INDIVIDUALS

• LAMITO Removal: Reminder that the Low and Middle Income Tax Offset (LAMITO) ended 30 June 2022. For those previously eligible for the rebate, depending on your circumstances, your FY2023 tax refund may be lower than expected or you may even receive a tax bill.
• Private Hospital Cover vs Medicare Levy Surcharge (MLS): Consider if the level of your income and benefits could trigger MLS of up to 1.5% if you don’t have qualifying health cover: Medicare levy surcharge | Australian Taxation Office (ato.gov.au)  WARNING:  It is not possible to retrospectively insure to avoid surcharge.
• Consider Varying 2024 PAYG Instalments or Withholding: Anticipated reduced investment income may warrant a PAYG Variation. Similarly, significant anticipated deductions for an employee may justify applying for lower PAYG withholding rates by your employer. 
• Consider Eligibility for Commonwealth Seniors Health Card (CSHC): Basic requirements are to be at least Age Pension age (67 from 1 July 2023), a residency requirement, and an income test. TIP: Income thresholds have recently increased and are now $90,000 for singles, $144,000 for couples, and $180,000 for couples separated by illness. 
• Consider Deductible Expense Prepayments: An immediate deduction can be claimed by an individual incurring deductible non-business expenditure (e.g. – loan interest on rental properties or investment portfolios) provided the prepayment does not exceed 12 months and the eligible service period ends in the next financial year. WARNING: If a prepayment does not meet the 12-month rule, an immediate deduction cannot be claimed. Instead, the deduction must be apportioned over the eligible service period or 10 years, whichever is less.
• Government Superannuation Top Ups and Incentives:

a. Super Co-Contribution up to $500 automatically triggered by personal after-tax contributions (phases out fully where 2023 “total income” > $57,016 (2024 $58,445).

b. Low Income Super Tax Offset up to $500 automatically triggered based on personal or employer before tax contributions (phases out fully where “adjusted taxable income >$37,000).

c. Tax Offset for Spouse Contributions up to $540 triggered by contributions to spouse’s super where adjusted spouse income <$40k

Check with your fund or the ATO website for more details. 

• Donations: Many donations are tax deductible, including certain political donations by individuals up to $1,500 pa. Consider having the receipt made out to the highest income earner. You can check deductibility of various organisations here: http://www.abn.business.gov.au/Tools/DgrListing
• Consider Paying Down Government Study & Training Loan Debts: Indexation is applied to HELP, VSL, SFSS, SSL, and TSL balances each year on 1 June each year. With inflation on the rise uplifts will be significant (2023 Indexation came in at 7.1%). Study and training loan indexation rates | Australian Taxation Office (ato.gov.au)
• Quantity Surveyor Reports: If you are acquiring or have recently acquired an investment property you should ensure that you are maximising your capital allowance claims by obtaining a quantity surveyor report. Allowances are available based on the original cost of construction and any structural improvements. Different rates apply depending on the type of building and the period when construction commenced. Work out your capital works deductions | Australian Taxation Office (ato.gov.au)
• Non-Business Asset Write Offs Up to $300: Salary & Wage earners and investors do not benefit from the $20k instant asset write off of asset purchases, though they can take advantage of instant write offs for assets costing $300 or less, not part of a set that have a total cost exceeding $300.  Capital allowances – $300 immediate deduction tests | Australian Taxation Office (ato.gov.au) 

