March 2024 Tax Newsletter

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