Thought of registering a trademark for your new business?

The ATO has issued a reminder around trademarks!

For background, a trademark legally protects your brand and helps customers distinguish your products or services in the market from others. Trademarks can be used to protect a logo, phrase, word, letter, colour, sound, smell, picture, movement, aspect of packaging or any combination of these. In short, they protect your brand, products and services.

Trademarks are different from a business name which is the name you trade under.

For exclusive rights to your business name, you’ll need to protect it with a trademark. This will help you:

• protect your name and stop others from trading with it
• get exclusive use of that trademark throughout Australia
• have protection in all Australian states and territories for an initial period of ten years.

Trademarks are intellectual property. Other types of intellectual property include:

• patents
• design rights
• plant breeder’s rights
• copyright
• trade secrets.

While you don’t need a registered trademark to apply for an ABN, registering a trademark for your business name, logo, or other sign means you have exclusive rights to use your trademark in Australia.

A registered trademark is a licensable and saleable asset. It also provides a legal avenue to stop others from using it on similar goods and services. A 5-minute check can help save you a lot of disappointment and work.

Check out IP Australia for more information and get your trademark sorted today.

The same ATO release, reminds taxpayers of the business registrations and insurances that may be required for your new business.

As a new business, you may also need to:

• register for goods and services tax (GST)
• register for pay as you go (PAYG) withholding and meet your super obligations for any employees you hire
• register for fringe benefits tax (FBT) when you are providing fringe benefits to your employees.

You can apply for an ABN and other key business registrations through the Business Registration Service.

You may also need business insurance and licences to protect your business. It’s important to understand the licences and permits you need to do certain activities and help protect your business and employees.

Self-education – when is it deductible?

There is no specific provision in the income tax legislation that allows a deduction for self-education expenses. Rather the expenditure falls for consideration under the general deductibility provision of Tax Act. In broad terms this allows for, but also limits, deductible expenses to those incurred in the course of earning assessable income. This requires a close nexus between the outgoing and assessable income: the outgoing must be incidental and relevant to the gaining of the assessable income.

Principle 1 – the self-education maintains or improves current skills or knowledge

Where a taxpayer’s income-earning activities are based on the exercise of a skill or some specific knowledge, a deduction for self-education expenses incurred will be allowable where the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge. The High Court decision of FC of T v Finn [1961] HCA 61; 106 CLR 60 is a leading authority for this principle. In this case, Finn, a senior government architect, was allowed deductions for expenses incurred on an overseas tour focused on the study of architecture.

This principle requires an assessment of a taxpayer’s current skills and knowledge compared against the subject of self-education, and a consideration of how close the subject is to those current (not future) income-earning activities. (The ATO advises the relevant employment activities are the duties and tasks expected of an employee to perform their job and are usually set out in an employee’s duty statement / contract of employment.)

Principle 2 – the self-education leads to, or is likely to lead to, an increase in income from current income-earning activities

If the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer’s income from current (but not new) income-earning activities, a deduction for self-education expenses incurred will be allowable.

It is not necessary for the expected increase in income or promotion to be realised for self-education expenses to be deductible, for example, if the taxpayer’s employment was terminated before gaining the promotion or increase. However, the expenses should be incurred whilst the taxpayer was employed (even if on leave without pay), and generally with a real prospect or likelihood of leading to such an increase or promotion.

The important thing for taxpayers is to retain their receipts in relation to their self-education. If you have any questions around what expenses are claimable, contact us.

Avoid schemes targeting SMSFs

Sometimes promoters of schemes target self-managed super funds (SMSFs). Schemes can include tax avoidance arrangements that inappropriately channel money or assets into your SMSF so you pay less tax. They may also include arrangements promoting the illegal early release of benefits from your fund for personal use.

To assist you with identifying schemes that may jeopardise your SMSF’s compliance, the ATO  recently updated its web content to provide more information:

• Schemes targeting SMSFs
• Residential property purchased through illegal schemes.

Remember, if:

• You’ve been approached by a someone who recommends you set up an SMSF or use your existing SMSF to participate in one of these schemes or a similar arrangement, you should check the ASIC Financial Register to make sure they have a financial licence. If you’re in doubt, you should seek a second opinion from a licenced adviser who is independent from the scheme.
• You’re already dealing with a suspected promoter of an SMSF scheme, then you should contact the ATO immediately so they can help.

Don’t be tempted by ‘too good to be true’ schemes. You may risk losing some or all of your retirement savings and receive significant penalties if you enter into one of these schemes. You could also be disqualified as a trustee of your SMSF and may be required to wind up your fund.

Discounting your capital gain

The capital gains tax (CGT) discount can reduce by 50% a capital gain that you make when you dispose of (sell) a CGT asset that you have owned for 12 months or more. However, the discount is only available to:

• individuals (but not foreign or temporary residents)
• complying superannuation funds (33% discount applies, not 50%)
• trusts, and
• life insurance companies in respect of a discount capital gain from a CGT event in respect of a CGT asset that is a complying superannuation asset.

The most notable omission from this list is companies.  They are not eligible for the general discount. This should be factored in when assessing which entity is chosen to acquire a CGT asset.

12-month requirement

The tax legislation requires that to qualify for the general discount, the asset must have been acquired at least 12-months before the time of the CGT event (sale).

The 12-month period requires that 365 days (or 366 in a leap year) must pass between the day the CGT asset was acquired and the day on which the CGT event happens…effectively 12-months and two days! If a taxpayer is nearing the 12-month mark, they should consider delaying the sale where possible until this timeframe is satisfied and therefore become eligible for the discount.

For the purposes of satisfying the 12-month holding period, beneficiaries can treat an inherited asset as though they have owned it since:

• the deceased acquired the asset, if they acquired it on or after 20 September 1985
• the deceased died, if they acquired the asset before 20 September 1985.

Note more generally that for CGT assets acquired before 20 September 1985, no CGT is payable anyway.

Foreign residents

The CGT discount no longer applies to discount capital gains of foreign or temporary residents or Australian residents who have a period of foreign residency after the below date. However, the CGT discount will still apply to the portion of the discount capital gain of a foreign resident individual that accrued up until 8 May 2012 (the date of announcement).

This measure applies where:

• an individual has a discount capital gain, including a discount capital gain as a result of being a beneficiary of a trust, from a CGT event that occurred after 8 May 2012, and
• the individual was a foreign resident or a temporary resident at any time on or after 8 May 2012.

The effect of the measure is to:

• retain the full CGT discount for discount capital gains of foreign resident individuals to the extent the increase in value of the CGT asset occurred prior to 9 May 2012
• remove the CGT discount for discount capital gains of foreign and temporary resident individuals accrued after 8 May 2012, and
• apportion the CGT discount for discount capital gains where an individual has been an Australian resident, and a foreign or temporary resident, during the period after 8 May 2012. The discount percentage is apportioned to ensure the full 50% discount percentage is applied to periods where the individual was an Australian resident.

If you have any questions about the 50% discount, contact us.

Appointing an SMSF auditor

Early last month, the ATO issued a reminder around auditors.

If you have an SMSF, you need to appoint an approved SMSF auditor for each income year, no later than 45 days before you need to lodge your SMSF annual return (SAR).

Your SMSF’s audit must be finalised before you lodge, as you’ll need some information from the audit report to complete the SAR. You must ensure the correct auditor details are provided in the SAR, otherwise you may be penalised.

Your auditor will perform a financial and compliance audit of your SMSF’s operations before lodging. Remember, an audit is required even if no contributions or payments are made in the financial year.

Your approved SMSF auditor must be:

• registered with the Australian Securities and Investment Commissioner – and you’ll need to provide their SMSF auditor number on your SAR
• independent – auditors shouldn’t audit a fund where they:
  • hold any financial interest in the fund, or where they have a close personal or business relationship with members or trustees
  • work for a firm which provides your fund with other services such as certain accounting services, tax, super or financial planning advice.

If a fund doesn’t meet the rules for operating an SMSF, the auditor may be required to report any contraventions to the ATO.

Approved SMSF auditors can be busy so it’s a good idea to start this process early when the time comes around. You can find a list of approved SMSF auditors on the ASIC website.

Costs of a caravan/motor home for work-related travel

SCENARIO:

I run a small business that requires me to travel quite a lot, particularly to country areas where I will often stay overnight. To save on accommodation costs, I have purchased a caravan. I have a business logo on the side of the caravan that is on display when I attend town shows and events. Will the costs of purchasing and maintaining my caravan be deductible in my individual income tax return?

GUIDANCE:

In these challenging and changing times, many have jumped on the modern version of the proverbial band wagon and purchased a caravan or motor home to use for work or business-related travel.

It is a common misconception that there are specific rules governing whether you can claim a tax deduction for the costs of purchasing and maintaining a caravan or motor home. A caravan or motor home is no different to any other work or business asset you own, and the extent the expenses are deductible will depend upon the extent you use the caravan or motor home for income-producing purposes. The complexity does not arise because the expenses relate to a caravan or motor home, but that the expenses (in our scenario above) are essentially travel and accommodation expenses, and this is an area of tax law that can be difficult to apply in practice.

Travel and accommodation expenses are deductible under the tax legislation where you incur these expenses gaining or producing assessable income, or they are necessarily incurred in carrying on your business.

Travel between two unrelated work locations is also deductible where neither of the two work locations is your home (although in this case, the costs may still be deductible under the general deduction provision).

Travel costs will not be deductible if they are a prerequisite to earning income, if you are living away home (rather than travelling on work) nor if they are as a result of your own personal choice or circumstances, eg, the costs are not deductible just because you decide it is more convenient to stay overnight. It would seem that if it is reasonable that you would stay overnight rather than travelling to and from a location within a day, and the reason cannot be attributed to a personal choice, then it is more likely the travel would be viewed as work-related. Keeping a diary would help support your deduction (and is necessary as a sole trader travelling for six or more consecutive nights).

Generally, the depreciation and GST claim on a caravan or motorhome will not be limited by the car limit (currently $68,108). This is because, a caravan or motorhome (designed to carry a load of more than one tonne) is not a ‘car’ as defined in the tax legislation.

What if my business logo is on the side of the caravan?

The good news is while the cost of the business logo will ordinarily be tax deductible as advertising, the bad news is the ATO is firmly of the view that placing a business logo on the side of a caravan (or any type of motor vehicle) will not turn private travel into business travel, even if the signage is affixed permanently. This means if the travel expenses are not tax deductible without a logo, the travel expenses will not be deductible with a logo.

Trusts – are they still worth it?

The recent ATO crackdown on trusts will no doubt have some business owners (and even some advisors) asking themselves the question: Is this structure for business purposes still worth it?

To recap, trust distributions have been under the ATO microscope in recent years. The latest ATO crackdown was in February 2022 when it updated its guidance around trust distributions especially those made to adult children, corporate beneficiaries and entities that are carrying losses.

Depending on the structure of these arrangements, the ATO may potentially take an unfavourable view on what were previously understood to be legitimate distribution arrangements. The ATO is chiefly targeting arrangements under section 100A of the Tax Act; specifically, where trust distributions are made to a low-rate tax beneficiary, but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

Despite this new ATO interpretation and the wider crackdown on trusts in recent years, the choice of a trust as a business structure still has a range of benefits including:

• Asset protection – limited liability is possible if a corporate trustee is appointed. Usually, when a person owes money and cannot meet the repayment requirements, the creditor can access the person’s personal assets to recoup the debt payable. However, if a trust is in place, there is no access to  beneficiary assets.
• 50% CGT discount – A family trust receives a 50% discount on capital gains tax for profits made from selling any assets the trust has held for more than 12 months. This contrasts with a company structure. Companies cannot access the 50% CGT discount.
• Tax planning – Income that sits in the family trust that is not distributed by year-end is taxed at the highest income tax rate. However, any trust income distributed to the beneficiaries is taxed at the income tax rate of the beneficiary who receives the distribution. The way to definitely get around the ATO’s aforementioned section 100A crackdown is to ensure the distributed money actually goes to the nominated beneficiary and is enjoyed by the beneficiary rather than another taxpayer.
• Carry-forward losses – A trust does not distribute losses to beneficiaries. This means the beneficiaries will not be called upon to contribute money to the trust to meet any loss. Instead, losses from each year can be carried forward to the following year, subject to certain conditions being met.

If you have questions around your trust structure, or your business structure more generally, touch base with us.

Gifting to employees

Some employers, especially at Christmas time or for birthdays, give small gifts to their employees or the employee’s associates  (i.e. spouses). These gifts typically take the form of bottles of wine, movie tickets, gift vouchers etc. The tax treatment of these gifts from an employer standpoint, depends upon a range of factors including:

• To whom the gifts are provided (e.g. employees or clients?)
• Whether the gifts constitute entertainment
• The dollar value of the gifts, and
• The frequency with which they are provided.

Use the following steps as a guide:

1. Does the gift constitute entertainment?

• If yes, go to 2
• If no, go to 3

(gifts that constitute entertainment include: tickets to the movies/plays/theatre, restaurant meals, holiday airline tickets, admission tickets to amusement parks etc.)

(gifts that do not constitute entertainment include: Christmas hampers, bottles of alcohol, gift vouchers, perfume, flowers, pen sets)

2. Does it cost less than $300 (GST-inclusive) and is provided infrequently?

• If yes…no FBT, no deduction, no GST credit
• If no…FBT applies, is deductible and can claim any GST

3. Does it cost less than $300 (GST-inclusive) and is provided infrequently?

• If yes…no FBT, deduction can be claimed as can any GST credits
• If no…FBT applies, deduction can be claimed as can any GST credits

All told, from a tax standpoint it’s best to buy employees and their associates non-entertainment gifts that cost less than $300. That way, no FBT is payable yet a deduction and GST credits can be claimed. Alternatively, you can put the tax burden back on the employee and pay them a cash bonus, in which case the amount will be assessable to the employee, and deductible to the employer.

Touch base with us if you require further clarification.

SMSFs and higher interest rates

SMSF trustees with limited recourse borrowing arrangements (LRBAs) are now feeling the impact of 10 interest rate rises since May 2022 in one hit, from July 2023.

SMSF trustees relying on the ATO’s safe harbour terms to ensure that an LRBA remains, at all times, at arm’s length will face an increase in monthly repayments of interest and principal from 1 July 2023.

The arm’s length annual interest rate for 2023/24, as determined under the ATO’s safe harbour terms is based on the published rate for the month of May 2023 of the Reserve Bank of Australia’s Indicator Lending Rate for banks providing standard variable housing loans for investors.

In accordance with the ATO’s safe harbour interest rate for SMSFs with a related-party LRBA that is funding the purchase of real property, the relevant interest rate for 2023/24 will increase to 8.85%. This is an increase of 3.5% from the former rate of 5.35%.

Where the LRBA is funding the purchase of listed shares or listed units in a unit trust, the safe harbour rules require an additional margin of 2%, meaning the relevant interest rate for 2023/24, has increased to 10.85%.

This will make SMSF cashflow more important than ever. Speak to your SMSF advisor around how to maximise cashflow, including making additional contributions to your fund where you have the capacity to do so.

On the flip-side, higher interest rates are resulting in super funds pilling more money into cash and bonds as they look for low risk investments. Funds have been increasing their exposure to cash and cash products from 18% of their savings pools last year to 22% so far this year, a new report shows.^[1]

Their exposure to the share market through direct investment dropped by 5% at the same time, as they funnelled their money into less volatile assets such as term deposits.

A reminder though that such a change in strategy must be consistent with your overall SMSF investment strategy, and may or may not be in the best interests of younger members whose circumstances may call for a higher risk, bolder investment strategy.

R&D reminder

The ATO has issued a reminder for companies wishing to claim a tax offset for their R&D (research and development) activities. The reminder was issued in the context of the ATO’s success in the Federal Court decision T.D.S. Biz Pty Ltd v FCT^[2].

By way of background, the research and development tax incentive (R&DTI) helps companies innovate and grow by offsetting some of the costs of eligible R&D.

The incentive aims to boost competitiveness and improve productivity across the Australian economy by:

• encouraging industry to conduct R&D that they may not otherwise have conducted
• improving the incentive for smaller firms to undertake R&D
• providing business with more predictable, less complex support.

Broadly speaking, your eligibility to claim the tax offsets will depend on whether you:

• are an R&D entity
• incurred notional deductions of at least $20,000 on eligible R&D activities.

You are not eligible for an R&D tax offset if you are either:

• an individual
• a corporate limited partnership
• an exempt entity (where your entire income is exempt from income tax)
• a trust (with the exception of a public trading trust with a corporate trustee).

For income years commencing on or after 1 July 2021, entities engaged in R&D may be entitled to:

• A refundable offset of 18.5% above the company’s tax rate.
• A flat non-refundable offset based on a progressive marginal tiered R&D intensity threshold. Increasing rates of benefit apply for incremental research and development expenditure by intensity:

• 0 to 2% intensity: an 8.5% premium to the company’s tax rate
• greater than 2% intensity: a 16.5% premium to the company’s tax rate.

Turning back to the aforementioned case, the ATO successfully contended that the taxpayer conducted significant R&D activities outside Australia by purchasing components designed, developed and fabricated overseas without an Advance Overseas Finding from the Department of Industry, Science and Resources.

The ATO states that, while companies can claim an offset for R&D expenditure incurred by them on R&D activities conducted overseas, there is a requirement to hold an Advance Overseas Finding for those activities.

If your company is conducting R&D, contact us to determine if you are eligible for the offset.

Super withdrawal options

For individuals who have retired and met a condition of release, or who have turned 65 and are still working, you can receive your superannuation as a super income stream, as a lump sum, or a combination of both. This third option is quite popular for those who have yet to pay out their house, for example – a lump sum is withdrawn to pay off the remainder of the mortgage, and the balance used to commence a super income stream.

1. Lump sum

If your super fund allows it, you may be able to withdraw some or all of your super in a single payment. This payment is called a lump sum.

You may be able to withdraw your super in several lump sums. However, if you ask your provider to make regular payments from your super it may be classed as an income stream.