BUSINESS

• Compulsory Super Increase: SGC rate rising to 11% from 1 July 2023. See detail above.
• Pay Employees’ Superannuation Before 30^th June: Many businesses pay their compulsory employee superannuation on a monthly or quarterly cycle whereby the payment is not determined and paid until after period end. Superannuation is not deductible in the current year unless received by the fund on or before 30th June.
• Small Business Superannuation Clearing House (SBSCH): The threshold for access to the free Small Business Superannuation Clearing House remains at 19 or fewer employees or annual aggregated turnover of $10m or less.
• Temporary Full Expensing Runs Until 30 June 2023: Businesses with an aggregated turnover of less than $5 billion may deduct the full cost of eligible depreciating assets that are first held, and first used or installed ready for use for a taxable purpose, between 6 October 2020 and 30 June 2023. TIP: Temporary Full Expensing reverts to the Instant Asset Write Off from 1^st July at the temporary threshold for qualifying assets set at $20,000 until 30/6/24. This is available for businesses with turnover < $10m. Small Business Support – $20,000 instant asset write-off | Australian Taxation Office (ato.gov.au)
• Prepayments Deductible for Small and Medium Businesses in 2022/23: Similar to individuals (above), an immediate deduction can be claimed by entities with aggregated turnover less than $50m, incurring deductible business and/or deductible non-business expenditure provided the prepayment does not exceed 12 months and the eligible service period ends in the next financial year. WARNING: Again, if a prepayment does not meet the 12-month rule, an immediate deduction cannot be claimed. Instead, the deduction must be apportioned over the eligible service period or 10 years, whichever is less. General information about prepaid expenses | Australian Taxation Office (ato.gov.au)
• Don’t Forget TPAR Reports: Taxable Payments Annual Reports (TPAR) disclosing payments to contractors or subcontractors in industries such as building & construction, cleaning, courier and road freight, IT services, and security are due by 28 August each year. The purpose is to allow data matching to avoid under-declaring of income. Taxable payments annual report | Australian Taxation Office (ato.gov.au)
• Consider Timing of Invoicing: Under accruals-based accounting that applies to most businesses the timing of revenue recognition for tax is usually when a recoverable debt owing by the customer arises. WARNING: Blatant and aggressive manipulation of invoicing such as not billing when entitled to, could be challenged by the ATO under anti-avoidance rules.
• Consider Trading Stock Valuation Methods: Optional valuation methods under the tax law can be applied without any need for consistency over individual items or across tax years. Businesses and Investment traders can therefore legitimately influence taxable income by choice of valuation method:  Valuing trading stock | Australian Taxation Office (ato.gov.au) TIP: Investment traders may wish to consider switching investments between trading status and investment status (ideally using separate broker accounts) if a losing holding becomes a long-term recovery holding.   
• Review Accounting Standards for Depreciation: COVID inspired immediate asset write-offs could be distorting your financial reports. Depending on how you use those reports you may want to consider running separate depreciation for tax and accounting purposes.
• Review Accounting Standards for Tax: COVID inspired write-offs and non-assessable stimulus can introduce large differences between tax and accounting income. Business owners should consider whether it is worthwhile recognising deferred tax or future tax benefits on the balance sheet. Trustees need to consider the impact of large differences between taxable income and income according to the trust deed.
• Review Bad Debts Pre-30 June: Challenging business circumstances may bring some debtors within TR 92/18 write off guidelines. WARNING: It is necessary to have evidence that the decision to write off a bad debt was taken on or before 30^th June. A minute or evidence that the accounting entry was made at the time is sufficient.
• Directors Fees: To claim a current year deduction for accrued directors’ fees, the company should have definitively committed itself to the payment, e.g. by passing a properly authorised resolution. 
• Wages to Spouses and Children: Ensure that deductible wages to spouses and or children are actually incurred and preferably paid by year’s end and that this is documented. WARNING: Be aware that deductions are limited where the payment is considered unreasonable. 
• Inter Entity Transactions:  Consider the financial and tax impacts of inter-entity transactions including whether valued in a reasonable way and properly documented. 

CAPITAL GAINS AND LOSSES

• CGT Events and Timing: Consider if a CGT Event has happened during the last financial year. For most CGT assets a CGT Event occurs at the time of making the contract or agreement rather than the date of settlement. TIP: It is best to seek advice early if there is to be a significant Capital Gain as there are often ways to reduce the tax impact.
• Look for Offsetting CGT Losses: CGT Losses cannot be carried back. Where appropriate, consider realising capital losses by year’s end so that they may be offset against realised capital gains of that year. WARNING: Deliberate “Wash Sales” may be attacked by the ATO as tax avoidance. Under a wash sale the asset is sold and reacquired later or by a related entity to trigger the loss early. Transfers between related people or entities may be justifiable on other grounds such as consolidation of multiple holdings. 

