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2023-2024 Federal Budget
The 2023-24 Federal Budget was handed down on 9 May. It contains changes to business and personal taxation, superannuation, social security entitlements, as well as the cost of living relief. Following are some of the headline measures, many of which are subject to enabling legislation.
Less generous depreciation
Temporary full expensing (TFE) will cease and be replaced by a $20,000 instant asset write-off (IAWO) from 1 July 2023.
Under this change, small businesses (aggregated annual turnover of less than $10 million) will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that is first used or installed ready for use between 1 July 2023 and 30 June 2024. Assets valued at $20,000 or more (which cannot be immediately deducted) will be placed into a small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.
For larger businesses, the write-off threshold is cut to $1,000.
TFE, which allows eligible businesses with a turnover of less than $5 billion to deduct the full cost of eligible depreciable assets of any value, is however still available up to 30 June 2023.
Small business lodgement penalty amnesty
A lodgment penalty amnesty program will be provided for small businesses with aggregate turnover of less than $10 million to encourage them to re-engage with the tax system. The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.
No change to the Stage 3 tax cuts
The government did not propose any changes to the legislated Stage 3 tax cuts whereby from 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. The 37% tax bracket will be entirely abolished at this time.
On the face of it, lowering the 32.5% to 30% and removing the 37% tax bracket altogether seems like a big win for middle and upper- middle-income earners. But it will actually be a much bigger win for higher-income earners in dollar terms. For example, an individual who earns:
- $75,000 will be better off by $750 per year compared to now
- $125,000 will be better off by $2,225
- $200,000 will be better off by $9,075.
Low-and middle-income tax offset (LMITO) not extended
This tax offset ceased from 1 July 2022. The LMITO was introduced by the former Coalition government in 2018. It was only meant to be paid out once but was twice extended due to the pandemic. This offset was not extended on Budget night, and no replacement tax relief was offered to low- and middle-income earners.
Consequently, low-income earners may face an increased tax liability of up to $1,500 when upcoming 2022/23 tax returns are lodged.
Social security and cost of living
Boost to Centrelink payments
A base-rate increase of $40 per fortnight for about 1.1 million Australians on support payments, including JobSeeker, Austudy and Youth Allowance.
A JobSeeker payment increase of $92.10 per fortnight will kick in for about 52,000 people aged over 55 who have been on the allowance for nine or more straight months. This currently applies only to those aged over 60.
Power bill rebates
$500 energy rebates for 5.5 million households and 1 million businesses. Relief will be targeted to pensioners, Commonwealth Seniors Health Card holders, and households receiving income support, including Family Tax Benefit A and B. Income limits apply.
Sole parents will be able to receive the single parenting payment until their youngest child turns 14 – up from the current age of eight.
15% increase to the rate of Commonwealth. Rent Assistance, providing up to an additional $31 a fortnight for about 1.1 million eligible households.
PRIORITIES FOR THE ATO THIS TAX TIME
There are still some weeks left until tax time, but if you start organising the income and deductions records you’ve kept throughout the year, this will guarantee you a smoother tax time and ensure you claim the deductions you are entitled to.
Focusing on deductions that are different where one is high the other should be lower;
- Large work from home deductions should result in a lower motor vehicle claim.
- Only claiming a deduction for the actual use of your mobile and internet.
Capital gains from crypto assets, property and shares
The ATO has extensive data collection processes, if any trading has been done for crypto, property and shares it will need to be declared to the ATO. The ATO expects more capital gains or losses reported this year.
The ATO looks closely at the motor vehicle and work from home deductions to ensure people are not accidently double dipping deductions.
- Claiming deductions in relation to the work from home 80c an hour shortcut method and claiming additional costs for mobile, internet and other home office expenses.
- Claiming motor vehicle deductions using the cents per km method and also trying to claim a deduction for fuel, insurance and registration.
Changes to single-touch payroll reporting
As an employer, it’s important that you’re across the changes required, and you’re getting ready to start Phase 2 reporting. This includes:
- checking if you need to make changes to payroll pay codes/categories so they align with Phase 2 requirements
- reviewing allowances, you pay and how they need to be reported in Phase 2
- understanding changes to salary sacrifice reporting
- understanding how to assign an income type to each payment.
