chancellors

Editorial Comment

Thu, 13 Jul 2023 23:21:24 GMT

EDITORIAL COMMENT: IS IT A PLAN, OR A FANTASY THAT WILL MAKE US ALL WORSE OFF?

According to the PLAN, increased productivity in the economy will deliver us from inflation and debt. Apparently, Australia is soon to become a “Renewable Energy Superpower” with a broadened industrial base providing capacity to actually process our raw materials for export of “value add”. The first step in achieving the PLAN is of course, the ‘unionisation of everything’. Having unions calling the shots on industrial relations, along with most other policy areas, will help to reduce the flexibility of business to engage its workforce and or adopt technology. Expanding union power is a necessary part of the PLAN despite full employment and rising wages in high demand jobs. This is because election payback is due. The PLAN’s big union payback will also ensure that critical infrastructure can never be completed on time or on budget, if at all. It is important that SMEs also come more under union influence so that they are hamstrung with regulation and unable to fulfil their role as the engine room of the economy. The next step in the PLAN is to discourage investment and the efficient allocation of investment capital. This is achieved by setting prices, interfering in markets, and further regulating business. Once that is complete, the PLAN is for Treasury to tap into our their $3.4 Billion superannuation “honey pot” and ensure that is invested in all the now “un-investable” projects such as build to rent social housing and other money pits that are being dreamt up. Chalmers is already working on re-defining the purpose of superannuation to better suit these purposes and keep Industry Super’s support of the unions and ALP camouflaged. The PLAN also ensures the cost of energy remains high by mandating use of energy sources and infrastructure that are unproven or don’t yet exist, and empowering China by importing from them limited life batteries, wind turbines, and panels all destined for future landfill to create the next environmental ‘emergency’. The PLAN is steadfast in refusing to consider sensible energy alternatives, such as Uranium or even gas, both of which we have in abundance, and which use existing transmission infrastructure. Opening up immigration will further assist the PLAN by putting more pressure on existing urban infrastructure and increasing the welfare base just as businesses reduce their workforces to cope with higher costs and regulation, and the looming recession. Gig economy jobs for new immigrants will evaporate once these roles gain ‘employee’ status and are unionised. The final step in the PLAN is the alteration of the constitution to create an extra layer of government which will inevitably slow legislative and approval processes and confuse and confound government policy.

The PLAN works in conjunction with the VIBE. It is important all along for the PLAN to maintain the voter base of individuals perceiving they benefit from voting for a living or for a VIBE that allows them to feel virtuous. Working the VIBE is greatly facilitated by our shortening attention spans. To get the VIBE people can quickly skim over media grabs which are carefully crafted by armies of spin doctors. Our children can feel good about Net Zero, gender and racial identity, and the Voice, all whilst blissfully not bothering to switch off lights or appliances when not in use. The VIBE is great as long as involves spending other people’s money or building stuff in other people’s backyards. Vibers can revel in receiving more money for less input, oblivious to the simultaneous erosion of their purchasing power and standard of living. Politicians and mainstream media will work as a team to ensure the VIBE prevails and to obfuscate important detail. No way can the VIBE effectively operate if bogged down with messy little details such as how the ‘Voice’ will actually operate.

The problem with socialism is that at some point it has no choice but to eat itself alive because the money always runs out. A great example of this is the recent Victorian state budget. Suddenly people on the Danistan public payroll are seeing their jobs evaporate and at the same time are being hit with Land Tax on their investment properties and holiday houses. Oh Dear!

Clients who were at the coal face during the Whitlam era are saying this is worse. Interesting times to come.

With all the preoccupation with minorities and identity politics, and the division it is creating, the potential impact on society of technology and artificial intelligence seems to be flying under the radar somewhat. This has the potential to eliminate or majorly disrupt a lot of occupations in a very short timeframe. On the downside it also will have the ability to disinform us on steroids. If there are productivity gains to come out of AI, it will be all too late to rescue our current ‘productivity team’.

