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
Director Identification Number Reminder
If you are currently a company director, you must apply for your director ID number before 30 November 2022 to avoid severe penalties.
It is a criminal offence if you do not apply on time. ASIC is responsible for enforcing Director ID offences set out in the Corporations Act 2001.
In an important relaxing of requirements it has been recently announced that Directors who have resigned from their position prior to 1st December 2022 will be exempt from the Director ID requirement.
Previously if you were a director on or before 31 October 2022, you needed to apply for a Director ID number even if you had resigned and never planned to become a director again.
However, if these persons were to take up a directorship on or after 1st December 2022, they would be required to apply for a director ID number.
Application for a Director ID must be made personally by the Director preferably using MyGov or failing that by mail. Our office can help but cannot make the application on behalf of the director.
The Treasurer delivered the Federal Budget on Tuesday 25 October 2022
Please find below a summary of the key measures:
GOVERNANCE
Boards fail to formalise cybersecurity measures
A new study by the Australian Institute of Company Directors and the Australian Information Security Association has revealed that while most Australian directors see cybersecurity as a high priority boards lack formal oversight of the issue.
Gaps in implementing cyber-governance frameworks were found, only half (53 per cent) of directors saying that their organisation had a formal cyber-security strategy in place.
Other results indicated that there was still room for improvement in board oversight, included:
The report can be downloaded from www.aicd.com.au.
Guidance on Effective AGMs
As organisations across Australia head towards peak AGM season, the Governance Institute of Australia has issued a comprehensive guide to holding AGMs under laws that now allow hybrid and online options.
This year’s meeting season will be the first significant test of the recently updated Corporations Act, amended to allow organisations to meet in a hybrid or online format (as long as their company constitution allows it).
Effective AGMs is a complete guide to holding an AGM under the new laws. It also counsels on effective member engagement. It’s mandatory reading for directors, senior managers, and governance and risk-management professionals.
The report outlines:
The report also offers key tips for using technology to conduct meetings: ‘There are many logistical aspects that need to be worked through in advance of an AGM to ensure the use of technology during the meeting is seamless, particularly in relation to how questions will be conducted’.
The report may be downloaded from www.governanceinstitute.com.au.
Harassment toolbox launched
Concerned about slow action on workplace sexual harassment, Chief Executive Women (CEW) has launched a digital ‘toolkit’ designed to stamp out poor workplace behaviour.
Respect is Everyone’s Business includes:
With one in three people experiencing workplace sexual harassment, and, of those who witnessed it, only a third acting, swifter governance measures can’t come soon enough, says CEW’s president Sam Mostyn AO.
The resources can be downloaded at cew.org.au.
Procurement integrity
The Institute of Internal Auditors in Australia has released The 20 Critical Questions Series: What Directors should ask about Procurement Integrity (Probity). The biggest question is, How does management, the audit committee, and board of directors clearly know that there is sound and transparent integrity around procurements?
The 20 questions may be downloaded at www.iia.org.au.
ACNC ACTIVITIES
ACNC urges charities to consult website
The Australian Charities and Not-for-profits Commission is urging charities to consult its website for practical guidance and tips to simplify the filing of annual information statements.
The commission’s director of reporting, red-tape reduction, and corporate services Mel Yates said the hub was especially useful this year as charities needed to understand some recent changes.
Visit the hub at www.acnc.gov.au/for-charities/annual-information-statement/2022-annual-information-statement-hub.
COMPLIANCE
NFP directors need IDs
Director Identification Numbers are required
The fastest way to apply for a director ID is online. There is a step-by-step video that takes you through what you need to do. You will need a myGovID with at least a standard identity strength to complete the application.
The Australian Business Registry Services is focused on providing support and education to assist directors and is encouraging those appointed unexpectedly to apply for their IDs as soon as possible.
ABRS is contacting directors who haven’t applied before deadlines elapse. It’s a criminal offence to fail to apply and directors may be subject to penalties.
New Domain Registrations - ACTION REQUIRED
All Australian businesses will have until tomorrow at 9:59am 21 September to reserve their .au equivalent domain name, then it becomes available to the general public.
This new category of domain name allows users to register shorter, more memorable online names, however it also creates another avenue for cybercriminals to conduct fraudulent cyber activities. Opportunistic cybercriminals could register your .au domain name in an attempt to impersonate your business.
