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Stage 3 tax cuts will come into effect in the new financial year. The planned cuts were recently revised and will now benefit low-income earners.

The Australian Government recently amended the Stage 3 Tax Cuts legislation (which had been previously passed by Parliament in 2019). These tax cuts will commence on 1 July, 2024.

These amendments will result in taxpayers who earn below $150,000 per year receiving a bigger tax cut, with lower and middle-income earners to benefit the most. Those earning above $200,000 per year will have their tax cut reduced from $9,075 per year to $4,529 per year.

The tax rate for those in the first bracket ($18,201-$45,000) will reduce from 19% to 16%, and the rate for those in the next bracket ($45,001- $135,000) will reduce from 32.5% to 30%. The top bracket will now commence at $190,001, increased from $180,001.

Below is a table showing the changes to the original legislation.

The size of your tax cut (excluding Medicare Levy)

The Government has explained that the changes were required to assist people with cost-of-living challenges, as all taxpayers will now receive a tax cut, instead of just those on higher incomes.

From a planning point of view, it may be beneficial for taxpayers to bring forward tax deductible expenditure to the 2024 tax year.

Published 3 April, 2024

Our March 2024 newsletter highlights some key tax changes and developments that may affect you or your business.

What has the Government been up to?

Stage 3 Income tax cuts redesigned

It is only March, yet we have already seen a significant tax development that will affect the majority of Australians — the Government’s decision to ‘redesign’ the Stage 3 income tax cuts.

The table below sets out the redesigned personal income tax rates and thresholds that are now proposed to apply from 1 July 2024.

The following table sets out the tax rates and thresholds that would have applied if the Stage 3 tax cuts had gone ahead as originally legislated.

This means that:

• Taxpayers whose taxable income exceeds $18,200 but does not exceed $45,000 will now receive a tax cut – they would not have under the legislated Stage 3 tax cuts.
• Taxpayers whose taxable income exceeds $45,000 but is less than $146,486 will receive a larger tax cut than they would have received under the legislated Stage 3 cuts.
• Taxpayers whose taxable income is $146,486 or higher will receive a smaller tax cut than they would have received under the legislated Stage 3 cuts.

The tax-free threshold ($18,200) will remain unchanged so taxpayers whose taxable income does not exceed $18,200 will not benefit from the redesigned Stage 3 tax cuts.

GST amendments

Attribution of input tax credits to earlier periods

The Parliament is considering an amendment to the GST legislation (contained in Division 1 of Part 2 of Schedule 6 to the (Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023) that relates to the situation where a GST return for a tax period did not take into account a claim for input tax credits; for example, because they were overlooked. A 2021 High Court decision confirmed that, in such cases, there could not be an amended GST return as the claim strictly ceases to be attributable to that tax period and is instead attributable to the first tax period for which the taxpayer lodges a return that takes it into account.

The amendment restores the ATO’s ‘administrative practice’ of allowing taxpayers to lodge an amended GST return to take into account the earlier unclaimed input tax credits.

General attribution rules for creditable acquisitions

Another legislative amendment proposes to make changes to the attribution rules for acquisitions to allow the ATO to determine the tax period to which an input tax credit for a creditable acquisition is attributable.

If the ATO makes such a determination, a taxpayer ceases to be entitled to the input tax credit only if it has not been taken into account in an assessment within four years after they were required to lodge the GST return for the relevant tax period.

The amendments have retrospective effect for tax periods that start on or after 1 July 2012.

Income tax deduction for GST paid by reverse charge

Currently, GST payable by way of reverse charge is not deductible for income tax purposes. Another amendment being considered by the Parliament (contained in Division 3 of Part 2 of Schedule 6 to the (Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023) will allow a taxpayer to deduct the amount of GST payable by way of reverse charge, to the extent that:

• the GST amount is greater than any input tax credits or reduced input tax credits to which they are entitled; and
• the general rules about claiming income tax deductions are satisfied.

From the ATO

Employee or independent contractor?

A ruling issued by the ATO in December last year explains when an individual is an ‘employee’ for PAYG withholding (PAYGW) purposes.

In 2022, the High Court handed down two important ‘worker classification’ decisions, i.e. about how to decide if an individual is an employee or an independent contractor. The ATO’s ruling considers the cases and comes to various conclusions:

• for PAYGW purposes, the term ‘employee’ has its ordinary meaning;
• whether a worker is an ‘employee’ of an entity under the term’s ordinary meaning is a question of fact to be determined by reference to the legal rights and obligations that constitute the relationship between the parties;
• if the parties have comprehensively committed the terms of their relationship to a written contract (and its validity is not challenged or its terms are not varied or waived), it is the legal rights and obligations in the contract alone that are relevant in determining if the worker is an employee or an independent contractor;
• the traditional factors that determine whether a worker is an employee or independent contractor (e.g. control, specified result, risk and delegation) are still relevant, but only in respect of the legal rights and obligations between the parties;
• a ‘useful approach’ for establishing whether a worker is an employee is to consider whether the worker is working in the entity’s business, based on the construction of the terms of the contract.

ATO’s compliance approach

The ATO has also published its compliance approach for businesses that engage workers and classify them as either employees or independent contractors. Specifically, it includes a risk framework for ‘worker classification’ arrangements, based on the actions taken by the parties when entering into such arrangements. The risk framework comprises four risk zones, ranging from very low risk (white) to high risk (red).

 Are your ABN details up to date?

When did you last check your Australian Business Number (ABN) details on the Australian Business Register (ABR)? If you’re not sure, it’s time to check your details are correct.

Emergency services and government agencies use ABN details to identify businesses in areas affected by emergencies. Checking that both your physical business address and postal address are listed and up to date is important.

Other ABN details include authorised contacts, contact details and business activities.

If your details are incorrect, you may miss out on important help, information or opportunities like financial grants.

The fastest way to update your ABN details is through ABR online services (using your myGovID).

If you’re no longer using your ABN, you need to cancel it. The ATO actively reviews ABN entitlement and may cancel your ABN if there are no signs of business activity.

Taxable payments annual report

If your business pays contractors to provide certain services, you may need to lodge a Taxable Payments Annual Report (TPAR) by 28 August each year.

From 22 March, the ATO will apply penalties to businesses that:

• have not lodged their TPAR from 2023 or previous years;
• have received three reminder letters about their overdue TPAR.

Last year, the ATO issued penalties of approximately $18 million to more than 11,000 businesses.

If you do not need to lodge a TPAR, you can submit a non-lodgment advice (NLA) form. If you no longer pay contractors, you can also use this form to indicate that you won’t need to lodge a TPAR in the future.

Contractor details

For each contractor you pay, you must include the following details in your TPAR:

• the ABN, if known (if a contractor’s ABN changed during the year, include each ABN for that contractor);
• the contractor’s name (business name or individual’s name) and address;
• the total amounts for the financial year of:
  • the gross amount paid, including GST, and any tax withheld;
  • the total GST you paid them; and
  • the total tax withheld where an ABN was not quoted.

When you receive an invoice:

• check that the ABN on the invoice matches the ABN on your record for that contractor;
• ensure you create a new contractor record, if necessary.

You can check that your contractor’s details (including ABN, name and GST registration) are correct by using ABN Lookup or the ATO app.

Lodging the TPAR

Use business software if:

• it is SBR-enabled software;
• your business can create a TPAR data file to the required Taxable payments annual reporting specifications. Lodge through Online services for business using the file transfer function.

If you do not have business software, use Online services for business. You need an ABN and a secure credential myGovID and Relationship Authorisation Manager (RAM).

Depreciating assets – composite parts

Have you ever looked at a depreciating asset held by your business and wondered if it is a single asset or whether it comprises a number of separate assets? The ATO has issued a ruling on this topic.

The ATO defines a ‘composite item’ as an item made up of several components that are capable of separate existence. It is a question of fact and degree whether a particular composite item is itself a depreciating asset, or whether one or more of its components are separate assets.

The ATO provides a series of ‘guiding principles’ to assist in identifying the relevant depreciating asset. They also provide some useful examples covering assets such as industrial storage racking, a desktop computer package, a mainframe computer, a local area network and a car global positioning system.

EV home charging rates

The ATO allows a cents-per-kilometre methodology for calculating electricity costs where an electric vehicle (EV) is charged at an employee’s or individual’s (e.g. sole trader’s) home.

The employer or individual can choose to use this methodology instead of determining the actual cost of the electricity. The choice is per vehicle and applies for the whole income or FBT year. However, it can be changed from year to year.

The methodology does not apply to plug-in hybrid vehicles, electric motorcycles or electric scooters.

Cents-per-kilometre

The ‘EV home charging rate’ is 4.2 cents per km. This rate is multiplied by the total number of relevant kilometres travelled by the electric vehicle in the year in question.

Where EV charging costs are also incurred at commercial charging stations and the home charging percentage can be accurately determined, the total number of relevant kilometres must be adjusted. If the home charging percentage cannot be accurately determined, you can choose to either use the EV home charging rate and disregard the commercial charging station cost, or use the commercial charging station cost and not apply the EV home charging methodology.

Record keeping and transitional approach for 2022–23 and 2023–24

If you are an employer and you choose to apply the EV home charging rate for FBT purposes, a valid logbook must be maintained if the operating cost method is used.