UNCERTAINTY, INEQUITY, AND INEFFECIENCY ARE AN UNNECESSARY HANDBRAKE

Tax reform is an essential element of raising productivity. Our political system appears to have evolved in such a way that meaningful tax reform is actually impossible. Everybody who has ever really thought about it, knows that increasing and broadening the GST and perhaps looking at some other transactional taxes that can use technology to ‘clip the ticket’ are the way to go. In Australia, taxes on personal income, profits and gains make up 42% of the total compared to the OECD average of 24%, and that is not counting Payroll Tax! These are complex, inequitable, and inefficient taxes that are a waste of economic effort, including the effort expended trying to get around them. For example, taxes such as Stamp Duty and Payroll Tax are an outright disincentive to transact or do business. There needs to be a pathway to enable us to unravel the mess of taxes that distort the way we do things and consume so much wasted time and money.

What is instead happening is that indebted, spendthrift governments are becoming more reliant on these inefficient taxes and stifling investment by sudden opportunistic changes to market regulation, taxes, and royalties. State and territory governments for example, are busy trying to leverage extremely wide definitions of taxable wages to levy Payroll Tax on remittances of patient fees collected on behalf of medical practitioners by practice administration companies. Medical services are already in short supply or out of reach of many people. How does adding a direct cost of up to 6.85% (ACT) assist that? We also need to be increasingly mindful of Land Tax and other potential taxes on property. It is no accident that more and more properties are creeping over thresholds and rates that never change despite rapid increases in value. The ultimate “bracket creep”. The progression of valuations is made worse by the trend over the last decade or so for the government valuers to switch from conservative to aggressive valuations. The satisfaction from receiving a hefty valuation increase on your property is pretty short lived. Victoria has recently announced a new annual 1% property tax on commercial and industrial properties changing hands after 01/07/2024. This will replace one off transfer duty (rates ranging from 1.4% – 6.5%). Other states will no doubt follow the apparently very lucrative shift.

Federally, the lack of tax reform is making common business and investment structures problematic. Instead of trust tax reform, Treasury and the ATO have decided to re-purpose and weaponise S100A. This is a provision of the 1936 Tax Act. We actually have two tax acts running in parallel, 1936 and 1997. Another incomplete tax reform project and a story for another time! Section 100A was originally introduced in the 70’s to prevent unrelated parties trafficking in trust losses and other tax attributes. This blatant policy shift has blindsided the tax profession, created unbearable uncertainty, and added again to the already onerous burden in administering a trust. Because of this, clients will have to micromanage their trusts, incur more cost, pay more tax, and perhaps consider simplification or alternative structures. Whilst family arrangements using company structures and perhaps multiple classes of shares might look like a compelling alternative to trusts now, who knows what might be instore there! There is no doubt Dr Chalmers still has his eyes on franking credits for instance.

INTERESTING FACTS

We wish you all the very best for the forthcoming financial year!

Owies Case

Tue, 04 Jul 2023 23:09:57 GMT

DANGER! Trustees Discretion Undermined

A very dangerous precedent in discretionary trust law has been established by a recent decision in Victoria. Discretionary trust deeds generally provide trustees with an unlimited discretion to distribute trust income and capital among available beneficiaries as defined by the trust deed. In the past, trustees have relied on the apparently absolute discretion their deeds give them to distribute to selected beneficiaries at the exclusion of others. Trustees have always believed they were free to do this without the need to in any way justify or explain their decision. This is now in serious doubt following the decision of the Supreme Court of Victoria - Court of Appeal in Owies case: Owies v JJE Nominees Pty Ltd [2022] VSCA 142 (20 July 2022) .

The case involved distributions from the trustee of a discretionary trust known as the Owies Family Trust established by a couple John and Eva Owies in 1970. The trust deed named the couple’s three children Michael, Deborah and Paul as “primary” beneficiaries and also included other relatives within a “general” class of beneficiaries.

Deborah and Paul successfully argued that the income distributions for the 2015 to 2019 years were voidable on the basis that the distribution decisions of the trustee of the Trust were made on the basis of no real and genuine consideration of Deborah and Paul as potential recipients of distributions.

