Wright Partners, Dubbo, NSW, Australia - Accountants, Business Services, Specialist Services, Tax & Audit Services

The ATO Targets FBT on Work Vehicles: Don’t Let Assumptions Cost You

Sun, 12 Apr 2026 19:45:01 GMT

The ATO is turning up the heat on employers who provide work vehicles for private use.

Sophisticated data-matching means assumptions and shortcuts can quickly lead to audits, penalties, interest charges—and even reputational damage. You can see the latest ATO FBT audit warning here: Misreporting FBT on personal use of work vehicles | Australian Taxation Office

If you provide vehicles to your team, whether to support fieldwork, boost morale, or offer a valuable perk, now is the time to ensure your FBT reporting is watertight. Here’s what the ATO is focusing on—and how to protect your business.

Don’t Assume Dual-Cab Utes Are Automatically Exempt

Dual-cab utes are popular in trades and construction, but despite popular opinion, they’re not automatically FBT-free.

Whether an FBT exemption applies can depend on the vehicle’s design and also how it is used across the FBT year.

Even if a ute is designed to carry a load of at least 1 tonne (ie, it is not classified as a car for FBT purposes) or it isn’t designed mainly to carry passengers (there is a specific formula used for this purpose) FBT could still be triggered if there is some private use of the ute.

The ATO has identified many cases where employers wrongly claimed full FBT exemptions, leading to back taxes plus interest.

The best way to handle ATO enquiries around the FBT exemption for commercial vehicles is to ensure that appropriate evidence is already in place to support the application of that exemption. While the FBT rules don’t specifically require formal logbooks when looking at this exemption, failing to keep records that are similar to a logbook can make it difficult to navigate ATO review or audit activities.

Accurately Apportion Private vs Business Use

If a full FBT exemption doesn’t apply then FBT is typically calculated on private use of work vehicles. You need to determine what portion of running costs—fuel, maintenance, depreciation—relates to personal trips. Ignoring this step can seem harmless but can quickly escalate during an audit.

Thorough record-keeping and proper apportioning can sometimes reduce your FBT liability even if the vehicle is used mainly for business purposes.

Remember that if a FBT liability is triggered it is the employer’s problem.

Lodging FBT Returns

Even if you think the FBT liability for the year might be small or immaterial, you might find that there is still an obligation to lodge an FBT return. The ATO’s analytics flag non-lodgers automatically. Penalties can reach up to 200% of the tax owed, plus interest.

Tip: Mark your calendar—FBT returns are due May 21 each year. Timely filing keeps your business compliant and avoids cash flow shocks.

Keep Reliable Logbooks and Records

A valid logbook tracks odometer readings, trip purposes, and business-use percentages over a 12-week period (renewable every five years). While not every scenario involving a motor vehicle specifically requires a valid logbook, failing to keep logbooks can sometimes lead to significant FBT liabilities that could otherwise have been avoided.

Efficiency tip: Digital logbook apps simplify tracking, save time, and reduce errors. Good records can also support deductions.

Why it Matters Commercially

Non-compliance isn’t just a numbers game. ATO audits divert time and energy from running your business, and ATO attention can affect your reputation with clients, partners, or lenders. Conversely, getting FBT right ensures you pay only what’s required, protects cash flow, and may even reveal tax efficiencies.

Next steps: Review your vehicle policies, update records, and ask us if you need help. We help businesses manage FBT with confidence—making compliance straightforward and stress-free.

Remember: assumptions can be costly, but a proactive approach protects your business, your people, and your peace of mind.

Key Lessons from the Kilgour Case: Smarter Valuations in Business Sale Transactions

Thu, 09 Apr 2026 19:45:01 GMT

When selling a business—or even a slice of one—how you value the assets involved can have a major impact on the tax bill.

A recent Full Federal Court decision, Kilgour v Commissioner of Taxation [2025] FCAFC 183, offers timely guidance on how “market value” is really determined for capital gains tax (CGT) purposes.

When preparing for transactions, restructures or potential exit events, the case is a useful reminder: valuations must reflect real commercial conditions, not just theoretical models.

What Happened?

In 2016, three family trusts sold 100% of the shares in Punters Paradise Pty Ltd, an online wagering business, to News Corp for approximately $31 million.

The ownership split was:

Pettett Trust – 60%
Kilgour Family Trust – 20%
Reuhl Family Trust – 20%

The sale was negotiated at arm’s length, involved extensive due diligence, and included a working-capital adjustment after completion.

The minority beneficiaries (20% holders) sought to use the small business CGT concessions, which in this case required the seller’s net assets to be below $6 million. To fall below the threshold, they argued their 20% minority interests should be heavily discounted in value—because a small holding is usually worth less on a standalone basis.

The ATO disagreed, saying each 20% parcel formed part of a coordinated 100% sale and should simply be valued as 20% of the final $31 million deal price.

The Court agreed with the ATO.

How the Court Approached Market Value

The Court applied the long-standing “willing buyer/willing seller” principles from Spencer v Commonwealth—but with a modern, commercial twist. Two practical messages emerge:

1. Real-world expectations matter more than rigid valuation dates

Although the tax rules in this area require looking at value “just before” signing the sale contract, the Court said you cannot ignore things that were reasonably predictable at that point. Here, the sale was essentially locked in through negotiations, so the final agreed price was the best evidence of market value.

Practical takeaway: If a purchaser is clearly willing to pay a premium—for control, synergies, strategic value or expansion opportunities—those factors will likely shape the valuation for tax purposes.

2. Actual deal terms beat theoretical discounts

The taxpayers tried to argue for a typical “minority discount”. However, the Court said the real commercial context matters more:

All shareholders intended to sell together.
The buyer wanted all the shares, not bits and pieces.
A coordinated, 100% sale typically lifts the value of each parcel.

Because of that, the hypothetical buyer would not insist on a discount. The minority interests effectively rode on the value of the full-stake sale.

Practical takeaway: When shareholders act collectively, the tax valuation of each interest can increase—sometimes significantly.

What This Means for Business Owners

Don’t undervalue your stake - If the buyer is pursuing synergies or control, your interest might be worth more than a textbook minority valuation suggests. Make sure your advisers consider the wider commercial picture.
Evidence is everything - Keep thorough records such as negotiations, emails, valuations, buyer motivations. These can be powerful in supporting your tax position and accessing concessions.
Plan CGT concession eligibility early - If you’re relying on the small business concessions, test different deal scenarios before signing any contracts or other paperwork, including a heads of agreement. Sometimes restructuring ownership or staging a sale can make a material difference, but integrity and anti-avoidance rules in the tax system still need to be considered carefully.
Align shareholder expectations - In family groups and private companies, minority owners often assume their shares will be valued as a standalone piece. Kilgour shows that courts will often look at the transaction as a whole—not each slice in isolation.

The Bottom Line

Kilgour reinforces that valuations for tax purposes work best when they reflect the real commercial world, not theoretical models. Before you sell, restructure or negotiate with a potential buyer, involve your accountant early. A well-supported valuation can mean the difference between accessing valuable CGT concessions—or missing out.

A Wake-Up Call for Family Businesses on Fringe Benefits Tax

Wed, 08 Apr 2026 19:45:00 GMT

As Fringe Benefits Tax (FBT) lodgement season approaches, family businesses should carefully review the perks they provide to working directors and family members.

A high-profile case involving luxury vehicles provided to three brothers who run a large business empire through a discretionary trust highlights the complexities — and potential risks — of informal arrangements. While the case initially appeared to expand FBT exposure, the latest decision handed down by the Full Federal Court offers reassurance that not all benefits provided to working owners will automatically trigger FBT.

What may seem like harmless "owner entitlements" or beneficiary perks can still attract scrutiny from the Australian Taxation Office (ATO). However, the courts have emphasised the importance of substance, documentation, and the capacity in which benefits are provided.

The Background

Three brothers operate a substantial business involving petrol stations, convenience stores, fast food, tobacco outlets, and gift shops. They serve as shareholders, directors, and key decision-makers (with powers as appointors under the trust deed), working long hours in executive-style roles without drawing formal cash salaries or wages. Profits and benefits flow through the family discretionary trust (SFT Trust), of which their corporate trustee (SEPL Pty Ltd) is the trustee. The brothers and family members are beneficiaries.

The business provided them with exclusive access to over 40 luxury and high-performance vehicles (including Bentleys and Ferraris) for both business and personal use. Costs associated with personal use were debited to the matriarch’s beneficiary account and later cleared by trust distributions — a mechanism consistent with beneficiary entitlements rather than employment remuneration.

The ATO assessed FBT on the private use component of these car benefits, arguing they were fringe benefits provided to the brothers as "employees" in respect of their employment.

What the Court Decided

The Administrative Appeals Tribunal (AAT) initially ruled in favour of the taxpayer (Re BQKD and Commissioner of Taxation [2024] AATA 1796). It found that the brothers were not "employees" for FBT purposes and that, even on a hypothetical basis, the vehicle benefits were not provided "in respect of" any employment. The benefits were instead linked to their capacities as beneficiaries, proprietors, and controlling family members.

The Commissioner appealed to a single judge of the Federal Court, who in June 2025 (Commissioner of Taxation v SEPL Pty Ltd as trustee of the SFT Trust [2025] FCA 581) allowed the appeal. Justice O'Sullivan held that the brothers were employees under the broad FBT definitions (including via the hypothetical deeming rule in s 137 of the Fringe Benefits Tax Assessment Act 1986 (Cth) — FBTAA) and that the benefits were provided in respect of their employment.

The taxpayer then appealed to the Full Federal Court. On 27 March 2026, in SEPL Pty Ltd as trustee of the SFT Trust v Commissioner of Taxation [2026] FCAFC 36 (Perry, O’Callaghan and Thawley JJ), the Full Court unanimously allowed the appeal. The Full Federal Court basically restored the AAT's decision.

Key findings:

Employee status: It was open to the AAT to conclude the brothers were not "employees" for FBT purposes. The definitions of "employee" and "salary or wages" ultimately draw on common law concepts of employment. The AAT properly considered factors such as the absence of employment contracts, no wages or leave entitlements, the presence of employed managers for operational roles, and the brothers' control being referable to their proprietorial and governance roles rather than traditional employment.
"In respect of" employment: Even assuming (hypothetically) that the brothers were employees, it was open to the AAT to find there was no sufficient material connection between the benefits and any employment relationship. Here, access to the vehicles was not a substitute for salary or wages. The AAT correctly weighed competing explanations and found the benefits arose primarily from family/trust relationships, not employment.

Why This Matters for Your Business

The case underscores the ATO's ongoing focus on dual-capacity individuals (e.g., directors who are also beneficiaries and active workers in trust structures).

However, the Full Court's reasoning provides important boundaries:

Informal perks for working family members in discretionary trusts are not automatically subject to FBT.
Substance and documentation matter: How benefits are provided, funded, and recorded (e.g., via trust distributions vs. remuneration) can help in determining the outcome.
Common law employment concepts remain relevant in interpreting FBT definitions.
Blending roles does not inevitably trigger FBT if the dominant characterisation is beneficiary-based.

Family businesses should still exercise caution. The ATO may continue to scrutinise similar arrangements, particularly where benefits appear to represent a substitute for remuneration or lack clear documentation. Superannuation contributions or executive titles can sometimes support employee characterisation, though they were not decisive here.

Practical Steps to Protect Your Business

Don't wait for an audit—review your arrangements now:

Document clearly: If a benefit is a trust distribution to a beneficiary, record it via trustee resolutions. If it's tied to work duties, treat it as a fringe benefit and calculate FBT accordingly. Or confirm why they fall outside the regime.
Consider FBT properly: Apply statutory formulas or operating cost methods for cars. Employee contributions (e.g., reimbursing personal use) can reduce or eliminate liability.
Consider exemptions/concessions: Minor benefits under $300, or salary packaging for EVs, might help.
Audit overlaps: We also need to check for Division 7A loan issues or deemed dividends if benefits flow through private companies.
Plan proactively: With ATO focus intensifying (as highlighted in recent compliance updates), model scenarios to minimise tax without losing commercial perks.

Remember that if the ATO discovers some unreported FBT liabilities then the business can also be exposed to penalties and interest.

The SEPL case ultimately favours the taxpayer and reinforces that FBT does not capture every benefit provided to working owners in family trust structures. However, every arrangement turns on its specific facts and evidence.

If your business provides vehicles, phones, travel, or other perks to family members actively involved in operations — especially without formal salaries — now is a good time to review. Our team can help analyse your structures, run FBT calculations or risk assessments, and implement practical fixes to protect profits while maintaining flexibility.

The law in this area is fact-sensitive and continues to evolve. Professional advice tailored to your circumstances is essential.

What the New Div 296 Tax Means for Individuals with Large Super Balances

Wed, 08 Apr 2026 06:12:58 GMT

The Better Targeted Superannuation Concessions measure (known as the Division 296 tax) is now law and takes effect from 1 July 2026.

For those with large super balances, it’s important to understand what the new tax does, why it’s been introduced, and the practical steps you and your financial adviser should consider.

The Purpose of the Tax

Division 296 is designed to make superannuation tax concessions fairer and more sustainable. Rather than changing the way super is taxed for everyone, the law targets a small group of people who hold large super balances, ensuring they pay more tax on the portion of investment earnings that relate to those large balances.

Who it Applies to — Thresholds and Rates

This new measure, starting 1 July 2026 (first year is 2026-27), applies to an individual with total superannuation balances (TSBs) in excess of the following thresholds:

• Large balance threshold: $3.0 million

• Very large threshold: $10.0 million.

Both thresholds will be indexed in future years.

This will mean that the overall tax imposed on superannuation fund earnings will be as follows:

Certain people will be excluded from having this new tax levied upon them, notwithstanding that their TSB may exceed the threshold. Excluded persons include child recipients of death benefit pensions and individuals who have made structured settlement superannuation contributions for a personal injury compensation payment.

Further, where a person dies, they will no longer have a TSB. However, other than the first year of operation (ie, 2026-27), there can still be a Division 296 tax assessment in respect of the financial year in which they die, where they had a TSB of more than $3 million at the start of the year. Given superannuation is not an estate asset, this scenario should be considered as part of a review of an individual’s estate plan.

How the Tax Works

From an SMSF perspective, the fund will calculate its Division 296 earnings, which is based on its taxable income with adjustments for assessable contributions; net exempt income attributable to pensions; any non-arm’s length income (which is already taxed at 45%) and income relating to investments in a pooled superannuation trust. There may also be adjustments for any capital gains made from the disposal of fund assets, if the fund has made the relevant small-fund CGT election.

The calculated Division 296 superannuation earnings is then attributed to fund members using an attribution percentage calculated by an actuary. This information will be used by the ATO to assess the member’s Division 296 tax liability.

Division 296 tax is levied on the individual, not a superannuation fund. However, the tax can be paid either by the individual or they can elect for the amount to be deducted from their nominated superannuation interest.

Next Steps

If your total super balance is near—or already above—the thresholds, it is important that you contact your financial adviser to arrange tailored modelling and to discuss whether the small-fund CGT election is suitable. Early planning will help you manage cashflow, reporting and any actuarial requirements efficiently.

This will also be an opportunity to review the suitability and benefits of holding investment capital in a superannuation structure versus alternatives for amounts in excess of the large threshold.

2026 Fringe Benefits Tax

Tue, 10 Mar 2026 05:22:50 GMT

The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.

FBT exemption for electric cars

Employers that provide employees with the use of eligible electric vehicles (EVs) can potentially qualify for an FBT exemption. This should normally be the case where:

The employer owns or leases the car and allows a current employee to use the car;
The car is a zero or low emission vehicle (battery electric, hydrogen fuel cell or plug-in hybrid electric);
The car is both first held and used on or after 1 July 2022; and
The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $91,387 for 2025-26 financial year).

Plug-in hybrid vehicles no longer FBT exempt

From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the FBT exemption unless:

The use of the vehicle was exempt before 1 April 2025, and
There is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

If there is a break or change to that commitment on or after 1 April 2025 then the exemption won’t normally be available any more.

Overlooking or misreporting FBT on private use of work vehicles

The ATO is actively using sophisticated data analytics to target employers who fail to report or incorrectly report fringe benefits. ATO compliance teams are specifically looking for businesses that:

Fail to lodge FBT returns despite providing vehicles for private use.
Misunderstand exemptions, particularly the common misconception that dual-cab utes are automatically exempt from FBT.
Neglect record-keeping, such as failing to maintain valid logbooks or odometer readings to support their claims.
Incorrectly apportion usage, often treating private travel—including garaging a vehicle at an employee's home—as business use.

To ensure compliance, the ATO emphasises that a vehicle is considered "available for private use" if it is garaged at or near an employee's home, regardless of whether they have permission to use it.

Employers are expected to:

Correctly identify the vehicle type (which impacts on whether they are providing a car benefit or a residual benefit).
Maintain robust documentation, as invalid logbooks can lead the ATO to apply the "statutory formula method," often resulting in higher tax liabilities.

The ATO uses the case study of a Melbourne restaurant to illustrate the severity of non-compliance. In that instance, the lack of valid logbooks and failure to lodge returns resulted in a total liability of $938,000, which included the base tax, a 75% penalty for reckless behaviour, and significant interest charges. This highlights that the ATO is prepared to impose heavy financial penalties on businesses that deliberately avoid or carelessly manage their FBT obligations.

Does FBT apply to your contractors?

The FBT rules tend to apply when benefits are provided to employees and certain office holders, such as directors. FBT should not apply when benefits are provided to genuine independent contractors but determining whether a worker is an employee or contractor can be a complex process in some cases.

Are your contractors really contractors?

The ATO’s ruling TR 2023/4 helps determine whether a worker is an employee or an independent contractor.

If the parties have entered into a written contract, then you need to focus on the terms of that contract to establish the nature of the relationship (rather than looking at the conduct of the parties). However, merely labelling a worker as an independent contractor doesn’t necessarily mean that they won’t be treated as an employee if the terms of the contract suggest that the parties have entered into an employment relationship.

The ATO has also issued PCG 2023/2 that sets out four risk categories. Arrangements will tend to be viewed in a more favourable light where:

There is evidence to show that you and the worker have agreed on the classification;
There is a comprehensive written agreement that governs the relationship;
There is evidence that you and the worker understand the consequences of the classification;
The performance of the arrangement hasn’t deviated significantly from the terms of the contract;
Specific advice has been sought confirming that the classification is correct; and
Tax, superannuation, and reporting obligations have been met when the worker is classified as an employee or independent contractor (whichever relevant).

If your business engages contractors, you should have a process in place to ensure the correct classification of the arrangements and to determine the ATO’s risk rating. These arrangements should also be reviewed over time.

Even when a worker is a genuine independent contractor, just remember that this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes.

Reducing the FBT record keeping burden

Record keeping for FBT purposes can be onerous. However, due to some recent developments your business will have a choice to keep the existing FBT record keeping methods, use existing business records where those records meet the requirements set out by a relevant legislative instrument, or a combination of both methods:

Travel diaries – see LI 2024/11
Living-away-from-home-allowance – FIFO/DIDO declarations – see LI 2024/4
Living-away-from-home – maintaining an Australian home declaration – See LI 2024/5
Otherwise deductible rule – expense payment, property or residual benefit declaration – See LI 2024/6
Otherwise deductible rule – private use of a vehicle other than a car declaration – See LI 2024/7
Car travel to an employment interview or selection test declaration – See LI 2024/14
Remote area holiday transport declaration – See LI 2024/10
Overseas employment holiday transport declaration – See LI 2024/13
Car travel to certain work-related activities declaration – See LI 2024/9
Relocation transport declaration – See LI 2024/12
Temporary accommodation relating to relocation declaration – See LI 2024/8

FBT housekeeping

It can be difficult to ensure the required records are maintained in relation to fringe benefits – especially as this may depend on employees producing records at a certain time. If your business has cars and you need to record odometer readings at the first and last days of the FBT year (31 March and 1 April), remember to have your team take a photo on their phone and email it through to a central contact person – it will save running around to every car, or missing records where employees forget.

The top FBT risk areas

Mismatched claims for entertainment – claimed as a deduction but no FBT

One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches.

When it comes to entertainment, employers are often keen to claim a deduction but this can be a problem if it is not recognised as a fringe benefit provided to employees. Expenses relating to entertainment such as a meal in a restaurant are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.

Let’s say you taken a client out to lunch and the amount per head is less than $300. If your business uses the ‘actual’ method for FBT purposes, then there often won’t be any FBT implications. This is because benefits provided to clients are not subject to FBT and minor benefits (i.e., value of less than $300) provided to employees on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.

If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the business would be able to claim 50% of the GST credits.

Employee contributions by journal entry in the accounts

Many businesses use after-tax employee contributions to reduce the value of fringe benefits. It is also reasonably common for these contributions to be made by journal entry through the accounting system only (rather than being paid in cash).

While this can be acceptable if managed correctly, the ATO has flagged numerous concerns including whether journal entries made after the end of the FBT year are valid employee contributions.

For an employee contribution made by way of journal entry to be effective in reducing the taxable value of a benefit, all of the following conditions must be met:

The employee must have an obligation to make a contribution to the employer towards a fringe benefit (i.e., under the employee’s remuneration agreement);
The employer has an obligation to make a payment to the employee. For example, the parties may agree that the employer will lend an amount to the employee or the employee might be entitled to a bonus that hasn’t been paid yet. If a loan is made by the employer then this could trigger further tax issues that need to be managed;
The employee and employer agree to set-off the employee’s obligation to the employer against the employer’s obligation to the employee; and
The journal entries are made no later than the time the financial accounts are prepared for the current year (i.e., for income tax purposes).

Failing to ensure that arrangements involving fringe benefits and employee contributions are clearly documented can lead to problems. For example, the ATO may ask to see evidence of the fact that the employer is actually under an obligation to make contributions towards a fringe benefit. If there is no evidence, then significant FBT liabilities could arise.

Also remember that if the arrangement involves the business providing a loan to an employee this can trigger a separate loan fringe benefit issue that needs to be managed.

Not lodging FBT returns

The ATO is concerned that some employers are not lodging FBT returns when required to.

If your business employs staff (even closely held staff such as family members), and is not registered for FBT, it’s essential to ensure that the position is reviewed to check whether the business could potentially have an FBT liability.

If the business provides cars, car spaces, reimburses private (not business) expenses, provides entertainment (food and drink), employee discounts etc., then you are likely to be providing at least some fringe benefits.

There is a list of benefits that are considered exempt from FBT, such as portable electronic devices like laptops, protective clothing, tools of trade etc. If your business only provides these exempt items, or items that are infrequent and valued under $300, then you are unlikely to have to worry about FBT.

Make sure you have reviewed the FBT client questionnaire we sent you!

ATO Update on Inherited Homes: What it Means for Your Family’s Wealth

Sun, 08 Mar 2026 19:00:03 GMT

The ATO has issued a Draft Taxation Determination TD 2026/D1 which looks at how inherited family homes are treated for CGT purposes

Some industry commentators have dubbed it a “death tax by stealth”, but it is a bit more complex than this. The draft guidance focuses on a specific aspect of the rules around applying the main residence exemption to inherited properties, potentially exposing deceased estates and beneficiaries to significant tax if not planned correctly.

Here’s what you need to know in practical terms.

Why TD 2026/D1 Matters

Under current law, deceased estates or beneficiaries can potentially sell a deceased individual’s former family home without paying CGT if certain conditions can be met. This exemption is particularly valuable for properties owned long-term, where unrealised gains could be substantial.

In order to access a full exemption you normally need to ensure that the property is sold within 2 years of the date of death (but the ATO can potentially extend this deadline) or that the property has been the main residence of certain qualifying individuals from the date of death until the property is sold.

These qualifying individuals can include the surviving spouse of the deceased individual, the beneficiary selling an interest in the property or someone who has a right to occupy the dwelling under the deceased’s will.

The draft ATO guidance focuses on this last point. That is, what does it mean for someone to have “a right to occupy the dwelling under the deceased’s will.” In summary, the ATO’s view is that:

The right to live in the home must be explicitly granted in the will to a named individual.
Broad discretionary powers given to trustees, separate agreements, or even testamentary trusts (TTs) are not sufficient in the ATO’s view.

For example:

A will giving an executor discretion to allow a family member to occupy the home does not meet this requirement.
A trustee of a TT who allows a beneficiary to live in the house is seen as separate from the will and may trigger CGT on sale.

Some legal and real estate experts warn this could force families to sell homes within two years of death to avoid CGT, especially in high-value areas.

Consider this: inheriting a $2 million home with a capital gain of $1.5 million could expose the beneficiaries to $300,000–$600,000 in tax, depending on discounts and tax brackets.

However, it is important to remember that there are still other ways for the sale of the property to qualify for a full exemption.

Practical Steps to Protect Your Estate

While we are waiting for the ATO to finalise its guidance in this area, there are steps you can take to protect your family’s assets:

Review and update your will, especially if you are planning to provide certain individuals with the right to occupy a property. Does the will currently provide this right to specifically named beneficiaries?
Plan the timing of sales – The two-year exemption window remains, but if you inherit a property and intend to hold it longer than this, weigh any potential CGT exposure against future rental income or family needs. Partial CGT exemptions might still apply, but the rules and calculations can be complex.
Seek professional advice, especially if your estate plan uses TTs. You will normally need to work closely with tax and legal advisors to structure the plan appropriately.
Be market aware – Estate planning can intersect with market timing. Quick sales may preserve CGT exemptions, but this needs to be weighed up against non-tax factors.

The key takeaway is clear: estate planning is a complex area and needs to be navigated carefully to preserve family wealth and avoid unintended tax implications.

Keeping Your Self-Managed Super Fund Compliant

Sat, 07 Mar 2026 19:00:03 GMT

Self managed superannuation funds (SMSFs) can offer significant flexibility, allowing the members to make investments and enter arrangements that may not be available through retail or industry superannuation funds.

However , being an SMSF trustee does come with important responsibilities to ensure that all dealings comply with superannuation law.

Two critical areas to keep front of mind are:

The sole purpose test, and
The arm’s length requirements in both superannuation and taxation law.

The Sole Purpose Test

The sole purpose test requires that superannuation funds should be managed for the sole purpose of providing retirement benefits to fund members. While some SMSFs may have dealings with or/investments in related entities, these are subject to strict limits and when arrangements are entered into it is important that first and foremost SMSF trustees are considering the retirement benefits of the fund members rather than the needs of any external parties.

The example below illustrates how SMSF trustees should apply the sole purpose test when looking at making a related party investment.

Example: Investing in a Related Business?

Sachin and Deepthi have an SMSF which has a total balance of $1.2m. Their son Hardik commenced a business 3 years ago using a company structure. Hardik has approached his parents to invest $50,000 into his company via their SMSF.

Although Hardik is passionate about the business it has not grown as he would like, and Sachin and Deepthi are aware that the business has had cashflow issues and profits are not at a point where the business is growing or generating a profit.

Although the proposed investment amount is within the 5% in-house asset limit would Sachin and Deepthi invest member funds in an unrelated business knowing the business was in this same situation? That is, would they be placing their son’s interests ahead of the interests of the fund members?

Based on Sachin and Deepthi’s knowledge of the business, if the SMSF was to go ahead and make this investment they as trustees may have contravened the sole purpose test.

Arm’s Length Requirements

In addition to the sole purpose test there are superannuation and taxation law requirements that SMSF trustees always deal on arm’s length commercial terms. This is again particularly important when arrangements are with fund members and/or related parties.

Where arrangements are not at arm’s length, SMSF trustees can be liable for superannuation law penalties and in some cases fund income may be taxed at a higher rate.

Some common examples and key issues are discussed below.

Example: An SMSF Owns a Commercial Property Which is Leased to a Related Party Business

The rent should be on commercial terms and this needs to be evidenced by a rental appraisal from a professional such as a real estate agent when a lease is entered into.

The lease agreement should:

Be in writing;
Clearly cover who is responsible for particular outgoings and maintenance; and
Be prepared by a legal professional.

Example: A Member of the SMSF or a Related Party Completes Work on an SMSF Property

SMSF trustees should seek professional advice before commencing any work on SMSF properties where the work may be performed by a member or a related party.

All arrangements with related entities should be commercial, including:

If a related building company is used, the SMSF must pay market rates (same as the general public) and this should be supported by documentation to satisfy the fund auditor.
If members (who are also trustees) perform work personally, strict rules apply to whether they can be paid for their services.
All materials should be purchased directly by the SMSF, not by individual members.

Please contact us to discuss these rules further if you are considering entering into any transactions or projects involving SMSF-owned property and related parties.

Navigating CGT on Your Home: New ATO Clarity for Home-Based Businesses

Thu, 05 Mar 2026 19:00:08 GMT

Running a business from home—whether as a sole trader, freelancer, or small operator—has many perks.

But when it comes to selling your home and potentially saving on tax, recent guidance from the ATO serves as a reality check.

The ATO has provided its views on how home-based businesses interact with the small business capital gains tax (CGT) concessions, providing a warning on how the ATO approaches a long-standing area of confusion.

See: Home-based business and CGT implications | Australian Taxation Office

The Key Issue: Active Asset Test

When an individual sells their main residence, they will often enjoy a full CGT exemption. However, if part of the home is used for business purposes, this can potentially impact on the scope of the exemption.

If a full exemption isn’t available under the main residence rules then we typically look to other CGT concessions, including the CGT discount for assets that have been held for more than 12 months or the small business CGT concessions.

The small business CGT concessions can potentially reduce or eliminate a capital gain made on sale of a property, but only if certain conditions are passed. One of the key conditions is that the property must pass an active asset test.

In very broad terms, to pass the active asset test you need to show that the property has been actively used in a business activity for at least 7.5 years across the ownership period or for at least half of the ownership period.

The ATO is clear: the active asset test applies to the entire property, not just the business portion. When you are applying the active asset test, an asset either passes this test or fails it. It is not really possible for an asset to partially pass the active asset test. The entire property is either an active asset or it is not.

Simply having a home office, workshop, or even being able to claim home occupancy expenses as a deduction does not necessarily make your home an active asset. Where business use is incidental to the home’s primary residential purpose, the ATO’s view is that the small business CGT concessions generally do not apply.

Rus v FCT

The view that the entire property must qualify as an active asset—and that incidental or minor business use (such as a home office or storage in a largely residential setting) is insufficient—draws support from case law, particularly the Administrative Appeals Tribunal (AAT) decision in Rus and Commissioner of Taxation [2018] AATA 1854 (Rus v FCT).

In that case, a taxpayer sought access to the small business CGT concessions on the sale of a 16-hectare largely vacant rural property, where only a small portion (less than 10% by area) was used for business purposes: a home office, shed for storing tools/equipment/vehicles, and related supplies tied to a plastering and construction business operated through a controlled company. The balance of the land remained vacant or used residentially.

The AAT upheld the ATO's ruling that the property as a whole did not satisfy the active asset test, reasoning that the business activities were not sufficiently integral to the asset overall.

Minor or incidental use did not make the entire property an active asset, especially where the business was primarily conducted off-site. This precedent reinforces the ATO's strict approach in home-based business scenarios: the property is assessed holistically. This means that limited business use typically fails to tip the scales toward qualifying for the concessions.

Practical Examples

Let’s take a look at how the ATO approaches some common scenarios.

Minor home-based business: Harriet runs a hairdressing salon in a spare room, using 7% of the total floor space of the property and seeing clients eight hours a week. She claims deductions for occupancy expenses and gets a 93% main residence exemption. However, because her business use is minor, she cannot access small business CGT concessions. The 50% CGT discount can still apply.

Significant business use: Sue and Rob own a two-storey building, with the ground floor operating as a takeaway store (50% of the total floor area of the property) and the top floor as their private residence. The business has been running for decades with employees. Here, the property qualifies as an active asset, potentially giving them access to the small business CGT concessions for the portion of the capital gain that isn’t covered by the main residence exemption.

What This Means for You

A partial main residence exemption doesn’t necessarily mean you have access to the small business CGT concessions. Many homeowners mistakenly assume that business deductions or a home office automatically open the door. The ATO clearly doesn’t share this view.
Seek advice before changing the way your home will be used. Starting to operate a business from home can impact on deductions, CGT calculations and access to CGT concessions. We are here to help you make fully informed decisions.
Keep thorough records. Floor plans, hours of business use, and detailed deductions can help strengthen your position and may help in any future planning or audits.
Consult your accountant. If selling your home is on the horizon, professional advice is critical to assess any potential CGT exposure and explore concessions that might be available.

The Bottom Line

The ATO’s updated guidance suggests that many home-based business owners won’t have access to the small business CGT concessions on sale of their home, but this always depends on the facts. Business owners need to plan proactively, rather than assume that tax relief will be available.

By understanding how your home’s business use is treated, you can make smarter decisions. For example, will the profits generated from a small business operated at home end up being wiped out by a higher CGT liability on sale of the property down the track?

After all, when it comes to CGT, every dollar you keep counts toward your next venture or your retirement nest egg.

DPN Review: A Wake-Up Call for Business Owners on Personal Tax Risks

Wed, 04 Mar 2026 00:56:15 GMT

Running a successful business is hard work

— and sometimes, despite best intentions, tax obligations slip. If t he business is being operated through a company structure, then the ATO can potentially issue a Director Penalty Notice (DPN), holding company directors personally liable for unpaid taxes.

In 2024–25, DPNs skyrocketed by 136%, reaching over 84,000 notices, affecting directors of around 64,000 companies. The stakes are high, and now the Tax Ombudsman is reviewing how the ATO issues and manages these notices—a development all directors should take seriously.

So, what exactly is a DPN? Put simply, if your company fails to pay certain taxes—like PAYG withholding, GST, or Superannuation Guarantee Charge (SGC)—the ATO can target directors personally. There are two types:

Non-lockdown DPNs: These apply if the company has lodged its activity statements or SGC statements but hasn’t made the relevant payments. In this case directors have 21 days to take appropriate action, such as arranging for payment of the debt, appointing an administrator, or entering liquidation. Acting promptly may allow the penalty to be remitted.
Lockdown DPNs: These apply if reporting deadlines are missed as well. In this scenario directors can’t avoid personal liability by putting the company into administration or liquidation.

The intent is to protect government revenue and employee entitlements—but for directors, the impact can be severe.

Why the Ombudsman is Involved

The review, announced in December 2025 by Tax Ombudsman Ruth Owen, responds to a surge in complaints, with DPNs topping the list. It will examine:

How effectively the ATO uses DPNs to recover debts ($54.2 billion in collectable amounts by mid-2025)
The fairness of selecting cases for enforcement
How directors are notified and communicated with
Treatment of vulnerable directors, including those coerced into roles or facing financial abuse

The review also aligns with broader government initiatives, including support for gender-based violence survivors and more empathetic engagement with business owners. While timelines are flexible due to resources, the review is part of the 2025–26 work plan, alongside assessments of ATO services for agents, First Nations engagement, and interest charge remissions.

Commercial Takeaways for Directors

DPNs are more than a compliance issue—they’re a real commercial risk. Ignoring a notice can disrupt personal finances, damage credit ratings, and even trigger bankruptcy. At the same time, the Ombudsman review could improve transparency and fairness, giving directors a clearer understanding of options if financial stress arises.

Practical steps to protect yourself now

Stay on top of obligations: make sure the company lodges returns and pays liabilities on time.
Lodge statements even if payment isn’t possible: Failing to lodge activity statements just makes things worse.
Consider using ATO payment plans if cash flow is tight but remember that this won’t necessarily enable directors to escape personal liability if a DPN has been issued already.
Monitor company cash flow and tax health closely, especially during economic dips.
Act fast if you receive a DPN: Consult immediately your accountant or lawyer to explore options because strict deadlines might apply.
Consider director insurance or business structuring to limit personal exposure—but compliance always comes first.

The Ombudsman’s review is a timely reminder: tax is a key business risk, not just paperwork. Being informed, proactive, and prepared can protect both your business and your personal assets. If you’re concerned about DPN exposure, reach out for a tailored review—we can help you stay ahead of risk, so your business thrives rather than just survives.

Downsizer Contributions and the Main Residence Exemption

Mon, 16 Feb 2026 02:40:19 GMT

When clients sell a long-held family home, they may be able to channel part of the proceeds into superannuation by using the downsizer contribution rules.

Basic Eligibility Conditions

To qualify, the seller must meet a number of conditions:

They must have reached the eligible age of 55 years (at the time of making the contribution).
The eligible dwelling must be located in Australia and have been owned for at least 10 years.
The disposal of the dwelling must be exempt from CGT under the main residence exemption to some extent (full exemption not required).
The contribution must be made within 90 days of settlement, and an election form must be lodged with the fund no later than when the contribution is received.

The downsizer contribution can only be used once per individual and is limited to the lesser of the gross sale proceeds or $300,000 per person.

Does the Sale Need to be Fully CGT-exempt?

A common question is whether the sale must be fully exempt as the main residence.

Importantly, a full exemption is not required.

Even if only part of the capital gain is exempt under main residence rules, the property may still qualify — provided all other conditions are met.

Is the Property Required to be the Main Residence at Sale?

Equally important: the property does not need to be the seller’s principal residence at the time of sale.

Living in the property for some years and renting it out later does not disqualify it, as long as the ownership and residence history supports at least a partial main residence exemption.

Special Rules for Pre-CGT Properties

Where a property was acquired before CGT began, the rules look at whether part of the gain would have been disregarded had CGT applied.

A key requirement is that there is a dwelling that qualifies as the main residence. Disposal of vacant land will generally not satisfy the test and therefore will not meet downsizer requirements.

Eligibility of a Non-Owning Spouse

It is common for only one spouse to be listed on the property title.

A non-owning spouse may still qualify for a downsizer contribution if all other requirements are met, apart from ownership.

However, a spouse who never lived in the property and could not reasonably have treated it as their main residence is unlikely to be eligible.

Preservation and Access to Funds

A downsizer contribution is subject to the standard preservation rules. Once contributed, the amount cannot be accessed until:

You reach preservation age (60) and retire, or
You reach age 65, regardless of retirement status.

Consider future cash-flow needs before making the contribution.

Before you Contribute

Although seemingly straightforward, downsizer contributions involve several nuances. Please contact us if you have any questions.

AI Tax Tips: Helpful Shortcut or Costly Trap?

Mon, 16 Feb 2026 02:35:59 GMT

As a business owner or investor, time is always tight...

So it’s no surprise many people now turn to AI tools like ChatGPT for quick answers on tax deductions, super contributions or structuring ideas.

The responses sound confident, arrive instantly and cost nothing. What could go wrong?

Plenty.

The Australian tax and super system is complex, highly fact-specific and constantly changing. While AI can be a useful starting point, relying on it for decisions can expose you to audits, penalties and poor financial outcomes. We’re increasingly seeing the clean-up work when AI advice goes wrong.

Where AI Can Help (and Where it Can’t)

AI is quite good at explaining basic concepts in plain English. It can help you understand what “negative gearing” means, outline the difference between concessional and non-concessional super contributions, or prompt you to think about record-keeping. Used this way, it can save time and help you ask better questions.

The problem starts when AI moves from explaining concepts to giving “advice”.

Tax and super outcomes depend on your specific facts: your income levels, business structure, age, residency status, assets, timing and future plans. AI does not know these details unless you provide them—and you generally shouldn’t. Even then, it cannot exercise judgement or balance competing risks the way an experienced adviser can.

The Accuracy Risk: Confident, but Wrong

AI tools are known to “hallucinate” – that is, provide answers that sound authoritative but are incorrect or incomplete. In practice, this can mean:

Claiming deductions that don’t apply to your circumstances
Miscalculating capital gains tax or ignoring integrity rules
Suggesting super strategies that breach contribution caps or eligibility rules
Quoting legislation, cases and rulings or concessions that don’t exist or are out of date.

These errors are rarely obvious to a non-expert, but they are normally obvious to the ATO, courts and experienced advisers.

A recent decision handed down by the Administrative Review Tribunal highlights some of the key problems. In Smith and Commissioner of Taxation [2026] ARTA 25 the taxpayer appeared to rely on AI tools to identify cases which supported their argument, but this approach was shot down by the Tribunal. Some of the cases didn’t exist and others were simply not relevant to the matter being considered.

If the person using the AI tool doesn’t verify the existence of the cases provided by the tool and read them to ensure their relevance then “the Tribunal’s resources are being wasted, as the Tribunal must look for cases that don’t exist and read cases that have no relevance at all”.

ATO Scrutiny is Increasing, not Decreasing

The ATO isn't anti-AI—they use it internally for fraud detection and analytics. But for you? The ATO’s misinformation guide makes it clear that AI tools can provide false, inaccurate, incomplete or outdated information. The ATO’s message is to verify everything, or face the music. Surveys reveal 64% of businesses seek AI accounting help first, only for pros to unscramble the mess—wasting time and money.

ATO AI transparency statement | Australian Taxation Office

Protect yourself from misinformation and disinformation | Australian Taxation Office

When something is wrong, the ATO will generally amend the return, charge interest and may apply penalties—even if the mistake came from AI advice rather than intent.

We are seeing this play out most clearly with work-from-home claims, property deductions and SMSF compliance.

Superannuation: High Stakes, Little Margin for Error

Super is an area where AI advice can be particularly dangerous. Self-managed super funds, in particular, operate under strict rules. AI often overlooks key issues such as eligibility, timing, purpose tests and investment restrictions. The result can be non-compliance, forced unwinding of transactions and penalties that run into thousands of dollars.

Super mistakes can also permanently damage your retirement savings.

Data Security and Privacy

There is also a practical risk many people overlook: entering personal or financial information into AI platforms. Once data is entered, you lose control over how it is stored or used. This creates privacy and fraud risks that are simply not worth taking.

A Smarter Approach: AI Plus Professional Advice

AI is best used as a support tool, not a decision-maker. It can help you understand the landscape, but important tax and super decisions should always be reviewed in light of your full circumstances.

At our firm, we encourage clients to bring questions early, test ideas and have conversations before acting. That approach almost always costs less than fixing problems after the fact.

The bottom line: AI can be a helpful assistant, but it is not your accountant. When it comes to protecting your wealth and staying compliant, tailored professional advice remains essential.

Electric Car Discounts Under Review: What It Means for Your Business (and What You Should Do Now)

Mon, 16 Feb 2026 02:30:01 GMT

Electric vehicles (EVs) are no longer a niche choice...

By late 2025, they account for more than 8% of new car sales in Australia, driven in no small part by generous tax incentives. One of the most significant is the Federal Government’s Electric Car Discount, introduced in mid-2022.

For many businesses and employees, it has materially reduced the cost of owning or leasing an EV.

That said, the rules are now under review. While no immediate changes are proposed, this is an important moment to understand the benefits, assess whether they suit your circumstances, and consider timing.

How the Electric Car Discount Works (in Plain English)

The discount is not a cash rebate. Instead, it operates through tax concessions that can significantly reduce the real cost of an EV:

1. Fringe Benefits Tax (FBT) exemption

Where an eligible EV is provided to an employee as a fringe benefit, private use is exempt from FBT. This is often the biggest saving. Without the exemption, FBT is effectively charged at up to 47%. For many employees, the exemption can reduce the annual after-tax cost of a vehicle by thousands of dollars.

Important points:

The exemption applies to battery electric vehicles and hydrogen fuel cell vehicles.
Plug-in hybrid vehicles lost eligibility for new arrangements from 1 April 2025.
The car must be first held and used after 1 July 2022 and be below the luxury car tax threshold at first purchase.

2. Higher luxury car tax (LCT) threshold

Fuel-efficient vehicles, including EVs, benefit from a higher LCT threshold ($91,387 for 2025–26, compared to $76,950 for other cars). This can prevent the 33% luxury car tax applying to part of the purchase price.

3. Reduced import costs

Certain EVs are also exempt from the 5% customs duty, reducing upfront acquisition costs.

Commercially, these settings have made EVs very competitive. Lower running costs (electricity versus fuel, fewer servicing requirements) and solid resale values have strengthened the business case, particularly for salary packaging and small fleets.

Why the Government Is Reviewing the Rules

A statutory review of the Electric Car Discount has now commenced. The key reason is cost. Uptake has exceeded expectations, and the projected cost to the budget has increased significantly over the forward estimates.

The review will examine:

Whether the concession is still required to encourage EV adoption.
Whether eligibility settings should be tightened (for example, limiting benefits to certain vehicle types or price points).
How the discount interacts with other policies, such as the National Vehicle Emissions Standard commencing in 2025.

Public consultation is underway, with a final report not due until mid-2027. Importantly, there is no suggestion of immediate changes, and any reforms are more likely to be prospective.

Practical Takeaways for Business Owners and Employees

While uncertainty always creates hesitation, the current rules are clear and legislated. From a practical perspective:

Now is a good time to review fleet or salary packaging arrangements, particularly if you are considering replacing a vehicle in the next 12–24 months.
Existing arrangements are expected to be grandfathered, reducing the risk of retrospective changes (although we can’t guarantee this).
Ensure vehicles are clearly under the LCT threshold at first purchase and meet all eligibility criteria if you want to access the FBT exemption.
Check the tax treatment of charging infrastructure provided in connection with an eligible EV, this won’t necessarily qualify for an FBT exemption.

Final Thought

The Electric Car Discount remains one of the most valuable concessions available for employee vehicles. While a review introduces longer-term uncertainty, the commercial reality today is that EVs can deliver genuine tax and cash-flow savings when structured correctly.

If you are considering an EV—either personally or through your business—now is the right time to run the numbers. Please contact our team if you would like tailored advice on whether an electric vehicle strategy makes sense for you under the current rules.

Holiday Homes Under the Microscope: What the ATO’s New Guidance Means for You

Tue, 10 Feb 2026 23:21:54 GMT

For many Australians, a holiday home does double duty...

It’s a place to escape with family and friends, and during the re st of the year it’s listed on Airbnb or Stayz to help cover the costs.

Until recently, many owners assumed they could claim most of the usual deductions for the property without much trouble, as long as appropriate apportionments were made. However, that position is now under more scrutiny than ever following the release of some new draft guidance documents by the Australian Taxation Office (ATO) - TR 2025/D1, PCG 2025/D6 and PCG 2025/D7.

The ATO is looking to significantly tighten the rules around holiday homes that are used to derive some rental income. While the documents are still in draft form, they clearly signal the ATO’s compliance focus going forward.

What is the ATO Concerned About?

In simple terms, the ATO wants to distinguish between properties that are genuinely held to maximise rental income and those that are primarily lifestyle assets with some incidental rental use.

The ATO confirms that all rental income must be declared, even if it is occasional or earned through informal arrangements. However, if the property is really a holiday home and isn’t used mainly to produce rental income during the year then the owner can’t claim any deductions for expenses such as interest, rates, land tax, repairs and maintenance.

That is, the ATO might not allow any of these expenses to be claimed as a deduction, even if the property is used to generate taxable rental income for some of the year at market rates. If the property is classified as a holiday home by the ATO then owners can only claim deductions for limited direct expenses such as cleaning or advertising.

The ATO is particularly focused on properties that:

Are blocked out for private use during peak periods (for example, school holidays or ski season),
Are advertised inconsistently or at above-market rates,
Generate ongoing tax losses year after year.

How Expenses Must be Claimed

Even if the property isn’t classified as a holiday home, it will often still be necessary to apportion expenses if the property is only used partly for income producing purposes. PCG 2025/D6 outlines how expenses should be apportioned. The key principle is that claims must be “fair and reasonable”.

Common methods include:

Time-based apportionment (for example, based on days rented or genuinely available for rent), and
Area-based apportionment (where only part of a property is rented).

Getting this wrong, or failing to keep evidence, increases audit risk. The ATO has access to booking platform data and can easily compare listings, calendars and reported income.

The Financial Impact can be Significant

Consider a holiday unit that earns $30,000 a year in off-peak rent but is kept for private use during peak holiday periods. Under the new approach, the ATO may conclude the property is really a holiday home and could reduce deductible expenses from tens of thousands of dollars to only a small fraction, resulting in a materially higher tax bill.

Co-ownership also needs care. Income and deductions are generally split according to ownership interests, regardless of who uses the property more. Renting to relatives at discounted rates can further limit deductions.

Practical Steps you Should Take Now

Although the guidance is proposed to apply from 1 July 2026 (with transitional relief for arrangements in place before 12 November 2025), now is the time to review your position:

Are you holding and using the property to genuinely maximise rental income? Is the property advertised broadly and consistently, including during peak periods?
Use market pricing: Set rent in line with comparable properties in the same area.
Keep strong records: Retain booking calendars, advertisements, enquiries, and a diary showing private versus rental use.
Review ownership and strategy: In some cases, changing how a property is operated can improve its commercial profile and tax outcome, but beware of CGT liabilities, duty and legal fees.
Document existing arrangements: If you may qualify for transitional relief, evidence is critical.

The Bottom Line

The ATO is not banning deductions for holiday homes, but it is drawing a firmer line between genuine investment properties and lifestyle assets. With the right structure, pricing and record-keeping, many owners can still claim appropriate deductions and improve cash flow.

If you own a holiday property, a proactive review could save you from an unpleasant surprise later.

Please contact us if you would like us to assess your current arrangements and help you plan ahead.

Cash is Making a Comeback – Is Your Business Ready to Take It?

Thu, 04 Dec 2025 05:40:17 GMT

Digital payments are quick, traceable, and cut down on the risk of theft or counting errors. But that tap-and-go world might soon have to make room again for notes and coins.

The Government has released draft regulations that would require certain retailers to accept cash payments, ensuring Australians can still buy essential goods like groceries and fuel – even when technology fails. The change aims to stop people from being excluded when power, internet, or card systems go down, or when they simply prefer to pay in cash.

Who Will Need to Accept Cash – and Who Won’t

The new rules are targeted and, importantly, practical. They’ll apply to fuel stations and grocery retailers, including both major supermarket chains and independent operators, but only for in-person transactions under $500. That means you won’t have to accept someone paying for a $700 tyre replacement or bulk farm supplies in cash – it’s about the everyday essentials.

If your business (or franchise group) has an annual turnover of less than $10 million, you’ll be exempt. That’s good news for most small businesses such as family-run grocers, local cafés, and corner stores already managing tight margins and staffing challenges.

The regulations are expected to take effect from 1 January 2026, with a review after three years to see how the system is working in practice.

Why It’s Happening

The move comes as part of a broader push to maintain access and fairness in Australia’s payment system. The Government and industry groups have recognised that while most Australians are happy to tap their card or phone, around 10–15% still prefer to use cash – particularly older Australians and those in regional or remote areas.

There’s also a resilience angle: during bushfires, floods, or power outages, card networks can go offline. In those moments, cash becomes essential.

What This Means for Your Business

For larger retailers, this change will mean dusting off cash-handling policies and reintroducing processes that many have phased out. That may include:

Re-establishing cash floats and tills
Staff training to handle and verify cash
More frequent bank deposits and reconciliation procedures

For small businesses that fall under the $10 million exemption, the key step will be to document your turnover clearly so you can demonstrate that the exemption applies. We can help ensure your records and structures support that.

There may also be commercial upside. Accepting cash could attract a segment of customers who’ve drifted away as stores went digital – especially in regional areas where cash use remains strong. A small business that promotes “cash welcome” could even gain new loyal customers who value convenience and personal service.

For years, businesses have been moving away from cash – and for good reason.

Preparing for the Change

Looking Ahead

With final regulations expected soon, it’s worth starting to plan now. Review your payment policies, assess whether you’re likely to be caught by the new rules, and budget for any setup or compliance costs.

If you’re exempt, ensure your records are watertight. If not, look for ways to streamline cash handling – for example, by using digital cash counters or smart safes to reduce errors and time spent on reconciliations.

Cash isn’t going away just yet. This reform is about maintaining choice, resilience, and fairness in how Australians pay – and ensuring businesses are ready when customers want to use it.

If you’d like help assessing how these rules could affect your operations or what the exemption means for your business, get in touch with our team.

Unlocking Tax Savings: Can Your MBA (or Other Studies) Pay Off at Tax Time?

Wed, 03 Dec 2025 05:35:55 GMT

For many professionals, the answer is yes — but only if the right boxes are ticked. The ATO’s rules on self-education expenses are strict, and the line between “deductible” and “non-deductible” can be thin. Getting it right could mean thousands back in your pocket; getting it wrong could mean an ATO adjustment, plus interest and penalties.

Let’s unpack how it works with a real-world example and some practical takeaways.

The Scenario: Sarah’s MBA

Sarah works in the Department of Defence and recently completed an MBA through a private provider. Her employer supported her studies with a $40,000 study allowance, and the course fees totalled $18,000. She deferred payment using the FEE-HELP loan system and declared the allowance as taxable income in her return.

Now she’s asking:

Can I claim a deduction for my MBA fees?

Does it matter that I used FEE-HELP?

Does the employer allowance change things?

The Type of Loan Matters

First, not all funding for education courses is treated equally.

HECS-HELP - no deduction:
If your course is a Commonwealth supported place (most undergraduate and some postgraduate university programs), you can’t claim a deduction. There is specific legislation in the tax system which denies deductions for fees covered by HECS-HELP — even if you pay them upfront and even if the course is closely related to your work.

FEE-HELP - potential deduction:
If you’re in a full-fee course, your tuition fees might be deductible if the study directly relates to your current employment or business activities. The ATO doesn’t allow a deduction for loan repayments later on — just the course fees themselves.

Practical tip:
Check your course statement or loan confirmation to see if you’re under HECS-HELP or FEE-HELP. Only FEE-HELP (or private payment) gives you potential deductibility.

The “Nexus” Test — Linking Study to Your Current Work

Even if the funding passes the first test, the purpose of the study is key. The ATO will only allow deductions if the course maintains or improves the skills you already use in your job, or is likely to increase your income in that same role.

It won’t apply if you’re studying to move into a new field or start a different career.

The ATO issued a detailed ruling on this topic in 2024 which provides some clear examples:

Allowed: A store manager doing an MBA to strengthen leadership and business operations skills.

Denied: A sales rep doing an MBA to change careers into consulting — the link to the current role was too weak.

For Sarah, the deduction depends on whether her MBA subjects (like strategy, policy or management) build directly on her current Defence role. The fact that her employer funded the course helps demonstrate relevance, but it’s not proof on its own.

In some cases you might find that specific subjects or modules are sufficiently linked with current income earning activities, while other subjects are too general in nature for the fees to be deductible.

If you’ve invested in further study — an MBA, a leadership course, or a postgraduate qualification — you might be wondering: can this help at tax time?

Employer Allowances and HELP Repayments

Making It Practical

Key Takeaways

The $40,000 allowance Sarah received is assessable income — it’s taxed just like salary. But that doesn’t stop her from claiming eligible self-education deductions for the course fees.

HELP loan repayments later on are not deductible — they’re simply a repayment of debt. The timing of the deduction is based on when the course expense was incurred (not when the loan is repaid).

If you’re planning further study or reviewing a recent course, here’s how to make sure you get it right:

Check your loan type – FEE-HELP or private fees can be deductible; HECS-HELP cannot.

Gather evidence – Keep course outlines, job descriptions, and any correspondence showing the study supports your current work.

Claim what’s relevant – You can only claim expenses directly connected to your current job (fees, books, and possibly travel).

Be ready for review – Large claims often attract ATO attention. A private ruling can provide peace of mind if the amount is significant.

For many professionals, postgraduate studies like an MBA can deliver both career and tax benefits — but only if they relate directly to your current role.

Handled correctly, self-education deductions can return thousands in tax savings. For Sarah, that could mean a refund of over $5,000 on an $18,000 course.

If you’re considering further study, talk to us before you enrol or claim. A quick chat could ensure your next qualification delivers the best return — professionally and financially.

Know the Rules Before You Break Them: Why SMSF Education Matters More Than Ever

Tue, 02 Dec 2025 05:32:37 GMT

The Superannuation Industry (Supervision) Act 1993 (SISA) contains detailed rules on trustee duties, investments, borrowing, payments and recordkeeping. Simply put, you cannot identify or avoid breaches you don’t know exist. For trustees, this should mean education is not optional but rather, is essential for risk management.

Why understanding SISA matters

You can’t comply with what you don’t know: Many common breaches arise from misunderstanding basic SISA duties (for example, sole purpose, arm’s length dealings, or in-house asset limits). Awareness of the rules is the first step to spotting a problem early.
Early identification reduces harm: Knowing what to look for, incorrect benefit payments, related party transactions that aren’t on commercial terms, or records that are incomplete, lets you seek advice before small errors become reportable contraventions.
Education protects members: The consequences of a breach can include loss of tax concessions, penalties and remediation costs that reduce retirement savings for members.

The ATO’s Focus on Education — What Trustees Need to Know

The ATO has recently published a draft Practice Statement (PS LA 2025/D2) explaining when it might issue an education direction under section 160 of SISA. These directions give the ATO power to require trustees (or directors of corporate trustees) to complete specified education, where trustees’ knowledge or behaviour poses a risk to compliance. The draft statement sets out the ATO’s approach and the kinds of circumstances that may lead to an education direction.

However, trustees should not wait for an ATO directive before getting educated – such a directive means the trustees have already breached the rules. The draft Practice Statement is intended to support compliance and public confidence, but it is not a substitute for proactive trustee learning. Acting early and voluntarily is both safer for trustees and viewed more favourably by regulators.

Practical Steps Trustees Can Consider

Use ATO’s official SMSF guidance

Start with the ATO’s SMSF courses on the lifecycle of an SMSF, setting up, running and winding up. These courses are written for trustees and prospective trustees:

Setting up an SMSF: https://smallbusiness.taxsuperandyou.gov.au/setting-up-a-self-managed-super-fund-smsf
Running an SMSF: https://smallbusiness.taxsuperandyou.gov.au/running-a-self-managed-super-fund-smsf
Winding up an SMSF: https://smallbusiness.taxsuperandyou.gov.au/winding-self-managed-super-fund-smsf

Complete the ATO’s ‘knowledge check’

The ATO provides an online “knowledge check” for each course designed to test trustee understanding. It’s a useful starting point, but note a pass mark of 50% should not be taken as a guarantee of safety. Trustees should consider whether aiming for a much higher standard, even 100% comprehension of core duties, is a more appropriate target to reduce risk.

Seek timely professional advice

If a knowledge check or your reading flags uncertainty, contact us early to discuss your concerns. Timely, qualified advice often transforms a potential contravention into a routine fix and may mitigate potential penalties or ATO enforcement action.

Document your learning and decisions

Keep records of training completed, who provided advice, and why investment or payment decisions were made. Good records are persuasive evidence of a trustee’s intent to comply.

Final Word

SMSF trustees hold both opportunity and responsibility. Learning the SISA rules and the ATO’s expectations is the most practical way to prevent costly mistakes. The ATO’s draft Practice Statement shows the regulator is prepared to use education directions where trustees’ knowledge gaps pose risks, but you shouldn’t wait to be told. Build your knowledge, use the ATO’s resources, complete the knowledge check, document what you learn, and seek professional help confidently and early. That approach better protects your fund and retirement outcomes.

Running, or deciding to set up a self-managed super fund (SMSF) gives you control, but it also brings legal responsibilities.

Super on Payday: Fundamental Changes for Employers

Mon, 01 Dec 2025 05:28:24 GMT

If you run a business, you already know the juggling act that comes with managing the payroll process — paying staff on time, managing cash flow, and staying compliant. From 1 July 2026, there’s a major change coming that will reshape how you handle superannuation contributions for staff.

It’s called Payday Super, and it became law on 4 November 2025. The new rules are designed to close Australia’s $6.25 billion unpaid super gap and make sure employees — especially casual and part-time workers — get their retirement savings when they get paid.

What’s Changing?

From 1 July 2026, you’ll need to pay superannuation guarantee (SG) contributions at the same time as wages, rather than weeks or months later. Employers will have seven business days from payday to ensure contributions hit employees’ super funds.

If payments are late, the Superannuation Guarantee Charge (SGC) will apply — that means paying the missed super plus an interest and administration penalty. Once SGC has been assessed, additional interest and penalties may apply if the SGC liability isn’t paid in full.

Unlike the existing system, SGC amounts will normally be deductible to employers, although penalties for late payment of SGC won’t be deductible.

On top of this, the ATO will retire the Small Business Superannuation Clearing House (SBSCH) platform from 1 July 2026 for all users and alternative options should be sought.

The change isn’t just about compliance — it’s about impact. The Government estimates the earlier payments could boost an average worker’s retirement balance by around $7,700.

Why It’s Good for Business

This reform might sound like extra admin, and it might take a bit of getting used to, but it can actually simplify your payroll process and strengthen your reputation as an employer.

Less admin – Paying super when you run payroll means no more quarterly payment crunches.
Fewer compliance risks – ATO data-matching will pick up issues faster, helping you avoid penalties before they snowball.
Stronger employee trust – Staff can see their super growing in real time, which might help with engagement and retention.
Smoother cash flow management – Paying smaller, regular amounts of super is often easier to manage than large quarterly sums.

The ATO will take a “risk-based” approach for the first year, focusing on education and helping businesses transition smoothly. If you pay on time, you’ll likely be flagged as low risk, meaning fewer compliance checks.

How to Get Ready — Practical Steps to Take Now

You’ve got time before the rules kick in, but the smart move is to prepare early. Here’s how:

1. Check your payroll software.
Most modern systems (like Xero, MYOB, or QuickBooks) already support payday-aligned super. Confirm your setup and check if any updates or integrations are needed.

2. Map your pay cycles.
Note how often you pay staff (weekly, fortnightly, monthly) and calculate the seven-day payment window for each.

3. Brief your team.
Make sure whoever manages payroll understands the changes. The ATO has free online resources and webinars to help.

4. Plan your cash flow.
Consider shifting from quarterly to more regular payments now to get used to the timing. Smaller, frequent super payments can reduce cash flow shocks.

5. Monitor and review.
Set up a monthly check to ensure super contributions have cleared correctly. Keep an eye on ATO updates as final guidance is released.

If you outsource payroll, contact your provider soon — many are already updating systems for Payday Super and can help you make a seamless switch.

The Bottom Line

Payday Super isn’t just a compliance change — it’s an opportunity to make your payroll more efficient, your staff happier, and your business more compliant with less effort. With the laws now passed and just over 6 months to prepare, it’s time to get ahead of the curve.

If you’d like help reviewing your payroll setup or planning the transition, get in touch with our team — we can help you make sure your business is ready to go when Payday Super commences.

Cyber In Accounting: Safeguarding Financial Data in a Digital Age

Tue, 11 Nov 2025 05:25:24 GMT

Many businesses hold critical data that poses significant risk to both businesses and their customers if the data they hold is not safeguarded from cybersecurity threats.

The largest threats to businesses come from external entry points exposed by staff, through phishing links, malware being downloaded and payment fraud. The valuable information held by some businesses (such as professional firms) make them prime for cyber attacks, which can have devastating impacts on businesses and their customers.

Outside of Government organisations, the financial services sector was the most targeted industry in Australia in FY 2024/25, with the cost of these cybercrimes increasing up to 55% for small and medium businesses.

People: The Biggest Cyber Risk

But where does your cyber strategy start, and how do you know what the risks are? The biggest risk to Australian businesses is its people. More than 85% of all cybersecurity incidents are caused by human error. The top three incident types all rely on staff and business decisions to gain access into systems, meaning it is more important than ever to conduct regular staff training.

Staff training should focus on identifying phishing attempts, understanding what to look for in malicious emails and content and how to maintain healthy password practices.

Technology and Updates: Don’t Let Legacy Systems Create Weaknesses

Another considerable business risk is legacy hardware and software being used in your environment. It might seem like a small frustration, turning your computer off for updates regularly, and using the latest versions of software, replacing hardware to align with required standards, but it works to close the gaps of security vulnerabilities.

Recommendations aligned with the Australian Signals Directorate’s Essential 8 Framework are that all critical vendor patches are applied within 48 hours of release, and any non-critical patches are applied within two weeks. This method applies to networking equipment, third party vendor software and device operating systems.

Recently, Microsoft have made the Windows 10 Operating System End of Life (EOL) which means that devices still running on this operating system can no longer receive security updates, a vulnerability that malicious actors will no doubt use to their advantage.

Visibility and Monitoring: Detecting Threats Early

Realistically, you cannot defend what you cannot see. An important safeguard is event logging, reporting and alerting being setup in your environment.

Just by way of example, the average breach for financial services businesses in Australia takes 288 days to detect. 288 days of unmitigated breaches, access to customer and staff data, contact lists, patterns of behaviour and possibly already setting up rules and routing inside the environment that the business is entirely unaware of.

Setting up appropriate logging and alerts to ensure that you are notified when something risky, like logging in from Australia at 10am and Japan at 11am, is happening inside your environment. Understanding when unauthorised access to systems has occurred is critical in being able to then assess the potential scope of an incident, so it can then be managed.

The Importance of a Cyber Incident Response Plan

A Cyber Incident Response Plan (CIRP) might seem like another piece of paper, but it is critical in defining the steps that your organisation needs to take to act, mitigate and respond to a cyber event. An adequate CIRP will include several critical components, but the incident management team, detection methods, incident categorisation, evidence process and resolution plans form the baseline of what will help an organisation act swiftly, and appropriately for the event type.

A CIRP that has been tested regularly ensures that in the event of a cybersecurity incident, your organisation has a prioritised and effective response that deals with the technical concerns, the potential data breaches and any ongoing communications required either internally or externally with customers and stakeholders.

Protecting Your Business, Clients, and Reputation

In today’s digital world, it is never more important for businesses to ensure their data, systems, staff and clients are protected from threats. Cybersecurity and risk strategies are critical in this landscape and should consider different components, including staff training, technology strategies, data and information handling policies, and incident response plans.

Considering cybersecurity as a business strategy is how organisations will survive, and thrive, and ensure that their reputation, financial security and customers are protected.

Cybersecurity is fast becoming a critical business strategy – and if it’s not, it should be

Proposed Extension of the Instant Asset Write-Off and Other Tax Measures

Tue, 11 Nov 2025 05:23:31 GMT

The headline measure is the proposed extension of the $20,000 instant asset write-off for another year, to 30 June 2026.

A new Bill before Parliament – the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Bill 2025 – proposes several key changes that could affect small businesses, listed companies, and the not-for-profit sector. The headline measure is the proposed extension of the $20,000 instant asset write-off for another year, to 30 June 2026.

Small Business Boost: $20,000 Instant Asset Write-Off Extended

If the Bill passes, small businesses with an aggregated annual turnover of less than $10 million will continue to be able to immediately deduct the full cost of eligible assets costing under $20,000 (excluding GST) through to 30 June 2026.

The threshold applies per asset, meaning multiple purchases can qualify if each individual item is under the limit. To claim the deduction, the asset must be first used or installed ready for use by the new deadline.

This measure remains one of the simplest and most practical tax incentives available to small businesses. It provides a direct cash-flow benefit by allowing the full deduction in the year of purchase instead of spreading depreciation over several years, as long as the taxpayer would actually have a tax bill for that year. For example, a tradesperson upgrading tools, or a café purchasing a new fridge or coffee machine, can immediately claim the full deduction – freeing up cash for reinvestment elsewhere in the business.

While the proposal still needs to pass Parliament, now is the time to plan. If you are considering new equipment or technology upgrades, budgeting early ensures assets can be delivered and installed before the cut-off date once the law is enacted.

Strengthened Corporate Disclosure

The Bill also proposes tighter disclosure rules for listed companies. Changes to the Corporations Act 2001 would require the disclosure of equity derivative interests – such as options, swaps, and short positions – under the substantial holding regime. These reforms are designed to improve market transparency and make it harder for significant shareholdings or control interests to remain hidden.

For listed entities, this will increase compliance obligations and may require updates to internal monitoring and reporting systems. Investors with substantial positions in listed companies should also review their current arrangements to ensure future compliance.

Greater Transparency for Charities

For the not-for-profit sector, the ACNC Commissioner would gain the power to publicly disclose “protected information” such as details of investigations, provided it meets a public harm test. This aims to strengthen public confidence in the charity sector by showing that the regulator is taking action where misconduct occurs.

For well-run charities, stronger transparency can enhance community trust – but it also highlights the need for robust governance, record-keeping, and compliance processes.

Financial Regulator Reviews Simplified

Finally, the Bill would reduce the frequency of reviews of ASIC and APRA by the Financial Regulator Assessment Authority from every two years to every five. While largely administrative, this signals a shift toward streamlined oversight to allow regulators to focus on core functions.

What You Should Do Now

Although these measures are still before Parliament, it’s wise to start planning. For small businesses, consider your 2025–26 capital expenditure needs and make sure any planned purchases can be installed and ready for use by 30 June 2026 if you are hoping to rely on the upfront deduction. For charities and listed entities, review governance and reporting frameworks to prepare for greater transparency requirements.

We’ll keep you updated as the Bill progresses. In the meantime, contact us if you’d like to discuss how these proposed changes might fit into your business or investment strategy.

When Medical Bills Meet Tax Rules – Lessons from a Heartbreaking Case

Mon, 03 Nov 2025 05:19:23 GMT

Imagine this: after years of hardship and illness, you’re forced to retire early on a Total and Permanent Disability (TPD) pension from your super fund.

It’s your only income stream. Then come the medical bills – tens of thousands of dollars in treatments to manage the very conditions that ended your career. You might assume those costs are tax deductible as the TPD pension was payable because of this disability.

Unfortunately, a recent tribunal case shows it’s not that simple. In Wannberg v Commissioner of Taxation [2025] ARTA 1561, the Administrative Review Tribunal (ART) upheld the ATO’s decision to deny nearly $100,000 in medical deductions. The case is a stark reminder that the tax system draws a sharp line between earning income and dealing with your health.

The Story Behind the Case

The taxpayer, Mr Wannberg, had left the workforce due to severe mental and physical health issues caused by years of abuse. His TPD pension from his super fund was his only income. In 2024, he applied to the ATO for a private ruling, asking whether about $98,000 in medical expenses – including psychotherapy, residential treatment, and dental work – could be claimed as deductions.

His argument was heartfelt and logical: these treatments were essential to manage his disabilities and sustain his eligibility for the pension. He compared his situation to a 2010 High Court case (Anstis), where a student was allowed to deduct self-education costs linked to her Youth Allowance.

But the ATO said no – and the tribunal agreed.

Why the Deductions Failed

The key issue came down to a single piece of tax legislation: section 8-1 of the Income Tax Assessment Act 1997. To be deductible, an expense must be incurred “in gaining or producing your assessable income” and must not be of a private or domestic nature.

The tribunal found no direct link – or “nexus” – between the medical treatments and the pension income. The TPD pension was payable because of his disability, not because of any ongoing effort to maintain it. As the tribunal put it, the medical costs helped him live with his condition, but didn’t produce the pension.

In other words, while staying healthy might be personally essential, it doesn’t make those expenses tax-deductible. The costs were considered private in nature – similar to most therapy, medical, or dental bills.

What This Means for You

This decision offers a few key takeaways for anyone receiving disability pensions, super income streams, or other support payments:

Understand the “nexus” test: An expense must directly help you earn your income. Medical costs for managing a condition usually don’t meet that test.
Recognise the private line: Even if a treatment relates to your ability to work, it’s likely still “private” unless it directly relates to producing income.
Treatment vs assessment: Some taxpayers are required to obtain certificates from medical practitioners to maintain a licence so that they can continue with their current income producing activities. These costs are often deductible, unless the individual receives medical treatment.
Plan for non-deductible costs: If you rely on disability or super pensions, factor medical expenses into your financial plan. Consider insurance options, offsets, or rebates (like private health or Medicare levy exemptions) to ease the load.
Seek advice early: Before spending large sums, get an ATO private ruling or professional advice.

The Wannberg case is a tough reminder that the tax law cares more about how income is produced than how life is lived. The system draws a firm line between personal wellbeing and income generation – and unfortunately, even genuine medical needs often fall on the wrong side of that line.

If you’re unsure whether an expense might be deductible, don’t guess. Talk to us first. We can help you plan ahead, stay compliant, and make the most of the rules that do work in your favour.

Super Tax Shake-Up: Big Balances Beware

Mon, 03 Nov 2025 05:16:47 GMT

If your super balance is comfortably below $3 million, you can probably relax...

The proposed changes to the super rules shouldn’t adversely affect you (yet). But if your super is nudging that level, or if you’re clearly over, the Treasurer’s latest announcement could change how you think about super’s generous tax breaks.

For some time now the Government has been planning to introduce targeted measures to reduce tax concessions for those with superannuation balances over $3 million. This has commonly been referred to as the Division 296 tax.

However, the Government has reworked the proposed new tax — part of the Better Targeted Superannuation Concessions (BTSC) policy — attempting to make it simpler, fairer, and more practical. After a wave of industry criticism, the revised version keeps the broad policy intent (reducing tax concessions for very large balances) but removes some of the more problematic features.

Let’s break down what’s changed and what it means for you.

What’s Changing — and Why It’s Simpler

The original 2023 proposal aimed to apply an extra 15% tax on “earnings” from super balances above $3 million. The big flaw? “Earnings” included unrealised gains — paper profits on assets like property or shares that hadn’t been sold. This meant some people could have owed tax on increases in value they hadn’t actually received in cash.

The reworked model drops unrealised gains from the equation entirely, taxing only realised earnings — actual income and capital gains when assets are sold. This makes the system far more practical and aligned with everyday tax rules. No more worrying about funding a tax bill on assets you haven’t sold.

A Fairer, Tiered Approach

The new rules introduce a two-tier system for high balances:

Tier 1 ($3m–$10m): Extra 15% tax on earnings from this portion (making a total rate of 30%).
Tier 2 (over $10m): Extra 25% tax on earnings above $10m (for a total rate of 40%).

Both thresholds will be indexed annually to inflation ($150,000 steps for the $3m tier and $500,000 for the $10m tier), which should prevent “bracket creep” over time.

Importantly, the start date has been pushed back to 1 July 2026, with the first assessments expected in 2027–28.

The Government estimates less than 0.5% of Australians will be affected at the $3m level, and fewer than 0.1% at the $10m mark.

What This Means in Practice

Here are a couple of examples from Treasury to help you get your head around this.

Consider Megan, who has a $4.5 million super balance split between an SMSF and an APRA fund. She earns $300,000 in realised income for the year within the super system. The super balance above $3m represents is one-third of the total balance, so she’ll pay $15,000 in additional Division 296 tax (15% × 33.33% × $300,000).

Emma, on the other hand, has $12.9 million in her SMSF and $840,000 in earnings. She pays 15% on the Tier 1 portion and an extra 10% on the Tier 2 portion—a total of around $115,000 in extra tax.

These examples show how the tax scales up progressively. The ATO will calculate each individual’s total super balance across all funds (SMSFs and APRA funds) and determine the proportionate amount of earnings to be taxed.

Why It’s Still Good News (for Most)

For many SMSF members, this update is a relief. By removing unrealised gains, it eliminates valuation headaches and liquidity pressures — particularly for those holding property or unlisted assets.

That said, individuals with super balances above $10m will face a higher overall rate (up to 40%), which may prompt a rethink of long-term strategies.

However, remember that updated legislation relating to this measure hasn’t been introduced to Parliament and things could change before the proposed rules become reality.

Low Income Superannuation Tax Offset

In addition to introducing the revamped Division 296 tax, the Government has announced that it will increase the Low Income Superannuation Tax Offset (LISTO) from $37,000 to $45,000 from 1 July 2027.

The maximum payment will also increase to $810.

Treasury estimates that the average increase in the LISTO payment will be $410 for affected workers.

What to Do Now

Check your total super balance (TSB) now and project where it may be by 2026.
Seek advice early — strategies like managing liquidity, reviewing asset allocations, and timing asset sales could make a real difference.
Stay informed — draft legislation is expected in 2026. We’ll keep you updated through our newsletters.

Overall, the Government’s revised approach strikes a more balanced tone: fewer administrative headaches for most, but less generosity for the ultra-wealthy. If your balance is near or above $3 million, now’s the time to plan ahead — not panic.

Your future self (and your accountant) will thank you.

Accessing superannuation funds for medical treatment or financial hardship

Thu, 23 Oct 2025 05:14:12 GMT

While super is most commonly accessed at retirement, death or disability, there are limited situations where earlier access may be possible.

Sup erannuation is one of the largest assets for many Australians and offers significant tax advantages, however, strict rules apply to when it can be accessed. While super is most commonly accessed at retirement, death or disability, there are limited situations where earlier access may be possible.

Early access is generally available in two situations:

Financial hardship – where you are receiving a qualifying Centrelink/DVA payment for a minimum period and cannot meet immediate living expenses.
Compassionate grounds – Funding for certain specific scenarios which include preventing a mortgage foreclosure or meeting medical expenses for a life-threatening injury or illness or to alleviate severe chronic pain.

Compassionate grounds access requires an application to be made to the ATO which needs to be accompanied by relevant medical certificates or mortgage information. If approved the ATO will provide instructions to the individual’s superannuation fund to release an amount to cover the expense. We have included some ATO links with more detailed information on compassionate grounds and financial hardship below.

When accessing superannuation under compassionate grounds you would usually collect the relevant supporting documentation and personally make the application for approval using your MyGov account. It has come to the ATO’s attention that there may be medical and dental providers exploiting this access and assisting super fund members to access amounts for cosmetic reasons (you may have even seen advertisements pop up on your social media showing people with a new sparkling smile – and a lower super balance).

The ATO’s concerns are discussed in Separating fact from fiction on accessing your super early .

Superannuation fund members and SMSF trustees should be aware that there can be substantial penalties applied when super is accessed outside of the legislated conditions of release. You should never provide another party with access to your MyGov login or allow a third party to make applications on your behalf. Penalties may also apply for making false declarations.

Should you have any questions or concerns relating to proposed access to your superannuation please reach out to us.

Accessing superannuation due to financial hardship

Government Review of Supermarket Unit Pricing: What It Could Mean for Your Business

Wed, 22 Oct 2025 05:11:45 GMT

The Federal Government recently wrapped up a consultation process on supermarket unit pricing. While the topic might sound like a purely consumer issue, it could have very real commercial impacts for businesses supplying into the grocery sector.

On 1 September 2025, Treasury opened consultation on strengthening the Retail Grocery Industry (Unit Pricing) Code of Conduct. Submissions closed just a few weeks later on 19 September 2025, marking the end of a very short opportunity for stakeholders to have their say.

A Quick Recap

Unit pricing is what allows shoppers to compare costs per standard measure (e.g. $/100g or $/litre) across different pack sizes and brands. Since 2009, large supermarkets have been required to display this information to help customers spot value. While compliance has been relatively low-cost and penalties limited, the Government’s review signals that much tighter rules could be on the way.

Why Now?

The ACCC’s recent supermarket inquiry highlighted that while unit pricing helps, there are still gaps. The big concern is shrinkflation—when pack sizes quietly reduce while prices remain the same or higher. With cost-of-living pressures dominating headlines, the Government is looking at clearer, fairer pricing to rebuild consumer trust.

What Might Change?

Proposals considered in the consultation paper include:

Shrinkflation alerts – supermarkets may need to flag when a product becomes smaller without a matching price cut.
Clearer displays – larger, more prominent unit prices both in-store and online.
Wider coverage – expanding the rules beyond major supermarkets to smaller retailers and online sellers.
Standardised measures – eliminating confusing “per roll” vs “per sheet” comparisons.
Civil penalties – introducing fines for non-compliance.

The Commercial Impact

For suppliers, packaging decisions could come under closer scrutiny. For retailers, costs might arise from updating shelf labels, software, or e-commerce systems. But there are also opportunities: businesses that embrace transparency could build loyalty and stand out in a competitive market.

What You Should Do

Now that the consultation period has closed, Treasury will consider submissions and the Government is expected to announce its response later this year.

Businesses in food, grocery, and household goods should stay alert—the final shape of the rules could affect pricing, packaging, and compliance obligations across the sector.

At Wright Partner, we can help you model potential compliance costs, assess financial impacts, and prepare for upcoming regulatory change. Reach out to discuss how this review might affect your business.

ATO Interest Charges Are No Longer Deductible – What You Can Do

Tue, 21 Oct 2025 05:08:02 GMT

Leaving debts outstanding with the ATO is now more expensive for many taxpayers.

The general interest charge (GIC) and shortfall interest charge (SIC) imposed by the ATO is no longer tax-deductible from 1 July 2025. This applies regardless of whether the underlying tax debt relates to past or future income years.

With GIC currently at 11.17%, this is now one of the most expensive forms of finance in the market — and unlike in the past, you won’t get a deduction to offset the cost. For many taxpayers, this makes relying on an ATO payment plan a costly strategy.

Refinancing ATO debt

Businesses can sometimes refinance tax debts with a bank or other lender. Unlike GIC and SIC amounts, interest on these loans might be deductible for tax purposes, provided the borrowing is connected to business activities.

While tax debts will sometimes relate to income tax or CGT liabilities, remember that interest could also be deductible where money is borrowed to pay other tax debts relating to a business, such as:

GST
PAYG instalments
PAYG withholding for employees
FBT

However, before taking any action to refinance ATO debt it is important to carefully consider whether you will be able to deduct the interest expenses or not.

Individuals

If you are an individual with a tax debt, the treatment of interest expenses incurred on a loan used to pay that tax debt really depends on the extent to which the tax debt arose from a business activity:

Sole traders: If you are genuinely carrying on a business, interest on borrowings used to pay tax debts from that business is generally deductible.
Employees or investors: If your tax debt relates to salary, wages, rental income, dividends, or other investment income, the interest is not deductible. Refinancing may still reduce overall interest costs depending on the interest rate on the new loan, but it won’t generate a tax deduction.

Example: Sam is a sole trader who runs a café. He borrows $30,000 to pay his tax debt, which arose entirely from his café profits. The interest should be fully deductible.

However, if Sam also earns salary or wages from a part-time job and some of his tax debt relates to the employment income, only a portion of the interest on the loan used to pay the tax debt would be deductible. If $20,000 of the tax debt relates to his business and $10,000 relates to employment activities, then only 2/3rds of the interest expenses would be deductible.

Companies and trusts

If a company or trust borrows to pay its own tax debts (income tax, GST, PAYG withholding, FBT), the interest will usually be deductible if it can be traced back to a debt that arose from carrying on a business.

However, if a director or beneficiary borrows money personally to cover those debts, the interest would not normally be deductible to them.

Partnerships

The position is more complex when it comes to partnership arrangements. If the borrowing is at the partnership level and it relates to a tax debt that arose from a business carried on by the partnership then the interest should normally be deductible. For example, this could include interest on money borrowed to pay business tax obligations such as GST or PAYG withholding amounts.

However, the ATO takes the view that if an individual who is a partner in a partnership borrows money personally to pay a tax debt relating to their share of the profits of the partnership, the interest isn’t deductible. The ATO treats this as a personal expense, even if the partnership is carrying on a business activity.

Practical takeaway

Leaving debts outstanding with the ATO is now more expensive than ever because GIC and SIC are no longer deductible.

Refinancing the tax debt with an external lender might provide you with a tax deduction and might also enable you to access lower interest rates.

The key is to distinguish between tax debts that relate to a business activity and other tax debts. For mixed situations, you may need to apportion the deduction.

If you’re unsure how this applies to you, talk to us before arranging finance. With the right strategy, you can manage tax debts more effectively and avoid costly surprises.

Superannuation guarantee: due dates and considerations for employees and employers

Tue, 21 Oct 2025 05:02:46 GMT

On 1 July 2025 the superannuation guarantee rate increased to 12% which is the final stage of a series of previously legislated increases.

Employers currently need to make superannuation guarantee (SG) contributions for their employees by 28 days after the end of each quarter (28 October, 28 January, 28 April and 28 July). There is an extra day’s allowance when these dates fall on a public holiday.

To comply with these rules the contribution must be in the employee’s superannuation fund on or before this date, unless the employer is using the ATO small business superannuation clearing house (SBSCH).

The ATO has been applying considerable compliance resources in this space in recent years which can have an impact on both employees and employers.

Employers

To be eligible to claim a tax deduction on SG contributions the quarterly amount must be in the employee’s super account on or before the above quarterly due dates. The only exception to this is where the employer is using the ATO SBSCH. In that case a contribution is considered made provided it has been received by the SBSCH on or before the due date.

Employers using commercial clearing houses should be mindful of turnaround times. Commercial clearing houses collect and distribute employee contributions and may be linked to accounting / payroll software or provided by some superannuation platforms. Anecdotally it seems that turnaround times for some clearing houses could be up to 14 days, so it is recommended that employers allow sufficient time before the quarterly deadlines when processing their employee SG contributions.

If these deadlines are missed (yes even by a day!) that will trigger a superannuation guarantee charge (SGC) requirement which will result in a loss of the tax deduction and other penalties. The SGC requirements are outlined in the ATO link below: The super guarantee charge | Australian Taxation Office

Employers do have the option to make SG payments more frequently than quarterly and this is something that employers will need to become used to if the proposed ‘payday’ superannuation reforms become law. This change is proposed to commence from 1 July 2026 and would require SG to be paid at the same frequency as salary or wages. There is some discussion on the payday super proposal at this link (noting that this is not yet law). The SBSCH will close at this time so employers using this service should start to consider transitioning to a commercial clearing house, please let us know you would like assistance with this.

Employees

It is recommended that you regularly check your superannuation fund statements and reconcile employer contributions to the amounts listed on your pay slips.

Where SG contributions are not received on time (or at all!) employees are encouraged to discuss this first with their employer. Should this not result in a satisfactory conclusion, employees can consider bringing this to the attention of the ATO.

There is some helpful discussion on this process at the following link .

Trust Resolutions – Why Timing and Evidence Matter

Tue, 21 Oct 2025 05:00:28 GMT

A recent decision of the Administrative Review Tribunal (Goldenville Family Trust v Commissioner of Taxation [2025]) highlights the importance of documentation and evidence when it comes to tax planning and the consequences of not getting this right.

The case involved a family trust which generated significant amounts of income. For the 2015, 2016 and 2017 income years, the trustee attempted to distribute most of the income to a non-resident beneficiary. As the trustee believed the income was classified as interest (this was challenged successfully by the ATO), the trustee assumed that the income would be subject to a final Australian tax at 10%, under the non-resident withholding rules. This was clearly more favourable than having the income taxed in the hands of Australian resident beneficiaries at higher marginal rates.

However, the ATO argued that the distribution resolutions were invalid and the Tribunal agreed. Why? The main reason was a lack of evidence to prove that the distribution decisions were made before the end of the relevant financial years.

While there were some documents that were purportedly dated and signed “30 June”, the Tribunal wasn’t convinced that the decisions were actually made before year-end and it was more likely that these documents were prepared on a retrospective basis. The evidence suggested the decisions were probably made many months after year-end, once the accountant had finalised the financial statements.

The outcome was that default beneficiaries (all Australian residents) were taxed on the income at higher rates.

Timing of trust resolution decisions is critical

For a trust distribution to be effective for tax purposes, trustees must reach a decision on how income will be allocated by 30 June each year (or sometimes earlier, depending on the trust deed). It might be OK to prepare the formal paperwork later, but those documents must reflect a genuine decision made before year-end.

For example, let’s say a trust has a corporate trustee with multiple directors. The directors meet at a particular location on 29 June and make formal decisions about how the income of the trust will be appointed to beneficiaries for that year. Someone keeps handwritten notes of the meeting and the decisions that are made. On 5 July the minutes are typed up and signed. The ATO indicates that this will normally be acceptable, but subject to any specific requirements in the trust deed.

If the ATO believes the decision was made after 30 June (or documents were backdated), the resolution can be declared invalid. In that case, you might find that one or more default beneficiaries are taxed on the taxable income of the trust or the trustee is taxed at penalty rates. This could be an unexpected and costly tax outcome and could also lead to other problems in terms of who is really entitled to the cash.

Broader lessons – it’s not just about trust distributions

The timing issue is not confined just to trust distribution situations. Other areas of the tax system also turn on when a decision or agreement is actually made, not just when it is eventually recorded.

For example, if a private company makes a loan to a shareholder in a given year, that loan must be repaid in full or placed under a complying Division 7A loan agreement by the earlier of the due date or lodgement date of the company’s tax return for the year of the loan. If not, a deemed unfranked dividend can be triggered for tax purposes.

If a complying loan agreement is put in place then minimum annual repayments normally need to be made to avoid deemed dividends being recognised for tax purposes.

A common way to deal with loan repayments is by using a set-off arrangement involving dividends that have been declared by the company. However, in order for the set-off arrangement to be valid there are a number of steps that need to be followed before the relevant deadline. The ATO will typically want to see evidence which proves:

When the dividend was declared; and
When the parties agreed to set-off the dividend against the loan balance.

If there isn’t sufficient evidence to prove that these steps were taken by the relevant deadline then you might find that there is a taxable unfranked deemed dividend that needs to be recognised by the borrower in their tax return.

Documenting decisions before year-end

The key lesson from cases like Goldenville is that documentation shouldn’t be an afterthought — lack of contemporaneous documentation can fundamentally change the tax outcome. What normally matters most is when the relevant decision is actually made, not when the paperwork is drafted.

In practice, this often means:

Check relevant deadlines and what needs to occur before that deadline.
If a decision needs to be made before the deadline, ensure that a formal process is followed to do this. For example, determine whether certain individuals need to hold a meeting or whether a circular resolution could be used.
Produce contemporaneous evidence of the fact that the decision has been made. You might consider sending a brief email to your accountant or lawyer explaining the decision that has been made before the relevant deadline , basically providing a time-stamped record of the decision.
Finalise paperwork: formal minutes of meetings can sometimes be prepared after year-end, but they must accurately reflect the earlier decision.

Thinking carefully about timing — and building a habit of producing clear evidence of decisions as they are made — is often the difference between a tax planning strategy working as intended and an expensive dispute with the ATO.

FROM AIR FRYERS TO SWIMWEAR: TAX DEDUCTIONS TO AVOID

Wed, 04 Jun 2025 20:00:00 GMT

With the 2025 tax season fast approaching the Australian Taxation Office (ATO) is reminding taxpayers to be careful when claiming work related expenses.

This is in reaction to a spate of claims that didn’t quite pass the ‘pub test’. To give you a few examples of what didn’t get through…

A mechanic attempting to claim an air fryer, microwave, two vacuum cleaners, TV, gaming console and gaming accessories as work related expenses
A truck driver seeking to deduct swimwear purchased during transit due to hot weather
A fashion industry manager attempting to claim over $10 000 in luxury branded clothing and accessories for work related events

These claims were deemed personal in nature and lacked a sufficient connection to income earning activities. The advice here would be - if in doubt leave it out or run it by us.

2025 priorities

The ATO is focusing on areas where frequent errors occur including:

Work related expenses: as above, claims must have a clear connection to income earning activities and be substantiated with records including receipts or invoices. Even if an expense seems to relate to income earning activities, it can’t normally be claimed if it is a private expense. There are a wide range of common expenses that normally don’t qualify for a deduction.
Working from home deductions: taxpayers must prove they incurred additional expenses due to working from home. The ATO offers two methods for calculating these deductions: the fixed rate method and the actual cost method (more detail below).
Multiple income sources: all sources of income, including side hustles or gig economy work must be declared. Each source may have different deductions available.

Working from home deductions

For those working from home there are two methods to calculate deductions:

Fixed rate method: claim 70 cents per hour for additional running expenses such as electricity, internet and phone usage even if you don’t have a dedicated home office. This method can only be used if you have recorded the actual number of hours you worked from home across the income year. A reasonable estimate isn’t enough.
Actual cost method: claim the actual expenses incurred, with records to substantiate the claims. This method potentially enables a larger deduction to be claimed, but the record keeping obligations are more onerous.

It's important to note that double dipping is not allowed. For instance, if you claim deductions using the fixed rate method you can’t separately claim a deduction for your mobile phone costs.

As always, if you’re unsure or need help with your tax return please reach out.

ATO’S NEW REQUIREMENTS FOR NFPS

Tue, 03 Jun 2025 20:00:00 GMT

If you are involved with running a not for profit (NFP) organisation it is important to be aware of key obligations and requirements

In particular, if the NFP qualifies as a tax exempt entity there are some specific conditions that need to be satisfied and a relatively new ATO reporting obligation which needs to be undertaken to maintain that income tax exempt status.

Annual NFP self-review return

From the 2023–24 income year, non-charitable NFPs with an active Australian Business Number (ABN) are required to lodge an annual NFP self-review return with the ATO. This return notifies the ATO of the organisation's eligibility to self-assess as income tax exempt.

The return has three sections:

Organisation details: standard information on the NFP.
Income tax self-assessment: confirmation of the organisation's income tax exempt status.
Summary and declaration: acknowledgement of the information provided.

When the return is being completed the NFP must answer ‘yes’ or ‘no’ to the question: ‘Does the organisation have and follow clauses in its governing documents that prohibit the distribution of income or assets to members while it is operating and winding up?’ This requirement needs to be satisfied in order for the NFP to self-assess its position as a tax exempt entity.

If a NFPs governing documents don’t have these clauses then it can still self-assess as income tax exempt for the 2024 income year as long as no income or assets have been distributed to members. As a transitional arrangement, the ATO is allowing NFPs until 30 June 2025 to update their governing documents. Failing to do this will mean that the organisation cannot self-assess as income tax exempt from 1 July 2024 for the 2025 income year, which would lead to the organisation being treated as a taxable entity that might then need to lodge a tax return.

Mandatory clauses in governing documents

Governing documents are the formal documents which set out the purpose of the organisation, its character and the rules and requirements for how decisions are made, how it operates and how long it operates for.

As noted above, NFPs must include specific clauses in their governing documents to self-assess as income tax exempt. These clauses must:

Prohibit the distribution of income or assets to members during the organisation's operation and on winding up.
Ensure that any surplus assets are transferred to another NFP with similar purposes upon dissolution.

NFPs should also ensure that there are sufficient controls in place to ensure that members don’t receive income, property or assets which belong to the organisation, except where they are receiving remuneration for work performed for the entity or a reimbursement of expenses incurred on behalf of the organisation.

The advises that NFP governing documents should be reviewed at least annually or whenever there is a major change to the structure or activities of the organisation. An annual general meeting is a good time to review governing documents.

Taking a proactive approach helps identify any issues and reinforces your organisation's commitment to good governance.

LABOR’S VICTORY: UNPACKING THE PROMISES AND PRIORITIES

Tue, 03 Jun 2025 02:03:00 GMT

As the Labor party settle back into their seats having secured a majority in the House of Representatives, we look at the campaign promises and the unfinished business from the last term.

Personal income tax cuts: the 2025-26 federal budget introduced a modest income tax cut for all taxpayers from 1 July 2026 and again from 1 July 2027.
The tax rate for the $18,201-$45,000 tax bracket will reduce from its current rate of 16%, to 15% from 1 July 2026, then to 14% from 2027-28. The saving from the tax cut represents a maximum of $268 in the 2026-27 year and $536 from the 2027-28 year.
Legislation enabling the tax cut passed Parliament on 26 March 2025.

Individuals

$1,000 instant work related expenses tax deduction

The Government has committed to providing taxpayers who earn labour income with a $1,000 shortcut work related deduction claim on their tax return.
Taxpayers who are likely to have claims higher than $1000 can claim in the usual way.
The simplified tax deduction is only available to those earning labour income. Those earning business or investment income only will not be able to claim this shortcut deduction.
Taxpayers will be able to claim other non-work related deductions in addition to the instant work related deduction.

Energy rebate extended

The 2025-26 federal budget extended energy rebates . From 1 July 2025, households and small business will be eligible for a further $150 energy rebate until the end of the 2025 calendar year. The rebates will automatically apply to electricity bills in quarterly instalments.

Cheaper home batteries

The Government has committed to reducing the cost of home batteries from 1 July 2025 . Through the scheme, households will be able to purchase a typical battery with a 30% discount on installed costs – saving around $4,000 on a typical battery. The initiative extends the existing Small-scale Renewable Energy Scheme .

5% deposit scheme for first home buyers

The Government has committed to a 5% deposit scheme for all Australian first home buyers . Under the scheme the Government will underwrite eligible first home buyers, enabling them to purchase a property with a 5% deposit without the need for Lenders Mortgage Insurance.

Expanding the existing first home buyer scheme, the media release says, “there will be higher property price limits and no caps on places or income, in a major expansion of the existing scheme.”

