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Federal Budget 2024-25 Tax Insight

Federal Budget 2024-25 Tax Insight

We take insight here of the mainly tax changes in the Federal Budget 2024-25 announced in May 2024, in relates to the topics of Individual & Families, Superannuation & Investors, and Business & Employers.

Individuals & Families

Personal income tax cuts confirmed

From1 July 2024

As announced before, the government has made permanent tax cuts for all Australian taxpayers starting 01 July 2024.

Compared to the earlier Stage 3 plan, these new cuts give more benefits to people with taxable incomes below $150,000.

Personal income tax rates from 1 July 2024

Resident individuals

Tax rate2023-242024-25
0%$0 – $18,200$0 – $18,200
16% $18,201 – $45,000
19%$18,201 – $45,000 
30% $45,001 – $135,000
32.5%$45,001 – $120,000 
37%$120,001 – $180,000$135,001 – $190,000
45%>$180,000>$190,000

Non-resident individuals

Tax rate2023-242024-25
30% $0 – $135,000
32.5%$0 – $120,000 
37%$120,001 – $180,000$135,001 – $190,000
45%>$180,000>$190,000

Working holiday markers

Tax rate2023-242024-25
15%0 – $45,0000 – $45,000
30% $45,001 – $135,000
32.5%$45,001 – $120,000 
37%$120,001 – $180,000$135,001 – $190,000
45%>$180,000>$190,000

Medicare levy low-income thresholds increase

From1 July 2023

Starting from 01 July 2023, the low-income thresholds for the Medicare levy will be raised for singles, families, and seniors and pensioners.

Medicare low-income thresholdThreshold as at 30 June 2023Threshold from 1 July 2023
Singles$24,276$26,000
Families$40,939$43,846
Single – seniors and pensioners$38,365$41,089
Family – seniors and pensioners$53,406$57,198
Family – for each dependent child or student[1]$3,760$4,027

These adjustments reflect recent changes in the CPI, ensuring that low-income taxpayers typically remain exempt from paying the Medicare levy.

$300 energy relief for households

From1 July 2024

Households will get a $300 credit on their energy bills, spread out in automatic payments every three months throughout 2024-25.

Eligible small businesses will also get energy relief with a $325 rebate.

This plan, costing $3.5 billion over three years starting from 2023-24, continues and grows the Energy Bill Relief Fund.

Capping indexation of HELP debts

FromLoan accounts that existed on 1 June 2023

Starting from 01 June 2023, the Government will set the HELP indexation rate to be either the Consumer Price Index (CPI) or the Wage Price Index (WPI), whichever is lower. This change affects all HELP, VET Student Loans, Australian Apprenticeship Support Loans, and other student loans that were active on 01 June 2023.

By adjusting the HELP indexation from 01 June 2023, the rate will drop from:

– 7.1% to 3.2% in 2023, and

– 4.7% to about 4% in 2024.

This change helps over 3 million Australians with HELP debt after the CPI rate jumped to 7.1% last year.

A person with an average HELP debt of $26,500 will save around $1,200 on their loans this year, depending on the approval of the new law.

Estimated indexation for HELP debts

HELP debt at 30 June 2023Total estimated credit for 2023 and 2024*
$15,000$670
$25,000$1,120
$30,000$1,345
$35,000$1,570
$40,000$1,795
$45,000$2,020
$50,000$2,245
$60,000$2,690
$100,000$4,485
$130,000$5,835

Note: The actual credit amount will depend on personal situations, including payments made during the year. All HELP debts that were adjusted in 2023 and are set to be adjusted again on 01 June 2024, will get a credit for the indexation.

Superannuation on paid parental leave

From1 July 2025

Starting from 01 July 2025, superannuation (retirement savings) will be included with Paid Parental Leave (PPL) payments. Eligible parents will get an extra amount equal to 12% of their PPL payments, which will be added to their superannuation fund. This is on top of the previous change that increased leave to 22 weeks. The leave will further increase to 24 weeks from July 2025 and to 26 weeks from July 2026.

Increasing commonwealth rent assistance

From20 September 2024

Starting from 20 September 2024, the highest amount of Commonwealth rent assistance will go up by 10%.