TRUSTS

• Trust Distributions: Distributions must be determined by trustees prior to 30^th June. Each year we assist by sending draft minutes to clients. Added complexity due to the on-going reform of trust tax law, new administrative hurdles imposed by the ATO, and changing attitudes to trusts by the judiciary, means that special attention must be paid to these minutes. It is important to inform us about any out of the ordinary income, capital gains or other transactions of your trust. WARNING: Failing to give proper consideration to how various components of your trust income will be distributed can result in payment of unnecessary tax which is irreversible. It is not possible to alter trust distribution minutes after 30 June.
• New Beneficiary Notification: Under trustee TFN reporting obligations (around since 1 July 2010), trustees are required to report to the ATO the TFN details of any new beneficiaries of the trust. Note, this would include minors who have turned 18 during the year (where TFN details have not previously been reported). WARNING: Failing to report TFN details before a beneficiary is made presently entitled to trust income means that the trustee is required to withhold and remit to the ATO TFN withholding tax (currently 47%).
•  Unpaid Trust Entitlements: Special attention will need to be paid to unpaid trust entitlements following the release of controversial guidance by the ATO in February 2022. These changes have left the industry shell shocked, triggering a major re-think about how trusts need to be administered. Far more attention needs to be paid to how and when unpaid entitlements of beneficiary are used. 

COMPANIES

• Company Tax Rate: The tax rate for qualifying “base rate” entities (essentially companies in receipt of business income) with aggregated turnover < $50m will remain at 25% for 2022-23 and future years. Other companies continue with the 30% tax rate.
• Private Company Loan Compliance and Housekeeping:  For companies with pre-existing Div.7A loans, it is imperative that minimum repayments (at least) have been received by 30 June 2023. If not fully made, any shortfall amount will be treated as a deemed unfranked dividend. WARNING: Our company clients with Div.7A loans have been advised of 2023 loan payment requirements on completion of 2022 tax returns. If you are unclear, please contact us. For new loans arising in FY2023 you will have until lodgement of the company’s FY2023 tax return to either repay the loan in full or to enter into a complying Div.7A loan agreement, with a minimum repayment required by 30 June 2024.
• Franked Dividends: The overall incidence of tax can be reduced by careful timing (and streaming if possible) of franked dividends. Consider if declaring a dividend prior to 30^th June is beneficial. Comment: Companies heavily loaded with franked profit reserves should consider the possibility of further changes to company tax rates or the franking system that might reduce the value of stored franking credits.
  

SUPERANNUATION

• Ensure SMSF Minimum Income Stream Payments Have Been Made to Members: SMSFs paying income streams/pensions to members must ensure minimum required payments have been made by 30^th June in order to preserve tax exemption. IMPORTANT: The government had reduced the minimum required pension drawdown levels by 50% for the 2019/20 to 2022/23 financial years (inclusive). For the 2023/24 financial year, the 50% reduction in the minimum pension drawdown rate will no longer apply. Our SMSF pension clients have been advised of 2023 pension levels on completion of 2022 tax returns and subsequent follow-ups. If you are unclear, please contact us.
• SMSF Documentation & Valuations: Self-managed superannuation funds that hold property or unlisted, irregular assets ideally should obtain external market valuations annually, or at least once every three years. For properties, that can be a written appraisal from a real estate agent. This should include an analysis of comparable sales or market rents/yields. For unlisted assets, such as private company shares or trust units, data may include financial reports, meeting minutes etc. There is some limited scope for trustees to sign off on their own valuations if based on sensible data.
• Consider Maximising Concessional & Non-Concessional Superannuation Contributions & Avoid Breaching Contribution Caps: The standard 2022/23 contribution caps for those eligible to contribute are: $27,500 Concessional and $110,000 Non-Concessional. These rates are set to remain for 2023/24.  Check with us to see if you are eligible to contribute higher amounts using the concessional contribution carry forward rules and/or non-concessional contribution bring forward rules. Note that the level of your Total Superannuation Balance may impact your ability to make non-concessional contributions. Comment: Contributions must be received by the superannuation fund by 30^th June. It is best to arrange payments early as there can be administrative delays.
• Document Personal Superannuation Deductions: Individuals intending to claim a tax deduction for super contributions made personally must provide their fund a notice of intention to claim. The ATO has reported a high failure rate on this since the scrapping of the 10% rule which restricted personal deductions pre-1 July 2017.
• SMSF Investment Strategy Maintenance: Consider whether your SMSF investment strategy needs updating particularly in light of COVID impacts on investments. 
  

