claiming tax deductions change frequently
Individuals who are seeking to claim deductions for employment related expenditure should be aware of an increase in audit activity by the Tax Office in relation to personal employment related deductions.
When claiming these deductions, you should ensure that :
Car Expenses
The cost of using cars for earning income can be claimed but there are rules;
The per kilometre rate method is still available but limited to 5,000 kms.
Home Office Expenses
Home office expenses may be deductible where you carry on business or employment activities at home.
Claims can be made for:
However, claims cannot be made for:
Superannuation Contributions
The rates of employer contribution (Superannuation Guarantee Charge) is scheduled to increase over the next few years. From 1 July 2023, the rate increases to 11% of salary.
In this 2022-23 Financial Year, the tax-deductible superannuation contribution cap is $27,500 for all individuals regardless of their age. The non deductible superannuation contribution cap is $110,000.
If you are over the age of 75 years old, you can only contribute mandated employer contributions and downsizer contributions.
If your total superannuation balance as at 30 June 2023 was less than $500,000 you may be in a position to carry-forward unused concessional caps starting from the 2018/19 financial year. Unused deductible or concessional caps arise where the maximum claim amount has not been claimed or contributed by the employer. Eg up to $27,500 this year and $25,000 in previous years – the opportunity extends back for five years,
Non deductible(non concessional) caps can be brought forward contribution up to three years worth in one contribution.
For example – for a contributor with less than $500,000 in their fund – an optimised contribution over the next month may look like:
Pre 30th June 2023
Post 30th June
Total $542,500
Plus 2023-24 the concessional contribution up to $27,500.
Victorian Land Tax
Readers of this regular Newsletter will know that we brought the likely dramatic increases in Victorian Land tax to your notice in September 2022.
The Government centralised valuation assessments to achieve better consistency of application and with increased valuations (maybe attributed to COVID) and no change to the progressive rate scales of ten years ago huge rises in Land tax were forecast.
Tax increases of 300% in some cases – many have doubled.
In the example we published last year – a modest holiday house on the Mornington Peninsula – land tax
Now there is an additional impost announced in the Victorian State Budget.
This latest announcements adds another $3,415.00 to this property – allegedly being a surcharge to fund repayment of the COVID debt although no prediction of immediate reduction in State debt.
The new rates announced are:
General land tax rates
- a $975 flat surcharge
- an increased rate of land tax by 0.10 %
- an increased rate of land tax by 0.10 percentage points.
Other land tax amendments include:
Victorian Payroll Tax
The payroll tax-free threshold will be increased:
The deduction associated with tax-free threshold will begin phasing out for every dollar of wages above $3 million. This means businesses with wages above $5 million will not receive any benefit associated with the payroll tax-free threshold.
Payroll tax exemption for high-fee non-government schools to be removed.
Last chance to claim deductions under temporary full expensing
Deductions under ‘temporary full expensing’ are only available in the 2021, 2022 and 2023 income years, and are expected to come to an end on 30 June 2023.
You might consider a new work vehicle provided it is delivered ready for use by 30th June 2023
Under temporary full expensing, businesses with an aggregated turnover of less than $5 billion can generally claim a deduction for the full cost of eligible new assets first held, used or installed ready for use between 6 October 2020 and 30 June 2023, as well as (in some circumstances) costs of improvements to those assets and also the cost of eligible second-hand assets.
Taxing of “Content Creators"
A new update released by the Australian Taxation Office (ATO) in April outlines the regulator’s expectations for how content creators will be assessed for tax purposes:
Income tax on money, gifts and goods
If you make an income as a content creator, then it’s likely it will be assessed for tax purposes unless what you are doing is a genuine hobby with no expectation of generating a profit. For subscriber, there is normally no question about the profit-making expectation.