People who get payments from Centrelink or the Department of Veterans Affairs, as well as those receiving the family tax benefit, might also get rent assistance if they pay rent or similar payments that are above a set amount every two weeks.

Right now, the highest amount they can get every two weeks is $188.20 for a single person and $177.20 for a couple together.

This change will cost $1.9 billion over five years starting from 2023-24, and $0.5 billion per year from 2028-29. It follows a 15% increase in September 2023, making the maximum rates more than 40% higher than in May 2022.

Improving aged care support

The government will spend $2.2 billion over the next five years to improve aged care and follow the recommendations from the Royal Commission into Aged Care Quality and Safety. This funding includes 24,100 new home care packages in 2024-25. They have also decided to start the new Aged Care Act on 01 July 2025. The government is currently making and considering changes to how aged care is funded based on the 2021 Royal Commission report. This might affect the costs of home care and residential care in the future. Usually, past reforms have allowed current residents and home care recipients to keep their existing benefits.

Increased flexibility for carer payment

Date20 March 2025

Currently, to get the Centrelink Carer Payment, the caregiver must not be working, studying, or training for more than 25 hours per week. This is because they need to give constant care to the recipient.

From 20 March 2025, this 25-hour limit will change to 100 hours over four weeks. This limit will only apply to employment and won’t include time spent on study, volunteering, or travel.

Additionally:

– Carer Payment recipients who exceed this limit or take more than their allowed temporary break from care days will have their payments paused for up to six months, rather than stopped entirely.

– Recipients will also have the option to take single temporary breaks from care if they exceed the participation limit, instead of the current requirement of at least seven days.

Higher JobSeeker rate for partial capacity to work

Date20 September 2024

Starting 20 September 2024, the Government will expand the JobSeeker payment to include single recipients who can work a bit (up to 14 hours per week).

Right now, JobSeeker payments give higher rate to people aged 55 or older who’ve been on it for nine months in a row.

Relationship statusMaximum payment per fortnight
Single with no children$762.70
Single with dependent children$816.90
Single 55 or older after 9 continuous months of payments$816.90
Partnered (Each)$698.30

Freezing social security deeming rates

Date12 months until 30 June 2025

When Centrelink and the Department of Veterans Affairs calculate payments, instead of looking at the actual income from your investments like bank accounts, term deposits, shares, and managed funds, they assume a fixed rate of return based on the total value of these investments. The Government plans to keep these fixed rates (shown below) unchanged until 1 July 2025.

Deeming rateSinglePensioner Couple
0.25%Up to $60,400Up to $100,200
2.25%Amounts over $60,400Amounts over $100,200

Pharmaceutical Benefits Scheme co-payments

From1 January 2024

The Government will keep medicine prices low by stopping some price increases:

– The cost you pay for PBS medicines won’t go up from 1st of January 2025 to 31st of December 2025. After that, it will start going up again on 01 January 2026.

– If you have a concession card, the cost you pay for PBS medicines won’t go up from 1st of January 2025 to 31st of December 2029. After that, it will start to increase on 1 January 2030.

Also, the $1 discount on patient co-payments will be reduced each year until it’s gone.

Starting 1 January 2024, you may pay up to $31.60 for most PBS medicines, or $7.70 if you have a concession card. The Australian Government pays the rest, except for brand premiums and certain other charges.

Federal, state and territory governments focus on housing

Housing initiatives focus on three main areas:

1. Private Housing Development: The government aims to build 1.2 million homes by the end of the decade. The 2023-24 Budget introduced new measures to encourage investment in housing projects, especially for affordable rental homes. However, legislation needed to enable these incentives has just been released, which is crucial for certainty and large-scale investment.

2. Support for First Home Buyers: The 2023-24 Budget prioritizes helping first home buyers with a $5.5 billion funding over ten years through the Help to Buy scheme. No new incentives have been announced since then.

3. Crisis and Social Housing Support: The government allocated $1 billion towards crisis and transitional housing for vulnerable groups like women, children fleeing domestic violence, and youth. Additionally, Commonwealth Rent Assistance was increased by 15% in the 2023-24 Budget.

New measures include:

– Providing $1 billion to states and territories for building infrastructure like roads, sewers, and energy for new housing.

– Introducing a new $9.3 billion National Agreement on Social Housing and Homelessness over five years. This includes doubling Commonwealth funding for homelessness to $400 million annually, with matching contributions from states and territories.