ACCOUNTING AND DOCUMENT MANAGEMENT

• Ensure you have up to date data for year-end planning. With modern cloud-based technology such as Xero and Sharesight, along with document management solutions such as Hubdoc, it is quite simple to have your accounting up to date real-time - a major advantage in navigating financial year end and ensuring your tax settings are optimised!

ATO Targets 

What would tax time be without the ATO hitting the press and rattling out the usual suspects in terms of targeted audit attention. COVID resulted in somewhat of a hiatus in compliance activity by the ATO, however during that time their funding and automatic data matching and analysis capability has expanded greatly. For example, the 2023/24 Budget included an extra $89.6m to the ATO and $1.2m to Treasury to extend and expand the Personal Income Tax Compliance Program. There has also been an “investment” of an extra $40.2m on Superannuation Guarantee compliance and $588.8m on GST compliance. Based on recent press releases there appear to be some quite specific areas of focus within their usual list:

• Rental properties – particularly apportionment of interest on loan re-draws, excessive claims for holiday house rentals, declaration of B&B income, and apportionment of CGT Main Residence Exemption where there has been income producing use. Apparently 9/10 rental property returns are incorrect according to the ATO. 
• Work Related Expenses – understandably many people are seeking to claim work from home expenses and those claims are denting ATO revenue. Other areas highlighted include incorrect car expense claims under the logbook method, overclaiming ‘work horse’ type vehicles including highly specialised utes.
• The Sharing Economy – the Sharing Economy Reporting Regime (SERR) begins for transactions made from 1/7/23 for supplying taxi travel (including ride sourcing) and short-term accommodation (90 days or less). The ATO will collect this information from the various platforms for data matching to tax returns.
• Wash Sales – An ATO list of targets is usually not complete without mention of ‘wash sales’ of investments being used to generate losses for utilisation in a financial year. The concern about wash sales is where the shortly after the sale the investment or an economically identical position is re-instated (including in a related entity). Of concern to the ATO this year might be Crypto Currency loss claims.  
  

ONGOING PROBLEM AREAS

Problem areas within Australian Taxation are numerous. Here is a selection of issues that tend to keep us awake at night:

• Division 7A: Division 7A is designed to penalise or discourage access to private company profits via loans, gifts, or private use of company assets. Changes were announced in the 2016/17 Budget including introduction of 10-year Division 7A compliant loans with higher interest and different repayment structures. Implementation has been deferred multiple times with again no 2023/24 Budget update as to when the changes will occur.
• Small Business CGT Concessions Complexity: With the addition of another layer of eligibility criteria operating from 8^th February 2018 the very generous CGT Small Business Concessions have arguably become almost too costly and complex for the small business community they are meant to benefit.
• Superannuation Guarantee Charge: There is simply no room to move in terms of SGC compliance. If you are late or short on compulsory contributions, you get smashed, and these days risk reputational damage due to “wage theft” industry outrage. With the regularity of these “wage theft” events affecting reputable companies with enormous HR resourcing, isn’t about time we focused attention on the ridiculous complexity of all things to do with industrial relations administration?
• Attacks on Trusts: The fallout from the new ATO guidance on Section 100A is having a massive impact on the use of and administration of the trusts. There is a significant momentum against trusts at present including Owies Case mentioned above, along with the possibility that courts could support further attacks on trusts by the ATO on the back of some success they have had using the Part IVA general anti-avoidance provisions where they have failed on Section 100A grounds. There are more than eight hundred thousand trusts registered, many of them to small business owners and family investors. Uncertainty regarding use of trusts needs urgent resolution. In the meantime, it is best to be cautious in deciding distributions ensuring a primary focus on economic goals rather than taxation benefits.