The downside to lump sums from a tax perspective is that once you take a lump sum out of your super, it is no longer considered to be super, and thus no longer enjoys the superannuation tax concessions (15% on earnings and capital gains, and tax-free if you convert your super into an income stream). That is, if you invest the lump sum outside of super, earnings on those investments are not taxed as super and may need to be declared in your tax return.

Further, if you’re over age 60, super money you access from super will generally be tax free, but if you’re under 60, you might have to pay tax on your lump sum.

2. Super income stream

You receive a super income stream as a series of regular payments from your super provider (paid at least annually). The payments must be made over an identifiable period of time and meet the minimum annual payments for super income streams. To find out what will happen if the income stream doesn’t meet the minimum annual payment, see Minimum annual payment not made.

The payments don’t need to be at the same interval, and the amount paid may also vary.

Super income streams are a popular investment choice for retirees because they help you manage your income and spending. Super income streams are sometimes called pensions or annuities.

One of the most common income streams is an account-based income stream. This is an account made up of money you’ve accumulated in super, which allows you to draw a regular income once you retire. An account-based income stream includes market-linked pensions that started on or after 1 July 2017.

Your provider or SMSF normally continues to invest the money in your super account and adds returns from investments to your account. Your account balance fluctuates with market performance.

Each year you can withdraw as much as you like through your account-based super income stream (unless you’re receiving a transition to retirement income stream).

You must withdraw a minimum amount each year – based on your age and account balance. There may be income tax implications if your provider does not pay you the minimum amount each year.

You can continue to receive your super income stream until there is no money in your account. How long your super income stream lasts depends on how much you take out each year and what investment returns you receive. There is a limit on the amount you can transfer into retirement phase; this is known as the transfer balance cap.

The chief advantage of this type of withdrawal is that earnings on the remainder of your account inside of superannuation are taxed concessionally.

Take-home message

Check with your super provider and adviser to find out what options are available to you, and which are best for your circumstances.

Tax Time: Unexpected first-time debts

For the first time, many Australians are finding themselves in a position where they are being told they owe the ATO money after completing their tax return this year.

A significant number of taxpayers in this position are those that are still paying off their HECS/HELP debts – many of them young Australians. Following are some myths and facts around why this may be the case.

We also tackle the LMITO myth.

If you have any questions as to why you received a tax bill this year or would like assistance in entering into a payment plan with the ATO, please contact us.

Personal Property Securities Register

Are you aware of the personal property securities register?

What is it?

The personal property securities register (more commonly known as the PPSR) is an official government register. It’s effectively a public noticeboard of *security interests in **personal property that is managed by the Registrar of Personal Property Securities.

*security interests are most commonly created when a secured party (such as a lender) takes an interest in personal property of a grantor (such as a borrower) as security for a loan or other obligation. The security interest means the secured party can take the personal property (known as the collateral) if the secured obligation is not met, such as defaulting on a loan.

**personal property to which the PPSR applies is property other than land, buildings and fixtures to the land. It includes goods, motor vehicles, planes, boats, intellectual property such as copyright/patents/designs, shares, bank accounts and debts.

The debts or other obligations that are secured by personal property are shown on the register (if registered). The PPSR is accessible by the public 24/7. The PPSR came into existence on 30 January 2012 replacing many state-based registers, such as REVS and other vehicle registers and the ASIC Register of Company Charges, to form one national register.

Put simply, the register assists both those with a security interest over property, and also consumers/businesses purchasing property as follows:

Registering

When someone registers a security interest on the PPSR, they are letting the world at large know that they claim to have a security interest over certain personal property. Registering on the PPSR is a way to  notify others if personal property such as cars, goods or company assets have security interests over them. Registering your security interest correctly on the PPSR can protect you and give you extra rights in the property it’s registered over. This is especially important if the person who gave you the interest goes insolvent. A registration also offers other protections such as ranking you as a higher priority over other security interests.

Searching

Consumers including businesses can search the PPSR to see if someone has registered a security interest over personal property (which they may want to do before buying property or lending money to someone). When you search you will receive a certificate that you can retain as proof of whether or not a security interest was registered at the time of your search. If you don’t do a search and then proceed to purchase property that has an existing security interest registered over it, you place yourself at risk of the goods being repossessed even though you have paid for them.  Millions of searches and registrations take place on the PPSR every year.

To access the PPSR, visit www.ppsr.gov.au

Contact us for more information if you are uncertain around the PPSR.

Superannuation and age pension eligibility 

Come retirement, many folks rely on a combination of their superannuation savings and the age pension in order to financially sustain them moving forward. Accordingly, a front-of-mind issue for individuals is: at what point does your level of superannuation savings and payments impact your eligibility for the age pension?

While you are under age pension age, in relation to any Centrelink payment, Centrelink do not count your or your partner’s superannuation balance in either the income or assets test if your fund is not paying you a superannuation pension. However, if your fund is paying you a superannuation pension, that pension is taken into account.

Once you reach age pension age, Centrelink counts your super both (a) in the assets test and (b) in the income test under the deeming rules. The same rules apply to your partner and their super when they are age pension age, even if they are not in receipt of a Centrelink payment.

To recap, deeming is a set of rules used to work out the income created from your financial assets. It assumes these assets earn a set rate of income, no matter what they really earn. The main types of financial assets are:

• savings accounts and term deposits
• managed investments, loans and debentures
• listed shares and securities
• some income streams
• some gifts you make.

Centrelink includes any deemed income as your income under the income test. The income test helps Centrelink work out how much income support it can pay you.

Taking money out of superannuation doesn’t affect your Centrelink payments but you may be impacted by the deeming rules (see earlier) depending on where that money is invested outside super.

Recent research into retirement confidence by Monash University found people aged 50 and over – who take time to understand and plan their finances – are less anxious about transitioning into retirement. It found they were more confident overall about their retirement options.

Knowing how much of the age pension you could be eligible for can help you understand your finances in retirement^. For many, a qualified financial adviser with knowledge of superannuation and retirement planning can help you get the balance right.

[1] The Vanguard and Investments Trend annual survey of SMSFs

[2] [2023 FCA 710]

Super guarantee increases to 11%

The increase to the superannuation guarantee (SG) rate from 1 July 2023 will see more employees (and certain contractors) entitled to additional SG contributions on their pay. But what happens when income earned before 30 June is paid after 30 June 2023 – will employees be entitled to the higher SG rate of 11%?

SG is based on when an employee is paid

On 1 July 2023, the SG rate increased from 10.5% to 11%. In some cases, an employee’s pay period will cross over between June and July when the rate changes.

However, the percentage employers are required to apply is determined based on when the employee is paid, not when the income is earned. The rate of 11% will need to be applied to all ordinary time earnings (OTE) that are paid on and after 1 July 2023, even if some or all of the pay period it relates to is before 1 July 2023.

This means if the pay period ends on or before 30 June, but the pay date falls on or after 1 July, the 11% SG rate applies on those salary and wages. The date of the salary and wage payment determines the rate of SG payable, regardless of when the work was performed.

Example

Nicholas is an employee of ABC Pty Ltd.

If Nicholas performed work:

• In June (or partly in June and partly in July) but he was paid in July, the SG rate is 11% on his entire payment and contributions, totalling 11% of his OTE for the September 2023 quarter. This must be made to his superannuation fund by 28 October.
• In July, but was paid in advance (before 1 July), the SG rate is 10.5% and contributions totalling 10.5% of his ordinary time earnings for the June 2023 quarter must be made to his superannuation fund by 28 July.

SG rate will continue to rise

Employers should prepare for ongoing, annual increases to the SG rate over the coming years. The following already-legislated increases to 12% by 2025 will proceed as follows:

Basis of SG

SG is only payable on a workers’ OTE. OTE is the amount you pay employees for their ordinary hours of work, including things like commissions and shift loadings, but not in relation to overtime hours (being those outside the ordinary hours stated in a worker’s  award or other employment agreement.

More information?

If you are still uncertain around the application of the new SG rate or need guidance on which payments constitute OTE, reach out to us.

Fair Work changes

Although not related to tax, there are a number of changes on the Fair Work front that employers should be aware of:

Minimum wage increase

The National Minimum Wage applies to employees who aren’t covered by an award or registered agreement.

From 1 July 2023, the new National Minimum Wage will be $882.80 per week or $23.23 per hour.

The new National Minimum Wage will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

Note that if a worker is covered by a registered agreement, the minimum wage increase may apply to them. This is because the base pay rate in a registered agreement can’t be less than the base pay rate in the relevant award. Check your agreement by searching for it on the Commission’s website: Find an agreement

Award minimum wage increase

The Fair Work Commission has also announced that minimum award wages will increase by 5.75%.

Most employees are covered by an award. Awards are legal documents that outline minimum pay rates and conditions of employment in your industry or occupation. If you’re not sure which award applies to a worker , use Find my award.

This increase will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

Secure Jobs, Better Pay: 6 June changes to workplace laws

From 6 June 2023, changes also came on stream related to:

• requesting flexible working arrangements
• extending unpaid parental leave
• agreement-making
• bargaining.

For more information, visit, Secure Jobs, Better Pay: Changes to Australian workplace laws.

Aged care sector

Direct care and some senior food services employees in the aged care sector will receive a 15% wage increase from 1 July 2023.

For more information, visit 15% wage increase for aged care sector.

Paid parental leave scheme

From 1 July 2023, the Paid Parental Leave scheme is changing.

From this date the current entitlement to 18 weeks’ paid parental leave pay will be combined with the current Dad and Partner Pay entitlement to two weeks’ pay. This means partnered couples will be able to claim up to 20 weeks’ paid parental leave between them. Parents who are single at the time of their claim can access the full 20 weeks.

These changes affect employees whose baby is born or placed in their care on or after 1 July 2023.

Other changes include:

• allowing partnered employees to claim a maximum of 20 weeks’ pay between them, with each partner taking at least two weeks (except in some circumstances)
• introducing a $350,000 family income limit (indexed annually from 1 July 2024) for claiming paid parental leave pay
• expanding the eligibility rules for fathers or partners to claim paid parental leave pay
• making the whole payment flexible so that eligible employees can claim it in multiple blocks until the child turns two
• removing the requirement to return to work to be eligible for the entitlement.

Superannuation and the right to delegate

Another key Federal Court case may have a bearing on whether you owe certain workers you engage superannuation guarantee or not.

For background, early last year the High Court made a game-changing decision in determining whether a worker is an employee or contractor at common law. It ruled that this is determined by the employment contract / agreement and whether it contains the usual indicators that tend toward a finding that a worker is an employee at common law including:

• Does the business have control over the worker (e.g. what hours they work and how they do they do the work)?
• Must the worker perform the work personally (rather than having the ability to delegate or subcontract the work to an outside party)?
• Is the worker paid like an employee (e.g. hourly rate)?
• Does the business supply the tools and equipment for the worker?
• Does the business bear the risk and liability to outside parties for any defects in the work?

Where the answer to most of those questions is yes, then the worker is an employee at common law.

Up until the High Court’s decision, lower courts were looking at how individual work arrangements were playing out in practice when answering the above questions. The High Court however ruled that you should instead look at the rights and obligations set out in the respective contract between the parties rather than how the situation plays out after the contract is signed. This is provided that the contract was not a sham.

With this new approach in mind, in early June 2023 a case came before the Full Federal Court where it was asked to determine whether a worker was an employee or contractor. Adopting the High Court’s new approach, the Full Federal Court examined the contract and found that the answers to some of the above questions were yes, while the answers to others were no. However, ultimately it found that because the worker had the ability to delegate/subcontract the work (although a limited ability subject to the approval of the business) the worker was not an employee for superannuation purposes at common law:

… if a person engaged to perform work has a contractual right to have someone else perform that work, that is a matter which at the very least tends against a conclusion that the person is an employee. The existence of the right is inherently inconsistent with an employee relationship. In the absence of significant countervailing considerations, how can you be an employee if, within the scope of the contract, you can lawfully get someone else to perform the entirety of your contractual obligations, whether for a short period, or for a longer period?

Because the worker had the ability to delegate, he was also not entitled to superannuation under the wider definition of ‘’employee “in the superannuation legislation either which provides that if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. The ability to delegate meant that this test was not met.

The take home message for employers is that the terms of the written agreement will determine whether a worker is owed superannuation at common law (but that contract cannot be a sham). However, where there is the ability of the worker to delegate, this will generally be decisive – no superannuation will be owed at common law or under the superannuation legislation.

All told, this is a complex area. Reach out to us if you are unsure of whether a superannuation obligation is owed to a worker.

Time for a restructure?

The new financial year can be a time where business owners look at their operating structure and consider whether it still meets their needs. Choosing a structure is not simply about minimising tax, rather a range of factors should be considered as such as asset protection, establishment and ongoing compliance costs, succession planning, and your understanding of each structure etc.

Most small businesses operate as a sole trader, company, trust, or partnership.  The following table is a comparative snapshot of each of the four structures:

*subject to the Personal Services Income (PSI) rules

You may find that, as your business grows or as your priorities change, your chosen structure no longer serves your needs. For example, a number of people commence businesses as sole traders (often for reasons of simplicity as well as keeping start-up costs to a minimum) but later find that this structure is no longer appropriate. From an income tax perspective, a drawback with sole traders is that income from the business is assessed personally to you at your marginal tax rates. As your business grows and the revenue generated increases, your tax rate also increases.

The take-home message is that you should periodically review your structure to ensure it continues to serve your needs. Be mindful however that changing structures can have CGT and stamp duty consequences – these one-off costs need to be taken into account when making the decision whether to change. Also note that under the small business rollover provisions, it may be possible for you to change your structure without incurring CGT.

Talk to us if you are contemplating changing your business operating structure.

Small business lodgement amnesty

Since Budget night, the ATO has released more information around the small business lodgement amnesty…which can now be taken advantage of from 1 June 2023!

The amnesty was announced in the recent Budget. It applies to tax obligations that were originally due between 1 December 2019 and 28 February 2022 and runs from 1 June 2023 to 31 December 2023.

To be eligible for the amnesty, the small business must be an entity with an aggregated turnover of less than $10 million at the time the original lodgement was due.

During this time, eligible small businesses can lodge their eligible overdue forms and the ATO will then proactively remit any associated failure to lodge (FTL) penalties.

ATO Assistant Commissioner Emma Tobias urged small businesses to take advantage of the amnesty to get back on track with their tax obligations if they have fallen behind.

“The past few years have been tough for many small businesses, with the pandemic and natural disasters having a significant impact. We understand that things like lodging ATO forms may have slipped down the list of priorities. But it is important to get back on track with tax obligations. Lodging these forms are not optional, so we hope our amnesty will make it easier for impacted small businesses to get back on track.

When forms are lodged with the ATO under the amnesty, businesses or their tax professionals will not need to separately request a remission of FTL penalties.

All you need to do is lodge your outstanding tax returns or activity statements and we’ll take care of the FTL penalty remission from our end. You might see an FTL penalty on your account for a short period of time, but don’t worry, we will remit it”.

Ms Tobias also noted that outstanding lodgements can be an early indicator that a small business is not actively engaged with the tax system, which can be a red flag:

“We encourage all businesses to lodge any overdue forms even if they are outside the eligibility period. Whilst forms outside the amnesty eligibility criteria will attract FTL penalties, the ATO will consider your circumstances and may remit such penalties on a case-by-case basis.

We understand that some small businesses may be worried about paying an amount owing on their overdue lodgment. If you are unable to make full payment of your debt, remember we can work together with you or your registered tax or BAS agent to figure out the right solution for you.

We want to make this process easy and encourage small businesses to do the right thing. If you have a registered tax or BAS agent, now is a good time to reach out to them to make sure you are up to date with your tax affairs.

Taxpayers still have an obligation to lodge overdue forms during the amnesty period and we will continue to work with them to help ensure they meet their obligations,’ Ms Tobias said.

The ATO offers a range of support options, including payment plans. Many small businesses are also able to set up their own payment plan online.

Ms Tobias also explained that if a business has ceased trading, they need to advise their registered tax professional, or the ATO directly.

The amnesty applies to income tax returns, business activity statements, and fringe benefits tax returns. It does not apply to superannuation obligations and excludes other administrative penalties such as penalties associated with the Taxable Payments Reporting System.

If you are ready to come forward and get your overdue lodgements up to date, we can help you, and hopefully secure the amnesty for you.

Work-related car expenses updated

The ATO has just announced that the cents per kilometre rate has increased to 85 cents per kilometre for 2023/24.

To recap, there are two methods to claim work-related car expenses as follows:

1. Cents per kilometre method

This method is easier for record keeping, involves a more simple calculation, and is generally suited to those with less vehicle use.

You simply keep a record of the number of kilometres you’re traveling for work or for business over the duration of the year and you claim these the set rate.

The drawback of this method is that you are limited to a maximum of 5000 work related or business kilometres per year. That gives you a total maximum claim of $4,250. Thus, if you’re using your car a lot for work, you may find that this is method quite limiting.

2. Logbook method

This method can allow for greater claims depending on how much you’re using your car for work or business.

However, there are more recordkeeping requirements – the main one being that you must keep a 12-week logbook that records all of your trips, both business and private for those 12 weeks.

At the end of the 12 weeks, you calculate your work related or business percentage use, and you can claim that percentage of all deductions for your car.

You also need to keep all receipts for fuel, insurance, registration, interest, and servicing throughout the year.

As mentioned, despite the additional effort, it can often lead to a greater claim if you are using your car a lot for work and business.

Comparison

Summary

As you can see, both methods have their downsides and can have their benefits too depending on your situation. Consider which is best for you, taking into account:

• If you have the time or the ability to save all of your car-related records
• The level of your business-related vehicle use.

ATO Tax Time focus areas

With the end of the financial year on our doorstep, the ATO has announced its three key focus areas for 2022-23 Tax Time – rental property deductions, work-related expenses, and capital gains tax (CGT). To maximise your claims in this area and protect yourself from ATO audits and adjustments, be sure to keep the appropriate records.

