Changes to the boost is now a Federal law – from June 2023
On 29 March 2022, as part of the 2022–23 Budget, the then government announced it would support small business through these new measures. The measures became law on 23 June 2023. The technology investment boost and skills and training boost for small businesses are now operational and must be applied.
Time to Boost!
Small business technology investment boost
Small businesses (with an aggregated annual turnover of less than $50 million) can deduct an additional 20% of the expenditure incurred for the purposes of business digital operations or digitising its operations on business expenses and depreciating assets such as portable payment devices, cyber security systems or subscriptions to cloud based services.
This measure applies to expenditure incurred in the period commencing from 7:30 pm AEDT 29 March 2022 until 30 June 2023. An entity can claim the boost for expenditure on a depreciating asset only if the asset is first used, or installed ready for use, by 30 June 2023.
An annual $100,000 cap on expenditure will apply to each qualifying income year. Businesses can continue to deduct expenditure over $100,000 under existing law.
Eligible expenditure may include, but is not limited to, business expenditure on:
digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks
digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design
e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth
expenses that form part of your trading stock costs.
Small business skills and training boost
Small businesses (with an aggregated annual turnover of less than $50 million) will be able to deduct an additional 20% of expenditure that is incurred for the provision of eligible external training courses to their employees by registered providers in Australia. Businesses may continue to deduct expenditure that is ineligible for the bonus deduction in accordance with the existing tax law.
The expenditure must be:
for the provision of training to employees of your business, either in-person in Australia, or online
charged, directly or indirectly, by a registered external training provider that is not you or an associate of yours
already deductible for your business under taxation law
incurred within a specified period (between 7:30 pm AEDT or by legal time in the ACT on 29 March 2022 and 30 June 2024).
The bonus deduction is available for expenditure for the provision of training to one or more employees of your business. The training provider must meet certain registration criteria for the bonus deduction.
You cannot claim the following expenses towards the boost:
training of non-employee business owners such as sole traders, partners in a partnership or independent contractors
costs added on an invoice by an intermediary on top of the cost of training, such as commissions or fees, as they are not charged directly or indirectly by the registered training provider.
If you have any questions regarding these coming changes – de Kretser is here for you.
Need more information? If you need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
The recent ATO crackdown on trusts will no doubt have some business owners (and even some advisors) asking themselves the question: Is this structure for business purposes still worth it?
To recap, trust distributions have been under the ATO microscope in recent years. The latest ATO crackdown was in February 2022 when it updated its guidance around trust distributions especially those made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangements, the ATO may potentially take an unfavourable view on what were previously understood to be legitimate distribution arrangements.
The ATO is chiefly targeting arrangements under section 100A of the Tax Act; specifically, where trust distributions are made to a low-rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary, usually with a higher tax rate.In this regard, the ATO’s Taxpayer Alert illustrates how section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children. Despite this new ATO interpretation and the wider crackdown on trusts in recent years, the choice of a trust as a business structure still has a range of benefits including:
■Asset protection– Limited liability is possible if a corporate trustee is appointed. Usually, when a person owes money and cannot meet their payment requirements, the creditor can access the person’s personal assets to recoup the debt payable. However if a trust is in place, there is no access to beneficiary assets 50% CGT discount– A family trust receives a 50% discount on capital gains tax for profits made from selling any assets the trust has held for more than 12 months. This contrasts with a company structure. Companies cannot access the 50% CGT discount.
■Tax planning– Income that sits in the family trust that is not distributed by year-end is taxed at the highest income tax rate. However, any trust income distributed to the beneficiaries is taxed at the income tax rate of the beneficiary who receives the distribution. The way to definitely get around the ATO’s aforementioned section 100A crack down is to ensure the distributed money actually goes to the nominated beneficiary and is enjoyed by the beneficiary rather than another taxpayer
■Carry-forward losses– A trust does not distribute losses to beneficiaries. This means the beneficiaries will not be called upon to contribute money to the trust to meet any loss. Instead, losses from each year can be carried forward to the following year, subject to certain conditions being met.