The ATO’s guide also makes it clear that assessable income covers not only money but appearance fees, goods you receive, cryptocurrency, or gifts from fans. This is where the problem lies for most content creators. Income in the form of money is easy to track and report. Non-monetary income in the form of goods is not so easy. Let’s say a company sends you a handbag with a retail value of $800. The bag is yours to keep. The Tax Office expects you to declare the market value of the bag as income and pay tax on that income. If you receive multiple items throughout the year, or larger inducements like a destination holiday, then this might create a cashflow problem when you need to pay real money to the Tax Office for a ‘free’ product.
The ATO’s blanket statement that all ‘gifts’ and products should be reported as assessable income fails to recognise that it is not always quite that simple in practice. If you create content as a hobby and not as a profit-making venture for example, and a company sends you an unsolicited gift, the position is a little less clear. It really comes down to the specific scenario.
The timing of when you receive income is also important for content creators. The tax rules consider that you have earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct”. From 1 July 2023, a new reporting regime will require electronic distribution platforms to report their transactions to the ATO. The regime starts with ride sharing and short-term accommodation platforms, then extends to all other platforms from 1 July 2024.
Registration for GST?
Generally, once $75,000 is earnt or expected to be earned or more per annum, registration for GST is required. The exception to the $75,000 threshold is Uber and other ride-sourcing drivers who must have an ABN and be registered for GST regardless of how much they earn.
However, even if a content creator is required to register for GST, this doesn’t necessarily mean that all of the money and goods they receive will trigger a GST liability. For example, the GST rules contain some special provisions which sometimes enable supplies made to foreign resident customers to be GST-free (although they still normally need to be taken into account in determining whether the supplier needs to register for GST).
Even if GST-free income is received from foreign resident customers, it will normally still be possible to claim back GST credits for the expenses incurred in connection with these activities.
Deductions can be claimed
The upside of being a profit-making venture is that money spent to generate income, a deduction can be claimed for certain expenses that directly relate to that income. Items such as video production equipment, microphones, online stores etc., might be deductible although in some cases the deductions will be spread over a number of income years. However, you can’t normally claim items such as cosmetic surgery, gym memberships, ‘everyday’ clothes, or the cost of your hairdresser ‘because you need to look good’. The Tax Office does not consider that these are directly related to how you earn your income and that in many cases, these are still primarily private expenses (see the ATO’s occupation specific guides for what you can claim).
When is a side hustle a business?
The distinction between something you do on the side and carrying on a business can be a fine line. There is no one test for what determines whether you are carrying on a business versus a hobby but factors such as the regularity of your transactions, whether or not you are promoting yourself as a business (developing a brand name etc.,), if you engage in marketing activities, whether you intend to develop a business and make a profit (or have the capacity to generate a profit over time), the size, scale and permanency of your activities, and whether you operate in a business-like manner, all go toward determining whether what you are doing is a business or merely a hobby.
If your activities are just a hobby then the income is not assessable, and the expenses are not deductible. If you are carrying on a business, then you need to declare the income earned but you also get to claim deductions for the cost of the business activities (although this still needs to be analysed to see whether amounts can be deducted upfront or over a period of time).
Small Business Energy Incentive
In a pre-Budget announcement, the Government has committed to a Small Business Energy Incentive Scheme that offers a bonus tax deduction of up to $20,000.
The Small Business Energy Incentive encourages small and medium businesses with an aggregated turnover of less than $50 million to invest in spending that supports “electrification” and more efficient use of energy.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction of $20,000 per business. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus deduction.
If your business is contemplating upgrading to improve energy efficiency, it’s worth waiting to see the detail of the proposal. We’ll bring you more details of the scheme and how your business might benefit as soon as they are released.
Tax Office Rental Property Blitz
The Australian Taxation Office (ATO) has launched a full-on assault on rental property owners who incorrectly report income and expenses.
The ATO’s assessment, based on previous data matching programs, is that there is a tax gap of around $1 billion from incorrect reporting of rental property income and expenses.
As a result, banks and other financial institutions will be required to hand the ATO residential investment loan data on an estimated 1.7 million rental property owners for the period from 2021-22 through to 2025-26.
The data collected will include:
In addition to identifying whether landlords are declaring their residential investment property income at all, the data matching program is looking specifically at how rental property loan interest and borrowing expense deductions have been reported in the rental property schedules, and whether net capital gains have been declared for property used to generate income.