To satisfy the record-keeping requirements for income tax purposes, the individual needs to have:

• a valid logbook to use the logbook method of calculating work-related car expenses. For other vehicles, the ATO recommends a logbook to demonstrate work-related use of the vehicle; and
• one electricity bill for the residential premises in the income year (i.e. to show that electricity costs have been incurred).

However, if odometer records have not been maintained as at the start of the 2022–23 or 2023–24 FBT or income year, the ATO will allow a reasonable estimate to be used based on service records, logbooks or other available information

Fuel tax credits

Fuel tax credit rates increased on 5 February. The fuel tax credit rate is indexed twice a year in February and August – based on the upward movement of the consumer price index (CPI).

As a small business owner, you can claim fuel tax credits for eligible fuel you acquired, manufactured or imported and use in your business.

Fuel tax credits give you a full or partial credit for the fuel tax (excise or customs duty) that is included in the price of fuel used in your:

• machinery;
• plant;
• equipment;
• heavy vehicles; and
• light vehicles travelling off public roads or on private roads.

Example

The ATO has provided a useful example for small business owners.

Alex owns a landscaping business and uses a petrol-operated ride-on mower and whipper-snipper. She is eligible to claim fuel tax credits by being registered for both GST and fuel tax credits.

Alex uses the ATO’s fuel tax credit calculator to help work out the fuel tax credit amount that she can claim on her business activity statement (BAS). The fuel tax credit calculator can also help with corrections or adjustments on her previous BASs.

Alex has kept records showing when the fuel was acquired to support her claims and she knows to keep her records for up to five years.

Published 6 March, 2024

Whether refinancing or taking out a home loan for the first time, a competitive rate could save you thousands of dollars. So should you go fixed, variable, or even a combination of the two?

One of the main questions we get asked by clients when choosing a home loan is whether they should opt for a fixed or variable interest rate. Like many decisions relating to your mortgage the best loan for you depends on your personal wants, needs and situation. What will work for you will not for the next person.

But whether refinancing or taking out a home loan for the first time, a competitive rate could save you thousands of dollars. So should you go fixed, variable, or even a combination of the two?

All these options have their advantages and disadvantages – so how do you choose? Let’s get into some of the pros and cons of each.

Variable Loans

Variable loans are the most popular loan in Australia. Unlike the US and many European countries who offer long term fixed mortgages of up to 30 years, over 70 per cent of home loans across the nation are variable. This is because variable home loans have more flexibility and interest-saving features than fixed home loans.

Variable home loans come with a number of features designed to save the borrower money. These can include:

• Flexibility – When on a variable home loan the borrower has a lot more flexibility with their loan. This can include free, unlimited extra repayments to pay down the principal and more opportunity and less costs involved to pay out the loan or refinance.
• Offset accounts – Offset accounts are savings accounts that ‘offset’ the loan balance remaining, saving borrowers accruing interest on the equivalent amount of the loan. Most banks will offer an offset account with a variable loan however there are only currently a few that offer any sort of offset account with a fixed rate loan.
• More facilities – Variable loans offer redraw facilities that let you dip back into extra funds you’ve put towards your home loan.

Because variable interest rates can change over time, your interest rate can drop when official interest rates decrease – i.e. when the Reserve Bank of Australia (RBA) cuts the cash rate. This can give you significant potential savings on monthly repayments.

On the flip side variable interest rates are susceptible to rate hikes as many of us have experienced over the past 24 months. If the RBA increases the cash rate, mortgage lenders pass these added costs to borrowers. Even a 0.25% rate hike can add a hundreds or thousands dollars to your monthly repayments.

Fixed Loans

While fixed interest rates don’t make up the majority in Australia, they’re still an important option to consider when comparing mortgages. So, what are their pros and cons?

• Rate certainty – Fixed interest rates don’t change during the fixed term, typically 1 to 5 years in Australia. This offers certainty for borrowers and will protect them from any rate hikes. Unfortunately, once you are locked into a fixed rate any reductions to interest rates will not be passed on to you the borrower.
• Budgeting – The main benefit of a fixed loan is greater budgeting certainty. Having a set loan amount to be paid every month provides confidence and can be especially appealing when juggling new homeownership costs.

Unfortunately, many of the other features of a variable loan are not included with fixed loans. Interest-saving features such as offset accounts and redraws are extremely rare with fixed rates, in fact only one lender in Australia currently offers a full offset account with a fixed rate.

It is also important to note that fixed rates are much more restrictive.  Fixed home loans can also be significantly harder to refinance, especially if you want to leave before the fixed term expires. Breaking a fixed-term early usually comes with break costs – and these fees can be steep.

Split Loan

The third option which many new borrowers are not aware of is called a split rate.  A split home loan uses both variable and fixed interest rates to calculate your interest payment. For example, 50% of your loan repayment could be on a fixed rate and the rest would be variable.

A split loan can be a great way to get the best of both worlds, especially with fixed rates currently being reduced by many major lenders. This can allow the borrower some confidence in their repayments for now whilst ensuring any future rate reductions are still passed on for the variable portion of the loan.

How do I choose?

As with all home loan decisions your broker is a specialist who knows the industry inside and out and is there to provide advice on the best solution for you.

Published 12 February, 2024

As we head into the festive season, here’s an outline of options for employers to choose how they calculate their FBT meal entertainment liability.

During this time of the year, in addition to the typical Christmas party, we generally see a marked increase across meal and recreational entertainment, as well as gifts. This includes:

• Friday night drinks;
• team lunches and dinners;
• client lunches and dinners;
• attendance at and sporting events; and
• Christmas gifts (vouchers/bottles of wine).

FBT implications – meal entertainment

Employers must choose how they calculate their Fringe benefits tax (FBT) meal entertainment liability. Most use either the “50/50” method or the “actual” method, rather than the “12-week” method.

It is important to note that neither of the following should usually be considered meal entertainment, irrespective of the method of calculation used:

• “sustenance”; and
• meals while travelling.
  

1. Using the “50/50” method

Under this method, irrespective of where the meal entertainment occurs or who attends, 50% of the total expenditure is subject to FBT and 50% is deductible for income tax purposes. However, the following traps must be considered:

• the “property exemption” available under the actual method won’t apply. This means even if the function is held on the employer’s premises, the food and drink provided to employees is not automatically exempt from FBT;
• the minor benefits exemption cannot apply; and
• the general taxi travel exemption (for travel to or from the employer’s premises) also cannot apply.

2. Using the “actual” method

Under the “actual” method, only the entertainment provided to employees and their associates is subject to FBT. In addition, where food and drink are consumed by employees on the employer’s premises, there will be no FBT due to the property exemption – this takes care of Friday night drinks in the office! But usually, the greatest reduction in FBT when using the actual method will come from the “minor benefits” exemption.

Where a benefit with a notional taxable value of less than $300 (including GST) is provided to an employee or an associate, the minor benefits exemption will generally apply to exempt the benefit from FBT.

We find that usually employers would save a considerable amount of FBT using the “actual” method (including removing the Christmas party!), however they usually don’t have the time to determine who received the benefit in order to apply the exemption.

The giving of gifts

Gifts provided to employees, or their associates, will typically constitute a property fringe benefit and therefore be subject to FBT unless the minor benefits exemption applies. Gifts, and all benefits associated with the Christmas function, should be considered separately to the Christmas party in light of the minor benefits exemption. For example, the cost of gifts such as vouchers, bottles of wine, or hampers given at the function should be looked at separately to determine if the minor benefits exemption applies to these benefits.

Gifts provided to clients are outside of the FBT rules but may be deductible if they are being made for the purposes of producing future assessable income.

Published 1 December, 2023

We are thrilled to have been listed as one of the Australian Financial Review’s Top 100 Accounting Firms for another year.

AFR subscribers can view the full list here: https://www.afr.com/companies/professional-services/revealed-australia-s-best-accounting-firms-in-2023-20231107-p5eia6

Published 14 November, 2023

Have you recently started a family or taken on significant debt? Here’s how life insurance can protect you and your loved ones.

If you have recently purchased a property or started a family, it’s normal to consider the future and how you and your family’s financial stability would be impacted should you be unable to work for an extended period or if you were to suddenly pass away. This is the reason why many Australians take out life insurance policies to help protect their families and loved ones, providing peace of mind should the worst happen.

Committing to a partner, taking on debt, or having children are all milestone moments in our lives and these are also important junctures to take stock of your changed personal circumstances and consider any potential risks that you might need to insure yourself and your family against. Personal insurances can be seen as a bridge that can help us and our loved ones achieve our long term financial objectives, even if the family’s earning capacity is impacted by serious illness or death.

Main types of personal insurance

• Death Cover – the insurer provides a lump-sum death benefit to the policyholder’s beneficiaries upon their passing. This financial support can help cover funeral expenses, outstanding debts, provide for school fees or other planned expenditures, and replace lost income, ensuring that loved ones aren’t forced into financial difficulties.
• Total and Permanent Disability (TPD) Insurance – the insurer provides a lump-sum benefit in the event of the insured becoming totally and permanently disabled and being unable to work. It offers a lump sum payment that can be used to cover medical bills, rehabilitation costs, mortgage payments and living expenses. This coverage is especially vital for young families as it protects their financial stability when the primary breadwinner or carer faces a sudden disability.
• Trauma Cover – Trauma cover is paid when the insured suffers a ‘traumatic’ event, irrespective of outcome. Common examples include heart conditions, cancer and strokes. This cover is used to help cover short-term costs and medical expenses to provide a lump sum of cash to meet immediate needs.
• Income Protection – the insurer provides a monthly payment to replace up to 70% of the insured’s salary lost in the event they are unable to work for an extended period because of accident or illness.