Work-related expenses

This year the ATO is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims. To claim your working from home expenses as a deduction, you can use the actual cost method, or the revised fixed rate method, provided you meet the eligibility and record-keeping requirements as follows:

In relation to depreciating of assets and equipment you will need records that show:

• when and where you bought the item and its cost
• when you started using the item for a work-related purpose
• how you work out your percentage of work-related use, such as a diary that shows the purpose of and use of the item for work.

Chat to us if you have any questions around which method to use and the records to keep.

CGT

Capital gains tax (CGT) comes into effect when you dispose of assets such as shares, crypto, managed investments or properties. Inform us as your accountant if you have disposed of such assets between1 July 2022 to 30 June 2023.

On the disclosure front, be mindful that the ATO has extensive data-matching capabilities and, as such, will likely be able to detect the sale of most CGT assets.

Rental property deductions

Many landlords will expect large amounts of deductions to be claimed when their returns are lodged. However, your record keeping will significantly impact the deductions that can be claimed. Talk with us around the record keeping requirements if you are unsure.

Keep records of the following:

• bank statements showing the interest charged on money you borrowed for the rental/commercial property
• loan documents
• land tax assessments
• documents or receipts that show amounts you paid for:
  • advertising (including efforts to rent out the property)
  • bank charges
  • council rates
  • gardening
  • property agent fees
  • repairs or maintenance etc.

• documents showing details of expenses related to:

• the decline in value of depreciating assets
• any capital work expenses, such as structural improvements

• before and after photos for any capital works
• travel expense documents, if you are eligible to claim travel and car expenses such as:

• travel diary or similar that shows the nature of the activities, dates, places, times and duration of your activities and travel (you must have this if you travel away from home for six nights or more)
• receipts for flights, fuel, accommodation, meals and other expenses while travelling
• receipts for items you used for repairs and maintenance that you paid for when you travel to, or stayed near, the rental property.

• documents that show periods of personal use by you or your friends
• document that show periods the property is used as your main residence
• loan documents if you refinance your property
• documents, receipts and before and after photos for capital improvements
• tenant leases
• when you sell a property:
  • contract of sale
  • conveyancing documents
  • sale of property fees.

This year, the ATO is particularly focused on interest expenses and ensuring rental property owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was re-financed with some private purpose).

Super pensions and the Commonwealth Seniors Health Card

Are you a self-funded retiree who does not qualify for the Age Pension? If you’ve answered yes, then help may be available for certain living expenses by way of the Commonwealth Seniors Health Card (CSHC).

What is the CSHC?

The CSHC is a concession card enabling access to  cheaper health care and some discounts if you’ve reached Age Pension age.

Benefits of the CSHC

With a CSHC you may receive benefits such as:

• Cheaper medicine under the Pharmaceutical Benefits Scheme (PBS)
• Bulk billed doctor visits – this is up to your doctor
• A refund for medical costs when you reach the Medicare Safety Net, and
• Depending on your state or territory government and local council, lower electricity and gas bills, property and water rates, and public transport.

Who can get the CSHC?

To get this card you must meet all of the below conditions:

• Be of Age Pension age or older
• Meet residency rules
• Not be receiving an income support payment (such as the Age Pension) from Centrelink or the Department of Veterans’ Affairs
• Give Centrelink your Tax File Number (including your partner’s TFN) unless you’re exempt from doing so
• Meet identity requirements, and
• Meet the income test.

An income test applies

To get a CSHC, you must meet an income test and earn less than the following:

• $90,000 a year if you’re single
• $144,000 a year for couples, or
• $180,000 a year for couples separated by illness, respite care or prison.

The income test will look at both your:

• Adjusted taxable income – this is the taxable income shown on your income tax return plus some extra amounts such as certain superannuation contributions and losses made on investments, and
• A deemed amount from your account-based income streams (ie, superannuation pension) that started on or after 1 January 2015.

When it comes to deeming amounts for account-based income streams, the actual amounts paid from your income stream are ignored. Rather, Centrelink assumes that your income stream (including other financial investments) earn a certain rate of income based on a percentage of the account balance at the start of the year.

The percentage is 0.25% up to a threshold ($56,400 for singles, $93,600 for couples) and then 2.25% thereafter.

For example, if you are a single person with a $1.5 million account-based income stream, you would have a ‘deemed income’ amount from that pension of $32,622, worked out as follows:

(0.25% x $56,400) + [2.25% x ($1.5m – $56,400)] = $32,622

Whereas (using the same formula) a couple with income streams of $1.5 million each would have deemed income of $65,628, combined.

No assets test applies

There is no assets test for the CSHC. This means you could have large accumulation accounts or make large withdrawals from your accumulation or pension accounts each year and have no impact on your CSHC!

How to claim

The easiest way to claim the CSHC is online via your myGov account. Alternatively, you can also claim by form or phone. Contact us today if you would like further information about the CSHC.

Generous depreciation in its final days

This month’s federal budget confirmed that temporary full expensing (TFE) is now in its final days.

To recap, TFE will cease and be replaced by a $20,000 instant asset write-off (IAWO) from 1 July 2023.

Under this change, small businesses (aggregated annual turnover of less than $10 million) will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. Assets valued at $20,000 or more (which cannot be immediately deducted) will be placed into 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 also from 1 July 2023.

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. To take advantage of it, and assist your cashflow, note the following dates for 2022-23 whereby an eligible business can claim a deduction for the business portion of the cost of:

• eligible new assets first held, first used or installed ready for use for a taxable purpose between 1 July 2022 and 30 June 2023 if you have a turnover of less than $5 billion
• eligible second-hand assets where both the asset was first held, first used or installed ready for use for a taxable purpose between 1 July 2022 and 30 June 2023 for entities with aggregated turnover of less than $50 million.

Most business assets are eligible including machinery, tools, furniture, business equipment etc. There are however some ineligible assets as follows:

• buildings and other capital works for which a deduction can be claimed under the capital works provisions in the Tax Act
• trading stock
• CGT assets
• assets not used or located in Australia
• where a balancing adjustment event occurs to the asset in the year of purchase (e.g. the asset is sold, lost or destroyed)
• assets not used for the principal purpose of carrying on a business
• assets that sit within a low-value pool or software development pool, and
• certain primary production assets under the primary production depreciation rules (e.g. facilities used to conserve or convey water, fencing assets, fodder storage assets, and horticultural plants (including grapevines)).

TIP

TFE assists cashflow, which can be one of the biggest killers of small business. However, no extra deductions are available under TFE. For this reason, you should continue to only purchase assets that align with your business plan.

Get in touch with us if you have any questions around the purchase of depreciating assets leading up to the end of the financial year.

Do you have a side-hustle?

With the cost-of-living skyrocketing, have you taken up a side-hustle?

With new and emerging ways to make money, the ATO is reminding taxpayers to consider if they are ‘in business’ and to declare to their tax agent if they are engaged in a sidehustle.

Record numbers of taxpayers are now working multiple jobs or supplementing their income with ‘side-hustles’ or ‘gig’ economy activities.

ATO Assistant Commissioner Tim Loh said if you earn money through continuous and repeated activities for the purpose of making a profit, then it’s likely you’re running a business.

While there are always new and different ways to make money, the tax obligations remain the same. Don’t fall into the trap of forgetting to include all your income thinking the ATO won’t notice.

You also need to declare any additional income earned through that side-hustle.

Businesses have a range of obligations depending on their structure and turnover, including registering for an Australian business number (ABN), keeping the right records and lodging the right type of tax return. They may also have to register for GST.

The ATO is running an advertising campaign to remind taxpayers about their obligations if their side-hustle is generating income.

Mr. Loh said:

With tax time just around the corner, if you are bolstering your income with new activities, make sure all your records are up-to-scratch. This could be anything from animal breeding to earning income through digital platforms, such as ride share or food delivery, or even online content creation, like social media influencers.

If your home has become more like a warehouse and is stocked to the hilt with goods to sell, then you may in fact be running a business.

If you’re running bootcamp sessions, in addition to your 9–5 job, well this is a side hustle and you need to declare this income to the ATO.

If you’re an online content creator earning money or receiving gifts, you’re also likely to be running a business and there are tax obligations you need to comply with.

Mr. Loh acknowledged ‘sometimes it’s hard to tell if you’re ‘in business’ and we recognise not everything you do to make money is considered a business. The ATO won’t consider activities as ‘in business’ when they are a one-off transaction (unless it is the first step in carrying on a business or intended to be repeated) or an activity from which you don’t seek to make a profit.’

The ATO has sophisticated data-matching and analytical tools to identify taxpayers that under-report their income. From 1 July 2023, the Sharing Economy Reporting Regime will commence and the ATO will receive data from more electronic distribution platforms. The ATO will match this information with the information taxpayers provide on their tax return or activity statement to identify income that has not been included. Mr. Loh said:

It doesn’t matter whether you are carrying on a business or simply earning additional income through a digital platform, such as a website or even an app, you must keep accurate records of your income and include it in your tax return.

If you are finding your feet in business, we are here to support you.

Case study: Hayley heads off-track for fun, but on the right track for business

Hayley works in hospitality at night and spends most days fishing or four-wheel driving. She decides to start developing ‘how-to’ YouTube videos when fishing and four-wheel driving. Hayley’s online following is rapidly increasing, and she’s now earning money from her videos.

With the growing online interest, Hayley cuts back her hospitality work and starts to invest more effort into her videos. Hayley sets up a production schedule that sets out the type of content she will produce on a weekly basis, buys equipment to improve her production quality, completes an online video editing course to improve her editing skills and records all expenses from her content creation activity.

Hayley wants to know if her side hustle activities are a business. She looks at all her activities together and determines she is running a business because she:

• intends to make a profit to supplement her salary and wage income
• set up a regular schedule for these activities

operates in a business-like way (she has a plan and system for making a profit).

Be sure to inform us of any side-hustle you may be carrying on.

What are the types of super funds you can contribute to?

With the total superannuation sector worth more than $3.5 trillion at the end of March 2023, superannuation is serious business. There are many types of superannuation funds available but sometimes having too many to choose from can be confusing. However, picking the right fund is important as it could impact how much you may have to retire on in the future. This article provides a brief summary of the five main types of funds and highlights the differences between each fund.

1. Retail funds

• Retail funds are generally run by banks and other financial institutions and are open to all members.
• Individuals who seek advice from a financial adviser will usually be advised to invest in a retail fund via an administrative platform, which often has a wide range of investment options to choose from.
• Most retail funds range from medium to high cost, however many retail funds now offer a low-cost alternative called a ‘MySuper’ fund, which is a simple account that has basic features.
• Retail funds are run for-profit, which means the company running the fund retains some profit.
• Retail funds generally offer accumulation and pension accounts.

2. Industry funds

• Although originally set up for workers in specific industries (such as healthcare, hospitality, building and construction, etc), most industry super funds are open for anyone to join.
• There are pre-mixed investment options designed to suit most members’ needs, however some funds allow members to create their own investment mix from a range of investment options.
• Industry funds generally range from low to medium cost, and most offer MySuper products.
• They are run only to profit their members, which means profits are put back into the fund for the benefit of members.
• Most funds offer accumulation and pension accounts.

3. Public sector funds

• These funds operate specifically for government employees, however some are now open to anyone to join.
• Some employers contribute more than the legislated minimum superannuation guarantee (currently 10.5% in 2022/23) to these funds.
• Public sector funds usually have a limited to modest range of investment options.
• These funds generally have low fees and some offer MySuper products.
• Profits are put back into the fund.
• Newer members are usually in an accumulation fund, whereas older members are often in defined benefit funds.

4. Corporate funds

• Corporate funds are set up by an employer for their employees. Typically, large companies, such as Telstra and Qantas, will have their own fund for their own employees.
• Some funds operate the fund by appointing a board of trustees to represent the employer, the employees and to oversee the investment of the fund.
• Smaller corporate funds may operate under the umbrella of a large retail or industry super fund.
• Those managed by a larger fund may offer a wider range of investment options.
• Corporate funds are generally low to medium cost for large corporates but may be high cost for smaller employers.
• Corporate funds run by the employer or an industry fund will usually return all profits to members, whereas those run by retail funds will retain some profits.
• Most are accumulation funds, but some older funds may be defined benefit funds.

5. Self-managed super funds (SMSFs)

• As the name suggests, an SMSF is fund that you manage yourself. You can have up to a maximum of six members in your fund, in most cases family members; however sometimes people who are in business together may set up their own SMSF.
• SMSFs offer a wider range of investment options compared to other superannuation funds. With some limited exceptions, an SMSF can invest in almost anything provided the investment is allowed for under the trust deed and the fund’s investment strategy, the investment meets the sole purpose test, and also adheres to the superannuation laws.
• All members must be trustees (or directors if there is a corporate trustee) and are responsible for all decisions made regarding the fund.
• There is no minimum start-up amount but set-up costs and annual running expenses can be high, depending on your superannuation balance and whether you use administration and other services. That said, recent research^ found that an appropriate start-up threshold is $200,000, as SMSFs with balances of $200,000 or more provide equivalent value to retail and industry funds. However, SMSFs with balances below $200,000 are likely to achieve considerably lower net investment returns compared with funds with balances of $200,000 or more.
• SMSFs can have both accumulation and pension accounts for members of the fund.

^ The University of Adelaide, ‘Understanding self-managed super fund performance’, February 2022

Maximising cashflow

The predicted slowing of the economy in 2023-24 along with the pay day super guarantee (SG) proposal are sure to make cashflow more important than ever for business over the coming months and years, noting that it is one of the biggest difficulties faced by business.

To recap, from 1 July 2026, employers will be required to pay their employees’ super at the same time as their salary and wages. Currently, SG is payable quarterly – allowing business more time to make provision for this obligation.

There are a number of strategies that may improve cashflow for your business:

PAYG instalment assistance

• In the recent federal budget, it was announced that there is PAYG instalment relief on the way. Currently, most small to medium-sized businesses are required to make pay as you go (PAYG) instalments which go towards their annual income tax liability.  Entities that are liable to pay GST may also elect to pay by instalments.
• A 6% GDP uplift rate will apply to small to medium-sized businesses (and some individuals) who are eligible to use the relevant instalment method (this being up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) for instalments relating to the 2023-24 income year and which fall due after the enabling legislation receives Royal Assent.
• This uplift factor is lower than the 12% rate that would have applied under the statutory formula, freeing up cash for businesses.

Reconsider the terms on which you deal with customers

• If a customer regularly cannot pay, or can not pay the full amount, you should perhaps consider the terms on which you deal with that customer. For instance, to protect yourself against future non-payment, you might like to only deal with that customer on an upfront payment basis. Decisions in this regard should be made on a case-by-case basis.

Send invoices immediately

• Delaying the filling out of your invoices until the end of the week or the end of the month, for example, may unnecessarily create cashflow problems for yourself. When you make the supply, send out the invoice!

Bank amounts that you receive

• By banking amounts as soon as you receive them, you will be better able to monitor your true cash situation at any point in time. Not banking amounts immediately leads to estimation and confusion as to the true cash position of your business.

Discounts for early payers

• Offer discounts to customers who pay early. A word of caution – it is important to strike a balance between a reasonable discount, and your desire for early payment. Offering sizeable discounts for money that may have been paid in full a few days later anyway will end up causing its own cashflow problems! In most cases, it is best to keep the discounts small, and require the payment well before the due date.

Insurance for debtors

• If you are a business that relies heavily on a few clients, you should consider taking out insurance. By insuring against the failure of your major debtors, you can safeguard against their potential collapse.

Increase your time to pay

Try to get creditors to extend their due dates for payment, for example, from 14 days to 30 days; from 30 days to 60 days; or from 60 days to 90 days. Any extra time that you have to pay amounts owing is effectively interest-free money. Consider charging deposits

• Consider charging deposits for significant orders. Not only does this guarantee at least part payment, but also makes customers think twice before cancelling their orders for goods that are in the process of being made available.

Excess stock

• Businesses need to make sure that they do not have excessive stock. Ideally, businesses should aim to have enough stock to keep customers happy and not have (if applicable) your store looking empty. Beyond that, any excess stock is merely tying up cash.

Prepare a cashflow forecast

• We can assist with the production of this.

Temporary Full Expensing (TFE)…get in quick!

This could be the final opportunity for your business to take advantage of Temporary Full Expensing (TFE)…but get in before 1 July!

To recap, TFE encourages and supports businesses by allowing an immediate deduction for the business portion of the cost of a depreciating asset. There is no cost threshold – the whole cost of the asset can be written off in the relevant year. However, cars can only be depreciated up to the car limit which is currently $64,741. The car limit does not, however, apply to vehicles fitted out for use by people with a disability. For background, a ‘car’ is defined as a motor vehicle designed to carry a load of less than one tonne and fewer than nine passengers (excluding motor cycles and similar). Therefore, for those vehicles, the car limit has no application, and full depreciation is available.

Benefits

The principal benefit of TFE is cashflow. TFE enables businesses to bring forward their depreciation claims, and therefore their deductions upfront, into a single year rather than having them spread out over multiple future years. Ultimately, this assists cashflow which itself is one of the main challenges faced by businesses.

Eligibility

The vast majority of businesses including sole traders will be eligible for TFE as their aggregated, annual turnover will be less than $5 billion.  Until 30 June 2023, under TFE, businesses can claim both new and second-hand depreciating assets where those assets are used or installed ready for use for a taxable purpose.  From a timing standpoint, this means you will not be eligible for TFE in this financial year if you merely order or pay for an eligible asset before 1 July, 2023 – rather, the asset must be used or installed ready for use in your business before this date.

Ineligible assets

Most business assets are eligible including machinery, tools, furniture, business equipment etc. There are however some ineligible assets as follows:

• buildings and other capital works for which a deduction can be claimed under the capital works provisions in division 43 of the Income Tax Assessment Act (ITAA) (1997)
• trading stock
• CGT assets
• assets not used or located in Australia
• where a balancing adjustment event occurs to the asset in the year of purchase (e.g. the asset is sold, lost or destroyed)
• assets not used for the principal purpose of carrying on a business
• assets that sit within a low-value pool or software development pool, and
• certain primary production assets under the primary production depreciation rules (including facilities used to conserve or convey water, fencing assets, fodder storage assets, and horticultural plants (including grapevines)).