Banks are not the only source of data. In a complimentary program. The ATO is targeting rental property management software. Over the last decade, much of the financial management of residential rental property has moved online, facilitated by various platform providers. The ATO will require these rental property software providers to provide details of property owners including their bank details, income, expenses and the amount of those expenses, and details of their associated rental properties and agents. Data collection of the estimated 1.6 million individuals in this data program will cover the period from 2018-19 to 2022-23.
The common problem areas:
Claiming interest and redrawing on the loan
The interest component of your investment property loan is generally deductible. However, if you redraw on your invest loan for personal purposes, interest on this portion of the loan will not be deductible. This means that interest expenses will need to be apportioned into deductible and non-deductible parts and repayments will often need to be apportioned too. If the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible.
Borrowing costs
A deduction for borrowing costs (typically over five years) such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legal costs of the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance. If the loan is repaid early or refinanced, the whole amount including mortgage discharge expenses and penalty interest can often be deductible.
Repairs or maintenance
Deductions claimed for repairs and maintenance is an area that the Tax Office always looks at closely. It is important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can be claimed immediately, the deduction for capital works is generally spread over a number of years.
Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves a replacement or renewal of a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:
Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible.
Home Guarantee Scheme
From 1 July 2023, access to the Government’s Home Guarantee Scheme will be expanded to joint applications from “friends, siblings, and other family members” and to those who have not owned a home for at least 10 years.
The eligibility criteria for access to the First Home Guarantee Scheme and Regional First Home Buyers Scheme will be expanded. From 1 July 2023, the schemes will no longer be limited to individuals and couples who are married or in de facto relationships, but will also include eligible friends, siblings, and other family members for joint applications. In addition, the requirement for the applicants to be Australian citizens at the time they enter the loan has been extended to include permanent residents.
The schemes guarantee part of a first home owner’s home loan enabling them to purchase a home with as little as 5% deposit without paying Lenders Mortgage Insurance. Guarantees are capped at 15% of the value of the property. Thirty five thousand places are available for the First Home Guarantee Scheme each financial year. From 1 October 2022 there will be ten thousand places available each financial year until 30 June 2025 for the Regional First Home Buyers Scheme.
Eligibility to the Family Home Guarantee will also be extended. From 1 July 2025, the scheme will no longer be restricted to single parents with at least one dependant natural or adopted child, but will also be available to borrowers who are single legal guardians of dependent children such as aunts, uncles and grandparents.
The Family Home Guarantee guarantees the home loan of an eligible single parent with at least one dependent child enabling them to purchase a home with as little as 2% deposit without paying Lenders Mortgage Insurance. The guarantee is capped at 15% of the value of the property. Five thousand places are available to the scheme each year to 30 June 2025.
Superannuation - National Employment Standards
The Government has announced that it will enshrine a right to superannuation payments in the National Employment Standards (NES).
Currently, workers not covered by a modern award or an enterprise agreement containing a term requiring an employer to make superannuation contributions have to rely on the ATO to recover their lost superannuation entitlements.
By bringing the right to superannuation into the NES, workers will have the right to directly pursue superannuation owed to them. Employers may also face civil penalties if they do not comply with the entitlement.
Penalties of up to $82,500 per breach apply to companies that are found to have contravened the NES.
Taxation and Superannuation
Future earnings for super balances above $3m taxed at 30% from 2025-26
The Government has announced that from 2025‑26, the 15% concessional tax rate applied to future earnings for superannuation balances above $3 million will increase to 30%.
The concessional tax rate on earnings from superannuation in the accumulation phase will remain at 15% up to $3m. From $3m onwards, the rate will increase to 30%. The amendment applies to future earnings; it is not retrospective. We understand that actuarial certificates will be required by funds to determine the amount of income subject to the higher rate of tax in each financial year.
80,000 people are expected to be impacted by the measure.
The announcement does not propose any changes to the transfer balance cap or the amount that a member can have in the tax-free retirement phase.