Common mistakes made by family trusts that will attract the ATO’s attention include:
Purported distributions to tax-advantaged organisations, such as charities, that are not beneficiaries;
The trustee failing to make year-end trust distributions until after June 30;
The trustee incorrectly calculating trust income, or mischaracterising income and gains; and
Family trust election not being made in time or failing to properly specify the beneficiary, resulting in tax benefits going outside the family group.
This only a short guide to possible issues that may arise regarding Trust – please contact us for a more tailored approach to your specific needs.
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The cost of repairs and maintenance may be deductible in full in the year you incur them if both – •the expense directly relates to wear and tear or other damage that occurred while renting out the property •the property either – – continues to be rented on an ongoing basis – remains available for rent, but there’s a short time when the property is unoccupied (for example, where unseasonable weather causes cancellations of bookings or all reasonable efforts to attract tenants were unsuccessful).
Repairs Generally, repairs must relate directly to wear and tear or other damage that occurred while renting out the property and can be claimed in full in the same year you incurred the expense. Examples of repairs include: •replacing broken windows •repairing electrical appliances or machinery •replacing part of the guttering damaged in a storm •replacing part of a fence damaged by a falling tree branch.
Maintenance Maintenance generally involves keeping your property in a tenantable condition. It includes work to prevent deterioration or to fix existing deterioration. Examples of maintenance include: •repainting faded or damaged interior walls •oiling, brushing or cleaning something that is otherwise in good working condition (for example, oiling a deck or cleaning a swimming pool) •maintaining plumbing.
Capital allowances Depreciating assets are items that can be described as plant, which don’t form part of the premises. These items are usually: •separately identifiable •not likely to be permanent and expected to be replaced within a relatively short period •not part of the structure.
When claiming a deduction for decline in value for each asset, you can choose to use either: •the effective life the Commissioner has determined for these types of assets •your own reasonable estimate of its effective life.
Where you estimate an asset’s effective life, you must keep records to show how you worked it out. Examples of assets decline in value include: •floating timber flooring •carpets •curtains •appliances like a washing machine or fridge •furniture.
Capital works Capital works describes certain kinds of construction expenditure used to produce income. The rate of deduction for these expenses is generally 2.5% per year for 40 years following construction.
Capital works include: •building construction costs •the cost of altering a building •major renovations to a room •adding a fence •building extensions such as garages or patios •adding structural improvements like a driveway or retaining wall
This only a short guide to possible gains – please contact us for a more tailored approach to your specific needs.
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The State Taxation Acts Amendment Act 2023 received Royal Assent on 27 June 2023. The Act introduces measures announced in the 2023–24 Victorian Budget and makes amendments to various state taxation acts.
2023–24 Budget measures:
Business insurance duties
These will be abolished over 10 years by reducing the rate of duty (currently 10%) by 1 percentage point each year from 1 July 2024. ‘Business insurance’ refers to policies taken out by businesses covering public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, marine and aviation insurance.
Special disability trust (SDT) duty exemption
The Duties Act 2000 has been amended from 1 July 2023 to increase the property value threshold for this duty exemption from $500,000 to $1.5 million where the property will be used and occupied as the principal place of residence of the principal beneficiary of the SDT. If the value exceeds $1.5 million, duty will be assessed on the amount that exceeds the new threshold.
New duty exemption for a transfer of land to a person with a disability
The Duties Act 2000 has been amended from 1 July 2023 to introduce an exemption for a transfer of property from an immediate family member to a person with a disability who would be eligible to be a principal beneficiary of a SDT even if an SDT has not been established. The exemption is available from 1 July 2023 for properties valued up to $1.5 million.
Pensioner and concession cardholder duty exemption and concession
The Duties Act 2000 has been amended from 1 July 2023 to increase the property value thresholds to $600,000 for the exemption and $750,000 for the concession. The benefit applies against the full duty chargeable on the purchase. Additional eligibility criteria including a residence requirement has been introduced.
‘COVID debt’ repayment plan – land tax
The Land Tax Act 2005 has been amended to introduce a temporary land tax surcharge from the 2024 land tax year, expiring after 10 years. Properties exempt from land tax will also be exempt from the surcharge.