For example, if you have currently registered yourbusiness.com.au, a cybercriminal could register yourbusiness.au or yourbusinesscom.au and use these domains to conduct fraudulent cyber activities.
How to protect yourself
To help protect your business from opportunistic cybercriminals, the Australian Cyber Security Centre (ACSC) recommends that all Australian businesses with existing domain names register their .au equivalents before 9:59am 21 September 2022. If a business does not reserve their .au equivalent direct domain name, that name will become available to the public on a first come, first served basis.
You can reserve your .au domain name by visiting an auDA accredited registrar.
Further information on these changes and the registration process is available on this link https://www.auda.org.au/au-domain-names/au-domain-names/au-direct
Victorian Government Grants
The Small Business Specialist Advice Pathways Program provides $2,000 grants to employing small businesses to access professional advice and services to help them make informed business decisions and plan for the future.
The program supports businesses that have faced disruptive change, caused by the COVID-19 pandemic and other factors, by improving their capability and preparedness to plan for their future or adapt their business model.
To be eligible for a grant under the Small Business Specialist Advice Pathways Program, a business must meet the following requirements:
Applications close on 30th September 2022
Land Tax - Victoria
Land tax rates are a progressive scale applied to the Site Value of real estate property as shown on the Rates Notice for the property.
Site values have been steady increasing in recent years without any compensating adjustment to Land Tax rate scales.
A simple example of a humble holiday shack on the Mornington Peninsula
| Year | Site Value | % change | CPI | Land Tax | % change | CPI |
| $ | $ | |||||
| 2018 | 1,000,000 | 1.8% | 2,975.00 | 1.8% | ||
| 2019 | 1,080,000 | 8% | 1.8% | 3,615.00 | 22% | 1.8% |
| 2020 | 1,180,000 | 9% | 9.0% | 4,415.00 | 22% | 9.0% |
| 2021 | 1,200,000 | 2% | 3.5% | 4,575.00 | 4% | 3.5% |
| 2022 | 1,480,000 | 23% | 6.1% | 6,815.00 | 49% | 6.1% |
| 2023 | 2,440,000 | 65% | 19,295.00 | 2.83% | times | |
| OUCH! | ||||||
Rates Notices are currently being issued by relevant local Councils
Objections to the Site Value can be made using the appropriate form available on the relevant Council website. However, any objection must be lodged within 60days of the date of the Rates Notice.
This value is used at 31st December 2022 for the calculation of the 2023 Land tax assessment. It is not possible to object to the Site Value when the Land Tax Assessment arrives.
Exemptions to land tax include:
· Principal Place of Residence
· Certain Rural Lands
· Certain Not for Profit organisations
In addition, it is not widely known that a commercial tenancy to a not for profit entity exempts the landlord from Land Tax.
Land held in trusts attracts a surcharge following the unsuccessful attempt of Government some years ago to aggregate lands held in multiple trusts so as to attract a higher rate of tax up the progressive scale.
The rates of Victoria Land Tax are:
Value Land Tax
<$300,000 Nil
$300,000-$600,000 $375 plus 0.2% over $300,000
$600,000-$1,000,000 $975 plus 0.5% over $600,000
$1,000.000-$1.800.000 $2,975 plus 0.8% over$1,000,000
$1.800.000-$3,000.000 $9,375 plus 1.55% over$1,800,000
>$3,000,000 $27,975 plus 2.55% over $3,000,000
Land taxes are becoming a significant impost and worthy of your review with the support of our MVA Bennett Team.
There is a Victorian State election in November If revising the scales was an election pitch, there maybe a view that the trade off would be the Queensland approach outlined below.
Land Tax - Queensland
The Queensland government is seeking to aggregate all lands in Australia in order to apply the relevant tax scale. Aggregation is not new to State Revenue Offices as it already happens with Payroll Tax – that temporary tax brought in to finance the war effort (WW2).
From 30 June 2023, an owner’s liability for land tax will be determined based on the total value of Australia-wide landholdings including taxable land in Queensland and relevant interstate land.
Land tax applies for individuals when their rateable land value hits $600,000 or more, while assets in companies and trustees it is $350,000. The Queensland rates of land tax ramp up faster than any other capital city.
Major implications will exist for investors and tenants when the quantum of tax increases.
There maybe a cynical view that other States will follow the lead of Queensland in this regard.