A consultation paper released by Treasury has sparked a national debate about the role, purpose and access to superannuation ahead of the 2023-24 Federal Budget.
What is the purpose of superannuation? At first glance, the consultation released by Treasury in February titled Legislating the objective of Superannuation sounds innocuous enough. The consultation seeks to anchor future policies relating to superannuation to a legislated objective:
The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside Government support, in an equitable and sustainable way.
But what seems self-evident has opened a Pandora’s Box of what superannuation is not. If superannuation is to “preserve savings”, that is, restricting access to superannuation savings to retirement only, by default it is not a means of accumulating wealth in a concessionally taxed environment. It is not a strategy to manage intergenerational wealth. The definition would also prevent initiatives such as the COVID-19 early access scheme used widely during the pandemic to give those in financial distress access to quick cash (over 3 million people withdrew $37.8 billion from their superannuation funds). And, it is not a method of purchasing a home sooner.
As an aside, the Treasurer points out that the average super balance in Australia is $150,000 - taking account of all those with a super balance including new entrants into the workforce. For those 65 and over, the average balance is around $400,000 across all income brackets.
Superannuation and national building
The second component of the Treasury consultation is nation building. At a recent speech, the Treasurer stated, “to my mind, defining super’s task as delivering income for retirement isn’t to narrow super’s role in our economy…it’s to elevate it, and broaden it.” The consultation states:
“There is a significant opportunity for Australia to leverage greater superannuation investment in areas where there is alignment between the best financial interests of members and national economic priorities, particularly given the long‑term investment horizon of superannuation funds.”
The compulsory superannuation guarantee (SG) was introduced in 1992 at a rate of 3% rising to 10.5%. Now, Australia’s superannuation pool has grown from around $148 billion in 1992 to over $3.3 trillion. It now represents 139.6% of gross domestic product (GDP) and is projected to grow to around 244% of GDP by 30 June 2061. Australia’s pool of pension assets is now one of the largest in the world, and the fourth largest in the OECD.
The consultation does not define how this ambition would be achieved.
*The Treasurer has ruled out changes to the existing early access hardship provisions for super.
The Federal Budget is released on 9 May 2023. Look out for our update with all the relevant news to you, your business and your super.
1 July 2023 Super Balance Increase but no Change for Contributions
The general transfer balance cap (TBC) – the amount of money you can potentially hold in a tax-free retirement account, will increase by $200,000 on 1 July 2023 to $1.9 million. The TBC is indexed to the consumer price index each December.
The TBC applies individually. If your transfer balance account reached $1.7m or more at any point before 1 July 2023, your TBC after 1 July 2023 will remain at $1.7m. If the highest amount in your account was between $1.0m and $1.7m, then your cap is proportionally indexed based on the highest ever balance your transfer balance account reached.
That is, the ATO will look at the highest amount your transfer balance account has ever been, then apply indexation to any unused cap amount.
For example, if you started a retirement income stream valued at $1,275,000 on 1 October 2022 and this was the highest point your account reached before 1 July 2023, then your unused cap is $425,000 ($1.7m-$1.275m). This unused cap amount is used to work out your unused cap percentage ($425k/$1.7m=25%). The unused cap percentage is then applied to the indexation increase ($200k*25%=$50k) to create your new TBC of $1,750,000.
But don’t worry, you don’t have to calculate this yourself, you can see your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov.
The caps on the contributions you can make into super however, will remain the same. That is, $27,500 for concessional contributions and $110,00 for non-concessional contributions. The contribution caps are linked to December’s average weekly ordinary time earnings (AWOTE) figures.
What will the Tax Office be Asking about your Holiday Home?
Taxpayers claiming deductions on holiday homes are in the ATO’s sights.
The ATO is more than a little concerned that people with holiday homes are claiming more deductions than they should and have published the starting questions they will be asking to scrutinise claims:
The problem is blanket claims for the holiday home regardless of the time the home was rented out or available for rent. You will need to apportion your expenses if:
The ATO has also indicated that deductions might be limited if a property is only made available for rent outside peak holiday times and the location of the property (or other factors) mean that it is unlikely to be rented out during those periods.