For taxable landholdings between $50,000 and $100,000, a $500 flat surcharge will apply.
For taxable landholdings between $100,000 and $300,000 (or $250,000 for trusts), a $975 flat surcharge will apply.
For taxable landholdings over $300,000 (or $250,000 for trusts), a $975 flat surcharge will apply plus an increased rate of land tax by 0.10 percentage points.
Absentee owner surcharge (AOS)
The Land Tax Act 2005 has been amended to increase the AOS rate from 2% to 4% and reduce the tax‑free threshold for non-trust absentee owners from $300,000 to $50,000, from the 2024 land tax year.
New land tax exemption for land owned by an immediate family member of a person with a disability
The Land Tax Act 2005 has been amended to introduce an exemption for land owned by an immediate family member of a qualifying person with a disability, where that person would be eligible to be a principal beneficiary of an SDT. The property must be used and occupied as the qualifying person’s principal place of residence for no consideration.
New land tax exemption for land protected by a conservation covenant with Trust for Nature (Victoria).
The Land Tax Act 2005 has been amended to introduce an exemption for land protected by a conservation covenant with Trust for Nature (Victoria), from the 2024 land tax year.
Land tax exemption for construction or renovation of a principal place of residence
The Land Tax Act 2005 has been amended to provide the Commissioner with a discretion to extend the exemption for up to 2 additional years where additional time is required to complete construction due to builder insolvency. This commences from the 2024 land tax year.
Workcover
Businesses will pay an average of 1.8 per cent of remuneration under the scheme from July 1, up from 1.27 per cent. The WorkCover premium is 1.23 per cent in Queensland and 1.48 per cent in NSW.
Eligibility for mental injury claims in Victoria will also be adjusted, with workers suffering stress and burnout no longer able to access weekly WorkCover benefits. They will instead be eligible for provisional payments for 13 weeks to cover medical treatment, along with access to enhanced psychosocial support services.
‘COVID debt’ repayment plan – payroll tax
The Payroll Tax Act 2007introduces a temporary payroll tax surcharge to commence from 1 July 2023, expiring after 10 years. The surcharge applies to employers who pay Australia wide wages of $10 million or more for a financial year and will be payable on Victorian wages above the relevant threshold.
A surcharge of 0.5% will apply to businesses with national payrolls above $10 million.
Businesses with national payrolls above $100 million will pay an additional 0.5%.
Annual payroll tax-free threshold
The Payroll Tax Act 2007 is amended to increase the annual payroll tax-free threshold from $700,000 to $900,000 from 1 July 2024 and from $900,000 to $1 million from 1 July 2025. From 1 July 2024, the allowable deduction will also be phased out for employers with annual wages between $3 million and $5 million, with no allowable deduction once annual wages exceed $5 million.
Payroll tax exemption for high-fee non-government schools
The Payroll Tax Act 2007 is amended from 1 July 2024 to limit the application of the payroll tax exemption to schools that the Minister for Education, in consultation with the Treasurer, declares to be exempt. In determining which schools will be exempt, the Minister for Education will take into account the fees and charges imposed, financial contributions received and any other matter that the Minister for Education considers appropriate.
The Minister for Education’s declaration dated 29 June 2023 is available online.
Other amendments
Corporate collective investment vehicles (CCIV)
The Duties Act 2000, Land Tax Act 2005 and Payroll Tax Act 2007 are amended in response to the introduction of CCIVs under Australian Government reforms.
Each sub-fund of a CCIV will be deemed as equivalent to a separate unit trust scheme for duties and land tax purposes.
Consistent with Federal treatment, regulate and tax a CCIV as if it were a trustee, the property of each sub-fund will be treated as trust property and the members of each sub-fund will be treated as beneficiaries or unit holders of the trust for duties and land tax purposes.
Amounts paid or payable by a CCIV to its corporate director will be excluded as wages for payroll tax purposes.