The existing Home Guarantee Scheme is limited in places and subject to income tests. The scheme is open to Australian citizens or permanent residents who have never owned property or land in Australia, or have not owned property or land in Australia in the last 10 years, and available to owner occupiers only.

Superannuation

Legislation enabling the proposed Division 296 tax on superannuation balances above $3m lapsed when Parliament dissolved. The question now is whether the Government will seek to push this reform through the Senate with the support of The Greens.

Greens Senator Nick McKim has previously advocated for the Division 296 threshold to be lowered to $2m and indexed to inflation. In addition, the Senator tied his support for the tax to a “prohibition for super funds to borrow to finance investments.”

Originally intended to apply from 1 July 2025, if enacted, Division 296 will increase the headline tax rate to 30% for earnings on total superannuation balances (TSB) above $3m. The proposed calculation captures growth in TSB over the financial year allowing for contributions and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.

Small business

Extending the instant asset write-off for small business: An increase to the $1,000 instant asset write-off threshold has been a consistent feature of federal budgets by various governments as an incentive for small business investment.

The extension of the increased instant asset write-off threshold to $20,000 for the 2024-25 financial was passed by Parliament on 26 March 2025. The Government has committed to extending the $20,000 instant asset write-off threshold to 30 June 2026 .

National small business strategy

The Government has released its National small business strategy for consultation. The strategy primarily addresses how different government jurisdictions work with small business and how to relieve some of the friction when dealing across government systems and requirements.

Energy

Green Aluminium Production Credit: The Government has $2bn set aside for a new Green Aluminium Production Credit to support Australian aluminium smelters switching to renewable electricity before 2036 (there are four of them).

If you are wondering why the aluminium industry has been singled out, the reason is two-fold; aluminium is the second most used metal in the world and according to the Institute of Energy Economics and Financial Analysis, represents about 10% of Australia’s electricity demand - Tomago Aluminium just north of Newcastle in NSW, is the largest single user of electricity in the country with electricity making up about 40% of its costs. Transition from brown to green energy is not just a consumption issue for the industry, it’s a recreation of the value chain.

Under the initiative, smelters will be able to negotiate an emissions linked credit contract payable per tonne of green aluminium produced for up to 10 years. The final credit rates will be based on individual facility circumstances and be dependent on reducing Scope 2 emissions. Scope 2 emissions are indirect greenhouse gas emissions associated with the purchase of electricity, steam, heat or cooling. They account for around 85% of emissions from aluminium smelting.

See: Aluminium to forge Australia's manufacturing future and Department of Industry, Science and Resources. New Green Aluminium Production Credit will support the transition to green metals .

ECONOMIC CROSSROADS: US SHRINKS, CHINA STIMULATES, AUSTRALIA HOLDS STEADY

Tue, 03 Jun 2025 01:25:00 GMT

The US economy experienced a notable slowdown in the first quarter of 2025. The latest GDP data showed the economy contracted at an annual rate of -0.3%.

Businesses stockpiling goods (which increased import volumes) ahead of the implementation of President Trump's shemozzle of a tariff policy was one of the reasons for the contraction in GDP. The other was a decline in Government spending. Mr Trump’s tariffs are deflationary for the world and inflationary for the US. The sharp weakening in soft economic data points to rising recession risks, although markets still only seem priced for a mild slowdown which now seems right given the backdown.

It is no surprise that China announced a new stimulus package including interest rate cuts and a significant liquidity injection, as the Government looks to boost an economy that has been hit by the collapse in the property market and now the trade war with the US. China’s factory activity contracted at its fastest pace in 16 months in April following the frontloading of orders to beat the tariffs. Trade talks between the US and China have driven market optimism over the past few weeks and sentiment has turned positive. The US-China deal has 30% import taxes on Chinese goods, which could still stem trade flow. The trade announcement with the UK has disappointed many in the market as it kept the 10% tariff on imports into the US up from 3.4%. The EU hasn’t even begun negotiations with the US.

In Australia, the election has come and gone fairly uneventfully for financial markets. We are waiting on GDP data to be released in the next few weeks which should confirm a sluggish economy given consumer spending remains weak. The RBA has cut interest rates and this should underpin mild growth.

The outlook for financial markets remains one of uncertainty reflected by the increase in volatility. Tight policy, lingering inflation risks and tariff-related drag still weighs on markets. What seems to have been achieved so far is a whole lot of volatility and the realisation the US needs China as much as China needs the US. Within the Australian share market there was a notable softening in outlook statements by company management in the recent reporting season. With full-year forecasts being revised lower, it is reasonable to suggest that market-wide earnings growth is slowing, with expectations moderating for the rest of this year and potentially into the next.

Property subdivision projects: the tax implications

Tue, 20 May 2025 03:23:00 GMT

As the urban sprawl continues in most major Australian cities, we are often asked to advise on the tax treatment of subdivision projects.

Before jumping in and committing to anything, it is important to understand the tax liabilities that might arise from these projects.

Unfortunately, many people make incorrect assumptions about the way that subdivision projects will be taxed, often believing that any tax exposure will be minimal. However, the reality is that there are a number of important issues that need to be considered and that could have a significant impact on the overall profitability of the project.

For example, when someone buys a property with the intention of subdividing it into smaller lots and selling them at a profit in the short term this will normally mean that any profit is taxed as ordinary income, rather than being taxed under the CGT rules. This means that the general CGT discount would not be available to reduce the tax liability, even if the property has been held for more than 12 months and it would not be possible to apply capital losses to reduce the taxable amount.

Also, in situations like this the sale of the subdivided lots will often trigger a GST liability, further reducing any after-tax profits generated from the project.

Many people fail to properly estimate the income tax and GST liabilities that will arise from property projects and can end up with a nasty shock when they realise the impact this has on the economic viability of the project.

The ATO has recently updated its guidance in this area, adding a number of new and practical examples to demonstrate how the tax rules will typically apply. The ATO’s examples cover the income tax and GST consequences of common property transactions such as property flipping, subdivision projects and property development activities.

For example, in one of the examples the ATO looks at a scenario where the taxpayer repeatedly buys, renovates, and sells properties. They engage in market research, seeking professional advice, taking out business loans, and then carrying out renovations in a business-like manner. The ATO takes the view that the taxpayer is running a business, since the taxpayer’s primary intention is to make a profit from the renovations and reselling of the property.

The profits are treated as ordinary income and taxed on revenue account. The CGT provisions don’t apply here since the property is held as trading stock. However, GST doesn’t apply on this particular situation as long as the properties have not undergone “substantial renovations”, which needs to be considered carefully.

On the other hand, in another example the ATO deals with a taxpayer who subdivides the vacant land from their main residence because of ill health and growing debt levels. Since they didn’t initially intend to profit from the subdivision and sale of the vacant land, the sale is viewed as the mere realisation of a capital asset rather than a business venture. The activities related to the subdivision are limited to necessary actions for council approval, reflecting a low level of complexity and small scale. The sale of the subdivided lot is taxed on capital account under the CGT rules, qualifying for the general CGT discount if the land has been held for more than 12 months. However, the main residence exemption cannot apply because the land is not being sold together with the dwelling that has been used as the taxpayer’s main residence.

You can find the ATO’s guide and examples here

The ATO’s updated small business benchmarking tool

Tue, 20 May 2025 03:20:00 GMT

The ATO has updated its small business benchmarks with the latest data taken from the 2022–23 financial year.

These benchmarks cover 100 industries and allow small businesses to compare their performance, including turnover and expenses, against others in their industry.

While the ATO doesn’t use the benchmarks in isolation, small businesses who fall outside the ATO’s benchmarks are more likely to trigger a closer examination from the ATO. The ATO uses information reported in business tax return with key performance benchmarks for the relevant industry to identify potential tax risks.

Aside from determining the risk of unwanted attention from the ATO, the benchmarks can also be used to compare your business performance against other businesses in the same industry. The benchmarks could help you spot areas where you might be able to reduce costs or improve efficiency.

The small business benchmarks can be accessed here .

Aside from the small business benchmarks, the ATO also has a business viability assessment tool which can help business owners identify whether there are any obvious financial risks. The ATO consider a business to be viable if it is generating sufficient profits to meet commitments to creditors and provide a return to the business owners. If a business isn’t generating profits, the ATO looks at whether the business has sufficient cash reserves to sustain itself.

The business viability assessment tool can be found here .

Please let us know if you would like us to review your business performance and make recommendations on ways that performance could be improved.

Year-end tax planning opportunities & risks

Tue, 20 May 2025 02:39:00 GMT

With the end of the financial year fast approaching we outline some opportunities to maximise your deductions and give you the low down on areas at risk of increased ATO scrutiny.

Bolstering superannuation

If growing your superannuation is a strategy you are pursuing, and your total superannuation balance allows it, you could make a one-off deductible contribution to your superannuation if you have not used your $30,000 cap. This cap includes superannuation guarantee paid by your employer, amounts you have salary sacrificed into super and any amounts you have contributed personally that will be claimed as a tax deduction.

If your total superannuation balance on 30 June 2024 was below $500,000 you might be able to access any unused concessional cap amounts from the last five years in 2024-25 as a personal contribution. For example, if you were $8,000 under the cap in each of the last 5 years, you could contribute an additional $40,000 and take the tax deduction in this financial year at your personal tax rate.

To make a deductible contribution to your superannuation, you need to be aged under 75, lodge a notice of intent to claim a deduction in the approved form (check with your superannuation fund), and receive an acknowledgement from your fund before you lodge your tax return. For those aged between 67 and 74, you can only claim a deduction on a personal contribution to super if you meet the work test (i.e., work at least 40 hours during a consecutive 30-day period in the income year, although some special exemptions might apply).

If your spouse’s assessable income is less than $37,000 and you both meet the eligibility criteria, you could contribute to their superannuation and claim a $540 tax offset.

If you are likely to face a tax bill this year and you made a capital gain on shares or property you sold, then making a larger personal superannuation contribution might help to offset the tax you owe.

Opportunities

Charitable donations

When you donate money (or sometimes property) to a registered deductible gift recipient (DGR), you can claim amounts of $2 and above as a tax deduction. The more tax you pay, the more valuable the tax deductible donation is to you. For example, a $10,000 donation to a DGR can create a $3,250 deduction for someone earning up to $120,000 but $4,500 to someone earning $180,000 or more (excluding Medicare levy).

To be deductible, the donation must be a gift and not in exchange for something. Special rules apply for amounts relating to charity auctions and fundraising events run by a DGR.

Philanthropic giving can be undertaken in a number of different ways. Rather than providing gifts to a specific charity, it might be worth exploring the option of giving to a public ancillary fund or setting up a private ancillary fund. Donations made to these funds can often qualify for an immediate deduction, with the fund then investing and managing the money over time. The fund generally needs to distribute a certain portion of its net assets to DGRs each year.

Risks

Working from home is a normal part of life for many workers, and while you can’t claim the cost of your morning coffee, biscuits or toilet paper (seriously, people have tried), you can claim certain additional expenses you incur. But, work from home expenses are an area of ATO scrutiny.

There are two methods of claiming your work from home expenses; the short-cut method, and the actual method.

The short-cut method allows you to claim a fixed rate of 70c for every hour you work from home for the year ending 30 June 2025. This covers your energy expenses (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables such as ink and paper. To use this method, it’s essential that you keep a record of the actual days and times you work from home because the ATO has stated that they will not accept estimates.

The alternative is to claim the actual expenses you have incurred on top of your normal running costs for working from home. You will need copies of your expenses, and your diary for at least 4 continuous weeks that represents your typical work pattern.

Work from home expenses

Landlords beware

If you own an investment property, a key concept to understand is that you can only claim a deduction for expenses you incurred in the course of earning income. That is, the property normally needs to be rented or genuinely available for rent to claim the expenses.

Sounds obvious but taxpayers claiming investment property expenses when the property was being used by family or friends, taken off the market for some reason or listed for an unreasonable rental rate, is a major focus for the ATO, particularly if your property is in a holiday hotspot.

There are a series of issues the ATO is actively pursuing this tax season. These include:

Refinancing and redrawing loans – you can normally claim interest on the amount borrowed for the rental property as a deduction. However, where any part of the loan relates to personal expenses, or where part of the loan has been refinanced to free up cash for your personal needs (school fees, holidays etc.,), then the loan expenses need to be apportioned and only that portion that relates to the rental property can be claimed. The ATO matches data from financial institutions to identify taxpayers who are claiming more than they should for interest expenses.

The difference between repairs and maintenance and capital improvements – while repairs and maintenance costs can often be claimed immediately, a deduction for capital works is generally spread over a number of years. Repairs and maintenance expenses must relate directly to the wear and tear resulting from the property being rented out and generally involve restoring the property back to its previous state, for example, replacing damaged palings of a fence. You cannot claim repairs required when you first purchased the property. Capital works however, such as structural improvements to the property, are normally deducted at 2.5% of the construction cost for 40 years from the date construction was completed. Where you replace an entire asset, like a hot water system, this is a depreciating asset and the deduction is claimed over time (different rates and time periods apply to different assets).

Co-owned property – rental income and expenses must normally be claimed according to your legal interest in the property. Joint tenant owners must claim 50% of the expenses and income, and tenants in common according to their legal ownership percentage. It does not matter who actually paid for the expenses.

Gig economy income

It’s essential that any income (including money, appearance fees, and ‘gifts’) earned from platforms such as Airbnb, Stayz, Uber, YouTube, etc., is declared in your tax return.

The tax rules consider that you have earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct”. If you are a content creator for example, this is when your account is credited, not when you direct the money to be paid to your personal or business account. Squirrelling it away from the ATO in your platform account won’t protect you from paying tax on it.

Since 1 July 2023, the platforms delivering ride-sourcing, taxi travel, and short-term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the sharing economy reporting regime so expect the ATO to utilise data matching activities to identify unreported income.

Other sharing economy platforms have been required to start reporting from 1 July 2024. If you have income you have not declared, do it now before the ATO discover it and apply penalties and interes t.

For Your Business

Opportunities

Write-off bad debts

Your customer definitely not going to pay you? If all attempts have failed, the debt can be written off by 30 June to claim a deduction this year. Ensure you document the fact that you have written off the bad debt on your debtor’s ledger or with a minute.

Obsolete plant & equipment

If your business has obsolete plant and equipment sitting on your depreciation schedule, instead of depreciating a small amount each year, scrap it and write it off before 30 June if you don’t use it anymore.

For companies

If it makes sense to do so, bring forward tax deductions by committing to pay directors’ fees and employee bonuses (by resolution), and paying June quarter super contributions in June.

Risks

Tax debt and not meeting reporting obligations

Failing to lodge returns is a huge ‘red flag’ for the ATO that something is wrong in the business. Not lodging a tax return will not stop the debt escalating because the ATO has the power to simply issue an assessment of what they think your business owes. If your business is having trouble meeting its tax or reporting obligations, we can assist by working with the ATO on your behalf.

Professional firm profits

For professional services firms - architects, lawyers, accountants, etc., - the ATO is actively reviewing how profits flow through to the professionals involved, looking to see whether structures are in place to divert income to reduce the tax they would be expected to pay. Where professionals are not appropriately rewarded for the services they provide to the business, or they receive a reward which is substantially less than the value of those services, the ATO is likely to take action.

Threshold for tax-free retirement super increases

Thu, 10 Apr 2025 20:00:00 GMT

The amount of money that can be transferred to a tax-free retirement account will increase to $2m on 1 July 2025.

Super guarantee rules catch up with venues and gyms

Wed, 09 Apr 2025 20:00:00 GMT

The superannuation guarantee rules are broad and, in some circumstances, extend beyond the definition of common law employees to some directors, contractors, entertainers, sports persons and other workers.

Employers need to pay compulsory superannuation guarantee (SG) to those considered employees under the definition in the SG rules. But, the SG definition of an employee is broad and just how far this definition extends has sparked debate of late about the rights of performers, gym instructors and others not typically considered employees.

For employers and business owners, it is crucially important that if there is any uncertainty about the rights of workers to SG, your position is confirmed. This might be an initial assessment of the position by us, confirmed by an employment lawyer, or clarified by applying for a ATO private ruling covering your specific workplace arrangements. One of the things that employers find most alarming is that there is no tangible time limit on the recovery of outstanding SG obligations. In theory, the ATO can go back as far as it determines necessary to recover unpaid superannuation contributions for workers who are classified as employees for SG purposes. One of the key features of the SG system is to ensure that appropriate contributions are being made for employees and deemed employees, to adequately support them in their retirement. The SG laws, and complimentary director penalty regime, ensure that every cent owing to an employee for SG is paid.

Who is not paid super guarantee?

Super guarantee does not need to be paid to:

Under 18s who do not work more than 30 hours a week.
Private and domestic workers who do not work more than 30 hours a week.
Non-resident employees who perform work outside of Australia.
Employees temporarily working in Australia covered by an agreement.
Some foreign executives who hold certain visas or entry permits.

Generally, SG is not payable if you have entered into a contract with a company, trust or partnership.

If you have Australian employees temporarily working outside of Australia in a country with a bilateral social security agreement , for example, the United States, you should continue paying SG and apply for a certificate of coverage to avoid paying super (or the equivalent) in the country where the employee is temporarily located.

SG’s broader definition of an employee

There is a section of the SG rules, section 12 , that specifies who is deemed to be an employee for SG purposes. This section extends the definition of an employee beyond common law to cover:

Company directors who are remunerated for performing duties;
Contractors working under a contract wholly or principally for their labour;
Certain state and Commonwealth government contracted workers; and
Those paid to perform or present any music, play, dance, entertainment, sport or other similar promotional activity. This includes people who provide services in connection with these activities or people paid in relation to film, tape, disc or television.

Are contractors entitled to SG?

If your contractor holds an Australian Business Number (ABN), this of itself will not prevent SG from applying. Where the arrangement looks like it is a contract for the provision of an individual’s labour and skills, it is likely they will meet the definition of an employee and SG will be payable.

The SG rules state if, “a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract.”

This definition is alarming to many employers as the rate paid to contractors, and often the terms of the agreement, factor in an uplift for super guarantee and other entitlements that would normally be paid if the person was an employee. But for SG purposes, it does not matter what the contract says, if the person is deemed to be an employee under the rules, they are entitled to SG and the employer is obligated to pay it.

The Australian Taxation Office (ATO) states that SG needs to be paid to contractors if you pay them:

under a verbal or written contract that is mainly for their labour (more than half the dollar value of the contract is for their labour)
for their personal labour and skills (payment isn't dependent on achieving a specified result)
to perform the contract work (work cannot be delegated to someone else).

In a recent ruling , the ATO says that where the worker is required to use a substantial capital asset (such as a truck) this will help in arguing that the contract is not mainly for the labour of the worker, but this will always depend on the facts.

Are directors paid SG?

Yes. Directors (members of executive bodies of bodies corporate) should be paid SG if they are remunerated for performing duties for the company.

Entertainers, performers and sportspeople

Generally, if a performer operates through a company, trust, or partnership then there is not an employment relationship and SG is not payable.

However, individual artists, performers and sportspeople are captured as employees under the SG rules ( section 12(8 )) where they are paid to:

perform or present, or to participate in the performance or presentation of, any music, play, dance, entertainment, sport, display or promotional activity or any similar activity involving the exercise of intellectual, artistic, musical, physical or other personal skills;
provide services in connection with an activity referred to above;
perform services in, or in connection with, the making of any film, tape or disc or of any television or radio broadcast.

Whoever is paying the individual for their labour, is generally responsible for the payment of that individual’s SG. For example, a music festival operator that contracts a sole trader to perform at a festival might be liable for SG for that performer. Likewise, if the sole trader contracts band members to perform with them at the festival, then the sole trader is responsible for the SG of the band members. If however, the music festival worked with an agency to supply the performers (the music festival pays the agency, the agency pays the performers), then the agency is likely to be responsible for the SG of the artists if there is a liability. If the agency only charges a booking fee and the festival pays the performers directly, then the festival is likely to be responsible for the performer’s SG.

You can see from this how important it is to determine who meets the definition of an employee for SG purposes, and if so, to understand the parties to the deemed employment relationship.

What’s a service “in connection to”

The definition of an employee for SG purposes captures workers who work with performers, for example individuals that are producers, videographers, editors, etc. If the person meets the definition of an employee under the SG rules, then it is likely SG is payable.

Is a gym instructor a sportsperson?

A gym instructor may be captured under the definition of a deemed employee under the SG rules. Whether the gym is liable to pay the instructor SG really depends on the facts of the individual arrangement.

Let’s look at the example of a gym instructor operating as a sole trader under an ABN.

There is a contract between the instructor and the gym stating that the instructor is an independent contractor and is responsible for their own SG payments and other employment obligations.
The instructor is paid per class, and per training session with clients, covering their time and labour.
The instructor utilises the equipment of the gym and its scheduling system.
The instructor wears the uniform of the gym.
The instructor is trained by the gym in how to deliver the services of the gym.

Employee? Most likely because the ATO places a heavy significance on whether an individual is working to build their own business or someone else’s. If the instructor “..works under a contract that is wholly or principally for the labour of the person” then this also brings them into the SG net.

If the employer, the gym, had not been paying SG, is it exposed to SG payments for the instructor since the employment relationship began.

Concerned about your workplace SG liability? Please contact us for an initial review.

The proposed ban on non-compete clauses

Tue, 08 Apr 2025 20:00:00 GMT

In the 2025-26 Federal Budget the Government announced a ban on non-compete clauses and “no poach” agreements.

In the 2025-26 Federal Budget, the Government announced its intention to ban non-compete clauses for low and middle-income employees and consult on the use of non-compete clauses for those on high incomes (under the Fair Work Act the high income threshold is currently $175,000).

The reason? A recent Australian Bureau of Statistics (ABS) report found that 46.9% of businesses surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey also found 20.8% of businesses use non-compete clauses for at least some of their staff and 68.2% for more than three-quarters of their employees.

From an economic perspective, declining job mobility impacts wage growth and innovation as restraints prevent access to skilled workers within the economy. Productivity is a key concern as Australia’s productivity has declined in the last 20 years.

Treasury’s consultation paper Non-compete clauses and other restraints states that, “the direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.”

A Productivity Commission report estimates the effect of limiting the use of unreasonable restraint of trade clauses will be increased wages for workers - by up to up to 2.4% in industries with high use of non-compete clauses and up to 1.4% in others.

Non-competes: the state of play

Non-compete clauses in Australia are generally enforced under common law. For all regions except New South Wales, restraints are generally presumed to be against the public interest and therefore void and unenforceable except where they are deemed to be reasonably necessary to protect the legitimate interest of the employer [1] .

In NSW, a restraint of trade is valid to the extent to which it is not against public policy.

When non-competes are contested, the courts consider the nature and extent of the business interest to be protected (e.g., confidential client information) and whether the scope of restriction the business wants imposed is reasonable including its geographic area, time period and activities which the restraint seeks to control.

Interests considered ‘legitimate’ by courts include the protection of trade secrets or other confidential information; protection against solicitation of clients with whom the former worker had a personal connection; and protection against key staff being recruited by a former colleague. An employer is not entitled to protect themselves against mere competition by a former worker .

What now

The ban on non-compete clauses was announced in the 2025-26 Federal Budget. The Government has stated that it intends to consult on policy details, including exemptions, penalties, and transition arrangements. Following consultation and the passage of legislation, the reforms are anticipated to take effect from 2027, operating prospectively.

There is a lot of uncertainty at this stage about this measure, despite the enthusiasm of the Treasury economists, not least of which is the impending election.

We’ll bring you more as further information is available.

[1] Treasury Competition Review. Non-competes and other restraints: understanding the impacts on jobs, business and productivity Issues Paper

Personal tax cuts

Mon, 07 Apr 2025 23:59:00 GMT

From 1 July 2026, personal income tax rates will change.

On the last sitting day of Parliament, the personal income tax rate reduction announced in the 2025-26 Federal Budget was confirmed. The modest reduction of 1% applies to the $18,201-$45,000 tax bracket, reducing from its current rate of 16% to 15% from 1 July 2026, then to 14% from 2027-28. The saving from the tax cut represents a maximum of $268 in the 2026-27 year and $536 from the 2027-28 year.

With a 1 July 2026 start date, the outcome of the Federal election on 3 May 2025 and subsequent budgets will determine whether this change comes to fruition.

Medicare levy threshold change for low-income earners

Low-income earners do not pay the compulsory 2% Medicare levy until their assessable income reaches the threshold. The threshold is different depending on whether you are a single taxpayer, pensioner, and the number of children you have that are dependent on you.

Parliament has confirmed the increase to the Medicare levy threshold announced in the Federal Budget. The threshold change is backdated to 1 July 2024, which means that taxpayers will benefit when they lodge their 2024-25 tax return.

See our Budget 2025-26 summary for details.

Federal Budget 2025-26: Show me the money

Mon, 07 Apr 2025 06:40:00 GMT

The Government’s big moment in the 2025-26 Federal Budget was the announcement of personal income tax cuts.

At the same time, the Australian Taxation Office has been allocated almost $1bn in funding to extend and enhance its compliance programs.

We show you what's changing and what to expect in the year ahead.

Click Here to read all about it.

Trade wars and tariffs

Mon, 10 Mar 2025 00:54:00 GMT

Global Google searches for the word “tariffs” spiked dramatically between 30 January and 2 February 2025, a +900% increase to the previous 12 months. We look at what tariffs really mean.

Who pays for tariffs?

Tariffs increase the price of imported goods and reduce trade flows of that good or service.

Traditionally used to protect specific domestic industries by reducing competition, tariffs increase the price of foreign competitors and reduce demand. In his first term, President Trump imposed a 25% global tariff on steel and a 10% tariff on aluminium (which Australia managed to reduce to zero with supply limits imposed instead). The impact was reportedly a 2.4% increase in the price of aluminium and 1.6% increase in the price of steel in the domestic US market. The cost of tariffs is not borne by overseas suppliers but indirectly through a reduction in trade and domestically through higher prices, particularly where those goods and services are common.

For the US however, the negative impact of tariffs will be felt less abruptly than many of its trading partners as trade only represents around 24% of US gross domestic product (GDP) – whereas trade accounts for 67% of Canda’s GDP.

Where we are at with US trade tariffs

While talking to shock jock Joe Rogan during his election campaign, Donald Trump stated, “this country can become rich with the proper use of tariffs.”

In his second week of office, President Trump used emergency powers to curb the “extraordinary threat” of illegal aliens, drugs and fentanyl into the US, by imposing the following tariffs :

Canada - 25% additional tariff on imports from Canada (except energy resources that have a reduced 10% additional tariff). Canada responded by imposing its own 25% tariffs on a range of predominantly agricultural products and household goods. Canada is a trading nation and exports represent two-thirds of its GDP. In 2023, the US represented 77% of Canada’s total goods export .
Mexico - 25% additional tariff on imports from Mexico . Mexico has responded with its own 25% tariff on US goods.
China - 20% additional tariff on imports from China. The US trade deficit was over $900bn in 2024 of which China accounts for around $270bn. The additional tariff on postal shipments from China to the US has since been temporarily suspended for items with a value under $800 until the US postal service is able to collect the tariff. China’s response has been to impose additional tariffs on certain US imports including a targeted 15% tariff on agricultural products including chicken, wheat, corn and cotton, and a 10% tariff on fruit, vegetables, dairy products, pork, beef and sorghum. Export controls have been placed on some critical minerals. In addition, China has filed a complaint to the World Trade Organization.

Industry specific tariffs and investigations

Steel imports – from 12 March 2025, the original 25% steel tariff is set to resume without the bi-lateral agreements reached over time with many nations including Australia watering down the tariff.
Copper imports – while no actions on tariffs, the President has ordered an investigation into the threat to security of copper imports .
Imports of timber, lumber products – while no action or impositions as yet, the President has ordered an investigation into the threat to security of imports of timber, lumber and derivative products such as paper.
US tech giants – it seems that the President is concerned by digital services taxes (DST) imposed on US technology companies and has vowed to respond with tariffs and other measures. Australia does not impose a DST and instead is aligned to the OECD reforms of digital taxing rights.

Will Australia face US tariffs?

Australia has a large trade surplus with the US which would normally make the imposition of tariffs less likely. However, specific industries may be impacted by product or industry based tariffs, such as steel and aluminium.

The largest American imports into Australia are financial services, travel services, telecoms/ computer/ information services, royalties and trucks. Australia’s largest exports to the US are financial services, gold, sheep/goat meat, transportations services and vaccines.

Impacts of trade wars on Australia

Australia is impacted indirectly by demand. China is Australia's largest two-way trading partner, accounting for 26% of our goods and services trade in 2023. If Chinese demand slows as a result of a trade war, Australia’s economy will slow. But there is a pattern in President Trump’s approach to international and trade relations that suggests that an all-out trade war might not occur: a bold line or policy is stated - a statement that tells a story to the US public consistent with his election sentiments; then, wound back either partially or fully after concessions have been secured or concessions stated. For Australia, there is a risk in these policy machinations that China again agrees to reduce the US trade deficit by purchasing more from the US, potentially to the detriment of Australian suppliers.

For Australian business, uncertainty and volatility is the problem. Uncertainty slows the economy and impacts business revenue while at the same time, costs may increase.

For those in the business of selling product manufactured and distributed from China or through other trading partners directly impacted by tariffs, watch for more supply chain issues and potential cost increases.

If the US export markets retracts, there is also a risk other trading nations look to dump their products to help offset losses.

FBT 2025: What you need to know

Mon, 10 Mar 2025 00:47:00 GMT

Employers that provide employees with the use of eligible electric vehicles (EVs) can potentially qualify for an FBT exemption. This should normally be the case where:

The car is a zero or low emission vehicle (battery electric, hydrogen fuel cell or plug-in hybrid electric);
The car is both first held and used on or after 1 July 2022; and
The value of the car is below the luxury car tax threshold for fuel efficient vehicles (which is $89,332 for 2024-25 financial year).

The Fringe Benefits Tax (FBT) year ends on 31 March. We’ve outlined the hot spots for employers and employees.

FBT exemption for electric cars

From 1 April 2025, plug-in hybrid electric vehicles will no longer qualify for the FBT exemption unless:

The use of the vehicle was exempt before 1 April 2025, and
There is a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025.

If there is a break or change to that commitment on or after 1 April 2025 then the exemption normally won’t be available any more.

Even if the FBT exemption applies, your business will still need to work out the taxable value of the benefit as if the FBT exemption didn’t apply. This is because the value of the exempt benefit is still taken into account when calculating the reportable fringe benefits amount of the employee. While income tax is not paid on this amount, it can impact the employee in a range of areas (such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments).

This means the employee’s own home electricity costs incurred on charging the electric vehicle will often need to be worked out. This figure can generally be treated as an employee contribution to reduce the value of the benefit.

While this can be practically difficult to determine, the ATO has issued some guidelines that provide a 4.20 cent per km shortcut rate that can potentially help with the calculation. These guidelines do not apply to plug-in hybrid vehicles.

Many electric vehicles are also packaged together with electric charging stations. Just be aware that the FBT exemption for electric cars does not extend to charging stations provided at the employee’s home.

Plug-in hybrid vehicles no longer FBT exempt

Working with the exemption

Providing equipment to work from home

Many businesses continue to offer flexible work from home arrangements. employees are often provided with work-related items to assist them to work from home. In general, where work related items are provided to employees and used primarily for work, FBT shouldn’t apply.

For example, portable electric devices such as laptops and mobile phones provided to employees shouldn’t trigger an FBT liability as long they are primarily used by your employees for work. Multiple similar items can also be provided during the FBT year where required – for example multiple laptops have been provided to the employee – but only if the business has an aggregated turnover of less than $50m (previously, this threshold was less than $10m).

If the employee is using equipment provided by the business for their own private use, normally FBT would apply to the private use. However, the FBT liability can be reduced based on the business use percentage.

Does FBT apply to your contractors?

The FBT rules tend to apply when benefits are provided to employees and certain office holders, such as directors. FBT should not apply when benefits are provided to genuine independent contractors but, you need to be sure that your contractors are in fact contractors.

Following two landmark decisions handed down by the High Court, the ATO has now finalised a ruling TR 2023/4 that helps determine whether a worker is an employee or an independent contractor.

If the parties have entered into a written contract, then you need to focus on the terms of that contract to establish the nature of the relationship (rather than looking at the conduct of the parties). However, merely labelling a worker as an independt contractor doesn’t necessarily mean that they won’t be treated as an employee if the terms of the contract suggest that the parties have entered into an employment relationship.

The ATO has also issued PCG 2023/2 that sets out four risk categories. Arrangements will tend to be viewed in a more favourable light where:

There is evidence to show that you and the worker have agreed on the classification;
There is a comprehensive written agreement that governs the relationship;
There is evidence that you and the worker understand the consequences of the classification;
The performance of the arrangement hasn’t deviated significantly from the terms of the contract;
Specific advice has been sought confirming that the classification is correct; and
Tax, superannuation, and reporting obligations have been met when the worker is classified as an employee or independent contractor (whichever relevant).

If your business employs contractors, you should have a process in place to ensure the correct classification of the arrangements and to determine the ATO’s risk rating. These arrangements should also be reviewed over time.

Are your contractors really contractors?

Reducing the FBT record keeping burden

Record keeping for FBT purposes can be onerous. From 1 July 2024 however, your business will have a choice to keep using the existing FBT record keeping methods, use existing business records where those records meet the requirements set out by the legislative instrument, or a combination of both methods:

Travel diaries – see LI 2024/11
Living-away-from-home-allowance – FIFO/DIDO declarations – see LI 2024/4
Living-away-from-home – maintaining an Australian home declaration – See LI 2024/5
Otherwise deductible rule – expense payment, property or residual benefit declaration – See LI 2024/6
Otherwise deductible rule – private use of a vehicle other than a car declaration – See LI 2024/7
Car travel to an employment interview or selection test declaration – See LI 2024/14
Remote area holiday transport declaration – See LI 2024/10
Overseas employment holiday transport declaration – See LI 2024/13
Car travel to certain work-related activities declaration – See LI 2024/9
Relocation transport declaration – See LI 2024/12
Temporary accommodation relating to relocation declaration – See LI 2024/8

FBT housekeeping

The top FBT risk areas

One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches.

When it comes to entertainment, employers are often keen to claim a deduction but this can be a problem if it is not recognised as a fringe benefit provided to employees. Expenses related to entertainment such as a meal in a restaurant are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.

Let’s say you taken a client out to lunch and the amount per head is less than $300. If your business uses the ‘actual’ method for FBT purposes, then there should not be any FBT implications. This is because benefits provided to client are not subject to FBT and minor benefits (i.e., value of less than $300) provided to employees on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.

Mismatched claims for entertainment – claimed as a deduction but no FBT

Employee contributions by journal entry in the accounts

One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches.

Not lodging FBT returns

The ATO is concerned that some employers are not lodging FBT returns when required to.

Make sure you have reviewed the FBT client questionnaire we sent you!

Need assistance?

Please contact us on 02 6882 1022 or by email to office@wrightpartners.com.au

Is there a problem paying your super when you die?

Wed, 12 Feb 2025 19:00:00 GMT

Where it can go wrong

Your super can be paid to a dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you. A dependant for superannuation purposes is “the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship”. An interdependency relationship is where someone depends on you for financial support or care.

What happens if I don’t make a nomination?

Who is eligible to receive your super?

There have been a number of court cases over the years that have successfully contested the validity of death nominations. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name. If your super is to be directed to your estate, ensure the wording uses the correct legal terminology.

One of the reasons for delays in paying death benefit nominations cited by the funds is where there is no nomination (or it is expired or invalid), there are multiple potential claimants, and the trustee needs to work through sometimes complex family scenarios.

The bottom line is, young or old, check your nominations with your superannuation fund and make sure you have the right type of nomination in place, and it is valid and correct. While there still might be a delay in getting your super where it needs to go if you die, the process will be a lot quicker and less onerous for your loved ones.

Death benefits are a complex area. The superannuation fund trustee has discretion over who gets your super benefits unless you have made a valid death nomination. If you don’t make a decision, or let your nomination lapse, then the fund has the discretion to pay your super to any of your dependants or your estate.

There are four types of death nominations:

Binding death benefit nomination
Directs your super to your nominated eligible beneficiary, the trustee is bound by law to pay your super to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.
Non-lapsing binding death benefit nomination
If permitted by your trust deed, a non-lapsing binding death benefit nomination will remain in place unless you cancel or replace it. When you die, your super is directed to the person you nominate.
Non-binding death nomination
A guide for trustees as to who should receive your super when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay your super to someone else or to your estate.
Reversionary beneficiary
If you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years.

How to make sure your super goes to the right place

The Government has announced its intention to introduce mandatory standards for large superannuation funds to, amongst other things, deliver timely and compassionate handling of death benefits. Do we have a problem with paying out super when a member dies?

If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will be a superannuation dependant or the legal representative of your estate to then be distributed according to your Will.

The value of superannuation in Australia is now around $4.1 trillion. When you die, your super does not automatically form part of your estate but instead, is paid to your eligible beneficiaries by the fund trustee according to the fund rules, superannuation law, and any death benefit nomination you made.

Complaints to the Australian Financial Complaints Authority (AFCA) about the handling of death benefits surged sevenfold between 2021 and 2023. The critical issue was delays in payments. While most super death benefits are paid within 3 months, for others it can take well over a year. The super laws do not specify a time period only that super needs to be paid to beneficiaries “as soon as practicable” after the death of the member.

Will credit card surcharges be banned?

Tue, 11 Feb 2025 19:00:00 GMT

The push for change

While the average card payment fee in Australia is lower than the United States (which is close to double Australia’s rates), we pay a higher rate than in some other jurisdictions such as Europe. The RBA have flagged there might be room to improve this by capping interchange fees and/or introducing competition into how debit card payments are routed (allowing systems to default to the ‘least cost’ option available).

In Australia, it is not a level playing field when it comes to card transaction fees with a large disparity between fees paid by small and large merchants – small merchants pay around three times the average per transaction fee than larger merchants (large merchants are able to secure wholesale fees or utilise ‘strategic’ interchange rates). But even within the small business sector, fees vary dramatically with the cost of accepting card payments ranging from less than 1% to well over 2% of the transaction value.

If credit card surcharges are banned in other countries, why not Australia? We look at the surcharge debate and the payment system complexity that has brought us to this point.

Small business pays 3 times more

The Reserve Bank of Australia (RBA) launched a review in October 2024 of Merchant Card Payment Costs and Surcharging . The review explores whether existing regulatory frameworks are still fit for purpose given the rate of technological change and complexity, and if there is a need for greater transparency – surcharges, transaction fees, and the way in which payments are regulated, are all up for review. Ultimately, the review is about reducing costs to merchants and consumers.

In general, customers dislike surcharges and would be happy to see them go – they represent a personal loss of value in much the same way a discount is seen as a personal gain. And, they have support for a ban from the large credit card providers and financial institutions with the Australian Banking Association’s (ABA) submission to the RBA review saying, “The current surcharging framework is clearly not working and requires targeted reform. Consumers should never be surcharged for bundled costs like POS systems, business software products or other business incentives.” The reference to “business incentives” is where a higher fee is charged by the payment service provider to provide the merchant with reward points and other incentives.

The push for a ban accelerated when the government announced that it would ban debit card surcharges from 1 January 2026, subject to the outcome of the RBA review later this year.

If surcharges are banned for some or all payment methods, businesses currently charging surcharges will need to either absorb the cost of merchant fees or increase prices. The issue for many businesses is not whether to charge a fee, but the costs of accepting what is now the most common payment method – cash is free to transact, cards are a facility to transact legal tender, not legal tender in and of themselves.

The RBA are generally in favour of allowing surcharges, pointing out that they signal to consumers which payment methods offer better value and enable market forces to determine the dominant payment providers. And, this might be true for large purchases, but do we really notice when we’re tapping our phones or watches to grab that morning coffee?

Cards (including debit, prepaid, credit and charge cards) are the most frequently used payment method in Australia, accounting for three-quarters of all consumer payments in 2022.

According to the Australian Banking Association:

Contactless payments now account for 95% of in-person card transactions, compared to less than 8% in 2010.
Online payments, as a share of retail payments, have grown from 7% in 2010 to 18% in 2022.
Mobile wallet (Apple Pay, Google Pay, etc.,) usage has grown from 1% of point-of-sale payments in 2016 to 44% in October 2024.
Buy Now, Pay Later (BNPL) services, virtually unknown 8 years ago, are now used by nearly a third of Australians.

In the United Kingdom, consumer credit and debit card surcharges have been banned since 2018. In Europe, all except American Express and Diners Club consumer surcharges are banned. And in Australia, there is a push to follow suit. But, is the issue as simple as it seems?

How we use cards and digital transactions

When are surcharges allowed

In the days before the RBA’s surcharge standard , it was not uncommon for businesses to apply a flat 3% surcharge.

The surcharge rules enable merchants to surcharge consumers for the “reasonable cost of accepting card payments”.

This means:

A business can only charge a surcharge for paying by card/digital wallet, but the surcharge must not be more than what it costs the business to use that payment type . These costs, measured over a 12 month period, can include gateway costs, terminal costs paid to a provider, and fraud prevention etc., if they relate directly to the card type being surcharged.

- Payment suppliers must provide merchants with a statement at least every 12 months that includes the business’s average percentage cost of accepting each payment type.

If a business charges a payment surcharge, it must be able to justify how the surcharge fee was calculated.
If the surcharge applies to all payment types regardless of type, it must not be more than the lowest surcharge set for a single payment type.
If there is no way for a customer to pay without incurring a surcharge, the business must include the surcharge in the displayed price. That is, if your customer cannot use cash or another payment method that does not incur a surcharge, then the price displayed must include the surcharge.

The RBA estimates that, on average, card fees cost:

Tax on surcharges

If your business charges goods and services tax (GST) on goods or services, then GST should also apply to any surcharge payments made.

Excessive surcharging is banned on eftpos, Debit Mastercard, Mastercard Credit, Visa Debit and Visa Credit. The Australian Competition and Consumer Commission (ACCC) reportedly stated that excessive surcharge complaints increased to close to 2,500 in the 18 months from the start of 2023.

Threshold for tax-free retirement super increases

Tue, 11 Feb 2025 05:25:00 GMT

The amount of money that can be transferred to a tax-free retirement account will increase to $2m on 1 July 2025.

The transfer balance cap - the amount that can be transferred to a tax-free retirement account – is indexed to the Consumer Price Index (CPI) released each December. If inflation goes up, the general transfer balance cap (TBC) is indexed in increments of $100,000 at the start of the financial year.

In December 2024, the inflation rate triggered an increase in the cap from $1.9m to $2m.

Everyone has an individual transfer balance cap. If you have started a retirement income stream, when indexation occurs, any increase only applies to your unused transfer balance cap.

If you are considering retiring, either fully or partially, indexation of the transfer balance cap provides a one-off opportunity to increase the amount of money you can transfer to your tax-free retirement account. That is, if you start taking a retirement income stream for the first time in June 2025, your transfer balance cap will be $1.9m but if you wait until July 2025 your transfer balance cap will be $2m, an extra $100,000 tax-free.

If you are already taking a retirement income stream, indexation applies to your unused TBC - so, you might not benefit from the full $100,000 increase on 1 July 2025.

Where can I see what my cap is?

Your superannuation fund reports the value of your superannuation interests to the Australian Taxation Office (ATO). You can view your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov .

Why the ATO is targeting babyboomer wealth

Tue, 11 Feb 2025 04:59:00 GMT

The Australian Taxation Office (ATO) thinks that wealthy babyboomer Australians, particularly those with successful family-controlled businesses, are planning and structuring to dispose of assets in a way in which the tax outcomes might not be in accord with the ATO’s expectations.

If you are within the ATO’s Top 500 (Australia's largest and wealthiest private groups) or Next 5,000 (Australian residents who, together with their associates, control a net wealth of over $50 million) programs, expect the ATO to be paying close attention to how money flows through the entities you control.

A critical issue for many business owners is how to effectively (and compliantly) benefit from a successful business. In many cases, the owners have spent years building the business and the business has become not only a substantial asset, but a lucrative source of income either through salary and wages, dividends, or through the sale of shares or assets. Generally, under tax law, you can legitimately structure assets if there is a good reason to do so - like for asset protection, but if you tip across the line and the only viable reason for a structure is to reduce tax, then you risk the ATO taking a very close look at your operations or worse, denying any tax benefits under the general anti-avoidance rules in Part IVA of the tax rules, designed to combat “blatant, artificial or contrived” tax avoidance activities.

“We’re seeing that succession planning behaviour is primarily done by group heads who are approaching retirement. They typically own groups that family members are a part of, and wealth is transferred to the next generation to keep it within the family (via trusts and other means),” ATO Private Wealth Deputy Commissioner Louise Clarke said in a recent update.

Key areas of concern include:

Division 7A loans being settled. That is, a company has been paying money to a shareholder or an associate under a loan account. The ‘loan’ is quickly settled, often via a distribution, to remove it from the accounts.
Assets moving around the group (often the true value of an asset is not recognised raising the question, why the change if not to avoid capital gains tax on disposal or for some other benefit).
Family member interests being restructured .
Trust deeds being amended.
A restructure is cited as a reason for late lodgment.

Trusts are also a key area of concern in 2025. Where a trust which has made a family trust election (FTE) or interposed entity election (IEE) makes a distribution outside of the family group, a 47% Family Trust Distribution Tax applies (tax at the top marginal tax rate plus Medicare).

In addition, the ATO has recently tightened its approach to trust tax returns for closely held trusts to ensure that trustee beneficiary (TB) statements are being completed. These are required when a trust makes a distribution of income or assets to the trustee of another trust, unless an exclusion applies.

For example, a trust which has made an FTE or IEE doesn’t need to make a TB statement. The TB statement will then be used to cross reference against what the beneficiary has declared in its tax return. Where a valid TB statement is not made on time this can trigger a hefty 47% Trustee Beneficiary Non-Disclosure Tax.

Use of trusts

Reducing risk

“Succession planning, and the tax risks associated with it, is our number one focus in 2025. In recent years we’ve observed an increase in reorganisations that appear to be connected to succession planning.”

ATO Private Wealth Deputy Commissioner Louise Clarke

Where you or your family have control over multiple entities, particularly where the value of these entities is significant, it is important that the connections between these - be it in Australia or overseas - are looked at closely to avoid any nasty surprises or lost opportunities.

Transferring control of your business may involve restructuring your business operations – changes to share structures, changes to the trustee and appointor of a trust, changes to partnership structures – or transferring assets to family members via the creation of trusts or other entities. All these events have legal and tax implications that need to be carefully considered.

Contact us to assist you with your succession and tax planning.

Tax deduction denied for signature basketball shoe R&D

Tue, 10 Dec 2024 19:00:00 GMT

The Federal Court has denied a sports company’s appeal to claim research & development incentives for the creation of an Australian signature basketball shoe.

The R&D tax incentive program encourages research and development that companies might not otherwise undertake. The incentive offers a tax offset which is calculated with reference to qualifying R&D expenditure. The rate of the tax offset and whether it is refundable or non-refundable depends on the company’s situation.

To access the incentive, R&D activities have to be “core” or “supporting.”

Active Sports Management Pty Ltd lodged applications with Industry Innovation and Science Australia (IISA), to register activities relating to the development of a customised basketball shoe (Delly1) as “core R&D activities.” A core activity is one that can’t be determined in advance, can only be determined by systematic progression through scientific principles and experimentation, and is conducted for the purpose of generating new knowledge.

Unfortunately for Active Sports Management, the ATO, Administrative Appeals Tribunal, and now the Federal Court did not see the development of Delly1 as core R&D.

The claim was denied on the basis that the outcome did not appear to have technical or scientific uncertainty, just subjective views.

The Movie Air highlighted the importance of the signature Air Jordan shoe to Nike. While expected to sell around $3 million worth of shoes by its fourth year, the signature shoe eclipsed expectations raking in $126 million in its first year. Nike sold 1.5 million in the first six weeks following clever marketing suggesting that the colourful shoes were in breach of the NBA regulations.

Nike’s recent fourth quarter results to 31 May 2024 show the Jordan brand worth $7 billion, and the bright spot in the company’s results with a 6% sales gain.

In Australia, Peak Australia created the Delly1. Peak worked with Australian Olympian and NBA Champion, Matthew Dellavedova, on the final shoe design. Dellavedova has stated in interviews that he had, “...a whole lot of involvement with the shoe… I wanted a low-cut shoe that was light and close to the ground because I need to guard all these quick guards that are tough to defend over here [in the NBA]. They [Peak] did a great job with that, and as we went through the process of me testing it we just made minor adjustment.”

But did the process undertaken to create the Delly1 meet the requirements to access research and development (R&D) concessions?

Accessing R&D concessions

What’s ahead in 2025?

Mon, 09 Dec 2024 19:00:00 GMT

Cost of living pressures

Tax & super changes

The last few years have been a rollercoaster ride of instability. 2025 holds hope, but not a guarantee, of greater stability and certainty. We explore some of the key changes and challenges.

Wage theft criminalised

The National Accounts released in early December took economists by surprise with living standards growing by a mere 0.2% in the September quarter – the expectation was much higher. Discretionary spending only increased by 0.1%.

The personal income tax cuts that came into effect from 1 July 2024 helped households, as did energy subsidies, but the impact is still working its way through the system. At the same time, mortgage costs continue to rise as past increases continue to impact.

Through the year, Australia’s economy grew 0.8%, the lowest rate since the COVID-19 affected December quarter 2020. Economic activity in the Australian economy right now is heavily dependent on Government spending.

Slow and steady is the expectation for 2025.

The ‘Trump effect’

Foreign resident capital gains withholding changes on sale of property

One of the Bills pushed through Parliament at the end of 2024 changes how capital gains withholding applies to foreign residents from 1 January 2025.

Currently, residents selling taxable Australian property must provide a clearance certificate to the purchaser at or before settlement to avoid having 12.5% withheld from a property sale where the value of the property is $750,000 or more. If applicable, the withholding is then made available as a credit against any tax liability. The vendor only receives any refund due after their next income tax return is processed at tax time.

From 1 January 2025 however, the threshold will be removed and the withholding rate increased so that:

The withholding is increased from 12.5% to 15%; and
The withholding applies to the sale of all Australian land and buildings by foreign residents, regardless of the value of the assets.

The reforms apply to acquisitions made on or after 1 January 2025.

Superannuation rate increases to 12%

The Superannuation Guarantee (SG) rate will rise from 11.5% to 12% on 1 July 2025 - the final legislated increase.

Super on Paid Parental Leave

From 1 July 2025, superannuation will be paid on Paid Parental Leave payments. Eligible parents will receive an additional payment based on the superannuation guarantee (i.e. 12% of their PPL payments), as a contribution to their superannuation fund.

President-elect Trump will recite his oath of office on 20 January 2025. The Trump administration will hold the presidency, Senate and the House.

For Australia, the question is the likely impact of some of President-elect Trump’s stated policy objectives including the imposition of tariffs. On social media, Trump has said:

“…as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders.”
“…we will be charging China an additional 10% Tariff, above any additional Tariffs, on all of their many products coming into the United States of America.” This in response to claims that China is responsible for massive amounts of drugs, in particular Fentanyl being sent into the US.

The issue for Australia is the secondary impact of a trade war. China is Australia's largest two-way trading partner, accounting for 26% of our goods and services trade with the world in 2023. A slowdown in the Chinese economy impacts Australia and the region generally.

An immediate impact of the idea of a trade war has been the decline of the AUD/USD, currently sitting at around 64c.

New standards for vehicle manufacturers come into effect from 1 January 2025. Vehicle manufacturers will have a set average CO2 target for all new cars they produce, which they must meet or beat. The target will be reduced over time and car companies must provide more choices of fuel-efficient, low or zero emissions vehicles.

Suppliers can still sell any type of vehicle they choose but with more fuel-efficient models offsetting any less efficient models. If suppliers meet or beat their target, they'll receive credits. If they don’t, they will have two years to either trade credits with a different supplier, or generate credits themselves, before a penalty becomes payable.

At the last Reserve Bank Board (RBA) meeting, RBA governor Michele Bullock recognised the easing of headline inflation from 5.4% to 2.8% over the year to September 2024 but suggested that the economy still has some way to go before inflation is sustainably within the 2% to 3% target range. The RBA appears wary of volatility and wants to see inflation sustainably trending down before making any move. Commbank is predicting a February 2025 rate cut, ANZ and Westpac May 2025, and NAB June 2025.

Welcome to political advertising slipping into your social media, voicemail, and television viewing - most likely with messages from the opposition asking if you are better off, and from the incumbents telling you all the reasons why you are.

The 2025-26 Federal Budget has been brought forward to 25 March 2025. This suggests an election will be held in either March or May 2025 but no later than 17 May 2025.

Legislation in limbo

The Senate pushed through 32 Bills on the final sitting day of parliament for 2024 including seven of direct relevance to business and to the financial interests of some Australians. However, two key announcements remain in limbo:

$3m tax on earnings in a superannuation fund
The proposed Division 296 tax, which imposes a 30% tax rate on future earnings for superannuation balances above $3 million, is proposed to commence from 1 July 2025. The Bill enabling the new tax is stalled in the Senate. It’s unlikely that this tax will pass parliament prior to the election; at which point, the Bill lapses. It then becomes a question of whether the elected Government chooses to rectify the concept or let it fade into oblivion as a bad idea.

$20,000 instant asset write-off for small business
In the 2024-25 Federal Budget, the government announced the extension of the $20,000 instant asset write-off threshold for small business for a further year to 2024-25. The concession enables businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible depreciating assets costing less than $20,000. Without this measure, the threshold returns to $1,000. This concession was removed by amendment from the enabling legislation at the last minute in the final sitting of Parliament of 2024. The removal of this measure is unfortunate, as once again, SMEs now have no confidence about the tax treatment of investments in assets that they might be looking to make, or have made, in the current financial year.

An election

Interest rates

Fuel efficient cars

As of 1 January 2025, the intentional underpayment of workers will be criminalised.

Employers will commit an offence if:

they’re required to pay an amount to an employee (such as wages), or on behalf of or for the benefit of an employee (such as superannuation) under the Fair Work Act, or an industrial instrument; and
they intentionally engage in conduct that results in their failure to pay those amounts to or for the employee on or before the day they’re due to be paid.

Employers convicted of wage theft face fines of up to 3 times the amount of the underpayment and $7.825 million.

Phasing out cheques

The Government has announced a transition plan to phase out the use of cheques. Under the plan, cheques will stop being issued by 30 June 2028 and stop being accepted on 30 September 2029.

The use of cheques has declined dramatically over the last 10 years, declining by around 90%. In response, banks have stopped issuing chequebooks to new customers. However, financial institutions have a legislated requirement to accept cheques until the Government no longer requires them to do so.

Danish banks stopped accepting cheques in 2017 and New Zealand's banks in 2021.

Cheques out but cash remains king

While Australians have moved to digital payment methods, the Government has been careful to maintain cash as a payment method.

Around 1.5 million Australians use cash to make more than 80% of their in‑person payments. Cash also provides an easily accessible back‑up to digital payments in times of natural disaster or digital outage.

According to the most recent data, up to 94% of businesses continue to accept cash.

The Government has stated that they will mandate that businesses must accept cash when selling essential items, with appropriate exemptions for small businesses.

Currently, businesses don’t have to accept cash – business can specify the terms and conditions that they will supply goods and services.

The issue of card surcharges often comes up when a business adds a surcharge rather than recognising this cost of doing business in their pricing. A business can charge a surcharge for paying by card, but the surcharge must not be more than what it costs the business to use that payment type.

Tax and tinsel Q&As

Mon, 09 Dec 2024 04:46:00 GMT

Not have one? Ok, seriously, it’s likely that you will pay tax one way or another; it’s just a question of how. If you structure your celebrations to avoid fringe benefits tax (FBT), then you normally can’t claim a tax deduction for the expense or goods and services tax (GST) credits.

No FBT

If you host your Christmas party in the office on a working day, then FBT is unlikely to apply to the food and drink. Taxi travel that starts or finishes at an employee’s place of work is also exempt from FBT - helpful if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer.

If you host your Christmas party outside of the office and keep the cost per head under $300 (the FBT minor benefit limit) then FBT often won’t apply to the cost of entertaining your employees.

But, if you do not incur FBT, you cannot claim GST credits or a tax deduction for the Christmas party expense.

Tax deductible

If your business hosts slightly more extravagant parties away from the business premises and the cost goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event.

Can you avoid giving the Australian Tax Office a gift this Christmas?

The key to Christmas presents for your team is to keep the gift spontaneous, ad hoc, and from a tax perspective, below the $300 FBT minor benefit limit. So, no ongoing gym memberships or giving the same person several of the same gift that adds up to $300 or more unless you want to give a gift to the ATO at the same time. But, you can give gifts at different times throughout the year without triggering FBT as these are counted separately for the minor benefit limit.

A cash bonus will be treated as income in much the same way as salary and wages.

Regardless of whether it’s for Christmas or at any other time of the year, the cost of entertaining your clients – food, drink or other entertainment – is not deductible. The ATO is keen to ensure that taxpayers are not picking up part of the cost of your long lunches or special events while you’re bonding with clients.

The top Christmas party questions

It depends on the gift and why you’re giving it. If you send a client a gift, the gift is tax deductible if you have an expectation that the business will benefit; it’s marketing. While this seems like a mercenary way to look at Christmas giving, it is the business giving the gift, not you personally. This assumes that the gift is not a gift of entertainment like golf, or restaurants, which would not be deductible.

What can I do to make the staff Christmas party tax deductible or tax-free?

Are the costs of client gifts deductible?

What about gifts for staff? Are they tax deductible?

I like to catch up with clients for lunch or a drink (or two) at Christmas. These expenses are deductible, right?

When overseas workers are Australian employees

Tue, 12 Nov 2024 19:00:00 GMT

In August 2024, a new definition of what is an employee and employer came into effect in the Fair Work Act. This new definition extends the High Court’s decision in CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek to rely on the nature of the contract between the parties, not just what the contract says. The intent of the legislative change appears to be to ensure that clever drafting of a contract alone will not be sufficient to define an independent contractor arrangement.

The Fair Work Act now requires that the true relationship between the parties is, “determined by ascertaining the real substance, practical reality and true nature of the relationship between the individual and the person.” The totality of the relationship needs to be considered including how the contract is performed in practice.

The new definition of employee and employer

What underpinned the Fair Work decision?

The Fair Work Commission has determined that a Philippines based “independent contractor” was an employee unfairly dismissed by her Australian employer.

Ms Pascua worked under contract as a legal assistant, investigating credit claims on clients’ behalf, for a specialist credit repair legal firm based in Queensland between 21 July 2022 until 20 March 2024. She worked from home in the Philippines, using her own computer, a firm email address and a PBX phone system that gave the appearance that she was calling from the legal office.

The contract described the relationship as one of an independent contractor, with the standard clauses that the firm will not be liable for any other benefits or remuneration other than what was specified and that the firm was not liable for taxes, worker’s compensation, unemployment insurance, employer’s liability, social security or other entitlements. Ms Pascua also bore a liability in the event that something went awry with her work.

For her work, Ms Pascua was paid “AUD$18 per hour Salary all inclusive as a Full Time Employee,” capped at 8 hours per day, 5 days per week, excluding breaks. While working with the firm, Ms Pascua used a firm supplied pro forma invoice to bill 83 weekly invoices at the full hours allowable and 28 other invoices for lesser amounts when she worked less than 40 hours in the week.

For the first 12 months of her time with the legal firm she was supervised by a solicitor. Within 12 months, her work was unsupervised, and in the last 7 months of the relationship, she was the only person conducting investigative work.

Underpinning the Fair Work Commission’s decision were the recent High Court cases that changed the way in which disputes over the nature of employment relationships are determined ( CFMMEU v. Personnel Contracting Pty Ltd and ZG Operations Pty Ltd and Jamsek). Whereas once the courts looked at the substance of the overall arrangement (let’s call it the ‘if it walks like a duck and talks like a duck, then it’s a duck’ principal), now greater weight is given to the contract, with reference to the rights and duties created by that contract.

To determine this case, the FWC stepped through the contract clause by clause to evaluate whether it suggested an employment or independent contractor relationship, and looked at how these clauses were brought into effect.

In this case, on weight, the FWC determined Ms Pascua was an employee because the contract indicated that Ms Pascua was required to perform work “in the business of another”, instead of for her own enterprise. The contract suggested that:

Despite being described as a paralegal, she did not appear to be working in a distinct profession, trade or distinct calling. Her contract outlined administrative tasks and ad hoc duties.
The contract did not enable her to assign the work to another.
While there were daily targets in the contract – a result that she was expected to achieve – these tasks referenced weekly requirements and often could be carried over, suggesting ongoing work.
There was a level of control exerted by the legal firm over how Ms Pascua performed her work that suggests she was not running her own enterprise – the PBX phone system, the email address, the level of direction in the tasks to be performed in the daily instruction she received.
Despite being invoiced by Ms Pascua, the hourly rate described in the contract was that of a full-time employee, and the invoices were to be forwarded weekly for the previous week’s work. The FWC also noted that the most likely rate for Ms Pascua as an employee would be $30.95 per hour (the casual rate for level 2 legal clerical work). To this, the FWC noted that genuine independent contractors would normally specify a fee that was greater, not less, than the minimum wage.

The FWC found that the description of the arrangement as that of independent contractor belied the actual nature of the contract.

When it came to the clauses excluding matters such as the payment of income tax, workers compensation, annual and personal leave relied on by the legal firm as confirmation of an independent contractor arrangement, the FWC referred to the Deliveroo Australia Pty Ltd v Diego Franco case and others. That is, the FWC considers, “the statements in the contract about meeting the obligations consequent upon the labelling of the arrangement as one of independent contractor to have little weight in determining the true nature of the relationship.”

The FWC’s decision in Ms Joanna Pascua v Doessel Group Pty Ltd highlights how cautious employers should be about the nature of employment relationships. Just because you label an arrangement as that of an independent contractor, does not mean it is. And if you get it wrong, beyond the industrial relations impact, you might be liable for the tax, payroll tax and workers compensation payments that should have been made.

What makes this decision unusual is how an international employment arrangement can be drawn into the national workplace system. Regardless of the geographic location of an employee, if your business is an Australian national system employer (bound by the Fair Work Act), and the individual is deemed to be an employee, the same rights and obligations may apply to that employee as to other employees located in Australia.

While not addressed in this case, the FWC also referred to the minimum wage for a paralegal performing work such as that undertaken by Ms Pascua. While not applicable to this case, from 1 January 2025, wage theft will become a criminal offence - where an employer is required to pay an amount to an employee but intentionally underpays. For international employees where rates might be significantly different to Australian expectations, it is more important than ever to ensure you have characterised the employment relationship correctly.

We’re often asked about the implications of working with overseas, non-resident workers who are working for a resident Australian company.

Let’s say you want to engage the services of a non-resident individual.

Contactor or employee?

The first step is to ensure that the arrangement is correctly classified. As we have seen from the Ms Joanna Pascua v Doessel Group Pty Ltd case, this really depends on the specific situation. From a tax perspective, the ATO has outlined their guidance in Employee or independent contractor , but you might need specific advice if you are uncertain.

Implications of an employment relationship

If the worker is classified as an employee and they are a non-resident for Australian tax purposes, then they should only be taxed in Australia on income that has an Australian source. However, you need to check whether a double tax agreement (DTA) could impact on the outcome – Australia has around 45 bilateral DTAs. For example, if the employee was a resident of say the Philippines, then Article 15 of the double tax agreement (DTA) between Australia and the Philippines generally prevents Australia from taxing the employment income unless the work is performed in Australia.

Pay as you go (PAYG) withholding should not generally apply if the worker is a non-resident employee and is only deriving foreign sourced income. Generally, PAYG does not need to be withheld under the PAYGW rules from a payment of salary / wages to someone if the payments are not taxed in Australia.

Superannuation guarantee should not apply if all the work is performed overseas, and the worker is a non-resident.

It will be important to get specialist advice in the employee’s country of residency to determine whether there are any obligations that need to be satisfied under local tax or super systems (e.g., withholding, superannuation or superannuation like contributions, etc).

Tax implications of independent contractors

If the worker is classified as a genuine independent contractor (or they are working through a trust or company) and they are a non-resident, then they should only be taxed in Australia on Australian sourced income. Using the same example, if the contractor is a resident of the Philippines, then Article 7 of the DTA would generally prevent Australia from taxing their business profits or income unless they relate to a permanent establishment that the contractor has in Australia (see Will a foreign worker mean your business is carrying on a business overseas? below).

PAYG withholding should not apply as long as:

The contractor provides an ABN; or
A DTA prevents the income from being taxed in Australia; or
The contractor does not carry on an enterprise in Australia. If the contractor performs all their work overseas, they don't have any physical presence or employees in Australia, then it might be possible to argue that they don't carry on an enterprise in Australia. The company could ask the contractor to complete a statement by supplier .

Payments to foreign contractors might need to be reported to the ATO on the taxable payment annual report (TPAR) if your business provides building and construction, cleaning, courier and road freight, IT or security, investigation or surveillance services.

Will a foreign worker mean your business is carrying on a business overseas?

By having foreign workers, there is a risk that the business will be considered to be carrying on a business through a permanent establishment in the relevant foreign country. This could potentially expose an Australian business to tax in the foreign country on some of its business profits.

A permanent establishment is generally defined in Australia’s double tax agreements as being a fixed place of business through which the business of the enterprise is carried on in whole or part. Each DTA is a unique document which means that the definition of permanent establishment might be different depending on which foreign country you are dealing with.

This area can become complex very quickly and it is a good idea to get advice to ensure that you have certainty about your obligations.

What does this decision mean for employers?

Tax obligations and international workers

Like us, you are probably curious how a foreign national living in the Philippines, who had an ‘independent contractors’ agreement with an Australian company, could be classified as an Australian employee by the Fair Work Commission?

The recent case of Ms Joanna Pascua v Doessel Group Pty Ltd highlights just some of the issues Australian businesses face when working with overseas contractors and staff.

What makes or breaks Christmas?

Tue, 12 Nov 2024 01:36:00 GMT

The Christmas cost hangover

The countdown to Christmas is on and we’re in the midst of a headlong rush to maximise any remaining opportunities before the Christmas lull. Busy period or not, Christmas causes a period of dislocation and volatility for most businesses. The result is that it is not ‘business as usual’ and for many, volatility can create problems.

Added to this dislocation are cost of living pressures impacting consumers. Employee households are the hardest hit experiencing mortgage cost fuelled increases – spiked by the rollover of fixed rate loans to higher variable rate loans. While there has been some relief from energy subsidies and a reduction in fuel prices, underlying inflation remains persistently above the RBA’s target rate. Services inflation - the cost of your rent, insurance, your hairdresser, etc. – is sitting at around 5%. With the Reserve Bank of Australia (RBA) Board keeping rates on hold for now and hinting that it will be some time yet before they are comfortable reducing rates, consumers want a reason to spend based on value for money. The irony is that if we all spend up big, which a recent Roy Morgan poll suggests we are, there is a risk this elevated spending will further delay rate cuts. But, while we might spend more, some of this increase is simply to compensate for inflation - we need to spend more to buy at the same level as previous years.

Consumers expect a bargain and can generally find one. If you choose to discount stock (or the market forces you to), it’s essential to know your profit margins to determine what you can afford to give away. A business with a 20% gross profit margin that offers a 15% discount, needs a 300% increase in sales volume simply to maintain the same position. Worst case scenario is that a business trades below its breakeven point and generates losses.

Increased sales from discounting can be great if you know your numbers, have excess or older stock that needs to be moved, generates demand, or drives new customers to you.

Also think about how you create value; it does not always have to be a direct discount on a product. Packaging might be a better option than a straight discount where you can increase sales of multiple items, even better if you can combine higher demand with lower demand stock. Quantity discounts, value added are also options.

The New Year often leads into a quieter trading and tighter cashflow period. The March quarter is often the toughest cashflow quarter of the year. You will need a cash buffer. Don’t over commit yourself in the run up to the end of the year and start the new Year with a problem.

The discounting trend

The cost of living has eased over the past year but consumers are still under pressure. For business, planning is the key to managing Christmas volatility.

New Year cashflow crunch

Costs tend to go up over Christmas. More staff, lower efficiency, downtime from non-trading days, increased promotional costs, all mean that the cost of doing business increases. It’s great to get into the Christmas spirit as long as you don’t end up with a New Year hangover. Cost control is important.

Many businesses also bring in casual staff. It’s essential that you pay staff at the correct rates and meet your Superannuation Guarantee obligations.

Check the  pay calculator  to make sure you have it right.

If you work with account customers, start your debtor follow up early. If your customers are under cashflow pressure, the Christmas period will only exacerbate it. The creditors that chase debt hard and early will get paid first. Don’t be the last supplier on the list; the bucket might be empty by then.

Christmas is a great time of year. Just don’t get caught up in the rush and forget about the basics.

Take a lesson from Scrooge

Trading stock headaches

If business activity spikes over the Christmas period and you sell goods, then there is a temptation to increase stock levels. That makes sense as long as you don’t go too far. Too much stock post the Christmas period and you will either be carrying product that is out of season, or you will have too much cash tied up in trading stock. Try to work with suppliers that can supply on short notice.

Managing your trading stock is not just about managing cost. If your customers are in your store but can’t find what they need, have an online option available in store to take the sale.

More women using ‘downsizer’ contributions to boost super

Wed, 16 Oct 2024 19:00:00 GMT

If you are aged 55 years or older, the downsizer contribution rules enable you to contribute up to $300,000 from the proceeds of the sale of your home to your superannuation fund (eligibility criteria applies).

In 2023-24, over 57% of people making a ‘downsizer’ contribution to super were women. And, the average value of the contribution was marginally higher at $262,000 versus $259,000 contributed by men.

The most likely age someone makes a downsizer contribution is between 65 and 69. From age 65, a downsizer contribution can be withdrawn from super if your circumstances change, even if you are still working. Those aged 55 to 64 generally won’t have access to these funds until they are at least 60 and retired.

Downsizer contributions are excluded from the existing upper age test, work test, and the total super balance rules (but the amount that can be moved to a retirement pension is limited by your transfer balance cap).

For couples, both members of a couple can take advantage of the concession for the same home. That is, if you or your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple).

This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).

To be eligible to make a downsizer contribution you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home - you could buy a larger and more expensive one and make a downsizer contribution if you have access to other funds.

Please contact us if you would like the facts about downsizer contributions, or speak to your financial adviser for advice on your personal scenario.

01 Succession: the series

Tue, 15 Oct 2024 19:00:00 GMT

Beyond the difficult task of dividing up your assets and determining who should get what, it’s essential to look at the tax consequences of how your assets will flow through to your beneficiaries.

When assets pass from a deceased individual to a beneficiary of the estate, the tax impact will generally depend on the nature of the asset and the tax characteristics of the beneficiary, such as their residency status.

Let’s assume you inherit an ASX listed share portfolio under your mother’s will. The tax outcome will depend on whether your mother was an Australian resident for tax purposes when she died, and whether the shares were acquired by your mother before or after 20 September 1985 (i.e., pre-CGT or post-CGT).

If your mother was an Australian resident for tax purposes when she died, and the shares were acquired post-CGT, then the cost base of the shares is normally based on the original purchase price. That is, the tax rules treat the inherited shares as if you purchased them. For example, if your mother purchased BHP shares for $17.82 on 2 January 1997, when you sell the shares, the gain is calculated based on your mother’s purchase price of $17.82.

If your mother was a resident of Australia when she died, and the shares were acquired pre-CGT, then the cost base of the shares is normally reset to their market value at the date of death. That is, if your mother passed away on 1 October 2024, the share price at close was $45.96. If you subsequently sold the shares in three years, the gain or loss is calculated using this value.

If your mother was a non-resident when she died, then the cost base of the shares is normally based on their market value at the date of death.

But it’s not all about the tax. Managing shares in your will can be difficult as prices and allocations change over time, and the companies you are invested in evolve. A portfolio that was once worth a small amount 20 years ago, might be worth significantly more when you die.

Inheriting shares

Ok, not that Succession series. Each month we’ll bring you a new perspective on transferring property. Be it estate planning, managing an inheritance, or the various forms of business succession. This month, we look at the tax consequences of inheriting property.

Let’s assume you inherit an Australian residential property from your father under his will. For certain tax purposes, you are taken to have acquired the property at the date of his death.

The general rule is that the executor and/or beneficiaries of the estate inherit the cost base and reduced cost base of the CGT assets (the house) owned by the deceased just before their death, but this isn’t always the case, especially when it comes to pre-CGT properties and a property that was the main residence of the deceased individual just before they died.

Special rules exist that enable some beneficiaries or estates to access a full or partial main residence exemption on the inherited property. If the house was your father’s main residence before he died, he did not use the home to produce income (did not rent it out or use it as a place of business) and he was a resident of Australia for tax purposes, then a full CGT exemption might be available to the executor or beneficiary if either (or both) of the following conditions are met:

The house is disposed of within two years of the date of death; or
The dwelling was the main residence of one or more of the following people from the date of death until the dwelling has been disposed of:

o The spouse of the deceased (unless they were separated);

o An individual who had a right to occupy the dwelling under the deceased’s will; or

o The beneficiary who is disposing of the dwelling.

For example, if the house was your father’s main residence and was eligible for the full main residence exemption when he died, if you sell the house within the 2 year period, no CGT will apply. However, if you sell the house 10 years later, the CGT impact will depend on how the property has been used since the date of your father’s death.

An extension to the two year period can apply in limited certain circumstances, for example when the will is contested or is complex.

If your father did not live in the property just before he died, it still might be possible to apply the full exemption if your father chose to continue treating the home as his main residence under the ‘absence rule’. For example, if he was living in a retirement village for a few years but maintained the property as his main residence for CGT purposes (even if it was rented out).

If your father was not an Australian resident for tax purposes when he died, the cost base for CGT purposes will normally be based on the purchase price paid by your father if he acquired it post-CGT.

Inheriting property

Inheriting foreign property

If you are an Australian resident who has inherited a foreign property or asset from an individual who was a non-resident just before they died, the cost base is normally taken to be the market value at the time of death. For example, if you inherited a house from your uncle in the UK, the cost base is likely to be the value of the house at the date of his death.

If a taxable gain arises on sale, then it is necessary to consider whether the CGT discount can apply, but the discount will sometimes be less than 50%. If the gain is also taxed overseas, then a tax offset can sometimes apply to reduce the amount of tax payable in Australia.

Managing an inheritance can become complex. For assistance with estate planning, or to understand the tax implications of an inheritance, please contact us.

Inheriting cash

Inheriting assets

When cash passes from a deceased individual to their estate and then to a beneficiary, generally, there should not be any direct tax issues to deal with, assuming that the cash is denominated in AUD.

Death is a taxing event. When a change of ownership of an asset occurs, generally, a capital gains tax event (CGT) is triggered. However, the tax rules provide some relief from CGT when someone dies. The basic rule is that a capital gain or loss triggered by a death is disregarded unless the asset is transferred to one of the following:

An exempt entity (although there are some exceptions to this where the entity is a charity with deductible gift recipient status);
The trustee of a complying superannuation fund; or
A foreign entity and the asset is not classified as taxable Australian property.

The exemption applies if the asset passes to the deceased’s legal personal representative (i.e., executor) or to a beneficiary of the estate, which is not one of the entities listed above.

Once the asset has been transferred to the beneficiary, the beneficiary will need to manage the tax impact when they sell the asset.

The ban on genetic test insurance discrimination

Mon, 14 Oct 2024 19:00:00 GMT

Genetic test discrimination

Predictive genetic tests detect gene variants associated with heritable disorders that appear after birth, often later in life, but are not clinically detectable at the time of testing.

To overcome concerns about discrimination by life insurers, the Government has announced a total ban on predictive genetic testing.

The ability for life insurers to discriminate based on adverse predictive genetic test results will be banned under a new Government proposal.

Australia is not the first country to grapple with the issue of adapting to the increase in available genetic data.

In the UK, insurers cannot use predictive genetic test results unless the result is favourable, or the result has been given to the insurer (voluntarily or accidentally). Huntington’s disease is a specific exception for life cover worth more than £500,000.

Canada’s Genetic Non-Discrimination Act prohibits any entity (including insurers) from requesting or using genetic test results. The exception is for individuals to voluntarily disclosure a test result showing they do not have a genetic change that runs in the family.

In the USA, the Genetic Information Nondiscrimination Act (GINA), prevents genetic test results being used in health insurance and employment contexts but not life insurance. The US state of Florida however introduced a law prohibiting life insurers from using predictive genetic test results in underwriting.

A global issue

The Government has stepped in and announced a total ban on the use of genetic testing in life insurance underwriting. The ban will be subject to a 5 year review. However, the Government has not introduced legislation enabling the reforms nor has it announced the date that the ban will take effect.

And, the total ban impacts predictive genetic testing only – it does not cover clinical diagnostic genetic testing to confirm a suspected condition based on signs or symptoms.

Despite the moratorium, there is evidence that people are not undertaking genetic tests or participating in scientific research because of concerns about obtaining affordable life insurance. And, discrimination still exists.

The Australian Genetics and Life Insurance Moratorium: Monitoring the Effectiveness and Response Report by Monash University found that of the consumers surveyed who had undertaken a genetic test, 35% reported difficulties obtaining life insurance including insurers rejecting life insurance applications, financial advisers advising participants that their applications would be rejected, and insurers placing conditions on insurance policies or charging higher premiums. Alarmingly, a 43 year old woman with a BRCA2 variant and no personal history of cancer, was denied life cover outright despite having her ovaries and fallopian tubes removed, and regular intensive breast imaging.

*any combination of income protection, salary continuance or business expenses cover.

The Government response

Payday super: the details

Mon, 14 Oct 2024 04:41:00 GMT

What happens if SG is paid late?

The penalties for underpaying or not paying SG are deliberately punitive and this approach will continue under payday super.

Currently, a super guarantee charge (SGC) applies to late SG payments - comprised of the employee’s superannuation guarantee shortfall amount, interest of 10% per annum from the start of the quarter the SG payment was due, and an administration fee of $20 for each employee with a shortfall per quarter. And, unlike normal superannuation guarantee contributions, SGC amounts are not deductible to the employer, even when the liability has been satisfied.

Under payday super, employees are fully compensated for delays in receiving SG amounts and larger penalties apply for employers that repeatedly fail to comply with their obligations. If you make a payment late, the SGC is made up of:

Under payday super, the due date for SG payments will be seven days from when an ordinary times earning* payment is made. That is, employers have seven days from an employee’s payday for their SG to be received by their super fund. The only exceptions are for new employees whose due date will be after their first two weeks of employment, and for small and irregular payments that occur outside the employee’s ordinary pay cycle.

Over the last few years, employers have moved to single touch payroll (STP) reporting for employee salary and wages. It is expected that payday super will fold into the existing electronic systems and some changes will be made to STP to collect ordinary times earning data.

The impact for some employers however will not be the compliance cost of administering the regular SG payments, but the cashflow. Employers will not be holding what will be 12% of their payroll until 28 days after the end of the quarter, but instead paying this amount out on the employee’s payday. The upside is that where an employer has either fallen behind or not paying SG, particularly when the business is insolvent, the damage is contained.

‘Payday super’ will overhaul the way in which superannuation guarantee is administered. We look at the first details and the impending obligations on employers.

As you can see, if the proposed SGC becomes law, late SG payments can spiral out of control quickly. This will be a particular issue for employers that pay employees less than their entitlements over time, or have misclassified employees as contractors and have an outstanding SG obligation.

But, unlike the current SGC, the new SGC will be tax deductible (excluding penalties and interest that accrue if the SG charge amount is not paid within 28 days).

Payday super is not yet law. We will keep you up to date as change occurs and work with you to get it right once the details have been confirmed.

*Ordinary time earnings are the gross amount your employees earn for their ordinary hours of work including over-award payments, commissions, shift loading, annual leave loading and some allowances and bonuses.

From 1 July 2026, employers will be obligated to pay superannuation guarantee (SG) on behalf of their employees on the same day as salary and wages instead of the current quarterly payment sequence.

The rationale is that speeding up the payment sequence for SG will not only help reduce the estimated $3.4 billion gap between what is owed to employees and what has been paid, but will also improve outcomes for employees – the Government estimates that a 25‑year‑old median income earner currently receiving super quarterly and wages fortnightly could be around 1.5% better off at retirement.

Announced in the 2023-24 Federal Budget, payday super is not yet law. However, given the structural changes required to administer the new law, Treasury has released a fact sheet to help employers better understand the implications of the impending change.

How will payday super work?

The instant asset write-off

Wed, 18 Sep 2024 05:33:00 GMT

Eligibility

The write-off threshold applies per asset, so a small business entity can potentially deduct the full cost of multiple assets. Assuming all the other conditions are met, an immediate deduction should be available for each individual item costing less than $20,000 - just be careful of cashflow.

What happens when assets cost more than $20,000?

Eligibility to access the instant asset write-off looks at both your business entity and the asset.

To utilise the instant asset write-off, your business entity must:

Be carrying on a business under general principles in the 2024 income year;
Have an aggregated annual turnover of less than $10m (the businesses annual turnover, plus the annual turnover of any connected business entities or affiliates) in the 2024 income year or 2023 income year;
Choose to apply the simplified depreciation rules for the 2024 income year. If your business does not choose to apply the simplified depreciation rules for the 2024 income year, then it won’t have access to the instant asset write-off rules, regardless of whether the other basic conditions can be met.

And, for an asset to be eligible, it must:

Fall within the scope of the depreciation provisions. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don’t qualify.
Cost less than $20,000. If your business is registered for GST, the cost of the asset needs to be less than $20,000 after GST credits have been subtracted. If your business is not registered for GST, it is $20,000 including GST; and
Be first used, or installed ready for use, for a taxable purpose between 1 July 2023 and 30 June 2024. This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short- term. So, if your business purchased an asset on 20 May 2024, it had to be used or installed and ready to use by 30 June 2024 to qualify for the immediate deduction in 2023-24.
Be for a business use. Ensure that there is a relationship between the asset purchased and how your business generates income. A business can’t, for example, claim deductions for multiple television sets if the sets have no relevance to the business.

The provisions that prevent small business entities from re-entering the simplified depreciation regime for five years if they opt-out will continue to be suspended until 30 June 2024 (the lock-out rules).

If your business is a small business entity and chooses to apply the simplified depreciation rules, then assets costing $20,000 or more (that cannot be immediately deducted) can continue to be placed into the small business general pool and depreciated at 15% in the first income year and 30% each income year thereafter.

The increased instant asset write-off threshold also means that a $20,000 threshold applies for the purpose of determining whether the full pool balance is written off in the 2024 income year. Just remember that when you are applying these rules, you don’t look at the closing pool balance, you are looking at what the pool balance would have been if you ignored the current year depreciation deductions for the pool for the 2024 year.

How many assets can be purchased?

The increase to the instant asset write-off threshold provides a major cashflow advantage by enabling small businesses to claim an immediate tax deduction for certain assets in the year of purchase, instead of spreading the deduction over a number of years.

Remember that the deduction is not a refund, it will only reduce the taxable income of the business entity, or in some cases, it will create or increase a tax loss that needs to be carried forward to future years. For example, if your business operates through a company structure, the economic benefit of the write-off is limited to the relevant company tax rate (25% for base rate entities, 30% for other companies). If your business is likely to make a tax loss for the year, then a larger deduction might not provide any short-term benefit.

The instant asset write-off threshold increased from $1,000 to $20,000 for 2023-24. Here’s what it means:

The instant asset write-off does not distinguish between new or second-hand goods. For example, second hand machinery may qualify if it meets the other requirements.

In the 2024-25 Federal Budget, the Government announced an extension to the increased instant asset write-off threshold to 30 June 2025. A Bill is currently before Parliament to enact this change.

What about second-hand goods?

Extension until 30 June 2025

Questions?

Contact our office

email: office@wrightpartners.com.au

Phone: 02 6882 1022

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

Is the RBA to blame? The economic state of play

Wed, 11 Sep 2024 20:00:00 GMT

Treasurer Jim Chalmers has stated that global uncertainty and rate rises are “smashing the economy”.

Former Treasurer Wayne Swan weighed in and told Channel 9 that the RBA was, “putting economic dogma over rational economic decision making, hammering households, hammering Mums and Dads with higher interest rates, causing a collapse in spending and driving the economy backwards” and that the RBA was, “simply punching itself in the face.”

Australian mortgage holders and renters have had no relief from interest rates following 13 successive interest rate rises to the official cash rate since May 2022.

The Reserve Bank’s position and the flow through effects
The Reserve Bank of Australia (RBA) Board opted to maintain the official cash rates at 4.35% at its September Board meeting. The rationale is that inflation remains persistently high and has been for the last 11 quarters. The consumer price index (CPI) rose 3.9% over the year to the June quarter and remains above the RBA’s target range of 2-3%.

But, it is not persistently high inflation that is causing the politicians to weigh in. RBA Governor Michele Bullock has warned that “it is premature to be thinking about rate cuts” and “the Board does not expect that it will be in a position to cut rates in the near term.”

The Australian Bureau of Statistics (ABS) June Quarter National Accounts paint a bleak picture of the Australian economy. Per capita GDP fell for the sixth consecutive quarter by -0.4% to -1.5%. The longest consecutive period of extended weakness ever recorded.

Household spending weakest since COVID Delta
Household spending fell by -0.2% in the quarter, the weakest growth rate since the Delta-variant lockdown affected September quarter 2021.

Discretionary spending – travel and hospitality impacted most
The ABS says that we spent less on discretionary items (-1.1%), particularly for events and travel. It will come as no surprise that spending on hotels, cafes and restaurants was down 1.5%. Spending on food also fell -0.1% as households looked to reduce grocery bills.

Household savings lowest since 2006
The savings ratio remains low. Households saved only 0.9% of their income over the year. This was the lowest rate of annual saving since 2006-07. Net savings reduce when household income grows slower than household spending.

Economic growth from Government spending
The Australian economy did grow by 0.2%, the eleventh consecutive quarter of growth but the growth rate was unimpressive. The ABS says that, “the weak growth reflects subdued household demand, which detracted 0.1 percentage points from GDP growth while government consumption contributed 0.3 percentage points, the same contribution to growth as previous quarter.”

Government spending increased by 1.4% over the quarter. Commonwealth social assistance benefits to households led the rise, with continued strength in expenditure on national programs providing health services. State and local government expenditure also rose with increased employee expenses across most states and territories.

The RBA’s position on interest rates
The RBA is on a narrow path. It’s trying to bring inflation back to target within a reasonable timeframe while preserving the gains in the labour market over the last few years. The RBA expects to reach this target range by the end of 2025.

Through 2022 and 2023, most components of the CPI basket were growing faster than usual (the CPI is literally a basket of 87 types of expenditure across 11 groups such as household spending, education and transport.) Over the last 18 months, the price of goods has come down as supply disruptions like COVID-19 and the war in Ukraine have eased, and are now growing close to the historical average.

The key problem areas are housing costs and services. In housing, the growth is from increased construction costs and strong increases in rent. For services, while discretionary spending is down, as we can see from the June National Accounts, inflation in this category remains high at 5.3% to the June quarter. Wage increases and lower productivity, combined with the increased costs of doing business (electricity, insurance, logistics, rent etc) are all impacting.

The RBA is keen to point out that inflation causes hardship for the most vulnerable in our community. Lower income households tend to allocate more of their spending towards essentials, including food, utility bills and rent. Higher income households tend to spend more on owner-occupied housing as well as discretionary items such as consumer durables.

Younger households and lower income households have been particularly affected by cost-of-living pressures.

The politicians have weighed in on the Reserve Bank of Australia’s economic policy and their reticence to reduce interest rates in the face of community pressure. We look at what the numbers are really showing.

Property and ‘lifestyle’ assets in the spotlight

Tue, 10 Sep 2024 20:00:00 GMT

The Australian Taxation Office (ATO) has initiated two data matching programs impacting investment property owners and those lucky enough to hold expensive lifestyle assets.

Own an investment property or an expensive lifestyle asset like a boat or aircraft? The ATO are looking closely at these assets to see if what has been declared in tax returns matches up.

What investment property owners declare and claim in their personal income tax returns is a constant focus for the ATO. Coming off the back of data matching programs reviewing residential investment property loan data, and landlord insurance, the ATO have initiated a new program capturing data from property management software from the 2018-19 financial year through to 2025-26. Data collected will include:

Property owner identification details such as names, addresses, phone numbers, dates of birth, email addresses, business name and ABNs, if applicable;
Details of the property itself - property address, date property first available for rent, property manager name and contact details, property manager ABN, property manager licence number, property owner or landlord bank details; and
Property transaction details - period start and end dates, transaction type, description and amounts, ingoings and outgoings, and rental property account balances.

While the ATO commit to specific data matching campaigns, since 1 July 2016, they have also collected data from state and territory governments who are required to report transfers of real property to the ATO each quarter.

This latest data matching program ramps up the ATO’s focus on landlords, specifically targeting those who fail to lodge rental property schedules when required, omit or incorrectly report rental property income and deductions, and who omit or incorrectly report capital gains tax (CGT) details.

Investment property

Lifestyle assets

Data from insurance providers is being used to identify and cross reference the ownership of expensive lifestyle assets. Included in the mix are:

Caravans and motorhomes valued at $65,000 or over;
Motor vehicles including cars & trucks and motorcycles valued at $65,000 or over;
Thoroughbred horses valued at $65,000 or over;
Fine art valued at $100,000 per item or over;
Marine vessels valued at $100,000 or over; and
Aircraft valued at $150,000 or over.

The data collected is substantial including the personal details of the policy holder, the policy details including purchase price and identification details, and primary use, among other factors.

The ATO is looking for those accumulating or improving assets and not reporting these in their income tax return, disposing of assets and not declaring the income and/or capital gains, incorrectly claiming GST credits, and importantly, omitted or incorrect fringe benefits tax (FBT) reporting where the assets are held by a business but used personally.

It wasn’t me: the tax fraud scam

Tue, 10 Sep 2024 02:28:00 GMT

Often the first sign that something is amiss is alerts about activity on your myGov account or a change in details - which might seem a little ironic if the way in which scammers got into your account in the first place is via these very same messages. But, there are ways to spot a fake:

The ATO, Centrelink and MyGov don’t use hyperlinks in messages. If you receive a message with a link, it’s a fake.
The ATO will not use QR codes as a method for you to access your account.
The ATO will never ask for your tax file number (TFN), bank account details or your myGov login details over social media. Some scammers have used fake social media accounts mimicking the ATO and other Government agencies. When a query comes in, they respond by asking for information to verify it’s you. The ATO will never slide into your DMs. ATO Assistant Commissioner Tim Loh said, “it’s like giving your house keys to a stranger and watching them change your locks.”
The ATO do not use pre-recorded messages to alert you to outstanding tax debt. The ATO will not cancel your TFN. Some scammers suggest that your TFN has been cancelled or suspended due to criminal activity or money laundering and then tell you to either pay a fee to correct it, or transfer your money to a ‘safe’ bank account to protect you against your corrupted TFN.
The ATO will not initiate a conference call between you and your tax agent and someone from a law enforcement agency. In one case, the taxpayer was told that the caller was from the ATO and a person from her accounting firm was on the call as well to represent her and work through a problem. The ATO caller and the tax agent were fake. Just hang up and call our office if you are ever concerned. The ATO will never initiate a conference call of this type.
The ATO will also not ask you to reconfirm your details because of security updates to myGov. The link, when activated, takes you to a fake myGov web page that can look very convincing.

In general, you should always log into your myGov account directly to check on any details alerted in messages rather than clicking on links. This way, you know that you are not being redirected to somewhere you should not be.

And, don’t log into your myGov account on free wifi networks. Ever.

You login to your myGov account to find that your activity statements for the last 12 months have been amended and GST credits of $100k issued. But it wasn’t you. And you certainly didn’t get a $100k refund in your bank account. What happens now?

There is a pervasive view that older, technology challenged individuals are the most at risk. And while this might be the case generally, scamming is impacting all age groups.

The ATO says that the demographic who most reported providing personal information to scammers was 25 to 34 year olds. And, the younger generation are more likely to fall for investment scams. According to the AFP-led Joint Policing Cybercrime Coordination Centre (JPC3), people under the age of 50 are overtaking older Australians as the most reported victims of investment scams. Australians reported losing $382 million to investment scams in the 2023-24 financial year. Nearly half (47%) of the investment scam losses involved cryptocurrency.

In what is rapidly becoming the most common tax scam, myGov accounts are being accessed for their rich source of personal data, bank accounts changed, and personal data used to generate up to hundreds of thousands in fraudulent refunds. For all intents and purposes, it is you, or at least that’s what it seems. And, the worst part is, you probably gave the scammers access to your account.

But it’s not just activity statements. Any myGov linked service that has the capacity to issue refunds or payments is being targeted. Scammers are using the amendment periods available in the tax law to adjust existing data and trigger refunds on personal income tax, goods and services tax (GST), and through variations to pay as you go (PAYG) instalments. In some cases, the level of sophistication and knowledge of how Australia’s tax and social security system operates is next level.

Once the scammers have access to your myGov account, there is a lot of damage they can do.

So, how does this happen and why is it so pervasive? Humans are often the weakest link.

Common scams utilise emails (78.9% of reported tax related scams in the last 12 months) or SMS (18.4% of reported scams) that mimic communication you might normally expect to see. The lines of attack used by tax related scammers are commonly:

Fake warnings about attempted attacks on your account (and requiring you to click on the link and confirm your details);
Opportunistic baiting where some form of reward is flagged, like a tax refund, that you need to click on the link to confirm and access; and
Mimicking common administrative notifications from the Australian Taxation Office (ATO) like a new message accessible from a link.

Approximately 75% of all email scams reported to the ATO to March 2024 were linked to a fake myGov sign in page.

Who is getting scammed?

How to spot a fake

What to do if you have been scammed

myGov

If you have downloaded a fake myGov app, have given your details to a scammer, or clicked on a link from an email, text message or scanned a QR Code, contact Services Australia Scams and Identify Theft Helpdesk on 1800 941 126 , or get help with a scam here .

Tax scams

Before acting on any instructions, please contact us and we will verify the information for you.

If you have already acted, contact the ATO to verify or report a scam on 1800 008 540 .

The Government use external agency recoveriescorp for debt collection but we will advise you if you have a tax debt outstanding.

Other scams

Scammers are in the business of scamming and they will use every trick and opportunity to part you from your money.

Investment scams.

Pig butchering. Pig butchering is a tactic where scammers devote weeks or months to building a close relationship with their victims on social media or messaging apps, before encouraging them to invest in the share market, cryptocurrency, or foreign currency exchanges. Victims think they are trading on legitimate platforms, but the money is siphoned into an account owned by the scammers, who created fake platforms that look identical to well-known trading and cryptocurrency sites. Scammers will show fake returns on these platforms to convince victims to invest more money. Once they have extracted as much money as possible, the scammers disappear with all the invested funds.

Deepfakes . Deepfakes are lifelike impersonations of real people created by artificial intelligence technologies. Scammers create video ads, images and news articles of celebrities and other trusted public figures to promote fake investment schemes, which can appear on social media feeds or be sent by scammers through messaging apps. Unusual pauses, odd pitches, or facial movement not matching their speaking tone are often giveaways but increasingly, the fakes are difficult to spot.

Invoice scams

The names and details of legitimate businesses are used to issue fake invoices with the money transferred to the scammer’s account. These scams are often tied to cyber breachers where hackers have accessed your systems and have identified your suppliers.

Bank scams

There has been a lot in the media of late about people receiving phone calls purporting to be from their bank, advising them there is a problem with their account, and then walking them through a resolution that involves transferring all their money into a ‘safe’ scammers account. Victims commonly state that they believed the scammer because of the level of personal information they relayed.

Your bank will never send an email or text message asking for any account or financial details, this includes updating your address or log in details for phone, mobile or internet banking.

A CHOICE survey found that four out of five of the victims of banking scams in their report said their banks did nothing to flag a scam before they transferred their money to the perpetrator.