Benefits of taking out life insurance whilst young

Affordability & ease of insurability

Insurance cover premiums are generally more affordable when purchased at a younger age; the younger you are and the better your health is, the lower the premiums tend to be and the easier it is for you to be insured without any exclusions or loadings.

Peace of mind

Knowing that your family is financially protected in case an unforeseen event transpires provides peace of mind to you and your loved ones, allowing you to focus on building your lives together.

Flexibility

Insurance policies can be tailored for your specific individual and family needs in order to provide the best possible cover to suit your individual needs.

Tax deductibility

Death cover and TPD cover are generally owned within superannuation funds, and these are tax deductible within the fund, saving personal cash flow and maximising tax deductibility to save costs. Income Protection is tax deductible in one’s personal name which can greatly reduce the cost of cover if you are on a high marginal tax rate (up to 47% saving including the Medicare levy).

Where BDJ can help

BDJ has a long history of providing personal insurances to our clients and their families. We facilitate this process as your broker and will help discern what cover types and amounts you and your family needs and then we will source the best offer from our approved panel of insurers.

Published 29 September, 2023

Our September 2023 newsletter highlights some key tax changes and developments that may affect you or your business.

What’s new – tax changes from 1 July 2023

The ending of temporary full expensing (which allowed until 30 June 2023 an immediate deduction for the cost of an eligible depreciating asset for businesses with an aggregated turnover of less than $5 billion), but the instant asset write-off threshold is proposed to be $20,000 for small businesses (see below);

• The ending of loss carry back (which allowed until 30 June 2023 companies to carry back tax losses back as far as the 2018–19 income year);
• the expansion of the third-party reporting system to include short-term accommodation transactions and taxi and ride-sourcing services;
• in Victoria, businesses with national payrolls more than $10 million a year will pay an additional surcharge (to address Victoria’s COVID-19 debt) on Victorian taxable wages. The surcharge is 0.5%, increasing to 1% for businesses with national payrolls of more than $100 million. This additional surcharge will apply for 10 years until 30 June 2033.

Increased thresholds/rates

A new tax year (2023–24) started on 1 July 2023. Although the personal income tax rates haven’t changed (the Stage 3 income tax cuts don’t start until 1 July 2024), various other amounts and rates have increased for 2023–24. These are listed below.

Instant asset write-off

Temporary full expensing ended on 30 June 2023. However, small businesses (aggregated annual turnover of less than $10 million) can access the instant asset write-off. This allows a small business to deduct in full the cost of a depreciating asset if its cost is less than the relevant threshold which, for the 2023–24 income year, is proposed to be $20,000.

The asset must be first used (or installed ready for use) between 1 July 2023 and 30 June 2024.

The temporary $20,000 threshold was announced as part of the Federal Budget 2023–24 in May 2023, although it is yet to be legislated.

Bonus deduction for energy efficiency

A 20% bonus deduction will be available to businesses with aggregated annual turnover of less than $50 million which incur deductible expenditure that supports electrification and more efficient use of energy. This will include expenditure on assets that upgrade to more energy-efficient electrical goods.

The bonus deduction will not apply to electric vehicles, renewable electricity generation assets, capital works and assets that are not connected to the electricity grid and use of fossil fuels.

Up to $100,000 of total expenditure will be eligible for the incentive with a maximum bonus of $20,000 per business.

Eligible assets or upgrades will need to be first used, or installed ready for use, between 1 July 2023 and 30 June 2024.

Tax losses

A tax loss arises when the total deductions you can claim, excluding gifts, donations and personal superannuation contributions, are greater than your total income for an income year.

If your business makes a tax loss, you may be able to:

• offset the loss in the same income year against other assessable income;
• carry forward the loss and claim it as a business deduction in a later income year; or
• carry the loss back to an earlier income year (but not before 2018–19) in which the business has an income tax liability and receive a tax offset – loss carry back was available only to companies until 2022–23 and ceased to be available from 2023–24.

If your business has made more than one tax loss in a year, you will need to consider each tax loss separately.

If you’re a sole trader or in a partnership and want to offset a tax loss, first check if the business activity meets at least one of the four tests under the non-commercial loss rules. (Those rules do not apply to business losses made by primary producers and professional artists whose income from other sources is less than $40,000.)

If you do meet at least one of the four tests, then you can offset the loss against other assessable income (such as salary or investment income) in the same income year.

If you don’t meet at least one of the four tests, you can defer the loss or carry it forward to a future income year. For example, you can offset it when you next make a profit.

Non-commercial losses made by an individual with an adjusted taxable income exceeding $250,000 are quarantined.

The rules for record-keeping still apply in relation to business losses. You need to keep records for 5 years for most transactions. However, if you fully deduct a tax loss in a single income year, you need to keep records for only 4 years from that income year.

Personal services income

If you operate your business through a company or a trust, income earned by the company or trust from the provision of your personal services (known as ‘personal services income’ or PSI) will be attributed to you unless:

• the company or trust is carrying on a personal services business (PSB); or
• the PSI was promptly paid to you as salary or wages.

The company or trust will be carrying on a PSB if at least one of a number of tests are satisfied. These are:

• the results test – this is based on common law criteria for characterising an independent contractor (in contrast to an employee/employer relationship);
• the unrelated clients test – this requires the PSI to be earned from at least 2 unrelated clients who contract your services as a direct result of advertising or making a public offer of your services;
• the employment test – this requires at least 20% (by market value) of your work to be performed by employees;
• the business premises test – this requires you to use business premises that meet certain conditions (e.g. you have exclusive use of the premises and the premises must be physically separate from any premises you use for private purposes).

If 80% or more of your PSI (with certain exceptions) is income from one client (or the client and their associate(s)) and the results test is not met, the company or trust will need to obtain a PSB determination from the ATO.

The company or trust cannot deduct amounts that relate to gaining or producing your PSI, unless you could have deducted the amount as an individual or the company or trust received the PSI in the course of conducting a PSB.

Even if you don’t use a company or trust to derive your PSI, there are limitations on the deductions that you may claim against your PSI. For example, you may not be able to deduct certain home office expenses or occupancy expenses such as mortgage interest or rent.

Home office

A lot more people are working from home following a shift in workplace arrangement as a result of the COVID-19 pandemic. If you operate your business from a home office, you can deduct the expenses of running that office. Note there can be CGT consequences from using your home to carry on a business.

Expenses you may be able claim a deduction for include:

• occupancy expenses – these include rent, mortgage interest, water rates, land taxes and house insurance premiums. Occupancy expenses are usually calculated by apportioning the expenses between the home office and the rest of the property on a floor area basis;
• running expenses – these are the increased costs from using your home for your business, including electricity or gas charges for heating, cooling and lighting, cleaning costs and the decline in value and the cost of repairs of deprecating assets such as furniture, furnishings and equipment; and
• work related phone and internet expenses, including the decline in value of the handset – an apportionment will be required if the phone or computer is not used exclusively for work purposes.

Running expenses

If you work from home but don’t have a home office as such, you can still claim deductions for ‘running expenses’. To simplify matters, from 1 July 2022, the ATO allows these expenses to be claimed using a fixed rate of 67 cents for each hour worked from home (it was 80 cents per hour for 2021–22 under a different method, the temporary ‘shortcut method’).

Running expenses for these purposes are energy expenses, internet expenses, mobile and home phone expenses and stationery and computer consumables expenses (separate deductions need to be claimed for any other running expenses and depreciation).

From 1 March 2023, you must keep a record of the actual time spent working from home. From 1 July 2022 to 28 February 2023, you may instead keep a record that is representative of the actual hours worked. Records also need to be retained to demonstrate you incurred the relevant expenditure. In this respect, the ATO will accept one bill per item (being energy, internet, fixed or mobile telephone and stationery and computer consumables). If the bill is not in your name, additional evidence such as a credit card statement is required to show that you incurred the expenditure.

Of course, you can still make a claim based on your actual running expenses if it produces a larger deduction. But remember that those expenses will need to be apportioned between work and private use.

Company tax rate

The standard company tax rate is 30%.

The tax rate for the 2022-23 tax year for companies whose aggregated annual turnover is under $50 million (called “base rate entities”) is 25%. This is also the rate for 2023-24 and later tax years.

If more than 80% of a company’s assessable income is “base rate entity passive income” (eg dividends, rent, interest, royalties and net capital gains), the company will be taxed at the standard 30% rate.

Small business tax offset

If you are a sole trader, an individual who is a partner in a business partnership or an individual who is a beneficiary of a trust that carries on a business, you may qualify for the small business tax offset if the business’ turnover is less than $5 million (this is less than the general $10 million small business entity threshold). The offset is not available to an individual acting in their capacity as a trustee.

The offset for the 2022–23 income year (and for the 2023–24 income year) is equal to 16% of the income tax payable on the sole trader’s or other individual’s taxable income that qualifies as net small business income. The offset is capped at $1,000.