Note, as the transactions were found to be voidable (but not void), the aggrieved beneficiaries will need to apply to the courts for a separate declaration that a particular transaction was void. Watch this space!

COMMENT: It’s no real coincidence this case emanates from Victoria, the left-wing capital of Australia. Whilst each state has its own trust legislation this case will have relevance everywhere. It seems to be part of a trend that increasingly allows the state to override decisions people make in relation to distribution of their own wealth, whether it be under a trust deed, or under their will. As a result of this case trustees will have very little certainty that their decisions will not be challenged at some point in the future. For instance, will the state override decisions to exclude beneficiaries with addiction or bankruptcy issues, or who are financially irresponsible or pose asset protection risks? This case is likely to have very far-reaching effects and could be another nail in the coffin of discretionary trusts which are already being seriously undermined by Treasury and the ATO.

WHAT YOU SHOULD DO: The necessary response by trustees will evolve as the industry digests this unexpected decision. At this stage trustees should consider keeping notes demonstrating consideration of the various potential beneficiaries each year, and perhaps noting how distributions are intended to achieve family financial objectives.

Year End Housekeeping and Reminders

Tue, 04 Jul 2023 06:35:39 GMT

Here we outline some important issues relevant to year end and generally. Please contact us if you would like to review your individual circumstances.

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.

Electric Cars

Tue, 04 Jul 2023 04:09:59 GMT

Electric Car Deduction Claims – Measuring the Cost of Electricity.

Claiming deductions for an electric car you own is essentially the same as for a petrol or diesel car. The key issue is quantifying the cost of electricity used to charge the vehicle at a private residence. The ATO have issued Draft Practical Compliance Guideline PCG 2023/D1 authorising a rate of 4.2c/km to represent the cost of electricity. Here are some key things to note:

This method can be also used for an electric car fuelled by a hydrogen fuel cell.
It does not extend to “plug in hybrid” (PHEV) vehicles.
If you want to choose this method, you can’t also claim commercial charging station costs.
Substantiation applies, including keeping at least one electricity bill.

TIP: This guideline is for individuals claiming their EV using the logbook method or for businesses providing EVs to employees under the FBT rules. Without it there would be difficulty in recognising the cost of charging which can be considerable. Note that owners of electric vehicles are eligible to use the cents per km rate (78c for 2022/23 and 85c for 2023/24) available to other car types even though that rate incorporates the notional direct cost of fossil fuels.

Electric Car FBT Exemption – Significant Tax Savings Available

Salary packaging of certain electric vehicles used by employees, directors, and related individuals can be extremely tax efficient. On 27 July 2022, following an announcement in the Chalmers October 2022 mini budget, legislation was introduced to dramatically advantage lower value electric vehicles under the FBT system. Key elements of this exemption are:

It applies to car benefits first provided on or after 01/07/22.
a “car” is a motor vehicle (excluding motorcycles, scooters, and similar vehicles) designed to carry a load of less than one tonne and 8 or less passengers including the driver.
The first time anybody owned the car must be on or after 01/07/22.
Second hand cars qualify as long as they were acquired new on or after 01/07/22.
Qualifying cars include battery electric vehicles, hydrogen fuel cell vehicles and plug in hybrid vehicles.
The plug-in hybrid exemption is already being phased out by 01/04/25 unless arrangements extending beyond that date are entered before it.
The car must never have been subject to Luxury Car Tax (2023 FY threshold $84,916).
The exemption can apply in relation to benefits provided to employees (not including future or former employees) and their associates.

Note, the ATO has confirmed that home charging equipment doesn’t fall within the scope of the FBT exemption for electric cars. It is considered a separate benefit and subject to FBT if paid for (or reimbursed) by an employer. To avoid paying FBT it is best to pay for this equipment personally. Note, it would be possible to claim depreciation deductions for the cost of the unit where it is used to charge a vehicle that is used for income producing purposes.

Note also, while the provision of an eligible electric car is exempt from FBT, the taxable value of the benefit still needs to be considered when working out if an employee has a reportable fringe benefits amount (RFBA).