EOFY – Year End Tax Planning Tips 2021 – 2022
Below are some tax planning tips that are covered in more detail in our newsletter:
- Check eligibility for small business tax regime
- Maximise depreciation deductions
- Prepayment of expenses
- Review salary sacrifice arrangements
- Make trust resolutions by 30 June
- Seeking professional advice when starting a business
- Write-off bad debts
Ongoing Tax Planning Issues
Our newsletter covers other tax strategies that should be considered such as:
- Salary Sacrifice Bonus into Superannuation
- Superannuation – government co-contribution
- Eligibility for super concessional contributions
- Transition to retirement income streams
- Medicare Levy Surcharge and Private Health Insurance Rebate
- Prepayment of expenses
ATO Recovery Data Matching
In terms of focus areas for compliance activities, the ATO continues to closely monitor:
- Claims for work-related expenses that are unusually high close to others across comparable industries and occupations
- Excessive rental properties expenses
- Non-commercial rental income received for holiday homes
- Interest deductions claimed for the private proportions of loans
- People who have registered for GST but are not actively carrying on a business
- Contractors not declaring income that is detectable under the Taxable Payments Reporting System (TPRS)
- Activity in the sharing/gig economy eg. Uber, Door Dash, AirBnB, Airtasker and many others
CENTS PER KM RATE: DRAFT LEGISLATIVE INSTRUMENT
On 3rd March 2022, the ATO issued draft Legislative Instrument LI 2022/D8TD, which applies to eligible taxpayers who elect to use the cents per kilometre method and then calculate income tax deductions for their work-related car expenses.
- The Commissioner has determined that the rate is 75 cents per kilometre.
It will apply to the income year commencing 1st July 2022 and remains applicable to subsequent income years until it is varied.
ONE-OFF COST OF LIVING TAX OFFSET
From 1 July this year, over 10 million individuals will receive a one-off $420 cost of living tax offset.
Combined with the low and middle-income tax offset (LMITO), eligible low- and middle-income earners will receive up to $1,500 for a single income household or up to $3,000 for a dual-income household, the base rate of the LMITO is now $675.
This offset is available for tax returns for the year ending 30 June 2022
LOWERING TAX INSTALMENTS IN 2022-23
The government will set the GDP uplift rate that applies to pay-as-you-go (PAYG) instalments and GST instalments to two per cent for the 2022–23 income year. This measure will apply to instalments due after 31 March 2022. This measure is now law.Read Newsletter
ELIGIBILITY AGE CHANGE FOR DOWNSIZER CONTRIBUTIONS
As part of the 2021–22 federal Budget, the Australian Government announced it will reduce the eligibility age for downsizer contributions from 65 to 60 years old. This measure has now become law, with the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 received royal assent on 22 February 2022.
Changes in eligibility;
- Drop in age from 65 to 60.
- Effective from 1 July 2022.
For contributions made prior to 1 July 2022, eligible individuals must still be aged 65 years or older at the time of making their contribution.
VARYING YOUR PAY AS YOU GO INSTALMENTS AND TAX SUPPORT WHEN YOU NEED IT
By paying regular instalments throughout the year, you should not have a large tax bill when you lodge your tax return.
You can vary your PAYG instalments if you think your current payments will result in you paying too much or too little tax for the income year.
- You must make variations on or before the payment due date. Your varied amount will apply for all your remaining instalments unless you make another variation before the end of the income year.
- The ATO encourages taxpayers to review their PAYG instalments regularly, so the amount you prepay is closer to your expected tax for the year.
Even if you can’t pay on time, it’s important to keep lodgements up to date. This will give you a clear idea of your tax position and the ATO can tailor help, such as advice, payment plans, or deferrals, to your situation.
CAR LOGBOOK REQUIREMENTS
Having a valid car logbook is beneficial for both maximising deductions in a personal tax return for work-related travel costs using your own car and minimising the taxable value of a car fringe benefit for FBT purposes when the car is provided by an employer.
The ATO record keeping requirements are strict and often do not pass scrutiny in the event of an audit.
A separate logbook must be kept for each vehicle for a continuous 12-week period and must document:
- When the logbook period begins and ends.
- The car’s odometer readings at the start and end of the logbook period.
- The total number of kilometres the car travelled during the logbook period.
- The number of kilometres travelled for each journey.
- The odometer readings at the start and end of each subsequent income year your logbook is valid for.
- The business-use percentage for the logbook period based on the business use of the vehicle.
- The make, model, engine capacity and registration number of the car.
- The 12-week period may overlap two income/FBT years provided it includes part of the year.
In general, a logbook will be valid for five years assuming business use is consistent, and patterns of usage do not change throughout this period.
For each trip, the following must be recorded:
- The date the trip began and ended
- Odometer readings at the start and end of each trip
- Kilometres travelled during the journey
- Detailed description of the purpose of the trip
- If the 12-week period is not representative of the whole year, you may have to adjust your business percentage (i.e., upward, or downward). If your pattern has changed substantially during the year, the logbook may no longer be valid, and you may need to keep a new logbook.
DEDUCTIBILITY OF COVID-19 TESTS
The government announced that Rapid Antigen Tests (RATs) and PCR tests will be tax deductible for workers who require to undertake a test to attend their place of work.