Business plan

Because under TFE you cannot claim any extra depreciation deductions than under the standard depreciation rules, you should stick to your business plan and only continue to buy assets that align with that plan and that you were contemplating buying anyway…and then enjoy the cashflow benefits of TFE.

If you have any questions about TFE – especially around asset eligibility and timing leading up to 30 June – reach out to us.

How to claim an early tax deduction on SG contributions

Are you an employer who needs to make superannuation guarantee (SG) contributions for your employees? If so, it may be worthwhile bringing forward these SG contributions to before 1 July to benefit from a tax deduction this financial year.

However the timing of when SG contributions are deductible to an employer can be tricky if employers pay SG contributions for their employees via a superannuation clearing house (SCH).

Recap – what is a SCH?

The ATO’s free Small Business Superannuation Clearing House (SBSCH) is the only ‘approved’ clearing house – none of the many commercial clearing houses have this status. The SBSCH is a free service that small businesses with 19 or fewer employees, or an annual aggregated turnover of less than $10 million, may use to make superannuation contributions to employees.

The SBSCH aims to reduce compliance costs for small business employers by simplifying and streamlining the process of making employee superannuation contributions, by allowing employers to make a single lump payment of their contributions to the SBSCH each quarter. That lump sum payment is broken into individual payments by the SBSCH, and then contributed to each employee’s respective super fund or RSA.

Tax deduction available for employers

Employers can claim income tax deductions for SG contributions made to a superannuation fund on behalf of their employees, subject to certain conditions being met.

As the income tax deduction is available in the financial year the contribution is made, some employers may wish to improve their current year tax position by bringing forward the June quarter SG contributions to before 1 July, even though these SG contributions are not due until 28 July 2023.

Take care if you use a SCH

As mentioned above, SG contributions are tax deductible in the year in which they are made. That said, a contribution is not made until it is received by the fund, and when that happens depends on the way in which the contribution is made.

This is clear cut where an employer pays SG contributions directly to an employee’s nominated superannuation fund. That is, the contribution will be made when it is received by the fund.

However, the timing of the tax deduction and when the contribution counts towards the employee’s contribution cap is not as straightforward where SG contributions are made to a SCH for all employees. Here, the SCH electronically transfers SG contributions to employees’ funds on the employer’s behalf.

In this situation, the contribution is not made at the time the clearing house is credited with the funds from the employer. Rather, the contribution is made and therefore deductible when the funds are credited to the respective employee’s superannuation fund (following an electronic transfer of money from the clearing house) and then allocated to the employee’s superannuation account.

Tip – employer SG obligations

For SG purposes, an employer who makes contributions via the SBSCH is treated as having satisfied its SG obligations when the monies are received by the clearing house.

Beware of timing delays

The ATO is aware that there may be a period of time between an employer’s payment to the SBSCH and superannuation fund receiving the contribution. Further, the SBSCH may be unavailable over a weekend close to the end of the financial year for scheduled system maintenance.

This means that payments made towards the end of a financial year may not be received by an employee’s superannuation fund in the same financial year. This may therefore impact when an employer is entitled to an income tax deduction for the SG contributions.

Action items for employers

For those employers who do not use the SBSCH but instead use commercial clearing houses, for the contributions to be deductible in 2022/23, it is recommended that it be made up to 21 days before the end of the financial year.

For employers who make contributions directly to their employees’ superannuation funds, the contributions should be made a few days before the end of the financial year to ensure they are received before 1 July and therefore deductible in the current financial year.

Federal Budget -what to watch out for

It’s now  only a week or so  until the Federal Budget which is to be handed down on 9 May.

Some of the things to look out this year potentially include:

Abolition of Temporary Full Expensing

Under current legislative settings, TFE (see earlier) is set to cease on 1 July 2023 with the write-off set to revert to just $1,000 from that date. If no action is taken in the Budget to extend TFE, this will have a cashflow impact on businesses in the sense that depreciation deductions will be spread out over a number of years rather than being claimed upfront. Record keeping will also be more burdensome in this space.

Stage three tax cuts

The fate of these tax cuts is also expected to be revealed. This round of tax cuts follows the first two stages which are now law, and which largely benefited lower income earners. If the stage three tax cuts are to proceed, from 1 July 2024, they will abolish the current 37% tax bracket, lower the existing 32.5% bracket to 30%, and raise the threshold for the top tax bracket from $180,001 to $200,001. The following table illustrates how the rates and thresholds will change if the tax cuts proceed:

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 of by $2,225
• $200,000 will be better off by $9,075.

Low and middle income tax offset (LMITO) replacement?

This $1,500 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 COVID-19 pandemic. We will wait until Budget night to see what, if any, alternative tax relief is offered to low and middle income earners, or indeed whether the LMITO is reinstated. If not, then low-income earners may face an increased tax liability of up to $1,500 when upcoming 2022/23 tax returns are lodged.

CGT concessions trimmed?

While it’s unlikely the CGT main residence concession on the family home will be reduced, the 50% CGT discount for other investments held more than a year could be partially on the chopping block for some people. It’s possible to imagine a reduction in the discount for capital gains over a certain threshold – say $3 million, in line with the threshold for the recent increase to superannuation earnings – limiting the impacts to a smaller, wealthier cohort of individuals.

More information?

In the days following, please contact us if you have any questions around how the Budget may impact your business, investments, or you as an individual.

Financing motor vehicles

One of the most common decisions facing business is how to finance and account for the acquisition of a motor vehicle. There are numerous ways of doing so, with each resulting in differing accounting, taxation and GST treatment.

Options

How should you go about purchasing a vehicle? While it may seem a relatively straightforward question, there are numerous ways of doing so. Some of the more common methods are:

• Outright Purchase
• Lease
• Hire Purchase, or
• Chattel Mortgage.

Outright purchase

The advantage of purchasing a vehicle outright, as opposed to financing the acquisition of the vehicle, is that there will be no ongoing costs of finance. This is a real benefit now that interest rates are on the rise. On the downside, the outright purchase of a vehicle can impact greatly on the cash resources of an entity when those funds may be better utilised elsewhere. It is far easier to obtain finance for the acquisition of a vehicle than it is for the acquisition of trading stock. Care should therefore be taken not to cripple your business’s cashflow if considering an outright purchase.

Lease

Rather than choosing to acquire a vehicle outright, your business may elect to finance the acquisition. The central issue that surrounds any form of financing, and how it is to be accounted for, is whether the person providing the asset under the finance arrangement is the legal owner of that asset. This issue goes to the heart of how the finance transaction is to be treated and is often the subject of ATO scrutiny. The ATO has warned taxpayers about the trap of claiming deductions for what appear to be lease payments when in fact the finance arrangement is a Hire Purchase or similar type of transaction. The only way to identify the difference is to read the terms and conditions of the finance agreement.

The ATO will consider a finance arrangement to be a lease when:

• There is no option to purchase the vehicle written into the agreement, and
• The residual value reflects a bona fide estimate of the vehicle’s market value at termination.

If these two conditions are not met, the ATO considers the finance agreement to be a Hire Purchase or other instalment type agreement.

Under a leasing arrangement, the lease payments are a deductible amount to the extent the vehicle is used for income producing purposes, and the financed sum is not typically booked on the balance sheet of the entity.

Hire purchase

This is simply another form of finance. Its tax and GST treatment however is vastly different from both that of leasing and acquisition by chattel mortgage. As a result, this form of finance needs to be considered on its own merits.

In essence, a hire purchase arrangement is an agreement to purchase goods by instalments. The term hire purchase is defined as:

“ a contract for the hire of goods where:

1. i) the hirer has the right or obligation to buy the goods; and
2. ii) the charge that is or may be made for the hire, together with any other amount payable under the contract (including an amount to buy the goods or to exercise an option to do so), exceeds the price of the goods; and

iii) title in the goods does not pass to the hirer until the option to purchase is exercised; or iv) where title in the goods does not pass until the final instalment is paid”.

Unlike a lease, where there is no obligation to acquire the goods at the end of the instalment period, a hire purchase arrangement provides for this obligation and as such the goods will be eventually owned by the purchaser.

Chattel Mortgage

A chattel mortgage from the perspective of recording the asset purchase and recognising the liability is identical to that of a hire purchase arrangement. The difference between a chattel mortgage and other forms of finance such as hire purchase and lease comes when dealing with the GST consequences.

Not sure?

Please contact us if you would like to discuss your options and the tax consequences.

Upcoming trust distribution strategies…the latest developments

If you run your business through a family trust, there’s some good news on the distribution front.

In mid-April, the ATO responded to the landmark trust distribution case, namely the Guardian AIT appeal ruling in January by the Full Federal Court, with a decision impact statement that where the ATO concedes that it will have to amend its position on trusts, Section 100A of the Income Tax Act and reimbursement agreements. In the Guardian appeal, the Full Federal Court rejected the ATO’s position that a reimbursement agreement existed in the Guardian case and so section 100A did not apply.

To recap, the ATO in February 2022 updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangements, potentially the ATO may take an unfavourable view on what were previously understood to be legitimate trust distribution arrangements. The ATO is chiefly targeting arrangements under section 100A , specifically where trust distributions are made to a low-rate tax beneficiary, but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

Moving forward, there are a number of tax-effective strategies that can be employed that will not fall foul of the ATO’s interpretations in this area including:

• Only distribute to Mum and Dad

This would be quite safe from section 100A scrutiny. No person pays less tax as a result of any agreement, and this is unlikely to be seen as high-risk by the ATO.

• Continue to distribute to young adult beneficiaries, but hand over the money

If you are happy to give money to your children, this can be achieved while at the same time optimising tax.

• Charge board and current university fees

If adult beneficiaries are living at home, they should pay board (just as if they had a job). This will not add up to large sums, but arm’s-length board for a full year could come to about $18,000. This allows for some tax arbitrage without handing the kids any money.

• Use of bucket company

Having a private corporate beneficiary caps the tax rate imposed on trust income. Franked dividends can subsequently be flexibly allocated through having a trust structure interposed between the bucket company and the beneficiaries. The present entitlement can be lent back to the trustee for use in the business of the trust, although there are minimum repayment conditions. Avoid having the main trust as a shareholder in the bucket company. The ATO considers circular income flows to be high-risk.

• Be alert for the “no reimbursement agreement” argument

If you are contemplating making a gift or an interest-free loan to another person, ask questions about the circumstances behind this plan. If it was not in contemplation at the time of the relevant appointment of trust income (up to two years ago), but has arisen because family circumstances have changed recently, there may not be a reimbursement agreement.

• If making gifts, go once and go big.

There are also other slightly bolder strategies.

If you operate your affairs through a discretionary trust, chat with us around your distribution options prior to the 30 June deadline.

New reporting arrangements for SMSFs from 1 July 2023

From 1 July 2023, trustees and directors of SMSFs must report certain events that affect their members transfer balance account quarterly. These events must be reported by lodging a ‘transfer balance account report’ (TBAR) no later than 28 days after the end of the quarter in which they occur.

The purpose of this change is to streamline the reporting process and bring all SMSFs under a single reporting framework. This means there will no longer be an ‘annual reporter’ option.

What is a transfer balance account and a TBAR event?

The introduction of a transfer balance cap (TBC) from July 2017 introduced a limit on how much an individual could transfer from their superannuation accumulation account into a retirement phase pension. In order to track an individual’s use of their TBC, a ‘transfer balance account’ (TBA) is created to record necessary transactions from the time an individual first commences a retirement phase pension.

Importantly, a TBAR is only required when a member has an event which affects their TBA. The most common reporting events include:

• Commencement of a pension
• Lump sum withdrawals from a pension account
• Commencement of a death benefit pension.
• For many SMSFs, the members will have only one or two TBAR events in their lifetime.
• Other events that do not affect a member’s TBA and therefore do not need to be reported include:
• Pension payments
• Investment earnings or losses
• When an income stream ceases because the capital has been depleted
• Death of a member.

Changes from 1 July 2023

From 2023/24 onwards:

• A member’s total superannuation balance will no longer be relevant in determining whether an SMSF reports on a quarterly or annual basis, and
• All SMSFs must lodge a TBAR within 28 days after the end of the quarter in which the TBC event has occurred (ie, by 28 January, 28 April, 28 July, and 28 October).

The new TBAR timeframes will therefore be due from 1 July 2023 as follows:

This means that SMSFs that have previously been permitted to lodge a TBAR on an annual basis will no longer be permitted to do so from 1 July 2023.

However, the obligation for SMSFs to report earlier will remain in cases where a fund must respond to a pension excess transfer balance determination or a commutation authority from the ATO.

Action items for SMSF trustees

For those SMSFs that already report on a quarterly basis, there will be no change to the reporting frequency for TBAR events. The changes impact SMSFs that are annual reporters only.

Note, if you’re currently lodging your TBAR annually at the same time as your SMSF annual return, you will need to report all events that occurred in the 2023 financial year by 28 October 2023.

Should you have any questions on your TBAR reporting obligations, please contact us today as we can help you prepare for these upcoming changes.

Trust distribution landscape now more settled

If you carry on your business affairs through a trust structure, there is now more clarity around the law on distributions following much uncertainty throughout the year.

Neither the taxpayer, Mr. Springer, nor the Commissioner has appealed against the Full Federal Court decision handed down in January 2023 (Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3).

Readers will recall that the Full Court ruled against the Commissioner on the section 100A issue, but upheld his Part IVA determination for the 2013 year on the basis that the taxpayer had not demonstrated that absent the scheme (involving a distribution to a corporate beneficiary that was paid back to the trust as a franked dividend and on-paid to the non-resident Mr. Springer without any top-up tax) the trust would have done something other than making a distribution directly to Mr. Springer. The Commissioner was unsuccessful with his Part IVA appeal for the 2012 year, when events were still said to be evolving.

Mr. Springer may well have decided he’s done well enough, having succeeded in challenging all but one of the income years attacked by the Commissioner.

The Commissioner may have been disappointed with the section 100A outcome, but will probably rationalise the decision on the basis that it turned very much on its own facts – at the time the 2013 resolution was made to appoint trust income there was no certainty that the corporate beneficiary would pay a franked dividend back up to the trust.

But he would have been quite pleased with the Part IVA result, which confirms that the 2013 amendments have been effective in disposing of the “do nothing” alternative postulate that was successfully relied upon by RCI, News Corp and Futuris.

The legal and practical upshot of the  Part IVA decision is that taxpayers can now be taxed on notional transactions with a very high tax cost that they would not have contemplated entering into in a million years. Just goes to show that taxpayer success in the courts can be undone by the stroke of a legislative pen.

The Full Federal Court ducked the issue of the ordinary dealing exception, which it was entitled to do, given its conclusion that there was no reimbursement agreement. But that outcome is regrettable at a broader level. Absent further guidance from the Full Court, we are left with some encouraging comments from Logan J at first instance (about the lack of artificiality) which the Commissioner reads down in TR 2022/4.

Hopefully the Full Court’s decision in a case known as BBlood, expected later this year, will shed further light on the issue. Given the decision at first instance, it seems unlikely the taxpayer will succeed on the ordinary dealing question in that case. However, the appeal decision may include some helpful guidance from the Full Court, even if the taxpayer is unsuccessful.

In the meantime, 30 June is rushing towards us, and family trusts need to be considering their position in relation to upcoming trust resolutions. Chat with us to establish your distributions for this year which may be governed, among other things, by your appetite for risk within the confines of the law.

FBT exemption for electric vehicles

With car fringe benefits one of the most common benefits provided by employers to employees, a new ATO fact sheet shines more light on the FBT exemption for electric vehicles.

To recap, in the October 2022 Federal Budget, the government announced that it would exempt from FBT the private use, or availability for use, of cars to current employees that are zero or low emissions vehicles with a value at first retail sale below the luxury car tax threshold for fuel efficient vehicles. This is aimed at making electric cars more affordable, to encourage a greater take-up of electric cars by Australian road users to reduce Australia’s carbon emissions from the transport sector.

The new law applies to fringe benefits provided on or after 1 July 2022 for cars that are eligible zero or low emissions vehicles that are first held and used on or after 1 July 2022 (see examples 1 and 2 in the fact sheet).

To be clear, the new rules apply to cars that are collectively referred to as zero or low emissions vehicles, namely:

• battery electric vehicles
• hydrogen fuel cell electric vehicles, and
• plug-in hybrid electric vehicles.

For such vehicles, an FBT exemption should normally apply where both: the value of the car is below the luxury car tax threshold for fuel efficient vehicles ($84,916 for the 2022/23 financial year), and the car is both first held and used on or after 1 July 2022.

From 1 April 2025, private use of a plug-in hybrid EV is no longer eligible for the exemption unless: (i) use of the plug-in hybrid electric vehicle was exempt before 1 April 2025; and (ii) the employer has a financially-binding commitment to continue providing private use of that vehicle on and after 1 April 2025.

Other key points in the facts sheet are:

• An FBT exemption may apply to a car benefit arising if either:

• you allow your current employees, or their associates, to use a zero or low emissions vehicle (electric vehicle) for their private use, or
• the electric vehicle is considered available for your current employees’, or their associates’, private use under FBT law.

• If an employer or lessor provides an employee with the use of a car by means of a lease arrangement, the benefit provided is only a car benefit if the car lease arrangement is a bona fide car leasing arrangement.

• Associated benefits arising from the provision of certain car expenses provided with the electric vehicle are also exempt from FBT. These are not included when working out if an employee has a reportable fringe benefits amount. These benefits may be provided as an expense payment, property or residual benefit, and include: registration and road user charges, insurance, repairs and maintenance and fuel (including electricity to charge and run electric vehicles).
• Providing your employee with a home charging station is a fringe benefit – the benefit is not an exempt associated benefit.
• If the use of the car and the associated car expenses are provided under a salary sacrifice arrangement, the exemption can still apply.
• Even if an exemption applies for the electric vehicle car benefit, you still need to work out the taxable value of the car benefit provided. This is because the car benefit’s value is used in working out if the employee has a reportable fringe benefits amount. This does not include the value of any associated car expense benefits.
• An employee’s reportable fringe benefits amount is reported on their income statement or payment summary. Employees do not pay income tax on this amount, but it does impact their income tests and thresholds for family assistance, child support assessments and some other government benefits and obligations.
• The government will complete a review of this exemption by mid-2027 to consider electric vehicle take-up.