Taxable payments annual report 

Businesses that pay contractors or sub-contractors for certain services may need to lodge a taxable payments annual report (TPAR) with the ATO. The services are:

• building and construction services;
• cleaning services;
• courier or road freight services;
• IT services; and
• security, investigation, or surveillance services.

The TPAR for 2022–23 should have been lodged by 28 August 2023.

The reporting system has been extended from 1 July 2023 to include the supply of taxi and ride sharing services and short-term accommodation.

Technology investment boost

Businesses with an aggregated annual turnover of less than $50 million can claim an additional 20% tax deduction for 2022–23 to support their digital operations and digitise their operations. The bonus deduction is capped at $20,000.

The expenditure must:

• already be deductible for your business under taxation law; and
• have been incurred between 7:30 pm AEDT on 29 March 2022 and 30 June 2023.

If the expenditure is on a depreciating asset, the asset must have been first used or installed ready for use for a taxable purpose by 30 June 2023. That rule does not apply to expenses incurred in the development of in-house software allocated to a software development pool.

Repair and improvement costs for depreciating assets are also eligible for the bonus deduction, provided they were incurred during the relevant time period.

Eligible expenditure may include, but is not limited to, business expenditure on:

• digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks;
• digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design;
• e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth; and
• cyber security – cyber security systems, backup management and monitoring services.

Where the expense is partly for private purposes, the bonus deduction can be applied only to the business-related portion.

If your business is registered for GST and the expenditure is not GST-free, the bonus deduction is calculated on the GST-exclusive amount where the entity is eligible to claim a GST credit, or includes any GST that cannot be claimed as a GST credit incurred in carrying on the business.

The following expenses are not eligible for the bonus deduction:

• salary and wages;
• capital works costs;
• financing costs;
• training or education costs (these may be eligible for the skills and training boost); and
• expenses that form part of your trading stock costs.

Small business skills and training boost

 Businesses with an aggregated annual turnover of less than $50 million can claim an additional 20% tax deduction for 2022–23 and 2023–24 for external training courses delivered to employees by registered training providers.

The expenditure must be:

• for the provision of training to employees of your business, either in-person in Australia, or online;
• charged, directly or indirectly, by a registered external training provider that is not you or an associate of yours;
• already deductible for your business under a taxation law;
• incurred within a specified period (between 7:30 pm AEDT on 29 March 2022 and 30 June 2024).

Training expenses can include incidental costs related to the provision of training, provided they are charged by the registered training provider, such as the cost of books or equipment needed for the course.

Where the training is a component of a larger program or course of training, the enrolment or arrangement relating to the relevant expenditure must be made or entered into at or after 7:30 pm AEDT on 29 March 2022.

If your business is registered for GST and the training is not GST-free, the bonus deduction is calculated on the GST exclusive amount where the entity is eligible to claim a GST credit, or includes any GST that cannot be claimed as a GST credit in carrying on the business.

Where deductions are to be claimed over time such as for capital deductions, the bonus deduction is calculated as 20% of the full amount of the eligible expenditure. It can be claimed upfront in the first income year in which the bonus deduction is available.

You cannot claim expenditure for:

• training of non-employee business owners such as sole traders, partners in a partnership or independent contractors; and
• costs added on an invoice by an intermediary on top of the cost of training, such as commissions or fees, as they are not charged directly or indirectly by the registered training provider.

Changes to fuel tax credit rates

Our fuel tax credit calculator helps you to apply the correct fuel tax credit rates when preparing your BAS.

Fuel tax credit rates change regularly, so make sure you’re using the correct rates for the relevant dates on which you acquired fuel.

On 1 July 2023, the fuel tax credit rate for heavy vehicles (such as buses, coaches and trucks) for travelling on public roads decreased because of the increase in the road user charge.

On 1 August 2023, fuel tax credit rates increased in line with the fuel excise indexation. All fuel tax credit claimants need to apply the new rates for fuel acquired from 1 August.

To make it easier, if your business claims less than $10,000 in the year you can use the rate that applies at the end of your BAS period to work out your claim.

There are time limits on correcting errors and mistakes.

The ATO provides a fuel tax credit calculator on its website. Or talk to your tax adviser.

Published 12 September, 2023

Have you heard about eInvoicing yet? The Australian Government is actively encouraging businesses to adopt eInvoicing as a more efficient and secure way to send and receive invoices.

As part of the 2020-21 Budget, the Australian Government invested $3.6m to facilitate eInvoicing adoption across the public sector. It mandated that all Commonwealth Government agencies be able to receive eInvoices by 1 July 2022.

In the 2021-22 Budget, as part of the Digital Economy Strategy, the government invested a further $15.3m to enhance the value of eInvoicing for businesses, improve business awareness and accelerate eInvoicing adoption.

Australia has adopted the Peppol (Pan-European Public Procurement On-Line) framework as the common standard and network for eInvoicing, and the ATO has been nominated as Australia’s Peppol Authority.

The Peppol network started in Europe back in 2008. It is a secure international communication system maintained by the non-profit OpenPeppol organisation. Across the globe the eInvoicing market size reached US$11.2 Billion in 2022 and is expected to grow in excess of US$35.9 Billion by 2028.

So what is eInvoicing?

eInvoicing is the digital exchange of standardised invoice information between suppliers’ and buyers’ software through the secure Peppol network. This means that suppliers don’t need to print, post or email paper-based or PDF invoices to their customers, and buyers don’t need to manually enter or scan invoices into their software.

Suppliers and buyers connect electronically on the same network and the information embodied in their invoices is exchanged directly from software to software, no matter what eInvoicing software they use.

Some key benefits of eInvoicing are:

• time and money saved in administration;
• increased reliability and security;
• reduced payment times;
• reduced resource and energy consumption; and
• a business only needs to connect once to trade with anyone on the Peppol network, regardless of size.

Lost invoices could also become a thing of the past, and the risk of fake or compromised invoices or ransomware attacks are significantly reduced as businesses are verified before they can join Peppol.

eInvoices can only be viewed by the supplier, buyer and digital software provider, they will not go through the ATO.

So how can businesses get started?

To start eInvoicing you need to register on the Peppol network. There are a few options to register on the network:

• Through your existing eInvoicing ready software i.e. Xero, Quickbooks etc;
• Through an eInvoicing service provider; or
• Through a free or low cost online solution – there is an eInvoicing Ready product register available on the ATO website.

If you’re already using eInvoicing ready software you can follow the links in your software to get registered. Once registered you need your trading partners to be on the network for the eInvoices to be transmitted.

The process will take time as the Australian business industry progressively joins the network, but with widespread adoption of eInvoicing, the Australian economy will benefit from greater efficiencies, security and cost-effective ways to communicate between businesses and across borders.

Published 1 August, 2023

We are very proud to announce that from 1 July, 2023 Alex Schebesta will be admitted as a Partner.

Alex commenced at BDJ in 2004 and has been an integral part of the firm since that date. This is an exciting appointment for BDJ, Alex has exceptional abilities and will bring another dimension to our firm.

In her time at BDJ, Alex has grown from being an undergraduate to a Senior Manager, has run our Bookkeeping division since 2017 and still has time for extracurricular activities such as horse riding and raising two children.

Partner Anthony Dowell said, “Alex’s admittance as a Partner is an important part of the future of BDJ. She is highly respected by both clients and staff, and we all look forward to seeing her develop into her new role. I have seen Alex grow both personally and professionally since she commenced working with us and I am excited about her advancement. Welcome aboard Alex.”

Published 28 June, 2023

Following more than 11 interest rate increases since April 2022 and with the nation’s cash rate now at the highest in a decade, Australians are looking for a better loan deal at a rate like never before.

BDJ Loans Director Chris Brown says there are a number of reasons why now is the right time to look at refinancing*.

“The Banking Association is currently receiving up to 2,500 requests a day to refinance with most people looking to reduce their interest rate by switching lenders. Refinancing your loan can provide several benefits especially if you are coming off a fixed rate or interest only loan period. Refinancing can also be beneficial for extracting equity for renovations or for debt consolidation.

“At BDJ we have the benefit of being able to review your loans as part of a holistic financial position. Sitting down with your accounting, financial planning and loan teams as one, we can ensure we provide up to date and accurate advice that is best for your current situation.”

So when should you consider refinancing?

1. Rolling off a fixed rate:

Approximately 880,000 fixed-rate mortgages will come to an end this year, according to the Reserve Bank of Australia (RBA). For many homeowners this will see a dramatic change in their mortgage affordability as their rate increases. At BDJ we recommend reviewing your loans a few months before any fixed rate ends to ensure we can source the best possible rate for you either from your current lender or through a new lender via refinancing.

2. Coming to the end of an interest-only period:

Similarly, many investors and homeowners will be coming off interest-only loan terms this year and will once again see a significant increase to their loan repayments as they revert to principal and interest. Depending on your circumstances we can review securing a new interest-only loan or offer alternative options.

 3. Extracting equity:

Refinancing can also offer new opportunities through extracting equity when your property has increased in value. This equity can be used for home improvements, further investments, a new car or purchasing an additional property.

 4. Debt consolidation:

To improve overall cash flow, debt consolidation can be a very useful solution for the immediate term. By consolidating multiple debts such as a home loan, car loan and credit card into one you can reduce monthly repayments assisting your financial positioning in the near term.