- PCR and RATs will be tax deductible.
- Backdated to the 1 July 2021
This measure is not yet law. The ATO will provide more detailed advice and guidance once the measure is enacted.
In the interim, if you have incurred expenses in relation to COVID-19 tests you should keep a record of those expenses.
PARLIAMENT PASSES LEGISLATION TO ENHANCE THE SUPERANNUATION SYSTEM
The Federal government passed laws enhancing the superannuation system to ensure it is fair for all workers. This includes;
- Removal of $450 monthly threshold.
- For anyone earning less than $450 will be receiving superannuation guarantee.
- Starts on 1st July 2022.
The bill also allows for more flexibility regarding contributing to superannuation by allowing individuals aged between 67 and 75 to make non-concessional superannuation contributions under the bring-forward rule.
ARE YOU IN A BUSINESS? SHARING ECONOMY
The sharing economy is the economic activity through a digital platform (such as a website or an app) where people share assets or services for a fee.
If you provide services or assets through a platform for a fee, you need to consider how income tax and goods and services tax (GST) applies to your earnings.
Popular sharing economy activities include:
- Providing Ride-sourcing (also known as ridesharing) for a fare, through platforms such as Uber, Ola, Shebah and GoCatch.
- Providing food delivery services with own vehicle through platforms such as Uber Eats, Door Dash and Deliveroo.
- Renting out a room or whole house on a short-term basis through platforms such as Airbnb, Stayz and Flipkey.
- Providing services including professional and trade services and even odd jobs like furniture assembly through platforms such as Oneflare, Airtasker and Hark Hark.
- Sharing assets like cars, caravans, car park spaces, storage and personal belongings through platforms such as Car Next Door, Spacer, Toolmates and Quipmo.
Income tax, GST and other obligations may apply to you if you earn income from these other activities.Read Newsletter
JOBKEEPER KEY DATES AND ACTIONS FOR EMPLOYERS
- 4 January 2021 – the JobKeeper extension 2 starts and the payment rates change for your eligible employees
- Between 4 January 2021 and 28 January 2021 – complete the December business monthly declaration (this is an extension of two weeks past the usual due date of the 14th day of each month)
- By 31 January 2021 – new entities enrolling for JobKeeper will need to enrol and submit their ‘Check decline in turnover’ form to the ATO online
- 31 January 2021 – for JobKeeper fortnights 21 and 22 only (from 4 January 2021 and 18 January respectively 2021), the ATO is allowing employers until 31 January 2021 to pay their employees (meet the wage condition)
PROPOSED CHANGES TO FRINGE BENEFITS TAX RECORD-KEEPING
The government has proposed that it will provide the Commissioner of Taxation with the power to allow employers to rely on alternative records, such as existing corporate records where adequate to finalise their fringe benefits tax (FBT) returns.
This would be an alternative to employee declarations and other prescribed records.
If enacted the change will have effect from the start of the first FBT year (1 April) after the date of royal assent of the legislation, which cannot be earlier than 1 April 2021.
HOMEBUILDER SUCCESS SEES PROGRAM EXTENDED
The Federal Government has extended HomeBuilder programme which is driving demand in the construction sector by supporting the construction on new homes and home renovations.
HomeBuilder will remain demand driven and will be extended from 1 January 2021 to 31 March 2021 which is expected to support the construction or major rebuild of an additional 15,000 homes, bringing it to a total of around 42,000 homes across Australia.
In addition, the construction commencement deadline will be extended from three months to six months for all eligible contracts signed on or after 4 June 2020.
For all new build contracts signed between 1 January 2021 and 31 March 2021:
- Eligible owner-occupier purchasers will receive a $15,000 HomeBuilder: and
- The property price caps for new builds in New South Wales and Victoria will be increased to $950,000 and $850,000, respectively
TAX BREAKS FOR BUSINESS IN THE OCTOBER FEDERAL BUDGET
- Extension of instant asset write-off
- JobMaker Hiring Credit
- Loss carry-back provisions
- Research and development
JOBMAKER HIRING CREDIT PASSES THE PARLIAMENT
On 11.11.2020 the Federal Government passed legislation to establish the JobMaker Hiring Credit, giving businesses access to up to $200 per week for each eligible employee. The legislation is now awaiting assent.
The JobMaker Hiring Credit is a fixed amount of $200 per week for an eligible employee aged 16 to 29 years and $100 per week for an eligible employee aged 30 to 35 years paid quarterly in arrears by the Australian Taxation Office.
The scheme will operate for the period from 7.10.2020 to 6.10.2022.
To be eligible, the employee must have been receiving JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one of the previous three months, assessed on the date of employment.
Employees also need to have worked for a minimum of 20 hours per week of paid work to be eligible, averaged over a quarter and can only be eligible with one employer at a time.