Touch base with us, for more information about this new FBT exemption.

Proposed tax on $3m super balances

Individuals with large superannuation balances may soon be subject to an extra 15% tax on earnings if their balance exceeds $3m at the end of a financial year.

What has been proposed?

Recently, the government announced it will introduce an additional tax of 15% on earnings for individuals whose total superannuation balance (TSB) exceeds $3m at the end of a financial year.

Those affected would continue to pay 15% tax on any earnings below the $3m threshold but will also pay an extra 15% on earnings for balances over $3m.

The proposal will not impose a limit on superannuation account balances in the accumulation phase, rather it is about how generous the tax concessions are on higher balances.

The government has confirmed the changes will not be applied retrospectively and will apply to future earnings, coming into effect from 1 July 2025. This means your balance in superannuation at 30 June 2026 is what matters initially.

What counts towards the $3m threshold?

The $3m threshold is based on your total superannuation balance (TSB) and includes all of your superannuation accounts. This includes your accumulation and pension accounts and all superannuation funds you may have (such as your SMSF and any APRA-regulated superannuation funds you have).

Further, the $3m threshold is per member, not per superannuation fund. This means a couple could have just under $6m in superannuation/pension phase before being impacted by the proposals.

How will earnings be calculated?

Put simply, the extra 15% tax is unrelated to the actual taxable income generated by your superannuation fund. Rather, it is a tax on earnings or increases in account balances over $3m (including unrealised gains and losses).

This means any growth in balances will include anything that causes your account balance to go up – such as interest, dividends, rent, and capital gains on assets that have been sold, including any notional or unrealised gains on assets that increase in value, even if your fund hasn’t sold them.

Apart from the extra 15% tax, the taxation of unrealised gains is what has caused a stir as currently, individuals do not pay tax on income or capital gains on assets that have not been sold..

When looking at how to capture growth in a person’s TSB over a financial year, earnings will be calculated based on the difference in TSB at the start and end of the financial year, and will be adjusted for withdrawals and contributions.

It is also worth noting that negative earnings can be carried forward and offset against this tax in future years’ tax liabilities.

How is the extra 15% tax calculated?

Superannuation funds, including SMSFs, will not be required to calculate the earnings attributable to a member’s balance above $3m.

Rather the ATO will use a  three-step formula to calculate the proportion of total earnings which will be subject to the additional 15% tax.

How will the extra tax be paid?

Individuals will be notified of their liability to pay the extra tax by the ATO. This means the ATO, not their superannuation fund, will issue members with a tax assessment.

Individuals will have the choice of either paying the tax themselves or from their superannuation fund(s) (if they have multiple funds).

The tax will be separate to the individual’s personal income tax liabilities.

Don’t fret just yet

The measure is due to start from 1 July 2025, so superannuation funds and members still have time to consider their options.

Remember, this measure is still a proposal and must be passed into legislation by Parliament to become law. So don’t rush to remove benefits below the $3m limit just yet as once amounts have been withdrawn from superannuation, it’s hard to get them back in.

If you have any questions or would like to discuss this proposal in further detail, please contact us for a chat.

Reducing the risk of crypto scams

ASIC has released fresh and timely information around crypto scams.

Scammers use cryptocurrencies, like bitcoin or ether, because they are not easily recovered. Crypto can be sent overseas quickly with limited oversight. If you lose your money to a crypto scam, your money is likely gone. If you buy crypto, only invest what you can afford to lose as it’s a somewhat volatile investment.

How to spot a crypto scam

If you’re investing in crypto, watch out for these potential red flags:

1. Unexpected contact

Someone you don’t know contacts you with investment advice or offers:

• through phone, email, social media or text message
• claiming to be an investment manager or broker
• through an online forum discussing crypto.

2. Recommendations from someone familiar

You may hear about it through:

• an advertisement or fake celebrity endorsement on social media
• an online influencer promoting a token and claiming to have made huge, quick profits
• family and friends who have unknowingly been scammed themselves
• an online romantic partner who asks for money paid in crypto or suggests an investment opportunity.

3. Pressure to take action

You are being pushed to:

• transfer crypto off your current exchange and invest through their site
• use crypto to pay an individual or for a financial service
• download an investment app not listed on Google Play Store or Apple Store
• deposit money to invest into different bank accounts
• pay tax or invest more in order to access your funds.

4. Something just doesn’t feel right

You’re not sure about:

• the crypto investment offers ‘guaranteed’ high returns or ‘free’ money
• crypto service providers that withhold investment earnings for ‘tax purposes’
• strange tokens appear in your digital wallet that you did not trade yourself
• there is little paper trail for crypto investments you make
• the document describing the crypto investment (sometimes called a ‘whitepaper’) is poorly written or non-existent
• online searches indicate that an entity may be a scam or has bad reviews
• a work from home job offer that requires you to purchase cryptocurrency.

How crypto scams work

There are three main types of crypto scams:

1. Investing in a fake crypto exchange, website or app

Scammers create fake crypto trading apps to steal your money. The giveaway is usually that they ask you to download the app from their website. They may appear on legitimate platforms like Google Play and Apple, but are usually promptly removed. If you find one on an app store, check for overly positive reviews and be cautious.

2. Fake crypto tokens, investments or jobs trading crypto

• Scam tokens in crypto wallets – A mystery token appears in your crypto wallet, seemingly worth thousands. If you sell it, a ‘smart contract’ is activated. This transfers your legitimate crypto tokens and private keys to the scammer.
• Crypto ponzi scheme – You are promised large ‘returns’ by investing in crypto. But the promoter uses money from other investors to pay your ‘earnings’. For more on how these scams work.
• Jobs ‘trading crypto’ – You apply for a job ad for ‘crypto traders’, for a fake or impersonated financial services firm. You are told to set up multiple bank and crypto accounts, and are paid well for a few hours of work a week. You think you’re trading crypto for the entity’s ‘investors’ or ‘clients’, but you’re actually money laundering for the scammers. You could be charged by state or federal police.

3. Using crypto to pay scammers

• Requests for payment in crypto – An online romantic partner, job recruiters, work from home job, or fake financial services firm asks for payment in crypto only.
• Giveaway scams – Fraudulent posts on social media offer to match or multiply crypto invested with them in a crypto giveaway scam. Often, this uses fake celebrity endorsement.
• Blackmail/extortion – You’re told by a scammer they have your internet browsing history, compromising photos or videos. They demand payment in crypto.

Take-home message

If you’re uncertain whether you’re being scammed by an unsolicited contact, keep your powder dry and abstain from acting. Contact your advisors before acting.

Fending off GST audits

The Government has welcomed the actions of an ATO-led taskforce in relation to what is termed “the biggest GST fraud in Australia’s history”.

The ATO states that the fraud was first detected in early 2022 and involved offenders inventing fake businesses and ABN applications, then submitting fictitious Business Activity Statements in an attempt to gain a false GST refund. In response, the ATO’s Serious Financial Crimes Taskforce set up “Operation Protego” in partnership with the Australian Federal Police. Warrants were executed in three States against 10 individuals suspected of promoting the fraud (which included the use of social media).

Some of the numbers involved are simply staggering in terms of the perpetrators’ audacity:

• The ATO has taken compliance action on more than 53,000 “clients”.

• It has stopped approximately $2.5 billion in fraudulent GST refunds from being paid (as at 31 December 2022).
• Two individuals have been sentenced to jail following their arrest in 2022.
• There have been some 87 arrests across the country, “with many more to come”.
• The ATO has commenced writing to more than 20,000 individuals involved in the fraud.

The purpose of our informing clients of this operation goes to GST audits conducted by the ATO and what they will be looking for should you or your business be selected. As a starting point, generally, the ATO will apply at least some level of scrutiny to Activity Statements where there is a refund of $5,000 or more or where the refund is uncharacteristically large for the taxpayer involved.

The key to staving off a GST audit is the obtaining and retaining of tax invoices. As your tax agent, there is no requirement for us to view each and every tax invoice you hold before we make a claim for GST credits on your behalf on your Activity Statement. However, no claim can be made without you being in possession of a tax invoice.

Tax invoices for purchases of less than $1,000 must include enough information to clearly determine the following seven details:

1. document is intended to be a tax invoice
2. seller’s identity
3. seller’s Australian business number (ABN)
4. date the invoice was issued
5. brief description of the items sold, including the quantity (if applicable) and the price
6. GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement which says ‘Total price includes GST’
7. extent to which each sale on the invoice is a taxable sale.

Tax invoices for sales of $1,000 or more also need to show the buyer’s identity or ABN.

The following example shows:

• GST included in each line item
• the sale is clearly identified as being fully taxable by the words ‘Total price includes GST’
• the buyer’s identity for sales of $1,000 or more.

If you have any questions around tax invoices, or if you are having problems obtaining them, reach out to us.

Lost super

Did you know there is around $16 billion in lost and unclaimed superannuation across Australia?

The ATO recently indicated this is an increase of $2.1 billion since last financial year and is urging Australians to check their account to see if some of the money is theirs.

How to find lost or unclaimed super

Finding lost or unclaimed superannuation is easy and can be done in a matter of minutes.

To find and manage your superannuation using ATO online services:

• Sign in or create a myGov account
• Link your myGov account to the ATO
• Select ‘Super’.

You can then find and consolidate your superannuation.

Alternatively, if you are unable to access ATO online services, you can call the ATO’s lost super search line on 13 28 65. You will need to provide information such as your personal details, contact details and superannuation fund details.

Who can have lost super?

People often lose contact with their superannuation funds when they change their job, name, address, live overseas, or simply forget to update their details.

Lost super is superannuation money held by superannuation funds. You become a ‘lost member’ and your superannuation becomes ‘lost’ if you are:

• Uncontactable – the fund has lost contact with you and your account hasn’t received a contribution or rollover for at least 12 months
• Inactive – your account hasn’t received a contribution or rollover in five years.

Your fund will hold your lost super until they find you. If they can’t find you, some types of lost super will be transferred to the ATO.

Who can have unclaimed super?

Unclaimed super is money funds are required to transfer to the ATO twice a year.

Generally, superannuation will be transferred to the ATO from superannuation providers for any of the following:

• Unclaimed super of members aged 65 years or older, non-member spouses and deceased members
• Superannuation of former temporary residents who have left Australia for six months or more and their visa has expired
• Small lost member accounts (with balances of less than $6,000)
• Insoluble lost member accounts (ie, lost accounts which have been inactive for a period of five years and have insufficient records to ever identify the owner of the account)
• Inactive low balance accounts
• Accounts held in eligible rollover funds that were transferred to the ATO before they wind up
• Amounts your fund transferred to the ATO on a voluntary basis when they determine that it is in your best interest.

Don’t wait, start looking!

Superannuation is one of the most important investments many Australians will have during their lifetime. Make sure you search for any lost or unclaimed super you may have as bringing it all together may help you save on fees and will also make it easier to manage your retirement savings.

For information on how to manage your superannuation and view all your superannuation accounts, including lost and unclaimed super in myGov, contact us today.

New work from home record keeping requirements

Are you one of the five million Australians who claim work from home deductions? If so, stricter record-keeping rules may now apply.

For this financial year and moving forward, there are now only two methods to calculate your work from home claim:

1. Revised fixed rate method (with new rules applying)
2. Actual costs method (unchanged).

The actual costs method has never been all that popular because you need to keep records of every expense incurred and depreciating asset purchased, as well as evidence to show the work-related use of the expenses and depreciating assets. By way of example, to claim electricity expenses, the ATO suggests that you need to find out the cost per unit of power used, the average amount of units used per hour (power consumption per kilowatt hour for each appliance) and the number of hours the appliance was used for work-related purposes.

For this reason, the fixed rate method has been preferred (or in recent years the COVID shortcut method where you could simply claim 80 cents for each hour worked from home. Note, however, that the COVID-method is no longer available).

The fixed rate method has now been revised. The revised fixed-rate method increases your claim from 52 cents to 67 cents per-hour. However, this rate now includes internet, phone, stationery and computer consumables.  Therefore, you can’t claim these expenses separately in addition to your home office fixed-rate deduction. Cleaning expenses and depreciation on office furniture are no longer included in the fixed rate. Therefore, you can now claim these expenses separately.

The record-keeping requirements under the revised fix rate method are now more onerous, also. You now need to keep a record of actual hours worked from home. The ATO will accept a record in any form, but it suggests either: timesheets, rosters, logs of time spent accessing systems, time-tracking apps, or a diary. The ATO will no longer accept estimates, or a four-week representative diary.

This new, strict record-keeping requirement applies from 1 March 2023. For the period before it (1 July 2022 to 28 February 2023) the ATO will accept a four-week representative diary.

Further, under the revised fixed rate method, you will now also need to provide at least one document for each type of expense to demonstrate that you actually incurred that expense. For example, if you receive electricity bills quarterly, you will need to keep one of those quarterly bills as a record to represent that year’s electricity expenses.

If you have any questions around these stricter rules, and how they may impact you, reach out to us.

FBT and car logbooks

With the end of the FBT year approaching, are your car logbooks in order?

The operating cost method is used by many employers to calculate their car FBT liability. This method is particularly effective where the business use of the vehicle is high. Keeping a logbook is essential to use the operating cost method.

Employees need to prepare a logbook for any vehicle that you provide them with where there is an element of private use. The logbook period is for 12-weeks, which must be representative of typical usage. For example, a period where an employee is taking a block of annual leave is not representative.

Where employees share a vehicle during a year, each employee will need to prepare a logbook to substantiate their respective business use percentage.

Logbooks are valid for five FBT years (including the year the logbook is prepared), provided there is no significant change in the vehicle’s business use.  Once the five-year period expires, a new logbook will need to be kept if you wish to continue using the operating cost method. Therefore, if a logbook was last prepared in 2017/18, a new logbook is required for this FBT year (2022/23).

As noted, a new logbook will need to be prepared where there is a significant change in the business use of a vehicle. Indeed, it is in an employer’s interests for a new logbook to be prepared where the business use of the vehicle increases, as this will result in a decreased FBT liability.

With just weeks to go in the FBT year, if a new logbook is required to be kept, but has not yet been…don’t panic! The 12-week period can overlap two FBT years provided it includes at least part of the relevant year.

The logbook must contain:

• when the logbook period begins and ends
• the  odometer readings at the start and end of the logbook period
• the total number of kilometres travelled during the logbook period
• the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
• the business-use percentage for the logbook period
• the make, model, engine capacity and registration number of the car.

For each journey, record the:

• reason for the journey (such as a description of the business reason or whether it was for private use). Note that a generic description of a journey, such as ‘business use’, is not adequate
• start and end date of the journey
• odometer readings at the start and end of the journey, and
• kilometres travelled.

These entries should be made contemporaneously, as soon as possible after each trip.

It’s a common misconception among employers with commercial vehicles, such as dual-cab utes, that they are automatically exempt from FBT and therefore there is no requirement to maintain a logbook. This is generally only the case where the private use is negligible.

If you are uncertain about your FBT logbook obligations, contact us.

Legislating the purpose of superannuation

On 20 February 2023, Treasury released a consultation paper on legislating the purpose of superannuation. This is an idea that has been around since 2016 when the former Coalition government contemplated doing the same thing.

The government says that legislating an objective of superannuation will provide stability and confidence to policy makers, regulators, industry, and the community, that future changes to superannuation policy should be aligned with the purpose of the superannuation system. It will also ensure members and funds have a shared understanding of the purpose of superannuation throughout both the accumulation and retirement phases.

The consultation paper puts forward the following proposed objective, seeking feedback on it:

The objective of superannuation is to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.

To be clear, the purpose of legislating such an objective is to guide future policy makers – any changes they make in the superannuation space should align with the legislated, agreed objective. For example, if the Coalition returned to government, its 2022 federal election proposal to allow first-home owners to tap into their superannuation for a deposit may run counter to the legislated objective and perhaps should not be pursued or supported by Parliament. Also arguably running counter to the legislative objective, would have been the COVID measure allowing individuals to access $20,000 of their superannuation savings, subject to certain conditions. That being said, the objective is not being hardwired into the Constitution, so it would be possible for a future government to disregard the objective if it saw fit.

On the other hand, reining in tax breaks for individuals with for example $3 million or more in their super accounts may align with the objective because it may be arguable that the amount of super in their account is significantly more than is needed for a “dignified retirement”.

The other point to be made around this proposal is that it is not aimed at abolishing current, existing laws that may not strictly align with the new objective. Most notably, this involves superannuation conditions of release that are not aimed at preserving savings to deliver income for a dignified retirement, including:

• being temporarily or permanently incapacitated
• suffering severe financial hardship, such as being unable to meet immediate family living expenses where you have been receiving government income support payments for a continuous period of 26 weeks and had been receiving that support at the time you applied for early release
• compassionate grounds
• having a terminal medical condition, or
• taking part in the first home super saver scheme.

Unrestricted non-preserved benefits don’t require a condition of release to be met and may be paid at any time. They include, for example, benefits for which a member has previously satisfied a condition of release and decided to keep the money in the super fund. Certain employer termination payments (ETPs) received by the fund before 1 July 2004 may also be included in this category of benefits.

Crystalising capital losses

It’s been a particularly difficult 12 months for investors.

On the superannuation front, we now have two major reports assessing how super accounts fared in the  2022 calendar year. Super­Ratings issued its average balanced return recently and found it was minus 4.8%. Late last year, ChantWest undertook a similar exercise – reporting a figure of minus 4.6%. There have been four negative years since 2000. In 2002, there was an identical return of minus 4.8%, and in the horror 2008 GFC year, the average super fund fell 20%.