Domestic violence

DateFrom mid-2025

As mentioned before, the Government has promised nearly $1 billion over 5 years to make the Leaving Violence Program permanent. This program helps people escaping violence by providing them with financial support, safety checks, and referrals to get help. Those who qualify can receive up to $5,000 in financial aid, along with referrals, risk assessments, and safety planning.

Superannuation & Investors

Expanding CGT regime for foreign residents

DateCGT events commencing on or after 1 July 2025

Here’s a simpler version:

The rules for how foreign residents are taxed on capital gains will be changed to:

– Clearing up and expanding the kinds of assets that foreign residents must pay capital gains tax on.

– Changing the test for the main asset from a single point in time to a period of 365 days.

– Requiring foreign residents to tell the ATO before they sell shares or other ownership rights worth more than $20 million.

Currently, foreign residents must pay capital gains tax when they sell property in Australia that counts as ‘taxable Australian property’ (TAP). These rules make sure that people who don’t live in Australia pay Australian tax when they sell property that’s closely linked to Australian land and used in Australian business.

Shares in a company and parts of a trust can be TAP if the taxpayer and some family members own at least 10% of the business and more than 50% of the gross market value of the assets that the business owns are property in Australia and things like that.

The changes are to make sure Australia can tax foreign residents on their direct and indirect sales of property closely connected to Australian land. Similar to what Australia does with Australian residents.

The new ATO way of telling them what you’re doing will help make sure the rules about withholding tax for foreign residents are followed. You need to check that the thing you’re selling isn’t TAP.

The plan will also make sure Australia’s rules for foreign residents paying capital gains tax are more like what other countries do and what experts think is best.

The government will talk to people about how to make the changes, and they think it will make $600 million more over five years and cost $8 million more.

Business & Employers

$325 energy relief for small business

Date1 July 2024

About one million small businesses will get a $325 discount on their energy bills from 2024 to 2025. This support will be given as a credit every three months.

Households will also get energy relief with a $300 rebate.

This measure will cost $3.5 billion over three years starting from 2023 to 2024. It expands the Energy Bill Relief Fund.

$20k Small business instant asset write-off extended

Date1 July 2023 to 30 June 2025

Small businesses that earn less than $10 million can immediately deduct the full cost of certain assets that cost less than $20,000. This applies to assets used or ready to use between July 1, 2023, and June 30, 2025.

“Immediately deductible” means that the business can claim the entire cost of the asset as a tax deduction in the same year it was bought and used or installed.

For businesses registered for GST, the asset’s cost must be under $20,000 after subtracting any GST credits. For those not registered, it must be under $20,000 including GST.

Each asset can be written off individually, allowing a business to deduct the cost of multiple assets.

These rules apply only to assets covered by depreciation rules. Capital improvements to buildings aren’t eligible.

Assets valued at $20,000 or more can’t be immediately deducted. Instead, they can be put into a small business depreciation pool and depreciated at 15% in the first year and 30% each following year, if the business chooses simplified depreciation.

The rule preventing small businesses from re-entering simplified depreciation for 5 years if they opt-out will be suspended until June 30, 2025.

The proposed increase in the instant asset write-off from $20,000 to $30,000, extending it to medium-sized businesses, is not yet law.

The Future Made in Australia initiative

The Government has announced a big plan to make Australia a leader in renewable energy. They will spend $22.7 billion on several projects to encourage private companies to invest in industries that will help Australia move towards net zero emissions. This will secure Australia’s position in the global economy and make sure the country is ready for future challenges. The Future Made in Australia Act will set the rules for this plan, focusing on industries where Australia is strong economically, helps reduce emissions, and improves national security and economic strength in different parts of the country.

Making Australia a renewable energy ‘super power’

DateFrom 2027–28 to 2040–41

As part of the Future Made in Australia initiative, the Government plans to invest about $19.7 billion over ten years starting from 2024–25. This money will be used to speed up investment in key Australian industries like renewable hydrogen, green metals, low-carbon fuels, and the processing of critical minerals.

