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.
Tax and Accounting
What’s on our mind as we start client reporting as of 30th June 2022?
Inflation
Our Client Newsletter of June last year posed the thought of inflation and the need to gain skills in adjusting selling prices to maintain margins. During the year inflation came and was fuelled beyond expectations by shortages of material, labour and international and local freight costs in particular.
We have been supporting clients implementing new strategies to maintain and hopefully enhance margins with strong analytics and counsel.
Interest Rates
Governments seem to be using interest rates as a somewhat lonely tool to lower inflation. How high will interest rates go?
The RBA lifted the cash rate to 1.85% in early August 2022. The increase comes a few weeks after Reserve Bank Governor Philip Lowe told the Australian Strategic Business Forum that “…we’re going through a process now of steadily increasing interest rates, and there’s more of that to come. We’ve got to move away from these very low levels of interest rates we had during the emergency.” He went on to say that we should expect interest rates of 2.5% - how quickly we get there really depends on inflation.
The RBA Governor has come under increasing pressure over comments made in October 2021 suggesting that interest rates would not rise until 2024. At the time however, Australia was coming out of the Delta outbreak, wage and pricing pressure was subdued, and inflation was low. That all changed and changed dramatically. Inflation is now forecast to reach 7.75% over 2022 before trending down. We’re not expected to reach the RBA’s target inflation rate range of 2% to 3% until the 2023-24 financial year.
In the UK, the situation is worse with the Bank of England predicting that inflation will reach around 13% over the next few months. The UK has been heavily impacted by the war in Ukraine with the price of gas doubling, compounding pressure from post pandemic supply chain issues and price increases.
With interest rates rising, what can we expect? Deputy RBA Governor Michele Bullock recently said that Australia’s household credit-to-income ratio is a relatively high 150%, increasing in an environment that enabled households to service higher levels of debt. But it is not all doom and gloom. “Strong growth in housing prices over 2021 and early 2022 has boosted asset values for many homeowners, with housing assets now comprising around half of household assets,” she said. The recent downturn in house prices has only marginally eroded the large increases over recent years. Plus, households have saved around $260m since the pandemic creating a buffer for rising interest rates. This, however, is a macro view of the economy at large and individual households and businesses will face different pressures depending on their individual circumstances.
For businesses, the rate increase has a twofold effect. It is not just the rate rise and the higher cost of funds in their borrowings. That by itself is significant but at this stage, if anything, it is the lesser issue. The more significant impact comes from negative consumer sentiment and the flow through effect on sales and cash flow.
Tax Compliance
The Tax Office data analysis is reaching new levels of sophistication leading to the reasonable expectation that, if your tax returns does not comply, the data matching will identify the non-compliance.
The focus on rental property expenses and Trust distribution compliance have been the subject of our past newsletter.
The liability to pay superannuation at 10.5% on contractor payments is still a controversial area. If you are generally paying contractors for time spent on a regular and systematic basis then we recommend a review for your potential liability to this superannuation guarantee charge (SGC).
Australian residency
Anecdotally many families have a non-resident or potential for a non-resident in the family. There are ramifications of changes in residency and again we recommend the discussion particularly giving rise to capital gains taxes, repayment of Higher Education debts and passing assets through generations under gift or Will. There may also be implications for trusts purchasing or holding land where non-residents qualify as a beneficiary.
Can I claim my crypto losses?
The ATO has released updated information on claiming cryptocurrency losses and gains in your tax return.
The first point to understand is that gains and losses from crypto are only reported in your tax return when you dispose of it – you sell it, convert it to fiat currency, exchange it for another type of asset (including other forms of crypto), buy something with it, etc. You cannot recognise market fluctuations or claim a loss because the value of your crypto assets changed until the loss is realised or crystallised.
Gains and losses from the disposal of cryptocurrency should be reported in your tax return in the year that the disposal occurred.
If you made a capital gain on crypto that was held as an investment and you held the crypto for more than 12 months then you may be able to access the 50% Capital Gains Tax (CGT) discount and halve the tax you would otherwise pay on revenue account.
If you made a loss on the cryptocurrency (capital loss) when you disposed of it, you can generally offset the loss against capital gains you might have (unless the crypto is a personal use asset). But, you can only offset capital losses against capital gains. You cannot offset these losses against other forms of income like salary and wages, unfortunately. If you don’t have any capital gains to offset, you can hold the losses and carry them forward for another future year when you can use them.
If you earned income from crypto such as airdrops or staking rewards, then these also need to be reported in your tax return.
And remember, keep records of your crypto transactions. The ATO has sophisticated data matching programs in place and cryptocurrency reporting is a major area of focus.
Land Tax
State Governments are keen to recoup deficits with whatever taxes they have at their disposal. State Land tax rates are a progressive scale and the scale has not been indexed or otherwise adjusted for over a decade. In simple terms land values doubling have an exponential effect on land taxes. For example, in Victoria, the single holding land tax on land at $1m is $2,975 but at $2m it is $12,475
Lands held in trusts are subject to a surcharge.
Landlords generally cannot pass on the land tax cost to tenants, unless the lease is a specific type of commercial lease. However, land tax is not payable if the property is leased to a tax-exempt entity eg a charity. If you think you may qualify for this exemption, please contact us to assist.
In addition, there is Vacant Property Residential Land Tax which is not really a land tax because it is levied at 1.0% of the capital value of the land and buildings. This tax was suspended during Covid but is now back and needs to be anticipated and hopefully not applied.