Regarding property, CoreLogic’s capital city index declined 8.8% from its May 2022 peak to December, down 7.1% in calendar year terms, being the worst calendar year result in 42 years.

It’s important however to be mindful that these losses are merely paper losses. That is, these losses are only realised, and locked in, if:

• in the case of property or shares, you sell the asset, or
• in the case of superannuation, by selling assets or withdrawing super when investment balances are down.

If you retain the asset, you may be able to ride things out and hopefully the market bounces back. For example, the average return for the average balanced fund since 2000 is 6.1% (a period that takes into account the aforementioned 20% downturn during the GFC) – that’s $30,500 a year for every $500,000 you can get into super. Things should improve!

If you determine that an asset has little potential for future growth and decide to sell and happen to make a capital loss…there is a silver lining from a tax standpoint! You can deduct capital losses from your capital gains to reduce CGT liability. Capital losses must be used at the first opportunity. If you have any capital losses in the current year, or unused capital losses from previous years, you must use these losses to reduce any capital gains in the current year, and use the earliest losses first.

Of course, tax is not the only consideration when weighing up whether to retain or dispose of a CGT asset. Talk to your advisors before selling.

Super teething issues

Last year 9,700 individuals applied for compassionate release of super for dental treatment expenses, and 82% were approved. Out of those approved, 9% were for a dependent child’s dental treatment, which could include braces. What is the pathway for access?

While normally superannuation must be preserved for retirement, there are limited  exceptions. One of these is compassionate grounds. An individual must apply to the ATO for a determination that an amount of the person’s preserved benefits or restricted non-preserved benefits in their fund be released on compassionate grounds due to the individual lacking the financial capacity:

(a) to pay for medical treatment (defined as life-threatening illnesses or to alleviate acute or chronic pain or mental disturbance or medical transport for the person or a dependant)

(b) to enable payments to prevent foreclosure by a mortgagee or the exercise of an express or statutory power of sale over the family home

(c) to pay for home and vehicle modifications to accommodate the special needs of a severely disabled person or dependant

(d) to pay for expenses associated with the person’s palliative care, death, funeral or burial, or

• to meet expenses in other cases where the release is consistent with items (a) to (d).

Where one of these conditions is met, the benefit must be released as a single lump sum not exceeding the amount that is determined by the ATO to be reasonably required, based on the nature of the hardship and the person’s financial capacity. The ATO must provide a copy of its written determination to both the individual applicant and the trustee of their superannuation fund.

Turning back to dental treatment, point (a) is the relevant release condition. The applicant will need to demonstrate that they are suffering acute or chronic pain such that they require dental treatment to alleviate that pain, and that they are lacking the financial capacity to pay for that treatment. From an evidentiary perspective, an applicant would almost certainly need to furnish the ATO with correspondence from a dentist that speaks to the above, and also evidence of their financial position.

The ‘acute or chronic pain’ requirement means that cosmetic procedures such as teeth whitening, dental veneers, dental bonding, dental implants, dental bridges, dental crowns/tooth caps, orthodontics, and white tooth fillings are all unlikely to qualify.

There is no lifetime limit on the number of applications that you can make. For example, if you had three children who all required braces, then potentially you could tap into your super for each child’s procedure. Before making an application, individuals should consider:

• alternative funding sources, such as loans
• the impact on your retirement savings, noting the compounding nature of superannuation investments. Each time you dip into your super, you’re killing off the power of compound interest. Instead of braces costing $7000 or more, compounding interest means that it may be several multiples of this by the time you retire.

PAYG instalment variations

The ATO is encouraging accountants to educate clients around varying PAYG instalments – this can potentially assist cashflow.

To recap, PAYG (pay-as-you-go) instalments allow business taxpayers to make regular prepayments towards the tax on their business and investment income. This is in contrast to salary and wage earners who already make prepayments by having tax withheld from their income each time they are paid.

Business taxpayers, including individuals who are contractors for PAYG withholding purposes, will automatically be entered into the PAYG instalments system if they earn over the entry threshold in business and investment income in their latest lodged tax return. These thresholds currently stand at:

• Individuals (including sole traders and trusts) – your instalment income from your latest tax return was $4,000 or more, and the tax payable on your latest notice of assessment was $1,000 or more, and you have estimated (notional) tax of $500 or more.
• Companies and super funds – have instalment income from their latest tax return of $2 million or more, or have estimated (notional) tax of $500 or more, or are the head company of a consolidated group.

If your or your business’s financial situation has changed, your expected tax liability may also change. This means your current PAYG instalments may add up to more, or less, than your tax liability at the end of the financial year.

The good news is that you can vary your instalments so the amount you prepay is closer to your expected tax for the year.

If you pay PAYG instalments using the instalment dollar amount provided by the ATO (option 1 on your Activity Statement), you may want to vary if there has been a significant change in your instalment income this year.

If you calculate your PAYG instalments using the instalment rate (option 2 on your activity statement):

• you do not need to vary simply because your income has changed – the payment you calculate will go up and down in line with your income
• you would usually only vary if the taxable proportion of your income has changed – for example, if your income has fallen significantly but your deductions for running costs have stayed the same.

There are however dangers in varying. If you vary your instalments downwards and you underestimate your eventual income for the year, you could be left with a substantial tax bill when you lodge your tax return at the end of the year. Also, when the ATO receives your tax return, they compare your actual instalments to the total tax payable on your instalment income for the income year. If your varied instalments are less than 85% of your total tax payable, you may have to pay a general interest charge on the difference, in addition to paying the shortfall. Depending on the circumstances there may also be penalties.

If you are not sure, it is best to not vary your instalments. Any overpaid instalments will be refunded to you after you lodge your tax return.

If you feel your current year business or investment income is likely to be more or less than the dollar amount of your PAYG instalments you are paying, feel free to chat to us about varying your instalments.

Missed the Director ID Deadline?

Have you missed the deadline to apply for a director identification number (director ID)?

If so, you can still apply!

The ATO says it will take a reasonable approach with directors who are trying to do the right thing. Importantly, directors who need additional time to apply (beyond 14 December 2022), can request an extension of time by completing an  Application for an extension of time to apply for a director ID

To recap, a director ID is a unique 15‑digit identifier that a company director applies for once and keeps forever. By allowing regulators to trace directors’ relationships with companies over time, director IDs will help prevent illegal activity and level the playing field for businesses.

Director IDs are administered by the Australian Business Registry Services (ABRS), which is managed by the ATO.

Who?

You need a director ID if you are an eligible officer of:

• a company, a registered Australian body or a registered foreign company under the Corporations Act 2001 (Corporations Act)
• an Aboriginal and Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).

An ‘eligible officer’ is a person who is appointed as:

• a director
• an alternative director who is acting in that capacity.

You also need a director ID if you are a director of a:

• corporate trustee, for example, of an SMSF
• charity or not-for-profit organisation that is a company or Aboriginal and Torres Strait Islander corporation
• registered Australian body, for example, an incorporated association that is registered with the Australian Securities and Investments Commission (ASIC) and trades outside the state or territory in which it is incorporated, or
• foreign company registered with ASIC and carrying on a business in Australia (regardless of where you live).

Who doesn’t?

A director ID is not required if you are a director of an incorporated association (with no ABRN) registered with the Australian Charities and Not-for-profits Commission (ACNC), company secretary but not a director, acting as an external administrator of a company, run your business as a sole trader or partnership.

It has also been recently clarified by the ABRS that directors who resigned their directorship before 31 October 2021 are not required to obtain a director ID. Deceased directors, as they are unable to personally apply, are also exempt.

In summary, if you run a company that is a small business, are a corporate trustee of an SMSF, operate a not‑for‑profit or even a large sporting club, it’s quite likely that you’re a director, and therefore you’ll need to apply for your director ID.

How?

The easiest way to apply for a director ID is online at the ABRS website – www.abrs.gov.au/directorID. To access the online application, use the myGovID app with at least a standard identity strength to log in to ABRS Online. You must apply personally – we as your advisor cannot apply on your behalf, however we can advise you around eligibility, and any other questions you may have.

ATO New-Year Resolutions

The ATO has released its new year resolutions…and there is not a gym in sight! According to the ATO the five new year’s resolutions to keep if you want to stay on top of your tax and super in 2023 are:

1. Know if you’re in business or not

Are you earning an increasing income from a side-hustle?

If you answer yes to a few of the following questions, the more likely it is your activities are a business:

• Do you intend to be in business?
• Do you intend and have a prospect of making a profit from your activities?
• Is the size or scale of your activity sufficient to make a profit?
• Are your activities repeated and continuous?
• Are your activities planned, organized, and carried out in a business-like manner? For example, do you:
  • keep business records and have a separate business bank account?
  • advertise and sell your goods and services to the public, rather than just to family or friends?
  • operate from business premises?
  • maintain required licences or qualifications?
  • have a formal business plan or budget?
  • have a business name or an ABN?

We can help you make this call as to whether your side-hustle may be a business.

2. Keep business details and registrations up to date

It’s important to keep your ABN details up to date as emergency services and government agencies use this information to support businesses during disasters. Also, if you’re going to earn over $75,000 this financial year, you’ll need to register for GST. Even if your turnover is below this threshold, it may be advantageous to register.

3. Keep good records

Good record keeping helps you manage your business and its cash flow. It also is your defense should the ATO make an enquiry about your affairs, or select your business for an audit. Feel free to approach us if you need assistance with your record keeping practices.

4. Work out if the PSI rules apply to you

The Personal Services Income (PSI) rules are a suite of ATO provisions designed to prevent persons who derive income from their personal services from “splitting” or “alienating” that income with other persons, and therefore minimising the overall tax payable.

If you cannot pass one of the tests within the PSI Rules and do not have a personal services business determination (PSBD) from the Commissioner, then regardless of the trading structure you choose, your PSI income derived will be classified as PSI, which means:

• you will be unable to claim certain deductions against your PSI (basically, your deductions will be limited to those of a normal employee)
• your PSI, less allowable deductions, will be attributed to you, and therefore included in your individual tax return, and taxed at your individual marginal tax rate as though you were an employee.

We can assist you in determining whether these rules apply to you and answer any questions you may have.

5. Look after yourself

The last few years have thrown some curve balls at small business, so it’s good to be prepared. If you’re struggling, the NewAccess program can help. It’s free, confidential, and designed for small businesses doing it tough.

Chat with us if you want to know more about these hot-button, new year issues.

Reduction in downsizer eligibility age

The eligibility age for downsizer contributions reduced from 60 to 55 years from 1 January 2023. This means if you are age 55 or older, you could invest the proceeds of the sale of your family home to your superannuation outside of your standard contribution caps.

Downsizer contributions

From 1 January 2023, if you’re aged 55 years or older you may be eligible to make a downsizer contribution of up to $300,000 (or $600,000 for a couple) to your superannuation fund from the proceeds of the sale of your home where specific requirements are met.

Downsizer contributions can be a great way of boosting your superannuation after retirement. As well as the extra capital they introduce, the contributions can also earn investment income that is either tax-free if you commence an income stream with the funds or be taxed at a concessional tax rate of  as low as15% whilst in accumulation phase.

Eligibility requirements

To be eligible to make a downsizer contribution, you must answer yes to all of the following conditions:

1. You must be aged 55 or over from 1 January 2023 (or age 60 or over for any downsizer contributions made between 1 July 2022 and 31 December 2022. Note, prior to 1 July 2022, the eligibility age was 65 years and over).
2. The amount of the contribution is an amount equal to all or part of the sale proceeds (capped at $300,000 per person) of a qualifying main residence, where the contract of sale of the main residence was exchanged on or after 1 July 2018.
3. The home was owned by you or your spouse for 10 years or more prior to the sale. Further, your home must be in Australia and must not be a caravan, houseboat or other mobile home.
4. The proceeds of selling your home are either fully exempt or partially exempt from capital gains tax under the main residence exemption or, if the home was acquired before 20 September 1985, would have been exempt.
5. You make the downsizer contribution within 90 days of receiving the proceeds of sale (ie, usually settlement date).
6. You complete and provide the ‘Downsizer contribution into super form’ (NAT 75073) which is available on the ATO website and provide it to your superannuation fund either before or at the time of making the downsizer contribution.
7. You have previously not made a downsizer contribution from the sale of another home.

Provided that the above conditions are met:

• There is no obligation to purchase a new home or to move to a smaller or cheaper home…you can even move into another home you own! You simply need to sell your home and meet the above criteria to make a downsizer contribution.
• There is no maximum age limit to make a downsizer contribution.
• The downsizer contribution does not count towards your non-concessional or concessional contributions caps. The contribution is in addition to these caps.
• There is no requirement to meet a work test or work test exemption to make a downsizer contribution, and
• Downsizer contributions can be made regardless of the size of your total superannuation balance (TSB). This means a downsizer contribution can still be made even if you have more than $1.7 million in superannuation.

Downsizer contributions count towards your super balance

While downsizer contributions can be made regardless of what your TSB is, once the downsizer contribution is made to superannuation it forms part of your TSB.

At this point, the downsizer contribution will increase your TSB which may impact your eligibility to:

• Make carry forward concessional contributions
• Make non-concessional contributions
• Receive government co-contributions, and
• Receive a tax offset for spouse contributions.

Similarly, a downsizer contribution will also count towards your transfer balance cap (TBC), which applies when you move your superannuation into retirement phase to commence an income stream.

So if you intend to use your sale proceeds to commence a superannuation income stream in retirement, it’s important to note that you have a personal TBC of up to $1.7 million on the total amount that can be transferred from a superannuation account into a tax-free superannuation income stream. You can find out your personal TBC by contacting the ATO or logging myGov.

Preservation considerations

Although the age to make a downsizer contribution has reduced to age 55, you should be aware that the contribution will be preserved until you satisfy a condition of release, such as retirement after reaching your preservation age (currently age 59) or ceasing a gainful employment arrangement after reaching age 60.

However, if you have retired or met another condition of release that frees up your superannuation, the downsizer contribution could still be accessed to provide an income stream but it will have to be by way of a transition to retirement income stream, which is slightly more restrictive than a regular income stream, such as an account-based pension.

Need advice?

Although making a downsizer contribution may seem to be a straightforward strategy, there are a number of eligibility requirements and nuances that you must be aware of when utilising these rules. If you’re thinking about downsizing and contributing to superannuation but want more information, we can help explain the rules in further detail and discuss how you may benefit from this scheme, based on your particular circumstances.

The importance of cash flow forecasts

As we enter into the new year, with many economists predicting a slowing of the economy, planning your business’s cashflow is more important than ever.

Studies suggest that the failure to plan cash flow is one of the leading causes of small business failure. To this end, a cash flow forecast is a crucial cash management tool for operating your business effectively.

Specifically, a cash flow forecast tracks the sources and amounts of cash coming into and out of your business over a given period. It enables you to foresee peaks and troughs of cash amounts held by your business, and therefore whether you have sufficient cash on hand to fund your debts at a particular time.

Moreover, it alerts you to when you may need to take action – by discounting stock or getting an overdraft, for example – to ensure your business has sufficient cash to meets its needs. On the other hand, it also allows you to see when you have large cash surpluses, which may indicate that you have borrowed too much, or you have money that ought to be invested.

In practical terms, a cash flow forecast can also:

• make your business less vulnerable to external events in the economy, such as interest rate rises
• reduce your reliance on external funding
• improve your credit rating
• assist in the planning and re-allocation of resources, and
• help you to recognise the factors that have a major impact on your profitability.

At this point, a distinction should be drawn between budgets and cash flow forecasts. While budgets are designed to predict how viable a business will be over a given period, unlike cash flow forecasts, they include non-cash items, such as depreciation and outstanding creditors. By contrast, cash flow forecast focus on the cash position of a business at a given period. Non-cash items do not feature. In short, while budgets will give you the profit position, cash flow forecasts will give you the cash position.

Cash flow forecasting can be used by, and be of great assistance to, the following entities:

• business owners
• start-up business
• financiers

A cash flow forecast is usually prepared for either the coming quarter or the coming year. Whether you choose to divide the forecast up into weekly or monthly segments will generally depend on when most of your fixed costs arise (such as salaries, for example). When you are making forecasts, it is important to use realistic estimates. This will usually involve looking at last year’s results and combining them with economic growth, and other factors unique to your line of business. When forecasting overheads, usually a forecast will list:

• receipts
• payments
• excess receipts over payments (with negative figures displayed in brackets)
• opening balance
• closing bank balance.

Reach out to us if you would like to know more.

Can you use your SMSF property upon retirement?

Many SMSF trustees wonder if they can live in their SMSF property once they retire. This is a common question particularly as property is such a popular SMSF investment.

However, despite superannuation being your own money, there are certain rules around accessing your superannuation which prohibit you from not only using your superannuation to purchase a property, but to live it in now and in retirement.

Property as an SMSF investment

Superannuation law allows SMSF trustees to purchase property via their SMSF. However there are strict rules regarding the purchase of property and how it can be used.

For example, the law allows you to purchase property through your SMSF provided the property:

• Meets the ‘sole purpose test’ of solely providing retirement benefits to fund members
• Complies with the SMSF’s investment strategy which must allow the acquisition of property
• Is not acquired from a relatedparty of a member (except for business real property)
• Is not lived in by a fund member or any fund members’ related parties, and
• Is not rented by a fund member or any fund members’ related parties (except for business real property).

It should also be noted that the title of the SMSF property must be held by the trustees on behalf of the superannuation fund and rent from the SMSF property must also be paid into the SMSF. As owner of the property, your SMSF is responsible for all costs related to the upkeep and maintenance of the property.

As can be seen, the rules around how a SMSF manages investments are stringent and therefore prohibit you from living in a property owned by your SMSF.

What is the sole purpose test?

The sole purpose test is an important rule that must be considered when purchasing investments, such as property, by your SMSF.

For your SMSF to be eligible for concessional tax treatment, your fund must meet the sole purpose test. The sole purpose test requires a superannuation fund to be maintained for the sole purpose of providing retirement benefits to its members, or to their dependents if a member dies before retirement.