The Australian Banking Association have stated that, if not already, banks will introduce warnings and payment delays by the end of 2024. And, in addition to other measures, they will limit payments to high-risk channels such as crypto platforms.

Mastering Tax Record Keeping: A Guide for Individuals: By Naomi Clark

Thu, 29 Aug 2024 03:12:00 GMT

Basic Record Keeping Requirements

For any work-related expenses you wish to claim, you need to keep detailed records. These typically include a receipt from the supplier showing the:

Supplier’s name
Amount of the expense
Description of the goods or services
Purchase date
Date of the document

Simply having a bank or credit card statement is not sufficient unless it includes all the necessary details.

When it comes to tax time in Australia, keeping accurate records of your work-related expenses is crucial if you want to claim deductions. The ATO has specific guidelines to ensure that individuals maintain the necessary records, which will support their claims and avoid issues during tax assessments.

Car expenses:

You can use either the cents per kilometre method or the logbook method to claim car expenses.
The cents per kilometre method doesn’t require receipts but limits claims to 5,000km per car per year.
The logbook method requires a 12-week logbook period reflecting your annual travel patterns, and you must retain odometer readings and fuel receipts.

Clothing, Laundry, and Dry-Cleaning Expenses:

Receipts are required for all work-related clothing expenses, except for laundry claims under $150.
Dry-cleaning expenses always require receipts.

Self-Education Expenses:

If you claim self-education expenses, you must retain records for all related costs, including course fees, textbooks, and travel expenses.
The course must directly relate to your current employment.

Depreciating Assets:

Items costing $300 or less can be immediately deducted if used solely for work purposes. More expensive items need to be depreciated over their effective life.

Working From Home Expenses:

There are two methods to claim working from home expenses: the fixed rate method (requiring records of total hours worked from home) and the actual cost method (requiring receipts for every expense claimed).

Overnight Travel Expenses:

Record-keeping requirements depend on the nature of the travel and whether a travel allowance was received. Documentation such as travel diaries and receipts for accommodation, meals, and other travel-related expenses are required.

For more detailed record keeping guidance, you can visit the ATO’s occupation-specific guides or consult with one of our friendly tax professionals.

Sources

https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/records-you-need-to-keep

https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/in-detail/occupation-and-industry-specific-guides

https://iorder.com.au/publication/Download.aspx?ProdID=75500-05.2024

Specific Work-Related Expenses

Duration of Record Keeping

You must keep your records for five years from the date you lodge your tax return. If you claim a deduction for the decline in value of a depreciating asset (e.g. computer or car), you must keep the records for five years from the last claim related to that asset.

Why Record Keeping Matters

The rise in business bankruptcy

Tue, 20 Aug 2024 04:23:00 GMT

ASIC’s annual insolvency data shows corporate business failure is up 39% compared to last financial year. The industries with the highest representation were construction, accommodation and food services at the top of the list.

Restructuring appointments grew by over 200% in 2023-24. Small business restructuring allows eligible companies – those whose liabilities do not exceed $1 million plus other criteria – to retain control of its business while it develops a plan to restructure its affairs. This is done with the assistance of a restructuring practitioner with a view to entering into a restructuring plan with creditors.

Of the 573 companies that entered restructuring after 1 January 2021 and had completed their restructuring plan by 30 June 2024, 89.4% remain registered, 5.4% have gone into liquidation, and 5.2% were deregistered as at 30 June 2024.

In the latest statement from the Reserve Bank of Australia, Michelle Bullock stated that, “...there’s also some signs that the business sector is under a bit of pressure, that the business outlook isn’t as rosy as it was.” Productivity is also lagging. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are - the things that make the difference between doing well and going under - then it’s time to find out.

A business becomes insolvent when it can’t pay its debts when they fall due.

The top three reasons why companies fail are:

Poor strategic management
Inadequate cashflow or high cash use
Trading losses

It’s easy to miss the warning signs and rely on optimism that things will get better if you can just get past a slump. The common problem areas are:

Significant below budget performance.
Substantial increases in fixed costs without an increase in revenues - Fixed costs are costs that you incur irrespective of your business activity level. When fixed costs go up, they have a direct impact on your profitability. If your fixed costs are increasing, such as leasing more space, hiring more people, buying more plant and equipment, but there is no measurable increase in your turnover and gross profit, it might tip you over.
Falling gross profit margins - Your gross profit margin is the margin between your sales, minus cost of goods sold. Every dollar you lose in gross profit is a dollar off your bottom line.
Funding your business primarily from debt rather than equity finance.
Falling sales - If sales are falling, it is going to have a ripple through effect on your business, reducing profit contribution and inhibiting growth.
Delaying payment to creditors - Your sales are good but you don’t seem to have enough cash in the business to pay your creditors on time.
Spending in excess of cashflow - Trying to pay today’s expenses with tomorrow’s income.
Poor financial reporting systems - Driving your business with a blindfold over your eyes!
Growing too quickly - You’re making more sales than your business can sustain.
Substantial bad debts or ‘dead’ stock - Customers who won’t pay their accounts and stock that you can’t sell.

The changes to how tax practitioners work with clients

Fri, 16 Aug 2024 04:21:00 GMT

The TPB registers and regulates tax practitioners in Australia. Only licensed practitioners can provide tax or BAS services to you. You can check the public register here: https://www.tpb.gov.au/public-register

Wright Partner’s registration number is 72420-003.

Correcting errors and omissions

The Government has legislated a series of changes to the Tax Agents Services Act 2009 that place additional requirements on registered tax practitioners and how they interact with clients.

The reforms are in response to the recommendations of a Senate enquiry into the actions of accounting group PwC and the consulting industry in Australia generally. The enquiry was sparked when a now former PwC Partner shared confidential information from Treasury consultations and through his engagement with the Board of Taxation. Despite having signed multiple confidentiality agreements, the Partner intentionally shared this confidential information with PwC partners and others in Australia and overseas, seeking to assist existing and potential new clients avoid some proposed anti-avoidance tax laws. The Senate enquiry estimates that the scandal put at risk $180 million in tax revenue per annum and generated new income of at least $2.5 million for the first tranche of PwC's services assisting clients to “sidestep the new laws”.

Among other issues, the scandal revealed a series of flaws and deficiencies within the regulation of tax practitioner services, the investigative powers of the Tax Practitioners Board (TPB), and the ability of Government departments to share information.

While many of the resulting legislative reforms impact consulting services to Government, we are now obligated to advise clients of: how to check the currency of our registration as tax practitioners; how to access the complaints process for registered practitioners; and, our obligation to report material uncorrected errors and omissions to the Tax Commissioner.

We are prohibited from making a statement to the Tax Commissioner or other government agency that we know, or ought to know, is false, incorrect or misleading, or incorrect or misleading by omission.

If we become aware that a statement made to the Tax Commissioner is materially incorrect, we are obligated to either:

· Correct it, if we made the misstatement; or

· If the misstatement was made by you, advise you that it needs to be corrected.

If the misstatement is not corrected, we are obligated to report this to the Tax Commissioner.

We are committed to providing quality services to you. If we fall short of your expectations and you would like to make a complaint, in the first instance, please contact Director, Mitchell Clark, on (02) 6882 1022.

If your matter is not resolved to your satisfaction, you have the right to make a complaint to the TPB: https://www.tpb.gov.au/complaints .

Managing complaints

Tax practitioner registration

The Government has amended the legislation guiding registered tax practitioners to include compulsory reporting of material uncorrected errors to the Tax Commissioner.

Concerned?

If you have any concerns about the changes, please contact (02) 6882 1022 .

Divorce, you, and your business

Wed, 14 Aug 2024 04:17:00 GMT

Breaking up is hard to do. Beyond the emotional and financial turmoil divorce creates, there are a number of issues that need to be resolved.

A spouse’s interest in superannuation is a marital asset and can be split as part of the breakdown agreement. It’s important to be aware however that superannuation cannot be paid directly to a spouse unless the spouse is eligible to receive superannuation (they have met a condition of release) but it can be rolled over into the spouse’s fund until they are eligible to receive it. Laws exist to prevent taxes such as CGT being triggered when superannuation assets are transferred. This is particularly important where your superannuation fund holds property.

A Court order or Superannuation Agreement is required to give effect to the agreed split in the SMSF assets or to execute a rollover eligible for the CGT rollover concession.

If you have an SMSF and both spouses are members, it’s important to get advice to make sure that all of the appropriate administrative issues are taken care of. Where a divorce is not amicable, it’s important to keep in mind that the SMSF trustee is required under law to act in the best interests of the fund and its beneficiaries. Anything less and the fund members may seek compensation for loss or damage.

What happens to your superannuation in a divorce?

What happens when there is a family company?

In a divorce, assets are split based on a multitude of factors such as earning capacity, maintenance of children, and the assets held pre-marriage. Many couples don’t go through their marriage with an equal view of how assets and income should be attributed until something goes wrong. If there is a disparity between the income levels of each spouse, there are a lot of benefits to the household in general of evening out how income flows through to the family. If your partner earns less than you, there is a very real financial benefit to topping up their super as superannuation has preferential tax rates. The same goes for taxable income. If you can even out income coming into the household, it spreads the tax burden. Good planning can make a difference.

For couples that have assets tied up in a company, the tax consequences of any settlements paid from the company will need to be assessed. Settlements paid out by a corporate entity can sometimes be treated as taxable dividends and taxed at the relevant spouse’s marginal tax rate.

If you are receiving assets from a corporate entity as part of a property settlement, it’s essential that you understand the tax implications prior to settlement or a sizeable portion of the settlement could go to the ATO.

For business owners, outside of the tax and financial issues, it’s important to not lose focus on what’s important to keep the business running efficiently.

Can you protect both parties from divorce?

When is a gift not a gift?

Mon, 12 Aug 2024 04:15:00 GMT

The unexplained deposits

In 2017, a covert tax audit utilised entries in the couple’s bank accounts to assess their income tax liability and the ATO issued a default assessment based on the unexplained deposits and expenses. The couple objected to the assessment and this objection was partly allowed. A second assessment was then issued to which the couple again objected before the Administrative Appeals Tribunal (AAT) on the grounds that the assessment was excessive.

The Tax Commissioner has successfully argued that more than $1.6m deposited in a couple’s bank account was assessable income, not a gift or a loan from friends.

Avoiding the gift tax trap

The case of Rusanova and Commissioner of Taxation is enough for a telemovie. The plot features an Australian resident Russian couple ‘gifted’ over $1.6m in unexplained bank deposits, over $67,000 in interest, the Russian father-in-law seafood exporter, a series of Australian companies, and the generous friend loaning money in $20,000 tranches.

The crux of the case before the Federal Court is whether you can prove to the Australian Tax Office (ATO) that unexplained deposits should be treated as gifts or loans and what happens when the Tax Commissioner thinks otherwise? If the Commissioner suspects the deposits are income, he can issue a default tax assessment and decide what tax should be paid. The burden of proof is then on the taxpayer to prove the Tax Commissioner wrong.

A gift of money or assets from an individual is generally not taxed if the gift is given voluntarily, nothing is expected in return, and the gift giver does not materially benefit.

However, there are some circumstances where tax might apply.

Gifts from a foreign trust

If you are a tax resident of Australia and the beneficiary of a foreign trust, it’s possible that at least some of the amounts paid to you (or applied for your benefit) will need to be declared in your tax return. This applies even if you were not the direct beneficiary of the foreign trust, for example, a family member received money from a foreign trust and then gifted it to you. This applies to cash, loans, land, shares, etc.

Inheritances

Money or property you inherit from a deceased estate is often not taxed. However, there are circumstances where capital gain tax (CGT) might apply when you dispose of an asset you inherited. For example, if you inherit your parents’ house, CGT generally does not apply if:

· The property was their main residence; and

· Your parents are Australian residents for tax purposes; and

· You sell the property within 2 years.

However, CGT is likely to apply if for example:

· You sell your parents former main residence more than 2 years after you inherit it; or

· The property you inherit was not your parents’ main residence; or

· Your parents were not Australian tax residents at the time of their death.

Managing the tax consequences of an inheritance can become complex quickly. Please contact us for assistance when planning your estate to maximise the outcome for your beneficiaries, or managing the tax implications of an inheritance. These issues are often not taken into account if you are drafting or updating a will.

Gifting an asset does not avoid tax

Donating or gifting an asset does not avoid CGT. If you receive nothing or less than the market value of the asset, the market value substitution rule might come into play. The market value substitution rule can treat you as having received the market value of the asset you donated or gifted when calculating any CGT liability.

For example, if Mum & Dad buy a block of land then eventually gift the block of land to their daughter, the ATO will look at the value of the land at the point they gifted it. If the market value of the land is higher than the amount that Mum & Dad paid for it, then this would normally trigger a CGT liability. It does not matter that Mum & Dad did not receive any money for the land. Mum & Dad might have a CGT bill for land they gifted with nothing in return.

Donations of cryptocurrency might also trigger CGT. If you donate cryptocurrency to a charity, you are likely to be assessed on the market value of the crypto at the point you donated it. You can only claim a tax deduction for the donation if the charity is a deductible gift recipient and the charity is set up to accept cryptocurrency.

Contesting the Tax Commissioner

Between 2012 and 2016, an Australian resident husband and wife had an estimated $1,636,000 deposited into their bank accounts. The ATO became curious when neither spouse had lodged tax returns in the mistaken belief that they had not earned any income.

The money deposited, they said, was a gift from the wife’s father and therefore not assessable income. Curiously, there were no records produced to support the deposits and not a single text or email notifying that money had been remitted, or acknowledging its receipt.

In addition, a friend of the couple deposited money into the husband’s account including a series of $20,000 transactions over about a week. These, the friend said, were interest-free loans with no agreed terms but an expectation that they would be repaid. The friend could not remember how he was requested to make the loans and there were no loan documents, emails, or texts disclosed to support the loans. Around the same time as the loans were being advanced, there was evidence of the husband ‘repaying’ amounts in excess of what had been lent. In addition, documents show the husband transferred a Porsche Cayenne to his friend in Russia, said to be repayment of the loan.

Compounding the issue were the four directorships of Australian companies held by the husband, none of which had lodged tax returns. One of the companies was a seafood wholesaler, distributing the product of his father-in-law’s American registered Russian export company. The dedicated son-in-law stated that he was merely trying to develop his father-in-law’s business during 2010 and 2016, without remuneration.

Can the Tax Commissioner really decide how much tax you should pay?

The Tax Commissioner has the power to issue a ‘default assessment’ for the amount he believes is owing from overdue tax returns or activity statements. The assessment is the amount the ATO believes is owing, not what has been declared.

The problem with a default assessment is not just the Tax Commissioner deciding how much tax you should pay, it is the potential addition of an administrative penalty of 75% of the tax-related liability for each default assessment issued. This penalty may be increased to 95% of the tax-related liability in certain circumstances for taxpayers who have a pattern of non-compliance.

But, here is the problem for the couple. While genuine gifts of money are not taxable, the burden is on the taxpayer to prove that the gift is truly a gift, if the ATO asks. The AAT held that, “absent any reliable evidence..., there is no proper basis to make any findings as to whether the deposits constitute part of the applicants’ taxable income or not.”

The Tax Commissioner can rely on a “deficiency of proof”.

The couple’s stance that the deposits were either gifts from the father or loans from a friend were rejected by the AAT. This is despite an affidavit and evidence from the wife’s father stating that the amounts transferred to them were gifts. The couple did not demonstrate what their income actually was to prove the Tax Commissioner’s assessment was unreasonable, and they could not substantiate that the gifts were indeed gifts from a very generous father.

The Federal Court dismissed the couple’s appeal with costs, leaving the Tax Commissioner’s default tax assessment and penalties in place.

Earned an income from the sharing economy?

Tue, 16 Jul 2024 03:57:00 GMT

It’s essential that any income earned from sharing economy platforms such as Airbnb, Stayz, Uber, etc., is declared in your tax return.

Since 1 July 2023, the platforms delivering ride-sourcing, taxi travel, and short-term accommodation (under 90 days), have been required to report transactions made through their platform to the ATO under the sharing economy reporting regime. 2023-24 is the first year that the ATO will have the income tax returns of taxpayers to match to this data.

All other sharing economy platforms will be required to start reporting from 1 July 2024.

This reporting regime, combined with the ATO’s data matching programs, mean that if income is not declared, it’s likely you will receive a “please explain” request from the regulator.

Is your family home really tax free?

Mon, 15 Jul 2024 03:55:00 GMT

Your home normally qualifies as your main residence from the point you move in and start living there. However, if you move in as soon as practicable after the settlement date of the contract, that home is considered your main residence from the time you acquired it.

If you buy a new home but haven’t yet sold your old home, you can treat both properties as your main residence for up to six months without impacting your eligibility to the main residence exemption. This applies if the old home was your main residence for a continuous period of 3 months in the 12 months before you disposed of it and you did not use your old home to produce income in any part of that 12 months when it was not your main residence.

If the sale takes more than six months and if eligible, the main residence exemption could apply to both homes only for the last six months prior to selling the old home. For any period before this it might be possible to choose which home is treated as your main residence (the other becomes subject to CGT).

If your new home is being rented to someone else when you purchase it and you cannot move in, the home is not your main residence until you move in.

If you cannot move in for some unforeseen reason, for example you end up in hospital or are posted overseas for a few months for work, then you still might be able to access the main residence exemption from the time you acquired the home if you move in as soon as practicable once the issue has been resolved. Inconvenience is not a valid reason and you will need to ensure that you have documentation to support your position.

As the character of Darryl Kerrigan in The Castle said, “it’s not a house. It’s a home,” and the Australian Taxation Office’s (ATO) interpretation of a main residence is not fundamentally different. A home is generally considered to be your main residence if:

It's where you and your family live
Your personal belongings have been moved into the dwelling
It is where your mail is delivered
It’s your address on the electoral roll
You have connected services such as telephone, gas and electricity (in your name); and
It is your intention for the home to be your main residence.

The length of time you have lived in the home is important, but there are no hard and fast rules. Your intention takes precedence over time spent as every situation is different.

You might have heard about the ‘absence rule’. This rule allows you to continue to treat your home as your main residence for tax purposes:

For up to 6 years if the home is used to produce income, for example you rent it out while you are away; or
Indefinitely if it is not used to produce income.

When you apply the absence rule to your home, this normally prevents you from applying the main residence exemption to any other property you own over the same period. Apart from limited exceptions, the other property is exposed to CGT.

Let’s say you moved overseas in 2020 and rented out your home while you were away. Then, you came back to Australia in 2023 and moved back into your house. Then in early 2024, you decided it is not your forever home and sold it. You elected to apply the absence rule to your home and didn’t treat any other property as your main residence during that same period. In this case, you should be able to access the full main residence exemption assuming you are a resident for tax purposes at the time of sale.

The 6 year period also resets if you re-establish the property as your main residence again, but later stop living there. So, if the time the home was income producing is limited to six years for each absence, it is likely the full main residence exemption will be available if the other eligibility criteria are met.

Let’s say you and your spouse each own homes that you have separately established as your main residences.

The rules don’t allow you to claim the full CGT exemption on both homes. Instead, you can:

Choose one of the dwellings as the main residence for both of you during the period; or
Nominate different dwellings as your main residence for the period.

If you and your spouse nominate different dwellings, the exemption is split between you:

If you own 50% or less of the residence chosen as your main residence, the dwelling is taken to be your main residence for that period and you will qualify for the main residence exemption for your ownership interest;
If you own greater than 50% of the residence chosen as your main residence, the dwelling is taken to be your main residence for half of the period that you and your spouse had different homes.

The same rule applies to your spouse.

The rule applies to each home that the spouses own regardless of how the homes are held legally, i.e., sole ownership, tenants in common or joint tenants.

The main residence exemption exempts your family home from capital gains tax (CGT) when you dispose of it. But, like all things involving tax, it’s never that simple.

In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you can offset the tax against a capital loss.

If you are an Australian resident for tax purposes, you can access the full main residence exemption when you sell your home if:

Your home was your main residence for the whole time you owned it (see Can the main residence apply if you move out?).; and
You did not use your home to produce any income (see Partial exemption below), and
The land your home is on is 2 hectares or less. If your home is on more than 2 hectares, for example on farmland, the exemption can apply to the home and up to 2 hectares of adjacent land.

Partial exemption

If you have used your home to produce income, you won’t normally be able to claim the full main residence exemption, but you might be able to claim a partial exemption.

Common scenarios impacting your main residence exemption include:

Running a business from home (working from home is ok), and
Renting the home or part of the home.

In these scenarios, from the time you started to use the home to generate income, that part of the home is likely to be subject to CGT. And, a word of caution here, as of 1 July 2023, platforms such as Airbnb must report all transactions to the ATO every 6 months. This data will be used to match against the income reported on income tax returns.

Foreign residents and changing residency

Foreign residents cannot access the main residence exemption even if they were a resident for part of the time they owned the property.

If you are a non-resident at the time you enter into the contract to sell the property, you are unlikely to be able to access the main residence exemption. Conversely, if you are a resident at the time of the sale, and you meet the other eligibility criteria, the rules should apply as normal even if you were a non-resident for some of the ownership period. For example, an expat who maintains their main residence in Australia could return to Australia, become a resident for tax purposes again, then sell the property and if eligible, access the main residence exemption.

It’s important to recognise that the residency test is your tax residency, not your visa status. Australia’s tax residency rules can be complex. If you are uncertain, please contact us and we will work through the rules with you.

When does the main residence exemption apply?

Timing

Can a couple have a main residence each?

Can the main residence apply if you move out?

What happens in a divorce?

Assuming the home is transferred to one of the spouses (and not to or from a trust or company), both individuals used the home solely as their main residence over their ownership period, and the other eligibility conditions are met, then a full main residence exemption should be available when the property is eventually sold.

If the home qualified for the main residence exemption for only part of the ownership period for either individual, then a partial exemption might be available. That is, the spouse receiving the property may need to pay CGT on the gain on their share of the property received as part of the property settlement when they eventually sell the property.

The main residence exemption looks simple enough but it can become complex quickly. You will need more than a ‘vibe’ to work with the exemption. In the words of the character of Dennis Denuto in The Castle, “it’s the vibe of it. It’s the constitution. It’s Mabo. It’s justice. It’s law. It’s the vibe and ah, no that’s it. It’s the vibe. I rest my case.”

$20k instant asset write-off passes Parliament

Fri, 12 Jul 2024 03:49:00 GMT

Legislation increasing the instant asset write-off threshold from $1,000 to $20,000 for the 2024 income year passed Parliament just 5 days prior to the end of the financial year.

Purchases of depreciable assets with a cost of less than $20,000 that a small business makes between 1 July 2023 and 30 June 2024 can potentially be written-off in the year of purchase. It’s a major cashflow advantage because the tax deduction can be taken in the year of purchase instead of over a number of years.

To be eligible, the asset must be first used, or installed ready for use, for a taxable purpose between 1 July 2023 and 30 June 2024. For example, you cannot simply have a receipt for an industrial fridge, it must have been delivered and installed to be able to claim the write-off in 2024.

The write-off threshold applies per asset, so a small business entity can potentially deduct the full cost of multiple assets across the 2024 year as long as the cost of each asset is less than $20,000. A Bill to extend the instant asset write-off threshold increase to 30 June 2025 is currently before Parliament.

What’s ahead for 2024-25?

Wed, 10 Jul 2024 03:47:00 GMT

Businesses fail (or fail to thrive) for a myriad of reasons, but the precursor is often a failure to understand what is occurring within the business and what to monitor. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are, then it’s time to find out (we can help you with that).

A lack of profit will erode your business, but not enough cash will kill it stone dead. Businesses often fail because they don’t manage their cash position. Plan, track, and measure your cashflow. This not only means closely monitoring your debtor collections and inventory but also running a rolling three month cashflow position. This should provide an early warning of any brewing problems.

Cash flows, operating budgets, cost control and debt management all need to be part of your business management. The more in control you are the lower your risk position.

Many small businesses also tend to absorb increasing costs. Putting up your prices during difficult times is not an act of social betrayal. If the cost of doing business has increased, you should flow these through unless you are comfortable making less for the same amount of effort, or you are in an industry that is so price sensitive you have no choice but to follow the lead of larger businesses.

Interest rates and cost of living

Reserve Bank of Australia (RBA) Governor Michelle Bullock has stated on several occasions that inflation, not interest rates, are at the heart of cost of living pressures. Interest rates are the RBA’s “blunt instrument” to bring inflation under control. With inflation easing more slowly than anticipated, the RBA is not ruling anything out because the path of interest rates is determined by the actions required to bring inflation to target.

Inflation has reduced from its peak of 7.8% in December 2022 to 3.6% in the March quarter, but increased again in May to 4% dampening expectations of an interest rate reprieve.

What now?

Will 2024-25 be another year of volatility or a return to stability?

As you would be aware (at least we hope so after a $40m public education campaign), the personal income tax cuts came into effect on 1 July 2024. At the same time, the superannuation guarantee (SG) rate increased by 0.5% to 11.5%.

For employers, it’s critically important to ensure that your payroll system, and all interactions with it, like salary sacrifice agreements, are assessed and updated. Your PAYG withholding will also be impacted.

While we are on the topic of obligations, the ATO have recently warned employers to be vigilant about their super guarantee obligations:

Are you paying super guarantee to the right people? The definition of an employee for SG purposes is broad and, in some cases, extends beyond typical classifications. Temporary residents, backpackers, and some company directors working in the business, family members working in the business, and some contractors must be paid SG. Check your classifications are correct for SG purposes.
Check the fund details are correct for the employee and the employee’s tax file number has been provided to the super fund. It’s the employer’s obligation to ensure that SG for the employee is directed to the correct super fund account.
Ensure SG is paid into the employee’s fund by the quarterly due date (next SG payments are due by 28 July). If your business misses the deadline, the super guarantee charge applies (even if you pay the outstanding amount quickly after the deadline). The SG charge (SGC) is particularly painful for employers because it is comprised of the outstanding SG, 10% interest p.a. from the start of the quarter, and an administration fee. And, unlike normal SG contributions, SGC amounts are not deductible.

Personal tax & super

Wages

On 1 July 2024, the national minimum wage increased by 3.75% ($24.10 per hour, or $915.90 per week). The increase applies from the first full pay period starting on or after 1 July 2024. Traditionally, there is no correlation between an increase in minimum wages and inflation.

Annual wage growth in the private sector fell slightly to 4.1% in the March quarter 2024 from 4.2% in December 2023 - the first fall since September quarter 2020, suggesting that wages growth is starting to even out.

Business confidence

The latest NAB business survey is not happy reading with business confidence falling back into negative territory in May as conditions continued to gradually soften. Having experienced eight consecutive months of forward order declines, businesses are understandably circumspect over the outlook. GDP grew marginally in the March quarter and consumption per capita continued to decline.

However, labour market conditions are strong with unemployment at 4% for May.

Treasury forecasts that economic growth (GDP) will marginally improve to 2% in 2024-25. Not exciting but credible.

Migration & labour

Always a controversial topic. Post pandemic, Australia’s migration levels surged with the return of international students, working holiday makers, and an influx of temporary skilled labour to meet shortages.

In the year ending 30 June 2023, overseas migration contributed a net gain of 518,000 people to Australia's population - the largest net overseas migration estimate since records began.

The 2024-25 Federal Budget estimates that net migration will fall to 260,000. While demand pressures from migration have been well publicised, particularly on housing, the positive impact was the impact on supply. Post COVID, Australia faced crippling labour shortages that impeded the return and growth of supply.

From 1 January 2025, student visa numbers will be capped, and according to the University of Melbourne Deputy Vice-Chancellor Professor Michael Wesley, student visa grants are already down 34% in March 2024 compared to the same time in 2023.

The Government’s focus is on skilled migration. Employer sponsored places will rise by 7,175, however skilled independent visas will reduce by 13,475.

The minimum salary requirement to sponsor an employee (Temporary Skilled Migration Income Threshold) will also increase to $73,150 on 1 July 2024.

Accessing money in your SMSF

Fri, 17 May 2024 07:12:00 GMT

The ATO has made a call to professional accountants to help identify and manage illegal early access to superannuation by members of self-managed superannuation funds (SMSFs).

In general, access to your super is only possible if:

You retire and turn 60; or
You turn 65 (regardless of whether you’re working).

Early access to superannuation is only possible in very limited circumstances such as terminal illness, permanent incapacity, and severe financial hardship and there are very strict protocols to follow before any amounts are paid out.

One of the benefits of an SMSF is the control that it provides to members. The flip side of full control is the temptation to dip into the super account and approve transfers without proper controls.

There are two common ways illegal early access occurs:

When the trustees (or their business) are in financial distress and they use the superannuation account for a short-term loan; or
A promoter offers access through a scheme – often getting people to establish the SMSF and roll over their superannuation into the SMSF.

Illegal access to the SMSF’s account or assets is not difficult to identify and generally will be picked up by your auditor. Where illegal access has occurred, not only is it likely that your retirement savings have been lost or impaired, but you are likely to face additional tax, penalties and interest, and be disqualified as a trustee. In addition, your name will be published online.

One of the signs that there is a problem is when SMSF annual returns are not lodged on time or at all so ensure you are up to date with your SMSF compliance.

Do your kids really want to take over your business?

Tue, 14 May 2024 07:11:00 GMT

Generational succession - handing your business across to your kids or family - sounds simple enough but, many families end up in a dispute right at the point when the parents, business, and children are most vulnerable. It’s important that generational succession is managed as closely and diligently as if you were selling your business to a stranger to avoid misunderstandings and disputes.

If you are looking to hand your business to your children or relatives, there are a few key issues to think about:

Capability and willingness of the next generation – do your kids really want the business?

There needs to be a realistic assessment of whether or not the business can continue successfully after the transition. In some cases, the exiting generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. All of these are reasonable objectives, however, they only work where there is capability and willingness.

The alternative scenario can also exist where generational succession is pursued by the younger generation. In some cases, it’s seen as their birth right. In these cases, the willingness will exist but this does not automatically translate to capability.

Capital transfer – how much money needs to be taken out of the business during the transition?

What level of capital do the current business owners, generally the parents exiting the business, need to extract from business at the time of the transition? The higher the level of capital needed, the greater the pressure that will be placed on the business and the equity stakeholders.

In most cases, the incoming generation will not have sufficient capital to buy out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt.

In many cases, the exiting generation will want to maintain a level of equity investment. This might be a means of retaining an interest in the business or alternatively staging their transition. In either case, it is important to map the capital transition both from a business and shareholder perspective. This needs to be documented and signed off firstly from the business’s perspective and then by both generational groups. No generational transition should be undertaken without a clear and agreed capital program.

Income needs – ensuring remuneration is on commercial terms

In many SMEs, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little.

Under a generational succession, there should be an increased level of formality around compensation to directors and shareholders. Compensation should be matched to roles and where performance incentives exist these should be clearly structured.

Operating and management control

Once the capability and capital assessments have been completed, it is important to look at the transition of control. This can be a very sensitive area. It’s essential to establish and agree in advance how operating and management control will be maintained and transitioned.

The plan for operating and management control should be documented and signed off by all parties with either timelines for time driven succession or milestones for event-focused transitions.

Transition timeframes and expectations

Generational succession is often a process rather than an event and achieved over an extended period of time. The critical issue is to identify and ensure that all parties have a common understanding and acceptance of the time period over which the transition will take place. This should be included in the documented succession plan.

The need for greater formality and management structure

Generational succession often requires a greater level of formality in the management and decision making process. This formality should achieve a separation of function between management, the Board, and shareholders.

Often in an SME business, these roles merge and there are no clear dividing lines or boundaries. Roles, responsibilities, and clear key performance indicators (KPIs) for management should be agreed and documented.

Need assistance? We can work with you to successfully transition your business.

Capability and willingness of the next generation – do your kids really want the business?

Should you be the ‘bank of Mum & Dad’?

Sun, 12 May 2024 07:06:00 GMT

If you provide a loan to your child to purchase a home, it’s essential that the terms of the loan are documented, preferably by a lawyer.

There are many ways to structure the loan depending on what you’re trying to achieve. For example, the loan might mimic a bank loan with interest and regular payments, require repayment when the property is sold or ownership changes, and/or managed by your estate in the event of your death (treated as an asset of the estate, offset against the child’s share of the estate, or forgiven).

There is a lot to think about before lending large amounts of money; what should happen in a divorce, if your child remortgages the property, if you die, if your child dies, if the relationship becomes acrimonious, etc. As always, hope for the best but plan for the worst.

The ‘bank of Mum & Dad’

The downside of cash gifts

A cash gift towards a deposit or mortgage is a simple and effective method of helping a family member. However, there are a few downsides:

Where the gift forms all or a significant portion of the deposit, lenders may want to ensure that the loan is serviceable and may require verification of the source of the funds to ensure the amount is not a loan and does not require repayment (i.e., a gift letter).
In the event of a divorce or separation, the gift may not overtly benefit your child, and instead form part of the property pool to be divided.

For income tax purposes, gifts from a family member out of natural love and affection are not normally taxed.

The average price of a home in NSW is $1,184,500, the highest in the country. Canberra is next at $948,500, followed by Victoria at $895,000, with the Northern Territory the lowest at $489,2001. With the target cash rate expected to remain steady at a 12 year high of 4.35% over 2024, the pressure is on parents and family to help the younger generation become homeowners.

Over the last 15 years, home ownership has fallen from 70% to 67% of the population. Over time, declining home ownership will increase the wealth gap in Australia as for many, home ownership is a significant factor in wealth accumulation. According to the Actuaries Institute, wealth inequality is significantly higher now than in the 1980s, with the wealthiest 20% of households currently having six times the disposable income of the lowest 20%2.

The Domain’s First Home Buyer Report 2024 estimates the time for a couple aged between 25 and 34 to save a 20% deposit for an entry level home to be 6 years and 8 months in Sydney, and 5 years and 5 months in Melbourne (the Australian average is 4 years and 9 months). In that time, they are begrudgingly paying rent (or staying with Mum and Dad).

So, should you help your children buy a home? If they can, many parents would prefer to assist their children when they need it most, rather than benefiting from an inheritance later in life. However, it’s essential that any support does not risk your financial security, and that means looking at what support you can afford to provide.

A family guarantee can be used to support a loan in part or in full. For example, with some lenders you can use your security to contribute towards your child’s deposit to avoid lender’s mortgage insurance (which ranges between 1% to 5% of the loan).

When you act as a guarantor for a loan, you provide equity (cash or often your family home) as security. In the event your child defaults, you are responsible for the amount guaranteed. If you have secured your child’s loan against your home and you do not have the cashflow or capacity to repay the loan, your home will be sold.

If you are contemplating acting as guarantor for your child, you need to look at the impact on your finances and planning first. Your retirement should not be sacrificed to your child’s aspirations. And, where you have more than one child, look at equalising the impact of the assistance you provide in your estate.

Utilising a family trust

The great wealth transfer from the baby boomer generation has begun and home ownership is the catalyst.

Providing security to lenders

A more complex option is to purchase a property in a family trust where you or a related company acts as trustee. This strategy is often used for asset protection purposes. Typically, at some point in the future, you would pass control of the trust to your child and it might be possible to do this without triggering material CGT or stamp duty liabilities, although this would need to be checked. On the eventual sale of the property, CGT will apply to any increase in value of the property and the main residence exemption cannot be used to reduce the tax liability, even if the child was living in the home.

Be wary of state tax issues. For example, in some states, owning property through a trust will mean that the tax-free land threshold will not apply, increasing any land tax liability. Also, if the trust has any foreign beneficiaries, this could result in higher rates of stamp duty.

Co-ownership

There are two potential structures for buying property with your children:

Joint tenants - the property is split evenly and in the event of your death, the property passes to the other owner(s) regardless of your will.
Tenant-in-common – the more popular option as it allows for proportions other than 50:50 (i.e., 70:30). If you die, your share is distributed according to your will.

Regardless of ownership structure, if the property is mortgaged and the other party defaults on the loan, the loan might become your responsibility. It is vital to consider this before loan arrangements are entered into.

It’s also essential to have a written agreement in place that defines how the co-ownership will work. For example, what happens if your circumstances change and you need to cash out? What if your children want to sell and you don’t? Will the property be valued at market value by an independent valuer if one party wants to buy the other one out? It’s not uncommon for children to assume that they will only need to pay the original purchase price to buy your share with no recognition of tax, stamp duty or interest. And, what happens in the event of death or dispute?

If you are not living in the home as your primary residence, then it is likely that capital gains tax (CGT) will apply to any increase in the market value of the property on disposal of your share (not the price you choose to sell it for). And, you will not benefit from the main residence exemption. In these situations, it is essential to keep records of all costs incurred in relation to the property to maximise the CGT cost base of the property and reduce any capital gain on disposal.

Reduced or rent free property

Buying a house and allowing your child to live in the house rent-free or at a reduced rent enables you to put a roof over their heads but adds no value to your child’s ability to secure a loan or utilise the equity of the property to build their own wealth.

If you intend to treat the property your child is living in as an investment property and claim a full deduction for expenses relating to the property, then rent needs to be paid at market rates. If rent is below market rates, the ATO may deny or reduce deductions for losses and outgoings depending on the discount provided. Any rental income received is assessable to you. In addition, CGT will be payable on any gain when the property is sold, or ownership is transferred.

If the intention is to provide this property to your child in your estate, ensure your will is properly documented to support this intent.

Company money crackdown

Wed, 08 May 2024 07:03:00 GMT

What the tax law requires

Division 7A is an area of the tax law aimed at situations where a private company provides benefits to shareholders or their associates in the form of a loan, payment or by forgiving a debt. It can also apply where a trust has allocated income to a private company but has not actually paid it, and the trust has provided a payment or benefit to the company's shareholder or their associate.

Division 7A was introduced to prevent shareholders accessing company profits or assets without paying the appropriate tax. If triggered, the recipient of the benefit is taken to have received a deemed unfranked dividend for tax purposes and taxed at their marginal tax rate. This unfavourable tax outcome can be prevented by:

Paying back the amount before the company tax return is due (this is often done by way of a set-off arrangement involving franked dividends); or
Putting in place a complying loan agreement between the borrower and the company with minimum annual repayments at the benchmark interest rate.

The problem areas

Division 7A is not a new area of the tax law; it has been in place since 1997. Despite this, common problems are occurring. These include:

Incorrect accounting for the use of company assets by shareholders and their associates. Often, the amounts are not recognised;
Loans made without complying loan agreements;
Reborrowing from the private company to make repayments on Division 7A loans;
The wrong interest rate applied to Division 7A loans (there is a set rate that must be used).

Like life, managing the tax consequences of benefits provided to shareholders and their associates can get messy quickly. Avoiding problems can often come down to a few simple steps:

Don't pay private expenses from a company account;
Keep proper records for your company that record and explain all transactions, including payments to and receipts from associated trusts and shareholders and their associates; and
If the company lends money to shareholders or their associates, make sure it's on the basis of a written agreement with terms that ensure it's treated as a complying loan – so the full loan amount isn't treated as an unfranked dividend.

There are strict deadlines for managing Division 7A problems. For example, if the borrower is planning to repay the loan in full or put a complying loan agreement in place, this needs to be done before the earlier of the due date and actual lodgement date of the company’s tax return for the year the loan was made.

It’s common for business owners to utilise company resources for their personal use. The business is often such a part of their life that the line distinguishing ‘the business’ from their life can be blurred.

While there are tax laws preventing individuals accessing profits or assets of the company in a tax-free manner, mistakes are being made and the Australian Taxation Office (ATO) has had enough.

The ATO has launched a new education campaign to raise awareness of these common problems and the serious tax consequences that can arise.

The ATO is cracking down on business owners who take money or use company resources for themselves.

Non-compete clauses and worker restraints under review

Wed, 17 Apr 2024 06:44:00 GMT

A new issues paper from Treasury’s Competition Review questions whether non-competes and other restraints are limiting job opportunities and movement

A recent Australian Bureau of Statistics (ABS) survey found that 46.9% of businesses surveyed used some kind of restraint clause, including for workers in non-executive roles. The survey also found 20.8% of businesses use non-compete clauses for at least some of their staff and 68.2% for more than three-quarters of their employees.

Over the last 30 years, Australia has seen a decline in job mobility. Australia is not alone in this and other advanced economies have experienced the same issue. While restraint clauses are not the only factor contributing to the decline – an ageing population and a rise in post-pandemic market concentration in some industries has also contributed, it is specifically the role of restraints that is the focus of the Competition Review issues paper (submissions close 31 May 2024).

The review states that, “The direct consequence of a non-compete clause is that it hinders competition among businesses: it disincentivises workers from leaving their current job, creating a barrier to the entry of new businesses and the expansion of existing businesses.”

For business however, this is the point - restricting the knowledge developed by a worker during their employment from benefiting a competitor, limiting the likelihood of a ‘mass exodus’ of key workers from the business to a competitor, preventing clients from employing key workers, and protecting the value of the business by preventing employees from walking away with customers that were hard won, at a cost, by the business.

However, the impact of restraints appears to be a psychological deterrent given that most are not contested. Of the 115 matters relating to restraints of trade between 2020 and 2023 dealt with by Legal Aid NSW, only one business commenced proceedings in court against a former worker. And, a further study indicates that where employers seek legal redress in the courts, they are more likely than not to fail.

The international trend is to either ban restraints for workers under a certain income level and time limit restraints for higher paid workers, or to limit the duration of restraints generally but specify a level of compensation to the worker for the restraint period.

How much is my business worth?

Wed, 17 Apr 2024 06:41:00 GMT

For many small business owners, their business is their largest asset and for many, one that is expected to help fund their retirement. But what is your business really worth and what sets a high value business apart?

Every business owner is naturally curious about just how much their business is worth. However, for every business that sells at an attractive price, there are others that struggle to sell, let alone fetch a premium. The question is, what makes a difference?

When you come to sell a business the first question is, what are you selling? In most cases, this is fixtures and fittings, plant and equipment, stock on hand, and the goodwill of the business. Generally, a buyer won’t want to purchase your liabilities or your business structure, nor will they want to collect your outstanding debtors. Most business sales become a sale of business assets.

These assets are relatively easy to value with the exception of the goodwill. The value of plant and equipment and trading stock can generally be agreed. The tension tends to be around the value of the goodwill because goodwill is made up of many intangible assets that can’t be readily quantified.

We can all agree that there is value in these assets but the question is, how much? Goodwill is basically the value of the future free cashflow of the business. Based on how your business is structured, it is the value of the profits the business can generate in the future. This is what a buyer is prepared to pay for.

If a buyer has a reasonable certainty of profits and free cashflow in the future, then this is worth something. By comparison, a start-up business will have a higher level of risk and no certainty that profits can be generated. In general, a new business may need to trade for a number of years at a loss before it can establish itself and generate profits. Goodwill is what you are prepared to pay to avoid the risk and the ‘time to establish’ factor.

So, what influences business value and what will people pay for?

A history of profits, profits, and more profits
Returns on capital invested (better than 30%)
Strong growth and growth prospects
Brand name and value
A business not dependent on the owners
A strong, verifiable customer list
Monopoly income – exclusive territories
A sustainable competitive advantage
Good systems and procedures

It is possible to get a price that is widely different from the norm. Unique businesses, unique circumstances, and unique opportunities can always produce ‘an out of the box’ price. If you can build something unique, then you may achieve a price beyond normal expectations. At the end of the day however, the market will set the price.

If you are planning on selling your business, identify who your buyers might be. There could be a purchaser who is prepared to pay a large premium to own your business because of the accretive value or because it is pivotal to their growth strategy.

And, even if you are not thinking about selling your business, the reality is that one day you will. If you build your business with this in mind, then you should look to do the things that will grow your business value from year to year.

The assault on professional services

Mon, 15 Apr 2024 06:38:00 GMT

The ATO has signalled that it is willing to pursue professional services firms who divert profits to avoid tax

Two new cases before the Administrative Appeals Tribu nal demonstrate how serious the Australian Taxation Office (ATO) is about making sure professional services firms - lawyers, accountants, architects, medical practices, engineers, architects etc., – are appropriately taxed.

In both cases, the ATO pursued the practices using Part IVA. Part IVA is an area of the income tax law that enables the Tax Commissioner to attack schemes or arrangements undertaken to obtain a tax benefit, enabling him to cancel any benefit derived by the scheme. That is, you could have a legally viable structure in place but if the only purpose of that structure is to reduce tax, then the Commissioner can use Part IVA to remove the tax benefit. And, if Part IVA applies, you may end up with an additional tax liability as well as an administrative penalty of either 25% or 50% of the tax shortfall amount.

Broadly, the cases involved a solicitor who controlled a number of practice trusts that derived profits through marketing and facilitating tax planning arrangements.

While the arrangement in each case was complex and involved a large number of steps, the practice trusts ensured their business profits weren’t subject to tax by essentially making trust distributions on paper through a series of trusts and ultimately to either a company that had existing tax losses, or a tax-exempt entity. However, the real funds relating to the trust distribution (less a commission paid for the use of these entities) were ultimately received by the solicitor or their associated entities in the form of a loan.

Professional practices have been in the ATO spotlight for many years now for the way they distribute profits. Back in 2021, the ATO finalised its guidance on the allocation of professional firm profits, putting in place a series of risk ratings and gateway tests. These two cases however demonstrate the ATO’s willingness to pursue the issue in the courts using the Commissioner’s powers in Part IVA.

For professional services firms, it’s important to be aware that there are several ways in which the ATO can potentially challenge arrangements involving the distribution of profits from a professional practice. For example:

If a trading entity derives personal services income that mainly relates to the skills and efforts of a particular individual, the ATO has certain expectations around ensuring the profits are assessed to the individual performing the work.
If a trading entity doesn’t derive personal services income but income from a business structure involving a professional practice, the ATO has set out its compliance approach to targeting arrangements that don’t result in a reasonable level of profit being taxed in the hands of the individual practitioners.
If a trust makes paper distributions to loss entities to ‘soak up’ deductions or losses, there are integrity rules in section 100A, another area of tax law under intense scrutiny, that need to be considered.

Budget 2024-25

Sun, 14 Apr 2024 06:35:00 GMT

In the upcoming budget, the primary themes are expected to be the cost of living and the economic shift to net zero

The 2024-25 Federal Budget is the third for the Albanese Government and consistent with previous years, the primary themes are expected to be the cost of living and the economic shift to net zero.

According to election guru Antony Green , the window for the next election starts on Saturday, 3 August 2024, “the first possible date for an election if writs are issued on 1 July. The election window will stay open until mid-May 2025, the last date being 17 or 24 May.” No doubt, the Government will have the election in mind when it presents the Budget on 14 May at 7.30pm AEST.

Stage 3 tax cuts

The redesigned stage 3 tax cuts have been passed by Parliament and will apply from 1 July 2024. The amendments broadened the benefits of the tax cut by focussing on individuals with taxable income below $150,000.

Investment incentives for small business

It remains to be seen whether an increased instant asset write-off threshold will apply to smaller businesses in the 2024-25 income year. The increased threshold to $20,000 announced in the 2023-24 Budget still has not passed Parliament (the Senate increased the threshold to $30,000). If the intent of this measure is to encourage investment, it is essential that legislation enabling these measures is passed by Parliament in a reasonable time to give business operators the certainty they need to commit to any additional investment spending.

Energy bill relief

The Prime Minister has hinted at another round of energy bill relief to ease cost of living pressures for low-income households and small business. The measure is subject to support from State and Territory governments.

Look out for our analysis on how the 2024-25 Federal Budget will impact you, your business, and your superannuation.

Warning on SMSF asset valuations

Fri, 12 Apr 2024 06:32:00 GMT

Valuing at market value

Each year, the assets of your SMSF must be valued at ‘market value’ and evidence provided to your auditor. Broadly, market value is the amount that a willing buyer of the asset could reasonably be expected pay to acquire the asset from a willing seller assuming that the buyer and seller are dealing at arm’s length, and everyone acts knowledgeably and prudentially. It’s a common sense test that looks at the value you could reasonably expect to achieve for an asset.

If your SMSF holds collectible and personal use assets like artwork, jewellery, motor vehicles etc., a valuation must be performed by a qualified independent valuer on disposal. This does not necessarily mean that an independent valuation needs to be completed every year but at least every three years would be prudent. If you are not utilising an independent valuer, you will still need to make an active assessment based on market conditions. For example, if you hold artwork and the artist who created your investment artwork died, has this changed the value? Are the primary and secondary markets for the artwork transacting at a higher value? Leaving the value of the asset at its acquisition price calls into question the rationale for acquiring the asset within the fund in the first place. If the asset is unlikely to add any value to your retirement savings, then should it be held in your SMSF when you could achieve a higher rate of return elsewhere?

In most cases, the ATO require trustees to value an asset based on “objective and supportable data”. This means that you should document the asset being valued, a rational explanation for the valuation, and the method in which you arrived at it.

The ATO has issued a warning to trustees of SMSFs about sloppy valuation practices

The ATO has issued a warning to trustees of SMSFs about sloppy valuation practices.

ATO data analysis has revealed that over 16,500 self managed superannuation funds (SMSFs) have reported assets as having the same value for three consecutive years. With many of these assets residential or commercial Australian property, you can forgive the ATO for being incredulous.

For trustees of SMSFs, where asset values are consistently reported at the same value, it’s likely your SMSF will be flagged for closer scrutiny by the ATO.

The value of assets in your SMSF impacts on member balances and by default, can impact the amount you can contribute, ability to segregate assets for exempt current pension income, the work test exemption and access to catch-up concessional contributions. And, as we move closer to the implementation of the Division 296 $3m superannuation tax, valuations will be very important for anyone with a member balance close to or in excess of $3m.

If the asset is an in-house asset, for example a related unit trust, then an accurate valuation is essential to ensure the fund remains within the 5% in-house asset limit. If the value of in-house assets rises above 5% of total assets, the asset/s need to be sold to bring the limit back below 5%.

Commercial and residential real estate does not need to be valued by an independent valuer. But, if there have been significant changes to the property, the market, or the property is unique or difficult to value, it is a good idea to have a written independent valuation from a valuer or estate agent undertaken (their report should also document the valuation method and list comparable properties).

If you are completing the valuation yourself, ensure that you document the time period the valuation applies to and the characteristics that contribute to the valuation. For example, a 10 year old brick four bedroom property on 640m2 of land in what suburb and any features that make it more or less attractive to a buyer, for example proximity to transport. And, you should access credible sales data either on similar properties in the same suburb that have sold recently or from a property data service. More than one source of data is recommended.

The estimates on a lot of online property sales sites are general in nature and not reliable for a valuation of a specific property. The average price change for the suburb however could be used as supporting evidence of your valuation.

For commercial property, net income yields are required to support the valuation. Where the tenants are related parties, for example your business leases a commercial property owned by your SMSF, you will need evidence that a comparative commercial rent is being paid and the rent is keeping pace with the market.

Valuing unlisted companies and unlisted investments can be difficult. The financials alone are not enough. But, if your SMSF invested in an unlisted company or shares in a unit trust, then there is an expectation that the trustees made the decision to make the initial acquisition based on the value of the asset, its potential for capital growth and income generation. That is, if you assessed the market value going into the investment, then it should not be a stretch to value the asset each year.

The difficulty for many investors is that in unlisted companies or trusts, the initial investment was broadly equivalent to the cash requirements of the activity being undertaken.

Generally, the starting point is the value of the assets in the entity and/or the consideration paid for the shares/units. For widely held shares or units, this is the entry and exit price.

Where property is the only asset, then the valuation principles for valuing real property are likely to apply.

Valuing real property

Valuing unlisted companies and unlisted trust investments

The difficulty for many investors is that in unlisted companies or trusts, the initial investment was broadly equivalent to the cash requirements of the activity being undertaken.

Generally, the starting point is the value of the assets in the entity and/or the consideration paid for the shares/units. For widely held shares or units, this is the entry and exit price.

Where property is the only asset, then the valuation principles for valuing real property are likely to apply.

Where there is no reliable data or market

We’ve seen a few scenarios where the assets purchased or created by the SMSF have no equal or there is no market – the true extent of the value will only really be known when the asset is realised. These unusual items default to either a professional valuation or a viable market assessment. This might be a derivative of the purchase price or data from a related market.

Valuations and the impending Division 296 tax on super earnings

The value of assets will be particularly important for those with super balances close to or above the $3m threshold for the impending Division 296 tax on fund earnings. Because the tax will measure asset values and tax the growth in earnings above the $3m threshold, accurate valuations will be important to ensure that the fund does not pay tax when it does not need to, and to reduce the likelihood of anomalies artificially inflating tax payable.

Getting back what you put in: Loans to get a business started

Sat, 16 Mar 2024 04:45:00 GMT

It’s not uncommon for business owners to pour their money into a business to get it up and running and to sustain it until it can survive on its own. A recent case highlights the dangers of taking money out of a company without carefully considering the tax implications.

A case before the Administrate Appeals Tribunal (AAT) was a loss for a taxpayer who blurred the lines between his private expenses and those of his company.

The taxpayer was a shareholder and director of a private company that operated a business. Over a number of years, he made withdrawals and paid personal private expenses out of the company bank account, but the amounts were not recognised as assessable income.

Following an audit, the ATO assessed the withdrawals and payments as either:

A case before the Administrate Appeals Tribunal (AAT) was a loss for a taxpayer who blurred the lines between his private expenses and those of his company.

Following an audit, the ATO assessed the withdrawals and payments as either:

Ordinary income assessable to the taxpayer, or
Deemed dividends under Division 7A.

Division 7A contains rules aimed at situations where a private company provides benefits to shareholders or their associates in the form of a loan, payment or by forgiving a debt. If Division 7A is triggered, then the recipient of the benefit is taken to have received a deemed unfranked dividend for tax purposes.

The taxpayer tried to convince the AAT that the withdrawals were repayments of loans originally advanced by him to the company and therefore should not be assessable as ordinary income. Alternatively, he argued that the payments were a loan to him and there was no deemed dividend under Division 7A because the company did not have any "distributable surplus” (a technical concept which limits the deemed dividend under Division 7A).

The AAT found issues with the quality of the taxpayer’s evidence, concluding that he failed to prove that the ATO’s assessment was excessive. This was based on a number of factors, including:

The taxpayer produced a number of different iterations of his financial affairs and tax return.
He could not satisfactorily explain how he was able to fund the original loans to the company, especially given he had declared tax losses in multiple years around the time when the loans were made.

While the taxpayer had tried to explain that some of his loans to the company were sourced originally from borrowings from his brother, the AAT considered this was implausible given the brother’s own tax return showed modest income.

So, how should a contribution from a company owner to get a business up and running be treated? It really depends on the situation, but for small start-ups, the common avenues are:

Structure the contribution you make as a loan to the company, or
Arrange for the company to issue shares, with the amounts paid being treated as share capital.

In making a decision on which is the best approach, it is necessary to consider a range of factors, including commercial issues, the ease of withdrawing funds from the company later and regulatory requirements.

The way you put money into the company also impacts on the options that are available to subsequently withdraw funds from the company. However, the key issue to remember is that if you take funds out of a company then there will probably be some tax implications that need to be carefully managed.Ordinary income assessable to the taxpayer, or

Deemed dividends under Division 7A.

The AAT found issues with the quality of the taxpayer’s evidence, concluding that he failed to prove that the ATO’s assessment was excessive. This was based on a number of factors, including:

The taxpayer produced a number of different iterations of his financial affairs and tax return.
He could not satisfactorily explain how he was able to fund the original loans to the company, especially given he had declared tax losses in multiple years around the time when the loans were made.

So, how should a contribution from a company owner to get a business up and running be treated? It really depends on the situation, but for small start-ups, the common avenues are:

Structure the contribution you make as a loan to the company, or
Arrange for the company to issue shares, with the amounts paid being treated as share capital.

How to take advantage of the 1 July super cap increase

Thu, 14 Mar 2024 05:00:00 GMT

From 1 July 2024, the amount you can contribute to super will increase. We show you how to take advantage of the change.

The amount you can contribute to superannuation will increase on 1 July 2024 from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions.

The contribution caps are indexed to wages growth based on the prior year December quarter’s average weekly ordinary times earnings (AWOTE). Growth in wages was large enough to trigger the first increase in the contribution caps in 3 years.

Other areas impacted by indexation include:

The Government super co-contribution – Income threshold
The super guarantee maximum contribution base (the limit for compulsory super guarantee payments)
The tax-free thresholds for redundancy payments
The CGT contribution cap (amount that can be contributed to super following the sale of eligible business assets)

For those with the disposable income to contribute, superannuation can be very attractive with a 15% tax rate on concessional super contributions and potentially tax-free withdrawals when you retire. For business owners who might have had an exceptional year or sold their business, it's an opportunity to get more into super. However, the timing of contributions will be important to maximise outcomes.

If you know you will have a capital gains tax liability in a particular year, you may be able to use ‘catch up’ contributions to make a larger than usual contribution and use the tax deduction to help offset your capital gain tax bill. But, this strategy will only work if you meet the eligibility criteria to make catch up contributions and you lodge a Notice of intent to claim or vary a deduction for personal super contributions , with your super fund.

Using the bring forward rule

The bring forward rule enables you to bring forward up to 2 years’ worth of future non-concessional contributions into the year you make the contribution – this is assuming your total superannuation balance enables you to make the contribution and you are under age 75.

If you utilise the bring forward rule before 30 June, the maximum that can be contributed is $330,000. However, if you wait to trigger the bring forward until on or after 1 July, then the maximum that can be contributed under this rule is $360,000.

‘Catch up’ contributions

If your super balance is below $500,000 on the prior 30 June, and you want to quickly increase the amount you hold in super, you can utilise any unused concessional super contributions amounts from the last 5 years.

Let’s look at the example of Gary who has only been using $15,000 of his concessional super cap for the last few years. Gary’s super balance at 30 June 2023 was $300,000, so he is well within the limit to make catch up contributions.

Gary could access his $27,500 concessional cap for 2023-24 plus the unused $55,000 from the prior 5 financial years.

If Gary doesn’t access the unused amounts from 2018-19 by 30 June 2024, the $10,000 will no longer be available.

Transfer balance cap unchanged

The revised stage 3 tax cuts have passed Parliament and will come into effect on 1 July 2024.

Before the new tax rates come into effect, check any salary sacrifice agreements to ensure that they will continue to produce the result you are after.

Revised stage 3 tax cuts confirmed for 1 July

The revised stage 3 tax cuts have passed Parliament and will come into effect on 1 July 2024.

Before the new tax rates come into effect, check any salary sacrifice agreements to ensure that they will continue to produce the result you are after.

The ATO Debt Dilemma

Tue, 12 Mar 2024 03:45:00 GMT

The ATO can only release a taxpayer from a tax debt in limited situations (e.g., where payment would result in serious hardship). However, sometimes the ATO will decide not to pursue a debt because it isn’t economical to do so. In these cases, the debt is placed “on hold”, but it isn’t extinguished and can be re-raised on the taxpayer’s account at a future time. For example, these debts are often offset against refunds that the taxpayer might be entitled to. However, during COVID, the ATO stopped offsetting debts and these amounts were not deducted.

In 2023, the Australian National Audit Office advised the ATO that excluding debt from being offset was inconsistent with the law, regardless of when the debt arose. And by this stage, the ATO’s collectible debt had increased by 89% over the four years to 30 June 2023.

The response by the ATO was to contact thousands of taxpayers and their agents advising of historical debts that were “on hold” and advising that the debt would be offset against any future refunds. These historical debts were often across many years, some prior to 2017, and ranged from a few cents to thousands of dollars. For many, the notification from the ATO was the first inkling they had of the debt, because debts on hold are not shown in account balances as they have been made “inactive”. In other words, taxpayers were accruing debt but did not know as the debts were effectively invisible because they were noted as “inactive.”

In a recent statement, the ATO said: “The ATO has paused all action in relation to debts placed on hold prior to 2017 whilst we review and develop a pragmatic and sensible way forward that takes into account concerns raised by the community.

It was never our intention to cause frustration or concern. It’s important to us that taxpayers have trust in our tax system and our records.”

For any taxpayer with a debt on hold, it is important to remember that just because the ATO might not be actively pursuing recovery of the debt, this doesn’t mean that it has been extinguished.

Out of the $50bn in collectible debt owing to the ATO, two thirds is owed by small business. As of July 2023, the ATO moved back to its “business as usual” debt collection practices. For entities with debts above $100,000 that have not entered into debt repayment terms with the ATO, the debt will be disclosed to credit reporting agencies.

If your business has an outstanding tax debt, it is important to engage with the ATO about this debt. Hoping the problem just goes away will normally make things worse.

Small business tax debt blows out

Late last year, thousands of taxpayers and their agents were advised by the Australian Taxation Office (ATO) that they had an outstanding historical tax debt. The only problem was, many had no idea that the tax debt existed.

The Fringe Benefit Tax traps

Sun, 10 Mar 2024 06:07:00 GMT

Electric vehicles causing sparks

The problem when the evidence doesn’t match what the taxpayer tells the ATO

Fri, 09 Feb 2024 02:30:00 GMT

A recent case before the Administrative Appeals Tribunal (AAT) highlights the importance of ensuring that the evidence supports the tax position you are taking.

The case involves heritage farmland originally purchased for $1.6m that sold 7 years later for $4.25m and the GST debt that the ATO is now pursuing on the sale.

In 2013, the taxpayer purchased Sutton Farms in Western Australia – 1.47 hectares consisting of an uninhabitable homestead, large barn and quarters.

Over the course of 7 years, the taxpayer rezoned the property, obtaining conditional subdivision approval to subdivide the property into four lots with plans for a further subdivision into approximately 15 lots, as well as undertaking sewerage, water and electrical works. The work was supported by a $1m loan from a bank and a further $1.5m from his brother-in-law.

While the property was never used for this purpose, the taxpayer’s stated intention was to use the property as their home, gift the subdivided lots to his daughter and son for use as their own respective residences, and use the last subdivided lot as a memorial dedicated to another child who had passed away.

Without being subdivided, the property was eventually sold at a profit as a single lot in 2020 for $4.25m.

When the ATO audited the transaction and issued an assessment notice for GST on the sale transaction, the taxpayer objected. The taxpayer’s argument was that Sutton Farms was intended to be used as a family home and the subdivision application had no commercial purpose. Therefore, GST should not apply as the sale was not made in the course of an enterprise. However, there were a number of factors and inconsistencies working against the taxpayer’s argument:

Local media articles that outlined the taxpayer’s plan to commercialise the property, “with the plans to lease it out as a restaurant, wine bar or coffee house, turn the barn into an art studio and add 8 – 10 finger jetties in the canal adjacent.”
Statements made to the ATO during the objection stage of the dispute indicating that the taxpayer intended to subdivide the property to sell some of these lots to repay loans owed to the taxpayer’s brother-in-law; and
GST credits were claimed on the original development costs. The taxpayer’s accountant also made representations to the ATO stating that the GST credits were claimed because the intended subdivision and sale of the several lots within the property amounted to an enterprise.

The problem for the taxpayer is that although he did not develop the property in the way he originally intended and ended up selling the property as one lot, through the ownership period he acted as if the project was a commercial venture with a stated commercial outcome.

The importance of objective evidence

Determining the tax treatment of a property transaction can sometimes be a difficult exercise and there are a number of factors that need to be considered. This will often include the intention or purpose of the taxpayer when acquiring a property. However, merely stating your intention isn’t enough, it needs to be supported by objective evidence. This might include loan terms, correspondence with advisers and real estate agents, the way expenses have been accounted for, or the conversation you have with a journalist.

Contractor or employee?

Thu, 08 Feb 2024 07:00:00 GMT

Just because an agreement states that a worker is an independent contractor, this does not mean that they are a contractor for tax and superannuation purposes, new guidance from the ATO warns.

Where there is a written contract, the rights and obligations of the contract need to support that an independent contracting relationship exists. The fact that a contractor has an ABN does not necessarily mean that they have genuinely been engaged as a contractor. The ATO says that “at its core, the distinction between an employee and an independent contractor is that:

an employee serves in the business of an employer, performing their work as a part of that business
an independent contractor provides services to a principal's business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not part of another.”

Contracts over time

The ATO points out that a contracting agreement at the start of a relationship may not continue to be one over time. For example, if the project the contractor was engaged to complete has finished, but the worker continues working for the company then the classification needs to be revisited.

What happens if there is no contract?

If no contract exists, then it’s important to look at the form and substance of the relationship to come to a reasonable position about whether an employment or contractor relationship exists.

Just because an agreement states that a worker is an independent contractor, this does not mean that they are a contractor for tax and superannuation purposes, new guidance from the ATO warns.

Can my SMSF invest in property development?

Wed, 07 Feb 2024 07:00:00 GMT

Related ungeared trust or company

Australians love property and the lure of a 15% preferential tax rate on income during the accumulation phase, and potentially no tax during retirement, is a strong incentive for many SMSF trustees to dream of large returns from property development. We look at the pros, cons, and problems that often occur.

An SMSF can purchase land from an unrelated party and develop the property in its own right. Common issues that often arise include:

Acquiring the land from a related party - An SMSF cannot purchase land from a related party (unless it is business real property used wholly and exclusively in a business). This means that the lovely block of land inherited by one of the members, or owned by a family trust, that is perfect for development cannot be purchased by the SMSF.

An SMSF cannot borrow to develop property – An SMSF can borrow money to purchase land using a limited recourse borrowing arrangement but it cannot use a loan to improve the asset. That is, borrowings cannot be used to develop the land. And, where the SMSF has borrowed to purchase land, it cannot change the nature of that asset until the loan has been repaid. That is, no development.

Who will develop the property? - Problems often occur when the property developers are related to the fund members. Whilst it is possible to engage a related party builder to undertake the work, there are strict rules that mean that the work and materials must be acquired at market value. That is, there is no advantage from “mates rates”. If you are using a related party builder, ensure that the paperwork is pristine, any transactions are at market value, and all interactions are documented.

GST might apply - Goods and services tax might apply to the development and the sale of any developed property. If the ATO considers that an SMSF is in the business of developing property or is undertaking a one-off development in a commercial manner then GST could potentially apply.

If your SMSF is not undertaking a property development project in its own right, there are a few ways for an SMSF to invest in property development projects:.

An ungeared company or trust is often used (under SIS Regulation, section 13.22C ) when related parties want to invest in a property development together. The SMSF can invest in a company or trust that is undertaking a property development as long as the company or trust:

Does not lease to a related party (unless business real property)
Does not borrow money or have borrowings (must be ungeared)
Does not conduct a business
Conducts any dealings at arm’s length
And, the assets of the unit trust or company:

- Do not include an interest in another entity (i.e., cannot have shares in a company)

- Do not have a charge over them (i.e., mortgage over any asset)

- Are not purchased from a related party (or was ever an asset of a related party) unless the asset is business real property acquired at market rates.

See section 13.22C for full details.

Profits from the company or trust are then distributed to the SMSF according to its share.

Using the provisions of 13.22C means that the SMSF can invest in property development with a related party without the development being considered an in-house asset. However, if the criteria are not met (at any point), the in-house asset rules apply, and the SMSF might have to sell the units in the trust or shares in the company to return to the maximum 5% in-house asset limit. Generally, this means the sale of the underlying property or a significant restructure.

Problems arise with 13.22C arrangements where the trust or company:

Needs more money to complete the development and borrows money, or issues more units and sells them (is in business)
Accepts a loan from a member of the SMSF
Overdrafts (may be considered loans and breach 13.22C)
Uses a related party builder who either under charges for the work completed or overcharges and strips the profits that should have been returned to the SMSF.

Warning on conducting a business

One of the criteria for the exemption in 13.22C to apply is that the trust or company cannot be conducting a business. This requirement may prevent short-term property developments that are built and sold for profit.

Typically, 13.22C arrangements are used for long term investments where the development enables the creation of an asset that is then leased by the trust or company. This could be commercial premises leased to a related or unrelated party (e.g., premises for a child care centre or manufacturing), or residential premises leased to unrelated parties (e.g., townhouses or small developments).

Directly developing property from fund assets

An SMSF can invest in property development if trustees ensure the investment complies with the rules. And, there are a lot of rules. A key is the sole purpose test. Trustees need to ensure the fund is maintained to provide benefits for retirement, ill health or death. Breaches of this fundamental tenet are serious and include the loss of the fund’s concessional tax treatment and civil and criminal penalties.

By its nature property development is high risk and fund trustees need to ensure that the SMSF is not simply a handy cash-cow for a pipe dream, particularly when the developers are related parties.

There are multiple ways an SMSF can invest in property development if the investment strategy of the fund allows:

Directly developing property
An ungeared unit trust or company (the parties can be related)
Investment in an unrelated entity
A joint venture

Unrelated property developments

Investing in unrelated entities for a property development is attractive as there is no limit to how much of the fund’s assets can be invested (subject to the investment strategy and trust deed allowing the investment), and unlike ungeared entities, the entity is able to borrow money/place charge over the assets.

Where related parties are investing in the same entity, there are rules governing the percentage of ownership the SMSF and their related parties can hold. To meet the definition of unrelated entity for in-house asset purposes, the SMSF and their related parties must not own more than 50% of the units available. This is because the SMSF cannot control or hold sufficient influence over the entity and remain an unrelated entity. If the ATO considers the entity is related to the SMSF, then it would become a related party and the investment an in-house asset.

Joint venture arrangements

An SMSF can potentially invest in a joint venture (JV) property development, but the criteria are necessarily strict and there are a range of issues that need to be considered carefully. One of the issues that needs to be considered up-front is determining the substance of the arrangement between the parties, because the term JV can be used to describe a variety of arrangements. The ATO confirms that care must be taken to ensure that arrangements with related parties are true JVs.

Under a JV, the SMSF invests in and has a share of the property being developed (not the entity undertaking the development). Each party bears the costs (time and/or money) of the JV and receives this same proportionate contribution from the returns. If the arrangement is not structured properly then the SMSF’s stake in the JV could be treated as an investment in or loan to a related party and be treated as an in-house asset. For example, this could be the case if the SMSF only provides a capital outlay for the arrangement and has no rights other than a contractual right to a return on the final investment.

It is also necessary to consider whether the arrangement between the parties could be treated as a partnership for tax, GST and legal purposes. For example, this could be the case if the arrangement involves the sharing of income, sale proceeds or profits, rather than sharing the output from the project.

It's essential to get advice well in advance - tax, legal and financial - before pursuing a JV.

Is your SMSF the best vehicle for property development?

Trustees need to carefully consider any investment decisions and have a sound rationale for the investment.

Any advice on a property development needs to be from a licenced financial adviser. A lawyer should be used for any contracts or agreements between parties. And, compliance assistance from a qualified accountant.

Stage 3 personal income tax cuts redesigned

Tue, 06 Feb 2024 11:08:00 GMT

The Government will need to quickly enact amending legislation to make the redesigned Stage 3 tax cuts a reality by 1 July 2024. This will involve garnering the support of the independents or minor parties to secure its passage through Parliament – Parliament sits from 6 February 2024.

After much speculation, the Prime Minister has announced that the Government will amend the legislated Stage 3 tax cuts scheduled to commence on 1 July 2024. Relative to the current Stage 3 plan, the proposed redesign will broaden the benefits of the tax cut by focussing on individuals with taxable income below $150,000. If enacted, an additional 2.9 million Australian taxpayers are estimated to take home more in their pay packet from 1 July.

It's not how Stage 3 of the 5 year plan to restructure the personal income tax system was supposed to work, but a sharp escalation in the cost of living has reshaped community sentiment. As the Prime Minister said, “we are focussed on the here and now” and by default, not on long term structural change.

The redesign will increase Government revenues from personal income tax by an estimated $28 billion to 2034-35 as bracket creep takes its toll.

The personal income tax cuts legislated to commence on 1 July 2024 will be realigned and redistributed under a proposal released by the Federal Government.

What will change?

It’s not a sure thing yet!

The revised tax cuts redistribute the reforms to benefit lower income households that have been disproportionately impacted by cost of living pressures.

Under the proposed redesign, all resident taxpayers with taxable income under $146,486, who would actually have an income tax liability, will receive a larger tax cut compared with the existing Stage 3 plan. For example:

An individual with taxable income of $40,000 will receive a tax cut of $654, in contrast to receiving no tax cut under the current Stage 3 plan (but they are likely to have benefited from the tax cuts at Stage 1 and Stage 2).
An individual with taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan.

However, an individual earning $200,000 will have the benefit of the Stage 3 plan slashed to around half of what was expected from $9,075 to $4,529. There is still a benefit compared with current tax rates, just not as much.

There is additional relief for low-income earners with the Medicare Levy low-income threshold increasing by 7.1% in line with inflation. It is expected that an individual will not start paying the Medicare Levy until their income reaches $26,000 and will not pay the full 2% until $32,500 (for singles).

While the proposed redesign is intended to be broadly revenue neutral compared with the existing budgeted Stage 3 plan, it will cost around $1bn more over the next four years before bracket creep starts to diminish the gains.

First announced in the 2018-19 Federal Budget, the personal income tax plan was designed to address the very real issue of ‘bracket creep’ – tax rates not keeping pace with growth in wages and increasing the tax paid by individuals over time. The three point plan sought to restructure the personal income tax rates by simplifying the tax thresholds and rates, reducing the tax burden on many individuals and bringing Australia into line with some of our neighbours (i.e., New Zealand’s top marginal tax rate is 39% applying to incomes above $180,000).

The three point plan introduced incremental changes from 1 July 2018 and 1 July 2020, with stage 3 legislated to take effect from 1 July 2024.

How did we get here?

What now?

If you have any concerns about the impact of the proposed changes, please call us to discuss.

For tax planning purposes, for those with taxable income of $150,000 or more, the redesigned Stage 3 tax cuts offer less planning opportunity than the current plan. But, any change in the tax rates is an opportunity to review and reset to ensure you are taking advantage of the opportunities available, and not paying more than you need.

Tax on super balances above $3m hits Parliament

Fri, 15 Dec 2023 07:04:00 GMT

Legislation enabling an extra 15% tax on earnings on super balances above $3m is before Parliament.

While not a concern for the average worker, if enacted, those with significant property or other illiquid assets in their superannuation fund are most at risk, for example farmers and business operators who own their business property in their self managed superannuation fund (SMSF).

The issue is how the tax is calculated. The tax captures the growth in the balance of a member’s superannuation over the financial year (allowing for contributions and withdrawals). It captures both:

Realised gains from the sale of assets, and
Unrealised gains triggered by an increase in the value of superannuation assets. For example, if the value of a property increases.

If the member’s total super balance has decreased - the loss can be offset against future years.

The ATO will calculate the tax each year. Members with balances in excess of $3 million will be tested for the first time on 30 June 2026, with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.

If you are likely to be impacted by the impending new tax, it is important to speak to your financial adviser. While keeping assets within superannuation will remain the best option for many from a tax and planning perspective, it’s important to ensure that you’re in the best possible position.

The key influences of 2024

Fri, 15 Dec 2023 01:00:00 GMT

Uncertainty has reigned over the last few years, but can we expect more consistency as we head into 2024? We explore some of the key issues and influences.

Inflation and labour supply

Worker rights and rewards

From 1 July 2024, the stage 3 tax cuts that radically simplify the personal income tax brackets come into effect. The tax cuts collapse the 32.5% and 37% tax brackets into a single 30% rate for those earning between $45,001 and $200,000 – this is assuming the May Federal Budget does not postpone or scrap them!

The superannuation guarantee rate will rise again on 1 July 2024 to 11.5%.

For small and medium businesses with group turnover of less than $50m, a series of concessions are set to end or reduce back to conventional levels:

The Skills and Training Boost ends on 30 June 2024. The boost provides a bonus deduction equal to 20% of eligible expenditure for external training provided to your workers for costs incurred between 29 March 2022 and 30 June 2024.
The Small Business Energy Incentive is scheduled to end on 30 June 2024, although legislation to introduce this concession still hasn’t passed through Parliament. The incentive is intended to provide an additional 20% deduction on the cost of eligible depreciating assets that support electrification and more efficient use of energy.

The instant asset write-off for businesses with group turnover of less than $10m is due to reduce back to $1,000 from 1 July 2024. The cost threshold is meant to be $20,000 for the 2024 financial year, but legislation relating to this measure hasn’t passed through Parliament yet.

RBA Governor Michelle Bullock stated, “Inflation is past its peak and heading in the right direction, but it is likely to return to target a bit more slowly than we previously thought.” While there have been encouraging signs, uncertainty remains. Domestically, inflation is persistent, growth has slowed but the labour market remains tight. And, the Australian economy remains at risk with uncertainty over the Chinese economy and ongoing international conflicts. At this stage, the RBA have not ruled out further interest rate increases.

The unemployment rate remains at 3.7% and the labour market tight. Wages grew 1.3% for the September 2023 quarter and 4.0% over the year, pushing wages to a 14 year high. High-skilled workers are particularly difficult to source, and we appear to have reached a point now where employers are unwilling to pay inflated salaries to acquire those willing to move.

There have been a myriad of changes and enhancements to workplace laws across 2023 and employers can expect greater scrutiny in 2024:

A 5.75% increase in the minimum wage to $23.23 per hour from 1 July 2023.
New rules and a 2 year limit to some fixed term employment contracts (no renewing).
A landmark case that defined how to determine whether a worker is a contractor or employee. The ATO has followed through with new rulings to ensure employers are paying the correct entitlements. It’s essential that employers have assessed contractors to ensure that they are classified correctly.
Greater flexibility for unpaid parental leave.

Income tax cuts and the end of some concessions

Bah humbug: The Christmas tax dilemma

Thu, 14 Dec 2023 10:01:00 GMT

If you really want to avoid tax on your work Christmas party then host it in the office on a workday. This way, Fringe Benefits Tax (FBT) is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee’s place of work is exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer, the ride home is exempt from FBT.

If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person if you want to avoid paying FBT. The downside is that the business cannot claim deductions or GST credits for the expenses if there is no FBT payable in relation to the party.

If the party is held somewhere other than your business premises, then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can potentially all be FBT-free. Just remember that the minor benefits exemption requires a number of factors to be considered, including the total value of associated benefits provided across the FBT year.

If entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses.

If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will pay FBT but you can also claim a tax deduction and GST credits for the cost of the event. Just bear in mind that deductions are only useful to offset against tax. If your business is paying no or limited amounts of tax, a tax deduction is not going to help offset the cost of the party.

$300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will result in a gift to the ATO at a rate of 47%. To qualify as a minor benefit, gifts also have to be ad hoc - no monthly gym memberships or giving one person multiple gift vouchers amounting to $300 or more.

Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is normally subject to the superannuation guarantee.

Aside from the tax issues, think about what will be of value to your team. The most appreciated gift is the one that means something to the individual. Giving a bottle of wine to someone who doesn’t drink, chocolates to a health fanatic, or time off to someone with excess leave, isn’t going to garner much in the way of goodwill. A sincere personal message will often have a greater impact than a generic gift.

The most effective way of sharing the Christmas joy with customers is not necessarily the most tax effective. If, for example, you take your client out or entertain them in any way, it’s not tax deductible and you can’t claim back the GST. There are specific rules designed to prevent deductions and GST credits from being claimed when the expenses relate to entertainment, regardless of whether there is an expectation of generating goodwill and increased business sales. Restaurants, a show, golf, and corporate race days all fall into the ‘entertainment’ category.

However, if you send your customer a gift, then the gift is tax deductible as long as there is an expectation that the business will benefit (assuming the gift does not amount to entertainment). Even better, why don’t you deliver the gift yourself for your best customers and personally wish them a Merry Christmas. It will have a much bigger impact even if they are not available and the receptionist tells them you delivered the gift.

From a marketing perspective, if your budget is tight, it’s better to focus on the customers you believe deliver the most value to your business rather than spending a small amount on every customer regardless of value. If you are going to invest in Christmas gifts, then make it something people remember and appropriate to your business.

You could also make a donation on behalf of your customers (where your business takes the tax deduction) or for your customers (where they receive the tax deduction).

2. The FBT Christmas party crunch

Don’t want to pay tax on Christmas? Here are our top tips to avoid giving the Australian Tax Office a bonus this festive season.

1. Keep team gifts spontaneous

3. Avoid client lunches and give a gift

Charities love cash. They don’t have to spend any of their precious resources to receive it – unlike a lot of charity dinners, auctions, and promotional campaigns. And, from a tax perspective, it’s the safest way to ensure that you or your business can claim a deduction for the full amount of the donation.

There are a few rules to giving to charities that make the difference between whether you will or won’t receive a tax deduction.

The charity must be a deductible gift recipient (DGR). You can find the list of DGRs on the Australian Business Register (use the advanced search) .

If you buy any form of merchandise for the ‘donation’ – biscuits, teddies, balls or you buy something at an auction – then it’s generally not deductible. Your donation needs to be a gift, not an exchange for something material. Buying a goat or funding a child’s education in the third world is generally ok because you are generally donating an amount equivalent to the cause rather than directly funding that thing.

The tax deduction for charitable giving over $2 goes to the person or entity who made the gift and whose name is on the receipt.

5. Christmas bonuses

If you are planning to provide your team with a cash bonus rather than a gift voucher or other item of property, then remember that this will be taxed in much the same way as salary and wages. A PAYG withholding obligation will be triggered and the ATO’s view is that the bonus will also be treated as ordinary time earnings (unless it relates specifically to overtime work) which means that it will be subject to the superannuation guarantee provisions.

The Christmas tax quick guide

Here’s our quick guide to the tax impact of Christmas celebrations. The information is for GST registered businesses that are not using the 50-50 split method for meal entertainment.

Merry Christmas!

Tue, 12 Dec 2023 09:39:00 GMT

From all of the team, we want to take this opportunity to wish you a safe and happy Christmas.

The year has gone quickly and has no doubt had its challenges. The holidays are an opportunity to take stock and revel in the spirit of the season.

We will look forward to working with you again in 2024 and making it the best possible year for you.

We wish you and your family the warmest of Christmas wishes.

Office closure

Our office will be closed for Christmas from 1:00pm on Friday 22nd December 2023 , and will reopen at 8:30am on Day, 8th January 2024 .

The controversial case of the taxpayer who claimed a loss on their home

Mon, 11 Dec 2023 09:34:00 GMT

In this case, the taxpayer successfully argued that the purchase and sale of the apartment was a short-term profit making venture and that the loss generated from this could be claimed as a tax deduction. The tax rules generally allow you to deduct losses that relate to a commercial activity, although you cannot claim the loss if it is private or capital in nature. The taxpayer argued that she acquired the apartment in order to make a short-term profit and that the loss that was made on the sale should be deductible, even though she had lived in the property as her private residence across the ownership period. The Australian Taxation Office (ATO), as you can imagine, had a different point of view.

The facts of the case were:

July 2015 – The taxpayer lived in a large family home. When her husband passed away, she entered into an ‘off-the-plan’ contract to purchase an apartment intended to be completed by 30 June 2019.

December 2016 – The taxpayer was notified that completion of the off-the-plan apartment was delayed until 30 June 2020.
May 2018 – Taxpayer settles on the sale of her family home on advice from her real estate agent that it was a good time to sell.
May 2018 – Taxpayer settled on another apartment, as a purchaser, in the same complex that had been completed. She had money from the sale of her family home that she could use, and only intended to keep the property for a short period of time as she needed to use the funds to settle the off-the-plan apartment. Her position was that it was an opportunity to make a profit.
April 2020 – The taxpayer entered into a contract to sell the apartment at a loss during the first COVID lockdown.
July 2020 – Settlement on sale of the apartment occurred.
July 2020 – The purchase of the off-the-plan apartment completed and was settled. A substantial portion of the proceeds of the sale of the other apartment, and some of the proceeds of the sale of the family home, were used to settle the off-the-plan apartment.

The Tax Commissioner’s position was that someone approaching the opportunity in a business-like manner as a profit-making venture would not live in the apartment and would have waited to sell if the market was not favourable.

The Tribunal set a low bar for proof of a profit-making intention and found that the fact that the taxpayer lived in the property was secondary to her profit-making intent.

The reason why this case is controversial is not simply because of the loss claimed by one taxpayer. It is because of the broader implications to property owners if the ATO determines that a transaction is commercial in nature and taxes any profit as ordinary income rather than under the Capital Gains Tax (CGT) provisions. For example, if the taxpayer in this case had made a profit instead of a loss, she would have paid tax on the profit at her marginal tax rate. She would not have been able to apply the main residence exemption or the CGT discount.

One of the important things to take from this case is that living in a property doesn’t necessarily guarantee that the sale of the property will be taxed under the CGT rules or will qualify for the main residence exemption. For example, property ‘flippers’ who buy and renovate a house may face a significant personal tax bill on any gain they make with no access to the concessions that exist within the CGT rules.

It will be some time before we know the full implications of this case and the ATO is yet to confirm whether it will appeal the decision. Either way, determining whether a transaction is taxed on revenue or capital account can be a complex process and it is important to seek advice before entering into transactions involving property.

A decision by the Administrative Appeals Tribunal has the tax world in a flurry after the Tribunal found in favour of a taxpayer who sold the apartment she lived in for a loss, then claimed the $265,935 loss in her tax return as a deduction.

When trust distributions to a company are left unpaid

Wed, 15 Nov 2023 01:30:00 GMT

What happens when a trust appoints income to a private company beneficiary but does not actually make the payment?

The tax treatment of this unpaid amount was at the centre of a recent case before the Administrative Appeals Tribunal (AAT) that saw a taxpayer successfully challenge the ATO’s long held position (Bendel and Commissioner of Taxation [2023] AATA 3074). For many years, the ATO’s position has been that if a trust appoints income to a private company beneficiary but does not actually make the payment, this unpaid amount can be treated as a loan. Under Division 7A of the tax rules, these loans can be taxed as unfranked dividends unless they are managed using a complying loan agreement with annual principal and interest repayments.

This AAT decision challenges an important ATO position, with the tax outcomes being potentially significant for trust clients that currently owe (or may have owed in the past) unpaid trust entitlements to related private companies.

But this is not the end of this story. On 26 October 2023, the Tax Commissioner lodged a notice of appeal to the Federal Court. There is no guarantee that the Federal Court will reach the same conclusion as the AAT. We will need to wait and see.

As the case progresses, we will let you know about the impact.

Warning: Redrawing investment loans

Tue, 14 Nov 2023 09:52:00 GMT

The ATO estimates that incorrect reporting of rental property income and expenses is costing around $1 billion each year in forgone tax revenue. A big part of the problem is how taxpayers are claiming interest on their investment property loans.

We’ve seen an uptick in ATO activity focussing on refinanced or redrawn loans. This activity is a result of a major data matching program of residential property loan data from financial institutions from 2021-22 to 2025-26. This data is being matched to what taxpayers have claimed on their tax returns. Those with anomalies can expect contact from the ATO to explain the discrepancy.

If you have an investment property loan and redraw on the loan for a different purpose to the original borrowing, the loan account becomes a mixed purpose account. Interest accruing on mixed purpose accounts need to be apportioned between each of the different purposes the money was used for.

On the other hand, if the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible.

For example, if you have redrawn on the loan to pay for a private holiday, or pay down personal debt, then the interest relating to this portion of the loan balance is not deductible. Not only will the interest expenses need to be apportioned into deductible and non-deductible parts, but repayments will normally need to be apportioned too.

Withdrawals from an offset account are treated as savings rather than a new borrowing. If you have a loan account and an interest offset account is attached to this account that reduces the interest payable on the loan, withdrawing funds from the offset account will typically increase the amount of interest accruing on the loan, but won’t change the deductible percentage of the interest expenses. That is, when you withdraw funds from the offset account this is really a withdrawal of savings and won’t impact on the extent to which interest accruing on the loan account is deductible.

If you have a home loan that was used to acquire your private home and you have funds sitting in an offset account, withdrawing those funds to pay the deposit on a rental property won’t enable you to claim any of the interest accruing on the home loan. However, if you redraw funds from the home loan to acquire a rental property then interest accruing on this portion of the loan should be deductible. The tax treatment always depends on how the arrangement is structured.

Think you might have a problem? Contact us and we can help investigate the issue before the ATO contact you.

Incorrect reporting of rental property income and expenses may be costing $1 billion each year in forgone tax revenue

When is food GST-free?

Sun, 12 Nov 2023 05:00:00 GMT

Back in 2000 when the Goods & Services Tax (GST) was first introduced, basic food was excluded to secure the support of the Democrats for the new tax regime. Twenty three years later, the result of this exclusion is an unwieldy dividing line between GST-free and taxable foods that is consistently tested and altered. It is this dividing line that US yoghurt giant Chobani Pty Ltd recently tested in a case before the Administrative Appeals Tribunal (AAT).

At the centre of the case was Chobani’s Flip Strawberry Shortcake flavoured yoghurt and whether the product, composed of a tub of strawberry flavoured yoghurt with a separate tub of baked cookie and white chocolate pieces, is subject to GST. If the two components were sold in isolation, the baked cookie pieces would be taxable and the yoghurt GST-free.

Chobani had originally treated the flip yoghurt range as GST-free, relying on a 2001 GST ruling that allowed “a supply that appears to have more than one part but is essentially a supply of one thing” to be a composite supply. A product that is a composite supply could be treated as GST-free if the other components did not exceed the lesser of $3 or 20% of the overall product. In Chobani’s case, this meant that they could treat the flip yoghurt as GST-free.

Then in 2021, the ATO advised Chobani that its position had changed and it intended to treat the flip yoghurt as a combination food and therefore taxable.

Under the GST system, ‘combination foods’ where at least one of the food components is taxable, are subject to GST. Lunch packs of tuna and crackers, for example, are a combination food and therefore GST applies to the whole product because it is intended that the tuna and crackers are eaten together. But, where the food is a ‘mixed supply’, where each item is separate from the other and not intended to be consumed together, the GST will apply (or not) to each individual product. An example would be a hamper.

In the Chobani case, the AAT found in favour of the Commissioner’s interpretation that the flip product was a combination food and therefore subject to GST on the whole product.

The outcome of the Chobani test case has a number of implications. The first is that the ATO has issued a new draft GST ruling on combination foods ( GST 2023/D1 ) replacing the previous guidance. The guidance states that three principles apply when determining whether there is a supply of a combination food:

There must be at least one separately identifiable taxable food.
The separately identifiable taxable food must be sufficiently joined together with the overall product.
The separately identifiable taxable food must not be so integrated into the overall product, or be so insignificant within that product, that it has no effect on the essential character of that product.

The second implication is that at least one classification on the ATO’s GST status of major product lines list will change. Weirdly, dip (with biscuits, wrapped individually and packaged together), was listed as a mixed supply, not a combination food.

In a previous case, Birds Eye (Simplot Australia) was also unsuccessful in its appeal to the Federal Court that their frozen vegetable products that combined omelette, rice or grains were GST-free. The Court determined that the foods were either prepared meals or a combination of foods and therefore taxable.

For food manufacturers, importers and distributors, it is important to keep up to date with the changing GST landscape and ensure that you are utilising the correct classifications - it’s a moving feast!

Chobani plain yoghurt is GST-free but Chobani’s ‘flip’ range is taxable? A recent case before the AAT demonstrates how fine the dividing line is between GST-free and taxable foods.

30% tax on super earnings on balances above $3 million

Sat, 11 Nov 2023 10:14:00 GMT

Treasury has released draft legislation for consultation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament.

From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications of your personal situation – there is no one size fits all strategy and what is best for you will depend on how a potentially wide array of factors impact on your individual scenario.

Draft legislation released for increasing the tax rate on earnings on superannuation balances above $3m in 2025.

Fixed-term employment contracts limited to 2 years

Sat, 11 Nov 2023 10:03:00 GMT

From 6 December 2023, some fixed-term contracts will no longer be allowed

From 6 December 2023, employers can no longer employ an employee on a fixed-term contract that:

is for 2 or more years (including extensions)
may be extended more than once, or
is a new contract:

• that is for the same or a substantially similar role as previous contracts

• with substantial continuity of the employment relationship between the end of the previous contract and the new contract, and either:

- the total period of the contracts is 2 or more years,

- the new contract can be renewed or extended, or

- a previous contract was extended.

The changes were introduced as part of the Pay secrecy, job ads and flexible work amendments. See the Fair Work Ombudsman’s website for more details.

Up to 10 years in prison for deliberate ‘wage theft’

Wed, 08 Nov 2023 10:31:00 GMT

Legislation currently being debated in Parliament will introduce a new criminal offence for intentional “wage theft”.

Legislation currently being debated in Parliament will introduce a new criminal offence for intentional “wage theft”. If enacted, in addition to the criminal offence, a fine will apply. The fine is three times the underpayment and:

For individuals - 5,000 penalty units (currently $1,565,000).
For businesses - 25,000 penalty units (currently $7,825,000).

The reforms are not intended to capture unintentional mistakes and a compliance ‘safe harbour’ will be introduced by the Fair Work Ombudsman for small businesses.

In addition to addressing wage theft, the Bill also seeks to:
Replace the definition of a ‘casual employee’ and create a pathway to permanent work.
Change the test for ‘sham contracting’ from a test of ‘recklessness’ to ‘reasonableness.’
Bolster the powers of the Fair Work Commission including the ability to set minimum standards for ‘employee-like’ workers including those in the gig economy.
Introduce a new offence of “industrial manslaughter” in the Work Health and Safety Act 2011.

The Bill introducing the reforms has been referred to the Senate Education and Employment Legislation Committee. The Committee is scheduled to report back in February 2024.

“Wage-theft” is illegal in Queensland, South Australia and Victoria under State laws. While the Federal Bill is not intended to interfere with State legislation, the impact of the interaction between the existing State legislation and the proposed Federal reforms is unclear.

Over the last two years, the Fair Work Ombudsman has recovered over $1 billion in back-payments, mostly from large corporates and universities. Court ordered penalties of $6.4 million were paid by employers across this same time period.

Workers owed $3.6bn in super guarantee

Mon, 06 Nov 2023 10:23:00 GMT

‘Payday’ super from 1 July 2026

If an employer fails to meet the quarterly SG contribution deadline, they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement within a month of the late payment. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of:

The employee’s superannuation guarantee shortfall amount – i.e., the SG owing.
10% interest p.a. on the SG owing for the quarter - calculated from the first day of the quarter until the 28th day after the SG was due, or the date the SG statement is lodged, whichever is later; and
An administration fee of $20 for each employee with a shortfall per quarter.

Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount.

And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings (OTE). An employee’s salary and wages may be higher than their OTE, particularly if you have workers who are paid overtime.

It's important that employers that have made late SG payments lodge a superannuation guarantee statement quickly as interest accrues until the statement is lodged. The ATO can also apply penalties for late lodgment of a statement, or failing to provide a statement during an audit, of up to 200% of the SG charge. And, where an SG charge amount remains outstanding, a company director may become personally liable for a penalty equal to the unpaid amount.

When SG is paid late

Single touch payroll (STP), the reporting mechanism employers must use to report payments to workers, provides a comprehensive, granular level of near-real time data to the regulators on income paid to employees. The ATO is now matching STP data to the information reported to them by superannuation funds to identify late payments, and under or incorrect reporting.

Late payment of quarterly superannuation guarantee is emerging as an area of concern with some employers missing payment deadlines, either because of cashflow difficulties (i.e., SG payments not put aside during the quarter), or technical issues where the timing of contributions is incorrect. Super guarantee needs to be received by the employee’s fund before the due date. Unless you are using the ATO’s superannuation clearing house , payments are unlikely to be received by the employee’s fund if the quarterly payment is made on the due date. The super guarantee laws do not have a tolerance for a ‘little bit’ late. Contributions are either on time, or they are not.

Many business owners assume that if they hire independent contractors, they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates slightly differently and, in some cases, genuine contractors can be treated as if they were employees. There are significant penalties faced by employers that get it wrong.

A genuine independent contractor who is providing personal services will typically be:

Autonomous rather than subservient in their decision-making;
Financially self-reliant rather than economically dependent on your business; and
Chasing profit (that is, a return on risk) rather than simply accepting a payment for the time, skill and effort provided.

The Government intends to introduce laws that will require employers to pay SG at the same, or similar time, as they pay employee salary and wages. The logic is that by increasing the frequency of SG contributions, employees will be around 1.5% better off by retirement, and there will be less opportunity for an SG liability to build up where the employer misses a deadline.