Fire services property levy – refunds and cancellation of assessments
The Fire Services Property Levy Act 2012 is amended to clarify that the ability of collection agencies to refund or cancel fire services property levy payments for mistakes or errors does not apply if the error, or grounds on which a person believes they have made an overpayment, is covered by a ground of objection under the Valuation of Land Act 1960.
Payroll tax rates
The Payroll Tax Act 2007 is amended to ensure the payroll tax rates for 2021-22 year continue to apply for future tax years. The amendment will apply retrospectively from 1 July 2022 to confirm the annual payroll tax rates that apply for the 2022-23 financial year.
Growth areas infrastructure contribution (GAIC)
The Planning and Environment Act 1987 and the Subdivision Act 1988 are amended to:
Introduce a new GAIC event for a plan of subdivision that does not require a statement of compliance to be issued.
Exclude a dutiable transaction that arises because of the operation of the economic entitlement provisions under the Duties Act 2000 from being a GAIC event.
Abolish the GAIC Hardship Relief Board.
Update GAIC exemptions to reflect changes to exemptions in the Duties Act 2000.
Prevent GAIC from being apportioned from a parent lot to any child lot wholly outside the contribution area, where the parent lot is partly inside and outside the contribution area.
Windfall gains tax (WGT) and valuation objections
The Taxation Administration Act 1997 and Valuation of Land Act 1960 are amended to clarify the scope of objections lodged to valuations of land used in an assessment of WGT.
The amendments require a taxpayer to object to both valuations of land used to calculate value uplift for the purposes of windfall gains tax, even if the grounds for the objection relate to only one of those valuations and provide councils discretion to adopt an amended valuation that results from a windfall gains tax objection.
Statute law revisions
Various statute law revisions are made to the Duties Act 2000, Land Tax Act 2005 and Payroll Tax Act 2007.
If you have any questions regarding these coming changes – de Kretser is here for you.
Need more information? If you need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
From 1 July 2023, trustees and directors of SMSFs must report certain events that affect their members transfer balance account quarterly.
These events must be reported by lodging a ‘transfer balance account report’ (TBAR) no later than 28 days after the end of the quarter in which they occur. The purpose of this change is to streamline the reporting process and bring all SMSFs under a single reporting framework. This means there will no longer be an ‘annual reporter’ option.
What is a transfer balance account and a TBAR event?
The introduction of a transfer balance cap (TBC) from July 2017 introduced a limit on how much an individual could transfer from their superannuation accumulation account into a retirement phase pension. In order to track an individual’s use of their TBC, a ‘transfer balance account’ (TBA) is created to record necessary transactions from the time an individual first commences a retirement phase pension.
Importantly, a TBAR is only required when a member has an event which affects their TBA. The most common reporting events include:
■Commencement of a pension
■Lump sum withdrawals from a pension account
■Commencement of a death benefit pension.
For many SMSFs, the members will have only one or two TBAR events in their lifetime. Other events that do not affect a member’s TBA and therefore do not need to be reported include:
■Pension payments
■Investment earnings or losses
■When an income stream ceases because the capital has been depleted
■Death of a member.
Changes from 1 July 2023 From 2023/24 onwards
■A member’s total superannuation balance will no longer be relevant in determining whether an SMSF reports on a quarterly or annual basis, and
■All SMSFs must lodge a TBAR within 28 days after the end of the quarter in which the TBC event has occurred (ie, by 28 January, 28 April, 28 July, and 28 October).
This means that SMSFs that have previously been permitted to lodge a TBAR on an annual basis will no longer be permitted to do so from 1 July 2023.
However, the obligation for SMSFs to report earlier will remain in cases where a fund must respond to a pension excess transfer balance determination or a commutation authority from the ATO.
Action items for SMSF trustees
For those SMSFs that already report on a quarterly basis, there will be no change to the reporting frequency for TBAR events. The changes impact SMSFs that are annual reporters only.
Note – if you’re currently lodging your TBAR annually at the same time as your SMSF annual return, you will need to report all events that occurred in the 2023 financial year by 28 October 2023. Should you have any questions on your TBAR reporting obligations, please contact us today as we can help you prepare for these upcoming changes.