The regulator is also likely to be suspicious if the owner claims that the property was genuinely available for rent during peak holiday periods but wasn’t deriving any income during those periods. This might indicate that the property was really being used for private purposes or that the advertised rental rate was unrealistic.
Whether a property is genuinely available for rent is a matter of fact. Factors that help demonstrate a property is genuinely available for rent include; it is available during key holiday periods, kept in a condition that people would want to rent it, tenants are not unreasonably turned away, advertised in ways that give it broad exposure to possible tenants, and the conditions are not so restrictive that tenants are unlikely to rent the property.
Victorian Land Tax
Our newsletter of last year forecasted the extraordinary rise in Land Tax provoked by unusually large Site Revaluations in 2022 maybe attributed to Covid isolation and largely attributable to bracket creep in progressive scales not adjusted for many years.
It would seem unaffordable to many to have such taxes double triple or increase even more in one year. In NSW the Site value is averaged over three years to smooth out such violent increases.
The increased cost may have a number of consequences including:
FBT year fast approaching
The Fringe Benefits Tax (FBT) year ends on 31 March 2023. If you operate a business, shortly you will need to work out whether or not your business needs to be registered for FBT (if you are not already) and start collecting the information to work out your FBT liability (if any). We’ll look at the detail of cars or other business assets used for private purposes, benefits provided to employees, loans, salary sacrifice agreements etc.
Working from Home?
The Australian Taxation Office (ATO) has updated its approach to how you claim expenses for working from home.
The ATO has ‘refreshed’ the way you can claim deductions for the costs you incur when you work from home. From 1 July 2022 onwards, you can choose either to use a new ‘fixed rate’ method (67 cents per hour), or the ‘actual cost’ method depending on what works out best for your scenario. Either way, you will need to gather and retain certain records to make a claim.
The first issue for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a deduction.
The second key issue is that you need to incur costs associated with working from home. For example, if you are living with your parents and not picking up any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the expenses, even if you are paying board (the ATO treats this as a private arrangement).
Let’s take a look at the detail:
The new ‘fixed rate’ method
Previously, there were two fixed rate methods to choose from for the 2021-22 income year:
It’s clear that working from home arrangements are here to stay for many workplaces even though COVID restrictions have eased. So, from the 2022-23 financial year onwards, the ATO has combined these two fixed rate methods to create one revised method accessible by anyone working from home, regardless of whether they have a dedicated space or are just working at the kitchen table.
The new rate is 67 cents per hour and covers your energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. You can separately claim the cost of the decline in value of assets such as computers, repairs, and maintenance for these assets, and if you have a dedicated home office, the cost of cleaning the office. If there is more than one person working from the same home, each person can make a claim using the fixed rate method if they meet the basic eligibility conditions.
What proof do the ATO need that I am working from home?
To use the fixed rate method, you will need a record of all of the hours you worked from home. The ATO has warned that it will no longer accept estimates or a sample diary over a four week period. For example, if you normally work from home on Mondays but one day you have an in-person meeting outside of your home, your diary should show that you did not work from home for at least a portion of that day.
Having said that, the ATO will allow taxpayers to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023.
There is nothing in the ATO guidance to suggest that claims are limited to standard office hours. That is, if you work from home outside standard office hours or over the weekend, then make sure you keep an accurate record of the hours you are working so that you can maximise your deductions.
You also need to keep a copy of at least one document for each running cost you have incurred during the year which is covered by the fixed rate method. This could include invoices, bills or credit card statements. Where bills are in the name of one member of a household but the cost is shared, each member of the household who contributes to the payment of that expense will be taken to have incurred it. For example, a husband and wife, or flatmates where they jointly contribute to costs.
You need to keep these records for five years so that if the ATO come calling, you can prove your claim. If this proof is not available at the time, the deduction will be denied. If your work from home diary is electronic, ensure you can access this diary over time (such as producing a PDF summary of your calendar clearly showing the dates and times of your work at the end of each financial year).