Originally announced in the 2023-24 Federal Budget, Treasury has released a consultation paper to start the process of making payday super a reality. Subject to the passage of the legislation, the reforms are scheduled to take effect from 1 July 2026.

What is proposed?

The consultation paper canvasses two options for the timing of SG payments: on the day salary and wages are paid; or a ‘due date’ model that requires contributions to be received by the employee’s superannuation fund within a certain number of days following ‘payday’. A ‘payday’ captures every payment to an employee with an OTE component.

The SGC would also be updated with interest accruing on late payments from ‘payday’.

Currently, 62.6% of employers make SG payments quarterly, 32.7% monthly, and 3.8% fortnightly or weekly.

We’ll bring you more on ‘payday’ super as details are released. For now, there is nothing you need to do.

Single touch payroll matched to super fund data

Superficially, the statistics on employer superannuation guarantee (SG) compliance look pretty good with over 94%, or over $71 billion, collected without intervention from the regulators in 2020-21.

The net gap in SG has also declined from a peak of 5.7% in 2015-16 to 5.1% in 2020-21. The COVID-19 stimulus measures helped drive up the voluntary contributions with the largest increase in 2019-20, which the Australian Taxation Office (ATO) says they “suspect reflects the link between payment of super contributions and pay as you go (PAYG) withholding by employers. PAYG withholding is linked to the ability to claim stimulus payments such as Cash Flow Boost.”

Despite these gains, a little adds up to a lot and 5.1% equates to a $3.6 billion net gap in payments that should be in the superannuation funds of workers. Lurking within the amount owed is $1.8 billion of payments from hidden wages. That is, off-the-books cash payments, undisclosed wages, and non-payment of super where employees are misclassified as contractors.

In addition, the ATO notes that as at 28 February 2022, $1.1 billion of SG charge debt was subject to insolvency, which is unlikely to ever be recovered. Quarterly reporting enables debt to escalate before the ATO has a chance to identify and act on an emerging problem.

Employers should not assume that the Government will tackle SG underpayments the same way they have in the past with compliance programs. Instead, technology and legislative change will do the work for them.

Workers are owed over $3.6 billion in superannuation guarantee according to the latest Australian Taxation Office estimates – a figure the Government and the regulators are looking to dramatically change.

The danger of misclassifying contractors

Self-education: What can you claim?

Mon, 16 Oct 2023 21:00:00 GMT

When your employment ends part the way through your course

While not always the case, one of the key challenges in claiming deductions for self-development or personal development courses is that the knowledge or skills gained are often too general. Take the example of a manager who is having difficulty coping with work because of a stressful family situation. She pays for and attends a 4-week stress management course.

In that case, the stress management course is not deductible because the course was not designed to maintain or increase the skills or specific knowledge required in her current position.

Overseas trips with some work thrown in

We’ve all had them. Conferences where you spend a few days in sessions and then a day (or more) of touring or golf. When the dominant purpose of the trip is related directly to your work, then the ATO are more accommodating. If the leisure time, for example an afternoon tour organised by the conference, is incidental to the conference itself, then you can claim the full conference expenses.

Where you are extending your stay beyond the conference dates and this isn’t considered incidental, then you apportion the expenses and only claim the portion related to the conference. Let’s say you attend a conference for four days, then spend another four days on holiday. Assuming the conference is directly related to your work, you can claim your expenses related to the conference (assuming they were not picked up by your employer), and half of your airfare (as it’s a 50/50 split on how you spent your time between the conference and recreation).

If you undertake study that is connected to your work you can normally claim your costs of that study as a tax deduction - assuming your employer has not already picked up your expenses. There is also no limit to the value of the deduction you can claim. While this all sounds great and very encouraging there are still issues to consider before claiming your Harvard graduate degree, accommodation, and flights as a self-education expense.

Clients are often surprised by what cannot be claimed. Self-education expenses are not deductible if you are undertaking the education to obtain a new job or something not connected to how you earn your income now. Take the example of a nurse’s aide who attendees university to qualify as a registered nurse. The university degree and the expenses associated with degree are not deductible as the nursing degree is not sufficiently connected to their current role as a nurse’s aide.

The ATO have recently released a new draft ruling on self-education expenses. While the ruling does not introduce new rules, it does reinforce what the ATO will accept…and what they won’t.

If your employment (or your income earning activity) ends part the way through completing a course, your expenses are only deductible up to the point that you stopped work. Anything from that point forward is not deductible (that is until you obtain a new role and assuming the course remains relevant).

Overseas study tours are deductible in limited circumstances. If you are travelling overseas, you need to prove that the dominant purpose of the trip is related to how you earn your income. Factors that help demonstrate this include the time devoted to the advancement of your work related knowledge, the trip not being merely recreational, and that the trip was requested by or supported by your employer. The ATO are strict on this. Take the example of a senior lecturer in history at a University. He takes a trip to China with his wife while on leave over the Christmas break to update his knowledge on his area of academic interest. While his job does not require him to undertake research, he incorporated some of the 600 photos he took and some of the learnings from the tour into the courses he teaches. Despite having a relationship to work, the trip is not deductible as, while relevant in some ways to his field of activity, it is incidental to the overall private and recreational nature of the trip.

Overseas conference with some recreation thrown in

Personal development courses

The Australian Taxation Office have released a new draft ruling on self-education expenses. We revisit the deductibility of self-education expenses and what you can and can’t claim.

Not fully deductible? Part of the course might qualify

If a particular course is not entirely deductible, a deduction may still be available for some of the course fees where there are particular subjects or modules in that course that are sufficiently related to your employment or income earning activities. In these cases, the course fees would be apportioned. Take the example of a civil engineer who is completing her MBA. While the MBA itself may not have a sufficient connection to her engineering role to be fully deductible, her expenses related to the project management subject she took as part of the degree could qualify.

Interaction with government assistance

If your course is a Commonwealth supported place, you cannot claim the course fees. But, the deductibility of course fees are not impacted merely because you borrow money to pay for those fees, for example a full-fee paying student using a government FEE-HELP loan to pay for course fees.

A warning on large claims

There is no limit on the amount you can claim as a self-education expense but the ATO is more likely to target large self-education expenses. For anyone who has completed post graduate study you know that these expenses can ratchet up very quickly, particularly when you add in any other expenses such as books or travel. It’s important to ensure that there is a clear connection between your current job or business activity and the self-education expenses before you claim them.

Airfares incurred to participate in self-education, provided you are not living at the location of the self-education activity, are deductible. Airfares are part of the cost of undertaking the self-education activities.

30% tax on super earnings above $3m

Fri, 13 Oct 2023 10:11:00 GMT

Treasury has released draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament and a step closer to reality.

The draft legislation appears largely unchanged from the Government’s original announcement.

The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years.

The ATO will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.

From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one size fits all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax efficient vehicle.

Draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025.

The ‘Airbnb’ Tax

Fri, 13 Oct 2023 09:57:00 GMT

Property investors that choose to utilise their property for short-term stays (or leave it vacant) are firmly in the sights of the regulators.

The Victorian Government’s recent Housing Statement announced Australia’s first short-stay property tax. The additional tax, which is scheduled to come into effect from 1 January 2025, is expected to generate $70 million plus annually. The Short Stay Levy will be set at 7.5% of the short stay accommodation platforms’ revenue – so, a few days in Melbourne at $850 will cost an extra $63.75 taking the stay to $913.75.

According to the statement there are more than 36,000 short stay accommodation places - with almost half of these in regional Victoria. More than 29,000 of those places are entire homes.

Airbnb’s ANZ Country Manager Susan Wheeldon however says that “short-term rentals in Victoria make up less than one percent of total housing stock. Acute housing issues existed long before the founding of Airbnb, and targeting these properties is not a long term solution.”

Property investors are now braced for an onslaught of similar taxes at either the local Government or State level.

For Victorian investment property owners this comes after a temporary land tax surcharge from the 2024 land tax year and for those keeping a property vacant, an increase to the absentee owner surcharge rate from 2% to 4% including a reduction in the tax-free threshold from $300,000 to $50,000 (for non-trust absentee owners).

Some local Government taxes on Airbnb style accommodation will be removed once the new tax comes into effect.

Some Councils already impose a surcharge on short stay accommodation. Brisbane City Council for example imposed a 50% rate surcharge on properties listed for short-term rental for more than 60 days a year in their 2022-23 Budget, only to increase it to 65% in 2023-24.

What happens overseas?

Bed taxes in some form are not uncommon internationally but it is unusual to isolate one form of tourist accommodation from another as the Victorian Government have chosen to do. Also unusual is the 7.5% rate – many local taxes on short stay accommodation are in the 5% range (despite California’s Transient Occupancy Tax of up to 15% depending on the region you are staying).

Globally, the idea of taxing vacant and short-term accommodation is also not new.

In British Columbia, the Underused Housing Tax - a 1% tax on the ownership of vacant or underused housing introduced from 1 January 2022 - has been credited with increasing the rental stock by up to 20,000 properties.

Taking the alternative route to freeing up rental stock, New York introduced new rules in September 2023 that severely restrict Airbnb style accommodation options. Hosts need to register with the city if they offer accommodation for less than 30 consecutive days (unless their building is exempt as a hotel or accommodation establishment). Under the new rules the host must permanently reside in the property - entire properties will no longer be available - and, only two guests are allowed. The platforms are responsible for monitoring and enforcing compliance with the new rules.

New York is not alone in curbing the rise of short-term rentals. Amsterdam, Paris and San Francisco limit the number of days in a year an entire residence can be listed – between 30 and 90 days.

Closer to home in Byron Bay, the Byron Bay Council will limit “non hosted holiday letting to 60 days per year for most of the Shire” from 23 September 2024.

But do restrictions on Airbnb create rental stock?

According to Professor Nicole Gurran , from the University of Sydney’s School of Architecture, Design and Planning, if Australia is serious about controlling short-term rentals to solve Australia’s long-term rental crisis, then more needs to be done.

“In comparison to much of the international regulation of the short-term rental market, Australia is very “light touch”. The overarching aim is to encourage the tourism economy.

While this might have been appropriate five years ago when the rental market was in better shape, and long-term housing demand focused on inner city areas, the current crisis demands a new approach. Regulations must be tailored to the conditions of local housing markets, rather than the one-size-fits-all approach that exists today,” Professor Gurran says.

In a 2017 study, Professor Gurran and Professor Peter Phibbs found that, Airbnb absorbed 7% of stock in one Sydney municipality.

So, where is all this going? Governments are unlikely not to take advantage of the opportunity to share in what has become a lucrative short-term rental market. What that looks like will really depend on the States and Territories. Beyond revenue, further regulation is likely to ensure that private gain from short-term rentals is not at the expense of supply of long-term accommodation.

20k deduction for 'electrifying' your business

Wed, 11 Oct 2023 08:34:00 GMT

Certain kinds of assets and improvements are not eligible for the bonus deduction, including where the asset or improvement uses a fossil fuel. So, hybrids are out. Solar panels and motor vehicles are also excluded.

In addition, the following assets are specifically excluded from the rules:

Assets, and expenditure on assets, that can use a fossil fuel;
Assets, and expenditure on assets, which have the sole or predominant purpose of generating electricity (such as solar photovoltaic panels);
Capital works (such as buildings and structural improvements);
Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles;
Assets and expenditure on an asset where expenditure on the asset is allocated to a software development pool; and
Financing costs, including interest, payments in the nature of interest and expenses of borrowing.

What does qualify?

Electricity is the new black. Gas and other fossil fuels are out. A new, limited incentive nudges business towards energy efficiency. We show you how to maximise the deduction!

The legislation contains a few examples of what would qualify:

Electrifying heating and cooling systems
Upgrading to more efficient fridges and induction cooktops (for example replacing gas cook tops)
Installing batteries and heat pumps
Installing an electric reverse cycle air conditioner instead of a gas heater
Replacing a coffee machine with a more energy efficient coffee machine if the manufacturer’s electricity consumption information supports this – keep the documentation!
Thermal storage that can store heat or cold from a renewable source
Solar thermal hot water system (assuming it meets the other criteria)

The legislation to implement the energy incentive is before Parliament. We’ll keep you updated on its progress. If you intend to make a major outlay to take advantage of the bonus deduction, talk to us first just to make sure it qualifies.

The small business energy incentive is the latest measure providing a bonus tax deduction to nudge the investment behaviour of small and medium businesses, this time towards more efficient energy use and electrification. Fossil fuels are out, gas is out, electricity is the name of the game.

Legislation before Parliament will see SMEs with an aggregated turnover of less than $50 million able to claim a bonus 20% tax deduction on up to $100,000 of their costs to improve energy efficiency in the business. But, the tax deduction is time limited. Assuming the legislation passes Parliament, you only have until 30 June 2024 to invest in new, or upgrade existing assets.

What doesn’t qualify?

How much?

Your business can invest up to $100,000 in total, with a maximum bonus tax deduction of $20,000 per business entity. The energy incentive is not provided as a cash refund, it either reduces your taxable income or increases the tax loss for the 2024 income year.

What qualifies?

The energy incentive applies to both new assets and expenditure on upgrading existing assets. There is no specific list of assets that can qualify. Instead, the rules provide a series of eligibility criteria that need to be satisfied.

First, the expenditure incurred in relation to the asset must qualify for a deduction under another provision of the tax law.

If your business is acquiring a new depreciating asset, it must be first used or installed for any purpose, and a taxable purpose, between 1 July 2023 and 30 June 2024. If you are improving an existing asset, the expenditure must be incurred between 1 July 2023 and 30 June 2024.

If your business is acquiring a new depreciating asset the following additional conditions need to be satisfied:

The asset must use electricity; and
There is a new reasonably comparable asset that uses a fossil fuel available in the market; or
It is more energy efficient than the asset it is replacing; or
If it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market; or
It is an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset.

If you are improving an existing asset the expenditure needs to satisfy at least one of the following conditions:

It enables the asset to only use electricity, or energy that is generated from a renewable source, instead of a fossil fuel;
It enables the asset to be more energy efficient, provided that asset only uses electricity, or energy generated from a renewable source; or
It facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source.

Legislating the ‘objective’ of super

Mon, 18 Sep 2023 06:04:00 GMT

The proposed objective of superannuation released in recently released draft legislation is: ‘ to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way .’

The significance of legislating the objective of super is that any future legislated changes to the superannuation system must be in line with this objective. It’s a fairly broad definition. For example, “equitable” seeks to address the distributional impact of superannuation policy. That is, latitude for the Government to target tax concessions to address differences in demographic factors and structural inequities including intergenerational inequity and outcomes for different groups including women, First Nations Australians, vulnerable members and low-income earners.

“Sustainable” encapsulates the changing needs of an ageing population including reducing the reliance on the Age Pension. The draft also alludes to the viability of the cost of tax concessions used to incentivise Australians to save for retirement.

“Deliver income” appears to reinforce the concept that superannuation savings “should be drawn down to provide individuals with a source of income during their retirement.”

More than 15 million Australians now have a superannuation account. Australia’s superannuation pool has grown from around $148 billion in 1992 to $3.5 trillion in 2023, and will continue to grow. Total superannuation balances as a proportion of GDP are projected to almost double from 116% in 2022–23 to around 218% of GDP by 2062-63.

The consultation also recognises the value of the superannuation system as a source of capital, “which can support investment in capacity-building areas of the economy where there is alignment between the best financial interests of members and national economic priorities.”

The case of the taxpayer who was paid too late

Fri, 15 Sep 2023 05:54:00 GMT

In this case, the taxpayer was a non-resident working in Kuwait. As part of his work, he was entitled to a ‘milestone bonus’ but, the employer was not in a position to pay the bonus at the time.

When the job ended, the taxpayer moved to Australia and became a resident. Once in Australia, the former employer honoured the performance bonus and paid it as a series of instalments.

The dispute between the ATO and the taxpayer started when the Commissioner issued amended assessments taxing the bonus payments received.

The dispute focused on when the bonus was derived. Had the bonus been derived while the taxpayer was still a non-resident then it would not have been taxed in Australia. This is because non-residents are normally only taxed in Australia on Australian sourced income. Employment income is typically sourced in the place where the work is performed (although there can be exceptions to this).

Australian tax case law says that employment income is normally derived on receipt. In the taxpayer’s case, this was when he received the payments from his former employer, not when he became entitled to the bonus. Because the taxpayer received the bonus when he was a tax resident of Australia, the bonus was subject to tax.

The difference for the taxpayer was quite dramatic. Had he been paid the bonus when it was due, he would have paid no tax as Kuwait does not impose income tax.

Please call us if you are concerned about tax residency or managing overseas income.

What a difference timing makes. A recent case before the Administrative Appeals Tribunal (AAT) is a reminder about the tax impact of the timing of employment income.

The Billion Dollar TikTok Scandal

Wed, 13 Sep 2023 05:48:00 GMT

It was promoted as a victimless hack that delivered tens of thousands of dollars into your bank account. Like any hack, taking part was as simple as following the instructions. The streamlined process designed to make it easy for a small business to start-up under Australia’s self-assessment system, also made it easy for the ‘TikTok fraud’ to go viral.

$1.7 billion paid out in fraudulent refunds, another $2.7bn in fraudulent claims stopped, around 56,000 alleged perpetrators and over 100 arrests to date. How did the TikTok tax scandal get out of control?

How did it happen?

At some point in 2021, videos started to spread that spelt out how to get the Australian Taxation Office (ATO) to deliver money into your account. Not quite a loan but a hack that sometimes saw tens of thousands delivered into accounts, no questions asked. As the message gained traction, and with more and more people validating the hack, facilitators emerged. All you had to do was hand over your personal details to the facilitators and they would take care of the rest.

The fraud saw offenders inventing fake businesses, applying for an Australian Business Number (ABN), many in their own names, then submitting fictitious Business Activity Statements (BAS) to claim GST refunds.

By late 2021, the Banks noticed the uptick in suspicious activity, mostly large refunds that were out of character for those accounts - in some cases, Centrelink recipients receiving large credits from the ATO. The banks froze a number of accounts and reported the suspicious matters as they are required to do under the Anti-Money Laundering & Counter Terrorism legislation, including to the ATO.

In April 2022, the ATO formed Operation Protego to disrupt the rapid increase in GST refund fraud by individuals that were not genuinely in business. By that stage however, the strategy had gone viral.

By May 2022, the average GST refund paid was $20,000, claimed by around 40,000 people. The ATO conceded around $850 million had been paid out in potentially fraudulent claims. By June 2022, that figure had blown out to $1.2bn but the ATO had stemmed the flow, rejecting $1.7bn in fraudulent claims. Search warrants and arrests of scheme promoters followed.

It's hard to understand how so many people - an estimated 56,000 Australians - made the leap in logic that some sort of hack had been discovered that enabled you to claim thousands of dollars in tax refunds as a ‘loan’ from the ATO. At the best of times the ATO is not known for its sporadic acts of generosity and laissez faire attitude to tax revenue. We know the opposite is true.

And, why so many accepted a view promoted on TikTok - the act of participating in the fraud required falsifying records at several stages and yet, failed to ring alarm bells. Unfortunately, naivety is not a compelling defence against fraud.

Caught in the web?

“The ATO has zero tolerance to any fraudulent or corrupt behaviour that may in any way impact the ATO.”

The TikTok tax fraud is extensive and has several layers of impact across the 56,000 taxpayers caught up in it.

The closest circle are the scheme promoters and facilitators. To date, more than 100 people have been arrested including members of outlaw motorcycle gangs, organised criminal organisations, and youth crime gangs – and more than 10 people have been convicted for their involvement.

The maximum penalty for promoting a tax fraud scheme is 10 years in prison.

The second circle are those actively engaged in the scheme - who declared that they were carrying on a business, established an ABN, and submitted GST refund claims for expenses they did not incur. For those who received fraudulent GST refunds, the money will need to be paid back, penalties are likely to apply, and there is a risk of criminal proceedings. If the ATO have contacted you, engagement will be the key to reducing penalties and preventing an escalation to criminal proceedings. If you were engaged in the GST refund fraud but the ATO has not contacted you yet, it will be important to work with us as soon as possible to declare and manage the issue.

Where to now for identify theft victims?

The third circle is comprised of the unwitting identity theft victims whose details have been used to generate fraudulent GST refunds. The ATO have had reports of people offering to buy and sell myGov details in order to access refunds. The conversation within the accounting community is that the ATO are inundated at present trying to manage the fallout, not just from the TikTok GST refund fraud but identity theft in general. So, keep on top of your myGov account and if you notice any unusual activity, contact us asap.

The TikTok fraud timeline

“Nobody is giving money away for free or offering loans that don’t need to be paid back.”
- ATO Deputy Commissioner and Chief of the Serious Financial Crime Taskforce (SFCT) John Ford.

The upshot to date; $2.7bn in fraudulent claims rejected before being paid, $1.7bn fraudulent payments made with around $66m recovered by 30 June 2022. Another $700m in liabilities, including around $300 million in penalties, raised in 2023-24.

The shape of Australia’s future

Sun, 10 Sep 2023 23:05:00 GMT

What will the Australian community look like in 40 years? We look at the key takeaways from the Intergenerational Report.

2. Services and who pays

3. The role of technology

Demographic ageing alone is estimated to account for around 40% of the increase in Government spending over the next 40 years.

The outcome of an ageing population, as you would expect, is increased demand for care and support services that will push the Federal Budget back to a point where deficits are the norm if the current policies remain in place.

From a consumer perspective, it also means that the trend towards user-pays will only increase. As individuals, we need to ensure that we have the means to fund our old age because Government resources will be limited by increasing demand and this demand is funded by a deteriorating percentage of workers contributing to tax revenue. It's also likely that we will need to look at how we generate income. For some that might mean working longer, for others it is value adding - creating, buying and selling assets in some form, whether that is business, innovation, or through more traditional assets such as property or financial products.

Superannuation the size of a nation

Australia currently has the fourth largest pool of retirement assets in the world, with total superannuation balances projected to grow from 116% of GDP in 2022-23 to around 218% by 2062-63. Our superannuation system will be what underwrites retirement for most Australians. At present, around 70% of people over aged pension age receive some form of Government income support. Over time, and as our superannuation system matures, this percentage is expected to decline sharply as a percentage of GDP with Government support supplementing rather than providing for retirement (the first generation of workers with superannuation guarantee throughout their working life hit retirement age around 2058).

However, the IGR points out that, “the cost of superannuation concessions will increase, driven by earnings on the larger superannuation balances held by Australians.” The proposed tax on future earnings on super balances above $3m may not be the last.

You can expect the management of superannuation to be a priority for Government to ensure that retirement savings are maximised to reduce the reliance on Government support, and to ensure that this enormous pool is leveraged for the gain of not only members, but the nation.

Growth of services

Like most advanced economies, global competition has shifted Australia’s industrial base from the production of goods to services. Ninety percent of jobs are now in services.

With an ageing population, demand for health and care services is expected to soar. People aged 65 or older currently account for around 40% of total Australian health expenditure, despite being about 16% of the population. The IGR estimates that the workforce required to support this sector will need to be twice the size of what it is now to meet demand by 2049-50.

The Government’s biggest spending pressures will be health, aged care, the NDIS, defence and interest payments on government debt. Of these, the NDIS is the fastest growing at 7% per year.

The 2023 Intergenerational Report (IGR) is a crystal ball insight into what we can expect Australian society to look like in 40 years and the needs of the community as we grow and evolve. It doesn’t map out our path to flying cars and Jetsons style robotic domestic help (unfortunately) but it does forecast structural trends that will give many of us a level of anxiety about what we need to be doing now to successfully navigate the future.

The report links the continued growth and prosperity of Australia to five significant areas of influence:

The speed of technological change is difficult to predict, and the IGR doesn’t attempt to make predictions. But what we do know is that technology has had a transformational impact on labour productivity (the value of output of goods and services produced per hour of work). Over the last 30 years, labour productivity has accounted for around 70% of the growth in Australia’s real gross national income. But, tempering this is a slowing of labour productivity growth since the mid-2000s.

We know technological disruption is coming and the debate about the role of artificial intelligence is only just beginning. We also know that unless technology is accessible, our future will be one polarised by those who have and have not benefited from technological change.

1. We’re ageing

increasing from 81.3 to 87 years and from 85.2 to 89.5 for women by 2062-63. And that’s a problem for the younger generation.

Who bears the burden of an ageing population?

Australia’s low birth rate, limited migration and increased longevity all have an impact. The old age percentage - the number of people aged 65 and over for every 100 people of traditional working age (15 to 64) in the population - will increase from 26.6% to 38.2%.

From a tax perspective, Australia’s reliance on personal tax means workers will bear an increasing proportion of the tax burden under current fiscal policy. In a recent interview, former Treasury boss Ken Henry labelled it an “intergenerational tragedy” with personal tax growing from 11.7% of GDP to 13.5% based on current policy. The report says that “only 12% of Australians aged 70 and over pay income tax and this age group now makes up 12.2% of the total population. This age group is expected to increase to 18.1% of the total population in 2062-63.” Wholesale tax reform will be required to prevent the growing tax burden on individuals dragging on the economy. With economic growth expected to slow to 2.2% from 3.1% over the next 40 years, the solution will not magically arise from corporate Australia. If it was not for our high rate of inflation you would think an increase to the GST was imminent.

4. Climate change transformation

There are two key aspects to climate change; the cost of rising temperatures, and the opportunity created by the shift to renewable energy.

Temperatures are anticipated to increase by 1.5 degrees before 2100, potentially before 2040.

From 1960 to 2018, climate disasters reduced annual labour productivity in the year they occurred by about 0.5% in advanced economies. However, for severe climate disasters labour productivity is estimated to be around 7% lower after three years. With rising temperatures, floods, bushfires and other extreme weather events are expected to increase in frequency and severity. The impact of climate change spelt out in the report is sobering with disruptions and changing patterns impacting agriculture, tourism, recreation and industries that rely on labour intensive outdoor work.

On the positive side, Australia could benefit from new “green” industries, such as hydrogen and other clean energy exports, critical minerals and green metals. It is also likely to drive new, innovative ideas as businesses invest in and develop low emissions technologies, providing a source of future productivity growth in a more sustainable economy. Australia’s potential to generate renewable energy more cheaply than many countries could also reduce costs for both new and traditional sectors, relative to the costs faced by other countries.

5. Geopolitical risks

Australia relies on open international markets. Trade disputes and military conflicts pose an external threat to Australia’s economy and well being. While the IGR cannot predict the nature of geopolitical events, it notes the importance of investing in national security, presumably this includes cybersecurity, ensuring access to international markets, and deepening regional partnerships to reduce supply chain vulnerabilities.

Thinking of subdividing? The tax implications and pitfalls of small-scale subdivisions

Thu, 10 Aug 2023 20:00:00 GMT

Tax treatment of the subdivision

Subdividing land

The tax treatment of even a small subdivision can become complex very quickly and tax applies according to the circumstances. You cannot simply assume that just because it’s a small development, any profit from the eventual sale will be taxed as a capital gain and qualify for CGT concessions.

In general, if you own a property personally, it has been held and used for private purposes over an extended period, you subdivide it and sell the newly created block, then capital gains tax is likely to apply to any gain you make. The gain is recognised from the point you first acquired the land, although you will ned to apportion the amount paid for the property between the subdivided lots. If you are subdividing a property that contains your home – the main residence exemption will not generally be available if you sell a subdivided block separately from the block containing your home, even if the land has only ever been used for private purposes in connection with your home.

If a property is initially owned jointly but the property is subdivided and the lots split between the owners, then this will normally trigger upfront tax implications even though the land hasn’t been sold to an unrelated party yet. Arrangements like this (referred to as partitioning) can be complex to deal with from a tax perspective.

Developing a property

But what happens if you develop the land? It’s not uncommon for people to decide to subdivide and develop their block by building a house or duplex and then selling the new dwelling.

When someone develops a property with the intention of selling the finished product at a profit in the short term, there is a risk that this will be taxed as income rather than under the capital gains tax rules. This limits the availability of CGT concessions (such as the 50% CGT discount) and will often expose the owners to GST liabilities as well. This can be the case even for one-off property developments.

Let’s look at an example. Claude purchased his home on 1 July 2001 for $300,000. In July 2020, Claude began investigating the idea of subdividing his block and building a new house, then selling it. A registered valuers report on the subdivision says that the original house and land is now worth $360,000, and the subdivided lot is worth $240,000 (the valuation is an important step before commencement to prevent any debates with the ATO). Claude decides to go ahead and build a dwelling on the newly subdivided block and takes out a loan of $400,000 for the development. He intends to pay off the loan as soon as the house sells.

In July 2021, Claude sells the subdivided block and new home for $1,210,000 (GST-inclusive).

Here is how the tax works for Claude’s scenario:

Claude made an overall economic gain of $580,000.
The overall gain ($580,000) is based on the GST exclusive sale proceeds ($1,100,000, although we are assuming that the GST margin scheme isn’t applied) minus the GST exclusive development expenses ($400,000) and the original cost attributable to the newly subdivided lot of $120,000 ($300,000 × 40%).
The increase in the value of the newly created subdivided lot from when it was originally acquired (1 July 2001) up to when the profit-making activities began (1 July 2020) should be treated as a capital gain.
The value of the newly created subdivided lot at the time Claude began to undertake profit-making activities on 1 July 2020 was $240,000. The original cost, attributable to the newly created subdivided lot was $120,000 (40% × $300,000) on 1 July 2001. This means that there is a capital gain of $120,000.
As Claude has held the subdivided block for greater than 12 months he is entitled to a 50% CGT discount, hence there is a discounted capital gain of $60,000.
The increase in the value of the newly created subdivided lot from when the profit-making activities began up to the time of sale should be treated as ordinary income.
The net profit ($460,000) will be based on the GST exclusive sale proceeds ($1,100,000) minus the GST exclusive development expenses ($400,000) and the value of the subdivided lot ($240,000).

If Claude is not carrying on a business, he cannot claim a deduction for the development expenses as they are incurred. They will be taken into account in determining the net profit on sale.

If Claude finished the development but decided not to sell the property, then this would complicate the income tax and GST treatment. We would need to explore what Claude plans to do with the property.

Do I need to register for GST?

.The details have all been worked out with Council, the builders, and the bank. But, one important aspect has been left out; the tax implications.

Many small-scale developers often assume that their tax exposure is minimal – but this is not always the case and the tax treatment of a subdivision project can significantly impact on cashflow and the financial viability of the project.

New guidance from the Australian Taxation Office (ATO) walks through the tax impact of small-scale subdivision projects. We look at some of the leading issues:

If you are an individual who is subdividing land that has been held and used for private purposes then you might not need to GST, although this will depend on the situation. However, if you are engaged in a property development business or a one-off project that is undertaken in a business-like manner, then it is more likely that you would need to register for GST.

In Claude’s scenario, because the projected sale price of the developed land was above the GST threshold of $75,000, he will probably need to register for GST. This will mean that he:

Has a ‘default’ GST liability of $110,000 on the sale price of the developed block, although it might be possible to reduce the GST liability by applying the GST margin scheme
Needs to provide a notification to the purchaser of the amount at settlement to be withheld and paid to the ATO
Is able to claim $40,000 credits for the GST included in the development expenses (subject to the normal GST rules), and
Must report these transactions by completing business activity statements.

The tax consequences of subdivision and other property projects can be complex. If you are contemplating undertaking a subdivision and any property development activities, please contact us and we can help walk you through the scenarios and tax impact of the project.

You’ve got a block of land that’s perfect for a subdivision

Succession: What does it take to and your business to the next generation?

Wed, 09 Aug 2023 20:00:00 GMT

Capability and willingness of the next generation

A realistic assessment of whether the business can continue successfully after the transition. In some cases, the older generation will pursue generational succession either as a means of keeping the business in the family, perpetuating their legacy, or to provide a stable business future for the next generation. While reasonable objectives, they only work where there is capability and willingness. Communication of expectations is essential.

Capital transfer

Consider the capital requirements of the exiting generation. To what extent do you need to extract capital from the business at the time of the transition? The higher the level of capital needed, the greater the pressure on the business and the equity stakeholders.

In many cases, the incoming generation will not have sufficient capital to buy-out the exiting generation. This will require the vendors to maintain a continuing investment in the business or for the business to take on an increased level of debt. Either scenario needs to be assessed for its sustainability at a business and shareholder level. In some scenarios the exiting owners will transition their ownership on an agreed timeframe.

Managing remuneration

In many small and medium businesses, the owners arrange their remuneration from the business to meet their needs rather than being reasonable compensation for the roles undertaken. This can result in the business either paying too much or too little. Under generational succession, there should be an increased level of formality around compensation. Compensation should be matched to roles, and where performance incentives exist, these should be clearly structured.

Who has operational management and control?

Transition of control is often a sensitive area. It is essential to establish and agree in advance how operating and management control will be maintained and transitioned. This is important not only for the generational stakeholders but also for the business. Often the exiting business owners have a firm view on how the business should be run. Uncertainty in the management and decision making of the business can lead to confusion or a vacuum - either will have an adverse impact. Tensions often arise because:

The incoming generation want freedom of decision making and the ability to put their imprint on the business.
Without operating control, they feel that they have management in name only.
The exiting generation believe that their experience is necessary to the business and entitles them to a continued say.
A perception that capital investment should equate to ultimate operating control.
An uncertainty by either or both generations about the extent of their ongoing roles.

Agreeing transition of control in advance, on an agreed timeframe, can significantly reduce tensions.

Transition timeframes and expectations

Generational succession is often a process rather than an event. The extended timeframe for the transition requires active management to ensure that there are mutual expectations and to avoid the process being derailed by frustration.

The established generation may have identified that they want to scale down their business involvement and bring on other family members to succeed them. This does not necessarily mean that they want to withdraw completely. An extended transition period is not uncommon and can often assist the business in managing the change. This can also work well in managing income and capital withdrawal requirements.

The need for greater formality and management structure

A danger for many SMEs is the blurring of the boundaries between the role of the Board, shareholders, and management. With generational succession, this can become even more pronounced. Formality in these structures is important, with clear definitions of the roles and clarification of the expectations. For example, who should be a director and what is their role?

For some, the role of the family is managed by a family constitution – an agreed set of rules. For others there will be an external advisory group that advises the family to ensure that the required independent expertise is brought to bear.

Successfully managing generational change is a process we can help you navigate. Talk to us about how we can help to structure an effective transition path.

Succession is not just a topic for a TV series or billionaire families, it’s about successfully transitioning your business and maximising its capital value for you, the owners.

When it comes to generational succession of a family business, there are a few important aspects:

Succession of the business;
Succession of the ownership of the business;
Succession planning/pathway; and
Moving from a business family to an investment family.

For generational succession to succeed, even if that succession is the sale of the business and the management of the sale proceeds for the benefit of the family, communication is essential. Where generational succession fails, it is often because succession has not been formalised until a catalyst event or retirement planning requires it.

A concept of ‘legacy’ is not enough. Successful succession occurs when the guiding principles of governance, family rules, aligning values, dispute resolution, succession and estate planning are managed well before discontent tears it apart.

Generational succession usually involves the transfer of an interest in a business to another generation of a family (usually younger). It is often a family in business rather than simply a family business.

“One-third of Australian family businesses expect that the next generation will become the majority shareholders within 5 years time. Yet only 25% of Australian family businesses have a robust, documented and communicated succession plan in place.”

PWC Family Business Survey

The options for how a movement of an interest may occur are many and varied but usually focus on the transfer of some or all of the equity held in the business over a period or at a defined point in time and the payment of some form of consideration for the equity transferred. Alternatively, a part of the equity transfer may ultimately be dealt with through the estate.

Generational succession comes with its own set of issues that need to be dealt with:

What is the end game for your business?

Why is my tax refund so small?

Wed, 09 Aug 2023 01:41:00 GMT

There is a psychology to tax refunds that successive Governments have been reticent to tamper with. As a nation, Australia relies heavily on personal and corporate income tax, with personal income tax including taxes on capital gains representing 40% of revenue compared to the OECD average of 24%. And, for the amount we pay, we expect a reward.

The reward is in the form of tax deductions that reduce the amount of net income that is assessed for tax purposes and tax offsets that reduce the tax payable, generating a refund for some. And, refunds have a positive impact on tax compliance.

As part of the previous Government’s efforts to flatten out the progressive individual income tax system, a time-limited low and middle income tax offset was introduced. The lifespan of the offset was extended twice, partly as a stimulus measure in response to COVID-19. The offset delivered up to $1,080 from 2018-19 to 2020-21, and up to $1,500 in 2021-22 for those earning up to $126,000. This was a significant boost for many people each tax time and bolstered the tax returns of millions of Australians. For many, the end of this offset has meant that their tax refund has reduced dramatically compared to previous years.

It depends on how you look at the statistics. Australia relies heavily on income tax, collecting 40% of tax revenue from personal income. That makes Australia the fourth highest taxing nation for personal tax in the OECD – but we were second highest in 2019 if that makes you feel better. But, if you are looking at take home pay there is a separate measure for that. The Employee tax on labour income looks at our take home pay once tax is taken out and benefits have been added back in. This shows that the take home pay of an average single worker is 77% of their gross wage compared to the OCED average of 75.4%. For the average worker with a family (one married earner with 2 children), once tax and family benefits are taken into account, the Australian take home pay average is 84.1% compared to the OECD average of 85.9%. All of this means that Australia is a high taxing nation but returns much of that in the form of means tested benefits.

Australia also does not have social security contributions like other nations. These contributions represent an average of 27% of the total tax take for OECD nations.

And, because Australia has a progressive tax system, the pain of taxation is felt more by higher income earners. The top 11.6% of Australian income earners contribute 55.3% of the tax revenue from personal income tax.

With the final round of legislated income tax cuts due to commence on 1 July 2024, this should reduce the overall dependence on personal income tax relative to corporate and other taxes.

So, do we personally pay more tax than other nations? If you are a high-income earner the answer is likely to be yes. If not, the answer is no.

As Benjamin Disraeli reportedly said, “…lies, damn lies, and statistics”. It’s all how you read it.

The tax refund many Australians expect has dramatically reduced. We show you why.

Do we pay more tax than other nations?

Is a second job worth it?

In an Uber the other day, the driver revealed that he had become a driver to pay for his second mortgage. He invested in property but with interest rates spiking, the only way he could hold onto the property was to earn additional income. His “day job” starts early and ends at 3pm at which time he heads off to start driving.

He is not alone. The latest stats from the Australian Bureau of Statistics reveal that the number of workers holding multiple jobs has increased by 2.1% since December 2022 – in total, Australia has 947,300 people holding multiple jobs or 6.6% of the working population.

The reason why people take on second jobs is varied. For some, it is to manage increasing costs, for others it is to start up a new venture but with the security of a regular income stream from their primary occupation.

Is it worth it?

From a tax perspective, Australia has a progressive income tax system – the more you earn the more tax you pay, and access to social benefits tapers off. It’s important when looking at a second job to understand your overall position – how much you are likely to earn, your costs of generating income, and what this income level will mean.

The trap for many picking up a ‘gig economy’ second job is that they are often independent contractors. That is, you are responsible for managing your tax affairs. All Uber drivers for example, are required to hold an ABN and be registered for GST. There is a compliance cost to this and from a cashflow perspective, 1/11th of the fee collected needs to be remitted to the Tax Office once a quarter. It’s important to quarantine both the GST owing and income tax to ensure you have the cashflow to pay the tax when it is due. The upside is you can claim the expenses related to your second job.

If you are taking on a second job, ensure that your tax-free threshold applies to your highest paying job from a PAYG withholding perspective.

What changed on 1 July 2023

Tue, 18 Jul 2023 20:00:00 GMT

Cents per kilometre increase

Employers & business

Superannuation guarantee increases to 11% from 10.5%
National and Award minimum wage increases take effect.
The minimum salary that must be paid to a sponsored employee - the Temporary Skilled Migration Income Threshold - increased to $70,000 from $53,900.
Work restrictions for student visa holders reintroduced to 48 hours per fortnight.
The cap on claims via the small claims court procedures for workers to recover unpaid work entitlements increases from $20,000 to $100,000.
Energy Bill Relief Fund for small business kicks in – it will apply to your energy bills if you meet the criteria.
Sharing economy reporting to the ATO commences for electronic distribution platforms.

Superannuation

Superannuation guarantee increases to 11%
Indexation increases the general transfer balance cap to $1.9 million.
Minimum pension amounts for super income streams return to default rates.
SMSF transfer balance event reporting moves from annual to quarterly for all funds.

For you and your family

The new 67 cent fixed rate method for working from home deductions – make sure you have a record of when you work from home. The ATO won’t accept a simple “I work from home every Wednesday” x 8 hours calculation.
Access to the first home loan guarantee expands to “friends, siblings, and other family members.”
The Medicare low income threshold has increased for 2022-23.
The child care subsidy will increase from 10 July 2023 for families with household income under $530,000. See the Services Australia website for details.
New parents able to claim up to 20 weeks paid parental leave.
Access the age pension increased to 67 years of age.

For employers, incorrectly calculating wages is not portrayed as a mistake, it’s “wage theft.” Beyond the reputational issues of getting it wrong, the Fair Work Commission backs it up with fines of $9,390 per breach for a corporation. In 2021-22 alone, the Fair Work Ombudsman recovered $532 million in unpaid wages recovered for over 384,000 workers.

On 1 July 2023, award rates of pay and the National Minimum Wage increased by 5.75%.

It is critically important that all employers review their payroll systems and ensure they are applying the correct rates and Awards.

The National Minimum Wage applies to workers not covered by an Award or registered agreement. From 1 July 2023, the National Minimum wage has increased to $23.23 per hour ($882.80 per week for a full time employee working a standard 38 hours week).

For casuals, the minimum wage including the 25% casual loading is a minimum of $29.04 per hour.

For workers under an Award, adult minimum award wages increase by 5.75% applied from the first full pay period on or after 1 July 2023. Proportionate increases apply to junior workers, apprentice and supported wages.

In addition, the superannuation guarantee increased from 10.5% to 11% on 1 July 2023.

If the employment agreement with your workers states the employee is paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then their take home pay might be reduced by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund. For employees paid a rate plus superannuation, then their take home pay will remain the same and the 0.5% increase will be added to their SG payments.

The cents per kilometre rate for motor vehicle expenses for 2023-24 has increased to 85 cents.

Important: 1 July 2023 wage increases

Backing a winner: Digital games tax

Mon, 17 Jul 2023 04:29:00 GMT

The way the rules work is that any expenditure that a company incurs in relation to the development of the qualifying game is eligible expenditure…unless it is specifically excluded. A company develops a game by doing any of the activities necessary to complete, port, update, improve or maintain an eligible game.

The legislation takes a further step by specifically including employee remuneration or independent contractors engaged by the company to carry out work on the development of the game (excluding bonuses linked to the performance of the company or the game). Prototyping is also specifically included as is underlying game technology.

Employees that are not developing the game, for example admin staff or overseas contractors, are excluded. As are corporate costs like business overheads, marketing, travel, entertainment etc.

Who is eligible?

What is development expenditure?

The global digital games industry is worth around $250 billion and in Australia, grew 22% between 2020 and 2021 generating $226.5 million in income and employing over 1,300 fulltime workers. And, it’s an industry the Government wants to support with a new tax offset.

The Digital Games Tax Offset is equal to 30% of the company’s total qualifying Australian development expenditure incurred from 1 July 2022. Companies can claim up to $20 million per company (or group of companies) per year (to reach the cap a company would need to spend around $66.7 million in eligible expenditure).

State based tax incentives are also available in South Australia, Victoria and New South Wales offering an additional 10% and Queensland offering 15% on top of the federal support. Globally, a 40% tax offset is standard for this industry so the tax offset brings Australia back into a competitive position.

Companies that are Australian tax residents or foreign tax residents with a permanent establishment in Australia can qualify.

To access the offset, the company needs a certificate issued by the Arts Minister following the completion of a new digital game, the porting of a digital game to a new platform, or for ongoing development of one or more existing digital games during the income year. This certificate then determines the offset claimed in the tax return with the Minister determining the amount of qualifying expenditure. More information will be available on the arts.gov.au website in early July 2023.

The company’s qualifying Australian development expenditure incurred needs to be at least $500,000 (could be over multiple years).

The digital games and interactive entertainment sector is the largest creative sector in the world and one of the fastest growing industries worldwide.

What games are eligible?

A digital game that can receive a classification and is made available to the general public over the internet (i.e., games developed for in-house purposes don’t qualify). The game does not include gambling or gambling like elements (loot boxes are likely to make a game ineligible if for example, the virtual items can be sold for currency) nor is used for advertising or for commercial purposes.

Australian digital games successes

Remember Fruit Ninja? Fruit Ninja, founded by HalfBrick , became a sensation in 2015 with over 1 billion downloads. Who knew a game that slices fruit with a sword would capture so much attention. Anyone with kids would have seen Crossy Road developed by Melbourne based Hipster Whale. Ninety days after it release it had 50 million downloads, earning over $10m. The Sims Freeplay was created by a merger of Melbourne studios Iron Monkey and Firemint when they were purchased by EA Games. Then there is Melbourne based Big Ant Studios, one of the world’s biggest sports game developers and known for games such as the Tennis World Tour Game, Cricket 22 and an upcoming Rugby World Cup 2023 game.

The 120% technology and skills ‘boost’ deduction

Wed, 12 Jul 2023 23:47:00 GMT

Almost a year after the 2022-23 Federal Budget announcement, the 120% tax deduction for expenditure by small and medium businesses (SME) on technology, or skills and training for their staff, is finally law. But there are a few complexities in the timing - to utilise the technology investment boost, you had to of purchased the technology and when it comes to acquiring eligible assets, installed it ready for use by 30 June 2023; that’s just seven days from the date the legislation passed Parliament.

The 120% skills and training, and technology costs deduction for small and medium business have passed Parliament. We’ll show you how to take maximise your deductions.

Who can access the boosts?

The 120% skills and training, and technology boosts are available to small business entities (individual sole traders, partnership, company or trading trust) with an aggregated annual turnover of less than $50 million. Aggregated turnover is the turnover of your business and that of your affiliates and connected entities.

$20k technology investment boost

The Technology Investment Boost provides SMEs with a bonus deduction for expenses and depreciating assets for digital operations or digitising from 7:30pm (AEST) on 29 March 2022 until 30 June 2023.

You ‘incur’ an expense when you are in debt for it; this might be a tax invoice or it might be a contract where you are legally liable for the cost.

For depreciating assets, like computer hardware, there is an extra step. The technology needs to have been purchased and installed ready for use. For example, if you ordered 10 computers, you need to have received the computers and had them set up ready to use by at least 30 June 2023. Ordering them on 29 June won’t be enough to claim the boost if you did not receive them.

The types of expenses that might be eligible for the technology boost include:

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; or
Cyber security - cyber security systems, backup management and monitoring services.

The technology also must be “wholly or substantially for the purposes of an entity’s digital operations or digitising the entity’s operations”. That is, there must be a direct link to your business’s digital operations. For example, claiming the drone you bought at say Christmas 2022 won’t be deductible unless your business is, for example, a real estate agency that needed a drone to take aerial images of client homes to market on their website. The expense needs to relate to how the business earns its income, in particular its digital operations.

Repair and maintenance costs can be claimed as long as the expenses meet the eligibility criteria.

Where the expenditure has mixed use (i.e., partly private), the bonus deduction applies to the proportion of the expenditure that is for business use.

There are a few costs that the technology boost won’t cover such as costs relating to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells. The boost will not apply to:

Assets that you purchased but then sold within the relevant period (e.g., on or prior to 30 June 2023).
Capital works costs (for example, improvements to a building used as business premises).
Financing costs such as interest expenses.
Salary or wage costs.
Training or education costs, that is, training staff on software or technology won’t qualify (see Skills and Training Boost).
Trading stock or the cost of trading stock.

Let’s look at the example of A Co Pty Ltd (A Co) that purchased multiple laptops on 15 July 2022 to help its employees to work from home. The total cost was $100,000. The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use.

As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense. A Co can claim the cost of the laptops ($100,000) as a deduction under the temporary full expensing in its 2022-23 income tax return. It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return.

The $20,000 bonus deduction is not paid to the business in cash but is used to offset against A Co’s assessable income. If the company is in a loss position, then the bonus deduction would increase the tax loss. The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies.

The good news for many eligible businesses is that your technology subscriptions and other products you use in your business might qualify for the boost.

The boost is claimed in your tax return with the extra 20% sitting on top your normal claim. That is, however the way the expense or asset is claimed (immediately or over time), the bonus 20% applies in the same way.

The Skills and Training Boost

The Skills and Training Boost gives you a 120% tax deduction for external training courses provided to employees. The aim of this boost is to help SMEs grow their workforce, including taking on less-skilled employees and upskilling them using external training to develop their skills and enhance their productivity.

Sole traders, partners in a partnership, independent contractors and other non-employees do not qualify for the boost as they are not employees. Similarly, associates such as spouses or partners, or trustees of a trust, don’t qualify.

As always, there are a few rules:

Registration for the training course had to be from 7:30pm (AEST) on 29 March 2022 until 30 June 2024. If an employee is part the way through an eligible training course, enrolments in courses or classes after 29 March 2022 are eligible, not before.
The training needs to be deductible to your business under ordinary rules. That is, the training is related to how the business earns its income.
A registered training provider needs to charge your business (either directly or indirectly) for the training (see What organisations can provide training for the boost).
The training must be for employees of your business and delivered in-person in Australia or online.
The training provider cannot be your business or an associate of your business.

Training expenditure can include costs incidental to the training, for example, the cost of books or equipment necessary for the training course but only if the training provider charges the business for these costs.

Let’s look at an example. Animals 4U Pty Ltd is a small entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 for the employee to undertake external training in veterinary nursing. The training meets the requirements of a GST-free supply of education. The training is delivered by a registered training provider, registered to deliver veterinary nursing education.

The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct. In this case, the full $3,500 is deductible as a business operating expense. Assuming the other eligibility criteria for the boost are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.

In this example, the bonus deduction available is $700. That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700. If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175. This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.

What organisations can provide training for the boost?

Not all courses provided by training companies will qualify for the boost; only those charged by registered training providers within their registration. Typically, this is vocational training to learn a trade or courses that count towards a qualification rather than professional development.

Qualifying training providers will be registered by:

Tertiary Education Quality and Standards Agency ( search the register – includes States and Territories)
Australian Skills Quality Authority (ASQA)
Victorian Registration and Qualifications Authority ( search the register )
Training Accreditation Council of Western Australia

While some training you might want to have engaged might not be delivered by registered training organisations, there is still a lot out there, particularly the short-courses offered by universities, or the flexible courses designed for upskilling rather than as a degree qualification. If you have recently completed performance reviews for staff and training is part of their development pathway, it might be worth exploring.

2023 - 2024 Budget

Wed, 10 May 2023 01:01:00 GMT

The ‘ace in the hole’ of the 2023-24 Federal Budget was the $4.2bn surplus; the first in 15 years driven by a surge in the corporate and individual tax take.

Right to super to be enshrined in National Employment Standards

Tue, 09 May 2023 20:00:00 GMT

The Government has announced that it will enshrine a right to superannuation payments in the National Employment Standards (NES).

Currently, workers not covered by a modern award or an enterprise agreement containing a term requiring an employer to make superannuation contributions have to rely on the ATO to recover their lost superannuation entitlements.

By bringing the right to superannuation into the NES, workers will have the right to directly pursue superannuation owed to them. Employers may also face civil penalties if they do not comply with the entitlement.

Penalties of up to $82,500 per breach apply to companies that are found to have contravened the NES.

The ATO’s most recent estimate of unpaid superannuation indicates that workers lost $3.4 billion in unpaid super in 2019‑20.

Question of the month: Company loan to pay down the mortgage

Mon, 08 May 2023 20:00:00 GMT

This might initially sound like a brilliant strategy but what is really happening is that you are using company funds to derive a personal benefit. Doing this once might not attract attention, but doing this more than once might trigger a deemed unfranked dividend under Division 7A. Section 109R is designed for scenarios like this. If this occurs, the repayment you made will be ignored, meaning that a deemed dividend could be triggered in relation to the funds initially borrowed from the company unless a complying loan agreement is put in place, in which case minimum loan repayments would need to be made to prevent a deemed dividend from arising.

For example, let's assume you are a shareholder of the company (or an associate of a shareholder) and you borrow money from the company on 1 July 2022. This loan would generally fall within the scope of Division 7A, but a deemed dividend can be avoided if the loan is fully repaid by the earlier of the due date and actual lodgement date of the company's 2023 tax return.

However, if you repay the loan but it appears that you intend to borrow a similar or larger amount from the company when making the repayment then the repayment can be ignored. The main exception to this is where the repayment is made in a way that is taxable to the individual (e.g., dividends or directors’ fees are set-off against the loan balance).

One of the most common situations where section 109R could apply is where funds are taken from the company bank account and placed into a director's home loan offset account. Even if the funds are transferred back to the company before the end of the year, there is a significant risk of section 109R applying if the pattern repeats. That is, the money will be treated as a dividend and taxed as assessable income.

A friend’s accountant suggested that they could reduce interest on non-deductible debt by using company cash to offset their personal mortgage, then transferring the cash back by 30 June. Is this an acceptable strategy?

Access to home guarantee scheme expanded to friends and siblings

Sun, 07 May 2023 20:00:00 GMT

From 1 July 2023, access to the Government’s Home Guarantee Scheme will be expanded to joint applications from “friends, siblings, and other family members” and to those who have not owned a home for at least 10 years.

The eligibility criteria for access to the First Home Guarantee Scheme and Regional First Home Buyers Scheme will be expanded. From 1 July 2023, the schemes will no longer be limited to individuals and couples who are married or in de facto relationships, but will also include eligible friends, siblings, and other family members for joint applications. In addition, the requirement for the applicants to be Australian citizens at the time they enter the loan has been extended to include permanent residents.

The schemes guarantee part of a first home owner’s home loan enabling them to purchase a home with as little as 5% deposit without paying Lenders Mortgage Insurance. Guarantees are capped at 15% of the value of the property. Thirty five thousand places are available for the First Home Guarantee Scheme each financial year. From 1 October 2022 there will be ten thousand places available each financial year until 30 June 2025 for the Regional First Home Buyers Scheme.

Eligibility to the Family Home Guarantee will also be extended. From 1 July 2025, the scheme will no longer be restricted to single parents with at least one dependant natural or adopted child, but will also be available to borrowers who are single legal guardians of dependent children such as aunts, uncles and grandparents.

The Family Home Guarantee guarantees the home loan of an eligible single parent with at least one dependent child enabling them to purchase a home with as little as 2% deposit without paying Lenders Mortgage Insurance. The guarantee is capped at 15% of the value of the property. Five thousand places are available to the scheme each year to 30 June 2025.

$20k Small Business Energy Incentive

Fri, 05 May 2023 20:00:00 GMT

In a pre-Budget announcement, the Government has committed to a Small Business Energy Incentive Scheme that offers a bonus tax deduction of up to $20,000.

The Small Business Energy Incentive encourages small and medium businesses with an aggregated turnover of less than $50 million to invest in spending that supports “electrification” and more efficient use of energy.

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

If your business is contemplating upgrading to improve energy efficiency, it’s worth waiting to see the detail of the proposal. We’ll bring you more details of the scheme and how your business might benefit as soon as they are released.

Look out for our 2023-24 Budget update with the details important to you, your business, and your superannuation.

‘OnlyFans’ Tax Risk Warning

Fri, 05 May 2023 05:23:00 GMT

Back in October 2022, OnlyFans CEO Ami Gan announced that the platform had reached a milestone - paying out $10 billion to content creators since its launch in 2016. While known for its adult content, the OnlyFans CEO intends to broaden the platform’s scope and provide a means for other content creators – chefs, personal trainers, etc – to utilise its subscription and reward model to generate income. While there are plenty of stories of content creators generating large incomes from the platform like Perth creator Lucy Banks who told Channel 7 she earnt $60,000 in one month, the average income per month is reportedly around USD $150-$180. Creators might also receive ‘gifts’ in various forms from their subscribers.

OnlyFans is not the only platform generating revenue for Australians; there are plenty of other stories. Google’s AdSense calculator estimates that for finance channels with 50,000 monthly views, estimated income is $15,012 ($9,390 for beauty & fitness channels). The message is, there are a lot of content creators generating benefits in a wide variety of forms and the Tax Office wants to ensure everyone is crystal clear about their expectations.

The explosion of OnlyFans, YouTubers, TikTokers and others all offer an opportunity for ‘content creators’ to profit from the audiences they generate. But now the Tax Office has given notice to the booming industry.

How content creators are taxed

A new update released by the Australian Taxation Office (ATO) in April outlines the regulator’s expectations for how content creators will be assessed for tax purposes:

Income tax on money, gifts and goods

If you make an income as a content creator, then it’s likely it will be assessed for tax purposes unless what you are doing is a genuine hobby with no expectation of generating a profit (see When is a side hustle a business?) . For subscriber-based sites like OnlyFans, there is normally no question about the profit-making expectation.

The ATO’s guide also makes it clear that assessable income covers not only money but appearance fees, goods you receive, cryptocurrency, or gifts from fans. And, this is where the problem lies for most content creators. Income in the form of money is easy to track and report. Non-monetary income in the form of goods is not so easy. Let’s say a company sends you a handbag with a retail value of $800. The bag is yours to keep. The Tax Office expects you to declare the market value of the bag as income and pay tax on that income. If you receive multiple items throughout the year, or larger inducements like a destination holiday, then this might create a cashflow problem when you need to pay real money to the Tax Office for a ‘free’ product.

The ATO’s blanket statement that all ‘gifts’ and products should be reported as assessable income fails to recognise that it is not always quite that simple in practice. If you create content as a hobby and not as a profit-making venture for example, and a company sends you an unsolicited gift, the position is a little less clear. It really comes down to the specific scenario.

The timing of when you receive income is also important for content creators. The tax rules consider that you have earned the income “as soon as it is applied or dealt with in any way on your behalf or as you direct”. If you are an OnlyFans content creator for example, this is when your OnlyFans account is credited, not when you direct the money to be paid to your personal or business account. So, squirrelling it away from the ATO in your platform account won’t protect you from paying tax on it. And, from 1 July 2023, a new reporting regime will require electronic distribution platforms to report their transactions to the ATO. The regime starts with ride sharing and short-term accommodation platforms, then extends to all other platforms, including OnlyFans, from 1 July 2024.

Do I need to register for GST?

Generally, once you earn or expect to earn $75,000 or more per annum, you will need to register for GST. The exception to the $75,000 threshold is Uber and other ride-sourcing drivers who must have an ABN and be registered for GST regardless of how much they earn.

However, even if a content creator is required to register for GST, this doesn’t necessarily mean that all of the money and goods they receive will trigger a GST liability. For example, the GST rules contain some special provisions which sometimes enable supplies made to foreign resident customers to be GST-free (although they still normally need to be taken into account in determining whether the supplier needs to register for GST).

Even if GST-free income is received from foreign resident customers, it will normally still be possible to claim back GST credits for the expenses incurred in connection with these activities.

What deductions can I claim?

The upside of being a profit-making venture is that if you spend money to generate income, you can claim a deduction for certain expenses that directly relate to that income. Items such as video production equipment, microphones, online stores etc., might be deductible although in some cases the deductions will be spread over a number of income years. However, you can’t normally claim items such as cosmetic surgery, gym memberships, ‘every day’ clothes, or the cost of your hairdresser ‘because you need to look good’. The Tax Office does not consider that these are directly related to how you earn your income and that in many cases, these are still primarily private expenses (see the ATO’s occupation specific guides for what you can claim).

When is a side hustle a business?

The distinction between something you do on the side and carrying on a business can be a fine line. There is no one test for what determines whether you are carrying on a business versus a hobby but factors such as the regularity of your transactions, whether or not you are promoting yourself as a business (developing a brand name etc.,), if you engage in marketing activities, whether you intend to develop a business and make a profit (or have the capacity to generate a profit over time), the size, scale and permanency of your activities, and whether you operate in a business-like manner, all go toward determining whether what you are doing is a business or merely a hobby.

If your activities are just a hobby then the income is not assessable, and the expenses are not deductible. If you are carrying on a business, then you need to declare the income earned but you also get to claim deductions for the cost of the business activities (although this still needs to be analysed to see whether amounts can be deducted upfront or over a period of time).

ATO Rental Property Blitz

Thu, 04 May 2023 01:01:00 GMT

The interest component of your investment property loan is generally deductible. However, if you redraw on your invest loan for personal purposes, interest on this portion of the loan will not be deductible. This means that interest expenses will need to be apportioned into deductible and non-deductible parts and repayments will often need to be apportioned too. If the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible.

Deductions claimed for repairs and maintenance is an area that the Tax Office always looks closely at so it’s important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can be claimed immediately, the deduction for capital works is generally spread over a number of years.

Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves a replacement or renewal of a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:

Replacement of an entire asset (for example, a complete fence, a new hot water system, oven, replacing a shower curtain with a glass wall, etc.)
Improvements and extensions.

Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible.

The ATO’s assessment, based on previous data matching programs, is that there is a tax gap of around $1 billion from incorrect reporting of rental property income and expenses. And, they would like that back now please.

As a result, banks and other financial institutions will be required to hand the ATO residential investment loan data on an estimated 1.7 million rental property owners for the period from 2021-22 through to 2025-26.

The data collected will include:

identification details (names, addresses, phone numbers, dates of birth, etc.)
account details (account numbers, BSB's, balances, commencement and end dates, etc.)
transaction details (transaction date, transaction amount etc.)
property details (addresses, etc.)

In addition to identifying whether landlords are declaring their residential investment property income at all, the data matching program is looking specifically at how rental property loan interest and borrowing expense deductions have been reported in the rental property schedules, and whether net capital gains have been declared for property used to generate income.

Banks are not the only source of data. In a complimentary program, the ATO is targeting rental property management software. Over the last decade, much of the financial management of residential rental property has moved online, facilitated by various platform providers. The ATO will require these rental property software providers to provide details of property owners including their bank details, income, expenses and the amount of those expenses, and details of their associated rental properties and agents. Data collection of the estimated 1.6 million individuals in this data program will cover the period from 2018-19 to 2022-23.

With that, let’s recap on the common problem areas:

Borrowing costs

You can claim a deduction for borrowing costs (typically over five years) such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legals on the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance. If the loan is repaid early or refinanced, the whole amount including mortgage discharge expenses and penalty interest can often be deductible.

Claiming interest and redrawing on the loan

The Australian Taxation Office (ATO) has launched a full-on assault on rental property owners who incorrectly report income and expenses.

Repairs or maintenance

Budget 2023-24

Sun, 16 Apr 2023 20:00:00 GMT

Little has been released to date on the impending Budget beyond the tax on super balances above $3m and the decision not to extend the temporary $1,500 low and middle income tax offset beyond 30 June 2023.

Cost of living is a focus but on this, the Government is walking a tightrope between easing pressure without increasing inflation.

In the election cycle, if there is going to be a tightening, the mid-term Budgets are the time to do it. The Government will undoubtedly look at concessions provided within the tax system and whether those concessions meet their stated objective and when it comes to spending, potentially redraw the allocations. Some of the areas to watch include:

The legislated stage three tax cuts , that collapse the 32.5% and 37% tax brackets to a single rate of 30% for those with assessable income between $45,000 and $200,000 are not due to commence until 1 July 2024. The Government committed to keeping the tax cuts during the election and can bypass the issue until the 2024-25 Budget, but we’ll see.
Provision for announced defence spending .
Active support to develop a viable clean energy industry and transition to clean energy (see the joint submission from the Business Council of Australia, Australian Council of Trade Unions, World Wide Fund for Nature-Australia and the Australian Conservation Foundation).
Productivity measures - Temporary full expensing - the productivity measure designed to encourage business investment that enables a business to fully expense the cost of depreciable assets in the first year of use – is set to expire on 30 June 2023. The Government will either extend, redevelop the small business instant asset write-off, or remove the concession altogether.
Technology and training boosts - In the 2022-23 Federal Budget, the former Government announced that it would provide certain business taxpayers with ‘bonus’ tax deductions for investing in employee training or improving digital operations. The Skills and Training Boost allows small businesses (aggregated turnover less than $50 million) to claim a 120% deduction for eligible expenditure incurred on external training for employees between 29 March 2022 and 30 June 2024. The Technology Investment Boost provides a 120% deduction for eligible expenses that are incurred for the purposes of improving digital operations or digitising business operations. This can include the cost of depreciating assets. The boost is aimed at costs incurred between 29 March 2022 and 30 June 2023 and is limited to a maximum bonus deduction of $20,000. But, the legislation enabling both boosts has not passed Parliament. There is an opportunity in the Budget to extend the scope and nature of the concession.

The 2023-24 Federal Budget will be released on Tuesday, 9 May 2023. Look out for our update the next day on the important issues to you, your superannuation and your business.

Company money: A guide for owners for owners

Sat, 15 Apr 2023 20:00:00 GMT

Repaying money loaned to the company

Many private companies are set up with a relatively small amount of share capital. However, if a company has a larger share capital balance then there might be scope for the company to undertake a return of share capital to the shareholders. Whether this is possible will depend on the terms of the company constitution and there are some corporate law issues that need to be addressed.

From a tax perspective, a return of share capital will normally reduce the cost base of the shares for CGT purposes, which means that a larger capital gain could arise on future sale of the shares but there won’t necessarily be an immediate tax liability. Having said that, there are some integrity rules in the tax system that need to be considered. The risk of these rules being triggered tends to be higher if the company has retained profits that could be paid out as dividends.

Dividends: Paying out profits

When you start up a business, inevitably, it consumes not just a lot of time but a lot of cash and much of this is money you have already paid tax on. So, it only seems fair that when the business is up and running the business can pay you back. Right?

Repaying share capital

If you have lent money to your company, you can draw this money back out as a loan repayment. The loan repayment is not deductible to the company but any interest payments made to you will be as long as the borrowed money has been used in the company’s business activities (assuming interest has actually been charged on the loan).

Conversely, any repayments made by the company on the loan principal are not income for tax purposes but you will need to declare any interest earned in your income tax return. All loans, including the loan term and repayments, should be documented.

Dividends basically represent company profits being paid out to the shareholders of a company. If the company has franking credits from income tax it has paid, the dividends might be franked and the credits can often be used by the shareholder to reduce their personal tax liability.

When a dividend is paid by a private company it must provide a distribution statement to the shareholders within four months after the end of the financial year. This gives private companies up to four months after the end of the financial year to work out the extent to which dividends will be franked.

If any of the shares in the company are held by a discretionary trust then there are some additional issues that will need to be considered, including whether the trust has a positive amount of net income for the year, whether the trust has made a family trust election for tax purposes and who will become entitled to distributions made by the trust for that year.

There a myriad of ways owners look for payback from a company they have invested their time and money into it from dividends, salary and wages, jobs for sometimes underqualified family members to cash advances and personal expenses like school fees and nights out picked up as a company expense. But, once the cash is in the company, it is company money.

We look at the flow of money in and out of a company and the problems that trip business owners up.

Shareholder loans, payments and forgiven debts: Using company money

There are some rules in the tax law (known as Division 7A) that determine how money taken out of a company is treated. Division 7A is a particularly tricky piece of tax law designed to prevent business owners accessing funds in a way that circumvents income tax. While amounts taken from a company bank account by the owners are often debited to a shareholder’s loan account in the financial statements, Division 7A ensures that any payments, loans, or forgiven debts are treated as if they were dividends for tax purposes unless there is a loan agreement in place which meets certain strict requirements. These ‘deemed’ dividends cannot normally be franked.

If you have taken money out of the company bank account then the main ways of avoiding this deemed dividend from being triggered are to ensure that the loan is fully repaid or placed under a complying loan agreement before the earlier of the due date and actual lodgement date of the company’s tax return for that year. To be a complying loan agreement the agreement requires minimum annual repayments to be made over a set period of time and there is a minimum benchmark interest rate that applies – currently 4.77% for 2022-23.

For example, if your company is paying school fees for your kids, or you take money out of the company bank account to pay down your personal home loan, if you don’t pay back this amount or put a complying loan agreement in place then this amount is likely to be treated as a deemed unfranked dividend. That is, you need to declare this amount in your personal income tax return as if it was a dividend and without the benefit of any franking credits. This means that even though the company might have already paid tax on this amount, you will be taxed on it again without the ability to claim a credit for the tax already paid by the company (causing double taxation of the same company profits).

The rules are very strict when it comes to loan repayments. If a repayment is made but the same amount or more is loaned to the shareholder shortly afterwards then there are some special rules that can apply to basically ignore the repayment. There are some exceptions to these rules and the position needs to be managed carefully to avoid adverse tax implications.

What sharing platforms are sharing with the ATO

Fri, 14 Apr 2023 20:00:00 GMT

From 1 July 2023, a new reporting regime will require platforms that enable taxi services including ride sourcing, and short-term accommodation to report their transactions to the ATO each year. From 1 July 2024, the regime will expand to include all other platforms.

While the legislative instrument for the reporting regime is still in draft (see LI 2022/D27 ), it is expected that platform providers will report their transactions to the ATO every six months.

What information on sellers will the ATO know?

The platforms will submit data on the sellers for transactions on their platform including:

ABN and business / trading name (where applicable)
First, middle and surname/family name (for individuals)
Date of birth (for individuals)
Residential or business address
Email address and telephone numbers
Bank account details.
And, for platforms facilitating short-term accommodation:
Listed property name
Listed property address
Number of nights booked.

In addition, the platforms will provide aggregate quarterly data on the value of transactions, industry types, total gross income etc.

The reporting regime does not include platforms that simply match suppliers to sellers and are not engaged in the transaction such as quotes for hiring tradies where the job is not accepted through the website.

Selling a business? The pros and cons of earn-out clauses

Thu, 13 Apr 2023 19:45:00 GMT

Earn-out clauses for the sale of a business are increasingly common. We look at the positives and negatives that every business owner should consider.

Business transactions often include earn-out clauses where the vendors ‘earn’ part of the purchase price based on the performance of the business post the transaction. Typically, an earn-out will run for a period of one to three years post transaction date.

There are two main reasons to include an earn-out in a sale:

To bridge a gap in the sale price expectations between the vendor and the purchaser. The earn out represents an ‘at risk’ form of consideration. If the business produces the result, the vendors are rewarded through
To incentivise the vendors who are continuing to work in the business and maintain the growth momentum of the business post sale.

Advantages of earn-outs include:

The ultimate sale price has a performance component to it – both buyer and seller benefit.
May assist in achieving a sale where a price impasse would otherwise prevent the sale.
If the calculation of the earn-out is transparent and easily measurable, there should be no dispute between the parties.
Creates equity where the business has lagging income, new business initiatives in play at the time of sale or a high growth rate.
The incremental sale price can be effectively funded by the business out of realised growth.

The key to an effective earn-out is in their construction, both from a commercial and a legal perspective. Get them right and they can enhance the continuity and succession of a business.

How Does Tax Apply to Electric Cars?

Thu, 13 Apr 2023 04:23:00 GMT

Just in time for the Fringe Benefits Tax (FBT) year that started on 1 April, the Australian Taxation Office (ATO) has released new details on electric vehicles.

If your employer provides you with the use of a car that is classified as a zero or low emissions vehicle there is an FBT exemption that can potentially apply to the employer from 1 July 2022, regardless of whether the benefit is provided in connection with a salary sacrifice arrangement or not. The FBT exemption should normally apply where:

The value of the car is below the luxury car tax threshold for fuel efficient vehicles ($84,916 for 2022-23) when it was first purchased. If you buy an EV second-hand, the FBT exemption will not apply if the original sales price was above the relevant luxury car tax limit; and
The car is both first held and used on or after 1 July 2022. This means that the car could have been purchased before 1 July 2022, but might still qualify for the FBT exemption if it wasn’t made available to employees until 1 July 2022 or later.

The exemption also includes associated benefits such as:

Registration
Insurance
Repairs or maintenance, and
Fuel, including electricity to charge and run the vehicle.

But, it does not include a charging station (see How do the tax rules apply to home charging units? ).

While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments.

The FBT exemption for electric cars

Who the FBT exemption does not apply to

By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders are not employees and cannot access the exemption personally.

If you are a beneficiary of a trust or shareholder of a company, the exemption can only apply if the benefit is provided in your capacity as an employee or as a director of the entity (you need to be able to show you have an active role in the running of the entity).

How do the tax rules apply to home charging units?

The ATO has confirmed that charging stations don’t fall within the scope of the FBT exemption for electric cars. This means that FBT could be triggered if an employer provides a charging unit to an employee.

If an employee purchases a home charging unit then it might be possible to claim depreciation deductions for the cost of the unit over a number of income years if the unit is used to charge a vehicle that is used for income producing purposes. However, if an employee is only using the vehicle for private purposes then the cost of the charging unit is a private expense and not deductible.

What about the cost of electricity?

A friend of mine travels a lot for work and used to rack up large travel expenses…right up until he switched to an electric vehicle. Now it costs him 3 cents per km in electricity.

Because it is often difficult to distinguish home electricity usage, the ATO has set down a rate of 4.20 cents per km for running costs for EVs provided to an employee (from 1 April 2022 for FBT and 1 July 2022 for income tax).

If you use this rate, you cannot also claim any of the costs associated with costs incurred at commercial charging stations. It is one or the other, not both.

You also have the option of using actual electricity costs if you can calculate them accurately.

What will the ATO be Asking about your Holiday Home?

Wed, 08 Mar 2023 19:00:00 GMT

Taxpayers claiming deductions on holiday homes are in the ATO’s sights.

The ATO is more than a little concerned that people with holiday homes are claiming more deductions than they should and have published the starting questions they will be asking to scrutinise claims:

How many days was it rented out and was the rent in line with market values?
Where do you advertise for rent and were any restrictions placed on tenants?
Have you, your family or friends used the property?

The problem is blanket claims for the holiday home regardless of the time the home was rented out or available for rent. You will need to apportion your expenses if:

Your property is genuinely available for rent for only part of the year.
Your property is used for private purposes for part of the year.
Only part of your property is used to earn rent.
You charge less than market rent to family or friends to use the property.

The ATO has also indicated that deductions might be limited if a property is only made available for rent outside peak holiday times and the location of the property (or other factors) mean that it is unlikely to be rented out during those periods.

The regulator is also likely to be suspicious if the owner claims that the property was genuinely available for rent during peak holiday periods but wasn’t deriving any income during those periods. This might indicate that the property was really being used for private purposes or that the advertised rental rate was unrealistic.

Whether a property is genuinely available for rent is a matter of fact. Factors that help demonstrate a property is genuinely available for rent include; it is available during key holiday periods, kept in a condition that people would want to rent it, tenants are not unreasonably turned away, advertised in ways that give it broad exposure to possible tenants, and the conditions are not so restrictive that tenants are unlikely to rent the property.

The ‘Super’ Wars

Tue, 07 Mar 2023 19:00:00 GMT

What is the purpose of superannuation? At first glance, the consultation released by Treasury in February titled Legislating the objective of Superannuation sounds innocuous enough. The consultation seeks to anchor future policies relating to superannuation to a legislated objective:

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

But what seems self-evident has opened a Pandora’s Box of what superannuation is not. If superannuation is to “preserve savings”, that is, restricting access to superannuation savings to retirement only, by default it is not a means of accumulating wealth in a concessionally taxed environment. It is not a strategy to manage intergenerational wealth. The definition would also prevent initiatives such as the COVID-19 early access scheme used widely during the pandemic to give those in financial distress access to quick cash (over 3 million people withdrew $37.8 billion from their superannuation funds). And, it is not a method of purchasing a home sooner.

As an aside, the Treasurer points out that the average super balance in Australia is $150,000 - taking account of all those with a super balance including new entrants into the workforce. For those 65 and over, the average balance is around $400,000 across all income brackets.

A consultation paper released by Treasury has sparked a national debate about the role, purpose and access to superannuation ahead of the 2023-24 Federal Budget.

Superannuation and national building

The second component of the Treasury consultation is nation building. At a recent speech, the Treasurer stated, “to my mind, defining super’s task as delivering income for retirement isn’t to narrow super’s role in our economy…it’s to elevate it, and broaden it.” The consultation states:

“There is a significant opportunity for Australia to leverage greater superannuation investment in areas where there is alignment between the best financial interests of members and national economic priorities, particularly given the long‑term investment horizon of superannuation funds.”

The compulsory superannuation guarantee (SG) was introduced in 1992 at a rate of 3% rising to 9% by July 2002. Now, Australia’s superannuation pool has grown from around $148 billion in 1992 to over $3.3 trillion. It now represents 139.6% of gross domestic product (GDP) and is projected to grow to around 244% of GDP by 30 June 2061. Australia’s pool of pension assets is now one of the largest in the world, and the fourth largest in the OECD.

The consultation does not define how this ambition would be achieved.

*The Treasurer has ruled out changes to the existing early access hardship provisions for super.

The Federal Budget is released on 9 May 2023. Look out for our update with all the relevant news to you, your business and your super.

Future earnings for super balances above $3m taxed at 30% from 2025-26

The Government has announced that from 2025‑26, the 15% concessional tax rate applied to future earnings for superannuation balances above $3 million will increase to 30%.

The concessional tax rate on earnings from superannuation in the accumulation phase will remain at 15% up to $3m. From $3m onwards, the rate will increase to 30%. The amendment applies to future earnings; it is not retrospective.

80,000 people are expected to be impacted by the measure.

The announcement doesn't propose any changes to the transfer balance cap or the amount that a member can have in the tax-free retirement phase.

1 July 2023 Super Balance Increase but no Change for Contributions

The general transfer balance cap (TBC) – the amount of money you can potentially hold in a tax-free retirement account, will increase by $200,000 on 1 July 2023 to $1.9 million. The TBC is indexed to the consumer price index each December.

The TBC applies individually. If your transfer balance account reached $1.7m or more at any point before 1 July 2023, your TBC after 1 July 2023 will remain at $1.7m. If the highest amount in your account was between $1 and $1.7m, then your cap is proportionally indexed based on the highest ever balance your transfer balance account reached.

That is, the ATO will look at the highest amount your transfer balance account has ever been, then apply indexation to the unused cap amount.

For example, if you started a retirement income stream valued at $1,275,000 on 1 October 2022 and this was the highest point your account reached before 1 July 2023, then your unused cap is $425,000 ($1.7m-$1.275m). This unused cap amount is used to work out your unused cap percentage ($425k/$1.7m=25%). The unused cap percentage is then applied to the indexation increase ($200k*25%=$50k) to create your new TBC of $1,750,000.

But don’t worry, you don’t have to calculate this yourself, you can see your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov.

The caps on the contributions you can make into super however, will remain the same. That is, $27,500 for concessional contributions and $110,00 for non-concessional contributions. The contribution caps are linked to December’s average weekly ordinary time earnings (AWOTE) figures.

What’s the Deal with Working from Home?

Mon, 06 Mar 2023 22:50:00 GMT

The ‘actual’ method

Previously, there were two fixed rate methods to choose from for the 2021-22 income year:

A cover-all 80 cents per hour rate for expenses incurred while working from home (which was available from 1 March 2020). This COVID-19 related rate was intended to cover all additional running expenses incurred while working from home; or
If you had a space dedicated to work but were not running a business from home, you could claim 52 cents for every hour you worked from home to cover the running expenses of your home. This rate doesn’t cover certain items such as the depreciation of electronic devices, which can be claimed separately.

It’s clear that working from home arrangements are here to stay for many workplaces even though COVID restrictions have eased. So, from the 2022-23 financial year onwards, the ATO has combined these two fixed rate methods to create one revised method accessible by anyone working from home, regardless of whether they have a dedicated space or are just working at the kitchen table.

The new rate is 67 cents per hour and covers your energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. You can separately claim the cost of the decline in value of assets such as computers, repairs, and maintenance for these assets, and if you have a dedicated home office, the cost of cleaning the office. If there is more than one person working from the same home, each person can make a claim using the fixed rate method if they meet the basic eligibility conditions.

What proof do the ATO need that I am working from home?

To use the fixed rate method, you will need a record of all of the hours you worked from home. The ATO has warned that it will no longer accept estimates or a sample diary over a four week period. For example, if you normally work from home on Mondays but one day you have an in-person meeting outside of your home, your diary should show that you did not work from home for at least a portion of that day.

Having said that, the ATO will allow taxpayers to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023.

There is nothing in the ATO guidance to suggest that claims are limited to standard office hours. That is, if you work from home outside standard office hours or over the weekend, then make sure you keep an accurate record of the hours you are working so that you can maximise your deductions.

You also need to keep a copy of at least one document for each running cost you have incurred during the year which is covered by the fixed rate method. This could include invoices, bills or credit card statements. Where bills are in the name of one member of a household but the cost is shared, each member of the household who contributes to the payment of that expense will be taken to have incurred it. For example, a husband and wife, or flatmates where they jointly contribute to costs.

You need to keep these records for five years so that if the ATO come calling, you can prove your claim. If this proof is not available at the time, the deduction will be denied. If your work from home diary is electronic, ensure you can access this diary over time (such as producing a PDF summary of your calendar clearly showing the dates and times of your work at the end of each financial year).

The Australian Taxation Office (ATO) has updated its approach to how you claim expenses for working from home.

Some people might find that the actual method produces a better result if their expenses are higher. As the name suggests, you can claim the actual additional expenses you incur when you work from home (and reduce the claim by any personal use and use by other family members). However, you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work.

Using this method, you can claim the work related portion of:

The decline in value of depreciating assets – for example, home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices.
Electricity and gas (energy expenses) for heating, cooling and lighting.
Home and mobile phone, data and internet expenses.
Stationery and computer consumables, such as printer ink and paper.
Cleaning your dedicated home office.

Be careful with this method because the ATO are looking closely to ensure these expenses are directly related to how you earn your income. For example, you can’t claim personal expenses such as coffee, tea and toilet paper even if you do use these items when you are at work. Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is a place of business. It is unusual for an employee’s home to be classified as a place of business.

Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be a doctor who runs their surgery from home.

The doctor may have one-third of the home set aside as a place of business where they see patients.

It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose, although if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain.

The new ‘fixed rate’ method

I run a business from home, what can I claim?

The ATO has ‘refreshed’ the way you can claim deductions for the costs you incur when you work from home. From 1 July 2022 onwards, you can choose either to use a new ‘fixed rate’ method (67 cents per hour), or the ‘actual cost’ method depending on what works out best for your scenario. Either way, you will need to gather and retain certain records to make a claim.

The first issue for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a deduction.

The second key issue is that you need to incur costs associated with working from home. For example, if you are living with your parents and not picking up any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the expenses, even if you are paying board (the ATO treats this as a private arrangement).

Let’s take a look at the detail:

The ATO’s final position on risky trust distributions

Wed, 15 Feb 2023 19:00:00 GMT

The tax legislation contains an integrity rule, section 100A, which is aimed at situations where income of a trust is appointed in favour of a beneficiary, but the economic benefit of the distribution is provided to another individual or entity. For section 100A to apply, there needs to be a 'reimbursement agreement’ in place at or before the time the income is appointed to the beneficiary. Distributions to minor beneficiaries and other beneficiaries who are under a legal disability are not impacted by these rules.

If trust distributions are caught by section 100A, this generally results in the trustee being taxed on the income at penalty rates rather than the beneficiary being taxed at their own marginal tax rates.

While section 100A has been around since 1979, until recently there has been relatively little guidance on how the ATO approaches section 100A. This is no longer the case and the ATO’s recent guidance indicates that a number of scenarios involving trust distributions could be at risk.

For section 100A to apply:

The present entitlement (a person or an entity is or becomes entitled to income from the trust) must relate to a reimbursement agreement;
The agreement must provide for a benefit to be provided to a person other than the beneficiary who is presently entitled to the trust income; and
A purpose of one or more of the parties to the agreement must be that a person would be liable to pay less income tax for a year of income.

The ATO has released its final position on how it will apply some integrity rules dealing with trust distributions - changing the goal posts for trusts distributing to adult children, corporate beneficiaries, and entities with losses. As a result, many family groups will pay higher taxes because of the ATO’s more aggressive approach.

Until recently many people have relied on the exclusions to section 100A which prevent the rules applying when the distribution is to a beneficiary who is under a legal disability (e.g., a minor) or where the arrangement is part of an ordinary family or commercial dealing (the ‘ordinary dealing’ exception). It is the ordinary dealing exception that is currently in the spotlight.

For example, let’s assume that a university student who is over 18 and has no other sources of income is made presently entitled to $100,000 of trust income. The student agrees to pay the funds (less tax they need to pay to the ATO) to their parents to reimburse them for costs that were incurred when the student was a minor. This situation is likely to be considered high risk if the student is on a lower marginal tax rate than the parents because the parents are receiving the real benefit of the income.

The ATO is also concerned with scenarios involving circular distributions. For example, this could occur when a trust distributes income to a company that is owned by the trust. The company then pays dividends back to the trust, which distributes some or all of the dividends back to the company. And so on. The ATO views these arrangements as high risk from a section 100A perspective.

Common scenarios identified as high risk by the ATO include:

The beneficiary is a company or trust with losses and the beneficiary is not part of the same family group as the trust making the distribution.
A company or trust which is entitled to distributions from the trust returns the funds to the trustee (i.e., circular arrangements).
The beneficiary is issued units by the trustee of the trust (or a related trust) with the amount owed for the units being set-off against the entitlement and where the market value of the units is less than the subscription price or the trustee is able to do this without the consent of the beneficiary.
Adult children are made presently entitled to income, but the funds are paid to a parent in relation to expenses incurred before the beneficiary turned 18.

Where to from here?

Section 100A

High risk areas

If you have a discretionary trust, it will be important to ensure that all trust distribution arrangements are reviewed in light of the ATO’s guidance to determine the level of risk associated with the arrangements. It is also vital to ensure that appropriate documentation is in place to demonstrate how funds relating to trust distributions are being used or applied for the benefit of the beneficiaries.

The ATO’s new approach applies to entitlements before and after the publication of the new guidance but for entitlements arising before 1 July 2022, the ATO will not generally pursue these if they are either low risk under the new guidance, or if they comply with the ATO’s previous guidance on trust reimbursement agreements.

Is ‘downsizing’ worth it?

Tue, 14 Feb 2023 19:00:00 GMT

The name ‘downsizer’ is a bit of a misnomer. To access this measure you do not have to buy another home once you have sold your existing home, and you are not required to buy a smaller home - you could buy a larger and more expensive one.

Downsizer contributions are an excellent way to get money into superannuation quickly. And now that the age limit has reduced to 55 from 60, more people have an opportunity to use this strategy if it suits their needs.

From 1 January 2023, those 55 and over can make a ‘downsizer’ contribution to superannuation.

If you are aged 55 years or older, you can contribute $300,000 from the proceeds of the sale of your home to your superannuation fund.

Downsizer contributions are excluded from the existing age test, work test, and the transfer balance threshold (but are limited by your transfer balance cap).

For couples, both members of a couple can take advantage of the concession for the same home. That is, if you and your spouse meet the other criteria, both of you can contribute up to $300,000 ($600,000 per couple). This is the case even if one of you did not have an ownership interest in the property that was sold (assuming they meet the other criteria).

Sale proceeds contributed to superannuation under this measure count towards the Age Pension assets test. Because a downsizer contribution can only be made once in a lifetime, it is important to ensure that this is the right option for you.

Let’s look at the eligibility criteria:

You are 55 years or older (from 1 January 2023) at the time of making the contribution.
The home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale.
The home is in Australia and is not a caravan, houseboat, or other mobile home.
The proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a post-CGT asset rather than a pre-CGT asset (acquired before 20 September 1985). Check with us if you are uncertain.
You provide your super fund with the Downsizer contribution into super form (NAT 75073) either before or at the time of making the downsizer contribution.
The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
You have not previously made a downsizer contribution to super from the sale of another home or from the part sale of your home.

Do I have to buy another smaller home?

What’s a ‘downsizer’ contribution?

Full throttle in 2023

Mon, 13 Feb 2023 19:00:00 GMT

In a volatile market, keeping to a strategy, or let’s face it creating one, can be tough.

The downside of not taking time out for your strategy is that there is a tendency to keep a short-term focus at an operational level to try and pick quick wins to generate financial returns. Sometimes in the process, this short-term focus undermines longer term value and returns.

Here are our ‘must dos’:

Know what your position is.

A business health check is an analysis of the current state of your business. It is an analytical review of its operation with view to providing a broad overview of operating performance and identifying potential issues. Understanding your position will reveal your risks and capacity to develop.

Know what to look for.

Once you know your position, the next question is what are the measures that are going to give you the best insight into business performance. In a volatile market, this information will give you what you need to make informed decisions at any one point in time.

Be prepared to make quick decisions.

If you know your position and have the data you need, be prepared to make quick decisions and take the first mover advantage. If you have the two elements above, you have your radar for identifying opportunities and mitigating risk. Most businesses are simply a replication of what they see. While the pandemic and market instability is difficult, we have also seen a wave of innovation as people adapt to find solutions.

Don’t bank on a single opportunity.

If COVID has taught us anything it is that things change, and we need to adapt and change with the circumstances. While one single opportunity might make all the difference, an overreliance on one product, service, or methodology of delivering those products and services, exposes you to risk.

Understand your end game.

What are you aiming for? Family empire? Fast growth and sale? Sustainable growth and sale as a retirement plan? Public listing? Even if you plan on simply running and growing your business for decades to come, that is a decision. Your end game and your progress towards that end game impacts your structure, focus, and decision making.

Document your strategy.

Document your strategy - knowing it in your head is not enough. This does not have to be an onerous War & Peace approach. It is understanding what you are aiming for, and breaking that down into measurable objectives, then into measurable outcomes and timeframes (preferably actionable against rolling 90 day plans). This approach also makes management meetings a lot more meaningful.

How good is ChatGPT at tax?

Mon, 13 Feb 2023 01:45:00 GMT

Not being paranoid or anything but we were curious about the skills of the latest innovation to take the world by storm, ChatGPT, and its ability to work with the Australian tax system.

Let’s start by saying that we were impressed. Not so much by ChatGPT’s ability to work with the complexities of the tax system, but for its tone and approach. The outcome from our testing, including the example below, is that you might end up with some general comments that are reasonably accurate, but you’re unlikely to get an answer that can be relied on. And with most technical commentary tied up in personal advice rather than on the web where ChatGPT can explore it, it is unlikely that we will get there any time soon.

Here are the results of our test question and our commentary (ChatGPT’s response is in italics).

Question: How much capital gains tax does an Australian resident pay on an investment property with a worked example.

ChatGPT: An Australian resident pays capital gains tax (CGT) on the profit made from selling an investment property. The CGT is calculated by subtracting the cost of the property (purchase price plus any costs associated with acquiring and owning the property) from the sale price.

For example, let's say an Australian resident purchased an investment property for $500,000 and spent $50,000 on costs associated with acquiring and owning the property (such as legal fees, stamp duty, and repairs). The total cost of the property is $550,000.

The accountant: Let’s stop there and take stock. There are some tricks and traps that need to be considered when working out an asset’s cost base.

While repair costs in some cases can form part of a property’s cost base, this is not always the case. The situation is often different where the asset being sold is an investment property that has been rented to tenants. When a landlord repairs damage that occurs while the property is rented to a tenant, this will often be deductible to the landlord at the time the repair costs are incurred. Because deductions are available for these repair costs, they should not also be included in the property’s cost base.

There are also other adjustments that need to be considered. In the context of investment properties, it will often be necessary to make adjustments to the cost base to take into account capital works deductions. Landlords can often claim capital works deductions when an investment property is used to derive assessable rental income. The property’s cost base should then be reduced by capital works deductions that have been or could be claimed by the landlord (although there is an exception to this if the property was acquired before 13 May 1997 and the cost of improvements was incurred by 30 June 1999).

The longer the period of ownership, the more likely that capital works deductions and repair costs can end up being quite significant and have a material impact on the capital gain calculation.

ChatGPT: After several years, the resident decides to sell the property for $700,000. The profit made from the sale is $700,000 - $550,000 = $150,000. The CGT rate in Australia is currently at 45% and the resident will pay 45% of the $150,000 profit, which is $67,500.

The accountant: Let’s take a closer look at that calculation. There is no CGT rate of 45% that applies specifically to capital gains. Net capital gains form part of an individual taxpayer’s assessable income. This figure is then used to calculate the individual’s taxable income for the relevant income year. If there is a positive taxable income figure, then we apply the individual’s marginal tax rates.

One way of explaining this is that a higher taxable income normally results in a higher tax bracket and a higher rate of tax. In other words, the tax rate that applies to an individual’s net capital gains is impacted by the individual’s other income or losses (if any).

Also, while the highest marginal tax rate for individuals is currently 45 per cents for each dollar of taxable income above $180,000, Australian residents are also normally subject to the Medicare levy of 2%. This should be considered and factored in.

ChatGPT: It's worth noting that there are certain exemptions and reductions that can be applied to the CGT calculation, such as the main residence exemption and the small business CGT concessions.

The accountant: If only tax was that simple! There are certain exemptions and reductions that can apply to capital gains. While the answer mentions the main residence exemption and the small business CGT concessions, these concessions do not normally apply to the sale of an investment property.

For the main residence exemption (or partial main residence exemption) to be available, one of the key conditions is that property would need to have been established and used as the individual’s main residence. The exemption is unlikely to be available if the property has been used solely as an investment property to derive assessable rental income, although if the property was inherited then the position could be different.

Also, the small business CGT concessions would not normally apply to the sale of an investment property. This is because the concessions can only apply if the asset passes an active asset test, which requires the property to have been used in qualifying business activities for a minimum period of time.

Assets used in a business carried on by the owner or certain related parties can often be treated as active assets for the purpose of these concessions, but there is a specific exception for assets used mainly to derive rent from unrelated parties.

If the property has been solely used to derive rent (even if used in a rental business) from unrelated parties, the property is likely to fail the active asset test and the small business CGT concessions shouldn’t be available.

Interestingly, the answer didn’t refer to the general CGT discount or indexation, which are the most likely concessions that would apply to a situation like this.

If the seller is an Australian resident (and not a temporary resident) during the period they owned the property and has owned the property for more than 12 months, the 50% CGT general discount would often be available to reduce the capital gain.

If the property was acquired before 21 September 1999, indexation of the cost base could be available instead. It would be necessary to compare both options to see which provides the more favourable result.

ChatGPT: It is advisable to consult with a tax professional to determine the specific tax implications of selling an investment property.

The accountant: Yes, indeed it is. Thank you ChatGPT.

What do the ‘Secure Jobs, Better Pay’ reforms mean?

Tue, 06 Dec 2022 19:00:00 GMT

The Government’s ‘Secure Jobs, Better Pay’ legislation passed Parliament on 2 December 2022. We explore the issues.

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 passed Parliament on 2 December 2020. The legislation is extensive and brings into effect a series of changes and obligations that will impact on many workplaces.

The Bill also addresses many of the complexities of the enterprise bargaining process by streamlining the initiation and approval process. For example, to initiate bargaining to replace an existing single-employer agreement, unions and representatives no longer need a majority work determination and instead can make the request to initiate bargaining in writing to the employer.

Fact sheets on key elements of the ‘Secure Jobs, Better Pay’ legislation will be available on the Department of Employment and Workplace Relations website . Please seek advice from a professional industrial relations specialist if your business is impacted.

Fixed term contracts limited to 2 years

Employers are prohibited from entering into fixed-term employment contracts with employees for a period of longer than two years (in total across all contracts). The prohibition also prevents a fixed term contract being extended or renewed more than once for roles that are substantially the same or similar. Some exclusions exist such as for casuals, apprentices or trainees, high income workers ($162k pa), work covering peak periods of demand, where the work is performed by a specialist engaged for a specific and identifiable task, or where the modern award or FWA allows for longer fixed term contracts.

Employers will need to provide employees with a Fixed Term Contract Information Statement (to be drafted by the Fair Work Ombudsman) before or as soon as practicable after entering into a fixed term contract.

From 1 January 2023, the maximum penalty for contravening the 2 year limitation is $82,500 for a body corporate and $16,500 for an individual.

If your workplace has existing fixed term contracts in place, it will be important to review the operation of these to ensure compliance with the new laws.