Chris Brown continues, “There are some instances however, where refinancing may not be the right solution.

“When you refinance you will likely be resetting your loan back to a 30-year term which does mean while the rate is lower, interest will be paid over a longer period of time.”

*Refinancing refers to the process of paying out your current home loan by taking out a new loan, either with your existing lender or through a different lender.

Published 1 June, 2023

Our May 2023 newsletter highlights some key tax changes following the Federal Budget and other developments that may affect you or your business.

Tax and super highlights

It was a relatively unexpected Budget as far as tax and superannuation measures are concerned, some of which were announced by the Government before the Budget. The Budget contained a few measures to help small and medium businesses, but there was little for non-business individuals.

The Budget contains measures targeting large multinationals and includes changes to the Petroleum Resource Rent Tax.

Most of the superannuation changes were announced before the Budget was handed down but won’t come into effect for at least a couple of years.

Here are some of the tax and superannuation ‘highlights’:

• the small business instant asset write-off threshold will temporarily increase to $20,000, from 1 July 2023 until 30 June 2024 (without this measure, the threshold would have reverted to the standard legislation threshold of $1,000 from 1 July 2023);
• the PAYG uplift factor for 2023–24 will be 6% (instead of the statutory rate of 12%);
• the Small Business Energy Incentive will provide businesses with an aggregated turnover of less than $50 million with an additional 20% deduction on spending that supports electrification and more efficient use of energy;
• a lodgment penalty amnesty will be available to small businesses for outstanding tax statements lodged from 1 June 2023 to 31 December 2023 that were due during the period from 1 December 2019 to 29 February 2022;
• lump sum payments in arrears received by low income taxpayers will be exempt from the Medicare levy from 1 July 2024;
• from 1 July 2026, employers will be required to pay their employees’ superannuation guarantee contributions at the same time as their salary and wages;
• the capital works deduction rate will increase from 2.5% to 4% per year for eligible new build-to-rent projects where construction commences after 9 May 2023;
• the withholding tax rate for eligible fund payments from managed investment trusts on income from newly constructed residential build-to-rent properties will be reduced (from 1 July 2024);
• the general anti-avoidance rules will be expanded to apply to certain schemes accessing a lower withholding tax rate on income paid to foreign residents or where the dominant purpose was to reduce foreign income tax;
• three patent box measures announced by the former Government will not proceed;
• a 15% global minimum tax and a 15% domestic minimum tax will be introduced for large multinationals (for income years commencing on or after 1 January 2024);
• general insurers will be able to use audited financial reporting information, which is calculated according to the new accounting standard AASB17, as the basis for their tax returns; and
• changes will be made to the Petroleum Resource Rent Tax (PRRT) rules, including limiting the proportion of PRRT assessable income that can be offset by deductions to 90%.

Tax measures for non-business individuals

Tax measures that affect individuals are outlined below.

Medicare levy thresholds
The Medicare levy low-income threshold for singles for 2022–23 is $24,276 ($23,365 for 2021–22). The family income threshold is $40,939 ($39,402 for 2021–22), increasing by $3,760 for each dependent child or student ($3,619 for 2021–22).

For single seniors and pensioners eligible for the senior Australians and pensioners tax offset (SAPTO), the Medicare levy low-income threshold for 2022–23 is $38,365 ($36,925 for 2021–22). The family threshold for seniors and pensioners eligible for SAPTO is $53,406 ($51,401 for 2021–22). The threshold increases by $3,760 for each dependent child or student ($3,619 for 2021–22).

No changes to tax rates
There were no changes to the income tax rates. The rates in the table below apply for the 2022–23 and 2023–24 income years.

Income tax rates 2022–23 and 2023–24 — residents

The Stage 3 tax cuts are legislated to apply from 2024–25. From 2024–25, there will be a single rate (30%) for taxable income between $45,001 and $200,000, doing away with the 32.5% and 37% rates. The top rate for taxable incomes above $200,000 will continue to be 45%.

Lump sum in arrears – Medicare levy exemption

The Government will exempt certain lump sum payments in arrears from the Medicare levy from 1 July 2024.

This measure is targeted at genuine low-income taxpayers. As a result, they will not pay a higher Medicare levy as a result of receiving an eligible lump sum payment, for example as compensation for underpaid wages.

To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the 2 most recent years to which the lump sum accrues (as a low-income earner). Taxpayers must also satisfy the existing eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least 10% of the taxpayer’s income in the year of receipt.

New deductible donations

The Government announced the following organisations (DGRs) will be eligible to receive tax deductible donations for the specified periods:

• The Voice No Case Committee – from the day after the entity is registered with the Australian Charities and Not-for-profits Commission to 30 June 2024;
• Justice Reform Initiative Limited – from 1 July 2023 to 30 June 2028;
• Susan McKinnon Charitable Foundation Ltd – from 1 July 2023 to 30 June 2028;
• Transparency International Australia – from 1 July 2023.
• The Government will also extend the following organisations’ DGR endorsement for the following dates:
  • Victorian Pride Centre Ltd – from 9 March 2023 to 8 March 2028;
  • Australian Sports Foundation Charitable Fund – from 1 July 2023.

The listing of the Susan McKinnon Charitable Foundation Ltd is subject to the condition that DGR funds can only be used for purposes consistent with existing DGR categories in the tax law and it will maintain minimum annual distributions, consistent with the current requirements for ancillary funds.

The start date for the previously announced listing of 28 entities related to community foundations affiliated with the peak body Community Foundations Australia will be deferred from 1 July 2022 to the date on which the enabling legislation receives Royal Assent. In addition, the 30 June 2027 end date for the listing will be removed. DGR status for these foundations will be subject to ongoing endorsement by the ATO under new ministerial guidelines.

The listings of Lord Mayor’s Charitable Foundation and Foundation Broken Hill Limited will be made consistent with that for other community foundations, including the removal of end dates where applicable.

Taxpayers may claim an income tax deduction for donations of $2 or more to eligible DGRs.

Student loans

The Government will forgo $5.4 million in receipts over 5 years from 2022–23 (and $15.5 million over 2 years to 2033–34) to support students affected by a delay in the transfer of some historical tertiary education loan records to the ATO. This will mean waiving the following debts for affected loans, as determined at the date of transfer to the ATO:

• Historical indexation, as well as indexation that will be applied on 1 June 2023, on loans issued prior to 1 July 2022 under the Higher Education Loan Program, the VET Student Loans program, the Trade Support Loans program and on loans issued in 2017 and 2018 under the VET FEE-HELP program.
• Outstanding debt for VET FEE-HELP loans issued from 2009 to 2016.

Income tax and GST measures for business

Income tax and GST measures affecting businesses are outlined below. Some of these measures were first announced before the Budget was handed down.

Small business – instant asset write-off

The small business instant asset write-off threshold will be increased to $20,000, from 1 July 2023 until 30 June 2024. Without this measure, the threshold would have reverted to the standard legislation threshold of $1,000 from 1 July 2023.

Small businesses, with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can be placed into the small business general use pool and depreciated at 15% in the first income year and 30% each income year thereafter.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for 5 years if they opt-out will continue to be suspended until 30 June 2024.

Readers are reminded that temporary full expensing, which allows an outright deduction for the total cost of eligible depreciating assets, ends on 30 June 2023.

Small and medium business – energy incentive

The Government will introduce the Small Business Energy Incentive to help small‑ and medium‑sized businesses save on their energy bills.

The Small Business Energy Incentive will provide businesses with an aggregated turnover of less than $50 million with an additional 20% deduction on spending that supports electrification and more efficient use of energy.

This will help small and medium businesses make investments like electrifying their heating and cooling systems, upgrading to more efficient fridges and induction cooktops and installing batteries and heat pumps.

Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.

Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.

PAYG and GST instalments – uplift factor

The GDP-adjustment factor for PAYG and GST instalments will be 6% for the 2023–24 income year (instead of 12% under the statutory formula).

The 6% uplift factor will apply to small businesses and individuals who are eligible to use the relevant instalment methods (aggregated turnover up to $10 million for GST instalments and aggregated turnover up to $50 million for PAYG instalments), in respect of instalments that relate to the 2023–24 income year and fall due after the enabling legislation receives Royal Assent.

The PAYG and GST uplift factors for 2022–23 are 2%.

Franked distributions funded by capital raisings

The Government confirmed that the start date for the measure to prevent the distribution of franking credits, where a distribution to shareholders is funded by particular capital raising activities, will apply to relevant distributions made on or after 15 September 2022 rather than 19 December 2016.

This measure is contained in Schedule 5 to the Treasury Laws Amendment (2023 Measures No 1) Bill 2023, which contains the revised start date.

Lodgment amnesty for small business

A lodgment penalty amnesty program is to be provided for small businesses with aggregated turnover of less than $10 million to encourage them to re-engage with the tax system.

The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.

Incentives to increase housing supply

The Government will provide the following incentives to help increase the supply of housing:

• the capital works deduction rate will be increased from 2.5% to 4% per year for eligible new build-to-rent projects where construction commences after 9 May 2023; and
• the withholding tax rate for eligible fund payments from managed investment trusts to foreign residents on income from newly constructed residential build-to-rent properties after 1 July 2024 will be reduced from 30% to 15% (although this is subject to further consultation on eligibility criteria).