The hiring credit is not available to an employer who does not increase their headcount and payroll.
INSOLVENCY REFORMS TO SUPPORT SMALL BUSINSS
On 12.11.2020 the Federal Government introduced legislation into the Parliament to progress the most significant changes to Australia’s insolvency framework in 30 years as part of their economic recovery plan to keep businesses in business and Australians in jobs.
By moving from a rigid one-size-fits-all “creditor in possession” model to a more flexible “debtor in possession” model, it will allow eligible small businesses to restructure their existing debts while remaining in control of their business.
For those businesses that are unfortunately unable to survive the economic impacts of the Coronavirus outbreak, a new simplified liquidation pathway will be introduced for small businesses to allow faster and lower-cost liquidation.
Following the passage of legislation through the Parliament, these new insolvency processes will be available for small businesses from 1.1.2021.Read Newsletter
JOBMAKER PLAN – BRINGING FORWARD THE PERSONAL INCOME TAX PLAN
The Government has announced that stage 2 of its Personal Income Tax Plan will be brought forward and apply for the 2020-21 income year.
The low-and middle-income tax offset will continue to be available for the 2020–21 income year but will not apply for the 2021–22 income year and later years.
If enacted the measure will:
- Increase the low-income tax offset (LITO) from $445 to $700 and adjust the phase out rules
- Increase the top threshold of the 19% personal income tax bracket from $37,000 to $45,000, and
- Increase the top threshold of the 32.5% personal income tax bracket from $90,000 to $120,000
ATO UPDATE: JOBKEEPER 80-HOUR THRESHOLD FOR EMPLOYEES
ATO recently updated guidance on the 80-hour test or higher rate of JobKeeper payment.
An employee will satisfy the 80-hour threshold, if in their 28-day reference period, the total of the following is 80 hours or more:
- Actual hours they worked
- Hours they were on paid leave
- Hours they were paid for absence on a public holiday
According to the ATO, if an eligible employee satisfies the 80-hour threshold, the employer can claim the tier 1 (higher) payment rate for them.
If they do not meet the 80-hour threshold, the employer can only claim the tier 2 (lower) payment rate for them.
APRA CLARIFIES ‘WORK TEST’FOR SUPERANNUATION CONTRIBTUIONS
In October, the Australian Prudential Regulation Authority (APRA) confirmed individuals whose incomes are subsidised by the JobKeeper scheme will be considered by registrable superannuation entities (RSE) to be ‘gainfully employed’ for the purpose of the ‘work test’, and can therefore make personal superannuation contributions.
According to APRA, RSE licensees need not distinguish between individual members who are working reduced hours or those who have been stood down, and can assume that all members whose incomes are subsided by the JobKeeper scheme satisfy the ‘work test’ for the purpose of voluntary superannuation contributions.Read Newsletter
LEGISLATION PASSES THROUGH THE SENATE TO ALLOW AUSTRALIANS TO CHOOSE THEIR SUPERANNUATION FUND
Legislation giving Australians the power to choose their own superannuation fund, instead of being forced into a fund because of enterprise bargaining agreements passed the Senate on 25.8.2020.
The Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 will allow around 800,000 Australians to make choices about where their hard-earned retirement savings are invested, representing around 40 per cent of all employees covered by a current enterprise agreement.
These changes also build on the Government’s earlier reforms which protect superannuation accounts from being eroded through the capping of fees on low balance accounts and requiring insurance to be provided on an opt-in basis for new members under 25 years of age.
CHANGING BUSINESS STRUCTURES
Many small businesses change their business structure from a sole trader to more complex company or trust structures, especially when the environment changes. This can lead to errors.
Some of the common errors identified by the ATO include:
- Reporting income for the wrong entity
- Claiming expenses incurred by another entity as business expenses
- Personal use of business bank accounts
EXTENSION OF TEMPORARY RELIEF FOR FINANCIALLY DISTRESSED BUSINESSES
The Federal Government will continue its regulatory relief for businesses that have been impacted by the Coronavirus crisis by extending temporary insolvency and bankruptcy protections until 31 December 2020.
Regulations have been made to extend the temporary increase in the threshold at which creditors can issue a statutory demand on a company and the time companies have to respond to statutory demands they receive.
The changes also extend the temporary relief for directors from any personal liability for trading while insolvent.
SMSF REGULATIONS TO ALLOW SIX MEMBERS UNDER NEW LEGISLATION
SMSFs are often used by families as a vehicle for controlling their own superannuation savings and investment strategies. For larger families, the only real option is to create two SMSFs – in so doing incurring additional costs.
In September, the Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 was introduced.
This partially implements the measure to allow an increase in the maximum number of allowable members in self-managed superannuation funds and small APRA funds from four to six.Read Newsletter