The ‘actual’ method
Some people might find that the actual method produces a better result if their expenses are higher. As the name suggests, you can claim the actual additional expenses you incur when you work from home (and reduce the claim by any personal use and use by other family members). However, you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work.
Using this method, you can claim the work related portion of:
Be careful with this method because the ATO are looking closely to ensure these expenses are directly related to how you earn your income. For example, you can’t claim personal expenses such as coffee, tea and toilet paper even if you do use these items when you are at work. Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is a place of business. It is unusual for an employee’s home to be classified as a place of business.
I run a business from home, what can I claim?
Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be a doctor who runs their surgery from home.
The doctor may have one-third of the home set aside as a place of business where they see patients.
It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose, although if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain.
Superannuation Rule Change
Downsizer Contributions
From 1 January 2023, individuals over 55 years of age and over can make a ‘downsizer’ contribution to superannuation.
Downsizer contributions are an excellent way to get money into superannuation quickly. And now that the age limit has reduced to 55 from 60, more people have an opportunity to use this strategy if it suits their needs.
A downsizer contribution opportunity occurs if you are aged 55 years or older. You can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund.
Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap).
For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).
Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you.
The eligibility criteria include:
· You are 55 years or older (from 1 January 2023) at the time of making the contribution.
· The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.
· The home is in Australia and is not a caravan, houseboat, or other mobile home.
· The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain.
· You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution.
· The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
· You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home.
The name ‘downsizer’ is a bit of a misnomer. To access this measure you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home - you could buy a larger and more expensive one.
Family Trusts
There is has been a great amount of activity from the Tax Office looking at establishing new rules about the taxation of income distributed from Family Trusts. The ATO has now released its final position on how it will apply some integrity rules dealing with trust distributions - changing the goal posts for trusts distributing to adult children, corporate beneficiaries, and entities with losses. As a result, many family groups will pay higher taxes because of the ATO’s more aggressive approach.
The relevant legislation is referred to as 100A.
The tax legislation contains an integrity rule, section 100A, which is aimed at situations where income of a trust is appointed in favour of a beneficiary, but the economic benefit of the distribution is provided to another individual or entity. For section 100A to apply, there needs to be a 'reimbursement agreement’ in place at or before the time the income is appointed to the beneficiary. Distributions to minor beneficiaries and other beneficiaries who are under a legal disability are not impacted by these rules.
If trust distributions are caught by section 100A, this generally results in the trustee being taxed on the income at penalty rates rather than the beneficiary being taxed at their own marginal tax rates.
While section 100A has been around since 1979, until recently there has been relatively little guidance on how the ATO approaches section 100A. This is no longer the case and the ATO’s recent guidance indicates that a number of scenarios involving trust distributions could be at risk.
For section 100A to apply:
· The present entitlement (a person or an entity is or becomes entitled to income from the trust) must relate to a reimbursement agreement;
· The agreement must provide for a benefit to be provided to a person other than the beneficiary who is presently entitled to the trust income; and
· A purpose of one or more of the parties to the agreement must be that a person would be liable to pay less income tax for a year of income.
Until recently many people have relied on the exclusions to section 100A which prevent the rules applying when the distribution is to a beneficiary who is under a legal disability (e.g., a minor) or where the arrangement is part of an ordinary family or commercial dealing (the ‘ordinary dealing’ exception). It is the ordinary dealing exception that is currently in the spotlight.
For example, let’s assume that a university student who is over 18 and has no other sources of income is made presently entitled to $100,000 of trust income. The student agrees to pay the funds (less tax they need to pay to the ATO) to their parents to reimburse them for costs that were incurred when the student was a minor. This situation is likely to be considered high risk if the student is on a lower marginal tax rate than the parents because the parents are receiving the real benefit of the income.
The ATO is also concerned with scenarios involving circular distributions. For example, this could occur when a trust distributes income to a company that is owned by the trust. The company then pays dividends back to the trust, which distributes some or all of the dividends back to the company. And so on. The ATO views these arrangements as high risk from a section 100A perspective.