These investments include two time‑limited tax incentives to encourage new industries:

– A tax incentive for Critical Minerals Production, starting from 2027–28 to 2040–41, to support refining and processing of Australia’s 31 critical minerals. It will be valued at 10% of processing and refining costs, applicable for up to 10 years per project that will reach final investment decisions by 2030.

– A Hydrogen Production Tax Incentive, also starting from 2027–28 to 2040–41, for producers of renewable hydrogen. This will be $2 per kilogram of renewable hydrogen produced, for up to 10 years per project that will also reach final investment decisions by 2030.

These tax incentives are planned to be active from the 2027–28 to the 2040–41 financial years.

Other funding measures include:

– $10.2 million in 2024–25 for pre-feasibility studies on common-user processing facilities for critical minerals.

– $1.3 billion over ten years from 2024–25 for the Hydrogen Headstart program to support early-mover renewable hydrogen projects.

– $17.1 million over four years from 2024–25 for the 2024 National Hydrogen Strategy, including planning, social license, and safety training.

– $1.5 billion over seven years from 2027–28 for renewable energy investments by the Australian Renewable Energy Agency.

– $1.7 billion over ten years from 2024–25 for the Future Made in Australia Innovation Fund, focusing on projects in priority sectors.

– $1.4 billion over 11 years from 2023–24 to support manufacturing of clean energy technologies.

– $20.9 million over four years from 2024–25 for further consultation on incentives for low carbon liquid fuels.

– $18.1 million over six years from 2024–25 for foundational initiatives in the green metals industry.

– $11.4 million over four years from 2024–25 to fast track the Guarantee of Origin Scheme for green hydrogen and accelerate work on green metals.

These measures aim to enhance Australia’s capability in processing critical minerals, support the growth of a competitive hydrogen industry, and advance clean energy technologies.

Film producer tax offset

Date2025-26 income year

The Producer Tax Offset is a refund given for Australian spending on making Australian films, if certain conditions are met. The amount of the offset is:

  • 40% of the company’s spending on a feature film made in Australia.
  • 20% of the company’s spending on other films made in Australia.

The minimum time needed for the production depends on what type of production it is.

As part of the Government’s National Cultural Policy, changes will be made to the Producer Tax Offset from 2025–26. These changes will:

  • Remove the minimum length rules for content.
  • Remove the cap that restricts spending on certain production costs to 20% of the total.

Small business support services

DateOver four years from 2024–25

The Government plans to provide $41.7 million over four years starting from 2024–25 for several initiatives to support small businesses:

  • Improve how quickly small businesses get paid, including publicly identifying slow-paying businesses.
  • Support the mental health and financial wellbeing of small business owners, including extending the Small Business Debt Helpline and NewAccess for Small Business Owners program, which offers tailored, free, and private mental health support.
  • Update the Franchising Code of Conduct based on the 2023 Schaper Review, with a $3 million investment to remake and improve the code. This includes promoting best practices between franchisors and franchisees and making it easier for small businesses to operate, including better access to dispute resolution.
  • Provide $2.6 million to the Australian Small Business and Family Enterprise Ombudsman to help small businesses, including resolving disputes.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

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Crackdown on Misuse of Company Funds

Utilizing company resources for personal gain is a common practice among business owners, often blurring the line between their business and personal life. However, the Australian Taxation Office (ATO) is intensifying its efforts to curb such practices, citing violations of tax laws.

In response to the prevalent misuse of company assets, the ATO has initiated an educational campaign to highlight the grave tax implications associated with these actions. Under Division 7A of the tax law, regulations target scenarios where private companies extend benefits to shareholders or their associates through loans, payments, or debt forgiveness. This provision aims to prevent shareholders from accessing company profits or assets without paying the appropriate taxes.

According to Division 7A, if a benefit is conferred, the recipient is deemed to have received an unfranked dividend for tax purposes, subject to taxation at their marginal tax rate. However, this adverse tax consequence can be mitigated by either repaying the amount before the company tax return deadline or establishing a compliant loan agreement with prescribed annual repayments at the benchmark interest rate.

Despite Division 7A being in effect since 1997, common compliance issues persist, including inaccurate accounting for the use of company assets, non-compliant loans, refinancing to cover Division 7A liabilities, and incorrect interest rate application. Managing the tax implications of benefits provided to shareholders and associates can quickly become complex. However, adhering to a few fundamental practices can help prevent complications:

  • Avoid using company funds for personal expenses.
  • Maintain comprehensive records documenting all company transactions, including those involving associated trusts, shareholders, and their associates.
  • Ensure that any loans extended to shareholders or their associates are supported by written agreements with terms that meet compliance standards, thereby preventing the entire loan amount from being treated as an unfranked dividend.