If you have any questions regarding these coming changes – de Kretser is here for you.
Need more information? If you need help comparing your superannuation fund or need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
The Australian Taxation Office (ATO) has announced new updates on how one can claim expenses for working from home. From 1 July 2022 onwards, you can choose either to use the ‘actual cost’ method or a new ‘fixed rate’ method (67 cents per hour) based on what best matches your scenario. No matter what method you choose, you have to collect and maintain certain records to access the claim.
The ABS Characteristics of Employment provides information on whether people usually work from home. The concept of working from home stems from pre-pandemic times and includes people who did so: to catch up on work; as part of a flexible work arrangement; to reduce overheads/have a home office; or as part of their employment conditions. The proportion of people who usually work from home has increased from 30% in 2015 to 41% in 2021. It is expected that some of the recent increase could be explained by the COVID-19 pandemic. However, the estimates were generally trending upwards before this time.
Data is released every two years and can be analysed by industry, based on a person’s main job (most hours worked per week). In August 2021, the five industries with the largest proportions of people who usually worked from home were:
Financial and Insurance Services (77%)
Professional, Scientific and Technical Services (70%)
Information Media and Telecommunications (65%)
Education and Training (61%)
Rental, Hiring and Real Estate Services (61%).
The first issue for claiming expenses is that there needs to be a link between the expenses you incurred – and the method you make money. If an incurred expense doesn’t match your work or only half relates to your work, you won’t be able to claim the full expense as a deduction.
On the other hand, the second issue is that you have to incur expenses related to working from home.
The New ‘Fixed Rate’ Method
Previously, there were two fixed-rate methods for the 2021-22 income year:
A cover-all 80 cents per hour rate for costs incurred when you work from home (it was valid from 1 March 2020). This Covid-19-related rate was likely to cover all additional overhead costs linked to working from home, or
If you had space for work but you were not running your business from home, you could access 52 cents per hour while you worked from home to cover the running expenses of your home. However, this rate doesn’t cover certain items, including depreciation of electronic devices that can be claimed separately.
From the 2022-23 financial year onwards, the Australian Taxation Office has merged these two fixed-rate methods to come up with one revised method that can be accessed by anyone working from home, irrespective of whether they are working at the kitchen table or have a dedicated space.
67 cents per hour is the newly announced rate and it covers your energy expenses (gas and electricity), phone usage (home and mobile), stationery, internet, and computer consumables. You are allowed to separately claim deductions of the expense of the decline in assets’ value such as computers, maintenance, and repairs for these assets, and on the other hand, if you have a dedicated home office, it will include the cost of cleaning the office. If more than one person is working from the same home, each person can claim using the fixed rate method if they meet eligibility criteria.
What proof does the ATO need that you are working from home?
The ATO requires A record of hours for the income year – this can be in any form, provided it is kept contemporaneously. For example, records may be kept in one of the following forms:
timesheets
rosters
logs of time the taxpayer spent accessing employer systems or online business systems
time-tracking apps
a diary or similar document kept contemporaneously.
Furthermore, you also need to maintain a copy of at least one document for every expense you incurred during the year that is covered by the fixed rate method.
It could include bills, invoices, or credit card statements.
Keeping records of running expenses
The taxpayer must also keep evidence for each of the additional running expenses that they incurred.
For energy, mobile and home phone and internet expenses, the taxpayer must keep one monthly or quarterly bill. If the bill is not in the taxpayer’s name, they will also have to keep additional evidence showing they incurred the expenses, e.g. a joint credit card statement showing payment or a lease agreement showing they share the property, and therefore the expenses, with others.
For stationery and computer consumables, which are occasional expenses, the taxpayer must keep one receipt for an item purchased.
Each household member who contributes to the payment of an expense that is listed on a bill in the name of one person but the cost is split will be considered to have incurred it. You need to maintain these records so you can prove your claim. If you don’t have this proof at that time, you will not be able to claim deductions.
According to the ATO, you will no longer be able to give estimates or a sample diary over four weeks to claim work-from-home deductions. From 1 March 2023, you will have to show the actual hours you worked from home.