More Information: Electric cars exemption | Australian Taxation Office (ato.gov.au)

Electric vehicles and fringe benefits tax | Legal database (ato.gov.au)

The following are examples of cars with current pricing potentially below the Luxury Car Tax Threshold:

Hyundai Kona Electric ER or SR Elite
Tesla Model 3 Rear-Wheel Drive
Kia Niro S Electric
Volvo XC40 Recharge Plus
Mitsubishi Outlander PHEV

TIP: If you wish to rely on this it is best to do some due diligence to ensure the car actually fits within the eligibility criteria. It may not be a good idea to rely on representations by a car salesman.

2023/24 Federal Budget

ntc@chancellors.com.au (Nick Chancellor) — Tue, 04 Jul 2023 03:58:59 GMT

What's New

There were very few tax changes freshly announced in the budget. These days budget announcements are so light on detail, with clarification and certainty through legislation so delayed, that in many cases not much insight can be gained or clear action to be taken.

Stage Three Tax Cuts – Still on The Cards: The budget did not make any changes to personal tax rates for 2023/24. Treasurer Chalmers continues to respond to speculation about the stage three tax cuts by declaring they are legislated to proceed as scheduled on 1 ^st July 2024. One can’t help getting the impression that Albo & Co are waiting until the political climate becomes right to break their election promise on this.

Here is a comparison of rates and income thresholds before and after the tax cuts.

TIP : Assuming the tax cuts prevail, they are getting close, with just over a year before they kick in. That means planning opportunities that push taxable income from 2023/24 to 2024/25 should be considered.

Small Business – Lodgement Penalty Amnesty Program: Following a lesser-known announcement in the recent 2023/24 Federal Budget the ATO have formalised an amnesty on some penalties for overdue tax forms. The amnesty applies to overdue income tax returns, BAS and FBT returns that were due between 01/12/2019 and 28/02/2022. The amnesty runs from 01/06/2023 to 31/12/2023. It is only available to businesses with annual turnover of $10m or less and which are not part of privately owned group controlling over $5 million of net wealth. This is the tail end of COVID niceties from the ATO.

TIP: This is not as generous as it might first appear. It only applies to late lodgement or failure to lodge penalties and not to other penalties including interest. It does not appear to have any relevance to SGC superannuation requirements. This is the ATO attempting to quantify the amount of tax debt they can potentially chase post COVID. If you are behind in the relevant lodgements, this is some incentive to bring everything up to date. It is better to seek early advice if you need to manage debts to the ATO.

WARNING: Obligations to the ATO in relation to PAYG Withholding, Superannuation Guarantee, GST, LCT (Luxury Car Tax) or WET (Wine Equalisation Tax) can be subject to Director Penalty Notices (DPN) which can crystalise personal liability for company directors.

More information: Small businesses given unique opportunity to get back on track with tax | Australian Taxation Office (ato.gov.au)

PAYG and GST Instalment Uplift Factor: The GDP uplift factor applying to PAYG and GST instalments for 2023/24 was reduced to 6% (instead of the 12% that would have applied under the relevant statutory formula).

Temporary Full Expensing (the big COVID write-off) Finally Ends 30 June: The depreciation write-off allowing businesses with turnovers under $5 Billion, full write off of virtually any depreciating asset up to unlimited value ends on 30 June 2023. The system was to return to the old Instant Asset Write Off available to businesses with annual turnover <$10m, allowing immediate write off of assets up to a value of $1,000 only. The 2023/24 Budget announced that the Instant Asset Write Off limit would be increased to $20,000 until 30 ^th June 2024.

WARNING: It is important to remember that to validly claim under the expiring Temporary Full Expensing measures the asset has to be in use or installed ready for use by 30 ^th June 2023.