Gender equality and addressing the pay gap

The concept of gender equality is now included as an object in the Fair Work Act. Previously, to grant an Equal Remuneration Order (ERO) the Fair Work Commission (FWC) assessed claims utilising a comparable male group (male comparator). The legislation removes this requirement opening the way for historical gender based undervaluation to be taken into account and for the FWC to issue a ERO on that basis. That is, female dominated industries may be undervalued generally not specifically compared to men working in that industry or sector. The FWC is no longer required to find that there is gender-based discrimination in order to establish that work has been undervalued. And, the FWC will be able to initiate an ERO on its own volition without a claim being made.

Pay secrecy banned

Prohibits pay secrecy clauses in contracts or other agreements and renders existing clauses invalid.

Employees are not compelled to disclose their remuneration and conditions but have a positive right to do so.

Flexible work requests strengthened

Provides stronger access to flexible working arrangements by enabling employees to seek arbitration before the FWC to contest employer decisions or where the employer has not responded to a request for flexible work conditions within the required 21 days.

If an employer refuses a request for flexible work conditions, the requirements for refusal have been expanded so that employers must discuss requests with the employee and genuinely try and reach agreement prior to refusing an employee’s request. Now, to refuse a request the employer must have:

Discussed the request with the employee; and
Genuinely tried to reach an agreement with the employee about making changes to the employee’s working arrangements that would accommodate the employee’s circumstances;
and the employer and employee have been unable to reach agreement;
the employer has had regard to the consequences of the refusal for the employee; and
the refusal is based on reasonable business grounds.

The provisions also expand the circumstances in which an employee may request a flexible working arrangement, for example where they, or a member of their immediate family or household, experiences family or domestic violence.

Accountability for sexual harassment in the workplace

The amendments introduce stronger provisions to prevent sexual harassment and a new dispute resolution framework. Employers may be vicariously liable for acts of their employees or agents unless they can prove they took all reasonable steps to prevent sexual harassment. The amendments build on the Respect@Work report and the Anti-Discrimination and Human Rights Legislation Amendment (Respect at Work) Bill 2022 that passed Parliament in late November 2022. Broadly, the amendments:

Apply to workers, prospective workers and persons conducting businesses or undertakings; and
Create a new dispute resolution function for the FWC that enables people who experience sexual harassment in the workplace to initiate civil proceedings if the FWC is unable to resolve the dispute.

Anti-discrimination

Adds special attributes to the FWA to specifically prevent discrimination on the grounds of breastfeeding, gender identity and intersex status.

Aligning pay rates in job advertising with the FWA

Prohibits employers covered by the FWA from advertising jobs at a rate of pay that contravenes the FWA or a fair work instrument. For piecework, any periodic rate of pay to which the pieceworker is entitled needs to be included. The measure addresses concerns raised by the Migrant Workers’ Taskforce and the Senate Unlawful Underpayments Inquiry.

Multi-employer enterprise bargaining

The reforms make it easier for unions/applicants to negotiate pay deals across similar workplaces with common interests creating two new pathways for multi-employer agreements, supported bargaining, and single-interest. The FWC will need to authorise the multi-employer bargaining before it commences.

‘Zombie’ enterprise agreements

Supported bargaining for low paid industries

Applies to low-paid industries and is intended to support those who have difficulty negotiating at a single enterprise level – e.g., aged care, disability care, and early childhood education and care. The Minister will have authority to declare an industry or occupation eligible for supported multi-employer bargaining (MEB) and the FWC will decide if it is appropriate for the parties to bargain together. The employer does not have to give their consent to be included.

Employers cannot negotiate a separate agreement once they are included in supported multi-employer bargaining – they need to apply to the FWC to be removed from the supported bargaining authorisation.

Single interest multi-employer bargaining

Single interest multi-employer bargaining draws together employers with “common interests”. These may include geographical location, regulatory regime, and the nature of the enterprise and the terms and conditions of employment. It’s a very broad test.

Unless the employer consents, the FWC will not authorise multi-employer bargaining where it applies to a business with fewer than 20 employees. For businesses with less than 50 employees, to be excluded, the employer needs to prove that they are not a common interest employer or its operations and business activities are not reasonably comparable with the other employers.

For the FWC to authorise single interest multi-employer bargaining, the applicant will need to prove that they have the majority support of the relevant employees.

A Productivity Commission report found that 56% of employees covered by an enterprise agreement are on an expired agreement, or ‘zombie agreement’. Prior to the reforms, pre 2009 enterprise agreements could operate past their expiry date unless they were replaced with new agreements or terminated by the FWC. As these ‘zombie agreements’ remained fully enforceable, despite being expired, the terms of the agreement were often out of sync with modern awards. The Government notes one zombie agreement terminated in January 2022 saw employees $5 per hour on Saturdays, $10 per hour on Sundays and $24+ per hour on public holidays, worse off than the relevant modern award. The ‘Secure Pay, Better Pay’ reforms generally sunset these zombie agreements.

Important: This article is for information only. If your workplace is likely to be impacted by the amendments, please ensure you seek professional assistance from an industrial relations specialist. We are not specialists and cannot assist with the application of industrial law, awards, or applicable pay rates.

Missed the director ID deadline? Now what?

Mon, 05 Dec 2022 19:00:00 GMT

If you missed the 30 November 2022 deadline for obtaining a Director ID, the Australian Business Registry Services have stated that they will not take action against directors that apply for their ID by 14 December 2022.

If you are required to but have not yet applied for your ID, you should seek an extension immediately to avoid fines and penalties applying ( https://www.abrs.gov.au/sites/default/files/2021-10/Application_for_an_extension_of_time_to_apply_for_a_director_ID.pdf ), or contact the ABRS on 13 62 50 (+61 2 6216 3440 outside of Australia).

Avoiding the FBT Christmas Grinch!

Mon, 05 Dec 2022 04:21:00 GMT

For GST registered businesses (not tax exempt) that are not using the 50-50 split method for meal entertainment.

It’s that time of year again - what to do for the Christmas party for the team, customers, gifts of appreciation for your favourite accountant (just kidding), etc. Here are our top tips for a generous and tax effective Christmas season:

Christmas is expensive. Some businesses simply can’t afford to do much because cashflow is too tight. Expectations are high so if you are doing something then it’s best not to exacerbate cashflow problems and take advantage of any tax benefits or concessions you can.

What to do for your team?

For your business

You could also make a donation on behalf of your customers (where your business takes the tax deduction) or for your customers (where they receive the tax deduction). Donations to deductible gift recipients (DGRs) above $2 are often tax deductible and can make an active difference to a cause.

Tax & Christmas

What to do for customers?

Christmas parties

Also, taxi travel that starts or finishes at an employee’s place of work is exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after over indulging in Christmas cheer, the ride home is exempt from FBT.

If entertainment is provided to employees and an FBT exemption applies, you will not be able to claim tax deductions or GST credits for the expenses.

Christmas gifts for staff

$300 is the minor benefit threshold for FBT so anything at or above this level will mean that your Christmas generosity will result in a gift to the Tax Office as well at a rate of 47%. To qualify as a minor benefit, gifts also have to be ad hoc - no monthly gym memberships or giving one person multiple gift vouchers amounting to $300 or more.

Gifts of cash from the business are treated as salary and wages – PAYG withholding is triggered and the amount is subject to the superannuation guarantee.

Can you prevent a hack?

Wed, 16 Nov 2022 19:00:00 GMT

Australian Competition and Consumer Commission v RI Advice Group Pty Ltd was a landmark case. While specific to the obligations of an Australian Financial Services License (AFSL), it demonstrates that ASIC are willing to pursue not just companies that breach their duty of care but the directors and officers involved.

RI advice is a financial services company that, through its AFSL, authorised representatives to provide financial services. As you would expect, as part of providing financial services, the authorised representatives received, stored and accessed confidential and sensitive personal information. Between June 2014 and May 2020, nine cybersecurity incidents occurred at practices of RI Advice’s Authorised Representatives. Enquiries following the incidents revealed:

Computer systems which did not have up-to-date antivirus software installed and operating
No filtering or quarantining of emails
No backup systems or back-ups being performed; and
Poor password practices including sharing of passwords between employees, use of default passwords, passwords and other security details being held in easily accessible places or being known by third parties.

RI Advice took steps to manage their cybersecurity introducing a cyber resilience program, controls and risk management measures for its representatives including training, incident reporting, and contractual professional standard terms, but by its own admission, it took too long to implement.

RI Advice was ordered to pay $750,000 towards ASIC's costs. Handing down the decision Justice Rofe said, “It is not possible to reduce cybersecurity risk to zero, but it is possible to materially reduce cybersecurity risk through adequate cybersecurity documentation and controls to an acceptable level.”

Lessons from RI Advice

Legislation before Parliament will lift penalties for serious or repeated privacy breaches, provide new powers to the Australian Information Commissioner, require entities to provide detailed data to the Information Commissioner to assess public risk, and give the regulator greater information sharing powers. In a statement, Attorney General Mark Dreyfus said, “When Australians are asked to hand over their personal data they have a right to expect it will be protected.” But the question is, can any business claim that customer data will be protected from hackers?

If a customer needs to disclose their personal information to your business to work with you, at the point the data is collected, your business is the custodian of that data. A duty of care exists from the moment the data is collected to the point the information is no longer required and destroyed.

The Privacy Act requires organisations to take “reasonable steps” to protect the data collected. ‘Reasonable’ steps “requires the existence of facts which are sufficient to [persuade] a reasonable person.” That is, in the event of a data breach, the business will need to prove the steps they have taken to protect client data.

In the wake of the Optus data leak, legislation before Parliament will lift the maximum fine for serious or repeated breaches of the Privacy Act from $2.2m to up to $50m. But there are no guarantees that even the strongest safety measures will prevent an attack. So, what does that mean for business and their customers?

Scams and how to avoid them

Mon, 14 Nov 2022 05:18:00 GMT

The “Hi Mum” scam has exploded with more than 1,150 Australians falling victim to the ploy in the first seven months of 2022, with total reported losses of $2.6 million. Once the scammer establishes contact, they start requesting money for an urgent bill or a replacement phone etc. For those with children or dependant family members, it is not that hard to believe. According to the Australian Consumer and Competition Commission (ACCC), two-thirds of family impersonation scams were reported by women over 55 years of age.

Another common scam is the lost or unable to deliver package texts and voicemail. With Christmas just around the corner, we can expect to see another escalation of this scam where tracking links purportedly from Australia Post, Toll, or Amazon etc., are used to instal malware. Once accessed, the malware will access your contacts and spread the malware and potentially access your personal information and bank details.

In July, the Australian Taxation Office (ATO) reported a new wave of ‘Tax refund SMSF scams’. The texts purported to be from the ATO stating that the individual had a tax refund and to click on the link and complete the form. Another scam purporting to be from the ATO advised that the recipient was suspected of being involved in cryptocurrency tax evasion and requested that they connect their wallet. At which point the wallet was accessed and any assets stolen.

The ACCC’s Targeting Scams report states that in 2021, nearly $1.8bn in losses were reported but the real figure is likely to be well over $2bn.

The largest combined losses in 2021 were:

$701 million lost to investment scams with 2021 figures significantly increased by cryptocurrency scams - more scammers are seeking payment with cryptocurrency and losses to this payment method increased 216% to $84 million.
$227 million lost to payment redirection scams.
$142 million lost to romance scams.

I got a text the other day “Hi Mum, I have broken my phone and I am using this number.”

Protecting yourself from scams

Help educate older relatives. The over 55s are the most likely to fall victim to a scam.
Always use the primary website or app of your suppliers not a link from a text or email.
Don’t click on links from emails or text messages unless you are (absolutely) certain of the source. For email, if the sending email domain is not clear or hidden, hover over the name of the sending account to check if the email is from the company domain.
For Government services, use your MyGov account. Any messages to you from the ATO or other Government services need will be published to your MyGov account. Never click on links purporting to be from a bank, ATO or Government department.

Protecting your business from scams

Payment redirection scams, where the email of the business is compromised, caused the highest reported level of loss for business in 2021 at a combined $227 million.

Payment redirection scams involve scammers impersonating a business or its employees via email and requesting an upcoming payment be redirected to a fraudulent account. In some cases, scammers hack into a legitimate email account and pose as the business, intercepting legitimate invoices and amending the bank details before releasing emails to the unsuspecting business. Other times, scammers impersonate people using a registered email address that is very similar to one from a legitimate business.

Educate your team about threats and what to look out for, the importance of passwords and password security, and how to manage customer information. Phishing attacks, if successful, provide direct access into your systems.
Ensure staff only have access to the business systems and information they need. Assess what is required and close out access to anything not required. Also assess how customer personal information is accessed and communicated. Personal information should not be emailed. Email is not secure and it is too easy for staff to inadvertently send data to the wrong person.
No shared login details or passwords.
Complete a risk assessment of your systems and add cybersecurity to your risk management framework.
Develop and implement cyber security policies and protocols. Have policies and procedures in place for who is responsible for cybersecurity, the expectations of staff, and what to do in the event of a breach . Your policies should prevent shadow IT systems, where employees download unauthorised software.
Understand your organisation’s legal obligations. For example, beyond the Privacy Act some businesses considered critical infrastructure such as some freight and food supply operations are subject to the Security of Critical Infrastructure Act 2018. This might involve small businesses in the supply chain.
Use multifactor authentication on your systems and third-party systems.
Update software and devices regularly for patches
Back-up data and have backup protocols in place. If hackers use ransomware to lock your systems, you can revert to your backup.
If customer data is being shared with related or third parties domiciled overseas, ensure your customer is aware of where their data is domiciled and your business has taken all reasonable steps to enforce the Australian Privacy Principles . Your business is responsible for how the overseas recipient utilises your customer’s data.
Only collect the customer data you need to provide the goods and services you offer.
Ensure protocols are in place for accounts payable.
Don’t forget the hardware – laptops, computers, phones.

How high will interest rates go?

Mon, 14 Nov 2022 05:06:00 GMT

Low interest rates have been a mainstay since the global financial crisis of 2008.

When the pandemic hit, Governments pushed stimulus measures through the economy and central banks reduced interest rates even further. Coming out of COVID, housing market demand was strong and prices boomed but at the same time, supply chains remained restricted and the problems amplified by geo-political tensions increasing input costs. Supply could not keep up with demand to support the recovery, pushing inflation higher and broader than expected for a longer period of time. To control inflation, central banks have responded by tightening monetary policy and lifting interest rates. But the good news is that inflation is likely to ease.

Inflation in the US has started to decrease from a high of over 9% in June 2022 to 7.7% in October, suggesting that interest rates may not rise as high and as aggressively as expected.

Similarly in Australia, the Reserve Bank of Australia (RBA) Board raised the cash rate by 0.25% to 2.60% at its October 2022 meeting, a lower increase than many expected. The lower than expected rise suggests that inflation pressures, particularly wages growth, will be more subdued in Australia than overseas. Comparatively, Australian households are more sensitive to interest rates with more than 60% of mortgages variable rate loans. This is unlike the US where most borrowers are on 30-year fixed loans.

The increase in interest rates is starting to take effect helping to restore price stability. However, in its statement, the RBA said that it will be a challenge to return inflation to 2-3% while at the same time “keeping the economy on an even keel”. It concluded the path to achieving this balance is “a narrow one and it is clouded in uncertainty”.

In housing, the correction in house prices deepened and broadened across Australia, with capital city prices falling by 1.4% in September 2022, rounding out a 4.3% decline over the third quarter. Housing finance approvals also continued to mirror the broader correction to date, with further declines across investor and owner-occupier loans.

So, where does all of this leave us? Inflation will stay higher for longer than originally anticipated. As a result, interest rates are expected to continue to increase, albeit at a slower rate, with the RBA resetting their view along the journey. Economists are predicting that the cash rate will increase to somewhere between 3.10% and 3.85% in the first half of 2023 and then remain stable until early 2024 before RBA policy pivots and interest rates lower in early 2024.

Canstar analysis suggests that a 3.85% cash rate translates to an average variable rate of 6.73%. The difference between a 5.73% variable rate mortgage and 6.73% is $650 per month on a $1 million, 30 year mortgage.

Taxing fame: The ATO’s U-turn

Mon, 14 Nov 2022 04:59:00 GMT

Sportspeople, media personalities, celebrities and ‘insta’ influencers beware. The ATO has taken a U-turn on how fame and image should be taxed.

If you’re famous and make an income from your fame and image, the way the ATO believes you should be taxed on the income you make may change under a new draft determination set to take effect on 1 July 2023.

It is not uncommon for celebrities to attempt to transfer the rights to the use of their name, image, likeness, identity, reputation etc., to a related entity such as a company or trust. This related entity then manages these rights, generating income from exploiting their fame and image. For example, where a media personality’s image is used on product packaging. One of the aims of arrangements like this is to enable the income to taxed in the entity at a lower rate of tax or to be distributed to related parties who might be subject to lower tax rates.

What will change?

The new draft determination ( TD 2022/D3 ) deals specifically with the rights to use a celebrity’s fame and image. The ATO’s argument is that the individual doesn’t have a proprietary right in their fame, which means that attempting to transfer the right relating to their fame to another entity would not be legally effective. That is, you cannot separate the fame from the individual, it vests with the individual regardless of any agreements put in place. As a result, any income relating to an individual’s fame or image that is received by a related entity is treated as if it was simply being collected on behalf of the individual and should be taxed in the hands of that individual.

If the related entity isn’t deriving income in its own right then it would be much more difficult for the entity to claim a deduction for expenses that it incurs.

The ATO’s updated approach doesn’t apply to situations where the individual is engaged by a related party to provide services. For example, if a celebrity is booked by a related entity to attend a product launch or promotional event the fees paid by the third party can potentially be treated as income of the related entity for tax purposes. However, in situations like this it is important to consider the potential application of the personal services income rules and the general anti-avoidance rules in Part IVA. The ATO’s general position is that income relating to the personal services of an individual should ultimately be taxed in the hands of that individual.

While the ATO’s new position will apply retrospectively and to income derived in future, the ATO indicates that a transitional approach will apply if the taxpayer entered into arrangements before 5 October 2022 that were consistent with the safe harbour approach that was set out in PCG 2017/D11. In these cases the ATO’s new approach will apply to income derived from 1 July 2023.

30 November director ID deadline

Mon, 14 Nov 2022 04:53:00 GMT

All directors of a company, registered Australian body, registered foreign company or Aboriginal and Torres Strait Islander corporation (ATSI) will need a director ID. This includes directors of a corporate trustee of a self-managed super fund (SMSF).

A director ID is a 15 digit identification number that, once issued, will remain with that director for life regardless of whether they stop being a director, change companies, change their name, or move overseas.

For those who have been a director since 31 October 2021, the deadline for obtaining a director ID is 30 November 2022 unless you are a director of an Aboriginal and Torres Strait Islander corporation, then the deadline is 30 November 2023.

For overseas directors, the process to obtain a director ID can be onerous as applications cannot be made online. In addition to the paper application form, you will need copies of one primary and one secondary identity document (or primary identity documents) certified by notaries public or at an Australian embassy.

For those who have been invited to become a director but are not a director as yet, if you do not have a director ID, you will need to obtain one prior to being appointed.

You do not need a director ID if you are running a business as a sole trader or partnership, or you are a director in your job title but have not been appointed as a director under the Corporations Act or Corporations (Aboriginal and Torres Strait Islander) Act (CATSI).

The deadline for existing directors of Australian companies to obtain a Director Identification Number is 30 November 2022.

If you need an extension, as soon as possible contact the Australian Business Registry service on 13 62 50 (+61 2 6216 3440 outside of Australia). Your identity will need to be established so have your documentation ready. You can also apply for an extension using the paper form ( https://www.abrs.gov.au/sites/default/files/2021-10/Application_for_an_extension_of_time_to_apply_for_a_director_ID.pdf )

Need an extension?

What happens if I don’t obtain an ID?

If you are required to obtain a director ID but don’t, a criminal penalty of up to $13,200 might apply or a civil penalty of up to $1,100,000. Where an individual has deliberately applied for multiple IDs or misrepresented the director ID, the criminal penalty escalates to $26,640 and up to one year in prison.

Shuffling the deck: 2022-23 Budget 2.0

Wed, 26 Oct 2022 01:26:00 GMT

There is nothing in this Budget that would create a UK style crisis. The stage 3 tax cuts legislated to commence on 1 July 2024 are not mentioned, and most funding initiatives appear to be a reallocation of previous Government initiatives. And, the commodity driven $54.4 billion improvement in tax receipts has largely been banked, not spent.

With seven months before the 2023-24 Budget released in May 2023, this Budget is a shuffling of the deck not a new set of cards. And to continue the pun, we need to play the hand we have been dealt, buffeted by externalities – war, floods, and global uncertainty.

Cost of living pressures will continue. While some initiatives such as the increase to child care subsidies will help, the Budget flags some fairly bracing economic expectations:

Inflation expected to peak at 7.75% in the December quarter and will persist at higher rates for longer than expected before easing to 3.5% by June 2024.
Real GDP is forecast to grow to 3.25% in 2022-23 then retract to 1.5% in 2023-24.
Electricity prices are expected to increase nationally by an average of 20% in late 2022, with retail electricity prices expected to rise by a further 30% in 2023-24.
The deficit sits at $36.9bn, while this is better than originally estimated, the deficit expands to $49.5bn by 2025-26.

Tight labour market conditions are expected to see annual wage growth pick up to 3.75% by June 2023. Even so, high inflation is expected to see real wages fall over 2022-23 before rising slightly over 2023-24. That is, your wages might increase but the gains will be eaten away by the increasing cost of living.

The ATO gets an extra $80m to extend its personal income tax compliance program, with $674m anticipated in increased receipts and over $80m in increased payments as a result. Tax deductions will be looked at closely.

As expected, multi-nationals are a target. New measures will limit opportunities to shift taxable profits offshore. And, the ATO’s Tax Avoidance Taskforce is expected to deliver a whopping $2.8bn in additional tax receipts and $1.1bn in payments over the 4 year period.

If we can assist you to take advantage of any of the Budget measures, or to risk protect your position, please let us know.

As always, we’re here if you need us!

Mitchell Clark CPA
Wright Partners Pty Ltd

office@wrightpartners.com.au

02 6882 1022

Superannuation & investors

With seven months before the 2023-24 Budget released in May 2023, this Budget is a shuffling of the deck not a new set of cards.

Shuffling the decks: 2022-23 Budget 2.0

Child Care Subsidy increase

From 2022-23

As previously announced, the maximum Child Care Subsidy (CCS) rate will increase from 85% to 90% for families earning less than $80,000. Subsidy rates will then taper down one percentage point for each additional $5,000 in income until it reaches zero per cent for families earning $530,000.

The current higher CCS rates for families with multiple children aged 5 or under in child care will be maintained, with higher CCS rates to cease 26 weeks after the older child’s last session of care, or when the child turns 6 years old.

In addition, from 2022-23, a base entitlement to 36 hours per fortnight of subsidised early childhood education and care will be implemented for families with First Nations children, regardless of activity hours or income level.

The CCS increase also comes with a renewed focus on industry compliance requiring large providers to publicly report CCS related revenue and profits. In addition, the way the Child Care Subsidy is managed will change, requiring the electronic payment of early childhood education and care gap fees to weed out fraudulent claims for care not received.

Paid parental leave reforms

From: 1 July 2023

1 July 2024

As previously announced, from 1 July 2023 the Government will introduce reforms to make the Paid Parental Leave Scheme flexible for families so that either parent is able to claim the payment and both birth parents and non-birth parents are allowed to receive the payment if they meet the eligibility criteria. Parents will also be able to claim weeks of the payment concurrently so they can take leave at the same time.

Eligibility will also be expanded with the introduction of a $350,000 family income test, which families can be assessed under if they do not meet the individual income test.

From 1 July 2024, the Government will begin expanding the scheme from the current 18 weeks by two additional weeks a year until it reaches a full 26 weeks from 1 July 2026.

Both parents will be able to share the leave entitlement, with a proportion maintained on a “use it or lose it” basis, to encourage and facilitate both parents to access the scheme and to share the caring responsibilities more equally. Sole parents will be able to access the full 26 weeks.

Encouraging pensioners back into the workforce

From 2022-23

Age and veterans pensioners will be able to work and earn more before their pension is reduced. The Government is providing a one-off $4,000 credit to their Work Bonus income bank.

The temporary income bank top-up will increase the amount pensioners can earn in 2022–23 from $7,800 to $11,800, before their pension is reduced, supporting pensioners who want to work or work more hours to do so without losing their pension.

The Work Bonus increases the amount an eligible pensioner can earn from work before it affects their pension rate. Under the current rules, the first $300 of fortnightly income from work is not assessed and is not counted under the pension income test. The Work Bonus operates in addition to the pension income test free area.

When the work bonus is not used in a fortnight it accumulates in an income bank where the standard maximum is $7,800. This allows pensioners who work on an ad hoc basis to not be disadvantaged compared to those with regular fortnightly income.

Aged care reform

As previously announced, $2.5bn will be provided over 4 years to improve the quality of aged care in residential aged care facilities by requiring all facilities to have a registered nurse onsite 24 hours per day, 7 days a week from 1 July 2023 and increasing care minutes to 215 minutes per resident per day from 1 October 2024.

The reforms also enable the Government to cap charges that approved providers of home care (home care providers) may charge care recipients and removes the ability of home care providers to charge exit amounts.

Additional funding for floods and natural disasters

An additional $51.5m has been provided to support communities impacted by natural disasters through the Australian Government Disaster Recovery Payments (AGDRP), Disaster Recovery Allowance (DRA) and other payments made under the Disaster Recovery Funding Arrangements.

Lifting the income limit on Seniors Health Card

As previously announced, the income test limits will be increased for access to the Commonwealth Seniors Health Card (CSHC). The CSHC provides subsidised pharmaceuticals and other medical benefits for self-funded retirees that have reached aged pension age.

The income test captures adjusted taxable income plus deeming on account-based pensions unless grandfathered under the pre-1 July 2015 rules. The CSHC is not asset tested.

Shuffling the decks: 2022-23 Budget 2.0

Individuals & families.

Child Care Subsidy increase.
Paid parental leave reforms.
Encouraging pensioners back into the workforce.
Aged care reform...
Additional funding for floods and natural disasters.
Lifting the income limit on Seniors Health Card.
Income support asset test extended on proceeds of sale of main residence.
Total and permanent incapacity payments to veterans.
Community batteries for household solar.

Superannuation & investors.

Change to taxation of off-market share buy-backs by listed companies.
‘Downsizer’ eligibility reduced to 55.
Delayed Relaxation of SMSF residency requirements.
Scrapped 3 year SMSF audit requirement.
Cryptocurrency not a foreign currency.

Business & employers.

Removed Self-assessment of intangible assets.
Dramatic jump in penalties for competition and consumer law breaches.
Energy efficiency grants for SMEs.
Delayed Ridesharing reporting requirements.
Thin cap rules introduce earnings based test.
Companies to declare their subsidiaries.
Global entities denied deductions for intangibles.

Government & regulators.

ATO targets in sharp focus.
$3.6bn cut from external labour, advertising, travel and legal expenses.

Other.

Working with our Pacific Neighbours.
Electric vehicle and hydrogen refuelling.
Broadband & mobile improvements for regional Australia.
Foreign investment review board fees increase.
Community sector organisations funding boost.
Extension of Tariffs on Russian goods.
Infrastructure projects.

The economy.

Individuals & families

Legislation enabling the increase is before Parliament.

The Government will also freeze social security deeming rates at their current levels for a further two years until 30 June 2024.

Income support asset test extended on proceeds of sale of main residence

As previously announced, the Government is:

Extending the assets test exemption for principal home sale proceeds from 12 months to 24 months for income support recipients, and
Changing the income test, to apply only the lower deeming rate (0.25%) to principal home sale proceeds when calculating deemed income for 24 months after the sale of the principal home.

The exemptions apply until the income support recipient acquires another main residence or the 24-month period expires. The Bill enabling the extension is currently before Parliament.

Total and permanent incapacity payments to veterans

From 2022-23

The Special Rate of Disability Compensation Payment, Temporary Special Rate Payment, and the Special Rate Disability Pension for veterans will increase by $1,000 per year.

Community batteries for household solar

From 2022-23

The Government will provide $224.3m over 4 years from 2022-23 to deploy 400 community batteries across Australia.

A related solar initiative will see an additional $102m committed to establish a Community Solar Banks program for the deployment of community-scale solar and clean energy technologies. This initiative is aimed at regional communities, social housing, apartments, rental accommodation, and households that are traditionally unable to access rooftop solar.

Change to taxation of off-market share buy-backs by listed companies

From: 7:30pm AEDT, 25 October 2022

From Budget night, 7:30pm AEDT, 25 October 2022, the Government intends to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market buy-backs. The result is expected to deliver a saving of $550m.

An on-market buy-back is when a listed company buys its shares back on the stock exchange. All other buy-backs are treated as off-market buy-backs.

Under the current rules, when a company undertakes an off-market buy-back it is necessary to consider which portion of the proceeds is taxed as a dividend and which portion is taxed under the CGT rules. Franking credits can potentially be attached to the dividend component.

On the other hand, when a listed company undertakes an on-market buy-back the full proceeds are generally taxed under the CGT rules and franking credits cannot be passed onto the shareholders.

Off-market buy-backs potentially offer a tax advantage to low-taxed shareholders such as superannuation funds. It appears that the Government has become concerned that the difference in the tax treatment between on-market and off-market buy-backs has been exploited inappropriately.

The Budget measure only refers to listed public companies which presumably means that the current tax treatment for off-market buy-backs undertaken by private companies and public companies that are not listed will continue to apply.

While this measure is yet to legislated, with a Budget night implementation date, this could have an immediate tax impact on the treatment of new off-market share buy-backs.

‘Downsizer’ eligibility reduced to 55

From: First quarter after Royal Assent

As previously announced, the Government will reduce the age an individual can make a ‘downsizer’ contribution to superannuation from the current 60 years to 55 years of age.

Currently, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home.

Downsizer contributions can be made from the sale of your principal residence in Australia that you have owned for the past ten or more years. These contributions are excluded from the age test, work test, and your total superannuation balance (but not exempt from your transfer balance cap).

Legislation enabling the expanding eligibility for downsizer contributions is currently before Parliament.

Delayed Relaxation of SMSF residency requirements

The 2021-22 Budget announced that the residency rules for Self-Managed Superannuation Funds (SMSFs) and small APRA regulated funds (SAFs) will be relaxed by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types.

This measure was due to commence from 1 July 2022. The Government has announced that it will defer the start date to the income year commencing on or after the date of Royal Assent of the enabling legislation.

Scrapped 3 year SMSF audit requirement

Back in the 2018-19 Budget the Government announced that SMSFs with a history of good record-keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time, will only be required to have their fund audited every three years.

The Government has now officially announced that this measure will not be proceeding.

Cryptocurrency not a foreign currency

As previously flagged, the Government will legislate to clarify that digital currencies such as Bitcoin will continue to be excluded from the Australian income tax treatment of foreign currency. The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.

Resources

Treasury Clarifying crypto not taxed as a foreign currency
Media Release Crypto not taxed as foreign currency

Government & regulators

ATO targets in sharp focus

Personal income tax deductions and incorrect reporting

The ATO will receive an additional $80.3 to crackdown on non-compliance including:

Overclaiming deductions; and
Incorrect reporting of income

The spend is expected to increase tax receipts by $674.4m and payment by $80.3m over 4 years.

Cash payments and tax evasion by business

The ‘shadow economy’, cash-in-hand payments including underpayment of wages, visa fraud, and other nefarious activity that deprives the economy of the income from tax receipts, will come under scrutiny with the extension of the ATO’s Shadow Economy Program for a further 3 years from 1 July 2023. Over this period, the program is estimated to increase tax receipts by $2.1bn and payments by $685.2m over the 4 years from 2022-23.

Multinational business and the Tax Avoidance Taskforce

The ATO’s Tax Avoidance Taskforce will receive an additional $200m over 4 years from 1 July 2022 primarily to pursue multinational enterprises and large public and private businesses. This taskforce is expected to deliver a whopping $2.8bn in additional tax receipts and $1.1bn in payments over the 4 year period.

$3.6bn cut from external labour, advertising, travel and legal expenses

The Government has committed to saving $3.6bn by cutting what it spends on external labour, advertising, travel and legal expenses.

Other

Working with our Pacific Neighbours

Australia’s relationship in the Pacific has come into sharp focus of late. The Budget implements a series of initiatives to support development and labour mobility in the region:

Additional infrastructure investment of $500m over 10 years in the Pacific and Timor-Leste will be provided through the Australian Infrastructure Financing Facility for the Pacific including an additional $50m for the establishment of a Pacific Climate Infrastructure Financing Partnership Facility.
As previously announced, the Pacific Australia Labour Mobility scheme will be expanded to improve the benefits of the program for employers and workers including:

- underwriting employers’ investment in upfront travel costs for seasonal workers by covering costs that cannot be recouped from workers

- improvements to workplace standards for PALM visa holders, including increased workplace compliance activities

- allowing primary visa holders on long-term placements to bring partners and children to Australia, where sponsored by employers, with additional social support including providing relevant minimum family assistance payments, with an initial rollout of 200 families

- the expansion of the existing aged care skills pilot programs for aged care workers.

A new Pacific Engagement Visa for nationals of Pacific Island countries and Timor-Leste. Up to 3,000 additional places will be made available in addition to those provided through the existing permanent Migration Program.

Electric vehicle and hydrogen refuelling

As part of its Driving the Nation Fund, the Government will commit:

$146.1m over 5 years from 2023-24 for the Australian Renewable Energy Agency to co-invest in projects to reduce emissions from Australia’s road transport sector
$89.5m over 6 years from 2022-23 for the Hydrogen Highways initiative to fund the creation of hydrogen refuelling stations on Australia’s busiest freight routes, in partnership with states and territories, including $5.5m to LINE Hydrogen Pty Ltd for its George Town green hydrogen heavy transport project
$39.8m over 5 years from 2022-23 to establish a National Electric Vehicle Charging Network to deliver 117 fast charging stations on highways across Australia, in partnership with the NRMA.

Broadband & mobile improvements for regional Australia

Almost $758m will be spent improving mobile and broadband connectivity in rural and regional Australia.

Foreign investment review board fees increase

The Government has increased foreign investment fees and will increase financial penalties for breaches that relate to residential land. Fees doubled on 29 July 2022 for all applications made under the foreign investment framework. The maximum financial penalties that can be applied for breaches in relation to residential land will also double on 1 January 2023.

Community sector organisations funding boost

An additional $560m over 4 years will be provided to community sector organisations ($140m pa). 46% of the funding will come from the Department of Social Services and around 34% to the National Indigenous Australians Agency.

Extension of Tariffs on Russian goods

The Government has extended the temporary additional tariff on goods imported from Russia and Belarus until 24 October 2023. The additional 35% tariff applies to goods that are the produce or manufacture of Russia and Belarus shipped to Australia on or after 25 April 2022.

Note that Ukrainian goods have previously been exempted from import duty for 12 months until 4 July 2022.

Infrastructure projects

The Budget has reallocated infrastructure projects, “reprofiling” $6.5bn in funding for existing projects. An additional $8.1bn over the next 10 years has been earmarked for priority projects including:

ACT

$85.9m for the Canberra Light Rail Stage 2A project

New South Wales

$1.4bn including $500m for planning, corridor acquisition and early works for the Sydney to Newcastle High Speed Rail, $268.8m for the New England Highway - Muswellbrook Bypass and $110m for the Epping Bridge

Northern Territory

$550m including $350m to seal the Tanami Road and Central Arnhem Road

Queensland

$2.1bn including $866.4m for the Bruce Highway, $400.0m for the Inland Freight Route (Mungindi to Charters Towers) upgrades, $400.0m for Beef Corridors and $210.0m for the Kuranda Range Road upgrade

South Australia

$460m including $400m for the South Australian component of the Freight Highway Upgrade Program.

Tasmania

$78m for projects in Tasmania, including $48.0 million for the Tasmanian Roads Package

Victoria

$2.6bn including $2.2bn for the Suburban Rail Loop East

Western Australia

$634.8m including $400.0 million for the Alice Springs to Halls Creek Corridor upgrade and $125m for electric bus charging infrastructure in Perth

National

$18m to establish the High Speed Rail Authority to plan, develop, coordinate, oversee and monitor the construction and operation of the high speed rail network.

The Economy

The Government appear keenly aware of the economic balancing act taking place, keeping the budget predominantly to election promises and redirecting existing initiatives to avoid exacerbating inflationary pressures. As the Treasurer said “Australians know this is a time of great challenge and change.”

The global economic environment has sharply deteriorated. Inflation has risen rapidly across

advanced economies. The Russian invasion of Ukraine has significantly driven up global energy costs and exacerbated the impact of poor weather on global food prices. All of this impacts on Australia. Here are the highlights:

GDP – Real GDP is forecast to grow by 3¼ per cent in 2022-23 before slowing to 1½ per cent in

2023-24, as cost of living pressures and rising interest rates increasingly weigh on household

disposable income and consumption.

The Government warn that with the highly uncertain global economic outlook, there are significant risks that could cause a sharper slowdown in domestic activity. Globally, key risks include a ‘hard landing’ or recession across major advanced economies, a sharper-than-expected downturn in China due to COVID-19 outbreaks and the property market downturn, a sudden tightening in financial market conditions and further energy price shocks stemming from the Russian invasion of Ukraine, which could drive inflation even higher.

And domestically, the full impact of recent floods is highly uncertain as the situation continues to develop.

Inflation – forecast to peak at 7¾ per cent in the December quarter of 2022. Supply disruptions have resulted in large price increases in home building, fuel and energy. Food prices remain elevated and have been further exacerbated by recent floods. Some of these pressures are expected to persist into 2023. Inflation is expected to remain elevated at 5¾ per cent over

2022-23 and 3½ per cent over 2023–24 before gradually easing and returning to within

the Reserve Bank’s inflation target by 2024-25.

Deficit – lower the originally estimated at $36.9bn. However, the deficit is expected to climb to over $51bn by 2024-25 with the impact of higher inflation on indexed payments for services, the NDIS in particular.

Gross debt – is close to one trillion dollars and is at the highest level as a share of GDP in over 70 years.

Tax receipts - revised up by $54.4bn in 2022-23 and $142.0 billion over the 4 years to 2025-26.

Unemployment and wages growth - labour market conditions are expected to remain tight. The unemployment rate is forecast to

rise to 4½ per cent by the June quarter of 2024.

Tight labour market conditions are expected to see annual wage growth pick up to 3¾ per cent by June 2023. However, high inflation is

expected to see real wages fall over 2022-23 before rising slightly over 2023-24.

Energy - Electricity and gas prices are expected to rise sharply over the next 2 years, as the cost of energy market disruptions are passed through to households. Treasury has assumed retail electricity prices will increase by an average of 20% nationally in late 2022. Retail electricity prices are expected to rise by a further 30% in 2023-24.

Domestic gas prices remain more than double their average prior to Russia’s invasion of Ukraine. Retail prices are expected to increase by up to 20% in 2022-23 and 2023-24.

Click Here to download a PDF of this report

What has and is happening...

Mon, 17 Oct 2022 19:00:00 GMT

Minimum wages in 10 awards in the aviation, tourism and hospitality sectors increased from 1 October 2022. The increase happens from the first full pay period on or after 1 October 2022. See the Fair Work Ombudsman for more details.

COVID downgraded but not gone

If you are a Director of a company or registered foreign company and have not applied for your Director ID Number, the deadline is 30 November 2022. Don’t leave it until the last minute!

Director ID number deadline looming

National Cabinet agreed to end the mandatory isolation requirements for COVID-19 effective from 14 October 2022. Each state and territory has, or will, implement the end of the isolation rules.

The Pandemic Leave Disaster Payment, the payment to workers who have lost income they needed to self isolate or care for someone with COVID-19, also end on 14 October. The Pandemic Leave Disaster Payment was extended beyond its 30 June end date but restricting the number of times claims can be made in a 6 month period.

While the Pandemic Leave Disaster Payment will end, National Cabinet agreed to continue targeted financial support for casual workers, on the same basis as the disaster payment, for workers in aged care, disability care, aboriginal healthcare and hospital care sectors. Final details of this new payment are yet to be released.

**Since Publishing this article, the State Governments have implemented their changes.**

1 October minimum wage increase

ATO contacts ‘at risk’ professional services firms

New guidelines for professional services firms - lawyers, architects, medical practitioners etc., came into effect on 1 July 2022. The guidance takes a strong stance on structures designed to divert income in a way that results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income. The ATO is now contacting professionals who they believe might be at risk. Any structural changes that need to be made to reduce risk, should be completed by the end of the 2022-23 financial year. Where the ATO deems that income has been diverted inappropriately to create a tax benefit, they will remove that benefit and significant penalties may apply.

Lessons from a data breach

Sun, 16 Oct 2022 19:00:00 GMT

We all know that no system is 100% secure. For Optus, this is not the first time. In 2015, Optus agreed to an enforceable undertaking for breaching the Privacy Act in 2015.

A data breach happens when personal information is accessed or disclosed without authorisation or is lost. If the Privacy Act 1988 covers your business , you must notify affected individuals and the Office of the Australian Information Commissioner when a data breach involving personal information is likely to result in serious harm. The notification must be as soon as practicable but is expected to be no later than 30 days.

Every day counts.

A business must take all reasonable steps to comply with its obligations to prevent data breaches occurring. These obligations are not limited to preventing cyber attacks. Malicious or criminal attacks represent 55% of all reported data breaches. But, human error is responsible for 41% and 4% through system faults. Where human error was involved, 43% was where personal information was emailed to the wrong recipient and 21% the unintended release or publication of personal information.

Your relationship with your client is about trust. Beyond the breach notification requirements, the other issue is the client relationship.

So, how should a business apologise? University of Chicago economist John List, Professor Benjamin Ho from Vassar College along with other academics studied this issue for Uber ride sharing – the experiment came about after John List, who was at the time Uber’s Chief Economist, had a bad ride sharing experience. The bottom line? The apology must come at a cost to be effective. That cost can be reputational, a commitment to do better in the future (the cost is the higher standard), or a monetary cost. The paper states: First, apologies are not a panacea - the efficacy of an apology and whether it may backfire depend on how the apology is made. Second, across treatments, money speaks louder than words - the best form of apology is to include a coupon for a future trip. Third, in some cases sending an apology is worse than sending nothing at all, particularly for repeated apologies and apologies that promise to do better.

The Optus data breach is top of mind for a lot of Australians, particularly those who have had their data breached.

How to apologise

The obligations on business

Understand your Privacy Act obligations. Specific industries and businesses that hold specific types of data often have advanced requirements.
Review the personal information held on customers. Is their full date of birth a necessary part of what your business does? If you need to verify identify, do those identification documents really need to be stored once they have been validated? Or is positive confirmation enough? Is the data held securely and is access limited to only those who require access?
Ensuring systems have multifactor authentication
Improving staff awareness of not only cyber threats and how to prevent them - phishing, fraudulent messages etc, but reviewing how personal data is managed and accessed.
Understanding your systems and how they work together to prevent security gaps or ‘backdoor’ systems access.

For business, the breach is a timely warning on the importance of understanding what data is held on your customers (and should you hold it?), how it is secured, how your systems work and the process to identify gaps and deficiencies, the appropriate actions if and when a breach occurs, and the impact on your relationship to your customer. This is not something that can be outsourced to IT but a whole of business issue.

Helping to protect against data breaches

Australian super funds gorge on cryptocurrency

Sat, 15 Oct 2022 18:00:00 GMT

Investing in crypto

Earlier this year, the Australian Securities and Investments Commission (ASIC) issued a warning on an increase in marketing encouraging Australians to switch from retail superannuation funds to SMSFs so they can invest in ‘high return’ portfolios. The regulator states that crypto-assets are a high risk and speculative investment and best practice is to seek advice from a licensed financial adviser before agreeing to transfer superannuation out of a regulated fund into an SMSF.

An example of one of these schemes was A One Multi Services Pty Ltd that was shut down by ASIC late last year. The company promoted a scheme encouraging investors to roll their superannuation into an SMSF, then for the SMSF to loan money to A One Multi to generate “returns of between 10% and 20% on the investment and perhaps as high as 26%.” Over 60 SMSFs transferred $25 million into A One Multi’s accounts between January 2019 and June 2021. The money “invested” for the clients, between $7 million to $22 million of Bitcoin, was held in the name of one of the directors. An additional $5.7m was used by the directors to acquire property and luxury cars.

Trustees are free to invest in assets that meet the requirements of the fund and comply with the regulatory requirements:

Trust Deed - must allow for cryptocurrency assets. Most SMSF trust deeds are drafted broadly to enable trustees to invest in assets permitted by the superannuation laws and leave the investment strategy to manage the choice of assets and their appropriateness. However, it is important to check.
Investment strategy - With cryptocurrency’s high volatility and risks, there must be clearly articulated information in the Investment Strategy. That is, it must articulate the trustees’ plan for making, holding and realising assets in a in a way that is consistent with the retirement goals of members being mindful of the member’s individual circumstances.
Separation of assets – cryptocurrency assets must be held in a wallet in the name of the SMSF and the IP address is provided to the SMSF auditors to verify the transactions (against the fund bank account). Problems often arise when a wallet (in the name of the SMSF) is connected to a personal credit card to acquire cryptocurrency. In these cases, the payment may be considered as either a contribution or a loan to the SMSF.
Sole purpose test - Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependents if a member dies before retirement.

While cryptocurrency is a relatively small asset class at only 0.16% of the $837bn held in SMSFs, it is a growing asset class, larger than collectibles and personal use assets, and overseas property.

Smaller funds, with an asset value below $200,000, are more likely to have a larger proportion of their value in cryptocurrency.

ASIC warns of SMSF cryptocurrency scams

The value of cryptocurrency assets inside Australian self managed superannuation funds (SMSFs) increased by 589.9% ($1.17bn) between June 2019 and June 2022, according to the latest ATO statistics.

States move on property based taxes

Fri, 14 Oct 2022 19:00:00 GMT

The Queensland Government has backed away from an amendment that would have seen the land tax rate for investment property in Queensland assessed on the value of the investor’s Australia wide land holdings from 1 July 2023, not just the value of their Queensland property.

The amendment passed the Queensland Parliament and became law on 30 June 2022. The amendment would see the value of all of the landholder’s Australian investment property assessed, the value of Queensland land tax calculated on taxable Australian wide investments, then apportioned to the Queensland portion of the land. The amendment requires the landholder to declare their interstate landholdings and data from other sources to verify the landholdings. The end result is many investors being tipped into a higher land tax rate.

The Bill states, “The land tax reform is intended to make Queensland’s land tax system fairer by addressing an inequity which can result in a landholder with all of their landholdings in Queensland paying more land tax than a landholder with a similar value of landholdings spread across jurisdictions.”

Following the National Cabinet Meeting on 30 September, Premier Palaszczuk rescinded the reform as it relied on the “goodwill of other states, and if we can't get that additional information, I will put that aside.”

Queensland backs down on Australia wide land tax assessment

Stamp duty or an annual property tax for NSW first home buyers?

First home buyers purchasing property in NSW of up to $1.5m will have a choice of paying stamp duty or an annual property tax from 16 January 2023.

The annual property tax payments will be based on the land value of the purchased property. The property tax rates for 2022-23 are:
$400 plus 0.3% of land value for properties whose owners live in them
$1,500 plus 1.1% of land value for investment properties.

Property tax assessments will be issued annually to home buyers who take the annual property tax option. As an example, a first buyer purchasing a $1.2m NSW property with a land tax value of $720,000, could pay stamp duty of $50,875 or opt to pay the annual property tax ($2,560 for 2022-23). The property tax rates will be indexed annually.

Eligible first home buyers who sign a contract of purchase on or after 16 January 2023 will be eligible to opt into the property tax. If the property tax option is selected, first home buyers must move into the property within 12 months of purchase and live in it continuously for at least 6 months.

The annual property tax is only applicable to the purchaser. If the property is sold, the property tax does not apply to subsequent purchasers. For eligibility details, see First Home Buyer Choice on the NSW Government website.

Legislation enabling the property tax is expected before the NSW Parliament this month. If passed, eligible first home buyers who sign a contract of purchase between the passage of the legislation and 15 January 2023 will be eligible to opt into the property tax. These purchasers will pay land stamp duty but will be able to apply for and receive a refund of that duty if they opt into property tax.

To cut or not to cut? Stage three personal tax cuts

Fri, 14 Oct 2022 01:58:00 GMT

Stage three of the Personal Income Tax Plan is legislated to take effect from 1 July 2024.

In Australia, the 2018-19 Budget introduced the Personal Income Tax Plan. The plan implemented three stages of income tax cuts over seven years that will, by 2024-25, simplify the tax brackets and enable taxpayers to earn up to $200,000 before paying a new top marginal tax rate of 45%.

In September, amid a climate of startling interest rates, UK Chancellor Kwasi Kwarteng announced a series of tax cuts, including the reduction of the top personal income tax rate that applies to those earning more than £150,000 from 45% to 40%. Just ten days later, following market turmoil that saw the British Pound drop at one point to a low of $1.035 USD, its lowest level since 1985, the decision was reversed calling the cuts “a massive distraction.”

Heading into the 2022-23 Federal Budget on 25 October, the question for the Australian Government is different. It is not whether to introduce personal income tax cuts but whether to keep, amend or repeal the cuts legislated to commence on 1 July 2024.

In Australia, the 2018-19 Budget introduced the Personal Income Tax Plan. The plan implemented three stages of income tax cuts over seven years that will, by 2024-25, simplify the tax brackets and enable taxpayers to earn up to $200,000 before paying a new top marginal tax rate of 45%. Stages of the plan, bringing relief for low and middle income earners, were brought forward in the 2019-20 Budget and again in 2020-21.

Labor’s pre-election Lower Taxes policy states, “An Albanese Labor Government will deliver tax relief for more than 9 million Australians through the legislated tax cuts that benefit everyone with incomes above $45,000.” But this month, the Treasurer has subtly changed the narrative from simply “our policy has not changed on stage three tax cuts” to “We do need to ensure that spending in the Budget, particularly in these uncertain global times, is geared toward what's affordable and sustainable and responsible and sufficiently targeted. I think that's one of the lessons from the UK.”

The public appeal of repealing the final stage three tax cuts is understandable. Back in 2018-19 when the plan was first introduced, the economy was in surplus and Australia was yet to feel the effects of a global pandemic, environmental extremities, and the Russian invasion of Ukraine. The tax cuts forego around $240bn of tax revenue over the next 10 years, and because it is percentage based, favours high income earners. The public policy think tank, the Grattan Institute , previously warned that if the government progressed with the stage three cuts “Australia’s income tax system will be less progressive than it’s been since the 1950s”.

Conversely, the rationale for reforming the current personal income tax regime where the highest marginal tax rate applies from around 2.5 times average full-time earnings (compared to around 4 times in Canada and 8 times in the US), is also understandable. When it comes to international competitiveness, New Zealand’s top marginal tax rate is 33% (from $180,000) and Singapore’s is 22%, increasing to 24% in 2023-24. If implemented, stage 3 of the income tax plan would see around 95% of taxpayers paying a marginal tax rate of 30% or less.

The 1 July 2024 tax cuts

Where to from here?

Personal income and withholding tax represents around 48% of the annual Commonwealth tax collections. Company tax, by comparison, is around 16%, and the goods and services tax (GST) just under 15% of total tax revenue collected.

Australia has a progressive personal tax system. That is, those with higher incomes pay not only a higher amount of tax, but a higher proportion of their income in tax. As a result, the 3.6% of taxpayers with taxable incomes of over $180,000 pay 31.6% of the total.

What the tax stats say

The second 2022-23 Federal Budget will be announced on 25 October 2022. If the Government make no mention of the stage three tax cuts, they have another opportunity to refine their position in the 2023-24 Federal Budget released in May 2023, more than a year before the 1 July 2024 tax cuts come into effect.

Our best guess? The Government will announce a review of the stage three tax cuts, then open the issue to consultation, locking in the position, whatever it is, in the 2023-24 Federal Budget.

We’ll keep you posted!

Look out for our 2022-23 Federal Budget update on 26 October!

Acquiring collectibles inside your SMSF

Wed, 14 Sep 2022 20:00:00 GMT

The golden rule for acquiring assets inside your SMSF is why? To be compliant, your fund must be maintained for the sole purpose of providing retirement benefits to members, or to their dependants if a member dies before retirement. The sole purpose test (section 62 of the Superannuation Industry (Supervision) Act 1993), is your starting point. If the collectible you are looking to acquire does not fulfil this purpose, then you have an immediate problem.

Let’s assume you are looking to acquire vintage cars. The question to ask is, is the acquisition a viable investment or simply a desire of the members to own vintage cars. Does the investment ‘stack up’ relative to other forms of investment to build/protect the retirement savings of members?

The sole purpose test extends to how the collectible is managed once acquired. Given the asset is for the sole purpose of the member’s retirement benefits, the members (or their associates) cannot use or enjoy the asset in any way. This means:

Storage of the collectible cannot be at the trustee’s residence or displayed at their office. The ATO says, “You can store (but not display) collectables and personal use assets in premises owned by a related party provided it is not their private residence. They can’t be displayed because this means they are being used by the related party. For example, if your SMSF invests in artwork it can’t be hung in the business premises of a related party where it is visible to clients and employees.”
Leasing or use of the collectible can only be undertaken with an unrelated party.
The collectible must have its own insurance policy owned by the SMSF (multiple items can be listed on the same policy i.e., wines of different brands). The insurance policy must be in place within 7 days of acquisition.
Like all other assets, if a collectible is sold to a related party, then it must be sold at market value. Collectibles also require a qualified independent valuation if sold to a related party.

This means you cannot stay in a holiday home owned by your SMSF, you cannot drive a vehicle owned by the SMSF, and you cannot enjoy artwork held by the SMSF. And, those bottles of Penfolds Grange owned by the SMSF that broke (wink, wink) are likely to trigger an audit as they should have been properly stored in a way that prevents breakage.

Clients with self managed superannuation funds (SMSF) often ask what assets the SMSF can acquire.

Your investment strategy

An SMSF investment strategy should articulate the plan trustees have for a fund and the investments they choose to hold. It should drill down into the reasons why certain assets will be acquired (or sold) and how these choices align to the retirement goals of the members. If your SMSF is considering purchasing collectibles, it is essential that your investment strategy is aligned to these types of investments and articulates why the asset fits within the strategy. This is particularly important if the collectible/s will dominate the types of assets held by the fund, its liquidity, and diversity.

A common question is, can my SMSF purchase, let’s say artwork, from a member or a related party of the fund? The answer is no. SMSFs are not allowed to purchase assets, other than listed shares and business real property, from related parties. But, the SMSF could transfer the artwork to a member as an in-specie lump sum payment if the member meets a condition of release, or sell the asset to the member but only if the transaction is at arms length, and an independent valuation confirms the market value of the asset.

‘Why’?

120% deduction for skills training and technology costs

Tue, 13 Sep 2022 20:00:00 GMT

The Technology Investment Boost is a 120% tax deduction for expenditure incurred on business expenses and depreciating assets that support digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services.

The boost is capped at $100,000 per income year with a maximum deduction of $20,000.

To be eligible for the bonus deduction:

The expenditure must be eligible for deduction (salary and wage costs are excluded for the purpose of these rules)
The expenditure must have been incurred between 7.30pm (AEST), 29 March 2022 and 30 June 2023
If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use by 30 June 2023.

To be eligible, the expenditure must be wholly or substantially for the entity’s digital operations or digitising its operations. For example:

digital enabling items – computer and telecommunications hardware and equipment, software, 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; and
e-commerce – supporting digitally ordered or platform enabled online transactions.

Repair and maintenance costs can be claimed as long as the expenses meet the eligibility criteria.

Where the expenditure has mixed use (i.e., partly private), the bonus deduction applies to the proportion of the expenditure that is for an assessable income producing purpose.

The bonus deduction is not intended to cover general operating costs relating to employing staff, raising capital, the construction of the business premises, and the cost of goods and services the business sells. The boost will not apply to:

Assets that are sold while the boost is available
Capital works costs (for example, improvements to a building used as business premises)
Financing costs such as interest expenses
Salary or wage costs
Training or education costs
Trading stock or the cost of trading stock

For example:

A Co Pty Ltd (A Co) is a small business entity. On 15 July 2022, A Co purchased multiple laptops to allow its employees to work from home. The total cost was $100,000 (GST-exclusive). The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use. As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense.

A Co can claim the full purchase price of the laptops ($100,000) as a deduction under temporary full expensing in its 2022-23 income tax return. It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return.

Technology Investment Boost

The Skills and Training boost is a 120% tax deduction for expenditure incurred on external training courses provided to employees.

External training courses will need to be provided to employees in Australia or online, and delivered by training organisations registered in Australia.

To be eligible for the bonus deduction:

The expenditure must be for training employees, either in-person in Australia, or online
The expenditure must be charged, directly or indirectly, by a registered training provider and be for training within the scope (if any) of the provider’s registration
The registered training provider must not be the small business or an associate of the small business
The expenditure must be deductible
Enrolment for the training must be on or after 7.30pm, 29 March 2022.

The training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income. That is, there needs to be a nexus between the training provided and how the business produces its income.

Only the amount charged by the training organisation is deductible. In some circumstances, this might include incidental costs such as manuals and books, but only if charged by the training organisation.

Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees. The training boost is not available to:

Sole traders, partners in a partnership, or independent contractors (who are not employees)
Associates of the business such as a relative, spouse or partner of an entity or person, a trustee of a trust that benefits an entity or person and a company that is sufficiently influenced by an entity or person.

For example:

Cockablue Pets Pty Ltd is a small business entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 (GST exclusive) for the

employee to undertake external training in veterinary nursing. The training is delivered by a registered training provider, whose scope of registration includes veterinary nursing.

The bonus deduction is calculated as 20% of 100% of the amount of expenditure that can be deducted under another provision of the taxation law. In this case, the full $3,500 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.

The Government has reinvigorated the 120% skills training and technology costs deduction for small and medium business.

An election ago, the 2022-23 Budget proposed a 120% tax deduction for expenditure by small and medium businesses on technology, or skills and training for their staff. This proposal has now been adopted by the current Government and details released in recent exposure draft by Treasury.

Timing

Two investment ‘boosts’ will be available to small and medium businesses with an aggregated annual turnover of less than $50 million:

Skills & Training Boost
Technology Investment Boost

The Skills and Training Boost is intended to apply to expenditure from 7.30pm ACT time on Budget night, 29 March 2022 until 30 June 2024. The business, however, will not be able to start claiming the bonus deduction until the 2023 tax return. That is, for expenditure incurred between 29 March 2022 and 30 June 2022, the additional 20% ‘boost’ deduction will not be claimable until the 2022-23 tax return (assuming the announced start dates are maintained if and when the legislation passes Parliament).

The Technology Investment Boost is intended to apply to expenditure from 7.30pm ACT time on Budget night, 29 March 2022 until 30 June 2023. As with the Skills and Training Boost, the additional 20% deduction for eligible expenditure incurred by 30 June 2022 will be claimed in the 2023 tax return.

The boost for eligible expenditure incurred on or after 1 July 2022 will be included in the income year in which the expenditure is incurred.

When it comes to expenditure on depreciating assets, the bonus deduction is equal to 20% of the cost of the asset that is used for a taxable purpose. This means that, regardless of the method of deduction that the entity takes (i.e., whether immediate or over time), the bonus deduction in respect of a depreciating asset is calculated based on the asset’s cost.

Skills and Training Boost

How To Sell Your Business

Mon, 12 Sep 2022 20:00:00 GMT

There are two key components at play in the sale of a business: structuring the transaction; and positioning the business to the market. Both elements are important and can significantly impact your result.

Structuring the transaction covers areas such as pricing the business, the terms and conditions attaching to the sale, key terms in the contract, and ensuring the transaction structure is as tax effective as possible. Much of the structuring is about ensuring the vendors secure the most efficient and effective outcome from the sale. It is about maximising the vendor’s position.

Positioning the business for sale is all about ensuring that you achieve a sale and maximise your price. It covers areas such as ensuring there are no hurdles within the business that will limit its saleability, identifying the competitive position of the business within its market segment, ensuring that operating performance is as good as it can be, and that the business benchmarks well in its market. Positioning also includes identifying the best time to take the business to the market, how to take it to the market, and who the most likely buyers will be.

Positioning is about doing everything needed to maximise the probability of a sale occurring, whereas structuring is about getting the best outcome from a transaction once it has occurred. A lot of people make the mistake of spending most of their energy on the structuring of the transaction. It is important but only becomes important if the sale is achieved.

Structuring should be addressed first to help identify any key decisions that need to be made but put most of your effort into positioning the business for sale. To do this, you need an objective assessment of how the business compares in its market, its competitive position, and what if any impediments to sale exist – all the things a buyer will look at and look for when they assess your business. Most buyers believe that we are currently in a buyer’s market and will try to drive down price expectations. Whether or not you are in a buyer’s market depends on your industry segment but regardless of this, you are in a competitive market. Buyers may be comparing your business to similar businesses but also opportunities in other industry segments. Securing a sale at the best possible price is about having your business positioned for sale. Preparation time is needed to achieve this well in advance of putting your business on the market.

Thinking of selling your business? Talk to us today about preparing your business for sale.

We're often asked the best way to sell a business.

Register your .au domain!

Mon, 12 Sep 2022 05:10:00 GMT

If you do not register the direct match of your existing domain for the direct .au domain, you risk your brand equity being consumed by someone else, rivals redirecting your clients to their products and services, squatters holding the domain, or cybercriminals impersonating your business. The opening of the new .au domain is the single biggest shift in Australian cyber real estate in decades and the risks for business are high.

If you are registering:

an exact match of your existing domain name, for example .com.au or net.au; and
you held your domain name prior to 24 March 2022

then you have priority access but only up until 23:59 UTC on 20 September 2022 (9:59am AEST on 21 September). Once this deadline has passed, the .au direct domain name will be available to anyone with a connection to Australia to register from 21:00 UTC 3 October 2022 (8:00am AEDT 4 Oct).

While you can register for the .au domain through any number of providers , the most efficient method is to utilise your existing provider. To do this, you will need your domain’s access information. If these details cannot be found, for example, the details were held by a former staff member, it can take some time to recover them so do not leave the registration process until the last minute.

Once you have applied for your matching .au domain, if your application is uncontested, you will be able to use the .au direct name soon after applying for priority status.

23:59 UTC on 20 September 2022 is the cut-off to register for your .au direct domain. The .au domain is the new, general purpose, shorter Australian domain name option.

What happens if .com.au and .net.au both apply for the .au name?

If you share a domain name with another entity, for example, one entity owns .com.au and the other .net.au, the right to register the .au domain will cascade according to priority . Category 1 are those that secured the domain on or before 4 February 2018. Category 1 applicants have priority over Category 2 applicants who registered their domain after 4 February 2018. If the name is contested by a Category 1 and a Category 2 applicant, the Category 1 applicant will secure the name. If two Category 2 applicants apply for the name, the name is allocated to the applicant with the earlier domain license creation date. But, it gets tricky when two Category 1 applicants apply for the name. In these circumstances, both parties must agree on the allocation or the name remains unallocated.

How high will interest rates go?

Sat, 13 Aug 2022 20:00:00 GMT

The RBA lifted the cash rate to 1.85% in early August 2022. The increase comes a few weeks after Reserve Bank Governor Philip Lowe told the Australian Strategic Business Forum that “…we're going through a process now of steadily increasing interest rates, and there's more of that to come. We've got to move away from these very low levels of interest rates we had during the emergency.” He went on to say that we should expect interest rates of 2.5% - how quickly we get there really depends on inflation.

The RBA Governor has come under increasing pressure over comments made in October 2021 suggesting that interest rates would not rise until 2024. At the time however, Australia was coming out of the Delta outbreak, wage and pricing pressure was subdued, and inflation was low. That all changed and changed dramatically. Inflation is now forecast to reach 7.75% over 2022 before trending down. We’re not expected to reach the RBA’s target inflation rate range of 2% to 3% until the 2023-24 financial year.

In the UK, the situation is worse with the Bank of England predicting that inflation will reach around 13% over the next few months. The UK has been heavily impacted by the war in Ukraine with the price of gas doubling, compounding pressure from post pandemic supply chain issues and price increases.

With interest rates rising, what can we expect? Deputy RBA Governor Michele Bullock recently said that Australia’s household credit-to-income ratio is a relatively high 150%, increasing in an environment that enabled households to service higher levels of debt. But it is not all doom and gloom. “Strong growth in housing prices over 2021 and early 2022 has boosted asset values for many homeowners, with housing assets now comprising around half of household assets,” she said. The recent downturn in house prices has only marginally eroded the large increases over recent years. Plus, households have saved around $260m since the pandemic creating a buffer for rising interest rates. This, however, is a macro view of the economy at large and individual households and businesses will face different pressures depending on their individual circumstances.

For businesses, the rate increase has a twofold effect. It is not just the rate rise and the higher cost of funds in their borrowings. That by itself is significant but at this stage, if anything, it is the lesser issue. The more significant impact comes from negative consumer sentiment and the flow through effect on sales and cash flow.

In general, your debts should not exceed around 35-40% of your assets. There will be some exceptions to this with new business start-ups and first home buyers.
Review the cost of cash in your business, reviewing rates, and the configuration and mix of loans to ensure you are not paying more than you need to.
If possible, avoid having private debt as well as business and investment debts. You can't get tax relief on your private debt.
Keep an eye on debtors and don’t become your customer’s bank.

The RBA lifted the cash rate to 1.85% in early August 2022.

Can I claim my Crypto losses?

Fri, 12 Aug 2022 20:00:00 GMT

The first point to understand is that gains and losses from crypto are only reported in your tax return when you dispose of it - you sell it, convert it to fiat currency, exchange it for another type of asset, buy something with it, etc. You cannot recognise market fluctuations or claim a loss because the value of your crypto assets changed until the loss is realised or crystallised.

Gains and losses from the disposal of cryptocurrency should be reported in your tax return in the year that the disposal occurred.

If you made a capital gain on crypto that was held as an investment and you held the crypto for more than 12 months then you may be able to access the 50% Capital Gains Tax (CGT) discount and halve the tax you pay.

If you made a loss on the cryptocurrency (capital loss) when you disposed of it, you can generally offset the loss against capital gains you might have (unless the crypto is a personal use asset). But, you can only offset capital losses against capital gains. You cannot offset these losses against other forms of income like salary and wages, unfortunately. If you don’t have any capital gains to offset, you can hold the losses and carry them forward for another future year when you can use them.

If you earned income from crypto such as airdrops or staking rewards, then these also need to be reported in your tax return.

And remember, keep records of your crypto transactions. The ATO has sophisticated data matching programs in place and cryptocurrency reporting is a major area of focus.

The RBA lifted the cash rate to 1.85% in early August 2022.

FBT-Free Electric Cars

Thu, 11 Aug 2022 20:00:00 GMT

Electric vehicles (EV) represent just under 2% of the new car market in Australia but it is a rapidly growing sector with a 62.3% jump in new EV registrations between 2020 and 2021.

Making EVs FBT-free is just the first step in the Government’s plan to make zero and low emission vehicles the car of choice for Australians, focussing on affordability and overcoming “range anxiety” by:

Cutting import tariffs
Placing EV fast chargers once every 150 kilometres on the nation’s highways
Creating a national Hydrogen Highways refuelling network, to deliver stations on Australia's busiest freight routes
Converting the Commonwealth fleet to 75% no-emissions vehicles

It is on this last point, fleet cars, that the FBT exemption on EVs is targeted. In Australia, business account for around 40% of light vehicle sales according to a research report by Griffith and Monash Universities . However, EV sales to business fleets comprised a mere 0.08% of the market in 2020. The Government can control what it purchases and has committed to converting its fleet to no-emission vehicles, but for the private sector, there is a wide gap between the total cost of ownership of EVs and traditional combustion engine vehicles. It’s more expensive overall and the Government is looking to reduce that impediment through the FBT system.

New legislation before Parliament, if enacted, will make zero or low emission vehicles FBT-free. We explore who can access the concession and how...

How the EV FBT exemption will work

The proposed FBT exemption is intended to apply to cars provided by an employer to an employee under the following conditions:

Low and zero emission cars

Battery electric vehicles;
Hydrogen fuel cell electric vehicles; and
Plug-in hybrid electric vehicles. Be careful here because this doesn’t include all hybrid vehicles. To qualify the car needs to be ‘plug-in’. A car that has an internal combustion engine will not meet requirements unless it is able to be fueled by a battery that can be recharged by an off-vehicle power source.

The car was first held and used on or after 1 July 2022

Where the car is first held and used on or after 1 July 2022. Provided the conditions of the exemption are met, an electric car that was ordered prior to 1 July 2022, but was not delivered until after 1 July 2022 would be eligible for the exemption (even if an employer acquired legal title to the car before 1 July 2022). However, a car delivered to you prior to 1 July 2022 would not qualify.

A second-hand electric car may qualify for the exemption, provided that the car was first purchased new on or after 1 July 2022.

Value below luxury car tax threshold for fuel efficient vehicles

The value of the car at the first retail sale must be below the luxury car tax threshold ($84,916 in 2022-23) for fuel efficient vehicles. The luxury car tax threshold generally includes GST and customs duty but excludes other items such as service plans, extended warranties, stamp duty and registration.

If an electric car qualifies for the FBT exemption, then associated benefits relating to running the car for the period the car fringe benefit is provided, can also be exempt from FBT.

Government modelling states that if an EV valued at about $50,000 is provided by an employer through this arrangement, the FBT exemption would save the employer up to $9,000 a year.

While the measure provides an exemption from FBT, the value of that fringe benefit is still taken into account in determining the reportable fringe benefits amount of the employee. That is, the value of the benefit is reported on the employee’s income statement. While income tax is not paid on this amount, it is used to determine the employee’s adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and social security payments.

Can I salary sacrifice an electric car?

Assuming your employer agrees, and the car meets the criteria, salary packaging is an option. While some FBT concessions are not available if the benefit is provided under a salary sacrifice arrangement, the exemption for electric cars will be available. In order for a salary sacrifice arrangement to be effective for tax purposes, it needs to be agreed, documented, and in place prior to the employee earning the income that they are sacrificing.

Government modelling suggests that for individuals using a salary sacrifice arrangement to pay for a $50,000 electric vehicle, the saving would be up to $4,700 a year.

Who cannot access the FBT exemption

Your business structure makes a difference

By its nature, the FBT exemption only applies where an employer provides a car to an employee. Partners of a partnership and sole traders will not be able to access the benefits of the exemption as they are not employees of the business. When it comes to beneficiaries of a trust and shareholders of a company it will be important to determine whether the benefit will be provided to them in their capacity as an employee or director of the entity.

Exemption is limited to cars

As the FBT exemption only relates to cars, other vehicles like vans are excluded. Cars are defined as motor vehicles (including four-wheel drives) designed to carry a load less than one tonne and fewer than nine passengers.

EV State and Territory tax concessions

The Federal Government is not alone in using concessions to encourage electric vehicle ownership.

ACT

The ACT Government offers a stamp duty exemption on new zero emission vehicles, and up to two years free registration for new or second hand zero emission vehicles (registered between 24 May 2021 and before 30 June 2024).

New South Wales

Reimbursement of stamp duty paid on purchases of new or used full battery electric vehicles (BEVs) and hydrogen fuel cell electric vehicles (FCEVs), with a dutiable value up to and including $78,000.

Northern Territory

For plug-in electric vehicles (battery and hybrid plug-in), from 1 July 2022 until 30 June 2027, access free registration for new and existing vehicles and a stamp duty concession of up to $1,500 on the first $50,000 of the car’s market/sale value – 3% thereafter.

Queensland

Discounted registration duty for hybrid and electric vehicles. And, a limited $3,000 rebate for new eligible zero emission vehicles with a purchase price (dutiable value) of up to $58,000 (including GST) on or after 16 March 2022.

South Australia

A limited $3,000 subsidy and a 3-year registration exemption on eligible new battery electric and hydrogen fuel cell vehicles first registered from 28 October 2021.

Tasmania

From 1 July 2022 until 30 June 2022, no stamp duty applies to light electric or hydrogen fuel-cell motor vehicle (including motorcycles). Vehicles with an internal combustion engine do not qualify.

Victoria

A limited $3,000 subsidy is available for new eligible zero emission vehicles purchased on or after 2 May 2021. More than 20,000 subsidies are available under the program. Plus, stamp duty for ‘green passenger cars’ is set at the one rate regardless of value ($8.40 per $200 or part thereof).

Zero emission vehicles receive a $100 annual registration concession but are also subject to a per kilometre road user charge .

Western Australia

A $3,500 rebate on the purchase of a new zero emission, hydrogen fuel cell or battery light vehicle with a value of up to $70,000 purchased on or after 10 May 2022.

It's Not Easy Being Green

Thu, 11 Aug 2022 03:00:00 GMT

Impacted industries

The Government’s Climate Change Bill passed the House of Representatives in early August and is now before the Senate Environment and Communications Legislation Committee for review. But what impact does the legislation have on business and consumers in Australia?

Under the Paris Agreement , a legally binding international treaty, Australia and 192 other parties committed to substantially reduce global greenhouse gas emissions to limit the global temperature increase in this century to 2 degrees Celsius while pursuing efforts to limit the increase even further to 1.5 degrees. At this level, the more extreme impacts of climate change - floods, heatwaves, rising sea levels, threats to food production - can be arrested. As part of this commitment, the parties are required to communicate their emissions reduction ambitions through a Nationally Determined Contribution (NDC). On 16 June 2022, Australia communicated its updated NDC to the UN, confirming Australia’s commitment to achieve net zero emissions by 2050, and a new, increased target of 43% below 2005 levels by 2030 (a 15% increase on the previous target). The Climate Change Bill enshrines these emission targets into legislation.

The Bill itself sets an accountability framework for climate targets but does not introduce mechanisms to cut emissions.

The energy sector is at the heart of climate change producing around three-quarters of global greenhouse gas emissions. In Australia, the CSIRO says energy contributes approximately 33.6% of all emissions, with a further 20.54% from stationary energy (from manufacturing, mining, residential and commercial fuel use), transport 17.6%, and agriculture 14.6%. The future of the energy industry is also at the crux of the Government Powering Australia policy.

Emissions reduction is not just a social obligation but a necessity as investment tilts towards lower emission suppliers. As an example, the 2022-23 Federal Budget committed a $120 billion 10-year infrastructure pipeline. The June 2022 Business Council of Australia Infrastructure in a world moving to net zero report provides a series of recommendations to address the way in which Government invests including the adoption of low carbon materials on public projects and options for reducing emissions during construction, understanding the whole of life emissions impact of infrastructure projects and potentially adopting the UK style PAS2080 standard on carbon management infrastructure, and a shift in procurement to lower carbon supply chains. If these considerations have not made it into business production and supply chain planning, they will soon.

Amongst other initiatives the Government have committed to :

$20bn investment in Australia’s electricity grid to accelerate the decarbonisation.
An additional $300m to deliver community batteries and solar banks across Australia.
Up to $3bn investment in the new National Reconstruction Fund to support renewables manufacturing and low emissions technologies.
Powering the Regions Fund to support the development of new clean energy industries and the decarbonisation priorities of existing industry.
Double existing investment in electric vehicle charging and establish hydrogen refuelling infrastructure (to $500m).
Review the effectiveness of the Emissions Reduction Fund that provides businesses with the opportunity to earn Australian carbon credit units for every tonne of carbon dioxide equivalent a business stores or avoids emitting through adopting new practices and technologies.
New standardised and internationally-aligned reporting requirements for climate risks and opportunities for large businesses.
Reduce the emissions of Commonwealth Government agencies to net zero by 2030.

In essence, business can expect directed funding for co-investment in emission reduction technology, Government spending to be through the lens of the renewed emissions targets, and for new funding opportunities to advance low emission technology.

But emissions reduction is not just about industry. Land use change can have a significant impact on emissions through reductions. For example, a reduction in forest clearing in 2020 reduced emissions by 4.9%. One initiative needs to go hand in hand with the other.

In 2021 , fossil fuels represented 67.5% (59.1% coal) of the total annual electricity generation and renewables 32.5% (an increase of 5% on the previous year with the spike contributed by small scale solar, and large scale solar and wind farms).

Climate change featured heavily during the election and now the Albanese Government is putting into place some of the promises it made. We look at the current state of play and the likely impact.

Have you checked your business turnover lately?

Mon, 11 Jul 2022 03:00:00 GMT

If you're not registered for GST, check each month to see if you've reached the threshold, or are likely to exceed it. You need to register within 21 days of your GST turnover exceeding the relevant threshold.

You must register for GST:

when your business or enterprise has a GST turnover (gross income from all businesses minus GST) of $75,000 or more – see Working out your GST turnover
when you start a new business and expect your turnover to reach the GST threshold (or more) in the first year of operation
if you're already in business and have reached the GST threshold
if your non-profit organisation has a GST turnover of $150,000 per year or more
when you provide taxi or limousine travel for passengers (including ride-sourcing) regardless of your GST turnover – this applies to both owner drivers and if you lease or rent a taxi
if you want to claim fuel tax credits for your business or enterprise.

Registering for GST is optional if your business or enterprise doesn’t fit into one of these categories. If you choose to register, generally you must stay registered for at least 12 months.

You can register for goods and services tax (GST) online, by phone or through your registered tax or BAS agent when you first register your business or at any later time. This is called 'standard GST' registration.

You only need to register for GST once, even if you operate more than one business.

We would recommend a software like Xero , if not already to help you calculate your income and expenses for each quarter.

We are more than happy to talk to you about and assisting you with GST Registration. Please contact our office 02 6882 1022 or email office@wrightpartners.com.au

Overcome your customers fear of spending

Fri, 08 Jul 2022 20:30:00 GMT

Branding is wonderful but unless your brand is as mighty as Coca Cola, it’s unlikely people will purchase what you have based on brand alone. It’s more important than ever to have clarity about why your product or service is valuable to your client and why they should be buying it from you.

Back in 2000, Berlei bras demonstrated the art of solution selling with their sports bra campaign, “only the ball should bounce.” For anyone that has seen a sports bras you know that aesthetically, they are the ugly duckling of the lingerie world; highly functional but very unattractive. Berlei used science to demonstrate how much damage exercising in anything but a sports bra could do (using television advertising, print, point of sale advertising, media, etc). The point is to understand what the most meaningful message is for your customer and that is unlikely to be a product feature list.

One of the biggest complaints from salespeople in a tight economy is the time it takes to achieve a sale. So, what can you do to speed up the sales process?

Sell the solution not the product

Sell the savings

Does your product offer your customer any form of efficiency gain or benefit beyond value over time? Can you justify it with real examples such as testimonials and worked examples? If it does, you need to ensure that you articulate this message. If there is a benefit, ensure you highlight it and emphasise the result. Try and stay away from long range forecasts. If it is going to take a few years to see the real value then this is not a compelling selling point in the current market.

You are only as strong as the weakest link in your sales process

If your first point of contact is the weakest link in your sales chain, then you need to fix it. Help your team identify and capitalise on opportunities by giving them the training and structure they need.

Value added discounts

Discounting is a common strategy to increase sales but it comes at the cost of your margin. If you are going to discount, do it strategically. For example, when David Jones wanted to build the number of customers holding a David Jones AMEX, they offered a limited time 30% discount store wide to everyone who either held or applied for the card on the spot. And, staff were trained to encourage the adoption of the AMEX at the checkout. Yes, it was a big discount, but it created an event for existing store card holders and ramped up acquisition to the store card program. The added benefit is that loyalty programs work; the probability of selling to an existing customer is around 14 times higher than a new customer.

In tough economic times, it’s common for the volume of products purchased by customers to go down. You can overcome some of this reticence by packaging items together and encouraging sales volume by offering a discount on the second item or on bundles. If you are going to package, ensure you are not packaging low margin products and then discounting them. Packaging works best when you package products with higher profit margins or where you boost the sales volume of slow moving stock by combining it with faster selling stock.

What changed on 1 July?

Thu, 07 Jul 2022 20:30:00 GMT

Superannuation guarantee increased to 10.5%
$450 super guarantee threshold removed for employees aged 18 and over
Small business GST and PAYG tax instalments lowered (the total tax liability remains the same, just the amount the business needs to pay through the year is lowered)
ATO guidance on how profits of professional firms are structured comes into effect introducing new risk criteria
New guidance on unpaid trust distributions to corporate beneficiaries comes into effect that may treat some unpaid distributions as loans and trigger tax consequences

Business

Superannuation guarantee increased to 10.5%
Work-test repealed for those under 75 to make or receive non-concessional or salary sacrifice super contributions (the work test still applies to personal deductible contributions)
Age for downsizer super contributions reduced to 60 years and older
Value of voluntary super contributions that can be withdrawn under the First Home Saver Scheme increased to a total of $50,000
New ATO guidelines on trust distributions come into effect primarily impacting distributions to adult children
Home loan guarantee scheme extended to 35,000 per year for first home buyers and 5,000 per year for single parents
Australia’s minimum wage increased

A reminder of what changed on 1 July 2022

Individuals

Tax & the family home

Thu, 07 Jul 2022 03:42:00 GMT

What’s a main residence?

The main residence rules changed in 2017 to exclude non-residents from accessing the main residence exemption. [1]

The rules focus on your tax residency status at the time of the CGT event (normally the time the contract of sale is entered into). That is, in most cases if you are a non-resident at the time you enter into the contract of sale, you will be unable to access the main residence exemption. This is the case even if you were a resident for part of the ownership period.

Conversely, if you are a resident at the time of the sale, and you meet the other eligibility criteria, the rules should apply as normal even if you were a non-resident for some of the ownership period. For example, an expat who maintains their main residence in Australia could return to Australia, become a resident for tax purposes again, then sell the property and if eligible, access the main residence exemption.

It’s important to recognise that the residency test is your tax residency not your visa status. Australia’s tax residency rules can be complex. If you are uncertain, please contact us and we will work through the rules with you.

The tax rules also contain integrity provisions that can deny the main residence exemption where someone circumvents the rules by deliberately structuring their affairs to access the exemption – for example, transferring the property to a related party prior to becoming a foreign resident to access the main residence exemption.

Can I treat my home as my main residence even if I don’t live there?

Once you have established your home as your main residence, in certain circumstances, you can treat it as your main residence even if you have stopped living there. The absence rule allows you to treat your home as your main residence for tax purposes:

For up to 6 years if it's used to produce income, for example you rent it out while you are away; or
Indefinitely if it is not used to produce income.

By applying the absence rule to your home, this normally prevents you from applying the main residence exemption to any other property you own over the same period. Apart from limited exceptions, the other property is exposed to CGT.

Let’s say you moved overseas in 2019 and rented out your home while you were away. Then, you came back to Australia in 2021 and moved back into your house. Then in early 2022, you decided it is not your forever home and sold it. You elected to apply the absence rule to your home and didn’t treat any other property as your main residence during that same period. In this case, you should be able to access the full main residence exemption assuming you are a resident for tax purposes at the time of sale.

The 6 year period also resets if you re-establish the property as your main residence and subsequently stop living there but rent it out in between. So, if the time the home was income producing is limited to six years for each absence, it is likely the full main residence exemption will be available if the other eligibility criteria are met.

What happens if I have been running my business from home?

If your home is also set aside as a dedicated place of business (i.e., you do not have another office or workshop), then you might only be able to claim a partial main residence exemption. This is because income producing assets are excluded from the main residence exemption.

If you are running a business from home, you can usually claim a tax deduction for occupancy expenses such as interest on the mortgage, council rates, and insurance. If you claimed or were eligible to claim these expenses, then you will only be able to access a partial main residence exemption. These rules apply even if you have not claimed these expenses as a deduction; the fact that you are eligible to make a claim is enough to impact your access to the main residence exemption.

In many cases, if your home would have qualified for a full main residence exemption before it is used as a dedicated place of business, the cost base of your home for CGT purposes should also be reset to its market value at that time.

Also, if only a partial main residence exemption is available, you will need to check whether you can access the small business CGT concessions on any remaining capital gain. As these rules are complex, please contact us and we will work through the rules with you.

However, if you have only been working from home out of convenience and there is another office that you normally work from, then your eligibility to access the main residence exemption should be unaffected. The ATO has confirmed that all that time working from home temporarily during the pandemic should not impact your ability to access the main residence exemption.

If I rent out a room on AirBnB, can I still claim the exemption?

If your home has been used to produce income while you are living in it, the portion used to produce income will be excluded from the main residence exemption. The rules might apply differently if you move out of the home completely – see Can I treat my home as my main residence even if I don’t live there?

Before you start renting out a portion of your home, it is a good idea to have it valued. If you would have qualified for the main residence exemption just before it was rented out, there are some rules that can apply in most cases and for CGT purposes, you are taken to have re-acquired your home for its market value at that time. So, if your home has increased in value over and above its cost base, this should reduce any gain when you eventually sell.

Can I have a different main residence to my spouse?

Let’s say you and your spouse each own homes that you have separately established as your main residences for the same period. The rules do not allow you to claim the full CGT exemption on both homes. Instead, you can:

Choose one of the dwellings as the main residence for both of you during the period; or
Nominate different dwellings as your main residence for the period.

If you and your spouse nominate different dwellings, the exemption is split between you:

If you own 50% or less of the residence chosen as your main residence, the dwelling is taken to be your main residence for that period and you will qualify for the main residence exemption for your ownership interest;
If you own greater than 50% of the residence chosen as your main residence, the dwelling is taken to be your main residence for half of the period that you and your spouse had different homes.

The same rule applies to the spouse.

The rule applies to each home that the spouses own regardless of how the homes are held legally, i.e., sole ownership, tenants in common or joint tenants.

Divorce and the main residence rules

The last two years have seen the highest divorce rate in Australia for a decade. When a property settlement occurs between spouses and if the conditions are met, the marriage breakdown rollover rules apply to ignore any CGT gain on the property settlement.

I have inherited a property, if I sell it, do I have to pay CGT?

Special rules exist that enable some beneficiaries or estates to access a full or partial main residence exemption on the inherited property. Assuming the house was the main residence of the deceased just before they died, they did not then use the home to produce an income, and the other eligibility criteria are met, a full exemption might be available to the executor or beneficiary if either (or both) of the following conditions are met:

The dwelling is disposed of within two years of the deceased’s death; or
The dwelling was the main residence of one or more of the following people from the date of death until the dwelling has been disposed of:
The spouse of the deceased (unless they were separated);
An individual who had a right to occupy the dwelling under the deceased’s will; or
The beneficiary who is disposing of the dwelling.

An extension to the two year period can apply in limited certain circumstances, for example when the will is contested or complex.

If the deceased did not actually live in the property prior to their death and other eligibility criteria are satisfied, it still might be possible to apply the full exemption where the home was treated as their main residence under the absence rule.

If the full exemption is not available, a partial exemption might apply.

If you have any questions about how the main residence rules might apply to you, please drop us a line and we will be happy to work though it with you.

What is the main residence exemption?

We take a closer look at the main residence exemption that excludes your home from capital gains tax and the triggers that reduce or exclude that exemption.

Capital gains tax (CGT) applies to gains you have made on the sale of capital assets (assets you make money from). Unless an exemption or reduction applies, or you can offset the tax against a capital loss, any gain you made on an asset is taxed at your marginal tax rate.

Foreign resident or resident?

Everyone knows you don’t pay tax on your family home when you sell it…right?

For CGT purposes, your home normally qualifies as your main residence from the point you move in and start living there. However, if you move in as soon as practicable after the settlement date of the contract, that home is considered your main residence from the time you acquired it.

If you cannot move in straight away because you are in the process of selling your old home, you can treat both homes as your main residence for up to six months without impacting your eligibility to the main residence exemption. For example, where you have moved into your new home while finalising the sale of your old home. This applies if you were living in your old home for a continuous period of 3 months in the 12 months before you disposed of it, you did not use your old home to produce an income (rented it out or used it as a place of business) in any part of that 12 months when it was not your main residence, and your new property becomes your main residence.

If your new home is being rented to someone else when you purchase it and you cannot move in, the home is not your main residence until you move in.

Proof that your property is first established or continues to be your main residence is subjective and if the issue is ever queried, some of the factors the ATO will look at include:

The length of time you have lived in the dwelling

Where your family live
Whether you moved your personal belongings into the dwelling
The address you have your mail delivered
Your address on the Electoral Roll
Your connection to services such as telephone, gas and electricity, and
Your intention.

Your main residence is the home you live in. In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you are able to offset the tax against a capital loss.

If you are an Australian resident for tax purposes, you can access the full main residence exemption when you sell your home if your home was your main residence for the whole time you owned it, the land your home is on is or is under 2 hectares, and you did not use your home to produce an income – for example running a business from your home or renting it out.

If the home is on more than 2 hectares, if eligible, you can treat the home and up to 2 hectares of the land it is on as one asset and claim the main residence exemption on this asset.

However, if you use your home to produce an income by running a business from home or renting it out, CGT can apply to the portion of the home used to produce income from that time onwards.

ATO refocus on debt collection

Thu, 16 Jun 2022 20:00:00 GMT

The ATO has not pursued many business tax debts during the pandemic and allowed tax refunds to flow through even if the business had a tax debt. That position has now changed and the ATO has resumed debt collection and offsetting tax debts against refunds. If you have a tax debt that has been on-hold, expect the ATO to offset any refunds against this debt, and take steps to actively pursue the payment of the debt. Small business account for around two thirds of the total debt owed to the ATO. If you have a tax debt, it is important that you engage with the ATO to work out how this debt will be paid.

What to expect from the new Government

Wed, 15 Jun 2022 20:00:00 GMT

Anthony Albanese has been sworn in as Australia’s 31st Prime Minister and a Government formed. We look at what we know so far about the policies of the new Government in an environment with plenty of problems and no easy fixes.

The economy

The Government has stated that its economic priority is, “creating jobs, boosting participation, improving and increasing productivity, generating new business investment, and increasing wages and household incomes.”

A second Federal Budget will be released in October this year to set the fiscal policy direction of the Government. The Albanese Government has stated that its focus is on growing the economy as opposed to increasing taxes, but it is a delicate balance to keep growth ahead of inflation. Treasurer Jim Chalmers has said that the Government will look to “redirect spending from unproductive purposes to more productive purposes.”

In a recent speech , Treasury Secretary Dr Steven Kennedy, summed it up when he said that the most significant economic development of late has been the, “…higher-than-expected surge in inflation. Headline inflation reached 5.1% in the March quarter of 2022, the highest rate of inflation in more than 2 decades… Price increases are reflecting a range of shocks, some temporary and some more persistent.” These shocks include:

Increased global demand for goods straining supply chains, increasing shipping costs, and clogging ports;
The Russian invasion of Ukraine which sharply increased the price of oil, energy and food. Russia accounts for 18% of global gas and 12% of global oil supply. Together Russia and Ukraine account for around one quarter of global trade in wheat; and
COVID-19 lockdowns in China impacting supply chains. China maintains a zero-COVID policy.

In Australia, energy prices have contributed strongly to inflation (the temporary reduction in fuel excise ends on 28 September 2022).

Personal income tax

The 2019-20 Budget announced a series of personal income tax reforms. Stage 3 of those reforms is legislated to commence on 1 July 2024. Stage 3 radically simplifies the tax brackets by collapsing the 32.5% and 37% rates into a single 30% rate for those earning between $45,001 and $200,000. Mr Albanese told Sky News, “People are entitled to have that certainty of the tax cuts that have been legislated… We won’t be changing them. What we want going forward is that certainty.”

Where will the money come from?

It is unclear at this stage how the Government intends to tackle the $1.2 trillion deficit. The general commentary from Finance Minister Katy Gallagher is that Treasury and Finance have been tasked with working through the Budget line by line to, “…see where there are areas where we can make sensible savings and return that money back to the Budget.”

Multinationals

Multinationals paying their fair share of tax was a go-to target during the election campaign. The plan for multinationals implements elements of the OECD’s two-pillar framework to reform international taxation rules and ensure Multinational Enterprises (MNEs) are subject to a minimum 15% tax rate from 2023. Australia and 129 other countries and jurisdictions, representing more than 90% of global GDP, are signatories to the framework.

The Government’s multinational policy supports the OECD framework by:

Limiting debt-related deductions by multinationals at 30% of profits, consistent with the OECD's recommended approach, while maintaining the arm's length test and the worldwide gearing ratio.
Limiting the ability for multinationals to abuse Australia's tax treaties when holding intellectual property in tax havens from 1 July 2023. A tax deduction would be denied for payments for the use of intellectual property when they are paid to a jurisdiction where they don’t pay sufficient tax.
Introducing transparency measures including reporting requirements on tax information, beneficial ownership, tax haven exposure and in relation to government tenders.

The reforms will follow consultation and are not anticipated to take effect until 2023.

No change to SG rate and rate increase

No change to the legislated superannuation guarantee rate increase. The SG rate will increase to 10.5% on 1 July 2022 and steadily increase by 0.5% each year until it reaches 12% on 1 July 2025.

Tax Time Targets

Wed, 15 Jun 2022 02:02:00 GMT

If you dispose of an asset - property, shares, crypto or NFTs, collectables (costing $500 or more) - you will need to calculate the capital gain or loss and record this in your tax return. Capital gains tax (CGT) does not apply to personal use assets such as a boat if you bought it for less than $10,000.

Crypto and capital gains tax

A question that often comes up is when do I pay tax on cryptocurrency?

If you acquire the cryptocurrency to make a private purchase and you don’t hold onto it, the crypto might qualify as a personal use asset. But in most cases, that is not the case and people acquire crypto as an investment, even if they do sometimes use it to buy things.

Generally, a CGT event occurs when disposing of cryptocurrency. This can include selling cryptocurrency for a fiat currency (e.g., $AUD), exchanging one cryptocurrency for another, gifting it, trading it, or using it to pay for goods or services.

Each cryptocurrency is a separate asset for CGT purposes. When you dispose of one cryptocurrency to acquire another, you are disposing of one CGT asset and acquiring another CGT asset. This triggers a taxing event.

Transferring cryptocurrency from one wallet to another is not a CGT disposal if you maintain ownership of the coin.

Record keeping is extremely important – you need receipts and details of the type of coin, purchase price, date and time of transactions in Australian dollars, records for any exchanges, digital wallet and keys, and what has been paid in commissions or brokerage fees, and records of tax agent, accountant and legal costs. The ATO regularly runs data matching projects, and has access to the data from many crypto platforms and banks.

If you make a loss on cryptocurrency, you can generally only claim the loss as a deduction if you are in the business of trading.

Gifting an asset might still incur tax

Donating or gifting an asset does not avoid capital gains tax. If you receive nothing or less than the market value of the asset, the market value substitution rules might come into play. The market value substitution rule can treat you as having received the market value of the asset you donated or gifted for the purpose of your CGT calculations.

For example, if Mum & Dad buy a block of land then eventually gift the block of land to their daughter, the ATO will look at the value of the land at the point they gifted it. If the market value of the land is higher than the amount that Mum & Dad paid for it, then this would normally trigger a capital gains tax liability. It does not matter that Mum & Dad did not receive any money for the land.

Donations of cryptocurrency might also trigger capital gains tax. If you donate cryptocurrency to a charity, you are likely to be assessed on the market value of the crypto at the point you donated it. You can only claim a tax deduction for the donation if the charity is a deductible gift recipient and the charity is set up to accept cryptocurrency.

4.0 Capital gains from crypto, property or other assets

3.0 Rental property income and deductions

To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business, and the expense needs to be directly related to your work.

What expenses are related to work?

You can claim a deduction for all losses and outgoings “to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.” That is, there must be a nexus between the expenses you are claiming and how you earn your income.

It all sounds simple enough until you start applying this rule. Take the example of an actor. To land the acting job she needs to attend auditions. She wants to claim the cost of having her hair and make-up done for the audition. But, because she is not generating income at the stage of the audition, she cannot claim her expenses. The expense must be related to how you are currently earning your income, not future potential income. The same issue applies to upskilling. If you attend investment seminars with the intention of building your investment portfolio the seminar is not deductible as a self-education expense unless it relates to managing your existing investment portfolio - not a future one. Or, a nurse’s aide who attendees university to qualify as a nurse. The university degree and the expenses associated with this are not deductible as the nursing degree is not required to fulfil the role of a nurse’s aide.