Keeping records for decline in value
As the decline in value of depreciating assets is not covered by the revised fixed-rate per hour, to claim a deduction for decline in value the taxpayer must keep the written evidence required by Div 900 or the ITAA 1997
An employee must keep, for each depreciating asset, a document which shows:
the name or business name of the supplier
the cost of the asset
the nature of the asset
the day the asset was acquired
the day the record was made out.
The taxpayer must also keep records which demonstrate their work-related use of the depreciating asset. This can be evidenced by records of a representative four-week period that show personal and income-producing use of the depreciating assets.
For depreciating assets used in carrying on a business, they must keep records that record and explain all transactions.
If you have any questions regarding these changes – de Kretser is here for you.
Need more information? If you need help with consolidating your information to achieve maximum return – please contact us.
Studies suggest that the failure to plan cash flow is one of the leading causes of small business failure.
To this end, a cash flow forecast is a crucial cash management tool for operating your business effectively.
Specifically, a cash flow forecast tracks the sources and amounts of cash coming into and out of your business over a given period. It enables you to foresee peaks and troughs of cash amounts held by your business, and therefore whether you have sufficient cash on hand to fund your debts at a particular time.
Keep in mind that sales figures can change all the time depending on:
your customer base and how quickly they pay you
changes in the economy such as interest rates and unemployment rates
what your competitors are doing
Moreover, it alerts you to when you may need to take action – by discounting stock or getting an overdraft, for example – to ensure your business has sufficient cash to meets its needs. On the other hand, it also allows you to see when you have large cash surpluses, which may indicate that you have borrowed too much, or you have money that ought to be invested.In practical terms, a cash flow forecast can also:
■make your business less vulnerable to external events in the economy, such as interest rate or super rises
■reduce your reliance on external funding
■improve your credit rating
■assist in the planning and re-allocation of resources, and
■help you to recognise the factors that have a major impact on your profitability.
At this point, a distinction should be drawn between budgets and cash flow forecasts. While budgets are designed to predict how viable a business will be over a given period, unlike cashflow forecasts, they include non-cash items, such as depreciation and outstanding creditors.
By contrast, cash flow forecast focus on the cash position of a business at a given period. Non-cash items do not feature. In short, while budgets will give you the profit position, cash flow forecasts will give you the cash position. Cash flow forecasting can be used by, and be of great assistance to, the following entities:
■business owners
■start-up business
■financiers
■creditors
A cash flow forecast is usually prepared for either the coming quarter or the coming year. Whether you choose to divide the forecast up into weekly or monthly segments will generally depend on when most of your fixed costs arise (such as salaries, for example).
When forecasting overheads, usually a forecast will list:
■receipts
■payments
■excess receipts over payments (with negative figures displayed in brackets)
■opening balance
■closing bank balance.
When you are making forecasts, it is important to use realistic estimates. This will usually involve looking at last year’s results and combining them with economic growth, and other factors unique to your line of business.
If you have any questions regarding your cash flow forecast – de Kretser is here for you.
Need more information? If you need help creating an overview of your cashflow and how it will greatly benefit your overall business approach, we are here to help, so please contact us for further information.
What is the proposed new tax on $3m+ Super balances?
Individuals with large superannuation balances may soon be subject to an extra 15% tax on earnings if their balance exceeds $3m at the end of a financial year.
What has been proposed?
Recently, the government announced it will introduce an additional tax of 15% on earnings for individuals whose total superannuation balance (TSB) exceeds $3m at the end of a financial year. Those affected would continue to pay 15% tax on any earnings below the $3m threshold but will also pay an extra 15% on earnings for balances over $3m.
The proposal will not impose a limit on superannuation account balances in the accumulation phase, rather it is about how generous the tax concessions are on higher balances. The government has confirmed the changes will not be applied retrospectively and will apply to future earnings, coming into effect from 1 July 2025.
This means your balance in superannuation at 30 June 2026 is what matters initially.
What counts towards the $3m threshold?