It is crucial to adhere to strict deadlines when addressing Division 7A issues. For instance, repayment of loans or implementation of compliant loan agreements must be completed before the due or lodgment date of the company’s tax return for the relevant year whichever is earlier.

In conclusion, the ATO’s crackdown on the misuse of company funds underscores the importance of adhering to tax regulations and maintaining transparency in financial dealings. By following prescribed guidelines and adopting best practices, business owners can avoid potential tax liabilities and ensure compliance with Division 7A requirements.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Yvonne Shao @ Pitt Martin Tax

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Navigating Generational Succession: A Comprehensive Guide for Family Businesses

Transitioning a family business from one generation to the next is a complex process that demands careful planning and execution. While the idea of passing the torch to the next kin may seem straightforward, the reality is often far from it. Disputes, misunderstandings, and financial challenges can arise, jeopardizing both the business and familial relationships. In this article, we delve into the key considerations and strategies for successful generational succession.

1. Assessing Capability and Willingness:

The first step in generational succession is to determine whether the next generation is both capable of and willing to take on the business. This requires a realistic assessment of their skills, experience, and passion for the industry. While some successors may view it as their birthright, mere willingness is not enough; they must also possess the necessary competencies to lead the business forward. Conversely, the exiting generation must be open to the possibility that their children may have different career aspirations.

2. Managing Capital Transfer:

Determining the amount of capital to be extracted from the business during the transition to maintain its financial stability is another pivotal concern. Exiting generation may require a substantial sum, exerting pressure on both the business and its stakeholders. Often, the incoming generation lacks the necessary funds for a complete buyout, necessitating ongoing investment from the exiting generation or increased debt for the business. Clear documentation of the capital transition plan is vital to ensure transparency and alignment between all stakeholders.

3. Establishing Fair Compensation:

Remuneration should be based on commercial terms rather than meeting the personal needs of the owners. Formalizing compensation structures for directors and shareholders is essential to avoid disparities and conflicts of interest. Performance incentives should be clearly defined and tied to measurable outcomes to align incentives and drive accountability.

4. Defining Operating and Management Control:

The transition of control is often a sensitive issue in generational succession. It’s crucial to establish clear guidelines for operating and management control and to ensure buy-in from all parties involved. This may involve gradual transitions over time or event-driven milestones, depending on the circumstances of the business and the preferences of the stakeholders.

5. Setting Realistic Timeframes:

Generational succession is not an overnight process; it requires careful planning and implementation over an extended period. Setting realistic timeframes and expectations is essential to manage the transition effectively. Ensuring that all stakeholders have a common understanding of it to avoid misunderstandings and delays is crucial. This realistic timeline must be defined and documented in the succession plan.  

6. Embracing Formality and Structure:

Finally, generational succession often necessitates a greater level of formality and structure within the business. This includes defining roles and responsibilities, establishing clear decision-making processes, and implementing key performance indicators (KPIs) for management. By fostering a culture of accountability and transparency, family businesses can navigate the complexities of succession more smoothly.

In conclusion, generational succession is a multifaceted process that requires careful consideration of financial, operational, and interpersonal dynamics. By addressing key issues such as capability assessment, capital transfer, compensation, control transition, timeframe management, and organizational structure, family businesses can increase the likelihood of a successful transition and ensure the continuity of their legacy for future generations.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax

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ATO Alerts SMSF Trustees on Crucial Asset Valuation Practices

ATO Alerts SMSF Trustees on Crucial Asset Valuation Practices

The Australian Taxation Office (ATO) has recently issued a stern warning directed at trustees of self-managed superannuation funds (SMSFs), underscoring a significant issue with the practices surrounding asset valuations. According to the ATO, there is a noticeable pattern where over 16,500 SMSFs have reported unchanged asset values for three consecutive years. This trend is particularly concerning given that the assets in question often include major investments such as residential or commercial properties, which typically experience variable market conditions.