In other words, the superannuation sole purpose test dictates that your investments must be for the benefit your retirement and therefore cannot enhance your own personal lifestyle needs. Your SMSF will fail to meet the sole purpose test if your SMSF provides a pre-retirement benefit to yourself as a member of the SMSF.

The risk of contravening the sole purpose test could cause your fund to lose its concessional tax treatment and you as trustee could also face civil and criminal penalties.

What are my options at retirement?

Upon retirement, the only way you can move into a property that has been purchased by your SMSF is by transferring the property from your SMSF to you as a member in your own personal capacity. This is also known as an ‘in-specie transfer’ meaning your SMSF transfers its asset to you personally.

Undertaking an in-specie transfer will avoid breaching the sole purpose test in the event that you reside in the property as you will not be obtaining a present-day benefit or personal use of an SMSF asset.

An in-specie transfer is only possible once you meet a condition of release (such as retirement after reaching your preservation age or ceasing a gainful employment arrangement after reaching age 60) and are legally allowed to access your superannuation.

Beware of tax and duties

It is important to carefully consider any potential capital gains tax (CGT) on a transfer of property between an SMSF and the members of an SMSF in their personal capacity. Generally speaking, if a property is solely supporting the payment of one or more pensions for fund members, CGT may not apply.

Further, any potential transfer or stamp duty must also be considered as it may apply depending on your state or territory jurisdiction.

Take care

Just because you have reached preservation age or are retiring doesn’t mean you can use or live in your SMSF owned property after retirement. If you’re thinking about investing in property via your SMSF or are thinking about taking your SMSF-owned property out of your SMSF so you can use it for yourself, be sure to contact us for a chat before you make any decisions.

ATO finalises Section 100A guidance for Family Trusts

Do you operate your business via a family trust?

The ATO released its final guidance material on the application of section 100A on 8 December 2022 – TR 2022/4 and PCG 2022/2. In doing so, it has clarified a number of issues which is welcome.

To recap, the ATO in February 2022 updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangements, potentially the ATO may take an unfavourable view on what were previously understood to be legitimate distribution arrangements. The ATO is chiefly targeting arrangements under section 100A of the Tax Act, specifically where trust distributions are made to a low-rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate. In this regard, the ATO’s Taxpayer Alert (TA 2022/1) illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children.

The final guidance is not the law and represents no more than the ATO’s view about how the law applies. It carries no legal authority, and clients in consultation with us as your advisor may consider venturing out into deeper and rougher waters, depending on your circumstances.

Following the release of the ATO material, there are a number of risk management options going forward:

• Only distribute to Mum and Dad

This would be quite safe from section 100A scrutiny. No person pays less tax as a result of any agreement, and this is unlikely to be seen as high-risk by the ATO.

• Continue to distribute to young adult beneficiaries, but hand over the money

If you are happy to give money to your children, this can be achieved while at the same time optimizing tax.

• Charge board and current university fees

If adult beneficiaries are living at home, they should pay board (just as if they had a job). This will not add up to large sums, but arm’s-length board for a full year could come to about $18,000. This allows for some tax arbitrage without handing the kids any money.

• Use of bucket company

Having a private corporate beneficiary caps the tax rate imposed on trust income. Franked dividends can subsequently be flexibly allocated through having a trust structure interposed between the bucket company and the beneficiaries. The present entitlement can be lent back to the trustee for use in the business of the trust, although there are minimum repayment conditions. Avoid having the main trust as a shareholder in the bucket company. The ATO considers circular income flows to be high-risk.

• Be alert for the “no reimbursement agreement” argument

If you are contemplating making a gift or an interest-free loan to another person, ask questions about the circumstances behind this plan. If it was not in contemplation at the time of the relevant appointment of trust income (up to two years ago), but has arisen because family circumstances have changed recently, there may not be a reimbursement agreement.

• If making gifts, go once and go big

You are unlikely to escape ATO attention if you have beneficiaries making gifts or loans year-after-year. So, where there is a strong argument to support the ordinary dealing exception, try to make it once-off, and for a significant amount if possible.

If you are impacted, reach out to us determine which option is best for you and your business.

 Xmas gifts from employers

Christmas is traditionally a time of giving, including employers showing gratitude to their workers for a job well done throughout the year. However, depending on the nature and value of the gift, and also who it is gifted to, such magnanimity can attract unwanted tax consequences. So how as an employer do you gift most tax-effectively this festive season?

Gifts to employees and their associates (e.g. spouses)

The first step is determining whether the gift constitutes entertainment. Gifts that constitute entertainment include tickets to movies, plays, sporting events, theatre, restaurant meals, holiday airline tickets, and admission tickets to an amusement park. On the other hand, the following gifts are not entertainment: Christmas hampers, bottles of alcohol, gift vouchers, perfume, flowers, and pen sets.

Where an entertainment gift costs less than $300 (GST-inclusive) and is provided infrequently throughout the year, there will generally be no Fringe Benefits Tax (FBT), no deduction will be allowed, and no GST credits can be claimed. Where the cost is $300 or more, FBT will apply, and a deduction and GST credits can be claimed.

Where a non-entertainment gift is in play, and it costs under $300, no FBT will apply, but a deduction and GST credits can be claimed. Where the cost is $300 or more, FBT will apply, and a deduction and GST credits can be claimed.

All told therefore, the best result for an employer (at least from a tax standpoint) is to provide a non-entertainment gift under $300.

Gifts provided to third parties (e.g. clients, suppliers, contractors etc.)

Where gifts are provided to these recipients, the $300 threshold has no relevance.

Gifts that constitute entertainment (irrespective of cost) do not attract FBT, cannot be deducted, and no GST can be claimed.

By contrast, non-entertainment gifts do not attract FBT, however a deduction and GST credits can be claimed – again, irrespective of cost.

Cash bonuses

Alternatively, instead of gifts, employers may wish to provide cash bonuses to their staff. From a tax perspective, the attraction of doing so is that it shifts the tax burden away from the employer and onto the employee. That is, the cash counts as assessable income for the employee while the employer can claim a deduction. No FBT is payable by the employer on a cash bonus.

Leave bonus

Another benefit that may be considered by employers is a leave bonus. For example, allowing workers to finish up for the year a couple of working days before Christmas and not have that count against their annual leave balance, noting that this may be a quiet time of the year for business anyway. There are no adverse tax consequences for either party. The added benefit for the employer is that, unlike a cash bonus, there is no immediate cashflow impact.

If you need assistance with the tax treatment of your Christmas giving, including Christmas parties, don’t hesitate to reach out to us.

SMSF compliance: what’s on the ATO’s radar?

In a recent speech, ATO assistant Commissioner Justin Micale outlined the ATO’s latest compliance issues for those who operate an SMSF.

ID fraud and investment scams

While ID fraud and investment scams are still quite rare in the SMSF sector, they are becoming more prevalent.

In the 2022 financial year, the ATO identified increasing numbers of individuals who were victims of identity fraud where SMSFs were registered without their knowledge or consent. Luckily for most victims the ATO detected the fraud early so it could protect their super, but not for all.

These scammers are becoming increasingly sophisticated, impersonating well-known Australian companies and using personal details to gain trust.

They use various methods to contact people such as email or cold calling, pretending to be financial advisers and encouraging them to transfer their superannuation into a new SMSF or investment product. The investor is often promised high returns.

Once they have their personal information, they seek to use it to establish an SMSF, rollover money into the fund and steal retirement savings.

This reinforces the need for individuals to treat contact from any third parties in relation to their investment and superannuation choices with an abundance of caution.

Illegal early access

Early access is the most common risk in the sector.

It occurs when individuals access their retirement savings before meeting a condition of release. Not only is this illegal, but money taken out of superannuation early has a detrimental impact on an individual’s retirement nest egg.

There are only limited circumstances where a member can legally withdraw their super early, such as where a member reaches their preservation age and retires, is 65 years old (even if not retired) or has died.

Non-lodgment of SMSF annual returns

The lodgment of an SMSF annual return is a fundamental obligation for all trustees/members including those in retirement phase.

There are around 24,000 funds who haven’t lodged their first return and a further 80,000 lapsed lodgers with one or more outstanding returns.

Lodgment is vital to ensure your SMSF retains its complying status on SuperFund LookUp as funds which have overdue returns by more than two weeks may have their regulation details removed. This restricts the SMSF from receiving rollovers and employer contributions.

Regulatory contraventions

In the 2022 financial year, the ATO received contravention reports for 13,558 funds with 39,997 contraventions being reported. This is an increase of nearly 3.5% in the number of SMSFs with contravention reports lodged and an increase of nearly 6.3% in the number of contraventions reported compared to the 2021 financial year.

The most common contravention relates to members having accessed their retirement savings early, which is often reported as a loan to a member or a payment standards breach.

The main drivers of regulatory contraventions are financial stress, poor record keeping and a lack of understanding of the rules.

Audits

Adequacy and independence were two key issues identified.

Key to a robust audit is the SMSF documentation.  Trustees and their advisors must provide their nominated auditor with all the relevant documentation for the SMSF’s accounts and financial transactions for the year.

Record keeping is key. Documentation of an SMSF audit itself is also necessary to determine that the audit has been properly conducted. This is the case even if there were no contraventions.

Trustees also need to appoint auditors who are genuinely independent.

Director IDs

All existing directors, including directors of a corporate trustee of an SMSF, are now required by law to have a director ID by 30 November 2022. It’s not too late to comply, as the ATO is taking a softly-softly approach to compliance in this area.

If you have any questions around SMSF compliance, we’re here to help.

Single member SMSFs

From 1 July 2021, the law was changed to allow for six-member SMSFs (up from five members). At the time of writing, the uptake has been slow so far with just 228 funds with six members. At the other end of the spectrum, it is permissible to have single member funds. The main advantage of doing so is that you have total control over your retirement savings, and the investment decisions in respect of those savings. However, there are some issues to be mindful of.

Number of trustees

An SMSF trustee is a person responsible for ensuring an SMSF is maintained for the purpose of providing retirement benefits, and complies with the investment and regulatory rules. The trustee can be a company or an individual. You can set up your SMSF with only one member; however the superannuation legislation requires you to have two individual trustees or a corporate trustee for the fund.

If you have a corporate trustee for a single member SMSF:

• The corporate trustee company can have one or two directors, but no more.
• The fund member must be the sole director or one of the two directors.
• If there are two directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.

If you choose to have a corporate trustee:

• The corporate trustee company can have one or two directors, but no more.
• The fund member must be the sole director or one of the two directors.
• If there are two directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.

Loss of capacity

If the sole member loses legal capacity, then the person who holds an enduring power of attorney for the member may act as trustee of the fund in their place. This is an important matter to attend to before setting up your SMSF.

If the sole member was also the sole director of a trustee company, then the shareholder of the company will need to appoint a replacement director. If the member was the only shareholder, then the probate of the member’s will needs to be granted before a new shareholder is appointed.

Death

In the event that the sole member passes away, then the other trustee will be left with total control of the fund. If the sole member was also the sole director of a trustee company then the same consequences from the loss of legal capacity will appy (see earlier).

Retaining residency

The SMSF must remain an Australian superannuation fund in order to retain its complying status. Whether the super fund does so depends on meeting the following tests:

1. Be established in Australia.
2. Have its central management and control ordinarily in Australia.
3. The fund must have either at least 50% of the fund’s assets linked to active members who are residents in Australia or not have any active members.

Thus, having a single member SMSF may limit your ability to travel overseas for extended periods.

All told, there is no ideal number of members to have in your SMSF, and it will depend on your circumstances.

New work from home deduction rules

The ATO has issued new draft guidelines around a new method (the revised fixed rate method) of calculating work-from-home running expenses from 1 July 2022 (as an alternative to calculating the actual work-related portion of all running expenses).

The new revised fixed rate method will replace both:

• the 52 cents fixed-rate method set out in paragraph 5 of Practice Statement PS LA 2001/6 (for electricity and gas expenses, home office cleaning expenses and the decline in value of furniture and furnishings), and
• the short-cut (COVID-19) 80 cents method (for all additional running expenses).

You are eligible to use the revised fixed-rate method from 1 July 2022 if you:

• work from home to fulfil your employment duties or to run your business (a separate home office or dedicated work area is not required)
• incur additional running expenses that are deductible, and
• keep and retain records of the time spent working from home and of the additional running expenses incurred.

New rate

The new rate of 67 cents (replacing the fixed rate of 52 cents in PS LA 2001/6) was “based on the Australian Bureau of Statistics (ABS) household expenditure survey with consideration of annual Consumer Price Index (CPI) weightings”. However, given that the recent Federal Budget forecast a 50% increase in electricity bills alone over the next two years, the adequacy of the new 67 cent rate is open to question.

Furthermore, in arriving at the new rate, there was no explanation or reconciliation to the 80 cents per hour rate in place under the COVID-19 shortcut method. The new 67 cent rate represents a 16.25% reduction on that COVID rate.

Further undermining the adequacy of the new 67 cent rate is that it is inclusive of certain expenses that were not included under the former 52 cent rate. As noted in footnote 3 of PCG 2022/D4, the fixed-rate method in PS LA 2001/6:

… allowed 52c per hour for each hour a taxpayer worked from their home office to calculate their electricity and gas expenses, home office cleaning expenses and the decline in value of furniture and furnishings. In addition, a separate deduction for the taxpayer’s work-related internet expenses, mobile and home telephone expenses, stationery and computer consumables and the decline in value of a computer, laptop or similar device could be claimed.

However, PCG 2022/D4 at paragraph 23 proposes that the revised 67 cent fixed rate under the new rules is inclusive of:

• internet expenses
• mobile and/or home telephone expenses, and
• stationery and computer consumables.

The inclusion of these expenses within the revised fixed rate, when coupled with the current high inflation environment, means that there is a high likelihood that taxpayers may be worse off when moving from 52 cents to 67 cents.

Record keeping

From 1 January 2023, this will become more onerous under the new revised fixed rate method.

Under that method, you will need the keep a record of the actual hours worked from home (e.g. timesheets, rosters or a diary kept contemporaneously). This is more onerous than the 52 cent method where you only needed to keep a record to show how many hours you worked from home. You could do this over the course of the year, or if your work from home hours are regular and constant, by keeping a record for a representative four-week period.

The ATO under the new revised fixed rate method also requires evidence in relation to each of the running expenses listed above. For energy, mobile and/or home telephone and internet expenses, one bill per item needs to be retained. If the bill is not in your name, additional evidence is needed to prove that you incurred the expenditure. For stationery and computer consumables, one receipt needs to be kept for an item purchased.

Summary

All told, under the new method, the amount that can be claimed will potentially be lower, while the compliance obligations are higher – the taxpayer not only needs to keep a record of times spent working from home, but also there is a need to keep an invoice/receipt for each of the additional costs, such as an electricity bill. This is a new requirement which never formerly existed under either of the replaced fixed rate methods.

While the new draft guidance offers a transitional arrangement until December 2022, individuals currently availing themselves of the 52 cent fixed rate method will need to consider whether they can meet the additional administrative burden from 1 January 2023, or whether the “actual expenses” method is a more achievable alternative.

If you are uncertain which method is best for you, contact us directly to discuss your circumstances.

On-boarding employees for the holiday rush

Hiring additional employees to help with surging end-of-year demand? A New employment form,   accessed through ATO online services, will help reduce your compliance time.

It’s an easy way for your employees to provide you and the ATO with the information that the ATO need. If your new employee has a myGov account linked to the ATO, once signed in they can:

• access ATO online services
• go to the ‘Employment’ menu
• select ‘New employment’ and complete the new form.

Your employees will need your ABN to complete the form. When they submit the form, their tax file number (TFN) declaration details are sent straight to the ATO, so you as their employer do not need to do this. The form will then enable them to print and give you the summary of their tax details. You’ll need the summary so you can input the data into your system.

The New employment form can also be used to collect a range of information. For example, employees can use it to authorise variations to the amount you withhold from their pay for tax or the Medicare levy, or to advise you of their choice of super fund. They can also use it to update their tax circumstances with you, for example, if:

• their residency status has changed
• they no longer have a government study and training loan
• they are claiming the tax-free threshold from a different employer.

This is an alternative to your employee completing a Tax file number declaration and Superannuation standard choice form to obtain their details.

When your employee completes the online commencement forms, this needs to be done within 28 days of them starting.

Other issues

You’ll also need to confirm your new worker is legally allowed to work in Australia. Australian citizens, permanent residents and New Zealand citizens are legally allowed to work here. If you believe the worker is a foreign national (other than a New Zealander), you must confirm they have a visa with permission to work. More information about employing migrant workers is available on the Department of Home Affairs website.

If you’re hiring someone on a working holiday visa (subclass 417 or 462), you must also register as an employer of working holiday makers. You need to do this before paying them.

If your business has a contract with a labour-hire firm, then they’re responsible for pay as you go (PAYG) withholding, super guarantee and fringe benefits tax obligations. Regardless of how the activity is described, if a labour-hire firm supplies workers to your business, they must withhold from payments to individual workers.

To be clear, it is the labour-hire firm that needs to withhold tax from individual workers under a labour-hire arrangement whether they are an employee or independent contractor.

As your tax practitioner we can help you with the tax and super issues surrounding putting on a new worker, including determining if they are an employee or contractor.

FBT exemption for electric vehicles

Electric vehicles are set to become more affordable for both households and businesses after the government sealed a deal with crossbench Senators on legislation to exempt low and zero emission cars from fringe benefits tax (FBT).

The new law introduces an electric car discount in the form of an FBT exemption. This allows for car fringe benefits comprising the use or availability for use of an eligible car that is a zero or low emissions vehicle to be exempt from FBT. Specifically, a car benefit will be an exempt benefit for a year of tax if:

• the car is a zero or low emissions vehicle (note the scheme has been extended to include plug-in electric and internal combustion hybrids until 1 April 2025)
• the value of the car at the first retail sale was below the luxury car tax threshold for fuel efficient vehicles (currently $84,916), and
• the car is first held and used on or after 1 July 2022.