The second area of confusion is over what can be claimed for work. If the item is “conventional” it’s unlikely to be deductible. For example, you can't claim conventional clothing (including footwear) as a work-related expense, even if your employer requires you to wear it and you only wear the items of clothing at work. To be deductible clothing must be protective, occupation specific such as a chef’s chequered pants, a compulsory uniform, or a registered non-compulsory uniform.

Work related or private?

Another area of confusion is where expenses are incurred for work purposes but used privately. Internet access or mobile phone services are typical. A lot of people take the view that the expense had to be incurred for work so what does it matter if it’s used for private purposes? But, if you use the service on more than an ad-hoc basis for any purpose other than work, then the expense needs to be apportioned and only the work-related percentage claimed as a deduction. And yes, the ATO does check usage in an audit.

Claims for COVID-19 tests will be a test of this rule. COVID-19 tests are deductible from 1 July 2021 if the purpose was to determine whether you may attend or remain at work. The tax deduction does not apply if you worked from home and didn’t intend to attend your workplace, or the test was used for private purposes (for example, to tests the kids before school).

Claiming work from home expenses

Last financial year, one in three Australians claimed working from home expenses. Now we’re out of the pandemic, the ATO will be focussing specifically on what is being claimed. If you claimed work from home expenses last year and returned to the office this year, then there should be a reduction in your work from home claim. The ATO will be looking for discrepancies.

If you are claiming your expenses, there are three methods you can use:

The ATO’s simplified 80 cents per hour short-cut method – you can claim 80 cents for every hour you worked from home from 1 March 2020 to 30 June 2022. You will need to have evidence of hours worked like a timesheet or diary. The rate covers all of your expenses and you cannot claim individual items separately, such as office furniture or a computer.
Fixed rate 52 cents per hour method – applies if you have set up a home office but are not running a business from home. You can claim 52 cents for every hour and this covers the running expenses of your home. You can claim your phone, internet, or the decline in value of equipment separately.
Actual expenses method – you can claim the actual expenses you incur (and reduce the claim by any personal use and use by other family members). You will need to ensure you have kept records such as receipts to use this method.

It’s this last method, the actual method, the ATO is scrutinising because people using this method tend to lodge much higher claims in their tax return. Ineligible expenses include:

Personal expenses such as coffee, tea and toilet paper
Expenses related to a child’s education, such as online learning courses or laptops
Claiming large expenses up-front (instead of claiming depreciation for assets), and
Occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates, that cannot generally be claimed by employees working from home (especially by those who are working from home solely due to a lockdown).

The ATO has flagged four priority areas this tax season where people are making mistakes.

1.0 Record keeping

101 of working with the ATO is that you can’t claim it if you can’t prove it. If you are audited, the ATO will disallow deductions for unsubstantiated or unreasonable expenses. Even if the expense is below the substantiation threshold of $300 ($150 for laundry), the ATO might ask how you came up with that number. For example, if you claim $300 in work related expenses (that is, make a claim right up to the substantiation threshold), how did you come up with that number and not something else?

In addition to the obvious records of salary, wages, allowances, government payments or pensions and annuities, you need to keep records of:

Interest or managed funds.

Records of expenses for any deductions claimed including a record of how that expense relates to the way you earn your income. That is, the expense must be related to how you earn your income. For example, if you claim the cost of RAT tests, you need to be able to prove that the RAT test was necessary to enable you to work. If you were working from home and not required to leave home, it will be harder to claim the cost of the test.

Assets such as shares or units in a trust, rental properties or holiday homes, if you purchased a home or inherited a property, or disposed of an asset (including cryptocurrency).

You need to keep your records for five years. These can be digital copies of the records as long as they are clear and legible copies of the original. If your records are digital, keep a backup.

Records can be tax invoices, receipts, diary entries or something else that proves you incurred the expense and how it related to how you earn your income.

For landlords, the focus is on ensuring that all income received, whether long-term, short-term, rental bonds, back payments, or insurance pay-outs, are recognised in your tax return.

If your rental property is outside of Australia, and you are an Australian resident for tax purposes, you must recognise the rental income you received in your tax return (excluding any tax you have paid overseas), unless you are classified as a temporary resident for tax purposes. You can claim expenses related to the property, although there are some special rules that need to be considered when it comes to interest deductions. For example, if you have borrowed money from an overseas lender you might be subject to withholding tax obligations.

Co-owned properties

For tax purposes, rental income and expenses need to be recognised in line with the legal ownership of the property, except in very limited circumstances where it can be shown that the equitable interest in the property is different from the legal title. The ATO will assume that where the taxpayers are related, the equitable right is the same as the legal title (unless there is evidence to suggest otherwise such as a deed of trust etc.,).

This means that if you hold a 25% legal interest in a property then you should recognise 25% of the rental income and rental expenses in your tax returns even if you pay most or all of the rental property expenses (the ATO would treat this as a private arrangement between the owners).

The main exception is where the parties have separately borrowed money to acquire their interest in the property, then they would claim their own interest deductions.

With tax season almost upon us the Australian Taxation Office (ATO) has revealed its four areas of focus this tax season.

Record-keeping
Work-related expenses
Rental property income and deductions, and
Capital gains from crypto assets, property, and shares.

In general, there are three ‘golden rules’ when claiming tax deductions:

You must have spent the money and not been reimbursed.
If the expense is for a mix of work related (income producing) and private use, you can only claim the portion that relates to how you earn your income.
You need to have a record to prove it.

2.0 Work-related expenses

ATO ramps up heat on directors

Thu, 12 May 2022 20:45:00 GMT

These letters are a warning shot and should not be ignored.

The director penalty regime ensures that directors are personally liable for certain debts of the company if the debts are not actively managed. The liability applies to both current and former directors.

To recover this debt, the ATO will issue a director penalty notice to the individual directors. The ATO can then take action to recover the unpaid amount, including:

By issuing garnishee notices,
By offsetting tax credits owed to the director against the penalty, or
By initiating legal recovery proceedings against the director.

In some cases it is possible for the penalty to be remitted but this depends on when the PAYGW, GST or SGC amounts are reported to the ATO. For example, in some cases the penalty can be remitted if an administrator or small business restructuring practitioner is appointed to the company, or the company begins to be wound up. However, this is normally only possible for PAYGW and GST amounts if they are reported to the ATO within 3 months of the due date. For SGC amounts this is only possible if the unpaid amount is reported by the due date of the SGC statement.

If the unpaid amounts are not reported to the ATO by the relevant deadline then the only way for the penalty to be remitted is for the debt to be paid in full. Winding up the company at this stage will not make the liability of the directors go away.

If you have received a warning letter from the ATO or a director penalty notice then please contact us immediately.

Throughout March, the ATO sent letters to directors who are potentially in breach of their obligations to ensure that the company they represent has met its PAYG withholding, superannuation guarantee charge, or GST obligations.

What’s changing on 1 July 2022?

Wed, 11 May 2022 20:30:00 GMT

A series of reforms and changes will commence on 1 July 2022. Here’s what is coming up:

Superannuation guarantee increase to 10.5%

The Superannuation Guarantee (SG) rate will rise from 10% to 10.5% on 1 July 2022 and will continue to increase by 0.5% each year until it reaches 12% on 1 July 2025.

If you have employees, what this will mean depends on your employment agreements. If the employment agreement states the employee is paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then their take home pay might be reduced by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund. For employees paid a rate plus superannuation, then their take home pay will remain the same and the 0.5% increase will be added to their SG payments.

$450 super guarantee threshold removed

From 1 July 2022, the $450 threshold test will be removed and all employees aged 18 or over will need to be paid superannuation guarantee regardless of how much they earn. It is important to ensure that your payroll system accommodates this change so you do not inadvertently underpay superannuation.

For employees under the age of 18, super guarantee is only paid if the employee works more than 30 hours per week.

Profits of professional services firms

The ATO has been concerned for some time about how many professional services firms are structured - specifically, professional practices such as lawyers, accountants, architects, medical practices, engineers, architects etc., operating through trusts, companies and partnerships of discretionary trusts and how the profits from these practices are being taxed.

New ATO guidance that comes into effect from 1 July 2022, takes a strong stance on structures designed to divert income in a way that results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income. Where these structures appear to be in place to divert income to create a tax benefit for the professional, Part IVA may apply. Part IVA is an integrity rule which allows the Tax Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement in a contrived manner in order to obtain a tax benefit. Significant penalties can also apply when Part IVA is triggered.

A new method of assessing the level of risk associated with profits generated by a professional services firm and how they flow through to individual practitioners and their related parties, will come into effect from 1 July 2022. Professional firms will need to assess their structures to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate documentation is in place to justify their position.

Lowering tax instalments for small business – PAYG

PAYG instalments are regular prepayments made during the year of the tax on business and investment income. The actual amount owing is then reconciled at the end of the income year when the tax return is lodged.

Normally, GST and PAYG instalment amounts are adjusted using a GDP adjustment or uplift. For the 2022-23 income year, the Government has set this uplift factor at 2% instead of the 10% that would have applied. The 2% uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods for instalments for the 2022-23 income year:

· Up to $10 million annual aggregated turnover for GST instalments, and

· $50 million annual aggregated turnover for PAYG instalments

The effect of the change is that small businesses using this PAYG instalment method will have more cash during the year to utilise. However, the actual amount of tax owing on the tax return will not change, just the amount you need to contribute during the year.

Trust distributions to companies

The ATO recently released a draft tax determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries. If the amount owed by the trust is deemed to be a loan then it can potentially fall within the scope of the integrity provisions in Division 7A. If certain steps are not taken, such as placing the unpaid amount under a complying loan agreement, these amounts can be treated as deemed unfranked dividends for tax purposes and taxable at the taxpayer’s marginal tax rate. The ATO guidance deals specifically with, and potentially changes, when an unpaid entitlement to trust income will start being treated as a loan depending on the wording of the resolution to pay a distribution. The new guidance applies to trust entitlements arising on or after 1 July 2022.

For business

For you

Home loan guarantee scheme extended

The Home Guarantee Scheme guarantees part of an eligible buyer’s home loan, enabling people to buy a home with a smaller deposit and without the need for lenders mortgage insurance. An additional 25,000 guarantees will be available for eligible first home owners (35,000 per year), and 2,500 additional single parent family home guarantees (5,000 per year).

Your superannuation

Work-test repeal – enabling those under 75 to contribute to super

Currently, a work test applies to superannuation contributions made by people aged 67 or over. In general, the work test requires that you are gainfully employed for at least 40 hours over a 30 day period in the financial year.

From 1 July 2022, the work-test has been scrapped and individuals aged younger than 75 years will be able to make or receive non-concessional (including under the bring-forward rule) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.

The work test will still apply to personal deductible contributions.

This change will also see those aged under 75 be able to access the ‘bring forward rule’ if your total superannuation balance allows. The bring forward rule enables you to contribute up to three years’ worth of non-concessional contributions to your super in one year.

Downsizer contributions from age 60

From 1 July 2022, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home. Currently, you need to be 65 years or older to utilise downsizer contributions.

Downsizer contributions can be made from the sale of your principal residence that you have owned for the past ten or more years. These contributions are excluded from the age test, work test and your total superannuation balance (but not exempt from your transfer balance cap).

First home saver scheme – using super to save for a first home

The First Home Super Saver Scheme enables first home buyers to withdraw voluntary contributions they have made to superannuation and any associated earnings, to put toward the cost of a first home. At present, the maximum amount of voluntary contributions you can make and withdraw is $30,000. From 1 July 2022, the maximum amount will increase to $50,000. The benefit of this scheme is the concessional tax treatment of superannuation.

Can I claim a tax deduction for my gym membership?

Tue, 10 May 2022 20:00:00 GMT

There are lots of reasons to keep fit but very few of them have to do with how we earn our income. As a result, a tax deduction for a gym membership isn’t available to most people. And yes, the Tax Office has heard all the arguments before about how keeping fit reduces sickness and therefore is important to earning an income, and ‘…the way I look is important to my job’.

In general, a tax deduction for fitness expenses is only available if your job requires you to have an extremely high level of fitness. The nexus between how you earn your income and the deduction is about the physical demands and requirements of your specific role. Firefighters are a case in point. A person with what the ATO describes as a “general duties firefighter” role cannot claim a deduction for the money they have spent keeping fit, but a firefighter in a specialist search and rescue operations team for example, trained in a range of specialist skills including structural collapses and tunnel emergencies, and who is tested on fitness and ongoing strenuous physical activity as an essential part of their job, would be able to claim fitness expenses. Similarly, a professional ballet dancer is likely to be able to claim their fitness expenses. A model however, might not be able to claim their expenses as, while they need to look a particular way, their modelling role does not require physical training and exertion (clearly the ATO has not seen the poses that models have to hold!). So, access to a deduction is about the specialist physical demands and requirements of your role.

A recent case before the administrative appeals tribunal (AAT) explored the boundary of who can claim fitness expenses, confirming that a prison dog handler could claim a deduction for the cost of his gym membership. In this case, the dog handler was responsible for training and maintaining two dogs. He was required to be available to assist in emergencies that might arise. While these emergencies didn’t arise often, the handler had to be prepared for the possibility of an emergency arising at any time. Reaching this decision, the AAT noted the handler:

· Was required to maintain a high degree of anaerobic fitness (including muscle strength sufficient to control a large German shepherd on a lead in a volatile situation);

· Was required to maintain a high degree of aerobic fitness (that is, a degree of speed and agility sufficient to enable him to move effectively with, and control and direct, his dog in an emergency); and

· Must also be prepared to restrain prisoners himself.

While the employer in this case did not specify any particular level of fitness for the dog handler role, the AAT held that a superior level of fitness was implicitly demanded. However, it did not all go the way of the dog handler. His claim for supplement expenses, travel to and from the gym, and gym clothing was denied.

While some commentators have suggested that the floodgates are now open for gym membership claims, as always, the devil is in the detail. To claim a tax deduction for fitness expenses it is generally necessary to be part of a specialist workforce. Police Officers for example cannot generally claim fitness expenses despite the fact that, like the dog handler in the AAT case, they need to respond quickly to emergencies and may need to subdue people. Unless they are part of a specialist response unit that is required to have a specific, high level of fitness, they are unlikely to be able to claim their gym membership expenses.

So, for the rest of us, gym memberships will continue to be a labour of self-love and care and not an essential part of how we earn our income.

Fuel tax credit changes

Mon, 09 May 2022 20:30:00 GMT

The Government temporarily halved the excise and excise equivalent customs duty rates for petrol, diesel and all other petroleum-based products (except aviation fuels) for 6 months from 30 March 2022 until 28 September 2022. This has caused a reduction in fuel tax credit rates.

During this 6 month period, businesses using fuel in heavy vehicles for travelling on public roads won't be able to claim fuel tax credits for fuel used for this purpose. This is because the road user charge exceeds the excise duty payable, and this reduces the fuel tax credit rate to nil.

You can find the ATO’s updated fuel tax credit rates that apply for the period from 30 March 2022 to 30 June 2022 here . The ATO’s fuel tax credit calculator has been updated to apply the current rates.

The 120% deduction for skills training and technology costs

Mon, 09 May 2022 06:26:00 GMT

But, there are a few problems. Firstly, the announcement is just that, it is not yet law. And, given the Government is in caretaker mode for the Federal election, we do not know the position of the incoming Government on this measure. And, even if the incoming Government is supportive, we are yet to see draft legislation or detail to determine the practical application of the measure.

It’s a great headline isn’t it? Spend $100 and get a $120 tax deduction. Days after the Federal Budget announcement that businesses will be able to claim a 120% deduction for expenditure on training and technology costs, we started receiving marketing emails encouraging us to spend now to access the deduction.

What was announced?

The 2022-23 Federal Budget announced two ‘Investment Boosts’ available to small businesses with an aggregated annual turnover of less than $50 million.

The Skills and Training Boost is intended to apply to expenditure from Budget night, 29 March 2022 until 30 June 2024. The business, however, will not be able to claim the deduction until the 2023 tax return. That is, for expenditure between 29 March 2022 and 30 June 2022, the boost, the additional 20%, will not be claimable until the 2022-23 tax return, assuming the announced start dates are maintained if and when the legislation passes Parliament.

The Technology Investment Boost is intended to apply to expenditure from Budget night, 29 March 2022 until 30 June 2023. As with the Skills and Training Boost, the additional 20% deduction for eligible expenditure incurred by 30 June 2022 will be claimed in the 2023 tax return.

The boost for eligible expenditure incurred on or after 1 July 2022 will be included in the income year in which the expenditure is incurred.

Technology Investment Boost

A 120% tax deduction for expenditure incurred by small businesses on business expenses and depreciating assets that support their digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services, capped at $100,000 per annum.

We have received a lot of questions about the specific expenditure the boost might apply to, for example does it cover website development or SEO services? But until we see the legislation, nothing is certain.

Skills and Training Boost

A 120% tax deduction for expenditure incurred by small businesses on external training courses provided to employees. External training courses will need to be provided to employees in Australia or online, and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees.

We are waiting on further details of this initiative to be released to confirm whether there will need to be a nexus between the training program and the current employment activities of the employees undertaking the course. So once again, until we have something more than the announcement, we cannot confirm how the measure will apply in practice or how broad (or otherwise) the definition of skills training is.

What happens if I have already spent money on training and technology in anticipation of the bolstered deduction?

If the measure becomes law, and the start date of the measure remains the same, we expect that any qualifying expenditure incurred in the 2021-22 financial year will be claimed in your tax return. But, the ‘boost’, the extra 20% will not be claimable until the 2022-23 financial year.

If the measure does not come to fruition, you should be able to claim a deduction under normal rules for the actual business expense.

2022-2023 Budget

Thu, 31 Mar 2022 02:44:00 GMT

‘Don’t Rock The Boat’ Budget 2022-23

This is a safe, ballot box friendly Budget as expected with a focus on jobs, cost of living, home ownership, and health.

Key initiatives include:

A 6 month, 50% reduction in fuel excise with effect from midnight Budget night
A $420 cost of living tax offset for low and middle income earners from 1 July 2022
A one-off $250 economic support payment to some social security payment recipients

But, it is also a Budget that drives digitisation. Not just to support innovation but to streamline compliance, create transparency and more readily identify anomalies. Single touch payroll was the first step, the PAYG instalment system, trust compliance, and payments to contractors are next.

Beyond compliance, there is an opportunity capitalise on the benefits of the Government’s push towards innovation and investment in new technology. Not just the $120 tax deduction for every $100 spent on training employees and digital adoption, but also the expansion of the patent box tax concessions. There are opportunities for those pushing boundaries.

If we can assist you to take advantage of any of the Budget measures, or to risk protect your position, please let us know.

As always, we’re here if you need us!

This is a safe, ballot box friendly Budget as expected with a focus on jobs, cost of living, home ownership, and health.

Are Your Contractors Really Employees?

Wed, 09 Mar 2022 19:30:00 GMT

Two landmark cases before the High Court highlight the problem of identifying whether a worker is an independent contractor or employee for tax and superannuation purposes.

Many business owners assume that if they hire independent contractors they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates a bit differently and in some cases genuine contractors can be treated as if they were employees. Also, correctly classifying the employment relationship can be difficult and there are significant penalties faced by businesses that get it wrong.

Two cases handed down by the High Court late last month clarify the way the courts determine whether a worker is an employee or an independent contractor. The High Court confirmed that it is necessary to look at the totality of the relationship and use a ‘multifactorial approach’ in determining whether a worker is an employee. That is, if it walks like a duck and quacks like a duck, it’s probably a duck, even if on paper, you call it a chicken.

In CFMMEU v Personnel Contracting and ZG Operations Australia v Jamse, the court placed a significant amount of weight on the terms of the written contract that the parties had entered into. The court took the approach that if the written agreement was not a sham and not in dispute, then the terms of the agreement could be relied on to determine the relationship. However, this does not mean that simply calling a worker an independent contractor in an agreement classifies them as a contractor. In this case, a labour hire contractor was determined to be an employee despite the contract stating he was an independent contractor.

In this case, Personnel Contracting offered the labourer a role with the labour hire company. The labourer, a backpacker with some but limited experience on construction sites, signed an Administrative Services Agreement (ASA) which described him as a “self-employed contractor.” The labourer was offered work the next day on a construction site run by a client of Personnel Contracting, performing labouring tasks at the direction of a supervisor employed by the client. The labourer worked on the site for several months before leaving the state. Some months later, he returned and started work at another site of the Personnel Contracting’s same client. The question before the court was whether the labourer was an employee.

Overturning a previous decision by the Full Federal Court, the High Court held that despite the contract stating the labourer was an independent contractor, under the terms of the contract, the labourer was required to work as directed by the company and its client. In return, he was entitled to be paid for the work he performed. In effect, the contract with the client was a “contract of service rather than a contract for services”, as such the labourer was an employee.

The second case, ZG Operations Australia v Jamse produced a different result.

In this case, two truck drivers were employed by ZG Operations for nearly 40 years. In the mid-1980’s, the company insisted that it would no longer employ the drivers, and would continue to use their services only if they purchased their trucks and entered into contracts to carry goods for the company. The respondents agreed to the new arrangement and Mr Jamsek and Mr Whitby each set up a partnership with their wife. Each partnership executed a written contract with the company for the provision of delivery services, purchased trucks from the company, paid the maintenance and operational costs of those trucks, invoiced the company for its delivery services, and was paid by the company for those services. The income from the work was declared as partnership income for tax purposes and split between each individual and their wife.

Overturning a previous decision in the Full Federal Court, the High Court held that the drivers were not employees of the company.

Consistent with the decision in the Personnel Contracting case, a majority of the court held that where parties have comprehensively committed the terms of their relationship to a written contract (and this is not challenged on the basis that it is a sham or is otherwise ineffective under general law or statute), the characterisation of the relationship must be determined with reference to the rights and obligations of the parties under that contract.

After 1985 or 1986, the contracting parties were the partnerships and the company. The contracts between the partnerships and the company involved the provision by the partnerships of both the use of the trucks owned by the partnerships and the services of a driver to drive those trucks. This relationship was not an employment relationship. In this case the fact that the workers owned and maintained significant assets that were used in carrying out the work carried a significant amount of weight.

For employers struggling to work out if they have correctly classified their contractors as employees, it will be important to review the agreements to ensure that the “rights and obligations of the parties under that contract” are consistent with an independent contracting arrangement. Merely labelling a worker as an independent contractor is not enough if the rights and obligations under the agreement are not consistent with the label. The High Court stated, “To say that the legal character of a relationship between persons is to be determined by the rights and obligations which are established by the parties' written contract is distinctly not to say that the “label” which the parties may have chosen to describe their relationship is determinative of, or even relevant to, that characterisation.”

A genuine independent contractor who is providing personal services will typically be:

Autonomous rather than subservient in their decision-making;
Financially self-reliant rather than economically dependent upon the business of another; and,
Chasing profit (that is a return on risk) rather than simply a payment for the time, skill and effort provided.

Every business that employs contractors should have a process in place to ensure the correct classification of employment arrangements and review those arrangements over time. Even when a worker is a genuine independent contractor this doesn’t necessarily mean that the business won’t have at least some employment-like obligations to meet. For example, some contractors are deemed to be employees for superannuation guarantee and payroll tax purposes.

Federal Budget 2022-23

Tue, 08 Mar 2022 19:30:00 GMT

With the pandemic and the war in Ukraine we have seen a lot less commentary this year about what to expect in the Budget. But, as an election budget, we typically expect to see a series of measures designed to boost productivity, many of which are likely to benefit businesses willing to invest in the future. Bolstering the workforce, and measures to increase the participation of women, is also a potential feature as Australia struggles with post pandemic worker shortages. Fiscally, the Budget is likely to be in a better position than expected in previous Budgets so there is more in the Government coffers to spend on initiatives. Look out for our update on the important issues the day after the Budget is released.

The Federal Budget has been brought forward to 29 March 2022.

Immediate Deductions Extended

Mon, 07 Mar 2022 19:30:00 GMT

Temporary full expensing enables your business to fully expense the cost of:

new depreciable assets
improvements to existing eligible assets, and
second hand assets

in the first year of use.

Introduced in the 2020-21 Budget and now extended until 30 June 2023, this measure enables an asset’s cost to be fully deductible upfront rather than being claimed over the asset’s life, regardless of the cost of the asset. Legislation passed by Parliament last month extends the rules to cover assets that are first used or installed ready for use by 30 June 2023.

Some expenses are excluded including improvements to land or buildings that are not treated as plant or as separate depreciating assets in their own right. Expenditure on these improvements would still normally be claimed at 2.5% or 4% per year.

For companies it is important to note that the loss carry back rules have not as yet been extended to 30 June 2023 – we’re still waiting for the relevant legislation to be passed. If a company claims large deductions for depreciating assets in a particular income year and this puts the company into a loss position then the tax loss can generally only be carried forward to future years. However, the loss carry back rules allow some companies to apply current year losses against taxable profits in prior years and claim a refund of the tax that has been paid. At this stage the loss carry back rules are due to expire at the end of the 2022 income year, but we are hopeful that the rules will be extended to cover the 2023 income year as well.

Temporary full expensing enables your business to fully expense the cost of:

The ATO’s Attack on Trusts and Trust Distributions

Mon, 07 Mar 2022 01:17:00 GMT

Late last month, the Australian Taxation Office (ATO) released a package of new guidance material that directly targets how trusts distribute income. Many family groups will pay higher taxes (now and potentially retrospectively) as a result of the ATO’s more aggressive approach.

The tax legislation contains an integrity rule, section 100A, which is aimed at situations where income of a trust is appointed in favour of a beneficiary but the economic benefit of the distribution is provided to another individual or entity. If trust distributions are caught by section 100A, then this generally results in the trustee being taxed at penalty rates rather than the beneficiary being taxed at their own marginal tax rates.

The latest guidance suggests that the ATO will be looking to apply section 100A to some arrangements that are commonly used for tax planning purposes by family groups. The result is a much smaller boundary on what is acceptable to the ATO which means that some family trusts are at risk of higher tax liabilities and penalties.

ATO redrawing the boundaries of what is acceptable

Section 100A has been around since 1979 but to date, has rarely been invoked by the ATO except where there is obvious and deliberate trust stripping at play. However, the ATO’s latest guidance suggests that the ATO is now willing to use section 100A to attack a wider range of scenarios.

There are some important exceptions to section 100A, including where income is appointed to minor beneficiaries and where the arrangement is part of an ordinary family or commercial dealing. Much of the ATO’s recent guidance focuses on whether arrangements form part of an ordinary family or commercial dealing. The ATO notes that this exclusion won’t necessarily apply simply because arrangements are commonplace or they involve members of a family group. For example, the ATO suggests that section 100A could apply to some situations where a child gifts money that is attributable to a family trust distribution to their parents.

The ATO’s guidance sets out four ‘risk zones’ – referred to as the white, green, blue and red zones. The risk zone for a particular arrangement will determine the ATO’s response:

White zone

This is aimed at pre-1 July 2014 arrangements. The ATO will not look into these arrangements unless it is part of an ongoing investigation, for arrangements that continue after this date, or where the trust and beneficiaries failed to lodge tax returns by 1 July 2017.

Green zone

Green zone arrangements are low risk arrangements and are unlikely to be reviewed by the ATO, assuming the arrangement is properly documented. For example, the ATO suggests that when a trust appoints income to an individual but the funds are paid into a joint bank account that the individual holds with their spouse then this would ordinarily be a low-risk scenario. Or, where parents pay for the deposit on an adult child’s mortgage using their trust distribution and this is a one-off arrangement.

Blue zone

Arrangements in the blue zone might be reviewed by the ATO. The blue zone is basically the default zone and covers arrangements that don’t fall within one of the other risk zones. The blue zone is likely to include scenarios where funds are retained by the trustee, but the arrangement doesn’t fall within the scope of the specific scenarios covered in the green zone.

Section 100A does not automatically apply to blue zone arrangements, it just means that the ATO will need to be satisfied that the arrangement is not subject to section 100A.

Red zone

Red zone arrangements will be reviewed in detail. These are arrangements the ATO suspects are designed to deliberately reduce tax, or where an individual or entity other than the beneficiary is benefiting.

High on the ATO’s list for the red zone are arrangements where an adult child’s entitlement to trust income is paid to a parent or other caregiver to reimburse them for expenses incurred before the adult child turned 18. For example, school fees at a private school. Or, where a loan (debit balance account) is provided by the trust to the adult child for expenses they incurred before they were 18 and the entitlement is used to pay off the loan. These arrangements will be looked at closely and if the ATO determines that section 100A applies, tax will be applied at the top marginal rate to the relevant amount and this could apply across a number of income years.

The ATO indicated that circular arrangements could also fall within the scope of section 100A. For example, this can occur when a trust owns shares in a company, the company is a beneficiary of that trust and where income is circulated between the entities on a repeating basis. For example, section 100A could be triggered if:

The trustee resolves to appoint income to the company at the end of year 1.
The company includes its share of the trust's net income in its assessable income for year 1 and pays tax at the corporate rate.
The company pays a fully franked dividend to the trustee in year 2, sourced from the trust income, and the dividend forms part of the trust income and net income in year 2.
The trustee makes the company presently entitled to some or all of the trust income at the end of year 2 (which might include the franked distribution).
These steps are repeated in subsequent years.

Distributions from a trust to an entity with losses could also fall within the red zone unless it is clear that the economic benefit associated with the income is provided to the beneficiary with the losses. If the economic benefit associated with the income that has been appointed to the entity with losses is utilised by the trust or another entity then section 100A could apply.

Who is likely to be impacted?

The ATO’s updated guidance focuses primarily on distributions made to adult children, corporate beneficiaries, and entities with losses. Depending on how arrangements are structured, there is potentially a significant level of risk. However, it is important to remember that section 100A is not confined to these situations.

Distributions to beneficiaries who are under a legal disability (e.g., children under 18) are excluded from these rules.

For those with discretionary trusts it is important to ensure that all trust distribution arrangements are reviewed in light of the ATO’s latest guidance to determine the level of risk associated with the arrangements. It is also vital to ensure that appropriate documentation is in place to demonstrate how funds relating to trust distributions are being used or applied for the benefit of beneficiaries.

Family trust beneficiaries at risk

Companies entitled to trust income

As part of the broader package of updated guidance targeting trusts and trust distributions, the ATO has also released a draft determination dealing specifically with unpaid distributions owed by trusts to corporate beneficiaries. If the amount owed by the trust is deemed to be a loan then it can potentially fall within the scope of another integrity provision in the tax law, Division 7A.

Division 7A captures situations where shareholders or their related parties access company profits in the form of loans, payments or forgiven debts. If certain steps are not taken, such as placing the loan under a complying loan agreement, these amounts can be treated as deemed unfranked dividends for tax purposes and taxable at the taxpayer’s marginal tax rate.

The latest ATO guidance looks at when an unpaid entitlement to trust income will start being treated as a loan. The treatment of unpaid entitlements to trust income as loans for Division 7A purposes is not new. What is new is the ATO’s approach in determining the timing of when these amounts start being treated as loans. Under the new guidance, if a trustee resolves to appoint income to a corporate beneficiary, then the time the unpaid entitlement starts being treated as a loan will depend on how the entitlement is expressed by the trustee (e.g., in trust distribution resolutions etc):

If the company is entitled to a fixed dollar amount of trust income the unpaid entitlement will generally be treated as a loan for Division 7A purposes in the year the present entitlement arises; or
If the company is entitled to a percentage of trust income, or some other part of trust income identified in a calculable manner, the unpaid entitlement will generally be treated as a loan from the time the trust income (or the amount the company is entitled to) is calculated, which will often be after the end of the year in which the entitlement arose.

This is relevant in determining when a complying loan agreement needs to be put in place to prevent the full unpaid amount being treated as a deemed dividend for tax purposes when the trust needs to start making principal and interest repayments to the company.

The ATO’s views on “sub-trust arrangements” has also been updated. Basically, the ATO is suggesting that sub-trust arrangements will no longer be effective in preventing an unpaid trust distribution from being treated as a loan for Division 7A purposes if the funds are used by the trust, shareholder of the company or any of their related parties.

The new guidance represents a significant departure from the ATO’s previous position in some ways. The upshot is that in some circumstances, the management of unpaid entitlements will need to change. But, unlike the guidance on section 100A, these changes will only apply to trust entitlements arising on or after 1 July 2022.

Pandemic Leave Disaster Payments rules change

Fri, 11 Feb 2022 20:00:00 GMT

The rules for the Pandemic Leave Disaster Payment has changed

The rules for the Pandemic Leave Disaster Payment, the payment accessible to those who have lost work because they have had to self-isolate with COVID-19, or are caring for someone who contracted it, changed on 18 January 2022.

The new rules change the definition of a close contact in line with the harmonised national definition. The payment is now accessible if you are a close contact because you either usually live with the person who has tested positive with COVID-19, or have stayed in the same household for more than 4 hours with the person who has tested positive with COVID-19 during their infectious period.

The payment provides:

· $450 if you lost at least 8 hours or a full day’s work, and less than 20 hours of work

· $750 if you lost 20 hours or more of work.

To claim the payment, you will need to be an Australian citizen, permanent visa holder (or temporary visa holder with a right to work) or a New Zealand passport holder. The payment is also subject to means testing with a $10,000 illiquid assets test.

Cash injection for struggling businesses

Thu, 10 Feb 2022 20:00:00 GMT

Businesses struggling with the Omicron wave of the pandemic have been offered new grants and support in NSW, SA and WA.

The NSW Small Business Support package provides eligible employing businesses with a lump sum payment of 20% of weekly payroll, up to a maximum of $5,000 per week for the month of February 2022. The minimum weekly payment for employers is $750 per week.

Eligible non-employing businesses will receive $500 per week (paid as a lump sum of $2,000).

To access the package, businesses must:

Have an aggregated annual turnover between $75,000 and $50 million (inclusive) for the year ended 30 June 2021; and
Experienced a decline in turnover of at least 40% due to Public Health Orders or the impact of COVID-19 during the month of January 2022 compared to January 2021 or January 2020; and
Experienced a decline in turnover of 40% or more from 1 to 14 February 2022 compared to the same fortnight in either 2021 or 2020 (you must use the same comparison year utilised in the decline in turnover test for January); and
Maintain their employee headcount from “the date of the announcement of the scheme” (30 January 2022).

The support package only covers the month of February 2022. Applications for support are expected to open mid-February.

New South Wales

South Australia

The South Australian Government has introduced two rounds of support for businesses impacted by health restrictions:

The Tourism, hospitality and gym grant provides $6,000 for employing businesses and $2,000 for non-employing business whose turnover reduced by 30% or more between 10 January 2022 to 30 January 2022 (inclusive) comparable to 2019-20 (or 2020-21 for new business). The grant will automatically be paid to those who applied for and received the grant based on the turnover period 27/12/21 to 9/1/22.
The Business hardship grant provides $6,000 for employing businesses and $2,000 for non-employing businesses whose turnover reduced by 50% or more between 10 January 2022 to 30 January 2022 (inclusive) comparable to 2019-20 (or 2020-21 for new business). The grant will automatically be paid to those who applied for and received the grant based on the turnover period 27/12/21 to 9/1/22.

Applications for the grants open 14 February 2022.

Western Australia

Western Australia has been hit with compounding issues of border closures, COVID-19 and natural disasters.

The latest grant provides financial assistance of up to $12,500 ($1,130 for each impacted day) to small businesses in the hospitality, music events or arts sectors that were directly financially impacted by the Chief Health Officer’s COVID Restrictions (Directions) from 23 December 2021 to 4 January 2022. Non-employing businesses will receive up to $4,400 ($400 per day).

To be eligible, your business must:

Be located within the Perth, Rottnest or Peel regions; and
Have a valid ABN; and
Have an annual turnover of more than $50,000; and
Australia wide payroll of less than $4m in 2020-21; and
Operate in the hospitality sector, the music events industry or the creative and performing arts sectors that were directly impacted by the restrictions; and
Have experienced a decline in turnover of at least 30% compared to the same period in the prior year (or another comparable period for new businesses).

Applications are open through SmartyGrants .

PCR and RAT tests to be tax deductible, FBT free

Thu, 10 Feb 2022 01:53:00 GMT

The Treasurer has announced that PCR and rapid antigen tests (RAT) will be tax deductible...

The Treasurer has announced that PCR and rapid antigen tests (RAT) will be tax deductible for individuals and exempt from fringe benefits tax (FBT) for employers if purchased for work purposes.

There has been confusion over the tax treatment of RAT tests with the Prime Minister stating for some time that they are tax deductible, but in reality, the tests were probably only deductible in limited circumstances.

If you have had to purchase RAT tests to be able to work, you will be able to receive a tax deduction for the cost you have incurred from 1 July 2021 (you will need evidence of the expense). If the RAT test cost $20, someone on a marginal tax rate of 32.5% would receive a tax benefit of $6.50.

For business, it is expected that RAT, PCR and other coronavirus tests will be exempt from FBT from the 2021-22 FBT year.

Legislation enabling the change is expected before Parliament this week.

Professional Services Firm Profits Guidance Finalised

Tue, 08 Feb 2022 01:26:00 GMT

The ATO’s guidance uses a series of factors to determine the level of risk associated with profits generated by a professional services firm and how they flow through to individual practitioners and their related parties. The ATO may look to apply the general anti-avoidance rules in Part IVA to practitioners who don’t fall within the low-risk category.

With the new guidelines taking effect on 1 July 2022, professional firms will need to assess their structures now to understand their risk rating, and if necessary, either make changes to reduce their risks level or ensure appropriate documentation is in place to justify their position.

The Australian Taxation Office’s finalised position on the allocation of profits from professional firms starts on 1 July 2022.

The problem

The finalised guidance has had a long gestation period. The ATO has been concerned for some time about how many professional services firms are structured – specifically, professional practices such as lawyers, accountants, architects, medical practices, engineers, architects etc., operating through trusts, companies and partnerships of discretionary trusts and how the profits from these practices are being taxed.

The ATO guidance takes a strong stance on structures designed to divert income in a way that results in principal practitioners receiving relatively small amounts of income personally for their work and reducing their taxable income. Where these structures appear to be in place to divert income to create a tax benefit for the professional, Part IVA may apply. Part IVA is an integrity rule which allows the Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement in a contrived manner in order to obtain a tax benefit. Significant penalties can also apply when Part IVA is triggered.

Determining the risk rating

The guidance sets out a series of tests which are used to calculate a risk score. This risk score is then used to classify the practitioner as falling within a Green, Amber or Red risk zone, which determines if the ATO should take a closer look at you and your firm. Those in the green zone are at low risk of the ATO directing its compliance efforts to you. Those in the red zone, however, can expect the ATO to conduct further analysis as a matter of priority which could lead to an ATO audit.

Before calculating the risk score it is necessary to consider two gateway tests:

Gateway 1 - considers whether there is commercial rationale for the business structure and the way in which profits are distributed, especially in the form of remuneration paid. Red flags would include arrangements that are more complex than necessary to achieve the relevant commercial objective, and where the tax result is at odds with the commercial venture, for example, where a tax loss is claimed for a profitable commercial venture.
Gateway 2 - requires an assessment of whether there are any high-risk features. The ATO sets out some examples of arrangements that would be considered high-risk, including the use of financing arrangements relating to transactions between related parties.

If the gateway tests are passed, then you can self-assess your risk level against the ATO’s risk assessment factors. There are three factors to be considered:

The professional’s share of profit from the firm (and service entities etc) compared with the share of firm profit derived by the professional and their related parties;
The total effective tax rate for income received from the firm by the professional and their related parties; and
The professional’s remuneration as a percentage of the commercial benchmark for the services provided to the firm.

The resulting ‘score’ from these factors determines your risk zone. Some arrangements that were considered low risk in prior years under the ATO’s previous guidance may now fall into a higher risk zone. In these cases, the ATO is allowing a transitional period for those practitioners to continue to apply the previous guidelines until 30 June 2024.

For professional services firms, it will be important to assess the risk level and this needs to be done for each principal practitioner separately. Those in the amber or red zone who want to be classified as low risk need to start thinking about what needs to change to move into the lower risk zone.

Where other compliance issues are present - such as failure to recognise capital gains, misuse of the superannuation systems, failure to lodge returns or late lodgement, etc., - a green zone risk assessment will not apply.

We will contact clients who might be impacted by the incoming guidance. If you are concerned about your position, please contact us.

Year of the Tiger: Roaring or Bellowing?

Mon, 07 Feb 2022 01:22:00 GMT

The 2022 Luna New Year, Year of the Tiger, is courage and bravery. It is a year to drive out evil and one of momentum and change. The message; walk boldly with courage. And it seems the Reserve Bank Governor is aligned with this sentiment.

Supply woes

The sharp increase in interest rates comes on the back of, “very significant disruptions in supply chains and distribution networks,” with labour shortages in particular dominating news coverage as businesses struggle to maintain momentum with staff impacted by either COVID-19 or isolation requirements. National Cabinet harmonised the definition of a ‘close contact’ at the end of December 2021 for most Australian States and Territories and reduced the isolation period to seven days (from 14).

The recent NAB quarterly business survey reported that, “ongoing supply chain issues and border closures saw 85% of firms report availability of labour as a constraint on output, while 47% reported availability of materials as a constraint – both records in the history of the survey. As a result, both cost growth and retail price growth remained elevated.” With global staff shortages, come bottlenecks in the supply chain. For many businesses, estimating what stock they need has become a crystal ball exercise rather than a predictable science and in some cases they are ordering ahead to reduce the supply risks, which has a knock-on effect of increasing demand for raw materials. And, this is without factoring in the problem of panic buying (toilet paper anyone) as customers anxiously watch dwindling supplies on supermarket shelves. Supply chain problems, both in Australia and globally, are not anticipated to normalise for another 12 to 24 months.

The RBA Governor’s three takeaways are:

The economy has been remarkably resilient;
·The link between the strength of the real economy and prices and wages remains alive; and
The supply side matters for both economic activity and prices.

You could almost add, no one really knows, as a fourth point as an unexpected change, like a new virulent COVID variant, or further lockdowns, could rewrite the forecasts. But, there is plenty of room for optimism. What we have seen to date is that when there is an opportunity to rebound, to return to normal, the economy bounces back quickly and often much faster than anticipated. Afterall, health, not the economy, has been the catalyst for the crisis.

The Tiger economy

At a recent speech to the National Press Club, Reserve Bank Governor Philip Lowe was optimistic about Australia's prospects in 2022. This optimism is driven by strong GDP growth that saw growth outstrip the RBA’s forecast to reach 5%, and strong jobs growth with the unemployment rate at 4.2% - the lowest rate since the resources boom. Unemployment is expected to reduce further to 3.75% by the end of 2022, and if it does, it will be the lowest unemployment level since the early 1970s. Underemployment is also at its lowest rate in 13 years.

In addition, “household and business balance sheets are generally in good shape and wages growth is picking up.”

During his National Press Club address, Mr Lowe was asked the question, “those people are now looking very carefully at your words, trying to read the tea leaves and work out what they do with their mortgages? You obviously can’t go to the RBA Governor looking for individual financial advice. But, if it was your mortgage, would you be scrambling for a fixed rate or sticking with a variable?”

His response, “… the advice that I would give to people is, make sure that you have buffers. Interest rates will go up. And the stronger the economy, the better progress on unemployment, the faster and the sooner the increase in interest rates will be. So, interest rates will go up.”

A rate increase by the RBA would be the first since November 2020. Westpac and AMP Capital are both forecasting the first increase to occur in August this year, then a second towards the end of 2022.

While the RBA might be taking a ‘steady as she goes’ approach, many lenders have already factored in increases as the international cost of funding increases. RateCity data shows that, “a total of 17 lenders have hiked fixed rates so far this year, but that number will rise and quickly” - Westpac increased its fixed rates at the end of January and the CBA and ING (for new customers only) at the start of February.

But with households having accumulated more than $200 billion in additional savings over the past 2 years, the RBA is hopeful that any increase will dampen inflation pressures but not impinge on growth.

When will interest rates rise?

The surprise inflation figures

While wages growth is “picking up”, the forecast remains sluggish at 2.25%. Australia’s wages growth has remained lethargic for a decade now, which will come as a surprise to many business operators competing for skilled workers as, on the ground, the opposite feels true. Combined with a surprise spike in inflation (CPI) well above expectations at 3.5% (+2% on RBA forecasts), pushed predominantly by a sharp increase in petrol prices (32% over the past year) and the cost of constructing new homes, the purchasing power of Australians has declined. There has also been a large increase in the price of consumer durables (cars, fridges etc.,) and less discounting in the face of strong demand as supply chain problems take hold.

Australia is not alone in this. The UK inflation rate jumped to 5.4%, 5.7% in the United States and 5.9% in New Zealand in the same period.

Overseas gifts and loans in the spotlight

Thu, 11 Nov 2021 19:15:00 GMT

The ATO has recently issued an alert on gifts or loans from overseas.

The ATO is particularly concerned about schemes and arrangements designed specifically to circumvent Australian tax laws. In general, Australian-resident taxpayers need to declare their worldwide income in their Australian tax return. Some schemes however disguise offshore capital gains or income as a gift or loan.

So, how do the ATO know if money from overseas is a genuine gift or loan? Generally, the ATO will expect to see some form of evidence that the gift is genuine such as a deed of gift prepared by the donor, formal identification of the donor, a copy of the donor’s bank account, or in the case of an inheritance, the will or distribution statement from the estate.

If you have received a loan from overseas, the ATO will expect to see properly executed loan documentation, and other documentation supporting why the loan was made and its purpose. Third party documentation is best as documentation from a family member may not be accepted as conclusive evidence of a loan.

The ATO will form its view based on the evidence available.

Loans received from companies or trusts can still trigger tax issues in Australia.

Tax and the Normalisation of Cryptocurrency

Wed, 10 Nov 2021 19:30:00 GMT

The ATO is using various sources for data collection including digital service providers (DSPs) and analysis software to track taxpayer compliance. There are several data-mining projects (no pun intended) underway looking specifically at cryptocurrency and cryptocurrency platforms.

If you are in the business of mining, then you can claim a deduction for the equipment you purchase to generate income. If you are not carrying on a business, then the crypto is held as an investment and the equipment is not deductible.

Does the ATO really know about my crypto transactions?

Can I get a tax deduction for computer equipment purchased for mining?

In early November, the Commonwealth Bank announced that it is now Australia’s first bank to offer customers the ability to buy, sell and hold crypto assets, directly through the CommBank app. You know when the banks come on board, cryptocurrency has become normal.

But cryptocurrency is only one part of the blockchain universe. Non-fungible tokens or NFTs (fungible means interchangeable) are one-of-a-kind digital assets which are part of the Ethereum blockchain. An example is the CryptoKitties game that allows players to purchase, collect, breed and sell unique virtual cats – and, before you laugh, the game transacted over $1 million in virtual cats in its first few days of launching.

NFTs are also rapidly rising in popularity in the artworld because ownership of the asset is on the blockchain and in some cases, the artist can take a percentage of every transaction of that artwork – so, no more starving artists because they can generate an income from the asset over time not just on the first sale. A stellar example is the sale of a NFT artwork by the digital artist Beeple, which was sold at auction by Christies in March 2021 for $69 million (USD).

Let’s look at what the Australian Taxation Office has to say about some of the commonly asked questions about the implications of investing in blockchain.

The Australian Taxation Office recently updated its guidance on tax and cryptocurrency.

As with any other cryptocurrency, an NFT can be held for personal use. Personal use assets are CGT assets that you keep mainly for your personal use or enjoyment.

NFT is not a personal use asset if it is kept or used mainly:

As an investment
In a profit-making scheme, or
In the course of carrying on a business.

The relevant time for working out if an asset is a personal use asset is at the time of its disposal. During a period of ownership, the way that an NFT is kept or used may change (for example, NFTs may originally be acquired for personal use and enjoyment, but ultimately kept or used as an investment, to make a profit on ultimate disposal or as part of carrying on a business).

The longer an NFT is held, the less likely it is that it will be a personal use asset – even if you ultimately use it for personal use or consumption.

Capital gains you make from personal use assets acquired for less than $10,000 are disregarded for CGT purposes. However, all capital losses you make on personal use assets are disregarded. Collectables are not classed as personal use assets and may be subject to CGT.

Is mining cryptocurrency income or an asset?

If you receive crypto from providing services to others, this can represent income. If you create crypto, you acquire a capital gains tax (CGT) asset. A taxing event will arise when you exchange crypto for Australian Dollars or another crypto asset.

What happens if my cryptocurrency is stolen?

You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen. Generally, where an item can be replaced it is not lost. A lost private key can't be replaced. Therefore, to claim a capital loss you must be able to provide the following kinds of evidence:

When you acquired and lost the private key
The wallet address that the private key relates to
The cost you incurred to acquire the lost or stolen cryptocurrency
The amount of cryptocurrency in the wallet at the time of loss of private key
That the wallet was controlled by you (for example, transactions linked to your identity)
That you are in possession of the hardware that stores the wallet
Transactions to the wallet from a digital currency exchange for which you hold a verified account or is linked to your identity.

I mine cryptocurrency as a hobby so I should not have to pay tax on it?

Unfortunately, it’s unlikely mining for fun will allow you to avoid tax. The circumstances where you can generate cryptocurrency or transact it without paying tax are very limited.

How is my NFT artwork taxed?

Can my Self Managed Superannuation Fund invest in cryptocurrency?

The issue is not so much can you acquire cryptocurrency within an SMSF but should you? The June 2021 ATO statistical report shows that Australians held approximately $212m in cryptocurrency assets as at 30 June 2021- only 0.03% of total assets. The simple reason is that the volatility of cryptocurrency makes it harder to rationalise under Section 62 of the Superannuation Industry Supervision (SIS) Act, particularly if the asset allocation ratio of cryptocurrency assets in the SMSF is high. But, it’s not impossible if managed correctly at an investment and administrative level.

With Bitcoin as low as $14k on 13 September 2020, and $61k on 12 September 2021, it’s easy to see the appeal for investors with the appetite for risk (335% return across 12 months). In this same period, Ethereum grew 767%. But the world was in a different place in September 2020, not just in cryptocurrency.

Before investing in cryptocurrency there are a few things SMSF trustees need to be aware of:

Trust Deed - the trust deed of the fund must allow for cryptocurrency assets. Most SMSF trust deeds are drafted broadly to enable trustees to invest in assets permitted by the superannuation laws and leave the investment strategy to manage the choice of assets and their appropriateness. However, it is important to check.
Investment strategy - Your Investment Strategy is a major consideration with any investment within an SMSF but with cryptocurrency’s high volatility and risks, there must be clearly articulated information in the Investment Strategy. That is, it must articulate the trustees’ plan for making, holding and realising assets in a way that is consistent with the retirement goals of members being mindful of the member’s individual circumstances.
Separation of assets – it’s important that the cryptocurrency assets are held in a wallet in the name of the SMSF and the IP address is provided to the SMSF auditors to verify the transactions (against the fund bank account). Problems can often arise when a wallet (in the name of the SMSF) is connected to a personal credit card to acquire cryptocurrency. In these cases, the payment is seen as either a contribution or a loan to the SMSF.

The ATO also suggests you look at the diversity of the SMSF’s investments.

How tax applies to blockchain and the generation of income or assets is still a work in progress. Please contact us if we can assist.

SMSF COVID-19 Audit Relief Extended

Wed, 10 Nov 2021 18:30:00 GMT

The ATO has extended COVID-19 relief for SMSF trustees. The relief measures, which protect trustees from COVID-19 related contraventions of the super laws, now extend from the 2019-20, 2020-21 and 2021-22 financial years. The relief measures provide:

Residency relief where the pandemic has prevented members from returning to Australia. This measure prevents the SMSF from breaching the residency conditions to be an Australian super fund.
Rental relief where a COVID-19 reduction, waiver or deferral has been provided to a tenant.
Loan repayment relief where relief is provided on commercial terms.
In-house asset relief where the SMSF exceeded the 5% in-house asset threshold at 30 June due to the impacts of COVID-19.

How To Set Up Your Director ID

Wed, 10 Nov 2021 03:39:00 GMT

It’s important that anyone agreeing to be a director understands the implications. Being a director is not just a title; it is a responsibility. At a financial level, directors are responsible for ensuring that the company does not trade while insolvent. The by-product of this is that the directors may be held personally liable for the debt incurred. The director penalty regime has also tightened up in recent years to ensure that directors are personally liable for PAYG withholding, net GST, and superannuation guarantee charge liabilities if the company fails to meet its obligations by the due date. For many small businesses, the directors are also often personally responsible for company loans secured against property such as the family home.

Failing to perform your duties as a director is a criminal offence with fines of up to $200,000 and five years in prison.

Ignorance is not a legal defence. Don’t sign anything unless you understand the consequences.

Directors in name only

Directors are now required to register for a unique identification number that they will keep for life.

You can choose to verify your identify and apply for your director ID by phone (13 62 50) or on paper . You will need to have your identification documents available. If you are applying using the paper form, your identify documentation will need to be certified by an authorised certifier such as a Barrister, Justice of the Peace etc.

Foreign directors of Australian companies have the same requirements and deadlines as Australian resident directors, however, the verification process is only accessible in paper form .

One primary and two secondary forms of identification are required to accompany the application that have been certified by a notary publics or by staff at the nearest Australian embassy, high commission or consulate , including consulates headed by Austrade honorary consuls. Primary forms of identification include a birth certificate or passport, and secondary include driver’s licence, foreign government identifier, or national photo identification card.

In the presence of the applicant, the authorised certifier must certify that each copy is a true and correct copy of the original document by sighting the original document, stamping, signing and annotating the copy of the identity document to state, ‘I have sighted the original document and certify this to be a true and correct copy of the original document sighted'. initialling each page listing their name, date of certification, phone number and position.

The form and the accompanying documents will need to be sent by mail to Australian Business Registry Services using the details provided.

Applying by phone or using paper forms

All directors of a company, registered Australian body, registered foreign company or Aboriginal and Torres Strait Islander corporation will need a director ID. This includes directors of a corporate trustee of self-managed super funds (SMSF).

The company secretary or officeholder should keep a register of the IDs of their directors in a secure place - director IDs are governed by the same privacy rules that apply to Tax File Numbers (TFNs) and should not be disclosed unless required.

The introduction of the Director Identification Number (DIN) is part of the Government’s Modernisation of Business Registers (MBR) Program creating greater transparency, and preventing the potential for fraud and phoenix company activity. The MBR will unify the Australian Business Register and 31 ASIC business registers, including the register of companies. In effect, the system will create one source of truth across Government agencies for individuals and entities and will be managed by the Australian Taxation Office (ATO).

For those concerned about their privacy, the director ID will not be searchable by the public and will not be disclosed without the consent of the Director.

If you are an Australian resident director, you will need to complete a number of steps and have a number of identification documents available and ready (for non-resident directors see Foreign directors and the director ID system below).

1. Verify your identify

If you establish your director ID online, and you have not already set up myGovID, you will need to download the app onto your phone or device and create an account.

The myGovID does not create your director ID - the app’s only purpose is to validate your identity, and once validated, issue a code that can be used to identify you on government online services without going through the same verification process.

myGovID uses your phone/device’s camera to scan your forms of ID such as your passport, driver’s license and/ or VISA ( check the documentation requirements here ), to validate who you say you are. Be careful when you are scanning your documentation as the system does not always read the scan correctly.

2. Apply for your director ID through Australian Business Registry Services

Once you have set up your myGovID, you need to apply to the Australian Business Registry Services (ABRS) for your director ID. Use the email you used to create your myGovID to start the process.

In addition to your myGovID, you will need to have on hand documentation that matches the information held by the ATO. If you have a myGov account linked to the ATO, you can find the details on your profile. You will need:

Your tax file number
The residential address held on file by the ATO; and
Two documents that verify your identify such as:
Your bank account details held by the ATO (on your myGov ATO account, see ‘my profile/financial institution details’).
Dividend statement investment reference number
Notice of assessment (NOA) – date of issue and the reference number (on your myGov ATO account, see Tax/lodgements/income tax/history).
The gross amount from your PAYG payment summary
Superannuation details including your super fund’s ABN and your member account number

The final stage requests your personal contact details (not the company’s).

Once complete, your director ID will be issued immediately on screen. This information should be provided to your company secretary or office holder.

If any of your details change, for example a change of residential address or phone number, you will need to update your details through the ABR. You will also need to notify your company within seven days (14 days for CATSI Act directors) and the company will then need to notify the Australian Securities and Investments Commission (ASIC) within 28 days.

Timeframes for registration

For Corporation Act directors:

What is a director ID?

How to set up a director ID

Who needs a director ID?

For CATSI Directors:

If the company intends to appoint new directors, it will be important to ensure that they are aware of the requirements and timeframes to establish their director ID if they do not already have one.

Foreign directors and the director ID system

Recruiting new employees? The 1 November superannuation rule changes

Sun, 10 Oct 2021 15:30:00 GMT

From 1 November 2021, where an employee does not identify a fund, the employer is required to contact the ATO and request details of the employee’s existing superannuation fund or ‘stapled’ fund (the fund stapled to them). The request is made through the ATO’s online services through the ‘Employee Commencement Form’.

If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement (if the determination was made before 1 January 2021).

When your business hires a new employee, the Choice of Fund form is used to identify where they want their superannuation to be directed. If the employee does not identify a fund, generally the employer directs their superannuation into a default fund.

What happens to your superannuation when you die?

Sat, 09 Oct 2021 19:00:00 GMT

Whether or not the beneficiaries of your superannuation pay tax depends on who the superannuation was paid to and how. If your superannuation is paid as a lump sum to a tax dependant, the superannuation is tax-free. The tax laws have a different definition of who is a dependant to the superannuation laws. A tax dependant for tax purposes is your spouse or former spouse, your child under the age of 18, or someone you have an interdependency relationship with. Special rules exist if you are a police officer, member of the defence force or protective service officer who died in the line of duty.

If your superannuation is paid to your estate, the tax laws use a ‘look through’ approach when superannuation death benefits are distributed to the deceased’s legal representative. This involves determining whether the final recipient of the superannuation is a dependant or a non-dependant of the deceased.

If the person is not a dependant for tax purposes, for example an adult child, then there might be tax to pay.

Is your death benefit valid?

There have been a number of court cases over the years that have successfully contested the validity of death nominations, particularly within self managed superannuation funds. For a death nomination to be valid it must be in writing, signed and dated by you, and witnessed. The wording of your nomination also needs to be clear and legally binding. If you nominate a person, ensure you use their legal name and if the superannuation is to be directed to your estate, ensure the wording uses the correct legal terminology.

Who can receive your superannuation?

Your superannuation can be paid to a SIS dependant, your legal representative (for example, the executor of your will), or someone who has an interdependency relationship with you.

A dependant is defined in superannuation law as ‘the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship’. An interdependency relationship is where someone depends on you for financial support or care.

Superannuation is not like other assets as it is held in trust by the trustee of the superannuation fund. When you die, it does not automatically form part of your estate but instead, is paid to your eligible beneficiaries by the fund trustee according to the rules of fund, superannuation law, and the death nomination you made...

Most people have a death nomination in place to direct their superannuation to their nominated beneficiaries on their death. There are four types of death benefit nominations:

Binding death benefit nomination - Putting in place a binding death nomination will direct your superannuation to whoever you nominate. As long as that person is an eligible beneficiary, the trustee is bound by law to pay your superannuation to that person as soon as practicable after your death. Generally, death benefit nominations lapse after 3 years unless it is a non-lapsing binding death nomination.

Non-lapsing binding death benefit nomination - Non-lapsing binding death nominations, if permitted by your trust deed, remain in place unless the member cancels or replaces them. When you die, your super is directed to the person you nominate.

Non-binding death nomination - A non-binding death nomination is a guide for trustees as to who should receive your superannuation when you die but the trustee retains control over who the benefits are paid to. This might be the person you nominate but the trustees can use their discretion to pay the superannuation to someone else or to your estate.

Reversionary beneficiary – if you are taking an income stream from your superannuation at the time of your death (pension), the payments can revert to your nominated beneficiary at the time of your death and the pension will be automatically paid to that person. Only certain dependants can receive reversionary pensions, generally a spouse or child under 18 years.

If no death benefit nomination is in place - If you have not made a death benefit nomination, the trustees will decide who to pay your superannuation to according to state or territory laws. This will often be a financial dependant to the legal representative of your estate to then be distributed according to your Will.

Death nominations

Do beneficiaries pay tax on you superannuation?

Unwinding COVID-19 Relief

Fri, 08 Oct 2021 20:00:00 GMT

The ACT Government has distributed grants to business jointly funded with the Commonwealth. The ACT COVID-19 Business Grant was recently extended with top-up grants of $10,000 for employing businesses and $3,750 for non-employing businesses distributed to previous grant recipients in industries impacted by continued lockdowns. Large businesses $2m to $5m received an additional top-up amount of between $10,000 and $30,000. The Tourism, Accommodation Provider, Arts, Events, Hospitality & Fitness Grants have also been topped up with grants between $5,000 and $25,000 to existing recipients and the grant has been expanded to the fitness/sports sector (more information will be available mid-October).

Lockdowns eased on 1 October and are scheduled to be lifted from 15 October, with a return to normal in early to mid December 2021 (see the pathway forward ) . While not specified, it is expected that grants will cease at this point and instead, directed into targeted industry specific initiatives (see the recovery plan ).

*Excludes extension program

At 70% full adult vaccination (10 October 2021), JobSaver will reduce from 40% of weekly payroll to 30%. Then, at 80% full vaccination, the Commonwealth will withdraw funding. The NSW Government announced that it will continue to fund their portion of JobSaver up until 30 November 2021 (15% of payroll).

It is unclear at this stage of what the impact of the withdrawal of Commonwealth funding at 80% vaccination rates will mean to large tourism, hospitality, and recreation businesses.

The $1,500 fortnightly micro-business grant, will reduce to $750 per fortnight from 80%

full vaccination and cease on 30 November 2021.

If you are uncertain how the easing of restrictions will impact on you and your workplace, see the roadmap .

Australian Capital Territory

Support for Business

The NSW JobSaver, which provides payments of up to 40% of weekly payroll, is jointly funded by the state and Commonwealth governments. From 13 September, businesses receiving JobSaver have been required to reconfirm their eligibility for the payment each fortnight including a 30% decline in turnover test and headcount test.

New South Wales

Each state and territory manages lockdown and financial support to businesses impacted by COVID-19 lockdowns and border closures differently. The way in which support is withdrawn will depend on how support has been provided and the extent of Commonwealth support.

Queensland

While not significantly impacted by local lockdowns, Queensland tourism is impacted by national and international border closures. A second round of Tourism and Hospitality Sector Hardship grants have been announced although no further details are currently available.

For businesses on the border with New South Wales, a hardship grant will become available if the closure remains in place until 14 October or longer with grants of $5,000 for employing entities and $1,000 for non-employing entities (see Business Queensland for details). To receive the grant, you must operate in a ‘border business zone’ and have received the COVID-19 Business Support Grant.

Pointedly, Federal Treasurer Josh Frydenberg has stated, “Governments must also hold up their end of the bargain and stick to the plan agreed at National Cabinet that will see restrictions ease and our borders open up as we reach our vaccination targets of 70 to 80 per cent.” The Queensland Government will be under significant pressure to open borders once vaccination rates reach 80% in December and prior to the school holiday period.

Victoria

The Victorian Government has distributed grants to business jointly funded with the Commonwealth. For many of these grants, funding has been topped up in line with lockdown extensions.

The small business hardship fund providing one-off grants of $20,000 for businesses that have suffered a 70% or more decline in turnover and were not eligible for other grants or funding, will reopen (see the BusinessVictoria website for details).

The Business Costs Assistance Program will provide automatic top-ups to existing recipients across October and into the first half of November (two fortnightly payments between 1-29 October on a rising scale). Businesses that remain closed or severely restricted between 70% and 80% double dose will receive an automatic payment for the period from 29 October to 13 November.

Licensed hospitality venue fund recipients will also receive weekly top-ups in October of between $5,000 and $20,000, stepped according to venue capacity. Between 70% and 80% double dose, payments for licensed premises in metropolitan Melbourne will be reduced by 25%, and in regional Victoria by 50%.

Victoria is not expected to reach the 70% vaccination target until the end of October, and 80% in early to mid-November. You can find Victoria’s broad road map here.

National

The National Plan stipulates that state and territory borders are to reopen at 80% double vaccination in that state or territory but this will depend on health advice at the time.

Generally, international borders will reopen in states and territories at 80% double vaccination with Australian and permanent residents able to quarantine at home for 7 days. Unvaccinated travellers will need to stay in hotel quarantine for 14 days. Commercial flights will also resume for vaccinated Australians with Australia expected to implement a ‘red light, green light’ system similar to the UK to designate safe countries.

For other regions such as South Australia and the Northern Territory, borders are expected to reopen at 80% double vaccination but with some nuances flagged. The Western Australian Government however has stated that it will announce an easing of border restrictions once an 80% double vaccination has been achieved for those over 12 years of age.

SME lending options

While there is likely to be an economic rebound when restrictions ease across the country, for many, a funding gap will remain between the assistance provided by Government grants and viable trading conditions.

The expanded SME recovery loan scheme took effect on 1 October 2021. Under the scheme, the Government will guarantee 80% of loan amounts to businesses that have been adversely impacted by COVID-19.

The lending terms, repayment, and interest rates are set by the lenders but cannot be backed by residential property, that is, if the Government is underwriting the loan, lenders cannot ask business owners to use their home as security. However, Directors guarantees are likely to be required.

Under the scheme, lenders can provide:

A repayment holiday of up to 24 months
Loans of up to $5m
Loan terms of up to 10 years, and
Secured and unsecured loans

The recovery loans can be used to refinance existing loans, purchase commercial property, purchase another business, or working capital. But, cannot be used to purchase residential property, financial products, lend to associated entities, or lease, rent, hire or hire purchase existing assets that are more than half way into their effective life.

The loan scheme is generally available to solvent businesses with a turnover of up to $250m, have an ABN, and a tax resident of Australia. Loans remain subject to lending conditions and generally the lenders will look to lend to viable businesses where it is clear that they can trade their way out of the impact of COVID-19 or the assets of the business make the break-up value attractive.

If you default on your loan, you cannot simply walk away from it. The Government is guaranteeing 80% of the lender’s risk not your debt. Director guarantees are still likely to be required and for many loans, it will be secured against a business asset. On the plus side, interest rates are very attractive right now and many of the lenders are providing a repayment holiday of up to 24 months and in some cases, existing debt can be bundled into the loan arrangements.

Unwinding COVID-19 Relief

Fri, 08 Oct 2021 03:10:00 GMT

For Individuals

COVID-19 support will roll back as states and territories reach vaccination targets.

The National Plan, the road map out of COVID-19, does more than provide greater freedoms at 70% and 80% full vaccination rates, it withdraws the steady stream of Commonwealth financial support to individuals and business impacted by COVID-19 lockdowns and border closures. We look at the impact and the support that remains in place.

The COVID-19 Disaster payment offered a lifeline to those who lost work because of lockdowns, particularly in the ACT, New South Wales, and Victoria where the Delta strain of the virus and long-term lockdowns had the greatest impact.

In late September, the Treasurer announced that the Disaster Payment will roll back as states and territories reach vaccination hurdles on the National Plan. Over $9 billion has been paid out to date on Disaster Payments and at 70% and 80% full adult vaccination, the disaster, apparently, is over.

At 70% full vaccination in your state or territory

In the first week a state or territory reaches 70% full adult vaccination, the automatic renewal that has been in place will end and individuals will need to reapply each week that a Commonwealth Hotspot remains in place to confirm their eligibility. The COVID-19 Disaster payment will not necessarily end, but anyone currently receiving the payment will need to reconfirm that they meet the eligibility criteria, including living or working in a Commonwealth declared hotspot.

Given that the time gap between 70% and 80% full vaccination might be as little as two weeks in some regions, the impact of the 70% restrictions might be a moot point.

At 80% full vaccination in your state or territory

In the first week a state or territory reaches 80% full adult vaccination, the COVID-19 Disaster Payment will phase out over a two week period before ending completely.

*First week population +16 years of age reaches vaccination target

Those needing financial support will no longer be eligible for the disaster payment, regardless of whether a Commonwealth hotspot is in place, and instead will need to apply for another form of income support such as JobSeeker. Unlike the disaster payments, JobSeeker and most other income support payments are subject to income and assets tests .

The Pandemic Leave Disaster Payment, for those who cannot work because they need to self-isolate or care or quarantine, or care for someone with COVID-19, will remain in place until 30 June 2022.

Reconfirmation process for JobSaver and the Micro-business Grant

Tue, 21 Sep 2021 06:00:00 GMT

Late last week, ServiceNSW released updated guidance on the reconfirmation process that businesses and non-profit entities will need to follow to continue receiving payments under the JobSaver and Micro-business Grant schemes.

Broadly, entities will need to confirm each fortnight that they have maintained their headcount as at 13 July 2021 and that they have continued to experience a decline in turnover of at least 30%.

When it comes to the decline in turnover condition there are two main approaches, depending on whether the business has traded during the relevant fortnight:

If the business was closed during the relevant fortnight there is no requirement to perform a decline in turnover calculation and these entities can simply select 'yes' on the confirmation screen to indicate that they have continued to experience a decline in turnover of at least 30%;
If the business has been trading then it will be necessary to perform some calculations to determine whether this condition is satisfied. There are three options that can potentially be used for this. It is important to note that entities must use the same option each time they reconfirm their eligibility.

Option 1: If the initial comparison period was in 2019 or 2020, then you can use the same year but adjust the comparison period to match the current fortnight that is being tested.

For example, if you initially compared the period of 26 July to 8 August 2021 to 26 July to 8 August 2019, and you are now reconfirming your eligibility for the period of 13 September to 26 September 2021, then your comparison period is 13 September to 26 September 2019. You cannot use 13 September to 26 September 2020 as your comparison period in this example.

Option 2: If the initial comparison period was in 2019 or 2020, then you can use the same year but use the same comparison period that you used in your original application.

For example, if you initially compared the period of 26 July to 8 August 2021 to 26 July to 8 August 2019, and you are now reconfirming your eligibility for the period of 13 September to 26 September 2021, then your comparison period remains 26 July to 8 August 2019. This comparison period will remain fixed for all future periods.

Option 3: If 12 June to 25 June 2021 was used as the initial comparison period then you must use the same period as your initial application when reconfirming eligibility.

For example, if you initially compared the period of 26 July to 8 August 2021 to 12 June to 25 June 2021, and you are now reconfirming your eligibility for the period of 13 September to 26 September 2021, then your comparison period remains 12 June to 25 June 2021. This comparison period will remain fixed for all future periods.

Other key points that have been confirmed by Service NSW are summarised below:

As eligibility will be reconfirmed each fortnight, some businesses may be eligible one fortnight and not eligible the next fortnight if their decline in turnover decreases again. Becoming ineligible for one fortnight does not disqualify a business from becoming eligible again in a future fortnight where they meet the eligibility conditions.
It is possible to delay your reconfirmation and you can reconfirm for multiple fortnights in one go. For example, some entities might prefer to wait until month-end accounting records are finalised. Service NSW states that payments will be made within 5 days of the entity reconfirming its eligibility.
You will not need to provide any additional evidence or attach any documentation when reconfirming your eligibility. You’ll need to maintain adequate records to show evidence of your eligibility if required at a later date.
The person that submitted the initial application is required to submit the reconfirmation of eligibility. For example, if an accountant applied on behalf of the business, then the accountant will also need to reconfirm eligibility for the business.
If the comparison period used in the initial application was more than 2 weeks (for example, a 3-week period), the turnover amount for the comparison period must be converted to a fortnightly amount for comparison purposes to the current turnover by dividing by the number of days in the period and multiplying by 14.

Mental Health Support for Business Owners

Thu, 09 Sep 2021 20:00:00 GMT

Running a business can be an isolating experience. And, with COVID-19 lockdowns and disruptions to trade, the pressure can be intense.

NewAccess for Small Business Owners is a free and confidential mental health program developed by Beyond Blue to give small business owners the support they need. Whether you’re just feeling stressed, or completely overwhelmed about everyday life issues, they can help.

Understandably, a lot of small business owners are reporting that COVID-19 has negatively affected their mental health.

NewAccess is designed to appeal to people who might not otherwise seek support for their mental health and to provide support early, preventing symptoms from potentially getting worse.

Coaches of the NewAccess for Small Business Owners program all have a small business background and are trained in Low-intensity Cognitive Behavioural Therapy - a structured, evidence based psychological treatment. Put simply, it allows us to recognise the way we think, act and feel.

The program is open to small business owners (under 20 employees) who are not currently seeing a psychologist or psychiatrist. The program starts with an initial assessment, then works with you over five sessions to tackle unhelpful thoughts and behaviours, using an individual plan that you develop with your coach. Together you will develop an understanding of what is causing distress and then work on practical tools and strategies that can be used in day-to-day life.

For more visit:

https://www.beyondblue.org.au/get-support/newaccess/newaccess-for-small-business-owners

Did your super fund receive a compensation payment?

Wed, 08 Sep 2021 20:01:00 GMT

Is a financial services compensation payment to your superannuation fund a contribution?

Of late, there have been several compensation payments made by financial services providers to customers that were inappropriately charged or overcharged for insurance premiums or services they did not receive, etc.

New guidance from the ATO helps decipher whether these compensation payments are treated as contributions to your fund. The problem for some people is that where these compensation payments are treated as a contribution to their superannuation fund, they may exceed their contribution cap or attract Division 293 tax (a 15% tax on super contributions imposed on those with combined income and super contributions of $250,000 or more).

In general, the treatment of the compensation depends on who engaged the financial services provider. In general:

Super fund engaged the financial services provider and compensation paid to the fund – compensation not treated as a contribution.
Individual engaged the financial services provider and compensation paid to the fund but not at member’s discretion – compensation is a concessional contribution in the financial year it is received.
Individual engaged the financial services provider and compensation paid to the fund at member’s discretion - compensation is a non-concessional contribution in the financial year it is received

Where neither the member of the fund or the financial services provider had a right to seek compensation, the amount will be a concessional contribution in the financial year it is received by the fund.

If you have received a compensation payment from a financial services provider and the payment means you have exceeded your contribution cap, or are liable for Division 293 tax, there is a potential solution to avoid an adverse impact where you did not have control over the payment. In these cases, you can apply to the Tax Commissioner to exercise his discretion to disregard excess contributions or reallocate them to another year.

Divorce, Superannuation and the Gender Divide

Tue, 07 Sep 2021 20:01:00 GMT

From 1 April 2022, the Australian Taxation Office (ATO) will be able to release details of an individual’s superannuation information to a family law court.

The recently enacted laws are designed to ensure that there is procedural and economic fairness in divorce proceedings to prevent the under-reporting of superannuation assets. While a spouse’s superannuation information can be obtained now through legal action, if it is not provided willingly, it is often expensive and time consuming to obtain factual information through subpoenas or court orders.

From April 2022, when a couple have entered into divorce proceedings, if one of the parties believes the other is not being forthcoming about the value of assets held in superannuation, they can apply to a family law court registry to request their former partner’s superannuation information held by the ATO. They will then be able to seek up-to-date superannuation information from their former partner’s superannuation fund.

New legislation will help prevent superannuation assets from being hidden during divorce proceedings.

What happens to superannuation in a divorce?

In a divorce, superannuation is treated like any other asset and included in the division of assets in a property settlement or financial agreement. Depending on how the total assets of the couple are split, the superannuation balances of each individual may remain intact with each party taking their respective entitlement from the asset pool, or split between the couple.

For superannuation to be split, there must be:

An order from the Family Court or Federal Magistrate Court; or
A superannuation agreement (a financial agreement that deals with superannuation interests)

If a superannuation account is split, it does not convert into cash unless the receiving spouse is aged 65 or over, or has reached preservation age and has retired. In most cases, the superannuation is immediately rolled over into the receiving spouse’s superannuation account and remains there until they are legally able to access it.

The tax-free and taxable components of the super payment to a receiving spouse will be calculated immediately before the payment is made with the relevant payment retaining the tax components of the account the funds are being transferred from.

For self managed superannuation funds (SMSFs), generally an SMSF cannot acquire assets such as residential property from a related party but there is an exemption when the acquisition is a result of marriage breakdown. Where a property like a residential rental property is involved, the superannuation rules allow an in-specie rollover under a court order or financial agreement rather than forcing the former couple to sell the property. For example, where a couple have an SMSF together, it’s common for one member to step down when they divorce (until that point it’s important to remember that the trustees are legally obliged to act in the best interests of all members). This same member might then set up their own SMSF and utilise the exemption to receive the residential rental property as an in-species rollover.

Capital gains tax relief is also available where property is transferred to a spouse’s superannuation fund as a result of divorce proceedings so that any potential capital gains tax does not apply on transfer. Instead, the spouse or former spouse who receives the asset will effectively ‘inherit’ the transferor’s cost base of the asset for CGT purposes. That is, when the property is transferred, the tax implications are generally the same as if the receiving spouse or their superannuation fund owned the property from the time it was acquired.

If you and your spouse have an SMSF together and a divorce is imminent, it’s important to get advice on the decisions that need to be made about your SMSF and their implications.

The superannuation divide

On average, women earn 14.2% less than men based on full time earnings. If you take overtime into account, the gap is 16.8%. When part-time work is taken into account, this figure blows out to 31.3%. And, the COVID-19 pandemic has only worsened the pay gap.

Given that 93% of all primary carer leave is taken by women, it’s not surprising that there is a divide between the superannuation balances of men and women on retirement. While the gap is diminishing over time reflecting the positive shifts in work participation and the earning potential of women, it is currently estimated to be around 42%. That is, when a woman retires, she retires with around 42% less superannuation than a man.

While the situation is much better in SMSFs, a gap remains. Over the five years to June 2019, the average member balances of women increased by 28% to $654,000, however the average balance of a male was $784,000.

The Federal Budget proposal to remove the $450 threshold on superannuation guarantee payments (the minimum amount someone needs to earn in a month before an employer is required to pay superannuation guarantee) will help reduce the superannuation divide, but this is not intended to commence until 1 July 2022.

Superannuation equalisation

Where couples have significantly different superannuation account values but are of a similar age, there are practical reasons why they might look at evening out any gap.

Where one spouse is close to or likely to reach their transfer balance cap (between $1.6m and $1.7m), redirecting superannuation contributions to the spouse with the lower balance means that together, they maximise their tax-free income in retirement. Together, the couple can accumulate between $3.2 and $3.4 million tax-free.

You can make a contribution to your spouse’s superannuation fund up to their non-concessional cap (currently up to $110,000 depending on their superannuation balance). If they are under 67 years of age, you might also be able to use the bring-forward rule and contribute up to 3 years’ worth of non-concessional contributions in one year (up to $330,000 depending on their superannuation balance).

If your spouse is not working or a low income earner (assessable income less than $40,000), there is also a tax offset of up to $540 available on contributions you make on their behalf.

If your spouse is under 65 and not retired, you can split your superannuation with them. Up to 85% of your concessional superannuation contributions from your employer or salary sacrifice each year, can be directed to your spouse’s fund.

Actively addressing the value of each spouse’s superannuation account might also help to manage some of the issues that can occur when a spouse dies. While superannuation will pass to the beneficiary nominated in the death benefit nomination or estate, this does not always occur in the most practical or tax effective way. The superannuation rules in this area are complex, particularly when there have been family breakdowns in the past. It’s important to seek advice to ensure your superannuation is managed in a way that delivers the best possible outcome for your beneficiaries.

What Now? Unwinding the Pandemic

Tue, 07 Sep 2021 05:34:00 GMT

Freedoms for the fully vaccinated and what it means to business

A major concern for many business operators is the expectation of policing vaccination status for both staff and customers.

Identifying vaccinated customers

Both the New South Wales and Victorian Premiers have stated that there will be greater freedoms for those who are double jabbed with new QR code check-in technology expected at the end of September. Instead of having to show a vaccination certificate or medical record, Victorian Premier Dan Andrews said that the QR codes, “don't store that information, but you either get a tick or a cross, and on that basis you are allowed in or not.” This system might also assist those who are medically exempt from vaccination as they would not need to explain their medical history behind their exemption.

But is it discriminatory? The Australian Human Rights Commission (ARC) says, “Vaccine passports are more likely to be consistent with human rights when they are used as a tool to ease existing restrictions and improve public health outcomes. Rather than becoming a further requirement on top of existing restrictions, vaccine passports should generally operate in place of them.”

“…the guiding human rights principles for considering measures taken to advance public health are:

They must be reasonable, necessary, and proportionate.
They must take into account the potential for discrimination.”

While public health orders are likely to protect business operators from discrimination claims, not all are waiting. Qantas was the first major airline to state that it would require passengers to be vaccinated on international flights when borders open. Several sporting venues have also stated that the price of the return to live events is double vaccination for both staff and patrons.

A business operator has the ability now to refuse entry or service to a customer as long as anti-discrimination rules are not breached. Excluding an individual by vaccination status without a public health order however will be a question of whether the rule is reasonable, necessary, and proportionate.

Staff members and vaccinations

In general, vaccination will remain voluntary and free in Australia but there are some sectors where vaccinations are mandatory ( see Legislation and public health orders requiring vaccination against coronavirus ). Common sectors include aged care and hotel quarantine. In these sectors, the employer is generally responsible for enforcing the Health Orders.

Outside of a public health order an employer can mandate that employees are vaccinated but only if the direction to be vaccinated is “lawful and reasonable”. In addition to being able to mandate vaccinations under the relevant Award or agreement, employers need to ensure that mandating vaccinations is reasonable for example, because the staff member’s duties put them at increased risk of being infected or they have close contact with vulnerable people (see Can an employer require an employee to be vaccinated? on the FairWork website).

Qantas for example will require all frontline employees to be fully vaccinated by 15 November 2021 and all other employees to be vaccinated by 31 March 2022. The announcement followed a company wide survey of staff that revealed 89% planned to be fully vaccinated and only 4% were unwilling or unable to be vaccinated. Qantas is yet to release details of how medical exemptions will be applied.

In workplaces where vaccinations are not mandated, an employer can only collect information on an employee’s vaccination status where it is reasonably necessary for the organisation’s functions or activities or where it is required by law. In these cases, it may be possible for the employer to ask to see evidence of an employee’s vaccination status without breaching privacy laws (see the FairWork website and the Office of the Australian Information Commissioner for further information).

Another question is whether an employee can refuse to come to work because their co-workers are not vaccinated. On this, FairWork says “If an employee refuses to attend the workplace because a co-worker isn’t vaccinated, their employer can direct them to attend the workplace if the direction is lawful and reasonable.” But, the Australian Human Rights Commission states that where someone is particularly vulnerable to COVID-19, a “blanket rule requiring all employees to attend a particular workplace may constitute indirect discrimination.” Whether it’s reasonable for an employee to attend their workplace is highly dependent on the facts and you should seek legal advice.

And, it is not just businesses in lockdown that are in crisis. Tourism and hospitality businesses that rely on interstate trade are equally impacted but financial assistance is often limited or non-existent if they are not in a hotspot.

At the time of writing, Australia is on track to fully vaccinate the eligible population of 20.62 million adults in December 2021. Based on National Cabinet’s four stage roadmap to normal, Australia should move to phase B of the plan when 70% of the eligible population have received their second dose of the vaccine. At Phase B, it is expected that lockdowns will be “less likely” and special rules will apply to the fully vaccinated. At Phase C, when 80% of the eligible population is vaccinated, the plan is for Australia to return to “baseline restrictions” with no caps on returning visitors, and a gradual opening of inward and outward international travel with safe countries (quarantine requirements will still apply but will be reduced).

The problem for “Team Australia” is that not all players are the same. While some regions remain in an eradication phase, the strategy for opening and returning to normal is necessarily different (assuming these regions remain Delta free).

In NSW and Victoria, hope of defeating Delta has been abandoned with the focus now on bringing the population up to the maximum vaccination level to prevent hospitalisations and death.

In QLD and WA however, the strategy for opening is more complex with the bar being raised well beyond the national plan (Queensland Premier Annastacia Palaszczuk has demand that children under 12 be included in vaccination targets).

Australia’s two largest states and the ACT are in lockdown as the Delta strain of COVID-19 takes its toll while others are standing firm on a policy of eradication. The result is a country at a policy impasse and divided by border restrictions.

Are COVID-19 grants and funding tax free?

Wed, 11 Aug 2021 20:00:00 GMT

But, the tax laws don’t work like that. To make a payment tax-free, legislation is required to enable it to be classified as exempt income or non-assessable non-exempt income. In general, any income received will be assessable unless the Government has legislated for it to be tax-free. JobKeeper for example was not tax free and anyone who received it in 2020-21 will need to declare it in their income tax return. Businesses also will need to declare JobKeeper income in their tax return even if the full amount flowed directly to employees.

At the Federal Government level, the Prime Minister recently announced that the COVID-19 Disaster Payment will be tax free and legislation enabling this change is before Parliament. Prior to this, disaster recovery grant payments to primary producers and small businesses for floods between 19 February and 31 March 2021 were also made tax-free. Other payments however, such as Pandemic Leave Disaster Payment, are taxable.

The Treasurer has also been granted the power to make COVID-19 relief provided by the States and Territories tax-free but only from 13 September 2020, and only if they request the Commonwealth Government to make it tax free. If you’re confused, it’s not surprising. The result is a mix of tax treatments depending on what support you received and from whom.

To date, only a series of Victorian business grants are tax-free. The recent business grants in New South Wales, Queensland and South Australia have not as yet been declared tax free (but we expect that this will change).

The general rule is that grants are likely to be taxable unless they are specifically excluded from tax. If the grant relates to your continuing business activities, then it is likely to be included in assessable income for income tax purposes. The position can be different in cases where the payment is made so that the entity can commence a new business or cease carrying on a business but there will still often be some tax implications.

Most people would think that money provided by the Government to support people and business during a crisis would be tax free? Otherwise, it’s like giving money with one hand and then taking it away with the other, isn’t it?

Wright Partners office closed, but not Shutdown

Wed, 11 Aug 2021 03:38:00 GMT

Dear Client,

We are writing to update you on our contingency plans as a business now that the Government has directed us (Dubbo) to take further measures due to the spread of COVID-19.

Our business is geared for our team to continue working remotely. We have the means to take your calls during business hours and access all our software systems. This will ensure full services continue to be offered during this time.

Naturally, we will follow protocols issued to us by the Government agencies when it comes to direct contact with our clients. In addition, we have options for digital meetings via Facetime/Zoom etc. All of our documents that we provide can be created in an electronic format and sent to you via secure channels. As many of you would have already used our electronic signing services for documents, this is widely available to all our clients as well.

We will follow up with further news, along with posting updates on our blog page ( https://www.wrightpartners.com.au/blog ). Please consider following us on Facebook, as we are constantly posting updates here too.

Summaries of Lockdown Support packages are available on our website which include: COVID Business Grant and Job Saver (each for business clients), and the COVID-19 disaster payment (for individuals). Feel free to contact us to discuss this further.

We wish you good health. Please contact us with any concerns.

Yours Faithfully

Mitchell Clark CPA

Growing your business

Tue, 10 Aug 2021 21:00:00 GMT

Succession planning is more important than ever. Not just because of the transfer of wealth, but because of the polarising impact of high supply and low demand on the saleable value of a business.

Australia is expected to see the retirement age of baby boomers peak over the coming decade. The basics of the law of supply and demand suggest that as supply increases, prices will be driven downwards. For SMEs however, there is a much greater probability we will see a dramatic polarisation in the price of SMEs for sale. High quality businesses command premium prices while low quality businesses will be highly price sensitive and, in some cases, unsaleable.

If your children are not offering you a retirement strategy, selling your business can be difficult if there are not obvious competitors or complimentary businesses knocking on your door for your market share or unique offering.

Forward planning for succession is a critical issue for SME owners who want to exit their business over the coming decade. This planning, with an adequate time frame, allows you to actively enhance the value of your business.

Most business owners have a view on what their business might be worth and the factors that influence business value. The key question then is, what do you need to focus on to enhance business value for a potential buyer? There are four key areas: growth, capacity, profitability and risk.

Growth

Buyers will generally pay a premium for a built-in level of growth. Growth, if well managed, will produce increased profits. So, a potential buyer knows that the revenue stream they are purchasing with the business, comes with a growth increment. Not only does this growth factor offer future profit increments it also insulates the business against the ‘what if’ factor. Any major change in a business causes a disconnect and these disconnect events can impact revenues and profits. Built in growth offers some protection against this.

Capacity

Provides for both the present and capability to facilitate growth in the future. Areas where capacity needs to exist includes infrastructure, systems capability, and management capability. Systems and management are often the areas given the least amount of focus, yet they are the very areas where value can be leveraged and enhanced the most. One of the reasons why franchises command price premiums is because they offer a level of systems and management. These same factors can be built into any business.

Profitability

A history of profits and strong cashflows are normally the two greatest influences on SME business value. When assessing your profitability, you need to compare yourself at two levels. First compare your performance against the top quartile of your industry sector. Top quartile businesses always attract higher valuations. Then, look outside your own business sector. Measure your Return on Investment (ROI). Buyers of your business will not only be comparing you with your industry. They may be looking for investment return more than they are looking for a specific business. So, in a potential sale you may be competing with a business from another industry to secure your buyer. You should be looking for a ROI in excess of 25%.

Risk Management

Business owners are becoming more sensitive to risk. Strong corporate governance and risk management policies will enhance business value. Buyers will be looking for a history of compliance and a risk management culture. Risk management can include the existence of current employment contracts, operating licences, customer and supplier agreements and OH&S procedures.

These four areas will normally be high on the business value hierarchy and the areas where change can most significantly impact on business value.

If business succession is on your agenda, you need to assess your business under these criteria. Where your performance or position is below what it needs to be, you can identify the issues that you need to focus on to change your business value.

This process may not simply mean the difference between an ordinary sale price and a good price. It may be the difference between a sale that releases your business capital or no sale at all.

Talk to us about succession planning for your business that makes a difference.

Over the next decade, as the baby boomer bubble of small and medium sized business owners roll through the system, Australia will experience one the largest transfers of business wealth in its history.

Lockdown support: Update

Tue, 10 Aug 2021 02:44:00 GMT

From 2 August 2021, the COVID-19 Disaster Payment has increased to a maximum of $750 per week for those who have lost 20 hours of work or more, and $450 for those who have lost between 8 and 20 hours of work. In most cases, the payment now applies from day 1 of a lockdown. In general, you need to be living in, or impacted by Commonwealth declared lockdown to receive the payment although some States have funded an extension of the payment beyond hotspot areas.

A special separate $200 a week ‘top-up’ payment has been added for those currently receiving an income support payment through social security, ABSTUDY Living Allowance, Dad and Partner Pay or Parental Leave Pay in addition to their existing payment, if they can demonstrate they have lost more than 8 hours of work and meet the other eligibility requirements for the COVID-19 Disaster Payment. The payment was put in place because people receiving income support payments are not eligible for the COVID-19 Disaster payment.

The support available to individuals and business has been constantly evolving and changing. Here’s a summary of where support stands around the country.

For individuals

New South Wales business

In New South Wales, the following grants and payments are accessible:

Up to $100,000 in weekly JobSaver cashflow support payments. Payments are based on 40% of your NSW payroll payments. Eligible businesses without employees that meet the eligibility criteria (such as sole traders with no employees), can access a payment of $1,000 per week.
Up to $15,000 through the expanded NSW 2021 COVID-19 business grants program
NSW micro-business grants

The decline in turnover test required for the JobSaver, COVID-19 business and micro-business grants has been causing a lot of angst but some additional flexibility has been provided. Businesses and non-profit entities can now pass this test if they can show a decline in turnover of at least 30% due to the Public Health Order over a minimum 2-week period within the relevant test period compared to:

The same period in 2019;
The same period in 2020; or
The 2-week period immediately before the start of the relevant test period.

The test period depends on which payment you are looking at:

COVID-19 business grant: 26 June 2021 to 17 July 2021 (this is changed to 27 May 2021 to 17 July 2021 for entities on the NSW border with Victoria);
JobSaver and the micro-business grant: 26 June 2021 until the Greater Sydney lockdown ends.

This additional flexibility is helpful for businesses that started after the comparison period in 2019 and for those that have undertaken an acquisition, disposal or restructure.

Queensland business

$5,000 Business Support Grants are available for those impacted by the lockdown from Saturday, 31 July 2021. Your business does not have to be in the local government areas locked down but needs to be impacted by it. To access the grant, you will need to show a decline in turnover of at least 30%. The grants are available to businesses with a turnover of $75,000 or more and annual Queensland payroll of less than $10 million. Applications open mid-August. See Business Queensland for details.

South Australia

Grants of $3,000 for employing businesses and $1,000 for non-employing businesses are available to businesses that experienced a decline in turnover of at least 30% as a result of the health restrictions from 20 July 2021. The grants are available to those with a turnover of $75,000 or more and Australia wide payroll of less than $10 million. See COVID-19 Business Support Grant – July 2021 for details.

More funding for Victorian SMEs

There are two main streams for grants in Victoria:

Those who qualified for the Business Costs Assistance Program Round Two or the Licensed Hospitality Venue Fund 2021; and
Businesses that previously did not access grants

Existing grant beneficiaries

If your business previously received the Business Costs Assistance Program Round Two or the Licensed Hospitality Venue Fund 2021, additional grants of $2,800 for the Business Costs Assistance Program Round Two and up to $20,000 for the Licensed Hospitality Venue Fund 2021 have been announced. Your business cannot retrospectively apply for these grants. See Helping Victorian Businesses Who Need It Most .

New grants

For businesses that did not access previous grants, the Business Costs Assistance Program Round Two July Extension offers grants of $4,800 for employing and non-employing business depending on your sector. For those in the hospitality sector, a new Licensed Hospitality Venue Fund 2021 July Extension is available offering grants of up to $7,200 for each eligible premises. Applications for both grants close 13 August 2021.

A new Small Business COVID Hardship Fund grant of up to $8,000 has been announced for businesses that are not eligible for existing support funding. To access the grant, your business must be severely impacted by the COVID-19 lockdowns with a decline in turnover of 70% or more. No further details are available at present.

Other support

For Alpine businesses, additional grants between $5,000 and $20,000 will be available to 430 Alpine based businesses. See the Alpine Resorts Winter Support Program (closes 20 August 2021).

Rent relief for commercial tenants is also now in place for businesses that have suffered a decline in turnover of at least 30% as a result of COVID-19. Landlords will be required to provide proportional rent relief in line with a business’s reduction in turnover and mediation is available through the Victorian Small Business Commission. A hardship fund will be established for landlords providing rent relief although no details are available as yet.

Please contact us if you would like support to prepare for, or to access, the support you need.

Afterpay's $39bn pay day

Tue, 10 Aug 2021 02:21:00 GMT

Afterpay was founded in 2015 by Nick Molnar and Anthony Eisen, listing on the ASX for $1 per share in May 2016. In 2017, they hit 1 million customers and 7,200 merchants, launched into New Zealand, and merged with Touchcorp Limited. A year later in 2018, they entered the US market. In 2019, it was the UK under the brand name Clearpay. In 2020, Hong Kong listed Chinese tech giant Tecent paid $300m for a 5% equity stake. By then, Afterpay boasted 5 million active US customers, 1 million in the UK. In this same year they took the opportunity to launch into Canada. In 2021, Afterpay announced the purchase of tech group Pagantis by their UK subsidiary in preparation for their launch into Europe.

Afterpay was also exceptionally well placed for the dramatic COVID-19 shift in consumer behaviour that supercharged online retail. As at 30 June 2021, the company had 16.2 million active customers (63% growth on 2020) and over 98,000 merchants (77% growth on 2020). When COVID-19 struck, Afterpay’s share price dipped to a low of $12.44 on 20 March 202 but by 19 February 2021, hit a high of $151.92 ($96.99 at 30 June 2021). At 30 June, (unaudited) group revenue was $925m, growing 78% on the previous period (of which merchant revenue was $822m). However, growth comes at a cost with the 31 December 2020 half year results showing an after-tax loss of over $79m (joining a long list of unprofitable tech companies such as AirBnb, Pinterest, DropBox, Slack and Uber).