Common scenarios identified as high risk by the ATO include:
· The beneficiary is a company or trust with losses and the beneficiary is not part of the same family group as the trust making the distribution.
· A company or trust which is entitled to distributions from the trust returns the funds to the trustee (i.e., circular arrangements).
· The beneficiary is issued units by the trustee of the trust (or a related trust) with the amount owed for the units being set-off against the entitlement and where the market value of the units is less than the subscription price or the trustee is able to do this without the consent of the beneficiary.
· Adult children are made presently entitled to income, but the funds are paid to a parent in relation to expenses incurred before the beneficiary turned 18.
The effect of these changes include:
· Review distributions in the light of the changes
· Clear accounting for all relevant expenditure made on behalf of an income beneficiary
· Ensuring agreements to reimburse beneficiaries are prepared properly and timely and are being used or applied for the benefit of the beneficiaries
The ATO’s new approach applies to entitlements before and after the publication of the new guidance but for entitlements arising before 1 July 2022, the ATO has advised that they will not generally pursue these if they are either low risk under the new guidance, or if they comply with the ATO’s previous guidance on trust reimbursement agreements.
Tax and Superannuation
The 2023 New Year
Now into February we seem to be working our wary back to a post Covid normal.
The environment has brought new challenges including inflation, higher interest rates and little relief from government imposts of regulation and taxes.
In this Newsletter we touch on a few of the matters that we are exercising our support of clients as the year gets underway.
Interest Rates
Many borrowers took the opportunity to lock in low interest rates on fixed terms which are expected to expire in 2023.
Some banks are difficult to engage with and we find ourselves helping clients with the favourable re arrangements of their finance facilitates. We are licensed to assist with the process.
Received a business support grant?
You may have received a business support grant recently to help your business through tough times.
Remember, when it comes to tax time, it's important to check if you need to include the payment in your assessable income.
Grants are generally treated as assessable income.
However, some grants are formally declared non-assessable non-exempt (NANE) income. This means you don’t need to include these in your tax return if you meet certain eligibility requirements.
If you did include a grant that's considered NANE in your 2020–21 tax return, you can amend your return.
Remember, you can only claim deductions for expenses associated with NANE grants if they relate directly to earning assessable income. Assessable income includes things like wages, rent and utilities. You can’t claim expenses related to obtaining the grant, such as accountant fees.
Do you know how to classify a worker?
Do you know if your new worker is an employee or a contractor? When you employ a worker, it's important to correctly classify them because it affects:
Correctly working out whether a worker is an employee or contractor is important because significant penalties apply for non-payment of entitlements particularly for Supernation Guarantee Charges.
Electric Vehicles
As an employer, you previously needed to pay Fringe Benefits Tax (FBT) on cars provided to employees. From 1 July 2022, the provision of electric cars will now be exempt from paying FBT on benefits provided for electric cars that meet all the following criteria:
The exemption is only for three years.
Registration, insurance, repairs, maintenance and fuel expenses provided for eligible electric cars are also exempt from FBT.
Note that despite the exemption, determination of the taxable value of the benefits provided is still required and its inclusion in the employee's reportable fringe benefits amount (RFBA).
You need to report the RFBA on the employee’s income statement or payment summary.
Remember, registered tax agents and BAS agents can help you with your tax.
Superannuation
The general Transfer Balance Cap (TBC) is the cap that determines how much an individual can transfer into retirement phase and is scheduled to increase from the current $1.7m to $1.9m on 1 July 2023. This is the second time that the general TBC would have been lifted.
This is an announcement only and its application would be impacted by legislative change.
The time is fast approaching for us to call it a wrap for 2022 and head off for a short break over the holiday season.
Please note our office will be closed from Thursday 22nd December and will reopen on Monday 9th January 2023.
Thank you for your continued business, we greatly appreciate your ongoing support.
We wish you and your families a safe and enjoyable festive season and we can't wait to see you again in 2023!
From all of us at MVA Bennett