The FBT exemption would mean a customer with a gross income of $95,000 using a 36-month novated lease through their employer to purchase a 2022 Tesla model Y would see their take-home pay reduced by $1,364 a month, compared to $1,863 under the current rules, according to Inside Edge. Over the course of the lease, the total saving to the buyer would be $29,451 compared to a standard car loan.

Employers are the other big winners from the changes, which will remove the FBT liability on company-owned electric vehicles provided as part of a salary package for personal use by employees.

Under the earlier example, a Tesla valued at $64,000 currently results in a company FBT charge of around $12,500, according to Treasury calculations. This would be reduced to nil where the conditions above are met.

Car fringe benefits that are exempt from FBT will continue to be included in the employee’s individual fringe benefits amount for the purposes of determining the employee’s reportable fringe benefits amount for each FBT year in which the exempt benefit is provided.

Your reportable fringe benefits amount is used for:

• calculating your liability for the Medicare levy surcharge
• calculating your adjusted taxable income in determining whether a child is a dependant for Medicare levy purposes
• determining your entitlement to the private health insurance rebate
• determining whether you are liable for Division 293 tax for superannuation contributions
• determining your eligibility for the government co-contribution for personal superannuation co-contributions you made
• determining your eligibility for the low-income super tax offset for concessional (before tax) super contributions you or your employer pays into your super fund
• determining whether you can offset your business loss against other income (non-commercial losses)
• working out if you are entitled to reduce your employee share scheme discount
• working out the amount you must repay against your

–              Higher Education Loan Program (HELP)

–              Vocational Education and Training Student Loan (VETSL)

–              Student Financial Supplement Scheme (SFSS)

–              Student Start-up Loan (SSL)

–              ABSTUDY Student Start-up Loan (ABSTUDY SSL)

–              Trade Support Loan (TSL) debt

• determining your entitlement to a tax offset for

–              contributions you made to your spouse’s superannuation

–              invalid and invalid carer

–              zone or overseas forces

–              Medicare levy surcharge (lump sum payment in arrears)

–              seniors and pensioner

• determining your eligibility for family assistance payments, including

–              Family Tax Benefit Part A and Part B

–              Child Care Subsidy

–              Parental Leave Pay

–              Dad and Partner Pay

• working out your child support obligations.

Contact us if you would like to know more about this new law.

Federal Budget

Business and Individual Taxation

The confirmation of lucrative income tax cuts, and the scrapping of a tax offset for low and middle-income earners were the big-ticket items. That said, labor’s first federal Budget in nine years was as noteworthy for the changes it didn’t make as for those that it did. Unmentioned were current outstanding issues impacting the taxation of trusts, the long-awaited simplification of 7A, the future of business depreciation after this financial year and more.

Briefly the key taxation measures announced in the Budget are summarised as follows:

• Digital currencies not a foreign currency – the Budget Papers confirm that the government is to introduce legislation to clarify that digital currencies (such as Bitcoin) continue to be excluded from the Australian income tax treatment of foreign currency.
• COVID grants treated as NANE – the Budget Papers contain a listing of further State and Territory COVID-19 grant programs eligible for non-assessable, non-exempt treatment.
• LMITO axed – the government did not announce any extension of the low and middle-income tax offset (LMITO) to the 2022-23 income year. The LMITO has now ceased and been fully replaced by the less lucrative and less available low-income tax offset (LITO). The March 2022-23 Budget had increased the LMITO by $420 for the 2021-22 income year so that eligible individuals (with taxable incomes below $126,000) received a maximum LMITO up to $1,500 for 2021-22 (instead of the previous $1,080).
• No action – the government did not make any announcements around outstanding issues such as the long-awaited changes to Division 7A, reform to section 100A, the extension of both Temporary Full Expensing and loss carry-back (both due to expire at the end of June 2023), and implementation of the Board of Taxation’s recommendations around changes to the individual tax residency rul
• Thin Cap – the current measures impose a restriction on the deductibility of foreign held debt under a balance sheet approach. The proposed Thin Cap measures will replace the safe harbour test with a new earnings-based test under which an entity’s debt-related deductions will be limited to 30% of profits (using EBITDA (earnings before interest, taxes, depreciation and amortization) as the measure of profit); allow deductions denied under the EBITDA test to be carried forward and claimed in a subsequent income year (up to 15 years) and replace the worldwide gearing test and allow an entity in a group to claim debt deductions up to the level of the worldwide group’s net interest expense as a share of earnings (which may exceed the 30% EBITDA ratio. These measures are proposed to commence on 1 July 2023.
• Share buy-backs – the government intends to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market share buy-backs. However, there is no detail in the Budget Papers nor in any associated media releases as to what precisely is intended.
• Depreciation of intangible assets – the government will not proceed with the proposal to allow taxpayers to self-assess the effective life of intangible depreciating assets. This is the reversal of the previously announced option to self-assess effective life for certain intangible assets (eg intellectual property and in-house software). The effective lives of such assets will continue to be set by statute.
• Individual tax rates – the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated. From 1 July 2024, Stage 3 will see the abolition of the current 37% tax bracket, lowering the existing 32.5% bracket to 30%, and raising the threshold for the top tax bracket from $180,001 to $200,001.

Superannuation and Retirement

Caps and limits untouched

In a pleasing development, the important superannuation caps and limits were undisturbed, providing all-important investor certainty moving forward. This means that:

• individuals will be permitted to contribute just as much to superannuation as currently under the concessional and non-concessional caps at $27,500 and $110,000 respectively (or up to $330,000 of non-concessional contributions over three years, subject to an individual’s total super balance)
• the total superannuation balance (TSB) cap is unadjusted at $1.7 million and indexation continues. The retention of indexation means that the cap will very likely increase by $200,000 to $1.9 million from 1 July 2023. The TSB is relevant when working out eligibility for the following super-related measures:
• Carry-forward concessional contributions
• Non-concessional contributions cap and the bring-forward of your non-concessional contributions cap
• Work test exemption
• Government co-contribution
• Spouse tax offset
• Segregated asset method for calculating exempt current pension income.
• frozen deeming rates will be retained starting at 0.25% until 30 June 2024. The deeming rules are used to work out the income for your financial assets including superannuation. The rules assume these assets earn a set rate of income, irrespective of what you really earn. On 1 July 2022, the deeming rates were frozen for a further two years for all people receiving Centrelink payments, including approximately 445,000 Age Pensioners. Therefore, even though interest rates have increased significantly in 2022 and may do so further, the current deeming rates are sheltered until at least the middle of 2024.

Downsizer age reduction

The government confirmed its election commitment that the minimum eligibility age for making superannuation downsizer contributions will be lowered to age 55 (down from age 60). Legislation in the form of the Treasury Laws Amendment (2022 Measures No.2) Bill 2022 is currently before Parliament to effect this change. When passed into law (a safe assumption given that this is a bipartisan measure) the reduced age limit will apply from the first day of the first quarter after the day the Bill receives Royal Assent (likely from 1 January 2023). There is no maximum age limit to make a downsizer contribution.

This change will allow individuals aged 55 or over to make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their main residence outside of the existing contribution caps. Either the individual or their spouse must have owned the home for 10 years.

Downsizing will also be incentivized. Pensioners who do so have will have their sale proceeds exempt from the asset test extended from 12 to 24 months. Further, for income test purposes, only the lower deeming rate (currently 0.25%) will apply to these asset test exempt principal home sale proceeds for the 24-month period.

Expanded access to the Commonwealth Seniors Health Card

The government re-stated its commitment to increase the income threshold for Commonwealth Seniors Health Card eligibility from $61,284 to $90,000 for singles and from $98,054 to $144,000 (combined) for couples.

Other announcements

• the SMSF audit cycle will not be expanded to three years. The annual audit requirement remains
• the relaxing of the SMSF residency rules, previously announced in the 2021-22 Budget to commence from 1 July 2022, will now start from the income year commencing on or after the date of assent of the enabling legislation (yet to be introduced). Therefore, SMSF trustees need to ensure that they satisfy the current residency requirements otherwise their fund may become non-complying with severe tax consequences to follow.

Please do not hesitate to touch base with us regarding how any of the above may impact you or your SMSF.

Director  id … last ditch awareness campaign!

What you need to know

With hundreds of thousands of directors yet to apply for their director identification number (director ID) ahead of the looming November deadline, a last-ditch public information campaign has been launched.

The Albanese Government has just launched a new awareness campaign to help company directors obtain their director identification number (director ID) as the 30 November deadline quickly approaches.

A director ID is a unique 15‑digit identifier that a company director will apply for once and keep forever. By allowing regulators to trace directors’ relationships with companies over time, director IDs will help prevent illegal activity and level the playing field for businesses.

Director IDs are administered by the Australian Business Registry Services (ABRS), which is managed by the ATO.

The new awareness campaign will feature both widespread communications and targeted outreach to ensure all directors are aware of their obligations.

Who?

To recap, you need a director ID if you are an eligible officer of:

• a company, a registered Australian body or a registered foreign company under the Corporations Act 2001 (Corporations Act)
• an Aboriginal and Torres Strait Islander corporation registered under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).

An ‘eligible officer’ is a person who is appointed as:

• a director
• an alternate director who is acting in that capacity.

You need a director ID if you are a director of a:

• company
• Aboriginal and Torres Strait Islander corporation
• corporate trustee, for example, of an SMSF
• charity or not-for-profit organisation that is a company or Aboriginal and Torres Strait Islander corporation
• registered Australian body, for example, an incorporated association that is registered with the Australian Securities and Investments Commission (ASIC) and trades outside the state or territory in which it is incorporated
• foreign company registered with ASIC and carrying on a business in Australia (regardless of where you live).

Who doesn’t?

A director ID is not required if you are a director of an incorporated association (with no ABRN) registered with the Australian Charities and Not-for-profits Commission (ACNC), company secretary but not a director, acting as an external administrator of a company, run your business as a sole trader or partnership.

It has been clarified by the ABRS that directors who resigned their directorship before 31 October 2021 are not required to obtain a director ID. Deceased directors, as they are unable to personally apply, are also exempt.

If you run a company that is a small business, corporate trustee of an SMSF, a not‑for‑profit or even a large sporting club, it’s quite likely that you’re a director, and you’ll need to apply for your director ID.

When?

All directors of companies registered with the Australian Securities and Investments Commission (ASIC) will need a director ID and must apply by the 30 November deadline. Directors of Aboriginal and Torres Strait Islander corporations may have additional time to apply.

The deadline depends on the date on which you first became a director.

Deadlines

1. Corporations Act directors 

2. CATSI Act* directors

* Corporations (Aboriginal and Torres Strait Islander) Act

Not sure?

If you are still uncertain as to whether a director ID is required:

• Search ABL Lookup using the ABN or business name. If ASIC Registration – ACN or ARBN or ARSN or ARFNis showing against their record, and they are a director, they need to apply for a director ID.
• Search the online ASIC companies register for director details (providing the company is complying with its maintenance obligations).
• Determine who the directors are for:
  • not-for-profit organisations that are not registered with ACNC and have an ARBN or ACN – check the online ASIC companies register for director details (providing the organisation is complying with its maintenance obligations)
  • charities that are registered with the ACNC and have an ARBN or ACN – search for a charity oline on the ACNC website.

After selecting your charity, navigate to the People tab. If the role listed their name is Director, they need to apply for a director ID.

Apply

The fastest way to apply for a director ID is online at Australian Business Registry Services (ABRS website – www.abrs.gov.au/directorID ). To access the online application, use the myGovID app with at least a standard identity strength to log in to ABRS Online. You must apply personally – you must apply for a director ID personally, we cannot apply on their behalf however we can advise you around eligibility, deadlines etc.

Protecting your au domain name

The ATO Commissioner has just issued a warning to businesses on the importance of securing your au domain name!

To recap, .au direct domain names were launched earlier this year by the organisation that manages Australian domain names, the Australian Domain Administration (auDA). This will allow businesses to elect to drop the .com from their web addresses.

.au has been introduced, after ongoing significant public consultation, to complement the existing ‘namespaces’ (e.g. .com.au, .net.au and .org.au) for those domain names with direct verified connection to Australia. Its purpose is to deliver a wider choice of available names in the Australian domain, allow users to register shorter online names and provide names that are easier to type and display on mobile devices.

This change will align Australia with many other countries including the UK, Canada, USA and New Zealand.

To keep your business safe and undisrupted a consistent .au online presence will help to reduce risk of unwanted parties piggybacking on your online brand / domain names. It is recommended that your equivalent .au direct domain is purchased.

Anyone can register your business’s .au equivalent domain name unless you have secured it.

Since March this year, businesses with an existing domain name (i.e, whose websites end in .com.au or .net.au) have been given priority to reserve their matching .au domain name. For example, a business with an ‘ato.com.au’ domain name can also register as ‘ato.au’.

Remember to consider the benefits of registering an .au domain for your business and your individual circumstances. One of the benefits of registering is that you safeguard your brand’s identity on the internet.

If you don’t reserve your business’s .au domain name, impersonators, web name campers or cyber criminals may potentially take it. The Australian Cyber Security Centre has issued an alertExternal Link on the risk of cyber criminals using your brand’s domain to impersonate your business and conduct fraudulent cyber activities.

You can register your domain name’s .au equivalent at www.auda.org.au/au-domain-names/au-domain-names/au-direct or through www.auda.org.au/accredited-registrars  to protect the digital identity of your brand.

In most cases, there will only be one registrant eligible to apply for a reserved .au direct name as they will be the only holder of its match in another .au namespace (e.g. .com.au, .net.au and .org.au). This is referred to as an uncontested name.

In these cases, the applicant will be allocated the domain name shortly after applying for Priority Status. The registrant will be able to choose a licence term of between one and five years.

For contested names (names where different registrants have the same name in different namespaces), the earlier the creation date of your current domain name the higher the priority and the more likely you are to be allocated your requested name.

Do I have to pay myself super as a business owner?

Do you have your own business or are thinking of starting one? If so, you may need to pay yourself superannuation depending on your business structure.

Types of business structures available

If you were working for a company, your employer would be required to pay you superannuation guarantee (SG) contributions of 10.5% of your earnings to your chosen superannuation fund.

However when you’re running your own business and paying yourself, it’s not always clear if superannuation is compulsory as it depends on the trading structure of your business.

There are four commonly used business structures in Australia. These include:

1. Sole trader
2. Partnership
3. Company, and
4. Trust

It is important to understand the responsibilities of each structure because the structure you choose will have different superannuation obligations.

Summary of superannuation requirements

The table below summarises whether SG contributions will be required to be paid under each business structure.

Regardless of your business structure, you will need to pay SG contributions for any eligible workers you employ to help run your business.

Despite not having to pay SG contributions under certain business structures, you may still consider making contributions into superannuation to save for your retirement due to the low tax environment within superannuation. A further benefit is that you may also claim a tax deduction for any concessional contributions, such as personal deductible contributions, that you make to your superannuation fund up to a limit of $27,500 a year. Other types of concessional contributions that also count towards the $27,500 limit include SG contributions and salary sacrifice contributions.

Need help?

Choosing the right business structure and knowing what your obligations are can be complex. Remember, you’re not locked into any business structure and you can change the structure as your business changes or grows. Please don’t hesitate to contact us if you’re unsure which business structure to choose or whether you should be paying yourself superannuation, even though you may see yourself as being self-employed.

Rental expenses in excess of income not deductible

With many parts of Australia in the grip of a rental crisis, a significant number of tenants may be residing in the properties of friends and relatives.

A recent case that came before the Administrative Appeals Tribunal (AAT), Rizkallah and FCT [2022] AATA 3081, is a timely reminder that rental expenses in excess of income may not be deductible in these circumstances.  Instead, the deductions may be limited to your income from the property.

The taxpayer acquired a unit in Sydney for $300,000 in September 2010, financed by way of a mortgage.  After using it as her principal residence for about six months she found it difficult to keep up with the mortgage payments and commenced letting the property to a tenant after moving back in with her parents, who lived across the road.

In May 2015 the taxpayer’s future husband arrived in Australia on a partner visa sponsored by her.  He joined the taxpayer, living with her in her parents’ house.  The couple married in August 2015 and moved into the taxpayer’s property for about one month, after which time they split up due to the husband’s gambling addiction.

Keen to keep her estranged husband nearby in the hope of a reconciliation, the taxpayer then came to an informal tenancy agreement with her husband for $1,016 per month, to be paid in cash.  She claimed this reflected the going rate for comparable housing in the area, although it subsequently emerged at the hearing that the market rate was at least double the rate she struck with her husband.

In her 2016 and 2017 income tax returns, the taxpayer disclosed the rent received as assessable income, but claimed net losses of $24,200 and $23,500 respectively, due to significant claims for interest, capital allowance deductions (that is, depreciation on the building) and other expenses, including repairs and maintenance.

In relation to the capital allowances claim (totaling $22,100 over the two income years), on being notified of an audit the taxpayer produced invoices totaling almost $200,000 from a company associated with her family which turned out to have been deregistered at the relevant time.  She subsequently withdrew her capital allowances claim, saying the work was never undertaken nor the expenditure incurred, without offering any explanation as to her basis for making the claim in the first place.

The ATO disallowed the net losses claimed in both years and imposed a 50% shortfall penalty on the basis of recklessness.  The taxpayer sought a review in relation to both he disallowance of her claims and the penalties imposed.

The main question addressed by the AAT was whether the expenditure claimed (other than the withdrawn capital allowance claim) was deductible – was it necessarily incurred in gaining or producing assessable income, or was it incurred for some other purpose?

The AAT agreed with the Commissioner that the arrangement was non-commercial because: (a) the property was rented to the taxpayer’s former partner in an attempt to facilitate the reconciliation of the relationship (b) the rent was well below market rates (c) no tenancy agreement was lodged with authorities. All told, the rent payable was below market rates and based on non-commercial considerations.

The tribunal therefore held that deductions were only allowable up to the extent of the rental income disclosed.

If you have any questions around the taxation of your rental property and the deductions available, please reach out to us.