The rise of Afterpay has been extraordinary; a combination of a game changing concept delivering consumer flexibility and the ability for merchants to grow their customer base with the potential of increasing per transaction values, all backed by an aggressive expansion plan. They are a brand that became a verb.

On 2 August, the announcement was made that US financial services and digital payments giant Square, had agreed to acquire all of the issued shares in Afterpay for approximately US$29 billion (A$39 billion). The sale is expected to be all in stock and Nick Molnar and Anthony Eisen will join Afterpay as employees in first quarter of 2022.

For many innovative and fast growth companies, sale is the end game - generally to another company in the same or similar market with strong synergies that is willing to pay a premium for the opportunity. Afterpay has achieved that in spectacular style. And, you can see the appeal of a business model that is replicable, utilises unique systems and technology, is adaptable, and has proven its ability to grow and expand globally.

Business advisers will tell you that you need to begin a business with the end in mind; a phrase popularised by Michael Gerber in E-Myth. The announcement of the intended sale of Australian born fintech company Afterpay, pioneer of the 'buy now, pay later' platform, is a case in point...

The model

For consumers, Afterpay offers a way of spreading the cost of purchases over four payments across six weeks. No fees are charged unless the payment is late. If a payment is late, an initial $10 late fee is charged, and a further $7 if the payment remains unpaid 7 days after the due date. For each order below $40, a maximum of one $10 late fee may apply per order. For each order of $40 or above, the total of the late fees that may be applied are capped at 25% of the original order value or $68, whichever is less.

While free to consumers (unless they pay late), Afterpay charges merchants a 30 cent fee, plus a commission ranging from 4% to 6% to the merchant. Payments transacted through Afterpay take 48 hours to be delivered in full to the merchant. Afterpay states that their service drives new sales and increases the average order by anything up to 40%.

The fee structure, and the fact that Afterpay makes spending easier for consumers to rationalise, has not been without controversy. A Senate committee and the Payments System Review explored whether more consumer protections, such as customer credit checks, were needed. However, neither review wanted to stifle the growth of financial competition or innovative fintechs, and believed that market forces would appropriately regulate the industry. At present, late fees represent less than 10% of the company’s revenue.

Afterpay store cards are available in the US and other markets. And, in July this year, Money by Afterpay launched in Australia and New Zealand with Afterpay staff trialling the product ahead of a full-scale launch anticipated in October 2021.

What if you have Afterpay shares?

The sale of Afterpay has a number of hurdle points including regulatory approval from the Foreign Investment Review Board and approval of the shareholders of both Afterpay and Square.

If the transaction proceeds then Afterpay shareholders will have two main options. They can either receive NYSE-listed Square shares or they could receive shares in Square that are listed on the ASX. This is because Square will establish a secondary listing on the ASX allowing Afterpay shareholders to trade Square shares via CHESS Depositary Interests (CDIs) on the ASX.

Afterpay state that the transaction is intended to be tax-free for Australian shareholders electing to receive NYSE-listed Square shares or CDIs. Among the conditions precedent is a ruling from the Australian Taxation Office (ATO) for Australian shareholders to apply scrip-for-scrip capital gains tax (CGT) rollover relief. If the rollover applies, then the cost base and acquisition date of the Square shares will basically remain the same as your Afterpay shares.

What lockdown support is available to Victorian businesses? (Updated 29/7/21)

Fri, 30 Jul 2021 01:22:00 GMT

Support is available if you are impacted by the Victorian lockdowns.

Support for my business

$5,000 Business Continuity Fund

$5,000 grants will be available to businesses that continue to be impacted by capacity limits imposed by public health restrictions. Eligible businesses in the Melbourne CBD will receive an additional $2,000.

Twenty-four sectors are covered by the grant including gyms, cafes, restaurants, catering services and hairdressers.

To be eligible, your business must have received or been eligible for the Business Costs Assistance Program .

Licensed Hospitality Venue Fund 2021

Grants of up to $20,000 will be available through the Licensed Hospitality Venue Fund. Eligible businesses in the Melbourne CBD will also receive an additional $2,000.

To receive this funding, your business will need to have received or been eligible for the Licensed Hospitality Venue Fund 2021.

Small Business COVID Hardship Fund

A new fund will be established for small businesses with a payroll of up to $10 million that are not eligible under the existing fund and grant programs.

To receive the grant of up to $5,000, your business will need to demonstrate a decline in turnover of 70% or more.

Alpine Business Support Program

Additional grants of between $5,000 and $20,000 will be made available to Alpine based businesses through the Alpine Support Program.

The Alpine Support program covers six alpine resorts, Dinner Plain, and key businesses located off mountain in the surrounding towns impacted by restrictions and offer a COVID Safe visitor experience for snowboarders and skiers.

Applications for the Alpine Support Program are not yet open.

Top-up support

The Victorian Government provided two ‘top up’ cash grants for businesses impacted by the lockdown declared on 15 July 2021.

The cash grants are paid automatically to businesses that successfully received a grant from the Business Costs Assistance Program Round Two or the Licensed Hospitality Venue Fund 2021 (including regional businesses). The 16 July 2021 and 21 July 2021 top-up payment amounts are summarised below:

TOP UP AMOUNTS

Licensed Hospitality venue Fund

$3,000 and

$4,200

Business Costs Assistance Program

$2,000 and

$2,800

You will not need to take any further action. The grant is paid automatically from mid-July.

I did not apply for the original grants but would like to apply for the top-up?

The top up payments are not available if your business did not receive the original grants.

However, the Business Costs Assistance Program Round Two will re-open for applications by the end of July. If eligible, your business will receive the grant and the top up payments.

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information. If expert assistance is required, professional advice should be obtained.

Updated 29 July 2021

A new series of grants have been announced to support Victorian business. Here’s what we know so far:

What lockdown support is available? (Updated 18/08/21)

Thu, 29 Jul 2021 04:02:00 GMT

The COVID-19 Disaster Payment is a weekly payment available to eligible workers who can’t attend work or who have lost income because of a lockdown and don’t have access to paid pandemic leave entitlements. If you are a couple, both people can separately claim the payment.

Sole traders may apply for COVID-19 Disaster Payment if you are unable to operate your business from home. However, you will not be eligible if you are also receiving a State or Territory business grant.

The disaster payment is tax-free and the ATO has confirmed that it doesn’t need to be included in your tax return.

COVID-19 Disaster Payments

There are three types of payments accessible to individuals who have lost work because of the pandemic:

the COVID-19 Disaster Payment ;
‘Top up’ payments for those on income support; and
the Pandemic Leave Disaster Payment .

How to apply for support

You can apply for the COVID-19 Disaster Payment or the top-up income support payment through your MyGov account if you have created and linked a Centrelink account. Generally, once your application has been accepted, you will not need to reapply for the payment while your area remains a hotspot unless your circumstances change.

Apply for the Pandemic Leave Payment by phoning Services Australia on 180 22 66.

If you can't work because you or someone in your household is impacted by COVID-19, support is available.

Timing of the payment

The disaster payment is generally accessible when the Chief Medical Officer declares a region a hotspot (you can find the listing here ). From 2 August 2021, payments will apply from day one of the lockdown and will be paid in arrears once claims open (previously, the hotspot had to last 7 days or more and the payment only applied from day 8 of a lockdown).

In New South Wales, the requirement to be in a Commonwealth declared hotspot was removed for anyone who met the other eligibility criteria from 18 July 2021. In Victoria, the hotspot requirement was removed from 15 July 2021.

AREA DATE OF DECLARATION DISASTER PAYMENT ACCESSIBLE FROM

All of ACT 12 August 2021 20 August 2021*

All of New South Wales - 18 July 2021

All of Victoria 22 July 2021 25 July 2021*

All of Victoria 5 August 2021 13 August 2021*

South Australia - Metropolitan Adelaide 20 July 2021 28 July 2021*

Queensland - City of Brisbane, Moreton Bay Region, 1 August 2021 7 August 2021*

Redland City, Logan City, City of Ipswich, Shire of Noosa,

City of Gold Coast, Lockyer Valley Region, Scenic Rim Region,

Somerset Region and Sunshine Coast Regio

Queensland - Regional Council of Cairns and Shire of Yarrabah 8 August 2021 16 August 2021*

**Payment paid in arrears from date of declaration (day 1 of the lockdown).

How much is the payment?

The COVID-19 disaster payment amount available depends on how many hours of work you have lost in the week:

Hours of work lost Disaster payment amounts*

Between 8 & 20 (or a full day of work) $450

20 or more $750

*From 2 August 2021

The payment applies to each week of lockdown you are eligible and is taxable (you will need to declare it in your income tax return).

Eligibility

The COVID-19 disaster payment is emergency relief. It is available if you:

Live or work in an area that is subject to a state or territory public health order that imposes restriction on movement and is declared a Commonwealth COVID-19 hotspot, or
Have visited an area that is a Commonwealth COVID-19 hotspot and you are subsequently subject to a restricted movement order when you return to other parts of New South Wales or interstate.

And you:

Are an Australian citizen, permanent resident or temporary visa holder who has the right to work in Australia, and
Are aged 17 years or over, and
Have lost 8 hours or more of work or a full day of your usual work as a result of the restrictions - losing work includes being stood down by your employer, not being assigned any shifts for the week of restrictions and being unable to work from home. Losing a full day of what you were scheduled to work but could not work because of a restricted movement order includes not being able to attend a full-time, part-time or casual shift of less than 8 hours, and
Don’t have paid pandemic-related leave available through your employer (annual leave is not taken into account for this), and
Are not receiving income support payments, a state or territory pandemic payment, Pandemic Leave Disaster Payment or state small business payment for the same period. See ‘Top up’ payments for those on income support below. Income support payments include Age Pension, Austudy, Carer Payment, Disability Support Pension, Farm Household Allowance, JobSeeker Payment, Parenting Payment, Partner Allowance, Special Benefit, Widow Allowance, Youth Allowance and Income Support Supplement, Service Pension or Veteran Pension from the Department of Veterans’ Affairs.

If you are a member of a couple, you can both apply for this payment.

Pandemic Leave Disaster Payment

The Pandemic Leave Disaster Payment is for those who have been advised by their relevant health authority to self-isolate or quarantine because they:

Test positive to COVID-19;
Have been identified as a close contact of a confirmed COVID-19 case;
Care for a child, 16 years or under, who has COVID-19; or
Care for a child, 16 years or under, who has been identified as a close contact of a confirmed COVID-19 case; or
Care for a person who has tested positive to COVID-19.

How much is the payment?

The payment is $1,500 for each 14 day period you are advised to self-isolate or quarantine. If you are a couple, you both can claim this payment if you meet the eligibility criteria.

Eligibility

The Pandemic Leave Disaster Payment is available if you:

Are an Australian citizen, permanent resident or temporary visa holder who has the right to work in Australia; and
Are aged 17 years or over; and
Are unable to go to work and earn an income; and
Do not have appropriate leave entitlements, including pandemic sick leave, personal leave or carers leave; and
Are not getting any income support payment, ABSTUDY Living Allowance, Paid parental leave or Dad and Partner Pay. Income support payments include Age Pension, Austudy, Carer Payment, Disability Support Pension, Farm Household Allowance, JobSeeker Payment, Parenting Payment, Partner Allowance, Special Benefit, Widow Allowance, Youth Allowance and Income Support Supplement, Service Pension or Veteran Pension from the Department of Veterans’ Affairs.

The payment is taxable and you will need to declare it in your income tax return. You will also need to include the Pandemic Leave Disaster Payment in your Family Tax Benefits, Child Care Subsidy, or Child Support income assessment.

If you are uncertain of your eligibility, talk to Services Australia .

If you are concerned about the impact of disaster relief payments on you, talk to us.

NSW Child-care gap fee

From 19 July 2021, the Government is enabling childcare services in NSW Local Government Areas subject to stay at home orders to waive gap-fees for parents keeping their children at home due to current COVID-19 restrictions. The gap fee is the difference between the Child Care Subsidy (CCS) the Government pays to a service and the remaining fee paid by the family.

The child-care gap fee waiver is only applicable where the childcare service opts in.

The Local Government Areas were expanded and now cover: City of Sydney, Municipality of Woollahra, City of Randwick, Municipality of Waverley, Bayside Council, Blacktown City Council, Blue Mountains City Council, Municipality of Burwood, Camden Council, Central Coast Council, City of Campbelltown, City of Canada Bay, City of Canterbury-Bankstown, Cumberland City Council, City of Fairfield, George’s River Council, City of Hawkesbury, Hornsby Shire, Municipality of Hunter’s Hill, Inner West Council, Ku-ring-gai Council, Lane Cove Council, City of Liverpool, Mosman Council, North Sydney Council, Northern Beaches Council, City of Parramatta, City of Penrith, City of Ryde, Shellharbour City Council, Municipality of Strathfield, Sutherland Shire, The Hills Shire, Wollondilly Shire, City of Willoughby, and Wollongong City Council.

NSW Residential Tenant Eviction moratorium

The NSW Government has introduced a targeted eviction moratorium to protect residential tenants. The moratorium applies where:

You have lost work/income because you or a member of your household contracted COVID; or
Your household’s take home weekly income has reduced by 25% or more (including any government assistance received) compared to the weekly income received in the 4 weeks prior to 26 June 2021; and
You continue to pay at least 25% of the rent payable.

You will need to show evidence that you meet the eligibility criteria for a rent reduction such as bank statements, documentation from your employer demonstrating stand down or reduced hours, evidence of business closure, Centrelink support confirmation, etc.

See Fair Trading NSW for further details.

60 day freeze on evictions

Tenants who can’t pay their rent in full because they are impacted by the COVID-19 outbreak cannot be evicted between 14 July 2021 and 11 September 2021.

Financial support for landlords

Residential landlords who decrease rent for impacted tenants from 14 July 2021 can apply for a grant of up to $1,500 per tenancy or land tax reductions depending on their circumstances. The land tax relief will be equal to the value of rent reductions provided to financially distressed tenants for up to 100% of the 2021 land tax year liability.

To claim the support, landlords will need a rental bond number or a written tenancy agreement, and a written agreement with the tenant to reduce or waive rent payable (from 14 July 2021).

Where a landlord receives financial support for COVID-19 impacted tenants, they cannot ask tenants to repay the amount of the reduction when lockdown ends.

Updated 18 August 2021

What lockdown support is available to NSW business? (Updated 18/08/21)

Thu, 29 Jul 2021 03:34:00 GMT

Three primary methods of financial support are available to businesses during extended lockdowns:

Up to $15,000 through the expanded NSW 2021 COVID-19 business grants program
Up to $100,000 in weekly JobSaver cashflow support payments, and
NSW micro-business grants

Other support is also available through:

NSW rent protections and grants
NSW payroll tax deferrals and a 25% payroll tax waiver
NSW gaming machine tax deferrals
NSW performing arts support

If your business is in the performing arts sector, please see the NSW Performing Arts COVID support package – CreateNSW is streamlining all applications through them.

If your business is adversely impacted by NSW lockdowns, support is available.

The COVID-19 Business Grant provides up to $15,000 to eligible businesses (including not-for-profits and sole traders) with annual wages of up to $10 million.

The value of the grant is determined by the impact of the lockdown on your turnover. Your business will need to prove a decline in turnover across a minimum 2 week period from 26 June 2021 to 17 July 2021 (or 27 May 2021 to 17 July 2021 for businesses on the NSW border with Victoria).

2021 COVID-19 Business Grant of up to $15,000

Eligibility

The 2021 COVID-19 business grant is available if you:

Have an active ABN; and
Can demonstrate that your business was operating in NSW as at 1 June 2021; and
Had total annual Australian wages of $10m or less as at 1 July 2020; and
Had an aggregated annual turnover between $75,000 and $50m (inclusive) for the year ended 30 June 2020 (for businesses that were not in operation for the full year or where conditions were not usual in 2019-20, see For new business and businesses where 2019-20 was not a normal year below); and
Have unavoidable business costs from 1 June 2021 for which there is no other government support available; and
Maintain employee headcount as at 13 July 2021 – the number of people you employed in NSW including full time, part time and long-term casuals that have been employed by the business for more than 12 months; and
Have experienced a decline in turnover of 30% or more over a minimum 2-week period from 26 June 2021 to 17 July 2021 (27 May 2021 to 17 July 2021 for businesses on the NSW border with Victoria) compared to:
The same period in 2019;
The same period in 2020; or
The 2-week period immediately before the start of the relevant lockdown test period.

Some businesses are ineligible for the grant. These include businesses predominantly earning passive income (rent, interest, or dividends), businesses owned by sovereign entities (foreign Governments), businesses in liquidation or bankruptcy proceedings, businesses that did not have an ABN as at 1 June, government agencies, local governments, banks, and universities.

For new business and businesses where 2019-20 was not a normal year

For businesses that were in operation on 1 June 2021 but:

Were a new business that did not operate for a full year; or
Were impacted by acquisition, disposal or restructure

you can use a 3 month period that is representative of your normal operating environment to prove your turnover. Generally, a business activity statement or income tax return will be required as evidence of turnover, or if these are not available, a letter from your accountant or bank statements can be used.

For businesses where 2019-20 was not a normal year, for example your business was impacted by the bushfires or for sole traders or small partnerships impacted by illness, you can use 2018 as your comparison period.

These alternatives apply to the 2021 COVID-19 Business Grant, JobSaver and Micro-business grant.

How to apply

Applications are made online through Service NSW and close at 11:59pm on 13 September 2021.

To apply for the grant, you will need a series of documents to evidence your application:

An Australian Income Tax Return (or Notice of Assessment) or other documentation demonstrating your business had, or would have had, an aggregated annual turnover
If your business is not on the highly impacted list of industries, you must supply a letter from your accountant evidencing your businesses decline in turnover
Details of your accountant, tax agent, BAS agent
For businesses operating outside of NSW but claiming they were operating in NSW as at 1 June:
Commercial rates notices or lease agreements
In the absence of rates or lease agreements – utility bills, insurance documents, supply invoices, registration papers, contractor licenses etc

Eligible expenses such as invoices may also be required if an audit is undertaken.

Common questions

How is aggregated annual turnover measured?

Aggregated turnover is generally your business’s annual turnover plus the annual turnover of any business connected with you or that are an affiliate of yours. If you have any related entities that carry on a business, please contact us and we’ll work with you on calculating this figure.

Annual turnover generally includes income that has been generated in the ordinary course of carrying on a business. You would normally use GST-exclusive figures for this purpose. ATO guidance suggests that JobKeeper and cash flow boost amounts would probably be ignored as part of this calculation.

How is decline in turnover measured?

In general, the concept of ‘current GST turnover’ is used to determine whether the business has suffered a decline in turnover of at least 30%. This turnover test includes proceeds from the sale of capital assets, GST free supplies such as exports, and supplies made between members of a GST group.

When you are calculating turnover, if your business accounts for GST on an accrual basis, you should use this method. If you account for GST on a cash basis, you should use this method.

Can I get the JobSaver and the business grant?

If your business meets the eligibility conditions, you can access both the grant and JobSaver.

If your business does not have any employees, you cannot access the grant if persons associated with the business, and who derive income from it, have applied for, or are receiving, the Commonwealth COVID-19 Disaster Payment.

If your business is in the performing arts sector, please see the NSW Performing Arts COVID support package – CreateNSW is streamlining all applications through them.

I don’t employ staff, can I still get the grant?

For sole traders and other businesses without employees, you can access the grant if you meet the other eligibility criteria but only if persons associated with the business, and who derive income from it, have not applied for, and are not receiving, the Commonwealth COVID-19 Disaster Payment.

JobSaver: Cashflow Support of up to $100,000

JobSaver is a weekly payment between a minimum of $1,500 and maximum of $100,000 based on 40% of the NSW payroll payments of your business (including not-for-profits).

Eligible businesses without employees that meet the eligibility criteria (such as sole traders with no employees), will be able to access a payment of $1,000 per week.

JobSaver applies from week four of the lockdown (from 18 July for Greater Sydney) and will cease when lockdown restrictions are eased or when the Commonwealth hotspot declaration is removed.

Funding is limited to specific purposes such as salaries and wages, utilities and rent, financial and legal support, marketing and perishable goods, etc

Eligibility

To access JobSaver, you must:

Have an active ABN; and
Demonstrate that your business was operating in NSW as at 1 June 2021; and
Have an aggregated turnover between $75,000 and $250 million for the year ended 30 June 2020 (for businesses that were not in operation for the full year or where conditions were not usual in 2019-20, see For new business and businesses where 2019-20 was not a normal year above); and
Have experienced a decline in turnover of at least 30% over a minimum 2-week period from the start of the Greater Sydney Lockdown (from 26 June 2021), compared to:
The same period in 2019, or
The same period in 2020, or
The 2-week period immediately before the start of the lockdown period (26 June 2021).
And, maintain employee headcount as at 13 July 2021 – the number of people you employed in NSW including full time, part time and long-term casuals that have been employed by the business for more than 12 months.

Some businesses are ineligible for JobSaver. These include businesses predominantly earning passive income (rent, interest, or dividends), businesses owned by sovereign entities (foreign Governments), businesses in liquidation or bankruptcy proceedings, businesses that did not have an ABN as at 1 June or backdated their ABN, government agencies, local governments, banks, and universities.

How to apply

Applications can be made online through Service NSW and close at 11:59pm on 18 October 2021.

If your business has successfully applied for the COVID-19 business grant, your business will be automatically eligible for JobSaver but will need to provide the additional information on payroll and headcount.

To apply for JobSaver, you will need the following for the business:

Australian income tax return, Notice of Assessment or other documentation demonstrating the business had a national aggregated annual turnover of between $75,000 and $250 million for the financial year ending 30 June 2020.
Weekly payroll – W1 amount excluding amounts withheld for contractors on the most recent BAS submitted prior to 26 June 2021 for the 2020-21 financial year, 2019-20 payroll reconciliation for those without a W1 amount (see How is the 40% of payroll calculated?)

If your business is not on the highly impacted industries list , you will also need to submit a letter from your accountant demonstrating that that you meet the decline in turnover test.

How is the 40% of payroll calculated?

Payroll is based on your most recent Business Activity Statement (BAS) lodged with the ATO prior to 26 June 2021 for the 2020-21 financial year. Use the figure at item WI, removing any amounts withheld on behalf of contractors. To determine weekly payroll, divide the amount by the number of days in the BAS period and multiply this by 7.

For businesses with employees outside of NSW, you will need to calculate the amount based on just the NSW employees using the same method you use to report on your BAS.

If your business does not submit a BAS with a W1 amount, use your 2019-20 NSW payroll tax reconciliation return. If your business does not submit a BAS, you will need to contact ServiceNSW to discuss alternatives.

Where an employer’s headcount changed because of circumstances outside the control of the employer (such as voluntary resignations, death of an employee) it will not be taken as a reduction in employee headcount on 13 July.

Common questions

I don’t have employees; can I still qualify?

If your business does not have employees (such as sole traders) but meets all the other eligibility tests, you can apply for JobSaver but only if the individuals associated with and deriving income from the business have not received a Commonwealth COVID-19 Disaster Payment since 18 July 2021. You also need to ensure that the business is the primary income source for the associated person.

I have stood down my employees, do they still qualify for the headcount test?

Yes. If you have stood down your full time, part time or long-term casual employees, they are counted in the headcount. During a stand down the employment relationship remains (their role has not been terminated), the employee is not paid (unless they are taking paid leave), and they continue to accrue annual leave. See the FairWork website to clarify how and when an employer can stand down employees.

An employee has resigned, does this impact my headcount?

No. If the employee is no longer with the business due to circumstances outside of your control, such as resignation or death, this will not impact the headcount test.

If, however you forced the employee to resign or terminated their employment, this will impact on your headcount and eligibility for JobSaver and the COVID-19 business grant. Any actions taken by the business that reduce headcount will need to be reported to Service NSW.

$1,500 Micro-Business Grants

The micro-business grant provides $1,500 per fortnight to sole traders and other small businesses with aggregated annual turnover between $30,000 and $75,000. The grants are available from week one of the lockdown until restrictions are eased.

Grants are for costs incurred from 1 June 2021 including salaries and wages, utilities and rent, financial and legal costs, perishable goods, etc.

Eligibility

To access the micro-business grant, you must:

Have an active ABN registered in NSW or can demonstrate your business was operating in NSW as at 1 June 2021; and
Have aggregated annual turnover of more than $30,000 and less than $75,000 for the year ended 30 June 2020 (for businesses that were not in operation for the full year or where conditions were not usual in 2019-20, see For new business and businesses where 2019-20 was not a normal year above);
Have experienced a decline in turnover of at least 30% over a minimum 2-week period from the start of the Greater Sydney Lockdown (from 26 June 2021), compared to
The same period in 2019, or
The same period in 2020, or
The 2-week period immediately before the start of the lockdown period
Have business costs for which there is no other government support available; and
Have not applied for either the 2021 COVID-19 Business Grant or JobSaver; and
Have less than 20 full time equivalent employees at 1 June 2021; and
If you are an employer, maintain your headcount as at 13 July 2021; and
If you do not have employees, such as a sole trader, the business making the application is your primary source of income.

Businesses that received the $1,500 small business fees and charges rebate can apply for this grant.

Ineligible businesses include those predominantly earning passive income (rent, interest, or dividends), or businesses in liquidation or individuals in bankruptcy proceedings.

How to apply

Applications are made online through Service NSW and close at 11:59pm on 18 October 2021.

If we submit the application for you, we will provide a letter to ServiceNSW documenting your decline in turnover and aggregated annual turnover.

If we are not submitting your application for you, you will need show evidence such as your income tax return, business activity statement, and business bank accounts.

If your business operates in another State or Territory, you will also need to evidence that your business operates in NSW (e.g., utility bills, insurance papers, supply invoices, registration papers, contractor licences).

Where your business operates through a trust structure, you will need to provide additional information to demonstrate that a national aggregated annual turnover of more than $30,000 and less than $75,000 is derived through the trust.

If your business is a not-for-profit, you will also need to provide a copy of your constitution, minutes and resolutions from your AGM for the last 3 years, and audited financial statements for the last 3 years.

Rent protections and grants

Commercial and retail rent protections are in place for rental arrears from 13 July 2021 for an initial 6 month period.

Eviction moratorium

An eviction moratorium is in place for rental arrears where a tenant has:

An annual turnover of up to $50 million; and
Is eligible for the Micro-business COVID-19 Support Grant, the COVID-19 NSW Business Grant and/or the Job Saver Grant.

Commercial and retail landlords will need to attempt mediation before recovering a security bond or locking-out or evicting a tenant impacted by Public Health Orders.

See the NSW Small Business Commissioner for further details.

Land tax relief

Land tax relief equal to the value of rent reductions provided by commercial, retail and residential landlords to financially distressed tenants is available for up to 100% of the 2021 land tax liability.

See Apply for COVID-19 land tax relief and Residential Tenancies Moratorium Application for rent negotiation

Land tax relief

Payroll tax and lodgement deadline deferred

The due date for the 2020-21 annual reconciliation has been deferred until 7 October 2021. You also have the option of deferring July and August 2021 payroll tax payments until 7 October 2021.

Previous payroll tax deferrals and payment arrangements for 2020-21 due in July 2021 have not been deferred.

See Revenue NSW for further details.

25% payroll tax waiver for businesses between $1.2m and $10m

Businesses with Australian wages of between $1.2 million and $10 million that have experienced a 30% decline in turnover, will be provided with a 25% payroll tax waiver in 2021-22. Further details of the reduction will be available by the end of August from Revenue NSW

Gaming machine tax deferrals

All businesses paying hotel or club gaming machine tax will be able to defer the taxes for the 2021-22 financial year:

Hotels: deferrals for June and September quarter until 21 January 2022.
Clubs: deferrals for the August quarter until 21 December 2022.

Support for Performing Arts

The NSW Performing Arts COVID support package covers performances impacted by NSW Government Public Health Orders from 26 June 2021.

The funding amount per performance is calculated using a formula of average ticket price multiplied by the number of tickets available for sale and a specified percentage tied to the lockdown period.

To be eligible for funding, you must be one of the following:

An eligible venue
A producer of an eligible performance scheduled to perform at one of the eligible venues
A promoter of an eligible performance scheduled to perform at one of the eligible venues.

See the full details and the list of eligible venues and performances here.

How to apply

Applications are made online through SmartyGrants .

New laws target sharing economy platforms

Wed, 14 Jul 2021 19:30:00 GMT

In an attempt to reign in undeclared income, proposed new laws will require platform providers in the sharing economy to report all transactions through their platforms.

Traditional employment models have shifted in favour of more flexible options including contracting, self-employment and use of labour hire. Consumers are increasingly paying to ‘use’ rather than ‘own’ assets, creating new income opportunities for the owners of assets – like AirBNB. And, the Government believes they are missing out on tax revenues from these payments – income tax from income earned, GST on ride sharing (because the ATO considers all ride sharing a taxi service and as a result GST applies), and capital gains tax on the sale of property used to earn income, etc.

While data matching programs have targeted sharing platforms previously, the proposed laws provide a structured and consistent framework to recognise all revenue earned in Australia through these platforms.

The laws target electronic platforms capturing those that act as intermediaries between buyers and sellers, to more complex arrangements where the platform operator assumes much of the inherent risk in the transaction between the buyer and the seller, play a quality assurance role, and ensure a seamless experience for the buyer and seller. The laws do not rely on the platform processing payments and will reach to those who use third party payment providers.

If implemented, the laws will apply to ride sharing and accommodation services from 1 July 2022, and all other services from 1 July 2023.

6 Members SMSFs - the issues and opportunities

Tue, 13 Jul 2021 20:30:00 GMT

Recently enacted laws increased the maximum number of allowable members in an SMSF and small APRA fund from four to six.

Currently, over 70% of SMSFs have just two members and those with four members represent only 4% of the SMSF population. The use of six member funds is likely to be small but adds additional choice and flexibility.

Family groups

Six member funds provide family groups with a vehicle for controlling superannuation savings and investment strategies. For families with more than four members, previously the only real option was to create two SMSFs (incurring extra costs) or place their superannuation in a large fund.

A larger fund also offers a level of protection if a fund member is travelling overseas for a prolonged period of time. The residency rules require, amongst other things, 50% of members measured by market value to be in Australia.

Estate planning

Estate planning is a benefit of the new laws particularly tax-effective intergenerational wealth transfer as the assets of a fund generally are not part of the estate. Take the example of a family business that holds the commercial property of the business in their family SMSF. If the parents die, the children might keep running the business and maintain the commercial property within the SMSF as an asset. Holding assets within the SMSF also provides a level of asst protection from creditors.

The problem areas

Investment decisions within a fund - Problems can occur when members have different investment needs, for example parents might be closer to retirement while the children are focussed on the longer term. The investment strategy of the fund may not meet everyone’s requirements.
Disputes – the more members in a fund the greater the potential for disputes. For those with legal capacity to be a trustee (18 or over), the rules relating to the appointment and dismissal of trustees, voting rights and meetings need to be clear.
What happens when a member dies – steps need to be taken to ensure that when a member of the fund dies, their wishes are respected. For example, appointing a legal personal representative as trustee, reversionary pensions or binding death nominations.

Who cannot have a six member fund?

Not all SMSFs will have the option to allow six members because in some instances, the number of individual trustees that a trust can have is limited to less than five or six trustees by State legislation (Queensland for example). In these cases, fund members might opt to use a corporate trustee.

Administrative impact on an SMSF

The change from four to six members updates the definition of an SMSF, and as a result, has a practical impacts across other Acts and Regulations.

Sign-off requirements for an SMSF’s accounts and financial statements will change. Currently, if an SMSF has more than one director member, its accounts and statements must be signed by at least two members in their capacity as individual trustee or as a director of a corporate trustee. As there cannot be more than four members of an SMSF under the current rules, these requirements ensure that all members sign the accounts and statements of SMSFs with one or two members. For SMSFs with three or four members, at least half of the members must sign its accounts and statements for an income year. Under the updated requirements, an SMSF with one or two directors or individual trustees must have its accounts and statements signed by all of those directors or trustees. For all other SMSFs (that is, those with between three and six directors or trustees), the accounts and statements of the SMSF must be signed by at least half of the directors or individual trustees.

From 1 July 2021, the maximum number of members a Self Managed Super Fund can have increased from four to six. Why would you have a fund with six members and what are the implications?

Business in a post pandemic environment

Mon, 12 Jul 2021 21:00:00 GMT

Countries that have experienced the worst of the pandemic give Australian businesses an insight into what to expect in a post-lockdown environment.

Australia, like New Zealand, has managed COVID-19 on an elimination basis. That is, lockdowns and border closures to keep the virus out. And, it has worked comparatively well with New Zealand suffering 26 deaths (0.5 per 100,000 people) and Australia 910 (3.7 per 100,000), compared to the UK with over 128,000 deaths (191 per 100,000), India over 400,000 (29.8 per 100,000), Brazil over 500,000 (250.4 per 100,000), and the United States over 600,000 (184.3 per 100,000).

But the flip side of a COVID-19 elimination strategy is a slow vaccine rollout - not only are global vaccine supplies predominantly directed to first world nations with higher mortality rates but vaccination reticence has taken hold (the “I’ll wait and see what happens” mentality). Deciding whether to get a vaccination (and making the appointment) is easy to put off when your life, and the well-being of those around you, is not in danger. We saw this psychology at play in Sydney and Melbourne when vaccination rates increased in response to the spread of the Delta variant.

While all of this might not have a direct impact on businesses, it does impact on the timing of the recently announced National Plan to transition Australia’s COVID response, and this plan will determine what the business environment will be like over the coming year.

The National Plan has signalled a policy shift from our current focus on COVID infection rates, to two new key determinants - vaccination and hospitalisation rates.

At present, Australia has administered 33 vaccination doses per 100 people. New Zealand is just over 26 doses per 100 utilising Pfizer and the recently approved Johnson & Johnson’s Janssen COVID-19 vaccine, and Japan over 42 doses per 100.

Australia will pursue an elimination (or ‘double doughnut') strategy until vaccination rates rise to a level where the risk of hospitalisation and death from the virus is relatively low. However, we don’t know what these thresholds look like at present with the Government and COVID-19 Task Force yet to make its recommendations.

Australia cannot move from an elimination strategy to ‘living with COVID’ in a few months without unacceptable hospitalisation and death rates – for example, the UK is moving to no restrictions despite over 160 people dying of COVID and just under 2,500 hospitalised in the last 7 days.

The National Plan identifies four stages and the actions of each of those stages. In brief:

1. Phase 1 - Current strategy

2. Phase 2 - Post vaccination phase - eased restrictions for those who have been vaccinated and lock-downs only when hospitalisation rates spike

3. Phase 3 - Consolidation phase - no lockdowns and pursuit of a ‘vaccination passport’ concept where those who are vaccinated can travel freely domestically, and travel bubbles extended to more countries.

4. Final phase – the living with the virus stage with uncapped inbound arrivals including accepting non-vaccinated international travellers if they pass a pre and post arrival COVID test.

Data is only just emerging on the impact of vaccination rates on hospitalisations and death rates, but only a small number of countries have enough of their populations vaccinated to provide a reliable sample - Israel (120 doses per 100 people), the UK (119 per 100) and the US (100 per 100). Even when the Australian vaccination targets are confirmed, we should expect these phases to move over time if hospitalisations increase beyond acceptable levels and if new and deeper data suggests a change in tack (like with the rollout of the AstraZeneca vaccine). In addition, it is likely that the States and Territories will continue to have the final say on what is acceptable. All of this means that while we will have a National Plan, business should remain vigilant and prepare for a potentially longer transition period than what is announced

The National Plan's impact on business

The economic impact of COVID-19 is unlike any other, with some businesses suffering a fatal blow while others have benefited. COVID’s impact varies sector by sector and region by region as we bounce from one set of operating conditions to another depending on the Government’s response to outbreaks.

Cashflow is a dominant concern with ABS data showing a decline in the number of businesses expecting an increase in revenue between February (27%) and July 2021 (18%).

The National Plan will impact differently on different sectors and it will be important for business operators to understand the potential impact on them at each phase.

Phase 1 - Be prepared for further ad-hoc lockdowns and restrictions

Map the impact of restrictions on your business, your cashflow and your team and what you will need to survive. Understand whether it is worth trading, the cost of trading and the potential of hibernating.
Model contingency scenarios and understand the best available action.

Phase 2 – taking advantage of eased restrictions

Lock-in any COVID gains – this might be keeping or adapting any new services, building on new technologies, or nurturing a database of new customers (while protecting your relationship with your existing customers). Business has changed, understand what has changed and how you can benefit from these changes
Lock-in any COVID gains – this might be keeping or adapting any new services, building on new technologies, or nurturing a database of new customers (while protecting your relationship with your existing customers). Business has changed, understand what has changed and how you can benefit from these changes.

Phase 3 – no lockdowns and returning travel

Understand what your customer base will look like when restrictions ease? If your business benefited from COVID, is there a potential to be detrimentally impacted when your customers have greater choice. If eased restrictions open new or returning opportunities, what can you do to drive this business to you?

COVID impacts differently depending on the business, the sector, and geographic location. There is no one size fits all approach to surviving and thriving. If you would like us to review your businesses circumstances and ensure you have the depth of information you need to make the right decisions, please contact us.

Lock-downs: What help is available

Mon, 12 Jul 2021 02:43:00 GMT

Pandemic Leave Disaster Payment

COVID-19 disaster payment

The COVID-19 disaster payment is available to eligible workers who can’t attend work or who have lost income because of a lockdown and don’t have access to appropriate paid leave entitlements. And, it only applies from the eighth day of lockdown. That is, there is nothing you can claim for the first week of a lockdown.

The payment amount depends on how many hours of work you have lost in the lockdown period (week).

The Pandemic Leave Disaster Payment of $1,500 for each 14 day period is for those who have been advised by the health authorities to self-isolate or quarantine because:

You have coronavirus (COVID-19)
You’ve been in close contact with a person who has COVID-19
You care for a child, 16 years or under, who has COVID-19
You care for a child, 16 years or under, who’s been in close contact with a person who has COVID-19.

The payment might also be accessible if you are a carer for someone impacted.

Eligibility for this disaster payment is very similar except that you need to use any appropriate leave entitlements if it is available to you (for example, pandemic sick leave, personal leave or carer leave).

For You

Applications for the disaster payment need to be made weekly.

The payment is available if you are not earning an income or have lost work and you:

Are an Australian citizen, permanent resident or temporary visa holder who has the right to work in Australia, and
Are aged 17 years or over, and
Can’t attend work and lost income on or after day 8 of a COVID-19 lockdown, and
Don’t have access to appropriate paid leave entitlements through your employer (other than annual leave), and
Are not getting an income support payment, a state or territory pandemic payment, Pandemic Leave Disaster Payment or state small business payment for the same period.

Until recently, a liquid assets test applied that meant that if you had more than $10,000, you could not receive the payment. However, the Prime Minster has stated that this test will be lifted from Thursday, 8 July 2021.

During Victoria’s lockdown, 75,410 claims were made for the disaster payment, 57,730 were granted. In NSW, over 67,000 residents have applied for the payment to date.

The disaster payment is only accessible if the hotspot triggering the lockdown lasts more than 7 days as declared by the Chief Medical Officer (you can find the listing here ).

Support of Business

New South Wales

The value of the grant is determined by the impact of the lockdown on your turnover. Your business will need to prove a decline in turnover across a minimum 2 week period after the commencement of the major restrictions.

The grant is limited to businesses (including sole traders) with:

A NSW registered ABN or able to demonstrate they are physically located and primarily operating in NSW; and
Annual turnover of more than $75,000 for the year ending 30 June 2020; but
Below the NSW Government 2020-21 payroll tax threshold of $1.2m as at 1 July 2020; with
Fewer than 20 full time equivalent employees

The Hospitality & Tourism COVID-19 Support grant is limited to tourism or hospitality businesses with:

A NSW registered ABN or able to demonstrate they are physically located and primarily operating in NSW; and
Annual turnover of more than $75,000 for the year ending 30 June 2020; and
An annual Australian wages bill below $10m as at 1 July 2020.

Applications for the grant open in late July .

Northern Territory

The Territory Business Lockdown Payment Program provides a payment of $1,000 to eligible Territory enterprises with less than 20 full time equivalent staff. Applications close on 16 July 2021.

Queensland

A Small Business COVID-19 Adaption Grant of between $2,000 and $10,000 is available to eligible regional Queensland businesses. The grant requires your business to have suffered a decline in turnover of at least 30% because of COVID-19 for at least one month since 23 March 2020. The grant is accessible to businesses with less than 20 staff.

Victoria

Grants and other business support programs are available targeting specific industries such as live events, hospitality, and the employment of priority jobseekers. See Business Victoria .

Western Australia

A second round of Small Business Lockdown Assistance Grants of $3,000 are available to eligible businesses in Perth, Peel and regional WA impacted by recent lockdowns. Applications are not yet open but you can register for updates. Specific industry assistance is also available.

Direct grants and funding to South Australian and ACT businesses are applicable when extended lock-downs are imposed.

What lockdown support is available to businesses?

Thu, 01 Jul 2021 03:20:00 GMT

If your business has been adversely impacted by the recent lockdown in NSW, support is available but there are limitations.

The grant is limited to tourism or hospitality businesses with:

A NSW registered ABN or able to demonstrate they are physically located and primarily operating in NSW; and
Turnover of more than $75,000 pa; and
An annual Australian wages bill below $10m as at 1 July 2020.

You can apply to defer:

Payroll tax payments due in July 2021, and
Hotel June quarter gaming machine tax

For those that apply to defer, State Revenue will provide a repayment program on a case-by-case basis.

The grant is limited to businesses (including sole traders) with:

A NSW registered ABN or able to demonstrate they are physically located and primarily operating in NSW; and
Turnover of more than $75,000 pa; but
Below the NSW Government 2020-21 payroll tax threshold of $1.2m as at 1 July 2020; with
Fewer than 20 full time equivalent employees

Small business COVID-19 support grant

Decline in turnover Grant 70% $10,000 50% $7,000 30% $5,000

For some clients, particularly those who have been unable to trade at all during lockdown, proving the decline in turnover should be reasonably simple. For others, we will need to work with you closely once the parameters for the decline in turnover test are known, to determine if you can access the grant.

The NSW Government has announced new grants of up to $10,000 for businesses adversely impacted by the recent COVID-19 lockdowns. Eligibility for the grant is streamed into general business, and hospitality and tourism. The full details of the grant and the eligibility criteria have not been released as yet but here is what we know so far:

You need to prove a decline in turnover

Hospitality & Tourism COVID-19 Support grant

Extension of Dine & Discover to takeaway

Dine & Discover vouchers can now be used for takeaway from eligible and registered Dine businesses during the restriction period but you will need to deliver to the customer’s home or have them pick up the order and check in with a QR code - vouchers cannot be redeemed for takeaway using third party delivery platforms.

The expiry of Dine & Discover vouchers has also been extended until 31 August 2021.

Payroll, gaming machine tax deferral option

Where and how to apply

The full eligibility details are not available as yet and applications have not opened for the grants.

When applications do open, it will be through the Services NSW website .

The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

What Changes on 1 July 2021

Wed, 09 Jun 2021 05:10:00 GMT

The Australian Taxation Office (ATO) will calculate your personal TBC based on the information lodged with them (this will be available from your myGov account linked to the ATO). If your superannuation is in retirement phase, it will be very important to ensure that your Transfer Balance Account compliance obligations are up to date. For Self-Managed Superannuation Funds (SMSFs), it is essential that you let us know about any changes that impact on your transfer balance account, for example if a member of your fund retires.

The total super balance caps to utilise the spouse contribution offset and the government co-contribution will also be lifted to $1.7m in line with indexation.

Concessional and non-concessional contribution caps

Currently, when an employer hires a new staff member, the employee is provided with a Choice of Fund form to identify where they want their superannuation to be directed. If the employee does not identify a fund, the employer directs their superannuation into a default fund.

When someone has multiple funds, it often erodes their balance through unnecessary fees and often insurance. And, as at 30 June 2020, there was $13.8 billion of lost and unclaimed superannuation in accounts across Australia.

From 1 July 2021, where an employee does not identify a fund, legislation before Parliament will require the employer to link the employee to an existing superannuation fund. That is, an employee’s superannuation fund will become ‘stapled’ to them. An employer will not simply be able to set up a default fund, but instead will be required to request that the ATO identify the employee’s stapled fund. If the ATO confirms no other fund exists for the employee, contributions can be directed to the employer’s default fund or a fund specified under a workplace determination or an enterprise agreement (if the determination was made before 1 January 2021).

Legislation enabling this measure is currently before the Senate.

The Government has announced an extension of the temporary reduction in superannuation minimum drawdown rates for a further year until 30 June 2022.

From 1 July 2021, the superannuation contribution caps will increase enabling you to contribute more to your superannuation fund (assuming you have not already reached your transfer balance cap).

The concessional contribution cap will increase from $25,000 to $27,500. Concessional contributions are contributions made into your super fund before tax such as superannuation guarantee or salary packaging.

The non-concessional cap will increase from $100,000 to $110,000. Non-concessional contributions are after tax contributions made into your super fund.

The bring forward rule enables those under the age of 65 to contribute three years’ worth of non-concessional contributions to your super in one year. From 1 July 2021, you will be able to contribute up to $330,000 in one year. Total superannuation balance rules will continue to apply. However, if you have utilised the bring forward rule in 2018-19 or 2019-20, then your contribution cap will not increase until the three year period has passed.

Indexation ensures that the caps on superannuation that limit how much you can transfer into super and how much you hold in a tax-free retirement account, remain relevant by making pre-determined increases in line with inflation. To trigger indexation, the consumer price index (CPI) needed to reach 116.9. Australia reached 117.2 in December 2020 triggering increases to the contribution and transfer balance caps from 1 July 2021. The next increase will occur when a December quarter CPI reaches 123.75.

Super Guarantee rate increase to 10%

On 1 July 2021, the Superannuation Guarantee (SG) rate will rise from 9.5% to 10% - the first rise since 2014. It will then steadily increase each year until it reaches 12% on 1 July 2025.

The 0.5% increase does not mean that everyone gets an automatic pay increase, this will depend on your employment agreement. If your employment agreement states you are paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then your take home pay might be reduced by 0.5%. That is, a greater percentage of your total remuneration will be directed to your superannuation fund. For those paid a rate plus superannuation, then your take home pay will remain the same, but your superannuation fund will benefit from the increase. If you are used to annual increases, the 0.5% increase might simply be absorbed into your remuneration review.

Employers will need to ensure that they pay the correct SG amount in the new financial year to avoid the superannuation guarantee charge. Where employee salaries are paid at a point other than the first day of the month, ensure the calculations are correct across the month (i.e., for staff paid on the 15th of the month they are paid the correct SG rate for June and July in their pay and not just the June rate).

Superannuation salary packaging arrangements will also need to be reviewed – employers should ensure that the calculations are correct and the SG rate increase flows through.

Click HERE to view the the Annual Superannuation Guarantee rate changes

Indexation increases contribution caps and the transfer balance cap

The transfer balance cap (TBC), as the name suggests, limits how much money you can transfer into a tax-free retirement account. From 1 July 2021, the general TBC will increase from $1.6m to $1.7m but not everyone will benefit from the increase.

From 1 July 2021, there will not be a single cap that applies to everyone. Instead, every individual will have their own personal TBC of between $1.6 and $1.7 million, depending on their circumstances.

If your superannuation is in accumulation phase before 1 July 2021, that is, you have not started taking an income stream (pension), then your cap will be the fully indexed amount of $1.7m.

However, if you have started taking an income stream - you have retired or are transitioning to retirement - then your indexed TBC will be calculated proportionately based on the highest ever balance of your account between 1 July 2017 and 30 June 2021. The closer your account is to the $1.6m cap, the less impact indexation will have. For anyone who reached the $1.6m cap at any time between 1 July 2017 and 30 June 2021, indexation will not apply and your cap will continue to be $1.6m. For example, if you are transitioning to retirement and drawing a pension, and your highest ever balance in your retirement account was $1.2m, then indexation only applies to $400,000 (the $1.6m cap less your highest very balance). In this case, your new personal TBC will be $1,625,000 after indexation.

Transfer Balance Cap- Why you will have a personal cap

Single touch payroll will apply to most businesses from 1 July 2021, this will include small businesses (those with 19 or fewer staff) and businesses with closely held employees (e.g., directors of family companies, salary and wages for family employees of businesses). No further extensions will be granted.

For employers with closely held employees, there are some concessions on how reporting is managed with the option to report one of three ways: reporting actual payments in real time, reporting actual payments quarterly or reporting a reasonable estimate quarterly. These concessions allow a level of flexibility in relation to determining and making payments to closely-held payees. However, if your business is impacted, it will be important to plan throughout the year to prevent problems occurring at year end.

New stapled superannuation employer obligation for new staff

Minimum Superannuation drawdown rates

Single touch payroll reporting

Work from home expenses under scrutiny & the perils of browsing Facebook

Tue, 08 Jun 2021 05:32:00 GMT

If you worked from home during lockdown and spent money on work related items that were not reimbursed by your business, you might be able to claim some of these expenses as a deduction – but not everything you purchase can be claimed.

The ATO has stated that it is looking very closely at work related deductions that are being claimed. If you are claiming your expenses, there are three methods you can use:

An 80 cents per hour short cut method (you will need to have evidence of hours worked like a timesheet or diary)
The 52 cents per hour method (which excludes phone, internet, or the decline in value of equipment which are all claimed separately), or
The actual expenses method

The ATO is particularly interested in those using the ‘actual expenses’ method. To be able to claim a work related expense, it needs to be directly related to the work you do and how you earn your income. The ATO has highlighted four ineligible expenses that are being claimed:

Personal expenses such as coffee, tea and toilet paper
Expenses related to a child’s education, such as online learning courses or laptops
Claiming large expenses up-front (instead of claiming depreciation for assets), and
Occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates, that cannot generally be claimed by employees working from home.

A recent case before the AAT shows how determined the ATO is to crackdown on work related deductions being claimed where there is not a satisfactory nexus between the expense being claimed and the taxpayer’s work. In this case, the taxpayer had claimed car and clothing expenses, and home internet and mobile phone costs. The ATO conceded the car costs but on a reduced deduction. When it came to clothing expenses the ATO conceded that a deduction could be claimed for gloves and a beanie on the basis that the taxpayer worked in cold conditions and that these were protective clothing needed for the job. However, the AAT refused to allow a deduction for the cost of a pair of socks on the basis that they were not protective in nature in their own right – yes, it really does get this detailed.

The taxpayer had also claimed 100% of his home internet expenses but the ATO reviewed this claim and reduced the deductible amount to $50 - a record of the family’s home internet usage demonstrated the internet was used to browse Facebook amongst other non-work related sites.

One of the other issues to come out of this case was the importance of record keeping. If you are going to claim work related expenses, then ensure you have the records to prove your claim.

Am I taxed on an insurance payout?

Mon, 07 Jun 2021 05:37:00 GMT

For businesses that have had trading stock damaged or destroyed, any insurance payout is taxable. For example, the payouts on claims coming through from the enforced lockdowns for spoiled perishable stock would need to be included in the business’s tax return. This is because the insurance premiums would have been claimed by the business as an expense. It is just a question of how the insurance is taxed.

If your business premises are damaged and the insurance covers repairs, then the amount you receive is generally taxed as income if you can claim a deduction for the repair costs. Where the premises are damaged or destroyed, then we’ll need to work with you to identify if you have made a taxable gain or loss.

When it comes to depreciating assets like machinery, then it starts getting more complex. In general, if the insurance payout exceeds the written down value, then the payout is included in the business’s assessable income, and if less, you can claim a deduction for the difference. However, there are also special rules for work cars, small businesses, and where a replacement item is purchased.

Rental properties

A rental property is an income producing asset and, in most cases, the cost of insurance policies relating to the property would have been claimed as an expense. For example, if you receive a payout for your rental property as a result of a disaster, generally, you will need to include at least part of this amount as income in your tax return. This could include insurance payouts for loss of rental income, repairs, replacements of destroyed assets, or money received from a relief fund.

The treatment of the insurance proceeds depends on what the payout is for, how the insurance is used, and whether the rental property was vacant or in use.

A recent case before the Administrative Appeals Tribunal (AAT) shows how tricky this area of the tax rules can be. In this case, the taxpayer initially received insurance proceeds of $24,000 for lost rental income after their property sustained storm and flood damage. The taxpayer had declared this amount as income. All good so far.

Then, the taxpayer received an additional $250,000 from the insurer with the payment described as “in consideration of the taxpayer releasing the insurer from all liability past, present and future under the insurance policy”. The taxpayer did not believe this money was for him to repair his property so did not claim it in his tax return. But, he did claim a deduction for repair costs totalling $130,000 in two income years.

The ATO subsequently audited the taxpayer and issued an assessment for the full $250,000. The AAT agreed with the ATO even though the taxpayer had only claimed $130,000 in repairs. It’s possible this case will go to appeal but it serves as a warning that any lump sum payouts need to be very carefully assessed and dealt with.

If you have been impacted by a disaster and are uncertain of how any insurance proceeds will be taxed, please talk to us and we can work with you to help you understand your position.

Australia has had its fair share of disasters over the last few years – drought, bushfires and floods – that have ramped up the volume of insurance claims. Most people would assume that if and when they need to claim on their insurance, the insurance payout covers the damage and is not income assessed for tax purposes - but this is not always the case.

Insurance payouts for damaged or destroyed personal items are generally not taxed. For example, any insurance payout you receive for your family home won’t necessarily be taxed. But, the rules are different if you have used your home to produce an income, for example, you have used part of your home as a home business or you have rented out part of your home.

The rules are also different if the item is a personal asset costing more than $10,000 or if the asset is a collectible that cost more than $500. Where the insurance proceeds exceed the original cost of the asset, that is, the asset appreciated in value, then capital gains tax might apply.

And, if the asset damaged is related to a business or an income producing asset like a rental property, the rules are also different.

Business premises, trading stock and depreciating assets

Your SMSF: when expenses and investments are not at arm’s-length

Thu, 06 May 2021 01:30:00 GMT

In general, all interactions between your SMSF and its members should be at arm’s length – that is, the terms of the transactions are the same as what would be entered into between independent parties, but there are circumstances where the interests of the fund and its members intersect. A transaction which is favourable to either party is deemed to be at non-arm’s length terms, which could create some taxation issues.

Members of a fund can lend money to their SMSF in very limited circumstances, and usually to buy property, if the following conditions must be met:

It is a limited recourse loan to the SMSF and is appropriately documented, and
The SMSF is not charged higher than an arm's-length rate of interest for borrowing, i.e., the loan is on commercial terms, there are ‘safe harbour’ guidelines provided around loan to value ratios, and repayment terms to ensure the loan is at arm’s-length.

We often get questions from clients about what they can and cannot do in their SMSF. Often the questions relate to related party transactions – that is, interactions between the SMSF, its assets, and its members (or relatives of members). We’ve set out some of the common questions and answers.

Can I charge my SMSF for work that I do?

Trustees of an SMSF cannot be remunerated for the work that they do for the fund. The exception is where you are qualified to provide certain services to your fund and act in that professional capacity. For example, you are a real estate agent and are buying and selling property assets for the fund. In this case, you are not being paid for work you do in your capacity as trustee but as a professional providing a service at market value (see Can I charge my SMSF for work that I do?).

Can my SMSF purchase a rental property that I own?

No. Your SMSF cannot lend you or any of your related parties money. The superannuation rules specifically prohibit the fund providing financial assistance to members. This includes where a member takes money out of the SMSFs account for a short amount of time and replaces it in full. Just don’t do it.

Can I charge for the work I do to administer my fund?

Let’s say your SMSF owns a residential rental property and the property needs a fence. You’re a builder and can build the fence. Can you charge the SMSF for the fence? The answer is maybe.

What you charge and how it is charged is critically important here.

If the fund acquires the fencing material, and is invoiced by the building business to construct the fence, and pays a market rate for the labour involved, then there is unlikely to be a problem as the charges are transparent and at market value. However, documentation is essential and you may also need to verify that the labour cost charged is the market rate.

However, if the business decides to install the fence for no charge, or alternatively charge an excessively high rate, then the transaction could be deemed to be non-arm’s length.

If the building business acquires the fencing material and then installs the fence at arm’s length rates for the SMSF, this could still cause in-house asset issues as the fund has acquired an asset from the member; the fencing material. It all gets very messy and it might just be easier to have someone else do it!

What happens if the building business either charges below market rates or does not charge the fund for labour cost? The rules have recently been extended to capture non-arm’s length expenses where a related party is acting in a capacity other than as trustee and a non-arm’s length expense was not charged. i.e., where the fund benefits from work performed by a member in a capacity other than trustee. The ATO sees these non-arm’s length expenses as potentially artificially inflating an SMSFs earnings.

The market value of the work performed might be treated as a contribution, or all of the income from the asset could be deemed to be non-arm’s length, which means the highest marginal tax rate will be charged on all income and capital gains derived from the asset.

This same scenario applies to any member of an SMSF (or relative of a member) who provides services to their SMSF – electricians, plumbers, accountants, real estate agents, etc.

The rule is, work that is done for the SMSF by a related party in their professional capacity must be equivalent to arm’s length market value, with no acquisition of materials. Free, below market value, above market value, may breach the superannuation rules. And, where work is performed by a related party at market value, it must be documented and provable.

If you are not a qualified professional you cannot undertake work on behalf of your fund unless you are fulfilling your duties as trustee.

Can my SMSF lend me money?

Can I lend money to my SMSF?

Your SMSF cannot acquire property from a related party of the fund unless the property (land and buildings) is used wholly and exclusively in a business (business real property).

Under these circumstances your SMSF could purchase the commercial premises used by a business you own and lease the property back on commercial terms.

If business real property is used in a primary production business such as a farm, it can still meet the test of being used wholly and exclusively in a business even if it contains a dwelling that is used for private or domestic purposes. But, the dwelling must be in an area of land no more than two hectares and the main use of the whole property can't be for domestic or private purposes.

Tax exemption for ‘granny flat’ arrangements

Wed, 05 May 2021 01:12:00 GMT

To protect older Australians, the Government has moved to formalise ‘granny flat arrangements’ by providing an incentive to protect all parties in the arrangement.

Typically, granny flat arrangements occur when an older person transfers some sort of consideration (often title to property or proceeds from the sale of property) to their adult child in exchange for the promise of ongoing care, support and housing. In some circumstances, it’s a way for a parent to give their children access to their inheritance when it’s needed not at a later point when the person dies.

However, a 2017 Australian Law Reform Commission report highlighted the potential for elder abuse where granny flat arrangements fall apart. If the relationship breaks down, or other unforeseen circumstances arise, the older person can be left homeless. A central problem is a lack of formality in these arrangements.

The tax system, in particular, the capital gains tax (CGT) system, acts as a disincentive to formalising a granny flat arrangement. Under the current rules if a granny flat arrangement if formalised, this can lead to an upfront tax liability for the home owners. Also, the children can potentially lose part of their main residence exemption when the parent pays for the right to live in the home depending on how the arrangement is structured. If the arrangement is left informal, and the money paid by the parent is merely a gift, the main residence exemption is generally unaffected.

Recently released exposure draft legislation seeks to overcome the disincentive to formalising a granny flat arrangement by providing a CGT exemption.

This does not mean that every separate dwelling built out the back of a house will have a CGT exemption. The legal meaning of granny flat is derived from social security law; it describes an arrangement rather than a type of accommodation and can arise whenever money or other consideration is given in exchange for a right to use accommodation for life.

The draft legislation provides that no CGT event will arise from a granny flat arrangement where certain conditions are met including where the individual with the granny flat arrangement has:

Reached pension age or has a disability, and
That the arrangement is in writing and is not of a commercial nature.

The top 8 reasons why staff leave

Tue, 04 May 2021 01:10:00 GMT

Australia is facing a shortage of skilled labour. When the supply of staff dry up the focus often turns to retention. But the first step is to understand why people you want to stay, choose to move on?

Very few people will reveal the whole truth about why they leave an employer. Partly they don’t want their previous employer to think badly of them, they don’t want to hurt anyone’s feelings, and for others, it’s just not worth getting into it. However, there is almost always a catalyst for change. It might not always be the employer but it is very rare that it is “just time”.

Change in leadership - Leadership vacuum or concern about the impact of the change.
Work not challenging - This is the classic reason for leaving that is behind the “it’s just time” comment. The employee feels as if the company has nothing left to offer.
Conflict with a supervisor - Your business can have the best retention policies and strategies in place but a conflict between Manager and subordinate is immediate and damaging.
Change in company dynamics - Each company is generally made up of smaller sub groups. These might be based on age, gender, professional status or cultural identity. The loss of a popular team member from one of these groups will be more deeply felt by their subgroup.
Unfavourable change in responsibilities - Changes in team structures, reallocation of resources or taking on new assignments that are not within the skills set or comfort level of the employee.
Life work balance issues - Retention is about mutual respect for priorities. The employer respecting the employee’s personal responsibilities and employees recognising that they have corporate responsibilities. Both need to be fulfilled.
Poor recruitment - Professional or cultural misfits. Ever hired Mr Right now rather than Mr Right?
Lack of recognition for perceived value - Overlooked for opportunities held out but not delivered.

Sometimes, it’s not all bad. We’ve all had them; that employee who is the cultural and professional misfit. Decisive action when there is a poor fit can improve team morale.

The New Lifetime Director IDs

Mon, 03 May 2021 01:58:00 GMT

ASIC does not currently verify the identity of directors and Elvis Presley and Bob Marley could “quite possibly” be registered. Or at least that was the view of former ASIC Commissioner John Price at a 2020 Parliamentary inquiry.

The introduction of the Director Identification Number (DIN) regime is part of the Government’s Modernisation of Business Registers (MBR) Program creating greater transparency and tracking the movements of individuals over time. The MBR will unify the Australian Business Register and 31 ASIC business registers, including the register of companies. In effect, the system will create one source of truth across Government agencies for individuals and entities and will be managed by the Australian Taxation Office (ATO).

Directors will be required to register for a unique identification number that they will keep for life, much like a tax file number under a rewrite of Australia’s business registers.

Why a director ID?

Under the new regime, all directors will need to have their identity confirmed when they consent to being a director, so no more Elvis Presley unless your name really is Elvis Presley. You will then keep this number permanently, even if you cease to be a director – the number will not be issued to another person. The result is an ID system that traces a director’s relationships across companies, enabling better tracking of directors of failed companies and prevents the use of fictitious identities.

The target is illegal phoenixing. Phoenixing is when directors transfer the assets of an existing company to a new company without paying full value, leaving the debts with the old company. Once the assets have been transferred, the old company is liquidated leaving creditors out of pocket. Phoenixing has a ripple effect in the community and is estimated to cost between $2.9 billion and $5.1 billion annually. The real face of the impact is to the unpaid creditors – mostly customers and contractors, unpaid employee entitlements, and the broader cost through unpaid taxes.

Once the assets are transferred to a new company, the directors then continue to operate the business in a new entity. They just set aside the problems and start again with the benefit of the good parts of their old company as a foundation.

Who will need a director ID?

The DIN is very broad and introduces the concept of an ‘eligible officer’. An eligible officer is a director who:

is appointed to the position of director, or is appointed to the position of an alternate director and is acting in that capacity (regardless of the name that is given to that position); or
any other officer of the registered body who is an officer of a kind prescribed by the regulations.

The definition picks up the concept of ‘shadow directors’ who act in the capacity of directors through influence and control but are not directors by title. That is, its feasible that someone who is not a director but is seen to be making decisions on behalf of the company can be held to account.

An eligible officer is a director of a:

company
registered foreign company
registered Australian body under the Corporations Act such as an association or a charity, or
an Aboriginal and Torres Strait Islander corporation (which are registered under the CATSI Act).

When the system opens, directors will need to apply for an ID through the Australian Business Register system through their myGov account. If you do not have a myGov account , it would be a good idea to create an account and become familiar with how it works. Your myGov account creates your digital credentials to verify who you are.

When you register, you will need to declare that the information you have provided is true and correct, you are or will be an eligible officer within 12 months, and you do not have an existing ID (or applied for one).

Existing directors will have until 30 November 2022 to acquire a DIN (30 November 2023 for directors of corporations under CATSI). For the first year of the program, new directors will have 28 days to apply for a DIN from the time of their appointment. From the first year onwards, you will need to have a DIN prior to being appointed as a director.

Unlike the existing system that merely registers information, the new regime will verify a director’s information and may utilise other sources of information such as your driver’s license and/or link to your client record held by the ATO.

The problem of directors in name only

The new regime will not overcome one problem area – where naive participants are encouraged to become directors in name only such as elderly parents, or a spouse. That is, the identity of that person is legitimate but their role as a director is merely window dressing and they do not fulfil the role as active participants - a situation that is not uncommon in family groups.

It’s important that anyone agreeing to be a director understands the implications. Being a director is not just a title; it is a responsibility. At a financial level, directors are responsible for ensuring that the company does not trade while insolvent. The by-product of this is that the directors may be held personally liable for the debt incurred. The director penalty regime has also been tightened up in recent years to ensure that directors are personally liable for PAYG withholding, net GST and superannuation guarantee charge liability if the company fails to meet its obligations by the due date. For many small businesses, the directors are also often personally responsible for company loans secured against property such as the family home.

Failing to perform your duties as a director is a criminal offence with fines of up to $200,000 and five years in prison.

Ignorance is not a legal defence. Don’t sign anything unless you understand the consequences.

Better monitoring and bigger teeth for ASIC

The introduction of a structured director verification system comes with greater controls and influence by the regulators to enforce the law with civil penalties of up to $200,000 in situations which include:

Failure to register within the relevant timeframes
Applying for multiple DINs
Misrepresenting a DIN, and
Accessorial liability where someone seeks to pervert the system

The failure to register when required is a strict liability and the regulator does not have to prove fault, they will simply issue an infringement notice.

National licence recognition for tradies

Sun, 04 Apr 2021 23:00:00 GMT

The Federal, State and Territory Governments have agreed to a mutual recognition regime that will be implemented by the Federal Government. Exposure draft legislation enabling the seamless mutual recognition scheme was released last month with the scheme expected to start from 1 July 2021.

Workers will not need to pay additional licence fees or apply for additional licences.

Workers working in another state or territory will need to comply with local laws and regulations (including vulnerable people character test) and in some cases will need to notify the regulator they intend to work in their State. The States have the capacity to refuse a registration or type of license from mutual recognition.

Those subject to disciplinary action or who have conditions on their registration as a result of disciplinary, civil or criminal action will be excluded from automatic mutual recognition. Information on cancelled or suspended registrations and disciplinary proceedings and to record cancellations and suspensions on registers, will be shared.

JobMaker fails to boost employment

Sat, 03 Apr 2021 23:00:00 GMT

The Government's JobMaker scheme has created 609 new jobs since registrations opened on 1 February 2021, despite around 15,000 businesses registering their interest in the scheme.

The hiring credit is available for jobs created from 7 October 2020 until 6 October 2021 and provides $200 per week for new employees between 16 to 29 years of age, and $100 a week for new employees between 30 to 35 years of age. Payment is from the start date of the employee for 12 months. To date, around 70% of employers taking advantage of the credit are micro-employers with another 20% from the SME sector.

Unlike JobKeeper, the employer keeps the JobMaker payment and does not pass it onto their employee.

One of the reasons for the low take up rate, beyond a general lack of awareness in the business community, is likely to be the complexity of the scheme versus the reward. There are a number of tests and compliance requirements at both the employer and employee level including an 'additionality test' that requires the total headcount of the business to remain above a baseline number of employees. That is, if you employ an eligible employee and an existing employee resigns, the benefit cancels out because there is no longer an increase in total headcount.

In addition, JobMaker only applies where an employer takes an employee from the unemployment queue. That is, the employee had to be receiving the JobSeeker Payment, Youth Allowance or Parenting Payment for at least one month within the three months before they were hired.

It is possible that more businesses will start to take advantage of the scheme now that the JobKeeper scheme has finished. Businesses that were still eligible for JobKeeper could not generally access JobMaker at the same time.

The Treasurer has stated that the Government will review the design of the JobMaker program in the upcoming Federal Budget with only $800,000 of the $4 billion scheme's budget distributed.

Australia's unemployment rate decreased to 5.8% in February 2021 (0.8% higher than 12 months ago) with just under 70,000 jobs created in the month.

Underemployment has risen to 8.5%.

Tax treatment of JobKeeper payments handed back to ATO

Fri, 02 Apr 2021 22:00:00 GMT

The ATO has clarified the tax treatment of JobKeeper payments handed back to the Government. The clarification comes after the Super Retail Group, Dominos Pizza and Toyota collectively returned more than $20 million in JobKeeper payments after reporting exceptional trading results.

Where a business has handed back JobKeeper despite qualifying for the payments, the ATO states that:

JobKeeper payments returned to the Government are still included in assessable income, and
The returned payments may be deductible in limited circumstances if the repayment is to a achieve the business's objectives. For example, if the media exposure from the returned payment generates goodwill for the business or publicises the business, or the repayment prevents a downturn in business activity.

The message is, if you are returning JobKeeper payments voluntarily, make the decision public. If no one knows about the repayment then it is unlikely to be deductible. If your business decides to hand back JobKeeper despite being entitled to the payments, special arrangements will need to be put in place with the ATO as the repayments are treated differently and require a special payment reference number.

We note that if your business and your employees qualified for the first tranche of JobKeeper payments, you are under no obligation to return the money if trading conditions were better than the estimate you provided to the ATO.

ATO targets profits of professional service firms

Thu, 01 Apr 2021 22:00:00 GMT

The Australian Taxation Office (ATO) has been concerned for some time about how many professional services firms are structured – specifically, professional practices such as lawyers, medical practices, engineers, architects etc., operating through trusts, companies and partnerships of discretionary trusts and how the profits from these practices are being taxed.

New draft guidance (PCG 2021/D2) released last month from the ATO takes a strong stance on structures designed to divert income so the professional ends up receiving very little income directly for their work, reducing their taxable income. Where these structures appear to be in place to divert income to create a tax benefit for the professional, Part IVA may apply. Part IVA is an integrity rule which allows the Commissioner to remove any tax benefit received by a taxpayer where they entered into an arrangement in a contrived manner in order to obtain a tax benefit. Part IVA may apply to schemes designed to ensure that the professional is not appropriately rewarded for the services they provide to the business, or that they receive a reward which is substantially less than the value of those services.

The draft guidance for professional services

Set to apply from 1 July 2021, the draft guidance sets out a series of tests to create a risk score. This risk score is then used to classify the practitioner as falling within a Green, Amber or Red risk zone and determines if the ATO should take a closer look at you and your firm. Those in the green zone are at low risk of the ATO directing its compliance efforts to you. Those in the red zone, however, can expect a review to be initiated as a matter of priority with cases likely to proceed directly to audit.

The risk assessment framework will only apply if the firm first meets two gateway tests.

Gateway 1 - considers whether there is commercial rationale for the business structure and the way in which profits are distributed, especially in the form of remuneration paid. Red flags would include arrangements that are more complex than necessary to achieve the relevant commercial objective, and where the tax result is at odds with the commercial venture, for example, where a tax loss is claimed for a profitable commercial venture.
Gateway 2 - requires an assessment of whether there are any high-risk features. Potentially high-risk features include financing arrangements relating to non-arm's length transactions, where income of a partnership is assigned in a way that is not consistent with existing guidelines, and where there are multiple classes of shares or units held by non-equity holders.

If the gateway tests are passed, then you can self-assess your risk level against the ATO's risk assessment factors. There are 3 factors to be considered:

the professional's share of profit from the firm (and service entities etc) compared with the share of firm profit derived by the professional and their related parties;
the total effective tax rate for income received from the firm by the professional and their related parties; and
the professional's remuneration as a percentage of the commercial benchmark for the services provided to the firm.

The resulting 'score' from these factors determines your risk zone. Some arrangements that were previously considered low risk may now fall into a higher risk zone.

The 1 July 2021 Superannuation Changes

Wed, 31 Mar 2021 22:00:00 GMT

How will the transfer balance cap impact me?

In general, your superannuation is either in an accumulation account (when you are building your super), a retirement account (when you meet preservation age and certain conditions of release and can withdraw your super), or in between when you are transitioning to retirement (when you reach perseveration age, are working reduced hours and take some of your superannuation as a pension).

The amount of money you can transfer from your accumulation account into your tax-free retirement account is limited by a transfer balance cap (TBC). From 1 July 2021, the current $1.6m general TBC will be indexed to $1.7m and once indexed, no single cap will apply to all individuals (each person will have an individual TBC between $1.6m and $1.7m).

Indexation will also change other superannuation caps and limits including:

Non-concessional contributions (contributions from after tax income)
Concessional contributions (contributions from before tax income such as super guarantee, salary sacrificed super amounts, or contributions you make and claim a tax deduction for etc.)
Co-contributions (personal contributions made by low and middle income earners matched by the Government up to $500), and
Contributions you make on behalf of your spouse that are eligible for a tax-offset.

If you are building your superannuation (accumulation phase) and not withdrawing it*, indexation of the TBC is a good thing because from 1 July 2021 you will be able to access more of your superannuation tax-free. If you start taking your superannuation after 1 July 2021, for example if you meet a condition of release and retire, your transfer balance cap will be $1.7m. Essentially, if you have never had a transfer balance account credit, then the full indexation is available to you.

For low and middle income earners claiming the government co-contribution, the limit will increase in line with indexation to $1.7m.

Similarly, if you are contributing superannuation to your spouse and claiming the tax offset, the limit will increase in line with indexation to $1.7m. That is, you can contribute to your spouse's superannuation and claim the tax offset as long as their TBC is not more than $1.7m.

You are accumulating super

You have started taking your super

If you started taking your superannuation before 1 July 2021 and have already had a credit added to your transfer balance account, then your TBC will be between $1.6m and $1.7m depending on the balance of your transfer balance account between 1 July 2017 and 30 June 2021. If your account reached $1.6m or more at any point during this time, your TBC after 1 July 2017 will remain at $1.6m. If the highest credit ever in your account was between $1 and $1.6m, then your TBC will be proportionally indexed based on the highest ever credit balance your transfer balance account reached. That is, the ATO will look at the highest amount your transfer balance account has ever been, then apply indexation to the unused cap amount. For example, if you started a retirement phase income stream valued at $1.2m on 1 October 2018 and this was the highest point of your account before 1 July 2021, then your unused cap is $400,000. This unused cap amount is used to work out your unused cap percentage (400k/1.6m=25%). The unused cap percentage is then applied to $100,000 ($100k*25%=$25k) to create your new TBC of $1,625,000.

Note that indexation only applies to the difference between the $1.6m TBC and the highest point of your account at any point between 1 July 2017 and 30 June 2021 , not the value of your account at 30 June 2021. That is, if you made additional contributions after 1 October 2018 that increased your account to say $1,440,000, then indexation would apply to your unused cap of $160,000 (instead of $400,000), creating a TBC on 1 July 2021 of $1,610,000.

Indexation does not impact existing child death benefit beneficiaries. Child death benefit income streams commencing after 1 July 2021 will be entitled to the increment if the parent never had a transfer balance account or a proportion if the parent had a transfer balance account.

If you receive income from a capped defined benefit income stream and you are 60 years of age or more, or the income stream is from a death benefit where the member was over 60 at the time of death, then the defined benefit income cap will increase to $106,250 for most individuals. This will mean that the money your fund withholds from your income stream may change.

The amount you can contribute to super will increase

Indexation will increase the concessional and non-concessional contribution caps from 1 July 2021. These caps are indexed by average weekly ordinary time earnings (AWOTE).

The bring forward rule

The bring forward rule enables you to contribute up to three years' worth of non-concessional contributions in the one year. That is, from 1 July 2021, you could contribute up to $330,000 to your superannuation in one year. You can use the bring forward rule if you are 64 or younger on 1 July of the relevant financial year of the contribution and the contribution will not increase your total super balance by more than your transfer balance account cap.

If you utilised the bring forward rule in previous years, your non-concessional cap will not change. You will need to wait until your three years has expired before utilising the new cap limit.

* excludes withdrawals made under the COVID 19 relief measures.

Why are some businesses returning JobKeeper to the ATO?

Wed, 03 Mar 2021 22:00:00 GMT

Toyota, Super Retail Group, and Domino's were not obliged to hand back JobKeeper. Under the rules at the time, the companies qualified to access the payment. However, Toyota CEO Matthew Callachor said, "Like most businesses, Toyota faced an extremely uncertain future when the COVID-19 health crisis developed into an economic crisis …We claimed JobKeeper payments to help support the job security of almost 1,400 Toyota employees around Australia ….In the end, we were very fortunate to weather the storm better than most, so our management and board decided that returning JobKeeper payments was the right thing to do as a responsible corporate citizen."

Domino's Group CEO and Managing Director, Don Meij said, "We appreciate the availability and support of JobKeeper during a period of significant uncertainty. That period has passed, the assistance package has served its purpose, and we return it to Australian taxpayers with our thanks."

Companies that received JobKeeper and subsequently paid dividends to shareholders and executive bonuses have come under particular scrutiny, not just by the regulators but by public opinion.

The first phase of JobKeeper did not require business to prove that they had actually suffered a downturn in revenue, just have evidence turnover was likely to drop in a particular month or quarter. For many businesses, early trends indicated that the pandemic would have a devastating impact on revenue. Many also took action and prevented the trend entrenching by actioning plans to protect their workforce and revenue. The fact that business improved, does not impact on initial JobKeeper eligibility. In the first phase of JobKeeper, employers were not obliged to stop JobKeeper payments if trends improved.

Speaking at the Senate Select Committee on COVID-19, ATO Deputy Commissioner Jeremey Hirschhorn stated that the ATO rejected some $180 million in JobKeeper claims pre-issuance. Approximately, $340 million in overpayments have been identified. Of these, $50 million were honest mistakes and will not be clawed back where the payment had been passed on to the employee.

Where the ATO determines that JobKeeper overpayments need to be repaid, they will contact you and let you know the amount and how the repayment should be made. Administrative penalties generally will not apply unless there is evidence of a deliberate attempt to manipulate the circumstances to gain the payment.

Taxpayers can object to the ATO's JobKeeper overpayment assessment. If you are contacted by the ATO, please contact us immediately for assistance and we will work with the ATO on your behalf.

COVID-19 Vaccinations and the Workplace

Tue, 02 Mar 2021 22:00:00 GMT

The rollout, managed in phases, is expected to complete by the end of 2021. While the Australian Government's COVID-19 vaccination policy states that vaccination "is not mandatory and individuals may choose not to vaccinate", this does not mean that there will not be punitive initiatives for those failing to vaccinate including proof of vaccination to move across borders. Australia for example, already has a precedent with "No Jab, No Play" policies in place to access child care payments (the ability to object to vaccination on non-medical grounds was removed from 1 January 2016).

There are currently no laws or public health orders in Australia that specifically enable employers to require their employees to be vaccinated against coronavirus. However, it is likely that in some circumstances an employer may require an employee to be vaccinated.

Can an employer require an employee to be vaccinated?

For most employers, probably not. The Fair Work Ombudsman, however, states that there are "limited circumstances where an employer may require their employees to be vaccinated." These are:

The State or Territory Government enacts a public health order requiring the vaccination of workers (for example, in identified high-risk workplaces or industries).
An agreement or contract requires it - some employment agreements already require employees to be vaccinated and where these clauses exist, they will need to be reviewed to determine if they also apply to the COVID-19 vaccine.
A lawful and reasonable direction – employers are able to issue a direction for employees to be vaccinated but whether that direction is lawful and reasonable will be assessed on a case by case basis. It's more likely a direction will be "reasonable" where, for example, there is an elevated risk such as border control and quarantine facilities, or where employees have contact with vulnerable people such as those working in health care or aged care.

If an employee refuses to be vaccinated on non-medical grounds in a workplace that requires it, standard protocols apply. That is, the employer will need to follow through with disciplinary action - there are no special provisions that enable suspensions or stand downs for employees who refuse to be vaccinated against COVID-19.

Can an employer require evidence of vaccination?

In general, an employer can only require evidence of vaccination if they have a lawful and reasonable reason to do so. Requesting access to medical records and storing data of an individual's medical information will also have privacy implications.

Your immunisation history is already accessible through your myGov account when it is linked to Medicare. The Express Plus Medicare app enables you to access this information on your phone.

More details are expected shortly on Australia's "vaccine passport" that will enable the quick identification of an individual's vaccination status. Israel's "Green Pass" for example uses a simple QR code but there are already concerns that it is easily forged.

Can we require customers to be vaccinated?

Some high risk industries are likely to require customers to be vaccinated or where they cannot be vaccinated, subject to heightened measures such as quarantine and/or testing. Qantas CEO Alan Joyce recently told A Current Affair, "We are looking at changing our terms and conditions to say, for international travellers, that we will ask people to have a vaccination before they can get on the aircraft." Qantas is expected to release its position middle-to-end 2021 on domestic and international travel.

For employers in high risk industries, it's important to maintain a conversation with employees and consult an industrial relations specialist if your workplace intends to require vaccinations for employees and/or customers.

FBT 2021: Tax & Employee Benefits

Mon, 01 Mar 2021 22:00:00 GMT

A fringe benefit is a 'payment' to an employee or an associate (an associate is someone related to you such as a spouse, child or even a friend), but in a different form to salary or wages. A benefit might be as simple as hosting a work Christmas party, providing car parking, using a work vehicle, or providing the goods or services of the business at a reduced rate to what the public pay.

If your business is not already registered for FBT, it's important to understand if fringe benefits have been provided. Generally, the ATO will look closely at unregistered employers and where there are mismatches in data.

With the FBT year ending on 31 March, we look at the key issues and the Australian Taxation Office's (ATO) hotspots.

What is exempt from FBT?

Certain benefits are excluded from the FBT rules if they are provided primarily for use in the employee's employment. These include:

Portable electronic devices (e.g., laptop, ipad, printers, GPS, etc.,). Larger businesses are limited to the purchase or reimbursement of one portable electronic device for each employee per FBT year;
A handbag, briefcase or satchel to carry items you are required to use and carry for work, such as laptops, tablets, work papers or diaries. Be warned that if you are using these bags for a mix of personal and work use, then the use needs to be apportioned and will not be fully exempt from FBT. The ATO is not going to pay for your Gucci bag even if you do throw your ipad into it on occasion.
Tools of trade.

Also, if the item or service provided to the employee is less than $300 and is a one-off, it's generally classed as a minor benefit and exempt from fringe benefits tax.

COVID-19 & FBT

The ATO has changed how it will approach FBT compliance this year because of the impact of COVID-19 on work patterns and conditions.

Emergency assistance such as flights and accommodation – emergency assistance to provide immediate relief to employees because the employee is at risk of being adversely affected by COVID-19 will generally not be subject to FBT. This might include:

Expenses incurred relocating an employee, including paying for flights home to Australia.
Expenses incurred for food and temporary accommodation if an employee cannot travel due to restrictions (domestic, interstate or intrastate).
Benefits provided that allow an employee to self-isolate or quarantine.
Transporting or paying for an employee's transport expenses including car hire and transport to temporary accommodation.

For fly-in fly-out workers, this includes temporary accommodation and meals where they were unable to return home because of border or travel restrictions.

Health care - Providing flu vaccinations to employees is generally exempt from FBT because it is work-related preventative health care. However, health care treatment is only exempt from FBT if it is provided to your employees at your workplace or adjacent to your worksite. The cost of ongoing medical costs are generally not exempt.

Company cars - a company car garaged at an employee's home will generally attract FBT. However, this FBT year, many company carparks and places of business were closed. As a result, the ATO has stated that for employers using the operating cost method, if the "car has not been driven at all during the period it has been garaged at home, or has only been driven briefly for the purpose of maintaining the car, we will accept that you don't hold the car for the purpose of providing fringe benefits to your employee." But, you will need to maintain odometer readings that show the car has not been used.

If the car was used, fringe benefits generally applies. However, if the car was used for business purposes then this use reduces the taxable value. If the car was only used for business, the taxable value may be reduced to zero.

Logbooks – COVID-19 is likely to have impacted on driving patterns and the ATO have made some concessions where the 12 week log book period was interrupted.

If you are already using the logbook method and have an existing logbook in place, you can still rely on this logbook. However, you must keep odometer records for the year to show how much the car has been driven during the year including during any lockdown period.

If this is the first year you have used a logbook, you still need to keep an accurate 12 week logbook. However, if COVID-19 impacted driving patterns during that 12 weeks, then the ATO will allow you to adjust the use indicated in the logbook to account for the change in driving patterns.

Not-for-profit salary packaging – Not-for-profit employers often provide salary-packaged meal entertainment to employees to take advantage of the exempt or rebatable cap. For the FBT year ending 31 March 2021, the ATO has stated that they will not look into these arrangements where meals are provided by a supplier that was authorised as a meal entertainment provider as at 1 March 2020.

Cancellation fees – non-refundable costs for cancelled events are exempt from FBT unless the employee paid for the event themselves and was reimbursed by you. That is, if the employer paid for the event then the cancellation fee is the employer's obligation as no benefit was provided. If the employee paid for the event, the cancellation fee is the employee's obligation that has been reimbursed. It really depends on who the arrangement was between.

ATO 'red flags'

One of the easiest ways for the ATO to pick up on problem areas is where there are mismatches in the information provided to the ATO. Common problem areas include:

Entertainment deductions with no corresponding fringe benefit - A simple way for the ATO to pick up on a problem is when an employer claims a deduction for expensive entertainment expenses – meals out, tickets to cricket matches, etc., – but there is not a corresponding recognition of the fringe benefit. Entertainment expenses are generally not deductible and no GST credits can be claimed unless the expenses are subject to FBT.

If your business uses the 'actual' method for FBT purposes and the value of the benefits provided is less than $300 then there might not be any FBT implications. This is because benefits provided to a client are not subject to FBT and minor benefits provided to employees (i.e., value of less than $300) on an infrequent and irregular basis are generally exempt from FBT. However, no deductions should be claimed for the entertainment and no GST credits would normally be available either.

If the business uses the 50/50 method, then 50% of the meal entertainment expenses would be subject to FBT (the minor benefits exemption would not apply). As a result, 50% of the expenses would be deductible and the company would be able to claim 50% of the GST credits.

Employee contributions reduce fringe benefits tax but not recognised in income tax return – Where employee contributions reduce the amount of fringe benefits tax payable (for example where an employee makes a contribution relating to a car fringe benefit), a corresponding amount needs to be recognised in the income tax return of the employer.

The Pandemic Productivity Gap

Sun, 28 Feb 2021 22:00:00 GMT

Atlassian data scientists also crunched the numbers on the intensity and length of work days of software users during the pandemic. The results found that workdays were longer with a general inability to separate work and home life, and workers were working longer hours (predominantly because during lockdowns, there is no set start and end of the workday routine). Interestingly, the average length of a day for Australian workers is shorter than our international peers by up to an hour pre pandemic. Australia's average working day is around 6.8 active hours whereas the US is close to 7.2.

However, working longer does not mean working more productively. Atlassian's research shows that while the length of the working day increased and the intensity of work increased earlier and later in the day, intensity during "normal" hours generally decreased. So, how do we measure productivity? Bain & Co suggests:

The best companies have minimised wasted time and kept employees focused; the rest have not. Those that were able to collaborate effectively with team members and customers pre pandemic fared the best. Poor collaboration and inefficient work practices reduce productivity.
The best have capitalised on changing work patterns to access difference-making talent (they acquire, develop, team, and lead scarce, difference-making talent).
The best have found ways to engage and inspire their employees. Research shows an engaged employee is 45% more productive than one that is merely a satisfied worker.

The productivity gap was always there. The pandemic merely brought the gap into stark contrast.

Sole Trader Granted Access to JobKeeper with Backdated ABN

Wed, 03 Feb 2021 22:00:00 GMT

To be eligible to access JobKeeper as a business participant (for example, as a sole trader), the rules require a business to have an active ABN on 12 March 2020. The rules also provide the Tax Commissioner with the discretion to allow further time for an entity to register for an ABN.

In this case, a sole trader, Mr Apted was an expert property valuer who had been in business for himself in various structures since 2012. In 2014, he set up as a sole trader and registered for an ABN and GST. In 2018, he decided to retire, cancelling his GST registration and later relinquishing his ABN with effect from 4 June 2018 - although he was aware that he had the flexibility to start up again if the need arose or his expertise was required.

In June 2019, former colleagues encouraged him to accept new work and he was contacted soon after by a potential client who engaged him to provide his valuation services in September 2019. Mr Apted made it known that he was available for referral work.

Mr Apted stated that he was unaware that he needed to reactivate his ABN as he believed that an ABN was only required if he intended to register for GST. Given he did not expect to earn over the GST threshold of $75,000, he did not see this as necessary. His clients also did not withhold tax from payments to him as required when payments are made to a supplier without a valid ABN.

On 31 March 2020, Mr Apted applied and had his ABN reinstated. Then on 20 April 2020, he applied for JobKeeper but this was denied as he did not have a valid ABN on 12 March 2020. In June, Mr Apted phoned the Registrar of the Australian Business Register seeking to have the date of effect of his ABN corrected to align with his resumption of trade. The Registrar subsequently adjusted the date of effect of the ABN to 1 July 2019. With this adjustment, Mr Apted believed he had an active ABN at 12 March 2020 required by the JobKeeper integrity rules.

The Tax Commissioner however did not accept the backdated ABN as an "active" ABN and declined to use his discretion to allow Mr Apted access to JobKeeper. However, the Administrative Appeals Tribunal (AAT) found:

"We are satisfied the applicant is the kind of person who was intended to benefit from the Jobkeeper scheme. While his business was small and his income irregular, he still satisfies all of the eligibility criteria … There is nothing to be achieved by denying him access to the payments in order to make a point about the desirability of obtaining an ABN."

The AAT set aside the Commissioner's decision in favour of Mr Apted directing the ATO to enrol Mr Apted in JobKeeper for the relevant period.

A statement from Holding Redlich , the legal firm representing Mr Apted says, "Small businesses that have been refused JobKeeper might now qualify for JobKeeper – and be entitled to make claims back until the beginning of the scheme in April 2020."

The ATO has lodged an appeal with the Federal Court of Australia in the Apted case and has stated that it will not pre-emptively review decisions of eligibility until the outcome of the appeal has been handed down.

Giving further hope to those who had previously been denied access to JobKeeper under a strict interpretation of the rules is the recent report from the Inspector General of Taxation (IGT). JobKeeper and the Cashflow boost require that the business had some business income in the 2018-19 income year and notified the ATO of this by 12 March 2020 or made some supplies connected with Australia in a tax period that started on or after 1 July 2018 and ended before 12 March 2020 and notified the ATO of the supplies (e.g., on an activity statement) by 12 March 2020.

In her report, the IGT has made it clear that, "…for the purposes of the [JobKeeper] and [Boosting Cash Flow] support measures, a taxable supply can be made where an entity makes or acquires a financial interest, for example , by opening a bank account, as this constitutes the making of a financial supply . Such a supply might have been made during the commencement of the business, well before the business had made its first sale ."

For any business seeking redress on a JobKeeper or Cashflow boost eligibility decision, strict timeframes apply. Despite the ATO's reticence to engage on these issues until the outcome of the Federal Court is known, it is important to lodge the necessary applications or objections to ensure the window of opportunity is not missed.

An ABN backdated by the Business Registrar may meet the JobKeeper eligibility criteria

Simply opening a bank account and advising the ATO of the account (for example when registering for GST) in the relevant time period (by 31 December 2019 for quarterly or 29 February 2020 for monthly taxpayers) might meet the eligibility test to make a supply in Australia – even if the business had not made any sales.

Take-outs

How To Sell Your Business

Wed, 03 Feb 2021 22:00:00 GMT

Structuring the transaction covers things such as pricing the business, the terms and conditions attaching to the sale, key terms in the contract, and ensuring the transaction structure is as tax effective as possible. Much of the structuring is about ensuring the vendors secure the most efficient and effective outcome from the sale. It is about maximising vendor position.

Positioning the business for sale is all about ensuring that you achieve a sale and that maximises your price. It covers areas such as ensuring there are no hurdles within the business that will limit its saleability, identifying the competitive position of the business within its market segment, ensuring that operating performance is as good as it can be, and that the business benchmarks well in its market. Positioning also includes identifying the best time to take the business to the market, how to take it to the market, and who the most likely buyers will be.

To do this, you need to get an objective assessment of how the business compares in its market, its competitive position, and what, if any, impediments to sale exist – all the things a buyer will look at and look for when they assess your business. Most buyers believe that we are currently in a buyer's market and will try to drive down price expectations. Whether or not you are in a buyer's market depends on your industry segment but regardless of this, you are in a competitive market. Buyers may be comparing your business with similar businesses but also opportunities in other industry segments. Securing a sale at the best possible price is about having your business positioned for sale. Preparation time is needed to achieve this so talk to us well in advance of putting your business on the market.

Winding-up: Simplifying Small Business Insolvency

Wed, 03 Feb 2021 22:00:00 GMT

On 1 January 2021, new laws came into effect that introduce a new, simplified debt restructuring and liquidation framework for small business.

Drawing on key features of the Chapter 11 bankruptcy model in the United States, the new system aims to speed up the insolvency process, reduce costs and where possible, restructure to help the business survive. Where survival is not possible, it's hoped that the quicker insolvency process will deliver greater returns for creditors and employees.

The new laws are intended to help manage the tide of insolvencies expected now that the temporary insolvency related relief for financially distressed businesses has ended (the COVID-19 relief measures which protected directors from insolvent trading and raised the threshold for action by creditors, ended on 31 December 2020.) There is no question that the temporary measures in tandem with the stimulus measures such as JobKeeper have kept some 'zombie' businesses afloat. In November 2020, 306 businesses entered external administration compared to 748 in November 2019. In general, the number of insolvencies has dropped by around 200 to 300 each month since March 2020 compared to 2019 figures.

Debt restructuring

For financially distressed but viable companies, simplified debt restructuring is available. Under this process, the directors resolve that the company is insolvent, or is likely to become insolvent at some future time, and that a small business restructuring practitioner should be appointed. Once a practitioner has been appointed, the directors generally have 20 days to develop a plan that sets out an approach to repay the company's existing debts. Only the company directors can propose a debt restructuring plan to the company's creditors and the creditors have the opportunity to vote on the plan electronically or virtually (previously creditors had to be physically present or appoint a proxy).

During this time, the company directors retain control of the business - which is very different to the previous laws where the administrator took control of the company during voluntary administration.

To prevent the new laws being abused by phoenixing, a company is not eligible to use the debt restructuring process if a director of the company or the company itself has previously been through this process or the simplified liquidation process. The new laws are also not available where the company has already entered into an external administration process.

Streamlined insolvency

If a company is not viable (the company will not be able to pay its debts in full within 12 months), the directors can resolve to voluntarily wind up the company and access the streamlined insolvency process. Once the resolution has been passed, the directors have five business days to provide the appointed liquidator with a report on the company's business affairs and a declaration that the company meets the eligibility criteria to access the simplified liquidation process.

If the liquidator agrees that the company qualifies for the simplified liquidation process, the creditors are advised of the process that will be adopted. The creditors can reject the approach if 25% or more by value, oppose the process.

Streamlined insolvency is designed for companies with relatively simple affairs and is limited to those that have liabilities under $1 million and are up to date with their taxation obligations. It uses the existing insolvency framework but simplifies the interaction with creditors and ASIC. For example, outside of the simplified system, the liquidator may convene a creditor's meeting at any time to keep creditors up to date, find out the creditor's wishes, or to approve the liquidator's fees. The simplified system removes the obligation for a liquidator to convene these meetings with communication managed electronically. And, under the simplified systems the oversight of creditors is limited, creditors for example cannot appoint a committee of inspection to monitor the conduct of the liquidation.