More information: Temporary full expensing | Australian Taxation Office (ato.gov.au)

Small Business Support – $20,000 instant asset write-off | Australian Taxation Office (ato.gov.au)

Deduction Boosts for Small Businesses: Deduction boosts are all the rage now, starting with the Morrison government 2022/23 budget 20% Training and Technology Boosts . The 2023/24 Budget added the 20% Small Business Energy Incentive (Boost). Key details are below:

COMMENT: If you need an example of the real regard the government has for small business just look at how they have handled this. They continue to throw out a few crumbs to tick some feel-good boxes with brief announcements, and then leave it until 1 ^st June this year to introduce draft legislation which was only finalised on 23 June 2023. Businesses have been pretty much left in the dark, having to guess the detail and implement systems to catch what they imagine might be applicable expenditure.

TIP: In contrast to write offs that simply put off the payment of tax, boost style deductions like this give you an overall tax saving. We suggest reviewing relevant expense and asset accounts to highlight any expenditure you think might qualify. This is especially important where such classifications may not be obvious to us as part of our ledger review.

Work From Home

Tue, 04 Jul 2023 03:27:52 GMT

More Changes and More Substantiation for WFH “Running” Expenses

The ATO and Treasury are clearly worried about escalating deduction claims for home office operating expenses, triggered by the Work from Home (WFH) trend. They released a new set of guidelines (PCG 2023/1) in February this year with retrospective operation to 1/7/22. These guidelines are offered as an alternative to accounting for and substantiating actual home office costs. Briefly, the history of these shortcut methods allowed by the ATO is as follows:

SUBSTANTIATION: Use of these rates requires the following minimum substantiation:

A time record of hours worked recorded in a diary, timesheet, or roster for example.
At least one bill showing you incurred energy, mobile, or telephone, and internet expenses.
At least one receipt showing you incurred occasional expenses such as stationery and computer consumables.

TIP: You will note that these shortcut methods do not include any ‘occupancy’ expenses such as rent, rates, home loan interest, and insurance, for example. A higher threshold of necessity is required to trigger these “place of business” style claims. Such claims are possible where an enterprise is operated from home or in situations where an employee does not have an alternative workspace available. This concept is considered in TR 93/30 . It is important to note that claiming place of business style expenses can interfere with your ability to claim full CGT Main Residence Exemption for your home.

ACTION: Home office work from home claims are potentially worthwhile. It is best to come up with a game plan early and keep receipts (take a photo of them or use an app) and record home office hours in a way that is easiest for you.

Superannuation

Tue, 04 Jul 2023 02:59:47 GMT

Employee Super to be Payable on Pay Day from 01/07/2026

Presently the minimum requirement is to pay superannuation, such that the fund receives the payment within 28 days of quarter end, to avoid the very punitive Super Guarantee Charge . This change takes advantage of relatively new technologies associated with Single Touch Payroll (STP) and is designed to give employees and the ATO better visibility of whether the employer is up to date with paying super.

Dangerous New Additional Tax on Super

It was announced on 28 ^th February 2023 that from 01/07/2025 individuals with a total superannuation balance over $3 million will be subject to additional tax of 15% on “earnings” on their balance over $3 million. This new and distinct tax is to be imposed on the difference in total superannuation balances at the start and end of a financial year, adjusted for withdrawals and contributions. On 31 ^st March 2023, a consultation paper was released by Treasury with submissions closing on 17 ^th April 2023. At this stage we are not aware of any published outcomes arising from the “consultation” process.

The consultation paper states that the $3m threshold will not be indexed and as such “provides certainty to people when arranging their tax and financial affairs”. Statements such as these are complete spin! Not indexing a threshold does nothing to increase certainty. On the contrary, changes to superannuation like this will totally undermine peoples’ confidence (certainty) in the system.

COMMENT AND ACTION and pic to be discussed with Stacey

Employee Super Rate Increases from 10.5% to 11% on 1 July.

As currently legislated the progression of the Super Guarantee Rate is as follows:

1 July 2023 - 30 June 2024 11.00%

1 July 2024 - 30 June 2025 11.50%

1 July 2025 - 30 June 2026 12.00%

1 July 2026 - 30 June 2027 12.00%

1 July 2027 - 30 June 2028 onwards 12.00%

COMMENT to be discussed with Stacey. And Pics