This measure will apply to build-to-rent projects only if:

• the construction consists of 50 or more apartments or dwellings made available for rent to the general public;
• the dwellings are retained under single ownership for at least 10 years before being able to be sold; and
• landlords offer a lease term of at least 3 years for each dwelling.

Patent box measures abandoned

The Government will not proceed with 3 separate patent box measures announced by the former Government in the Federal Budget 2021–22 and Federal Budget 2022–23. These measures would have provided concessional tax treatment in relation to:

• new patents in the medical and biotechnology sectors;
• the commercialisation of patented technologies which have the potential to lower emissions; and
• practical, technology-focused innovations in the Australian agricultural sector.

Clean building withholding tax concession extended

The Government will extend the clean building managed investment trust (MIT) withholding tax concession to data centres and warehouses.

This measure will extend eligibility for the concession to data centres and warehouses that meet the relevant energy efficiency standard, where construction commences after 7:30pm (AEST) on 9 May 2023. This measure will apply from 1 July 2025.

This measure will also raise the minimum energy efficiency requirements for existing and new clean buildings to a 6-star rating from the Green Building Council Australia or a 6-star rating under the National Australian Built Environment Rating System. The Government will consult on transitional arrangements for existing buildings. These changes will support investment in energy efficient commercial buildings, and in turn, reduce energy usage and energy bills for commercial tenants.

Reducing compliance costs for general insurers

The Government will introduce legislation to amend the tax law to minimise the regulatory burden facing the general insurance industry.

The introduction of the new accounting standard, AASB17 Insurance Contracts, by the Australian Accounting Standards Board, has meant that the tax law is no longer aligned with accounting standards. This change to the tax law will allow general insurers to continue to use audited financial reporting information, which is calculated according to the new standard, as the basis for their tax returns.

The measure will have effect for income years commencing on or after 1 January 2023.

Global and domestic minimum tax

The Government will implement key aspects of Pillar Two of the OECD/G20 Two-Pillar Solution to address the tax challenges arising from digitalisation of the economy:

• a 15% global minimum tax for large multinational enterprises with the Income Inclusion Rule applying to income years starting on or after 1 January 2024 and the Undertaxed Profits Rule applying to income years starting on or after 1 January 2025; and
• a 15% domestic minimum tax applying to income years starting on or after 1 January 2024.

The global minimum tax and domestic minimum tax will be based on the OECD Global Anti-Base Erosion Model Rules, which are designed to ensure large multinationals pay an effective minimum level of tax on the income arising in each jurisdiction where they operate.

A global minimum corporate tax rate of 15% protects Australia’s corporate tax base. The global minimum tax rules would allow Australia to apply a top-up tax on a resident multinational parent or subsidiary company where the group’s income is taxed below 15% overseas.

A domestic minimum tax would give Australia first claim on top-up tax for any low-taxed domestic income. In a small number of instances, a large multinational company’s effective Australian tax rate may fall below 15%. In these instances, the domestic minimum tax applies so that Australia collects the revenue that would otherwise have been collected by another country’s global minimum tax.

The global minimum tax and domestic minimum tax will apply to large multinationals with annual global revenue of EUR750 million (approximately $1.2 billion) or more.

GST compliance

The Government will provide $588.8 million to the ATO over 4 years from 1 July 2023 to continue a range of activities that promote GST compliance.
These activities will ensure businesses meet their tax obligations, including accurately accounting for and remitting GST, and correctly claiming GST refunds. Funding through this extension will also help the ATO develop more sophisticated analytical tools to combat emerging risks to the GST system.

Superannuation Measures

Additional tax on earnings on superannuation balances exceeding $3 million

The Government will introduce an additional 15% tax on earnings on an individual’s superannuation account, for total superannuation balances exceeding $3 million, from 1 July 2025. Individuals with a total superannuation balance of less than $3 million will not be affected.

This measure was previously announced by the Government on 28 February 2023.

This will bring the headline tax rate to 30% for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million. Earnings relating to assets below the $3 million threshold will continue to be taxed at 15% or 0% if held in a retirement pension account.
Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests. This will ensure commensurate treatment.

The additional tax on earnings imposed by this measure is expected to impact around 80,000 individuals in 2025–26 (approximately 0.5% of individuals with a superannuation account).

The measure will not place a limit on the amount of money an individual can hold in superannuation and the current contributions rules will continue to apply.

Payday super

From 1 July 2026, employers will be required to pay their employees’ superannuation guarantee contributions at the same time as their salary and wages (i.e. on payday).

Payday super will make it easier for employees to keep track of their payments, and harder for them to be exploited by disreputable employers. The Treasurer said that, while most employers do the right thing, the ATO estimates that $3.4 billion worth of superannuation went unpaid in 2019–20.
In addition, the ATO will receive additional resourcing to help it detect unpaid superannuation payments earlier and the Government will set enhanced targets for the ATO for the recovery of payments.

The SG rate is legislated to increase from 10.5% to 11% from 1 July 2023, and thereafter by 0.5% per year until it reaches 12% from 1 July 2025.

Non-arm’s length income

The Government proposes to amend the non-arm’s length income (NALI) provisions which apply to expenditure incurred by superannuation funds by:

• limiting income of self-managed superannuation funds and small Australian Prudential Regulation Authority (APRA)-regulated funds that are taxable as NALI to twice the level of a general expense. Additionally, fund income taxable as NALI will exclude contributions;
• exempting large APRA-regulated funds from the NALI provisions for both general and specific expenses of the fund; and
• exempting expenditure that occurred prior to the 2018–19 income year.

Published 17 May, 2023

Building an effective system of internal controls is an essential part of safeguarding your business and reducing risk exposure.

Why?

A small business is often an owner’s largest asset and needs to be protected against theft and other loss due to errors. As a business grows, owners have less time to observe things closely and the opportunity for fraud and potential for error increases.

Fraud, theft and errors occur where an opportunity exists, controls seek to minimise this opportunity and remove temptation. We naturally trust our employees to not steal from us, but with effective processes to prevent wrongdoing, we can avoid finding out the hard way.

How?

Many small business owners believe implementing internal controls will be time consuming. The reality is practical processes to prevent wrongdoing and identify errors don’t need to be complex. These processes can put your mind at ease that you are doing what you can to protect your business.

Examples of internal controls and associated processes that can assist your business:

• Promote a culture where getting things right is important (tone at the top).
• Communicate that internal controls also seek to protect employees from suspicion by implementing effective processes.
• Ensure at least two people perform separate parts of certain tasks (segregation of duties).
• Put levels of authorisation in place to cover processes such as approval of payments.
• Set controls over who can access certain parts of your computer system and software.
• Implement checks and balances to identify mistakes or anomalies.
• Review your financial results regularly.
• Secure important documents and assets.
• Develop a process for staff to report breaches of internal controls and report suspicious behaviour.
• Provide appropriate training to improve financial reporting accuracy.
• Record transactions regularly and ensure supporting documents are saved.

Published 30 March, 2023

Our February 2023 newsletter highlights some key tax changes and developments that may affect you or your business.

Hiring contractors

You have a choice between hiring contractors and employees – both are legitimate as long as the conditions of the working contract match the worker’s classification.

It’s important to understand the difference between employees and independent contractors because:

• it changes your obligations for paying and reporting tax, superannuation and other entitlements for your workers; and
• penalties and charges may apply if you incorrectly classify an employee as a contractor and fail to meet the relevant obligations or entitlements for that worker.

Although you generally don’t need to make super guarantee contributions for independent contractors, you may be required to make contributions for a contractor where the contract engaging them is wholly or principally for their labour.

If they’re registered for GST, you will need to pay the appropriate GST to them for the services or work they provide to your business.

PAYG withholding – employee or contractor?

As noted above, it is important to understand the difference between employees and independent contractors.

Last year the High Court handed down 2 important decisions on whether a worker is an employee or an independent contractor. The High Court placed particular importance on the terms of any valid written contract between the individual providing services and the entity using those services.

The High Court’s decision has prompted the ATO to issue a draft ruling explaining when an individual is an “employee” for the purposes of the PAYG withholding rules. It is important to note that the label attached to the arrangement between the parties – employee or contractor – is not relevant. The previous Taxation Ruling on this issue has been withdrawn.

The ATO also issued a draft a Practical Compliance Guideline (PCG) outlining its compliance approach for businesses that engage workers and classify them as employees or independent contractors. It sets out how the ATO allocates compliance resources, based on the risk associated with the classification.

Employee for super guarantee purposes?

It is also important to know for super guarantee purposes whether an individual providing services to your business is an employee.

You pay super on behalf of an employee regardless of whether they:

• are full-time, part-time or casual – working holidaymakers are included;
• receive a super pension or annuity while still working; or
• are a company director.

There was an important change last year (from 1 July 2022) – you now have to pay super for employees who are paid less than $450 in a month.

The rules for determining whether someone is an “employee” for super guarantee purposes are a bit different to the rules that are relevant for PAYG withholding purposes. Thus, the ATO has said that the draft ruling mentioned above will not be binding on them for super guarantee purposes.

Are you still using your ABN?

Your ABN may be flagged for cancellation if you haven’t reported business activity in your tax return, or there are no signs of business activity in other lodgments or third-party information.