There are strict timings that apply to the insolvency process. If you are concerned that your business will not be able to meet its obligations, please contact us as soon as possible and we will review the situation for you. Where assistance is required, we can refer you to a qualified insolvency or small business restructuring practitioner.

The Final Stage Of JobKeeper And How To Access It

Wed, 03 Feb 2021 22:00:00 GMT

The impact of COVID-19 has been felt very differently from region to region. Fortunes vary wildly between business operators subject to ongoing lockdowns and trading impediments to those benefiting from the "new normal".

The payment rate for employers is $1,000 per fortnight per employee or business participant who worked 80 hours or more over a specific 28 day period, or $650 per fortnight per employee or business participant for those who worked less than 80 hours in the relevant period – a reduction from previous JobKeeper payment periods.

Assessing eligibility, managing the decline in turnover test, calculating GST turnover for the decline in turnover test, and managing the 80 working hours requirement for the differential payment rates can all be complex. We've outlined a few of the key issues for employers in need of relief:

My business did not previously qualify for JobKeeper. Can I access it now?

Your business can potentially access JobKeeper for the period between 4 January 2021 and 28 March 2021 even if it didn't qualify for JobKeeper for the period between 28 September 2020 and 3 January 2021 or for the original JobKeeper scheme period that ended on 27 September 2020.

The fact that you have not previously enrolled in JobKeeper or met the eligibility conditions prior to the start of the latest phase of the JobKeeper scheme should not prevent you from accessing JobKeeper from 4 January 2021. For example, if you could not pass the decline in turnover test for the September 2020 quarter this does not automatically prevent you from being able to access JobKeeper for the period between 4 January 2021 and 28 March 2021 as long as your business can pass the decline in turnover test for the December 2020 quarter.

We have been in JobKeeper previously. Do my employees need to complete a new nomination form for JobKeeper from 4 January 2021?

Employees should not need to provide you with a new enrolment form if they have previously provided a valid nomination to you. You should ensure that you have a copy of the original form on file and a copy of the notification that you sent to the employee confirming that their details were provided to the ATO and advising them of the payment rate that applies to them.

What's included in GST Turnover for the decline in turnover test?

To access JobKeeper, employers need to satisfy a decline in turnover test. The decline in turnover test for JobKeeper from 4 January 2021 compares actual GST turnover in the December 2020 quarter (October 2020, November 2020 and December 2020) to the same period in 2019 (alternative tests are available in some instances where this comparison is not appropriate).

Understandably, we're receiving lots of questions about what is included in GST turnover and how it is calculated.

In general, if your business is registered for GST you must use the same method that is used for GST reporting purposes. For example, if your business is registered for GST on a cash basis then a cash basis needs to be used to calculate current GST turnover for the purpose of the JobKeeper decline in turnover test for the December 2020 quarter.

Your GST turnover includes proceeds from the sale of capital assets, such as property, equipment or licenses, unless the sale is input taxed. Current GST turnover includes taxable and GST-free supplies, but should exclude input taxed supplies such as residential rental income and financial supplies like dividends, interest etc. JobKeeper and ATO cash flow boost payments should be excluded from the calculation along with other payments that don't represent consideration for a supply made by the business such as certain State based grants.

If your business has received payments in advance, then you will normally need to recognise these payments as part of the GST turnover calculation, even if the goods or services have not been provided to the customer yet. For example, if your business accounts for GST on a cash basis then you need to recognise the payment for GST purposes as it is received and include it in your GST turnover calculation, even if the services haven't been provided. There are some special rules where security deposits apply to defer the GST liability but these rules are reasonably limited in their application.

And, if your business is part of a GST group, each entity needs to calculate its GST turnover as if it were not part of the group. That is, supplies made by another group member should not be included in GST turnover for the purposes of the decline in turnover test.

When I stood down my employees, they started working for someone else to get by. Can they still receive JobKeeper?

To access JobKeeper, employees need to have been either full-time, part-time or long terms casuals of your business on either 1 March 2020 or 1 July 2020. If the employment relationship remains intact (their employment has not been terminated and they haven't accessed JobKeeper from another business), then the fact that the employee is performing some work for another entity doesn't necessarily prevent ongoing access to JobKeeper with you, their original employer.

Of course, the employee can only receive JobKeeper from one employer and there are a number of eligibility conditions that need to be satisfied.

The JobMaker Guide

Mon, 14 Dec 2020 22:00:00 GMT

Access the new Wright Partners JobMaker Guide to find out if you are eligible and how to apply.

Last Chance to Access COVID-19 Early Access to Super

Mon, 23 Nov 2020 22:00:00 GMT

31 December 2020 is the last day you can apply to access your superannuation early under the COVID-19 early access measures. The ATO has warned that those wanting to access their superannuation pre-Christmas will need to complete the application by 11 December 2020.

The ability to access up to $10,000 of your super is available to those that have been made redundant, have had their working hours reduced by more than 20%, and have been adversely financially impacted by COVID-19. If you are not in financial hardship you should not access your superannuation. The application process through myGov is a self-assessment process that you are responsible for. Penalties of up to $12,000 may apply for providing false or misleading information.

Extended December JobKeeper Deadlines

Mon, 16 Nov 2020 22:00:00 GMT

The ATO has extended the JobKeeper monthly business declaration deadline for the month of December until 28 January 2021 (from 14 Jan 2021). This applies to the JobKeeper fortnights ending on 6 December 2020 and 20 December 2020.

The deadline for meeting the minimum wage condition for the JobKeeper fortnight ending on 3 January 2021 has been extended to Monday, 4 January 2021.

2021 Risks & Opportunities

Mon, 09 Nov 2020 22:00:00 GMT

With the borders between the State and Territories all but open and 2021 in sight, there is a hunger for a return to 'normal'. The recent Westpac-Melbourne Institute Index of Consumer Sentiment articulates this desire to 'get on with things'; sentiment reached its highest level since November 2013 and Christmas spending is expected to be consistent with previous years.

However, the Reserve Bank of Australia cautions that the recovery will be uneven and drawn out and GDP is not expected to return to pre-pandemic levels until the end of 2021. The risks are not limited to the pandemic but Australia's geopolitical relationships, notably with our largest trading partner, China.

Here's our key risks and opportunities as we head into 2021:

Opportunities

Employers & job building

Reducing unemployment is a national priority. While the unemployment rate is expected to decline in 2021, further rises are expected as businesses restructure in response to the pandemic. Wage growth will also be subdued with excess capacity in the market.

New analysis from the Reserve Bank of Australia suggests one in five jobs were saved by JobKeeper. The November 2020 analysis states, "one in five employees who received JobKeeper (and, thus, remained employed) would not have remained employed during this period had it not been for the JobKeeper Payment. Given that 3½ million individuals were receiving the payment over the period from April to July 2020, this implies that JobKeeper reduced total employment losses by at least 700,000 over the same period."

The number of businesses accessing JobKeeper reduced by around 450,000 in October 2020 with the transition to more stringent eligibility requirements. The shift now is to create jobs, not just keeping them. There are a number of incentives for employers to grow employment and skills:

JobMaker - A 12 month "hiring credit" available for jobs created from 7 October 2020 until 6 October 2021 that provides a payment to employers of $200 per week for eligible new employees aged between 16 and 29, and $100 per week for eligible employees aged between 30 to 35 years. Eligibility restrictions apply to the business and the employee. Employees need to have been out of work and receiving Government support for at least one month within the three months before they were hired.
Apprenticeship subsidies - subsidies of 50% of an apprentice's wage (up to $7,000) are available for new and existing apprentices to keep them employed. The schemes apply to the wages of new apprentices from 5 October 2020 and 30 September 2021, and existing apprentices from 1 January 2020 to 31 March 2021. Eligibility requirements apply to the business and the apprentice.
In addition, subsidies are available for employers engaging apprentices in key industries with skills shortages including carpenters and joiners, plumbers, hairdressers, plasterers, bakers and pastrycooks, vehicle painters, wall and floor tilers, arborists, bricklayers and stonemasons and air-conditioning and refrigeration mechanics. There is also additional support for adults reskilling and undertaking an apprenticeship and for apprentices with a disability. See the full list of incentives here .
State based incentives - Tax breaks to encourage employers to employ more workers are big right now. The Victorian government recently announced a New Jobs Tax Credit for SMEs of ten cents for every dollar of increased taxable Victorian wages. NSW has reduced payroll tax to 4.85% from 5.45% from 1 July 2020. There are also a myriad of incentives targeted to specific areas like the NSW regional growth fund. WA has an Employer Incentive Scheme with a base payment of $8,500 for employing apprentices. It's worth seeing what is available in your region and in your industry.

Federal Government incentives generally do not overlap. That is, your business cannot receive incentives for JobKeeper and JobMaker, or JobMaker and an apprenticeship subsidy.

6 January 2021 is the final day of the first JobMaker Hiring Credit period and the deadline for enrolling in the scheme to access payments for this period. While the ATO has the ability to extend this deadline, there has not been any advice on this to date. Enrolments are not open as yet but because of the tight turnaround times, if your business would like to access JobMaker for the first period, it will be important to assess eligibility.

First JobMaker deadline looms

For individuals, JobTrainer offers those aged between 17 and 24 the ability to upskill or reskill and minimal cost.

HomeBuilder & the housing industry

The HomeBuilder scheme provides a tax-free grant to those building a new home or renovating. To date, around 27,000 homes are expected to be covered by the scheme. The highest number of applications so far have come from Victoria (7,636), followed by Queensland with 5,954. New South Wales property prices mean that many homes exceed the eligibility threshold (4,350).

The Assistant Treasurer recently announced an extension of the HomeBuilder scheme from 1 January 2021 to 31 March 2021. For all new build contracts signed between 1 January 2021 and 31 March 2021:

Eligible owner-occupier purchasers will receive a $15,000 HomeBuilder grant (down from $25,000); and
The property price caps for new builds in New South Wales and Victoria will be increased to $950,000 and $850,000 respectively (from $750,000).

In addition, the construction commencement deadline will be extended from three months to six months for all eligible contracts signed on or after 4 June 2020 (applications for HomeBuilder can be submitted up to 14 April 2020).

There is also a change in the licensing requirements and registration for builders and developers:

Where an eligible contract is signed on or after the 29 November 2020, the builder or developer must have a valid licence or registration before 29 November 2020
Where an eligible contract is signed before 29 November 2020, the builder or developer must have a valid licence or registration before 4 June 2020

The eligibility criteria to access HomeBuilder remains the same. To be eligible you need to be an individual owner occupier, 18 years of age or more, an Australian citizen, and pass the income test. The income test for individuals is $125,000 and $200,000 for couples (based on your 2018-19 or later tax return).

The grants are available if you build a new home where the value of the house and land does not exceed the threshold ($750,000 to $950,000 depending on when the contract was signed and the State you live in), or a renovation where the value of the property is $1.5m or less.

Extended rules for writing off assets: Australian subsidiaries of global companies to benefit

In the 2020-21 Federal Budget, the Government introduced a measure that allows businesses with turnover under $5bn* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset's cost will be fully deductible in the year it's installed ready for use, rather than being claimed over the asset's life. And, there is no cap on the cost of the asset.

Last month the Government announced it will modify the rules again enabling a broader range of businesses to access the instant write-off.

The amended rules will enable businesses with an aggregated annual turnover of $5bn or more (the current maximum threshold) to access the measures if they can satisfy an alternative test. Entities are able to pass this test if they have:

Less than $5 billion in total statutory and ordinary income in either the 2019 or 2020 income year; and
Incurred more than $100 million in expenditure on tangible depreciating assets between the 2017 and 2019 income years.

This will allow some Australian businesses that are connected with large global groups to access the measure.

In addition, the Government will enable businesses to opt-out of using the new instant asset write-off and accelerated depreciation rules on an asset by asset basis. Currently, the rules apply automatically if certain conditions are met, which for some businesses is not an effective use of the deduction. However, at this stage, it appears the choice to opt out of the instant asset write-off might not be available to small business entities that choose to apply the simplified depreciation rules.

*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.

The Risks

COVID-19 rules and regulations

Despite feeling like we are emerging from the pandemic, the promise of a widely available vaccine is still over the horizon and the risk of another wave remains very real. For business, it will be essential to ensure that COVID-19 safe conditions are maintained. Aside from the obvious health risks of not maintaining a safe environment, a lockdown risks your business's survival and the fines for breaching public health orders are hefty. The ABC reports that "more than $5.2 million has been raked in nationwide since pandemic laws came into effect in March this year." In most regions, fines of around $1,000 apply to individuals and $5,000 for businesses and in Queensland, fines of up to $13,345 and prison might apply to individuals and business operators flagrantly defying the heath order.

Australia's relationship with China

There is a scene in the movie Love Actually where the British Prime Minister (played by Hugh Grant) is asked about his views on the Britain-US relationship following a particularly disappointing trade negotiation:

"I love that word relationship; covers all manners of sins, doesn't it? I fear this has become a bad relationship. A relationship based on the President taking exactly what he wants, and casually ignoring all those things that really matter to Britain.

"We may be a small country, but we're a great one too. A country of Shakespeare, Churchill, The Beatles, Sean Connery, Harry Potter, David Beckham's right foot, David Beckham's left foot.

"A friend who bullies us is no longer a friend. And since bullies only respond to strength, from now onward I will be prepared to be much stronger. And the President should be prepared for that."

In the movie, the only reaction from the US was a stern look from the President (played by Billy Bob Thornton). However, the reality of megaphone diplomacy is very different.

Non-compliance with China's political will comes at a cost. In response to Australia's public positioning, China has flexed its economic muscle through the disruption of Australian exports.

April - Australia pushes for a formal WHO inquiry into the origins of COVID-19.
May - 80.5% tariff on Australian barley on the basis that barley is undervalued and subsidised. China imports approximately 70% of Australia's barley crop.
May - Suspension of beef exports from four Australian processing plants relating to a 2019 investigation regarding inconsistencies with labelling and consignment certificates for some frozen and chilled beef products. China is the largest importer of Australian beef at 24%. Japan is second at 23% and the USA at 20%.
September - China states that Australian exports of wheat will face "enhanced inspection." At the same time, wheat imports from the US to China have increased.
October - Chinese importers unofficially instructed to stop buying seven types of Australian exports – coal, barley, copper ore and concentrate, sugar, timber, wine and lobster. Goods in transit at the time the ban was imposed have been in limbo - $2m of rock lobsters were left on the tarmac unable to clear customs at Shanghai airport.
November - 107% to 212% "provisional" tariff imposed on Australian wine on the accusation that Australian wine is being dumped on the Chinese market causing "substantial" damage to Chinese wine manufacturers. Treasury Wine Estate, that make Penfolds, and represent an estimated 40% of the total annual wine export market to China, went into a trading halt after China's announcement.

China is Australia's largest trading partner by a margin that dwarfs trade with any other single nation (Europe $118bn, ASEAN $110bn and Japan $77bn). The value of exports to China has doubled in the five years since the signing of the China-Australia Free Trade Agreement from $75b in 2014-15 to $150b in 2019-20; imports have also grown significantly up 42% over the same period.

Iron ore remains Australia's top export to China (in 2019-20, exports of iron ore accounted for 56% of all Australian goods exported to China) and a high demand resource to fuel the expansion of China's economy – China is the world's largest steel producer. The South China Morning Post reports that Australian iron ore makes up 60% of China's supply.

It is not the first time China has undertaken a concerted campaign to use its economic might to secure its policy goals. Canada, India, the UK and New Zealand have all faced some form of retribution in the past. When Sweden banned Huawei from its 5G network the foreign ministry spokesman Zhao Lijian reportedly called on Sweden to correct its "wrong decision" and avoid a "…negative impact on China-Sweden economic and trade cooperation, and on the operations of Swedish companies in China." Economic threats and oppressive rhetoric are commonplace.

During a speech to the Press Club in August, Minister Wang Xining stated that any long term relationship is based on "mutual respect". Australia's perceived lack of respect was highlighted by the 14 grievances leaked by a Chinese diplomat to Channel 9 . The grievances are wide ranging from the banning of Huawei from Australia's 5G networks on "unfounded" national security concerns (as have all members of the 5 eyes intelligence alliance except Canada – US, UK, and New Zealand, and France and Sweden), foreign interference laws (initiated with the establishment of the Counter Foreign Interference Taskforce focussed on democratic institutions, education and research, media and communications, diverse communities, and infrastructure), calls for an inquiry into COVID-19 and siding with the US anti-China campaign, speaking out on the contested South China sea territories (and supporting US gunboat diplomacy), and "thinly veiled" allegations against Chinese cyberattacks.

So, what does 2021 hold? There is conciliatory language from the Australian Government with both the Prime Minister and the Defence Minister acknowledging China's economic success lifting millions out of poverty and our strong 'people to people' relationship. But Australia has not publicly backed down or been any less vocal with the announcement of a new defence pact with Japan and a continued pro-democracy stance on Hong Kong. There is likely to be more pain to come for Australian exports to China and no short-term resolution or conciliation.

Cashflow crunch

Australian economists are fairly united that there are a number of "zombie businesses" that are being kept alive by JobKeeper. These are the businesses that are only surviving because salary and wages are propped up by the subsidy. The danger with these businesses is that they are continuing to take on debt.

JobKeeper ends in March 2021, which coincides with one of the traditionally worst cashflow months of the year. It will be important to ensure that your business stays on top of its debtors and doesn't become a bank for your customers. It will also be important to understand your cashflow position, don't over commit, and stay on top of labour costs.

APRA Reveals $34.4bn Super Early Release

Mon, 26 Oct 2020 22:00:00 GMT

Over $34.4bn has been released from Australian Superannuation Funds under the COVID-19 early release scheme, the Australian Prudential Regulation Authority revealed. The figures, which do not include self-managed super funds, show the deep impact of the scheme on superannuation balances. 3.3 million initial applications and 1.3 million subsequent applications were received by funds.

JobKeeper Clawback Begins

Thu, 22 Oct 2020 22:00:00 GMT

At the recent Senate Estimates hearing, Jeremy Hirschhorn, the ATO's Second Commissioner, stated that $120 million in JobKeeper payments had been clawed back from those either deliberately seeking to rort the system or who had made reckless mistakes. Mr Hirschhorn went on to say that there did not appear to be widespread fraud across the Government's stimulus measures and most mistakes were honest. In the cases identified so far, JobKeeper had not been clawed back from employers making honest mistakes but these employers were prevented from making future claims.

In September, the ATO noted that compliance checks had halted 55,000 JobKeeper applications at the very first stage, because they did not meet the eligibility criteria, and delayed $1bn in payments to more than 75,000 applicants for further review. Eleven matters have been referred to Serious Financial Crime Taskforce operations and around 50 matters referred for criminal investigation. But overall, the Tax Commissioner stated, "the vast majority of Australians have done the right thing and only claimed the amounts they were entitled to."

Tax Table Reminder

Mon, 19 Oct 2020 22:00:00 GMT

The 2020-21 personal income tax cuts announced in the Federal are now law. Employers need to ensure that the tax withheld from employee salaries is correct. The ATO has published updated tax tables that apply from 13 October 2020. Employers have until 16 November 2020 to implement the changes.

Refunds for Tax Losses

Thu, 15 Oct 2020 22:00:00 GMT

If your company has made a loss, you may be able to claim a tax refund for tax previously paid on profits.

In the 2020-21 Federal Budget, the Government announced that businesses with turnover under $5bn* will be able to offset any losses made between 2019-20 and 2021-22 against previously taxed profits between 2018-19 and 2020-21.

The loss carry-back rules enable a company to offset tax losses against profits taxed in a previous year, generating a refundable tax offset. The amount carried back can be no more than the earlier taxed profits, limiting the refund to the company's tax liabilities in the profitable years. The company can choose to carry-back a loss or carry it forward. That is, tax losses for the 2019-20, 2020-21 or 2021-22 income years can either be:

Carried forward and deducted against income derived in later income years; or
Carried back against income of earlier income years as far back as the 2018-19 income year to produce a refundable tax offset.

Previously, tax losses could only be carried forward and deducted against income in later income years.

This is not the first time that carry-back losses have been allowed. The loss carry-back rules were introduced some years ago by the Gillard government for the 2012-13 year, then repealed.

The loss carry-back rules also interact with the Government's Budget measure allowing immediate expensing of investments in capital assets (See Tax deductions for investing in your business ). The new investment will generate significant tax losses in some cases which can then be carried back to generate cash refunds for eligible companies.

What entities are eligible to carry-back losses?

Corporate tax entities are eligible to carry-back losses - a company, a corporate limited partnership, or a public trading trust - BUT only if the entity has lodged an income tax return for the current year and each of the five years immediately preceding it. If your company has not kept up to date with its reporting obligations, it might not be able to use the new rules.

Claiming the refundable tax offset

Businesses will need to elect to utilise their carry-back losses when they lodge their 2020-21 and 2021-22 tax returns. That is, even if the company made a loss in the 2019-20 year, it cannot claim that loss until the 2020-21 tax return is lodged.

For the 2020-21 income year, a loss carry-back tax offset may be available to a company if:

It has a tax loss in the 2019-20 income year and/or the 2020-21 income year;
It has an income tax liability in the 2018-19 income year and/or the 2019-20 income year; and
For the 2020-21 income year and each of the previous five income years, either the entity has lodged an income tax return; the entity was not required to lodge a return; or the Commissioner has made an assessment of the entity's income tax.

The carry-back cannot generate a franking account deficit. That is, the refund is further limited by the company's franking account balance.

The 2020-21 Budget delivered a range of incentives for business to invest. If you would like us to review your position and the tax impact of any investments you are contemplating, please call us and we can assist you to get the best possible outcome.

*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.

Tax Deductions for Investing in Your Business

Tue, 13 Oct 2020 22:00:00 GMT

Stimulating investment is high on the Government's agenda. To encourage spending, the 2020-21 Budget introduced a measure that allows businesses with turnover under $5bn* to immediately deduct the cost of new depreciable assets and the cost of improvements to existing assets in the first year of use. This means that an asset's cost will be fully deductible in the year it's installed ready for use, rather than being claimed over the asset's life. And, there is no cap on the cost of the asset.

When it comes to second-hand assets the rules are a bit different depending on the size of the business. Businesses with an aggregated turnover under $50 million can claim an immediate deduction for the cost of second-hand assets under the new measures.

Businesses with aggregated annual turnover between $50 million and $500 million can still deduct the full cost of eligible second-hand assets costing less than $150,000 that are purchased by 31 December 2020 under the existing enhanced instant asset write-off. Businesses that hold assets eligible for the enhanced $150,000 instant asset write-off will have an extra six months, until 30 June 2021, to first use or install those assets.

For small business entities that have assets in a general pool the changes seek to ensure that pool balances are completely written-off for tax purposes in the 2021 and 2022 income years.

These super-charged immediate deduction rules tie into the existing instant asset write-off for businesses with a turnover under $500 million (summarised below).

The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs, etc.) and certain intangible assets that don't qualify for the new rules.

If your business will make a tax profit this year, this measure is likely to reduce the taxable income of the business for the year and it may be possible to vary upcoming PAYG instalments to improve cash flow. If your business operates through a company and will make a tax loss, you might be able to use the loss to offset tax paid in previous years (see Refunds for Tax Losses ). Alternatively, tax losses can generally be carried forward to a future year.

*Aggregated turnover. Aggregated turnover is your turnover plus the annual turnover of any business connected with you or that is your affiliate.

JobMaker Hiring Credits: What We Know So Far

Thu, 08 Oct 2020 22:00:00 GMT

We've had quite a few questions about the JobMaker hiring credit announced in the 2020-21 Federal Budget. The legislation enabling the JobMaker scheme has not passed Parliament as yet and until this occurs, the JobMaker rules are not certain and may change. More details should be available soon and we'll let you know as soon as we have some certainty. Here is what has been announced so far:

JobMaker is a credit available to eligible businesses for hiring additional employees (not if you are merely replacing someone who left). The hiring credit is available for jobs created from 7 October 2020 until 6 October 2021.

The credit provides:

$200 per week for new employees between 16 to 29 years of age, and
$100 a week for new employees between 30 to 35 years of age.

Payment is from the start date of the employee for 12 months.

What is JobMaker?

When do the credits start?

Assuming the legislation passes Parliament and your business and the employee are eligible, and the 'additionality' test is passed (see How can we access JobMaker ), credits can be claimed for employees hired from 7 October 2020 until 6 October 2021. The credit will be claimed quarterly in arrears by the employer from the ATO from 1 February 2021. The credit is an incentive for the employer to support wage costs and not passed onto the employee.

How can we access JobMaker?

There are three tests for JobMaker:

Has an ABN
Up to date with tax lodgements
Registered for PAYG
Reporting through single touch payroll
Keeps adequate records of the paid hours worked by the employee they are claiming the credit for
Another employer is not claiming JobMaker for the same employee

Employer eligibility

Employee eligibility

Received the JobSeeker Payment, Youth Allowance (Other) or Parenting Payment for at least one month within the three months before they were hired
Between 16 and 35 years of age at the time their employment started
Worked at least 20 hours per week on average for the full weeks employed for the period being claimed. If the employee worked less than 20 hours, the employer cannot claim JobMaker for them during that period
Started work between 7 October 2020 and 6 October 2021
The first year of employment with the employer
The employer is not receiving other forms of assistance from the Commonwealth Government for the employee, for example JobKeeper or an apprenticeship subsidy

Employee eligibility

Total employee headcount on the last day of the reporting period increased by at least one additional employee compared initially to 30 September 2020, then to the previous reporting period.
Total payroll for the reporting period increased compared initially to the September quarter 2020 (July, August, September 2020), then to the previous reporting period. The hiring credit cannot exceed the increase in payroll.

Government entities or agencies, banks and other institutions subject to the bank levy, businesses in liquidation, and foreign Government entities (unless a resident entity), are unable to access JobMaker.

I can only claim JobMaker if the number of employees and payroll increases. What happens if one of my team resign? Through no fault of the business?

Your business can only receive JobMaker for your eligible employees if total employee headcount and payroll increases. If the headcount or payroll decreases or remains the same, JobMaker cannot be claimed for that period.

For example, if you had three staff at September 2020 and hired an additional two employees in late October 2020, your business can claim JobMaker for the two new employees assuming the business and the employer are eligible and payroll has increased compared to the September 2020 quarter. However, in December 2020, one of your original staff members resigns. As a result, your business can only claim JobMaker for one eligible employee in December as your headcount has increased by one, not two, compared to the September 2020 baseline.

A similar baseline concept applies to payroll. If you employed new eligible employees in October 2020 but your overall payroll remained the same or only increased marginally because the hours of your existing staff reduced when the two new employees were employed, then the JobMaker credit will only be the additional payroll amount. That is, if the JobMaker credit for the two employees for the quarter is $8,960, but payroll compared to the September 2020 quarter only increased by $1,200, then the JobMaker credit you receive would be $1,200. The JobMaker credit cannot exceed the increase in payroll.

Each month, employers will need to ensure they pass these 'additionality' tests before claiming.

Your headcount and payroll increase is measured on the last day of each reporting period from the date your first new employee started. For example, if your first new employee joined in October 2020, your baseline is set at that point. If a new employee starts in January 2021, your payroll and headcount baseline is measured from the last reporting period, in this case, December 2020 for headcount and the December quarter for payroll. That is, your baseline commences from the date your new employee starts and then is reassessed each reporting period to ensure there is an increase.

If I don't hire new staff until January 2021, can I claim JobMaker for 12 months or only up to 6 October 2021?

JobMaker is available for 12 months for eligible employees hired from 7 October 2020 until 6 October 2021. If you hire new employees from January 2021, JobMaker is available for 12 months for these employees assuming that the employees and business are eligible and the 'additionality' test is passed.

The baseline for the 'additionality' tests – headcount and payroll - starts from the start date of your new employee. The Government has indicated that the baseline for the 'additionality' test will be adjusted in the second year of the program to ensure an employer can only receive JobMaker for 12 months for each additional position created. The detail of exactly how these rules will work has not been released as yet.

My business did not have employees in September but I hired my first employee in late October. Can I claim the JobMaker credit for them?

Businesses with no employees on 30 September, cannot claim JobMaker for their first employee. However, JobMaker can be claimed for your second and any subsequent employees that started on or before 6 October 2021.

Can the business get JobKeeper and JobMaker?

No. Once your business exits JobKeeper and is no longer receiving JobKeeper payments for any employees or business participants, if eligible, the business could then start to receive JobMaker credits. The business is eligible for the hiring credit in the reporting period following your JobKeeper exit date.

The JobMaker credit and the details of how the rules will apply are subject to change. Please do not make decisions based on the JobMaker information available as the final shape of the legislation could change. We will provide a summary of the rules and how you can claim the JobMaker hiring credit as soon as the rules are confirmed.

Budget 2020-21 Client Guide

Tue, 06 Oct 2020 22:00:00 GMT

Budget 2020-21 Client Guide

for the full report follow this guide: http://www.wrightpartners.com.au/files/docs/budget%202020-21%20client%20guide.pdf

or find the document in our Downloadable Forms under Resources http://www.wrightpartners.com.au/resources/downloadable_forms/index

Budget 2020-21 - report - 6 Oct 2020 - CPA Australia

Mon, 05 Oct 2020 22:00:00 GMT

for the full report follow this link: http://www.wrightpartners.com.au/files/docs/budget%202020-21%20-%20report%20-%206%20oct%202020%20-%20cpa%20australia.pdf

or find the document in our Downloadable Forms under Resources http://www.wrightpartners.com.au/resources/downloadable_forms/index

Budget 2020-21 - report - 6 Oct 2020 - CPA Australia

Preventing a Tsunami of Insolvencies

Wed, 30 Sep 2020 23:00:00 GMT

A note on debtor management

The Government has stepped in to prevent a wave of insolvencies when the COVID-19 support measures run their course in December 2020.

Temporary insolvency and bankruptcy protections are in place until 31 December 2020 to enable businesses to trade through the pandemic. The measures provide:

A temporary increase in the threshold at which creditors can issue a statutory demand on a company (from $2,000 to $20,000) and the time companies have to respond to statutory demands they receive (21 days to 6 months);
A temporary increase in the threshold for a creditor to initiate bankruptcy proceedings (from $5,000 to $20,000), an increase in the time period for debtors to respond to a bankruptcy notice (21 days to 6 months), and extending the period of protection a debtor receives after making a declaration of intention to present a debtor's petition;
Temporary relief for directors from any personal liability for trading while insolvent; and
Flexibility in the Corporations Act 2001 to provide targeted relief for companies from provisions of the Act to deal with unforeseen events that arise as a result of the Coronavirus health crisis.

Between March and July 2020, there was a 46% decrease in the number of companies that have gone into external administration compared to the same period in 2019.

Anticipating a wave of insolvencies in early 2021, the Government has moved to streamline insolvency laws to enable small business to either restructure or efficiently wind up. There are three key elements to the reforms:

A new formal debt restructuring process for companies that will enable a business to keep trading under the control of its owners while a debt restructuring plan is developed and voted on by creditors.
A new, simplified liquidation pathway for small businesses to allow faster and lower-cost liquidation.

The measures will be available to businesses with liabilities of less than $1 million. You can find further information on the proposed insolvency reforms here .

In Australia, the insolvency laws currently do not differentiate between large and small businesses. Everyone goes through a similar process. For small business, the complexity and the cost of adhering to the current insolvency system often leaves little for creditors, makes it difficult to restructure, and places control of the business in the hands of an administrator. These reforms should help simplify the process.

With 46% less insolvencies between March and July this year compared to last year, it's clear the COVID-19 protections have not only protected business against COVID-19 trading conditions but also protected against natural attrition in the market.

It's essential in the lead up to Christmas and into the New Year you keep tight control of your debtors! Review your account management and debtor policies and keep tight controls.

JobKeeper: The Next Steps

Mon, 28 Sep 2020 23:00:00 GMT

If your business is no longer eligible for JobKeeper payments, there are a few things you need to do:

Advise your employees and business participant. For anyone receiving JobKeeper payments from your business, you should advise them in writing that the business is no longer eligible, JobKeeper payments ceased on 27 September 2020, and their pay will revert to the conditions that apply under their employment agreement. This is particularly important for those who have been receiving top-up payments.
Ensure payroll adjusts – Double check your payroll to ensure that top-up JobKeeper payments have been removed from 28 September 2020 onwards.

Make sure you keep all of your records relating to JobKeeper including your calculations and rationale for the decline in turnover test, your employee JobKeeper nomination forms, and any other records for at least five years.

What's the 10% decline in turnover test?

The 10% decline in turnover test is a test that enables employers previously participating in JobKeeper to continue to use the JobKeeper provisions (with some modifications) under the Fair Work Act. These employers are 'legacy employers'.

This test does not impact on your business's eligibility to receive JobKeeper payments , it only impacts on an employer's use of the JobKeeper provisions under the Fair Work Act.

If an employer qualifies under the 10% test, they can:

Issue JobKeeper enabling stand down directions (with some changes)
Issue JobKeeper enabling directions in relation to employees' duties and locations of work
Make agreements with employees to work on different days or at different times (with some changes).

Employers can continue to utilise the JobKeeper provisions if they:

Previously participated in the JobKeeper scheme but no longer qualify (or choose not to participate) from 28 September 2020, and
Can demonstrate at least a 10% decline in turnover for a relevant quarter and get a certificate from an eligible financial service provider (small business employers can make a statutory declaration).

To meet the turnover test, a legacy employer needs to demonstrate at least a 10% decline in actual GST turnover for the quarter in 2020, when compared to the same quarter in 2019. See Legacy employers on the Fair Work Ombudsman's website.

The first tranche of JobKeeper ended on 27 September 2020. We look at the issues for those seeking to qualify for the second tranche of JobKeeper and for those no longer eligible.

Wrapping up JobKeeper

Is my business eligible for JobKeeper payments from 28 September?

Existing JobKeeper participants need to pass the extended decline in turnover test to continue to receive JobKeeper payments on behalf of employees. This extended test looks at your actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for the December 2020 quarter (for payments between 4 January 2021 to 28 March 2021).

To pass the extended decline in turnover test, your business will need to show an actual decline in turnover between the September 2020 quarter (July, August, September 2020), and the same period in 2019 by 30% (15% for ACNC registered charities and 50% for large businesses).

My business has not received JobKeeper previously. Can we get it now?

If your business passes the eligibility criteria, you can access JobKeeper when you need it for your eligible employees. For JobKeeper, your business needs to pass the eligibility tests for the period you are seeking to claim JobKeeper payments.

My business can't pass the decline in turnover test because we were impacted by a natural disaster/drought in 2019

Special rules exist to ensure that businesses trading (or partially trading) in a region impacted by natural disasters or drought in 2019 are not detrimentally impacted when calculating the decline in turnover tests. Assuming the drought or disaster impacted your GST turnover, the alternative test enables you to use a period in the year immediately preceding the year in which the drought or natural disaster was declared for the decline in turnover test comparison. This is, if your business was impacted by drought/disaster in the September quarter of 2019, you can use the September quarter of 2018 for your comparison period. If 2018 was also a drought/disaster zone, you can keep going back until the first year preceding the declaration of drought/disaster.

To use this test, your region must be subject to a formal declaration of drought or disaster (for example from Government) or have been publicly identified by an agency such as the Bureau of Meteorology .

My business fails the test because its turnover is 'lumpy'

If your business has 'lumpy' or irregular turnover, there is an alternative decline in turnover test that you might be able to apply. This test only applies if your GST turnover is irregular, like what often occurs in the building and construction industry, and not simply a seasonal variation. To understand if your turnover is irregular, look at the 12 months before the test period and divide the 12 months into 3 month periods. If the lowest GST turnover for any of these 3 month periods is no more than 50% of the highest of the 3 month periods, then the test can be applied as long as your business's turnover is not cyclical. Alternatively, you can look at the 12 months before 1 March 2020 instead of the 12 months immediately before the test period.

If your GST turnover is irregular you can compare your current GST turnover for the test period with the average current GST turnover for the 12 months immediately before the applicable test period or 1 March 2020, multiplied by 3.

My business is a new business without a 2019 comparison period. Can it receive JobKeeper payments?

If the business is a new business that started trading after 1 March 2020, the business will not be eligible for JobKeeper payments (although there are special rules for not-for-profit or registered charities in some circumstances).

If your business started trading before 1 March 2020 but after 1 July 2020, there are alternative tests you can use to determine whether your business is eligible for JobKeeper payments from 28 September 2020:

Comparing the actual GST turnover for the test period with the turnover of the 3 months immediately before 1 March 2020 (for example, comparing the September quarter 2020 with the 3 months prior to 1 March 2020).
Comparing actual GST turnover for the test period (for example, the September quarter 2020) with the average turnover since the entity commenced (using whole months).

What happens if a business restructure (or sale or acquisition) impacts on your numbers?

An alternative decline in turnover test is available where there has been a disposal or acquisition of part of the business, or restructure in the business, or combinations of those, and this changed the entity's current GST turnover.

The alternative test compares the GST turnover for the test period with the current GST turnover for the relevant month immediately after the disposal, acquisition or restructure, multiplied by 3. If there is not a whole month after the last acquisition, disposal or restructure, and before the turnover test period, then the month immediately before the turnover test period is used.

Where there have been multiple disposals, acquisitions or restructures, you can use the whole month immediately after any of the disposals, acquisitions or restructures, multiplied by 3 for the alternative test.

What happens if fast pre COVID-19 growth makes the comparison period unrealistic?

If your business was experiencing strong growth before the pandemic hit, your comparison period numbers can be skewed. This alternative test is for entities with substantial pre COVID-19 growth. First you need to test if your growth is considered substantial. That is, GST turnover increased by:

by 50% or more in the 12 months before the turnover test period or before 1 March 2020, or
by 25% or more in the 6 months before the turnover test period or before 1 March 2020, or
by 12.5% or more in the 3 months before the turnover test period or before 1 March 2020.

If there is substantial growth and you used the period immediately before the turnover test period to determine whether there is a substantial increase in turnover, then the alternative test compares GST turnover for the test period (for example, the September 2020 quarter) with turnover for the 3 months immediately before the test period.

If you are using the period immediately before 1 March 2020 to determine whether there is a substantial increase in turnover, then the alternative test compares GST turnover for the test period (for example, the September 2020 quarter) with turnover for the 3 months immediately before 1 March 2020.

I am a sole trader (or partnership) impacted by illness, injury or leave

For sole traders and small partnerships (4 partners or fewer) with no staff, your income is often impacted by your ability to work. If your comparison period is impacted by illness, injury or leave, you can use the month immediately before the month with sickness, injury or leave is used, then multiplied by 3.

Does the business need to re-enrol?

Your business does not need to re-enrol if it is already receiving JobKeeper payments. Employers continuing to receive JobKeeper payments will need to:

Advise the ATO of the payment tiers of eligible employees (or your business participant), and
Advise your eligible employees of the payment tier that is applicable to them.

Make sure you keep records of your calculations for the decline in turnover test, and the JobKeeper payment tiers for employees.

Identifying the JobKeeper payment rates

If your business is eligible for JobKeeper from 28 September 2020, you will need to identify all of your eligible employees and the JobKeeper payment rate applicable to them.

From 28 September 2020, the JobKeeper payment rate will reduce and split into a higher and lower rate based on the number of hours the employee worked in a specific 28 day period prior to 1 March 2020 or 1 July 2020.

For eligible employees who have been employed since 1 March 2020, employers need to choose the reference period that provides the best outcome for the employees. For many employers, this will be the pre COVID-19, 1 March 2020 reference date. For eligible employees employed after 1 March 2020, use the pay periods prior to 1 July 2020.

If the pay cycle is longer than 28 days, a pro-rata calculation needs to be completed to determine the average hours worked and on paid leave across an equivalent 28 day period. For example, if the relevant monthly pay cycle has 31 days, you take the total hours for the month and multiply this by 28/31.

Speaking to a MyBusiness podcast , ATO Deputy Commissioner James O'Halloran said the ATO is, " …looking for what is a natural record or support that does demonstrate that effort of active participation in a business on behalf of businesses and in terms of employees on what basis the hours have been done."

What happens if the employee's hours were different to normal in the reference period?

Alternative tests are available where:

The reference period is not typical of the employee's hours or you use a rostering system and there is no typical pattern in a 28 day period - use an earlier 28 day period or multiple 28 day periods that more accurately represent the employee's typical arrangements. That is, you select the next 28 day period before 1 March 2020 or 1 July 2020 that represents the employee's typical employment pattern. For workers that don't have a typical pattern because of a rostering system like fly-in-fly-out workers, an average of the hours worked over the employee's rostering schedule and proportionally adjusted over 28 days can be used to work out a typical 28-day period.
The employee started work during the reference period. Use a forward-looking alternative test. In these circumstances, use the pay cycle immediately on or after 1 March 2020 or 1 July 2020. For employers with fortnightly or weekly pay cycles, you must use consecutive weeks. Where an employee was stood down, use the first 28 day period starting on the first day of a pay cycle on or after 1 March 2020 or on or after 1 July 2020 in which they were not stood down.

What happens if the employee's salary is not linked to hours?

Some employees will automatically qualify for the higher JobKeeper payment rate. To qualify for the higher rate, these employees: were paid at least $1,500 in the reference period; were required to work at least 80 hours under an industrial award, enterprise agreement or contract; or, it is reasonable to assume that they worked at least 80 hours during the applicable period.

What about directors and partners in a partnership?

Business participants (sole traders, the self-employed with an ABN, or one partner in a partnership, beneficiary of a trust, or director/shareholder), must use the month of February 2020 (the whole 29 days) as their test period. The test looks at the number of hours you were actively engaged in the business - actively operating the business or undertaking specific tasks in business development and planning, regulatory compliance or similar activities.

Other than sole traders, a business participant must provide a declaration to the business entity confirming their hours worked over the reference period. Sole traders need confirm details with the ATO.

Where February 2020 was not typical, you can use the next typical 29 day period, or if you commenced during February, March 2020.

My employer is no longer eligible for JobKeeper. Can I receive JobKeeper from another employer?

Employees and business participants can normally only have one nominated employer for the JobKeeper scheme (ever). If your nominated employer is no longer eligible for JobKeeper payments, you cannot be a nominated employee of another employer. The main exception to this is where the individual ceased to be employed or actively engaged in the business (as a business participant) of the original entity after 1 March 2020 but before 1 July 2020. They must also have met the conditions to be treated as an eligible employee of the new employer at 1 July 2020.

JoobKeeper 2.0 - Changes from 28 September 2020

Sun, 27 Sep 2020 23:00:00 GMT

JobKeeper - Changes from 28 September 2020

Forecasting During a Pandemic

Mon, 24 Aug 2020 23:00:00 GMT

How do you plan for uncertainty when every assumption is subject to change?

Now, more than ever, business operators should have a plan in place to manage during uncertain times. Even if your business is not directly impacted, it's likely your customers, your supply chain, and your workforce will be to some extent.

Understand where you stand now

Businesses fail (or fail to thrive) for a myriad of reasons, but the precursor is often a failure to understand what is occurring and what to monitor. Strategically, managers need to be on top of their numbers to identify and manage problems before they get out of hand. If you do not know what the key drivers of your business are - the things that make the difference between doing well and going under - then it's time to find out.

Understanding your cost structure

Do you know what your real cost of doing business is? Your breakeven point is the level of sales activity where your business is neither making a profit or a loss.

Calculate your breakeven point by dividing your fixed expenses by your gross profit margin. This figure represents the level of sales income you need to breakeven.

Understanding your breakeven point is crucial particularly when supply chains are impacted.

Not only will your breakeven point assist you to monitor business performance, it's critical when deciding whether or not to offer a discount. If your breakeven point is well below your current operating level then you have a good buffer in your profits to manage growth, invest in further capital opportunities, and to protect yourself against further downturns in operating performance. And before you say "I know that," ask yourself how many people actually put this theory into practice. Even some of the largest businesses have been caught out on this one and tie up valuable resources in unprofitable projects and products.

Putting up your prices during down times is not an act of social betrayal. If your prices have increased you should flow these through unless you are comfortable making less for the same amount of effort, or you are in an industry that is so price sensitive you have no choice but to follow the lead of larger businesses.

Discounting creates a leverage impact on profits. By discounting you are giving away some or all of your profits. The key is to understand the impact and just how far you can go. For example, a business with a 30% gross profit margin that offers a 25% discount (certainly nothing unusual about that in today's market) needs a 500% increase in sales volume just to maintain the same position – and, in almost all cases, that's just not going to happen. The result generally is that the business trades below its breakeven point and generates a loss. You can only do that for a limited amount of time (and some of your larger competitors might be engaging in a discounting war with you in an attempt to bury you once and for all).

If your business needs cash and needs it quickly, discounting might be the only way to shift stock but understand the implications.

Plan, review and adjust

Your budget should be your best estimate of what is likely to occur based on current knowledge. To manage change, you can scenario plan where your budget forms the baseline, but you also forecast best and worst case scenarios based on potential risks and their likelihood (for example, the impact of another lockdown). Or, the simplest method is to use your budget as a baseline and regularly review and adjust depending on current conditions.

The greatest risk to your profit is unlikely to come from your cost structure. It is more likely to be revenue volatility. Keep your eye on your cost structure and make sensible cuts where appropriate. But, in your search for savings don't remove your essential revenue generating capacity that you need.

A lack of profit will eventually erode your business, but not enough cash will kill it stone dead. Businesses will fail because they don't manage their cash position.

Plan, track and measure your cashflow. This not only means closely monitoring your debtor collections and inventory but also running a rolling three month cashflow position. This should provide an early warning of brewing problems.

Manage your debt levels carefully (your bank is likely to). While there is nothing wrong with debt, it is likely that the banks will be closely watching customer accounts. Where you have loan facilities in place make sure that you understand the loan terms and any debt covenants that you have entered into. These covenants could include regular reporting to the bank, debtor and working capital ratios, or debt to equity ratios. Where the banks may have been more relaxed about these in the past, this year will be different. If you believe that you need additional funding, talk to your bank early and don't wait until the last minute.

You'll need to present your case on why you need it, how much, for how long and when it will be repaid.

Cash flows, operating budgets, cost control and debt management all need to be part of your business management. The more in control you are the lower your risk position.

Understand the external environment

The COVID-19 pandemic has implications well beyond the economy; it has changed how business operates and how consumers act. While comparisons are made to the 2008 Global Financial Crisis and the recessions of the 1980s and 1990s, the reality is, we have no case study. There is no rule book for the post pandemic road to recovery as this is not an economic event. The pandemic pulls the economy up short curtailing both supply and demand; businesses are not operating at capacity and fewer people are working.

The Federal Budget is released on 6 October and we're expecting to see the Government invest heavily in job creating projects. Many of these will be focussed on infrastructure. Each of these projects will have a flow through effect to the broader economy. We'll bring you our insights the day after the budget and you should loom to see if there are opportunities your business can capture.

Understanding your supply chain is important. Risk manage and plan for changing conditions. For example, what is your business's ability to manage a surge in demand, do you have a small supply base and what would happen if your primary supplier went into bankruptcy, do you have a good flow of information across your supply chain or is there a lack of transparency and knowledge, do transport problems risk your ability to supply? Assess it, understand it, and manage the risks.

When it comes to demand, there is no instant fix. The RBA suggests the decline in GDP in the first half of 2020 is around 7% and the contraction in hours worked around 10%. The economic impact of the restrictions in Melbourne extend well beyond Victoria and are impacting more generally on consumer sentiment. This week we expect Australia to have a formal "recession" label added to our economy, formalising what most business operators already know.

But it is not all bad news with confidence lifting on early signs that revenue is no longer declining for the majority of Australian businesses. The latest ABS data on the impact of COVID-19 shows fewer businesses reported a decline in revenue in August (41%) compared to July (46%), and fewer still expect a decline in September (28%).

However, 35% of businesses expect it to be "difficult or very difficult" to meet financial commitments over the next three months, with small and medium businesses almost twice as likely as large businesses to fall into this category. Understandably, the response to this question is heavily weighted towards those operating under Government required restrictions and lockdowns.

The RBA is working with three scenarios for Australia's economic outlook: a baseline, upside and downside scenario. In the baseline scenario, conditions improve in the second half of 2020 and slowly improve over 2021 and 2022 but fall short of returning to pre COVID forecasts with Victoria's lockdown not materially extended and Australia's international borders remaining closed until mid 2021. The upside scenario saw no extension of the Melbourne lockdown, and further easing of Government restrictions nationally, which in turn bolster consumer confidence, encouraging spending and the reversal of GDP decline over 2020-21.

The downside scenario envisages a global resurgence in infections with Australia facing periodic outbreaks and rolling lockdowns. The RBA notes that the downside scenario has a sharper fall than the increase of the upside scenario because of the damage to consumer confidence of further lockdowns.

Business investment is also expected to be relatively flat with the ABS survey showing that 37% of those surveyed had no actual or planned expenditure. Of those that are spending, IT hardware and software, and equipment and machinery topped the list. The instant asset write-off is helping to stimulate business investment in the small and medium business sector. In general, large businesses are paying down debt rather than spending and small and medium businesses have not sought to extend debt to fund investment.

We can help give you insight into the performance of your business. Contact us to find out how we can give you the intelligence you need.

Question of the Month – Tax on COVID-19 Grants

Thu, 20 Aug 2020 23:00:00 GMT

My business received a grant from the State Government. Do I pay tax on it?

Short answer; probably.

Income tax - Grants are likely to be taxable unless they are specifically excluded from tax.

If the grant relates to your continuing business activities, then it is likely to be included in assessable income for income tax purposes. The position can be different in cases where the payment is made so that the entity can commence a new business or cease carrying on a business.

Goods & Services Tax - Government grants are not generally subject to GST unless the grant is for a supply of something. The ATO has indicated that the cashflow boost and JobKeeper payments are not subject to GST, this seems to be on the basis that they are not consideration for a supply.

Normally, we look at whether the entity has to do something to obtain the payment / grant. This could include entering into an agreement to do something or refrain from doing something. If not, there won't generally be any GST because no supply is or has been made.

JobKeeper turnover calculations - If GST does not apply to the grant, then it should not be included in the decline in turnover test for the initial phase of JobKeeper or the GST turnover figures that are reported to the ATO on a monthly basis by entities that are participating in JobKeeper.

The exception is the university sector where core Commonwealth Government financial assistance provided is included in the JobKeeper turnover tests.

New JobKeeper test date for employees and additional flexibility

Mon, 17 Aug 2020 23:00:00 GMT

New JobKeeper test date for employees and additional flexibility

On Friday 14 August 2020, the Treasurer released updated the JobKeeper Rules dealing with eligible employees which apply from 3 August 2020 onwards. Specific rules dealing with JobKeeper 2.0 have not yet been released.

New test date for employees

Under the original JobKeeper rules, an employee generally needed to have been employed by the entity at 1 March 2020 and to have met certain conditions as at that date to qualify as an eligible employee. However, the Government has updated the rules to ensure that 1 July 2020 will be relevant test date rather than 1 March 2020 from 3 August 2020 onwards, which means that some additional employees might become eligible for JobKeeper from the 10th JobKeeper fortnight onwards. Employees who met the conditions at 1 March 2020 will continue to be eligible assuming they are still employed by the entity etc. In practical terms this means:

If someone commenced employment with an entity after 1 March 2020 but by 1 July 2020 and they were an employee of the entity on that date then they can potentially be eligible for JobKeeper from 3 August 2020 onwards, assuming all other basic conditions are met.
Casuals who hadn't been employed for at least 12 months leading up to 1 March 2020 can potentially be eligible for JobKeeper if they have been employed on a regular and systematic basis for at least 12 months leading up to 1 July 2020 (assuming all other basic conditions are met).
Individuals who failed the age-related conditions or residency conditions at 1 March 2020 can potentially be eligible employees if they met those conditions on 1 July 2020.

Employers need to ensure that they identify all additional employees who could be eligible for JobKeeper to ensure that they comply with the "one in, all in" principle and that they meet the nomination requirements.

Extended deadline for top-up payments

Crucially, the ATO has announced that the deadline for making payments for new eligible employees for JobKeeper fortnights starting on 3 August 2020 and 17 August 2020 has been extended to 31 August 2020 (ie, to meet the condition for employers to pay at least $1,500 to eligible employees in each JobKeeper fortnight).

Employees who have moved to a new employer

The other key change to the rules is that someone who was previously nominated for JobKeeper with an entity as an eligible employee or eligible business participant can potentially be nominated for JobKeeper with a different entity if certain conditions are met. The individual must have ceased to be employed or actively engaged in the business (as a business participant) of the original entity after 1 March 2020 but before 1 July 2020. They must also meet the conditions to be treated as an eligible employee of the new employer at 1 July 2020.

JobKeeper Alert

Mon, 10 Aug 2020 23:00:00 GMT

With the employee test date for JobKeeper moved to 1 July 2020, some additional employees might have become eligible for JobKeeper. The August JobKeeper monthly business declaration is due by 14 September and is different to the previous form as it covers three JobKeeper fortnights. Employers need to ensure that they identify all additional employees who could be eligible for JobKeeper to ensure that they comply with the "one in, all in" principle and that they meet the nomination requirements.

To receive JobKeeper from 28 September 2020, employers need to reassess their eligibility with reference to actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for December 2020 quarter (for payments between 4 January 2021 to 28 March 2021). However, we are still waiting on the rules relating to these periods to be released.

Has COVID-19 Devalued Your Business?

Mon, 03 Aug 2020 23:00:00 GMT

If you are selling your business, merging, acquiring, or inviting in new investors, you need to understand the value of your business. But, to what degree does the pandemic impact on value? Should you discount or hold firm to pre COVID-19 performance on the basis that 'we're going to come out of it eventually'?

Fair market value is the price that would be negotiated in an open market between a knowledgeable, willing but not too anxious buyer and a knowledgeable, willing but not too anxious seller dealing at arm's length within a reasonable time frame. Value and price may not be the same thing. The price you are offered (or offer), will often depend on the anxiousness of the parties. For example, a seller that does not need to sell where the business being sold adds synergy value to the purchaser, may look to obtain a premium on value. And, even where a quick sale is required it may not be discounted if the liquidated asset value of the business remains high (i.e., the assets of the business are worth more broken up and sold off than as a whole).

However, to understand the value of a business, the pandemic necessitates a depth of investigation beyond the norm. You cannot simply ignore the pandemic and rely on pre-pandemic performance and financials, even if you are enthusiastic about the future. Previously, anyone looking to buy or sell a business would likely analyse the past three years trading figures to help determine a value but this historical analysis may no longer present an accurate picture. For some businesses, history is no longer a reliable predictor of fair value.

The Government controls put in place to contain COVID-19 transmission - closures, social distancing, border and travel restrictions - have a material economic impact. Closures and distancing impact in different ways and need to be considered at both an industry sector and individual business level. Government stimulus packages may also be providing abnormal short-term outcomes.

For some businesses, the operating and financial impact is material. And, this may flow into the underlying value of the business.

All valuations consider present and emerging risks and the current and anticipated business environment. This analysis is then brought into the modelling and valuation conclusion. COVID-19 creates its own set of considerations for analysis including:

COVID-19 impact at an economic, industry sector and business level
The supply chain across the customer and supplier base with a view to identifying possible COVID-19 impacts in the supply chain
Earnings normalisation including the removal of stimulus support measures. For the 2020 year, a deeper analysis is likely to be required with possible segmentation by quarter
Current and forward year position (see Forecasting during a pandemic)
COVID-19 risk in applying earnings multiples
COVID-19 related assumptions

A hypothetical investor might have been prepared to pay $1 million for a business. That business might be on offer for $800,000 and appear as if the investor has struck a bargain. But, the business might actually only be worth $600,000, and not such a good deal after all.

Take the hypothetical example of a printing business. The business has been established for more than 10 years and has a history of profitable operation, with revenues of $5-6 million and EBIT of $800-900k per annum for each of the past 3 years. The business has a large client base of just over 400 active accounts. Trading patterns seem consistent to prior years up to March 2020. Between March and June 2020 there was a 40% downturn with the business closed or working on a limited roster for an 8 week period during the initial COVID-19 lockdowns. The business is currently moving back to normal operations but this is not yet reflected in revenues. The impact of COVID-19 in this scenario might be discounted as the business appears to be returning to normal conditions and it has a solid history of trading and profitability.

The largest customer of the business represents less than 2% of total revenue and the next two largest customers represent just over 1% of revenue. Two of the three customers have resumed their pre COVID-19 printing order levels. A large number of customers seem to spend between $5-20k per annum with the business.

However, during a customer sensitivity analysis, it's found that 70% of customers are from the live entertainment sector (although their two largest clients are not in this sector). As a result, the business is likely to have a material downturn until the entertainment industry resumes or the business is able to replace the business it has lost. A consequence of this is that value may be impacted.

Almost all businesses are valued by one of two methods. The first is the industry approach, where sales of similar businesses are used for comparison. The basis of this method is that the market provides a reliable indicator of value. This method works best in a stable and active market and where recent history is a reliable indicator of the present. But, COVID-19 casts doubt on the reliability of past sales that occurred outside of pandemic conditions.

The other typical method of valuing a business is based on its maintainable earnings. This method is used for businesses with a trading history where it's likely that the value of the business will exceed the underlying value of its assets. This method determines the future maintainable earnings of the business, an appropriate earnings multiple, and the value of any assets surplus to the core business. The multiple applied to the business may be impacted by COVID-19 as the multiple falls as risk increases. For example, a business that was valued at four times earnings pre-pandemic might achieve a lower multiple as the pandemic presents a risk to the likelihood of the business achieving earnings consistent with pre-pandemic conditions.

The pandemic has added significantly greater complexity to the valuation process, meaning buyers and sellers should work even more closely with their advisers before making a decision.

If you are purchasing a business and would like a due diligence completed, or looking to sell, merge or engage with investors, contact us for more details on the steps to take.

COVID-19 and Your SMSF

Mon, 27 Jul 2020 23:00:00 GMT

COVID-19 has had an impact on many SMSFs. We look at the key issues.

Early release of superannuation

When a member of your fund wants to access up to $10,000 of their superannuation early under the COVID-19 measures, there are some additional steps that trustees need to take. Trustees will need to ensure their deed allows for early release, the member has met the eligibility criteria for release, and ensure that no funds have been released until the release authority from the ATO has been received. This will be a 2019-20 audit area of focus.

Tenant Rent Relief

Setting rent for a tenant that is less than market value in an SMSF is usually a breach of superannuation laws. If the rental relief is provided to a related party, then the situation can become trickier as the difference between the rent charged and the market value can amount to a loan and potentially put the fund in breach of the in-house asset rules.

However, to manage COVID-19 rent reductions for SMSF landlords, the ATO has stated that for the 2019-20 and 2020-21 financial years it will not take action where the rental relief is provided on arms-length terms. That is, the relief is in line with the National Cabinet Mandatory Code of Conduct for commercial leasing principles, has a set timeframe to it, and the reason for the relief and the relief provided is documented.

Relief for related party loans

If your SMSF has a limited recourse borrowing arrangement in place with a related party, and that related party provides repayment relief, this would ordinarily be a breach of the superannuation rules. The ATO however will accept the relief if it is provided on reasonable terms similar to commercial banks (see the Australian Banking Association's website for comparison), the relief and the reasons for it is documented, and is for a set period of time.

A fall in asset values

If the assets of your SMSF have fallen in value, you should consider whether the current asset allocation is consistent with the fund's investment strategy, and if the long-term goals of the fund continue to be met.

If you need to sell assets and make a capital loss, such as a loss on residential real estate, this loss can be offset against any capital gains. If the capital loss exceeds any gains, this loss can be carried forward and applied against future capital gains.

No deductions are available for unrealised gains (a fall in value for assets the fund continues to own).

Minimum pension payments

For funds drawing a pension, minimum draw down rates for the 2019-20 and 2020-21 years has been halved.

Your Questions Answered

Mon, 20 Jul 2020 23:00:00 GMT

During lock down I have had to work from home. I've set up a full home office with paintings, plants, a desk, computer equipment, a water tower and a sculpture. I presume I can claim everything I have purchased for this office and claim part of my mortgage and running costs?

In general, home office expenses are designed for those who run their business out of home. If you are merely working from home and not running a business at home, then it's unlikely you will be able to claim occupancy expenses such as mortgage interest or rent. Keep in mind that if you claim occupancy costs, this will impact on your access to the CGT main residence exemption.

The water cooler is unlikely to be deductible as food and drink is considered to be private in nature. The items that beautify your office will generally only be deductible if they are displayed in open viewing areas in premises used for income producing purposes including reception areas, waiting rooms and foyers.

If you are working from home and have set up a home office for this purpose, you can claim a deduction for your expenses based on the 80 cents per hour short cut method, the 52 cents per hour method (which excludes phone, internet, or the decline in value of equipment which are all claimed separately), or the actual method.

What Now? Where to Get Help if You Need It

Mon, 13 Jul 2020 23:00:00 GMT

New South Wales

The Government has announced further changes to the JobKeeper scheme. The good news is that employees that missed out on JobKeeper because they were not employed on 1 March 2020 might now be eligible. The proposed changes would enable employees employed on 1 July 2020 to receive JobKeeper payments from 3 August if they meet the other eligibility criteria. If you have employees impacted by this change, you will still need to work through the eligibility requirements including providing JobKeeper Payment Employee Nomination , but just remember that these changes are not yet law.

JobKeeper will also be extended beyond 27 September 2020. To receive JobKeeper from 28 September 2020, employers will need to reassess their eligibility with reference to actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for the December 2020 quarter (for payments between 4 January 2021 to 28 March 2021).

Most businesses will generally use their Business Activity Statement (BAS) reporting to assess eligibility. However, as the BAS is generally not due until the month after the end of the quarter, eligibility for JobKeeper will need to be assessed in advance of the BAS reporting deadlines to meet the wage condition for eligible employees.

However, the ATO will have discretion to extend the time an entity has to pay employees in order to meet the wage condition.

From 28 September 2020 the payment rates for JobKeeper will reduce and split into a higher and lower rate. Whether an eligible employee can access the higher or lower rate will depend on the number of hours they worked during a 4-week test period. The higher rate will apply to employees who worked at least 20 hours a week on average in the four weeks of pay periods prior to either 1 March 2020 or 1 July 2020. Between 28 September 2020 and 3 January 2021, the higher rate is $1,200 per fortnight, and $750 for the lower rate. Between 4 January and 28 March 2021, the higher rate is $1,000 per fortnight and $650 for the lower rate.

Cashflow boost payments

JobKeeper 2.0

In addition to general waivers, reductions or rebates on some Government licensing and fees, each State and Territory has some form of support accessible to certain businesses impacted by COVID-19.

Australian Capital Territory

Support for business employing apprentices and trainees

JobTrainer provides a 50% reimbursement to eligible employers for the cost of apprentice or trainee wages up to $7,000 per quarter. Originally only for small businesses employing less than 20 employees, the subsidy recently expanded to include businesses with under 200 employees.

For small businesses (under 20 employees), the apprentice had to be employed on 1 March 2020 or on 1 July 2020 for claims after this date (claims are open now). For medium sized businesses (under 200 employees), the apprentice had to be employed on 1 July 2020 (claims open 1 October 2020). To access the subsidy, you will need to provide evidence of wages paid to the apprentice.

The subsidy is also accessible to larger employers employing apprentices let go by a small/medium business where that apprentice was eligible for the wage subsidy.

The subsidy is scheduled to end on 31 March 2021.

If your business received the first cashflow boost tranche, you will receive a further cashflow boost for the June to September quarters of the same amount. If you report quarterly, the cashflow boost will be paid in two equal payments for June and September. If you report monthly, the cashflow boost is provided in four equal payments.

The cashflow boost is applied to reduce any liabilities in the same reporting period with any excess amount being paid as a cash refund from the ATO.

State & territory based support

Help for business

Northern Territory

Queensland

South Australia

Tasmania

Victoria

Western Australia

Help for individuals

Services Australia has an online payment guide that guides you through the payments available if you are impacted by COVID-19 and what you might be able to access.

If you have to self-isolate or quarantine at home because of COVID-19 or are caring for someone who is, and cannot earn an income as a result, you might be eligible for a $1,500 payment.

Pandemic Leave Disaster Payment for Victoria

Tightening of access to income support

From 25 September 2020, the assets test and the Liquid Assets Waiting Period (applies to those with assets such as cash savings worth over $5,500 for singles or $11,000 for singles with children and partnered people) will be reintroduced for access to income support payments.

In addition, partner income testing will resume from 25 September 2020, albeit with higher thresholds than those pre COVID-19. That is, you will not be eligible for income support if you are not earning an income but your partner earns $3,086.11 per fortnight or $80,238.89 per annum.

Job seeking requirements that were suspended from 24 March 2020 have been introduced from 9 June 2020. Some leniency has been provided for Victorians if you maintain contact with your employment service provider.

Coronavirus supplement

The Coronavirus supplement will continue, albeit on a reduced rate of $250 per fortnight (from $550), from 25 September until 31 December 2020 for eligible individuals.

Early access to superannuation

Figures from the Australian Prudential Regulation Authority show that over $30 billion has been taken from superannuation to date under hardship provisions. If you are an Australian citizen or permanent resident and New Zealand citizen, you can apply to release up to $10,000 of your superannuation between 1 July 2020 and 31 December 2020 if you were made redundant, your working hours have been reduced by more than 20%, and you have been adversely financially impacted by COVID-19 . If you are not in financial hardship you should not access your superannuation. The application process through myGov is a self-assessment process that you are responsible for. Penalties of up to $12,000 may apply for providing false or misleading information.

Some financial institutions are reporting that early access to superannuation will be a factor taken into account for those seeking to apply for loans – lenders may interpret early access as meaning that you are unable to meet your commitments and or are insolvent, and this is likely to impact on your credit worthiness.

Apply for a small business COVID-19 recovery grant

Tue, 30 Jun 2020 23:00:00 GMT

Introduction

The NSW Government is gradually lifting the restrictions on movement and business trading that were designed to reduce the spread of COVID-19. This means some businesses can now reopen.

If your small business or not-for-profit organisation has experienced a decline in turnover as a result of COVID-19, you may be eligible for a small business recovery grant of between $500 and $3000.

This grant helps small businesses meet the costs of safely reopening or up-scaling operations. These expenses include, but are not limited to:

fit-out changes and temporary physical changes (for example, plastic barriers at checkouts)
staff training and counselling
business advice and continuity planning
cleaning products and additional cleaning services
additional equipment necessary to comply with social distancing or other public health measures
marketing, communications and advertising
digital solutions (for example, e-commerce or business websites).

This grant can only be used for purchases of eligible expenses made from 1 July 2020, and only where no other government support is available.

Note: Applications close 11:59pm Monday 31 August 2020.

For further information go to http://www.wrightpartners.com.au/resources/downloadable_forms

The New Flexible Parental Leave Pay Rules

Mon, 29 Jun 2020 23:00:00 GMT

From 1 July 2020, parents accessing the Government's parental leave pay (PPL) scheme will have greater flexibility and options.

Targeting the self-employed and small business owners, the changes introduce a new 30 day flexible paid parental leave pay period.

Previously, new parents could apply for PPL for a continuous block of up to 18 weeks. The changes split this time period into two:

A continuous period of up to 12 weeks, and
30 flexible days.

Parents can take the 18 weeks in one block or, under the new rules, take the 12 week period and then use the additional 30 days at a period and in a way that suits them but before the child turns 2 years of age. For example, assume that when Jane, who works five days per week, has a child, she initially claims 12 weeks. Jane returns to work part-time for three days per week. In that case, Jane would apply for paid parental leave pay on the two days per week that she is not working.

The administration of the PPL will change in some scenarios. For Jane's case above, the employer would administer the scheme for the first 12 weeks but then the Government would directly pay Jane for her flexible days.

If an employee wishes to access flexible parental leave pay, they will need to negotiate time-off work or a part time return to work with their employer. If the employer is unable to accommodate the request, then the employee may take the 18 weeks as one block.

The changes to the paid parental leave scheme apply to babies born on or after 1 July 2020. The scheme commences from 1 April 2020 to give parents applying for leave the flexibility to use the new arrangements (but only if their child is born on or after 1 July 2020).

Minimum Wage Increases by 1.75%

Mon, 22 Jun 2020 23:00:00 GMT

An increase to the minimum wage of 1.75% will start rolling out for the first full pay period from 1 July 2020.

The increase applies to minimum rates in awards in 3 stages:

Group 1 Awards - from 1 July 2020

Frontline Heath Care & Social Assistance Workers
Teachers and Child Care
Other Essential Services

Group 2 Awards - from 1 November 2020

Construction
Manufacturing
A range of other industries

Group 3 Awards - from 1 February 2021

Accommodation and Food Services
Arts and Recreation Services
Aviation
Retail
Tourism

You can find the full list of impacted Awards on the Fair Work Ombudsman's website.

For anyone not covered by an award or an agreement, the new national minimum wage of $753.80 per week or $19.84 per hour, applies from the first full pay period starting on or after 1 July 2020.

The minimum wage increase does not impact on workers receiving above the minimum wage.

For employees at or close to the minimum wage, it is essential that employers are aware of the impact and timing of the increase to avoid falling foul of their industrial and superannuation obligations.

JobKeeper & Termination Payments

Mon, 15 Jun 2020 23:00:00 GMT

An employment termination payment (ETP) is a lump sum payment made to an employee when their job is terminated. ETPs are generally made up of unused sick leave or unused rostered days off, payment in lieu of leave, or genuine redundancy payments, etc.

For some employers, JobKeeper will not be enough to keep the employee employed. If you do need to let staff go, the ATO has stated that from JobKeeper fortnights from 8 June onwards until the end of the scheme, ETPs cannot be included as part of the $1,500 an employer needs to pay to eligible employees to access JobKeeper payments.

If any JobKeeper payments include an ETP to a terminated employee between 30 March to 7 June, the ATO has stated that it will not recover an overpayment.

The ATO on COVID-19 Fraud Warpath

Mon, 08 Jun 2020 23:00:00 GMT

We always knew that a Government scheme swiftly distributing cash during a crisis was going to come with equally swift compliance and review measures, particularly when eligibility was self-assessed. Two major Australian Taxation Office (ATO) initiatives are searching out fraud and schemes designed to take advantage of the Government's Coronavirus Economic Response Package. .

The tip line, tax returns, and single touch payroll are just a few of the data sources the ATO is using to identify "inappropriate behaviour."

The tip line has already delivered its first target with the very public outing in the Australian Financial Review of The Australian Comfort Group, which owns SleepMaker and Dunlop Foams for an alleged scheme to deliberately depress monthly revenue to qualify for up to $11 million in wage subsidies. Internal emails allegedly from an employee who has also lodged a claim under the Fair Work Act against the manufacturer, appear to demonstrate an internal effort to push invoicing to other periods. The Australian Comfort Group have vehemently denied any wrong-doing.

Tips from employees about their employer's efforts to manipulate revenue to meet the JobKeeper eligibility criteria is not hard to find. The ATO's community forum notes one respondent who states:

"My employer is defrauding the ATO and is set to receive close to $1 million in Jobkeeper payments which the company is certainly not eligible for as the company has not had a 30% decline in sales. The company has already received the first payment relating to the month of April in Jobkeeper from the ATO.

The director of the company is emailing employees constantly to stop invoicing, change invoice dates, make sure the company shows a 30% fall in sales compared to the same period in 2019, to keep him updated each week on sales to not exceed the 30% fall, how much will the company receive, when the funds are received to shift them into offset accounts immediately. It just goes on and on. I have copies of the emails from the company director giving instructions on how to create this fraud so the company meets the eligibility criteria."

The ATO has noted that it has received intelligence on a number of schemes circulating, one of which is the withdrawal of money from superannuation and re-contributing it to get a tax deduction.

ATO Deputy Commissioner Will Day said that, "Not only is this not in the spirit of the measure (which is designed to assist those experiencing hardship), severe penalties can be applied to tax avoidance schemes or those found to be breaking the law. If someone recommends something like this that seems too good to be true, well, it probably is."

The ATO has made its targets clear. For JobKeeper, these include ensuring that:

Entities meet the eligibility requirements in relation to business income
Entities are claiming for eligible employees
Eligible business participants are correctly making claims
Entities are not manipulating their turnover in order to satisfy the decline in turnover test

For the early release of superannuation measure, behaviours attracting ATO attention include:

Applying when there is no change to your regular salary, wage, or employment information
Artificially arranging your affairs to meet the eligibility criteria
Making false statements or fraudulent attempts to meet the eligibility criteria
Withdrawing and re-contributing super for a tax advantage – this could not only trigger anti-avoidance rules but also result in additional taxes and impact your eligibility for a super co-contribution.

Where individuals have not met the early access measure's hardship eligibility criteria, the ATO has stated that fines of up to $12,000 will apply for each false and misleading statement made. In addition, where a scheme has been entered into to obtain a tax benefit, such as claiming a tax deduction for recontributing super withdrawn under the early release measures, Part IVA may apply. That is, the ATO is actively looking for individuals who have utilised the early release measures when they didn't need it, then recontributing all or part of the super for the purpose of claiming a tax deduction.

For the Cash Flow Boost, the ATO is looking for schemes designed to:

Artificially restructure businesses to gain access to the cash flow boost
Artificially changing the character of payments to salary or wages to maximise the cash flow boost
Inflating reported withholding amounts to maximise the cash flow boost
Resurrecting dormant entities or phoenixing
Making false statements or fraudulent attempts to create an entitlement.

Genuinely made a mistake? The ATO has stated that if you work with them, and the mistake is genuine, they will give you the support you need, without the worry of accruing a debt, repaying money or getting penalised.

Tip lines, tax returns and STP

3 million individuals in data matching program

In a massive data matching program, the ATO and Services Australia will share the records of approximately 3 million individuals to ensure that those accessing benefits are eligible to receive them.

For those who access their superannuation early under the COVID-19 measures, Services Australia will verify their eligibility where they have indicated that they are eligible for the JobSeeker payment, parenting payment, special benefit, youth allowance or the farm household allowance.

The program will review the records of those applying for early access between 19 April 2020 to 24 September 2020.

The records of 45,000 prisoners in state and territory correctional facilities are also being compared against applications for JobKeeper, temporary early access to superannuation, and the eligibility criteria for cash flow boost to confirm appropriate access. The records gathered will cover the period from 1 March 2020 to 27 September 2020.

Funding for the Arts: What’s Available and How Can You Get It

Mon, 01 Jun 2020 23:00:00 GMT

Will the Prime Minister's targeted $250 million package of funding to support cultural and creative projects and initiatives save the industry?

The arts funding is aimed at kick starting the sector with funding preferencing commercial initiatives that generate jobs and are expected to have a positive economic impact. That is, this is an economic package as opposed to creative or cultural funding.

Outside of the funding package, SupportAct received $10m in funding for COVID-19 crisis relief grants. Crisis funding is accessible to:

Musicians, crew and music workers who are unable to access Government benefits due to eligibility or other issues
music workers who have been able to access Government benefits but are still facing financial hardship; and to
those who are suffering financial hardship as a result of injury, ill-health or a mental health issue that is managed through a current Mental Health plan.

To be eligible, you will need to be a musician, crew or music worker, who:

Is an Australian citizen, permanent resident or have a valid working visa
Can prove they been working in the music industry for three years
Can provide names and details of two professional referees
Have household expenses greater than household income.

Other financial support is available through JobKeeper (including the self-employed) or JobSeeker.

Tip lines, tax returns and STP

1st July Company Tax Rate Reduction

Mon, 25 May 2020 23:00:00 GMT

* aggregated turnover less than $50m and no more than 80% of the company's assessable income is base rate entity passive income.

The 1 July change is part of a larger progressive plan to reduce the company tax rate to 25% from 1 July 2021 and applies to base rate entities (BRE) - companies, corporate unit trusts, and public trading trusts - with an aggregated turnover of less than $50 million where 80% or less of the entity's turnover for the year is classified as base rate entity passive income. Larger companies will continue to pay the 30% rate.

The reduction in the company tax rate will also change the maximum franking rate that applies to dividends paid by some base rate entities. The way the rules normally work is that if the company was classified as a base rate entity and was taxed at the lower corporate tax rate in the previous year then a lower maximum franking rate will apply to dividends paid in the current year. For example, a company that was classified as a BRE in the 2019 income year will generally be subject to a maximum franking rate of 27.5% on franked dividends paid in the 2020 income year. However, the maximum franking rate will normally be 26% for dividends paid in the 2021 income year if the company was a BRE in the 2020 income year.

Some companies may have franking account balances that have accumulated over time and will reflect prior company tax rates. It is important to consider how these credits can be utilised in an efficient manner. One strategy could be to bring forward the payment of dividends to utilise the current 27.5% franking rate before the company tax rate reduces to 26% if the cashflow of the company allows for it.

Despite the current economic environment, the company tax rate will reduce to 26% for small and medium businesses from 1 July 2020.

What's changing on 1 July?

Company tax rate reduces to 26% for base rate entities
$150k instant asset write-off scheduled to reduce back to $1,000 for small business entities and will no longer be available for entities with aggregated annual turnover of $10m or more, although accelerated depreciation rules apply to certain entities until 30 June 2021
Cents per km rate for work-related car expenses increase to 72 cents
Expected reforms to allow 66 and 67 years olds to make voluntary superannuation contributions without satisfying the work test. This reform is not yet law.
Age limit for making superannuation contributions to your spouse increases from 69-74. This reform is not yet law.
For those 67 and under, reforms will enable you to use the 'bring forward rule' to make up to three years of non-concessional contributions. That is, you can make non-concessional contributions of up to $300,000 from the 2020-21 financial year.

The ATO’s JobKeeper Audit Targets

Mon, 18 May 2020 23:00:00 GMT

The JobKeeper subsidy has progressed beyond the rush for eligibility and entered its second phase: compliance. Late last month, the Australian Taxation Office (ATO) released guidance highlighting where the regulator will focus its compliance resources.

Hindsight is a dangerous lens as Treasury discovered last month announcing that the number of employees expected to be covered by the JobKeeper scheme was overstated in the original announcement by approximately 3 million. The overstatement reflects "the level and impact of health restrictions not having been as severe as expected and their imposition not having been maintained for as long as expected at the time," the Treasury statement says.

At the time of the Treasury estimates, not long after the country went into lockdown, we simply did not know what to expect. The first stimulus measures had been announced and long queues formed in front of Centrelink offices. Supermarket shelves were being stripped of essentials. Alarming daily global updates showed the virus spreading unimpeded in many parts of the world. China demonstrated the need for fast, severe and extended lockdowns to remove the possibility of community transmission. For Australia, there was no appetite to wait and see what might happen as other countries with devastating death rates did. We acted swiftly and we have reaped the benefits of that action with a low death rate, albeit at an economic cost. For many businesses, estimating the potential impact of the pandemic, the expectations were the same - fast, severe and extended. Now, with the JobKeeper scheme entering a compliance phase, we need to go back and point to the facts that supported the estimates declared to the ATO.

The JobKeeper estimates error

The ATO's JobKeeper targets

The ATO is looking carefully at businesses that appear to have made adjustments to their circumstances to meet the JobKeeper eligibility requirements where, if those adjustments had not been made, the entity would have been ineligible or had lower JobKeeper payments. Or, where adjustments have been made to enable another entity or subcontractor to meet the decline in turnover test.

Industries or businesses that have not experienced adverse trading conditions and those that appear to have increased staff numbers are likely to be looked at closely. In its guidance, the ATO sets out a series of examples that are likely to attract their attention:

Increase in staff

Where the number of staff the business reports have increased beyond levels that were previously required to run the business prior to 1 March 2020.

Deferring supplies

In industries unlikely to be adversely impacted by the pandemic, the business agrees with its customers to defer making supplies, resulting in the company's projected GST turnover declining to the level required to meet the turnover test.

Bringing forward supplies

In industries unlikely to be adversely impacted by the pandemic, the business brought forward supplies to be able to meet the decline in turnover test in a following month or quarter.

Restructures

The example given by the ATO is a company that leases assets to third parties. The leasing business is generally unaffected by the pandemic. However, the business restructures and transfers the assets of the business to a new company. It then withholds the payment of dividends from the new company to the business resulting in a decline in the turnover of the business.

Management fee manipulation

Where inter-entity management fees are charged, the timing of the fee is changed to meet the decline in turnover test.

Reduction in payments to subcontractors

Where a business has reduced or deferred payments to subcontractors to enable them to meet the decline in turnover test. The ATO has stated that they will review the business and the subcontractors.

JobKeeper used to reduce cost of supplies to customers

In this scenario, the business and its customers agree to reduce, waive or defer payments to enable the business to meet the decline in turnover test. JobKeeper is then used to fund the reduction in payments. In effect, JobKeeper is paying for the payment reduction.

Low risk scenarios

If your industry or business has been adversely impacted by the pandemic, regardless of your structure or arrangements, it is unlikely the ATO will review your situation unless there has been an obvious attempt to increase JobKeeper payments.

To add certainty, the ATO notes that where a service entity that employs staff for a related entity has reduced management fees, either because the service agreement has been changed to reduce the fee by an amount that is proportional to the reduction in the trading entity's external turnover, staff have been stood down, or where the related entities cannot afford to pay the fee, and the industry is adversely impacted by the pandemic, the ATO will not generally seek to apply compliance resources.

What happens if you got it wrong?

If your structure or the way you have accessed JobKeeper is on the ATO target list, this does not mean that there is a problem.

Eligibility to JobKeeper is generally based on an estimate of the negative impact of the pandemic on an individual business's turnover. Some will experience a greater decline than estimated while others will fall short of the required 30%, 50% or 15%. There is no clawback if you got it wrong as long as you can prove the basis for your eligibility going into the scheme.

For those that, in hindsight, did not meet the decline in turnover test, you need to ensure you have your paperwork ready to prove your position if the ATO requests it. You will need to show how you calculated the decline in turnover test and how you came to your assessment of your expected decline, for example, a trend of cancelled orders or trade conditions at that time.

Manage your JobKeeper compliance

Monthly declarations of your current and projected GST turnover are due within fourteen days of the end of each relevant month.

It's important to ensure that you have paid eligible JobKeeper staff at least $1,500 during each JobKeeper fortnight. If you pay employees less frequently than fortnightly, the payment can be allocated between fortnights in a reasonable manner. For example, if you pay your employees on a monthly pay cycle, your employees must have received the monthly equivalent of $1,500 per fortnight.

For the first two JobKeeper fortnights (30 March-12 April, 13 April-26 April), employers had an extension until 8 May to make the JobKeeper payments to eligible employees. For the remaining JobKeeper fortnights, employees will need to receive at least $1,500 by the end of each JobKeeper fortnight or the monthly equivalent of $1,500 per fortnight. Depending on your pay cycle, this may require some adjustments each month.

How to create a myGovID and link it to your Business

Wed, 13 May 2020 23:00:00 GMT

A myGov Account allows you to have access to Government Online Services with a single login / password setup. Once you create a myGov account for yourself, you can then link various Government agencies and be able to access these, all from the one login. Some of the agencies that you can link include: Centrelink / Medicare / ATO / My Health Record / NDIS / Veterans Affairs….and more.

With a myGov account, you have a single Inbox , where all your linked agencies will send you letters, statements etc.

You can Create a myGov account, or login to your myGov account here . Remember, having a myGov account is at the individual level. You cannot have a single myGov account for couples / families etc, rather, one account per person.

Once you have created the myGov account, you will then be able to link whichever Government agency you prefer – all from within the account itself.

There is a very informative Video Tutorial which can assist you with the specific steps of creating your myGov account here .

If you have any questions regarding these steps, or need assistance – Wright Partners is available to help. Simply give us a call .

Sometimes there can be some confusion regarding access to the Government at an electronic level. So here, we have put together a summary of hints to help you on your way, in order to face the digital world we now live in:

For Individuals (including Sole Trader's)……

Dealing with the ATO in this Digital Age…….

How to create a myGov Account

Wed, 13 May 2020 23:00:00 GMT

For All Other Business……

This is the more specific step for businesses in dealing with the ATO. To access the Business Portal (online services), you need to set up your myGovID (this is separate to the above myGov account), and link it to your business in Relationship Authorisation Manager (RAM).

myGovID is an app you download to your smart device to prove who you are online. It's like the 100 point ID check, but on your smart device.

RAM is an authorisation service that allows you to act on behalf of an entity with participating government online services.

Together, myGovID and RAM provide a flexible, easy and secure way to access our Business Portal.

Once these are setup, you will be able to access online services, and your myGovID will provide you with a random "4-digit" access code to key in, upon login. This code will randomly change every time you login. It is part of the 2-step security feature which is now a common security protocol across business platforms.

Dealing with the ATO in this Digital Age…….

What you need to do

1. Download the myGovID app to your smart device and set it up using your identity documents (e.g. Driver's Licence / Medicare Card etc). Anyone who accesses online services on behalf of your entity will need their own myGovID.

2. Log in to RAM (access RAM by visiting https://info.authorisationmanager.gov.au ) using your myGovID and link your entity's ABN. The way you link depends on whether you're an eligible individual associate or a primary person.

3. Once your ABN is linked, you can start setting up and managing authorisations. (For example, as the business owner, you may have an internal administrator whom you wish to give access to your business portal, so they can prepare your BAS each month/quarter). When you authorise someone they'll receive an authorisation request via email to act on behalf of your entity online.

Find out more about what you need to do at www.ato.gov.au/mygovid

4. In order access the Business Portal (now called Online Services), you can do so here . (Upon selecting this link, look for the "Login" button on your screen).

If you have any questions regarding these steps, or need assistance – Wright Partners is available to help. Simply give us a call .

Have Casual Workers Been Granted Annual Leave?

Thu, 07 May 2020 23:00:00 GMT

JobKeeper's impact on employee entitlements

News headlines recently stated that casual workers have won the right to paid leave following a decision in the Federal Court. As usual, the devil is in the detail.

At present, there is no global change granting Australian casual workers paid leave. The case however, highlights the long running problem of determining over time, who is a permanent staff member and entitled to paid leave and other benefits, and who is a casual worker entitled to a casual loading.

In the WorkPac v Rossato case, WorkPac, a specialist mining and engineering labour hire company, employed Mr Rossato as a casual worker across six consecutive employment contracts for a continuous period of approximately three and a half years. Over that time, Mr Rossato was paid a casual loading of 25% of the minimum rate of pay payable under the Enterprise Agreement, which was in part, paid in lieu of leave.

Mr Rossato worked every shift he was rostered for except where he was given approval to take rest and recreation, and when his partner was airlifted to hospital.

In its decision, the Federal Court found that Mr Rossato was a permanent full-time employee across each of his contracts and entitled to his accrued leave entitlements and payment for the public holidays where he was rostered off work. WorkPac was unable to reduce the liability owing to Mr Rossato by the casual loading paid to him over the course of his contracts, with the court noting, "There is a superficial attraction to the notion that something given in substitution of an entitlement has an equivalent value to the entitlement itself and is therefore of the same character."

Each of the contracts signed by Mr Rossato contained a declaration headed "Casual or Maximum Term Employee." However, the court reiterated the observation that, "agreements by which people are engaged to work are typically partly written, partly oral and "partly left to evolve by conduct" as time goes on." That is, what the employee signs up to does not necessarily define what the employment relationship becomes.

The WorkPac v Rossato case does not generally award casual employees paid leave entitlements but it does highlight the problem that can occur over time where the nature of the employment arrangement changes from casual to a more permanent arrangement.

Recognition of this pathway from casual to permanent employment is now a part of many Modern Awards. The Fair Work Commission's updates to Modern Awards rolled out across this year include a Right to request casual conversion clause that enables a long-term casual worker to request permanent employment. The employer can refuse that request but only on "…reasonable grounds and after there has been consultation with the employee."

The pathway also has political impetus with the Prime Minister's recent 'JobMaker' speech at the National Press Club nominating the issue as one of the five working groups for negotiation.

To be eligible for JobKeeper payments as a casual employee, the individual had to be a long-term casual at 1 March 2020. Casual employees do not qualify unless they meet this condition. For some employers, JobKeeper has ensured that there is now a clear definition of some employees as a long-term casual where JobKeeper payments have been paid.

Long term casuals have additional entitlements to casual employees providing for parental leave (and a guarantee of their job or an equivalent on their return from leave), and the right to request flexible arrangements.

The Latest Covid 19 Stimulus and Support Measures

Tue, 05 May 2020 23:00:00 GMT

Go to Wright Partners downloadable forms to see the latest COVID 19 Stimulus and support Measures V11

Managing Through Covid 19 Australian Government's Economic Response

Thu, 23 Apr 2020 23:00:00 GMT

Go to Wright Partners downloadable forms to see the Managing Through Covid 19 Australian Government's Economic Response

JobKeeper Announcement

Tue, 14 Apr 2020 23:00:00 GMT

The Legislative Package:

JK Fortnights:

Employer Eligibility:

Test Period:

Employee Eligibility:

Employees Not eligible are:

Requirement for the Employee to be paid:

employer must have paid the physical payment to employee in advance of receiving the JK claim

For the employer to receive JK claim in May, they must have paid 2x $1,500 by the end of April for the employer to be able to claim. The ATO has advised that for the first two fortnights (ending 12 April and 26 April 2020), it will accept the minimum $1,500 as being paid in each fortnight, even if it has been paid late, provided it is paid by the end of April . As such, the ATO has effectively granted businesses an extension of time to pay the required $1,500 per fortnight to their eligible employees for the purposes of meeting the JK payment requirements.

Job Keeper payments and Super Guarantee (SG):

Eligible Business Participants (EBP):

So, where to from here!!

here

JobKeeper employee nomination notice

20 April 2020

26 April 2020

Other points of consideration:

here

Covid 19 Stimulus and Support Measures

Wed, 01 Apr 2020 22:00:00 GMT

Go to Wright Partners downloadable forms to see the Covid 19 Stimulus and Support Measures

Governments Economic Stimulus Package Phase 3: JobKeeper Subsidy

Mon, 30 Mar 2020 22:00:00 GMT

A subsidy of $1,500 per fortnight per employee, administered by the ATO, will be paid to businesses that have experienced a downturn of more than 30% (50% for businesses over $1bn).

To be a part of the subsidy, employers will need to ensure that their employees receive at least $1,500 per fortnight (before tax). See the example below .

$1,500 JobKeeper subsidy to keep staff employed

Eligibility

There are two levels of eligibility; for employers and employees.

Eligible employers are those with:

Turnover below $1bn that have experienced a reduction in turnover of more than 30% relative to a comparable period 12 months ago (of at least a month); or
Turnover of $1bn or more that have experienced a reduction in turnover of more than 50% relative to a comparable period 12 months ago (of at least a month); and
Are not subject to the Major Bank Levy.

Sole traders and the self-employed with an ABN, and not-for-profits (including charities) that meet the turnover tests are eligible for the JobKeeper payment.

Eligible employees are those who:

Were employed by the relevant employer at 1 March 2020; and
Are currently employed by the employer (including those who have been stood down or re-hired); and
Are full time, part-time, or long term casuals (a casual employee employed on a regular basis for 12 months as at 1 March); and
Are at least 16 years of age; and
Are an Australian citizen, hold a permanent visa, are a Protected Special Category Visa Holder, a non-protected Special Category Visa Holder who has been residing continually in Australia for 10 years or more, or a Special Category (Subclass 444) Visa Holder; and
Are not in receipt of a JobKeeper Payment from another employer.

While it appears that businesses without employees can potentially qualify for JobKeeper Payments, it is not clear at this stage what conditions will need to be satisfied.

How the support is calculated

The ATO will administer this program and will make the $1,500 payments based on payroll information. The payments will be made monthly in arrears, so it is essential that you ensure your business and your employees continually meet the eligibility criteria.

The business will continue to receive the payments for eligible employees while they are eligible for the payments. While the program is expected to run for 6 months, payments will stop if the employee is no longer employed by the relevant employer.

How the support is provided

To access the JobKeeper subsidy, you should talk to your accountant or adviser to assist you with the registration process and calculations.

If you want to manage the process yourself, you must:

o Applications are not yet open. However, you should register your intent to apply for the JobKeeper subsidy with the ATO ( here ). The ATO will provide you with regular updates and advise you when you can lodge your application

Assess turnover

o Ensure you have an accurate record of your revenue for the 2018-19 income year and for the 2019-20 year to date

o Ensure you keep an accurate record of revenue from March 2020 onwards

o Compare your revenue for the whole of March 2019 with the whole of March 2020

o Measure the % decline in your revenue and ensure it has declined by more than 30%

o If you are not eligible in March, you may become eligible in another month

Identify eligible employees

o Nominate the employees eligible for the JobKeeper payments – you will need to provide this information to the ATO and keep that information up to date each month. The ATO will use Single Touch Payroll to prepopulate the information in most cases.

o Notify all eligible employees that they are receiving a JobKeeper payment. Employees can only be registered with one employer.

o Pay eligible employees at least $1,500 per fortnight (before tax). If an employee normally receives $1,500 or more per fortnight before tax the employee should continue to receive their regular income. Note: It is unclear at this stage if the employer must continue to pay their employee the same salary if it was more than the subsidy amount.

o Pay superannuation guarantee on normal salary and wages amounts paid to employees. If the employee normally receives less than $1,500 per fortnight before tax, the employer can decide whether to pay superannuation on the additional amount that is paid as a result of the JobKeeper program.

Sole traders and the self-employed can register their interest in applying for the JobKeeper payment with the ATO. These businesses will need to provide an ABN for the business, nominate an individual to receive the payment, provide the individual's TFN and declare their continued eligibility for the payments. Payments will be monthly to the individual's bank account.

Example

Adam owns a real estate business with two employees. The business is still operating at this stage but Adam expects that turnover will decline by more than 30% in in the coming months. The employees are:

Both Anne and Nick are still working in the business.

Adam registers his interest in the JobKeeper scheme (from 30 March 2020), then applies to the ATO providing details of his eligible employees. Adam also advises Anne and Nick that he has nominated them as eligible employees to receive the payment. Adam will provide information to the ATO on a monthly basis and receive the payment monthly in arrears.

Adam's business is eligible to receive the JobKeeper Payment for each employee.

For Anne, the business will:

Continue to pay Anne her full-time salary of $3,000 per fortnight before tax,
Receive $1,500 per fortnight from the JobKeeper Payment
Pay superannuation guarantee on Anne's salary

For Nick, the business will:

Continue to pay Nick $1,000 per fortnight before tax salary
Pay Nick an additional $500 per fortnight before tax (totalling $1,500)
Receive $1,500 per fortnight from the JobKeeper Payment
Pay superannuation guarantee on Nick's wage of $1,000 per fortnight (but can choose to pay SG on the full $1,500)

Adapted from Treasury fact sheet: JobKeeper payment - information for employers

Dealing with Financial Distress

Thu, 26 Mar 2020 22:00:00 GMT

In these difficult and challenging times, many accountants will have clients coming to them seeking advice and looking for options in relation to current or anticipated financial distress.

The options available to your clients will depend on their solvency status. This article covers the concept of corporate insolvency, how this affects the options available to your clients and where to go for specific insolvency and turnaround advice.

Dealing with Financial Distress.pdf

Wright Partners - Business as usual during Coronavirus outbreak

Tue, 24 Mar 2020 22:00:00 GMT

25 March 2020

Dear Client,

We are writing to update you on our contingency plans as a business, should the Government direct us to take further measures due to the spread of COVID19.

Naturally, we will follow the protocols issued to us by Government agencies when it comes to direct contact with our clients. In addition, we have options for Digital meetings via FaceTime / Zoom etc. A lot of our documents that we provide can all be created in an electronic format and sent to you via secure channels. As many of you would have already used our Electronic Signing services for documents, this is widely available to all our clients as well.

We will follow up with further news, along with posting updates on our blog page ( http://www.wrightpartners.com.au/blog ) for you to follow. Please consider following us on Facebook, as we are constantly posting updates here too.

There have already been a number of enquiries from our clients questioning the impact of the stimulus measures for their business. We are seeing too, clients facing challenging times where they have been impacted by the various lockdown rules affecting their businesses. Feel free to continue directing your enquiries to us, and we can unpack these Government measures specific to your circumstances and assist you with your challenges where possible.

We wish you good health. Please contact us with any concerns.

Yours faithfully,

Mitchell Clark