The $3m threshold is based on your total superannuation balance (TSB) and includes all of your superannuation accounts. This includes your accumulation and pension accounts and all superannuation funds you may have (such as your SMSF and any APRA-regulated superannuation funds you have). Further, the $3m threshold is per member, not per superannuation fund. This means a couple could have just under $6m in superannuation/pension phase before being impacted by the proposals.
How will earnings be calculated?
Put simply, the extra 15% tax is unrelated to the actual taxable income generated by your superannuation fund. Rather, it is a tax on earnings or increases in account balances over $3m (including unrealised gains and losses). This means any growth in balances will include anything that causes your account balance to group – such as interest, dividends, rent, and capital gains on assets that have been sold, including any notional or unrealised gains on assets that increase in value, even if your fund hasn’t sold them.
Apart from the extra 15% tax, the taxation of unrealised gains is what has caused a stir, as currently individuals do not pay tax on income or capital gains on assets that have not been sold. When looking at how to capture growth in a person’s TSB over a financial year, earnings will be calculated based on the difference in TSB at the start and end of the financial year, and will be adjusted for withdrawals and contributions. It is also worth noting that negative earnings can be carried forward and offset against this tax in future years’ tax liabilities.
How is the extra 15% tax calculated?
Superannuation funds, including SMSFs, will not be required to calculate the earnings attributable to a member’s balance above $3m. Rather, the ATO will use a three-step formula to calculate the proportion of total earnings which will be subject to the additional 15% tax.
How will the extra tax be paid?
Individuals will be notified of their liability to pay the extra tax by the ATO. This means the ATO, not their superannuation fund, will issue members with a tax assessment. Individuals will have the choice of either paying the tax themselves or from their superannuation fund(s) (if they have multiple funds). The tax will be separate to the individual’s personal income tax liabilities.
Don’t fret just yet! The measure is due to start from 1 July 2025, so superannuation funds and members still have time to consider their options.
Remember, this measure is still a proposal and must be passed into legislation by Parliament to become law. So don’t rush to remove benefits below the $3m limit just yet as once amounts have been withdrawn from superannuation, it’s hard to get them back in.
If you have any questions regarding your Super obligations – de Kretser is here for you.
Need more information? If you need help comparing your superannuation fund or need assistance understanding how the comparison information relates to your circumstances, we are here to help, so please contact us for further information.
The ATO released its final guidance material on the application of section 100A late last year. In doing so, it has fortunately clarified a number of issues.
To recap, the ATO in February 2022 updated its guidance around trust distributions made to adult children, corporate beneficiaries and entities that are carrying losses. Depending on the structure of these arrangements, potentially the ATO may take an unfavourable view on what were previously understood to be legitimate distribution arrangements.
The ATO is chiefly targeting arrangements under section 100A of the Tax Act, specifically where trust distributions are made to a low-rate tax beneficiary but the real benefit of the distribution is transferred or paid to another beneficiary usually with a higher tax rate.
In this regard, the ATO’s Taxpayer Alert illustrate show section 100A can apply to the quite common scenario where a parent benefits from a trust distribution to their adult children. The final guidance is not the law and represents no more than the ATO’s view about how the law applies. It carries no legal authority, and clients in consultation with us as your advisor may consider venturing out into deeper and rougher waters, depending on your circumstances.
Following the release of the ATO material, there are a number of risk management options going forward:
■ Only distribute to Mum and Dad. This would be quite safe from section 100A scrutiny. No person pays less tax as a result of any agreement, and this is unlikely to be seen as high-risk by the ATO.
■ Continue to distribute to young adult beneficiaries, but hand over the money If you are happy to give money to your children, this can be achieved while at the same time optimising tax.
■ Charge board and current university fees If adult beneficiaries are living at home, they should pay board (just as if they had a job). This will not add up to large sums, but arm’s-length board for a full year could come to about $18,000. This allows for some tax arbitrage without handing the kids any money.
■ Use of bucket company. Three preconditions must exist for a bucket company to function:
There needs to be a trust with income to distribute.
The trust deed of the trust must allow for corporations to be beneficiaries.