If the ATO identifies your ABN as inactive, they will contact you by email, letter or SMS.

If you:

• still require your ABN, the ATO will explain what you need to do to keep it;
• are no longer in business, no action is required and the ATO will cancel your ABN.

If your ABN has been cancelled and you are still entitled to it, you’ll need to reapply.

You can reapply for the same ABN unless your business structure has changed, for example, if you were a sole trader and you now operate the business through a company.

All ABN holders have a responsibility to keep their business details up to date. This includes cancelling your ABN if your business is no longer operating. You must tell the ATO of any changes to your business details within 28 days of the change.

Received a business support grant?

You may have received a business support grant recently to help your business through tough times. If so, it is important to know whether you will have to pay tax on the grant.

The basic principle is that business grants are treated as assessable income. However, some grants are not taxable, which means you don’t need to include them in your business’ tax return if the relevant eligibility requirements are met.

COVID-19

A COVID-19 business grant or support program payment you received in the 2020–21 or 2021–22 financial year from a State or Territory government, or in the 2021–22 financial year from the Commonwealth Government, will not be taxable if:

• the payment is received under an eligible program – the ATO has published on its website a list of eligible grants and support programs (ref QC 66889); and
• you carried on a business and have an aggregated turnover of less than $50 million in either the income year the payment was received or the previous income year.

Storms and floods

Small businesses and primary producers affected by storms and floods may be eligible to receive special disaster recovery grants.

Grants may be administered by a State or Territory government or the Commonwealth Government.
You don’t need to pay tax on certain categories of grants for the following storms and floods:

• Cyclone Seroja (occurred on 11 and 12 April 2021) – Category C disaster recovery grants paid under the Disaster Recovery Funding Arrangements 2018 to small businesses and primary producers who were affected by Cyclone Seroja are not taxable. If you have lodged your 2021–22 tax return and included a Category C recovery grant in your assessable income, you should amend your return. You may get a refund.
• 2021 Storms and floods (occurred between 19 February 2021 and 31 March 2021) – Category D recovery grants are not taxable as from the 2020–21 financial year.
• 2019 North Queensland floods (occurred between 25 January 2019 and 28 February 2019) – Category C or D recovery grants are not taxable as from the 2018–19 financial year. Category C or D recovery grants paid to not-for-profit organisations in response to the 2019 North Queensland Floods are also not taxable.
• 2019 North Queensland floods – restocking, replanting or repairing farm infrastructure grants are not taxable as from the 2018–19 financial year and onwards.

Bushfires

2019–2020 Bushfires Relief Recovery payments and benefits provided by any level of government, including local governing bodies, are not taxable.

Deductions

Remember, you can only claim deductions for expenses associated with non-taxable grants if they relate directly to earning assessable income. You can’t claim expenses related to obtaining the grant, such as accountant’s fees.

Do you provide car parking for employees?

If you provide car parking for your employees, you may have to pay fringe benefits tax (FBT) on those benefits.

A car parking fringe benefit will generally arise if an employer provides car parking to an employee and various conditions are satisfied, including:

• the car is parked at premises owned or leased by, or otherwise under the control of, the provider (usually the employer);
• the car is parked for a total of more than 4 hours between 7am and 7pm on any day of the week;
• the car is parked at or near the employee’s primary place of employment on that day – in one case a car park that was almost 2 km from the primary place of employment was considered not to be near the place of employment;
• the car is used by the employee to travel between home and work (or work and home) at least once on that day;
• there is a commercial parking station that charges a fee for all-day parking within one kilometre of the premises on which the car is parked; and
• at the beginning of the FBT year (1 April 2022 for the current FBT year), the commercial parking station fee for all-day parking was, generally speaking, more than the car parking threshold ($9.72 for the current FBT year).

“All-day parking” basically means parking for a continuous period of 6 hours or more during the period from just after 7 am to just before 7 pm (on the same day). So a fee charged after 1 pm is not a fee for “all-day parking”, as there cannot be a continuous period of at least 6 hours ending before 7.00 pm.

Exemptions

Car parking benefits are exempt from FBT where the benefits are provided:

• by employers who meet the conditions of the small business car parking benefits exemption (see below);
• by certain research, education, religious and charitable institutions; and
• for employees with a disability (irrespective of the type of employer).

The small business car parking benefits exemption applies if the following conditions are satisfied:

• the parking is not provided in a commercial car park; and
• for the last income year before the relevant FBT year, either the employer’s gross total income was less than $50 million or their turnover was less than $50 million.

This exemption is not available to listed public companies, subsidiaries of listed public companies and government bodies.

Shortfall interest charge

If your income tax assessment is amended and your tax liability is increased (in other words, there is a tax shortfall), the ATO will apply the shortfall interest charge (SIC) on a daily compounding basis to the shortfall.

The SIC is applied for the period from the due date for payment of the earlier, understated assessment until the day before the ATO issues the notice of amended assessment.

The SIC rate is updated quarterly using a formula set by law. For example, the SIC rate for the period from 1 January to 31 March 2023 is 6.06% (the daily rate is 0.01660274%). The SIC rate is 4 percentage points lower than the general interest charge (GIC). The GIC is payable when a tax bill is not paid on time or an amount withheld from a payment is not paid to the ATO.

The due date for payment of the SIC (and the extra tax payable under the amended assessment) is 21 days after the day the ATO issues the notice of the amended assessment. Once the due date has passed, the GIC will apply automatically to any unpaid tax and SIC.

The ATO has the power to remit an amount of SIC in extenuating circumstances, for example, if the ATO contributes to an error that leads to a shortfall, if the shortfall amount is paid before the notice of amended assessment issues or if a delay in supplying documents or other information is directly attributable to a natural disaster such as a flood.

If the ATO refuses to remit the SIC you have objection and review rights, but only if the SIC is more than 20% of the tax shortfall amount.

Protect your business from cyber scams

The ATO has warned small businesses about business email compromise scams.

Cybercriminals send fraudulent emails posing as a legitimate business contact or staff member. They typically request a change in bank account details for a deposit, wages or invoice payment. Victims then unknowingly send money to the cybercriminal.

These fraudulent emails may come from hacked email accounts, or cybercriminals might register domain names that are similar to legitimate companies.

The ATO advises that you can protect yourself, and the reputation of your business, by taking a few simple steps:

• verify payment details. If you hold sensitive financial records, ensure you confirm the identity of anyone who requests changes to their information;
• alert your staff. Train your employees to identify suspicious requests or emails that may link to fake websites built to capture passwords; and
• secure your email account. Use multi-factor authentication or, if this is not possible, a strong unique passphrase that would be difficult to hack.

Taxpayers have also been advised to be wary of scammers impersonating ATO officers on Twitter, Facebook and other social media platforms.

Scammers scan public conversations on social media, where taxpayers ask questions or make complaints about the ATO. The scammers then use a fake ATO profile to contact the taxpayer directly with an offer to help resolve a complaint or follow up on a comment. Once trust is established, the scammers then ask the taxpayer to click on a link or provide personal details.

The ATO is working with social media platforms and other government agencies to address this.

Phoenix Taskforce – targeting dodgy businesses

The Phoenix Taskforce, which was established in 2014, brings federal, state and territory agencies together to combat illegal phoenix activity.

Illegal phoenix operators deliberately liquidate, wind up, or abandon their business to avoid paying their debts. Just like the mythological phoenix, these “dodgy individuals” often rise up with a near-identical business and restart the process.

As well as short-changing employees, suppliers and sub-contractors, illegal phoenix operators can put honest businesses at a competitive disadvantage. They cost businesses, employees, and the community an estimated $2.85 billion to $5.13 billion a year.

The Phoenix Taskforce takes action against phoenix operators by:

• working to disrupt their business model and make it financially unviable;
• removing their ability to operate;
• applying financial penalties; and
• prosecuting the worst offenders.

The most serious cases are referred to the Serious Financial Crime Taskforce (SFCT).

The director identification number initiative will:

• help prevent the use of false and fraudulent director identities; and
• make it easier for government regulators to trace directors’ relationships with companies over time to help better identify and eliminate director involvement in unlawful activity.

If you know or suspect phoenix or shadow economy activity or tax evasion, you can report it by:

• completing the tip-off form (the form is also available in the Help & support section in the ATO app);
• phoning the ATO on 1800 060 062;
• lodging an unpaid super enquiry about your employer (but not about another business); or
• writing to the ATO (mark all letters “in confidence”) and posting it to Australian Taxation Office, Tax Integrity Centre, PO Box 188, ALBURY NSW 2640.

Foreign incorporated companies

A company that is incorporated overseas will be treated as a resident of Australia for tax purposes if it carries on business and has its central management and control (CM&C) in Australia. This is called the CM&C residency test.

In 2018, following a High Court decision, the ATO revised its views on the CM&C residency test. It issued a new ruling stating that a company incorporated overseas which carries on a business will be treated as a tax resident of Australia if its CM&C is in Australia. It does not matter where the company’s actual trading or investment operations take place, whether in Australia or overseas.