The corporate beneficiary must fall within the definition ‘beneficiary’ under the trust deed.
Having a private corporate beneficiary caps the tax rate imposed on trust income. Franked dividends can subsequently be flexibly allocated through having a trust structure interposed between the bucket company and the beneficiaries. The present entitlement can be lent back to the trustee for use in the business of the trust, although there are minimum repayment conditions. Avoid having the main trust as a shareholder in the bucket company. The ATO considers circular income flows to be high-risk.
■ Be alert for the “no reimbursement agreement” argument If you are contemplating making a gift or an interest-free loan to another person, ask questions about the circumstances behind this plan. If it was not in contemplation at the time of the relevant appointment of trust income (up to two years ago), but has arisen because family circumstances have changed recently, there may not be a reimbursement agreement.
■ If making gifts, go once and go big! You are unlikely to escape ATO attention if you have beneficiaries making gifts or loans year-after-year. So, where there is a strong argument to support the ordinary dealing exception, try to make it once-off, and for a significant amount if possible.
Through a deep understanding of the personal and business structures of our clients, the de Kretser team are ready to assist you with your trust requirements, bringing about tax-effective outcomes tailored to the specific requirements at hand.
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The ATO has issued new draft guidelines around a new method (the revised fixed rate method) of calculating work-from-home running expenses from 1 July 2022 (as an alternative to calculating the actual work-related portion of all running expenses).
The new revised fixed rate method will replace both:
■the 52 cents fixed-rate method for electricity and gas expenses, home office cleaning expenses and the decline in value of furniture and furnishings,
You are eligible to use the revised fixed-rate method from 1 July 2022 if you:
■work from home to fulfil your employment duties or to run your business (a separate home office or dedicated work area is not required)
■incur additional running expenses that are deductible, and
■keep and retain records of the time spent working from home and of the additional running expenses incurred.
New rate
The new rate of 67 cents (replacing the fixed rate of 52 cents was “based on the Australian Bureau of Statistics (ABS) household expenditure survey with consideration of annual Consumer Price Index (CPI) weightings”. It allowed 52c per hour for each hour a taxpayer worked from their home office to calculate their electricity and gas expenses, home office cleaning expenses and the decline in value of furniture and furnishings. In addition, a separate deduction for the taxpayer’s work-related internet expenses, mobile and home telephone expenses, stationery and computer consumables and the decline in value of a computer, laptop or similar device could be claimed.
The revised 67 cent fixed rate under the new rules is inclusive of:
■internet expenses
■mobile and/or home telephone expenses, and
■stationery and computer consumables.
The inclusion of these expenses within the revised fixed rate, when coupled with the current high inflation environment, means that there is a high likelihood that taxpayers may be worse off when moving from 52 cents to 67 cents.
Record keeping
From 1 January 2023, will see the need for you to keep a record of the actual hours worked from home (e.g. timesheets, rosters or a diary kept contemporaneously). This is more onerous than the 52 cent method where you only needed to keep a record to show how many hours you worked from home.
The ATO under the new revised fixed rate method also requires evidence in relation to each of the running expenses listed above.
For energy, mobile and/or home telephone and internet expenses, one bill per item needs to be retained.
If the bill is not in your name, additional evidence is needed to prove that you incurred the expenditure. For stationery and computer consumables, one receipt needs to be kept for an item purchased.
Under the new method, the amount that can be claimed will potentially be lower, while the compliance obligations are higher – the taxpayer not only needs to keep a record of times spent working from home, but also there is a need to keep an invoice/receipt for each of the additional costs, such as an electricity bill.
This is a new requirement which never formerly existed under either of the replaced fixed rate methods. While the new draft guidance offers a transitional arrangement until December 2022, individuals currently availing themselves of the 52 cent fixed rate method will need to consider whether they can meet the additional administrative burden from 1 January 2023, or whether the “actual expenses” method is amore achievable alternative.
Contact Us
If you are uncertain which method is best for you please contact us directly to discuss your circumstances.
Please do not hesitate to get in touch and one of our de Kretser members would love to help you in the right direction.