The ATO also issued a Practical Compliance Guideline (PCG) in 2018 advising that it would not apply resources to review or seek to disturb a company’s status as a foreign resident if the company:

• changed its governance arrangements so that its CM&C was exercised outside Australia by 30 June 2019;
• did not start carrying on business in Australia (other than because its CM&C was exercised here); and
• did not undertake or enter into any artificial or contrived arrangement affecting the location of its CM&C, or any tax avoidance scheme whose outcome depended, in whole or part, on its residency status.

This compliance approach in the PCG has now been extended for a 4th time, to 30 June 2023, for “companies impacted in their efforts to change their governance arrangements”, for example, because of COVID-19.

WHAT HAS PARLIAMENT DONE?

FBT exemption for electric vehicles

In the September 2022 newsletter, we told you about the fringe benefits tax (FBT) exemption for electric and other low emission cars used by employees for private use. At the time, this measure was being considered by the Parliament. It is now law.

During its progress through Parliament, the Government agreed to phase out the FBT exemption for plug-in hybrid electric cars. As a result, the exemption for such cars will cease from 1 April 2025 (the start of the 2025–26 FBT), unless the relevant car is made available to the employee before that date.

Tip! Talk to your tax adviser for more information about the FBT exemption for electric and other low emission cars.

Failing to keep correct records

From 12 March 2023, the ATO will be able to issue a “tax-records education direction” if your business has failed to comply with its tax-related record-keeping obligations (subject to certain exceptions). A tax-records education direction will require you to complete an approved tax record-keeping course. This will be an alternative to the existing administrative penalties.

You can nominate an appropriate person within the business to complete the course.

You will have to provide the ATO with evidence that the course was completed.

A tax-records education direction cannot be issued where the failure to keep records does not give rise to an administrative penalty. These include certain FBT statutory evidentiary records and records substantiating certain work and business expenses.

ATO decisions affecting small business

The Administrative Appeals Tribunal (AAT) can now order that certain decisions of the ATO affecting small business be stayed pending the outcome of the AAT’s review of the decision. The AAT can also vary or revoke such an order.

For example, if your business is challenging an income tax assessment before the AAT, you can apply to the Small Business Taxation Division of the AAT for an order staying, or otherwise affecting, the operation or implementation of the assessment.

This measure applies to businesses with an annual aggregated turnover under $10 million.

Note that the Government has proposed to abolish the AAT and replace it with a new federal administrative review body.

WHAT’S IN THE PARLIAMENTARY PIPELINE?

Bonus deductions for small and medium business

Legislation presently before Parliament will provide small and medium businesses (those with aggregated annual turnover of less than $50 million) with bonus deductions equal to 20% of eligible expenditure incurred on external training or technology. The expenditure must already be deductible under the taxation law.

Training – the 20% boost is available for expenditure incurred on training employees, either in-person in Australia or online, between 7:30pm on 29 March 2022 and 30 June 2024. The training must be conducted by a third party registered training provider, which must not be an associate of the business.

Technology – the 20% boost is available for expenditure incurred between 7:30pm on 29 March 2022 and 30 June 2023 on the business’ digital operations or on digitising its operations. If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use by 30 June 2023. The technology bonus deduction is capped at $20,000 per financial year.

Parliament is scheduled to resume this week so these measures could be passed by the end of February 2023.

Reducing FBT compliance costs

Another measure being considered by Parliament should reduce employers’ FBT compliance costs.

The new rules will allow employers to rely on adequate alternative records (as determined by the ATO) which contain the information required for FBT record keeping purposes, instead of keeping and retaining the current designated statutory evidentiary documents such as prescribed employee declarations.

The ATO has already released 2 draft determinations specifying alternative records in certain circumstances where a fringe benefit consists of the reimbursement of car expenses or where a travel diary is presently required.

Published 8 February, 2023

Half of all Australians do not have a last Will and testament. Even worse, many people have a Will that they have not updated for many years, or has been done with little or no proper advice. Having a loved one pass away is a stressful time in the lives of the family and friends that remain.

The process of dealing with the deceased’s property and testamentary intentions can seem daunting and challenging. This guide will help you understand the decisions you have to make and what formal steps may be required to ensure the deceased’s estate is properly distributed.

Common Mistakes Made In Dealing With Deceased Estates

Some of the common mistakes made by family members when dealing with a deceased estate include:

Superannuation:

Many people think that their Will takes into consideration their superannuation as an asset of their estate. However, this is incorrect and is why having a binding death benefit nomination and/or a reversionary nomination prepared in respect to your member account balance(s) is extremely important, and thereby ensures your superannuation asset is handled according to your instructions.

Selling and dealing with assets before the formal Court process is concluded:

This occurs mostly in situations where the deceased leaves no Will, and there is nothing to dictate who should deal with the estate. Some examples include selling or using the car of the deceased, taking personal property from their homes and withdrawing money from their bank accounts.

Not considering the liabilities of the estate:

Many people forget that people often die with multiple debts and liabilities. These need to be paid out before any payments or transfers are made. It may also take time for creditors to emerge, so it may not be possible to obtain funds quickly after the death.

Finalising taxes of the deceased:

More often than not, a final tax return of the deceased will be required, and perhaps even tax returns on behalf of the estate.

Published 21 December, 2022

With the first quarter down in the new financial year, it is important to start considering some of the tax planning opportunities available through superannuation in the remaining nine months before 30 June 2023.

One such opportunity is to maximise any unused concessional contributions. This could result in the reduction of tax and increase your superannuation benefits. The carry forward arrangements involve accessing unused concessional cap amounts from up to five previous financial years, dating back to 2018/19.

To use your unused cap amounts, you must meet two conditions:

• your total super balance at the end of 30 June of the previous financial (2022) year was less than $500,000; and
• you make concessional contributions in the current financial year (2023) that exceeded your general concessional contributions cap (note: the concessional cap includes your employer’s superannuation guarantee and any salary sacrificed amounts).

Depending on your age, personal income and individual circumstances (for example, if you have a one-off capital gain on an asset sale), this could be a great opportunity to save tax, whilst growing your super balance and allowing you to take advantage of the recent dip in equity markets by topping up your super. Remember of course that contributions to super cannot be accessed until you reach preservation age (this can vary, but generally age 60) and that caution should be exercised not to exceed the cap.

Published 30 September, 2022

The new financial year will usher in significant changes to superannuation that were previously announced in the 2021 Federal Budget. Here is what’s changing from 1 July, who could be affected and what action should be taken.

Super Guarantee Increases to 10.5%

The super guarantee (SG) rate will increase from 10% to 10.5% on 1 July 2022. Employers will need to use the new rate on payments made to employees on or after 1 July, even if some or all of the pay period is for work done before 1 July. The SG rate is legislated to increase to 12% by 2025.

Action required by employers: Check that your software is updated to correctly calculate employee super guarantee entitlements from 1 July.

Removal of the $450 Monthly Threshold

Previously, employers did not have to pay superannuation guarantee to an employee if their monthly wage was less than $450. The threshold has been removed from 1 July 2022 and superannuation is payable on wages regardless of the amount.

Action required by employers: Check that your software no longer has any wages threshold for superannuation guarantee.

Removal of the Work Test for Those 67-74 Years of Age

The work test requires a super fund member to have worked 40 hours in a 30-day period in the year in which they make voluntary non-concessional contributions.

From 1 July 2022, members under 75 years of age will be able to make personal non-concessional contributions without meeting the work test, subject to existing contribution cap limits.

This will allow for post-retirement contributions by those who have additional funds available such as inheritance or proceeds from the sale of investment properties, or will simply allow a greater period to boost superannuation balances.

It will also allow additional time for super fund members to withdraw and recontribute superannuation balances to increase the tax-free component (known as recontribution strategy). This can save up to 17% tax when a member’s superannuation funds are paid to adult children as death benefits.

Bring Forward Non-Concessional Contributions

From 1 July 2022, members are eligible to bring forward 2 years of non-concessional contributions if they are under 75 years of age (which has increased from the previous the age limit of 67).

Superannuation Caps for 2022/2023

• Concessional contributions: $27,500
• Non-concessional contributions: $110,000

Caution: If your superannuation balance is greater than $1.7M, you cannot make further non-concessional contributions.

Downsizer Contributions

From 1 July 2022, the age at which a member can make downsizer contributions will drop from 65 to 60 years of age. If a member or their spouse have owned their home for 10 years or more, and it was used as their main residence (and fully or partially exempt from Capital Gains Tax), the member can make a downsizer contribution up to $300,000.

Their spouse can also make the contribution, even if the house was only owned by one spouse.

The contribution must be made within 90 days of settlement and the appropriate form provided to the super fund.

This presents an opportunity in the early months of the 2023 financial year for those who have recently sold their home and would not previously have qualified but now will. By deferring the payment into the 2022 financial year, they may be able to access the provisions if they are at least 60 when they make the contribution and the contributions are made within 90 days of settlement.

Employee Share Schemes

Effective from 1 July 2022, the cessation of employment will no longer be a deferred taxing point for Employee Share Schemes (ESS).

Employees will no longer be assessed on the value of the shares granted to them upon termination of employment. This is a significant improvement to the existing rules. Previously, the employee would be taxed on the value of the discounted shares, regardless of the vesting period under the ESS arrangement. Now, the ex-employee will only be taxed when there is no real risk of forfeiture, as if they were still employed by the same employer. This will remove the potential cashflow issue of having to pay tax on shares that cannot be sold.

Published 28 June, 2022