The Implications of Inaccurate Asset Valuations

The practice of consistently reporting static asset values can prompt increased scrutiny from the ATO. The accuracy of these valuations holds considerable importance, as they impact various facets of fund management and member benefits. These include member balance accuracy, contribution limits, and the ability to segregate assets for calculating exempt current pension income. Furthermore, precise valuations influence work test exemptions and eligibility for catch-up concessional contributions. Given these implications, the accuracy of asset valuations goes beyond mere regulatory compliance; it is a cornerstone of effective fund management and member equity.

The Oncoming Division 296 Superannuation Tax

The introduction of the Division 296 superannuation tax, which targets funds with balances exceeding $3 million, makes accurate asset valuation even more critical. This upcoming tax regime will affect taxation on fund earnings, potentially increasing tax liabilities for inaccurately valued funds. Trustees need to ensure their asset valuations reflect true market conditions to avoid falling into costly taxation pitfalls.

SMSF Valuation Requirements

The ATO mandates that SMSF assets be valued at their market value each financial year, and trustees must provide supporting evidence of these valuations to their fund auditor. Market value is determined based on what a reasonable buyer would be willing to pay a seller in an arm’s length transaction. More stringent requirements are set for collectibles and personal use assets, such as artwork and jewellery, where a qualified independent valuer’s input is necessary upon disposal and advisable every three years.

Specific Valuation Guidance

For real property, annual independent valuation isn’t a blanket requirement unless there are significant changes affecting the property’s value or the property is unique or hard to value. In such cases, documentation should include detailed property characteristics and relevant sales data. Commercial properties, particularly those leased to related parties, require careful documentation of net income yields and comparable market rents to support their valuations.

Valuing unlisted companies and trusts is inherently complex and should ideally reflect the underlying assets’ potential for income and growth, taking into account recent transaction prices for similar shares or units.

In situations lacking clear market data, trustees may need to rely on professional assessments or extrapolations from related market data to ensure valuations are as accurate as possible.

The Consequences of Non-compliance

Trustees who fail to meet these valuation standards risk facing not only tax inefficiencies but also potential penalties from the ATO. This underscores the critical nature of adhering to established valuation practices, ensuring that all SMSF trustees maintain the integrity and performance of their funds through compliant and strategic management practices.

In conclusion, the ATO’s warning is a timely reminder for SMSF trustees to revisit and possibly revamp their asset valuation practices. By ensuring valuations are accurate and reflective of the current market conditions, trustees can safeguard their funds against increased tax liabilities and ensure compliance with the evolving regulatory landscape.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Zoe Ma @ Pitt Martin Tax

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Understanding Your Business's Worth: Key Factors and Tips

Understanding Your Business’s Worth: Key Factors and Tips

For many small business owners, their business isn’t just a source of income; it’s their biggest investment, often meant to support their retirement. But figuring out exactly how much your business is worth and what makes it more valuable than others can be pretty tricky.

When it comes time to sell your business, the first thing you need to know is what exactly you’re selling. Typically, it’s your physical assets like equipment and inventory, along with the goodwill your business has built up. Buyers usually aren’t interested in taking on your debts or your company structure, so most sales end up being just for the assets.

The value of your assets is usually pretty straightforward to figure out, except for goodwill. Goodwill is the value of the future profits your business is expected to make. It’s essentially how much a buyer is willing to pay based on the business’s potential to make money down the road.

When someone buying a business can predict future profits and cash flow, that’s a good sign. But startups are riskier because they might not make profits right away. It often takes them years to start making money. “Goodwill” is the extra money paid to reduce risk and the time it takes to build up the business.

So, what makes a business valuable, and why would someone want to buy it?

  • Making consistent profits and showing potential for even more
  • Offering a high return on investment, ideally over 30%
  • Showing strong growth and having good prospects for more growth
  • Having a recognizable brand name that adds value
  • Being able to run without relying too heavily on the owner
  • Having a solid base of loyal customers
  • Having a sort of monopoly in your market, where you’re the only game in town
  • Having a competitive edge that’s hard for others to copy
  • Having good systems and processes in place to keep things running smoothly

While these factors play a big role, the actual price of a business can vary a lot. Sometimes, unique businesses or special circumstances can lead to higher prices. If your business does something really special, you might be able to get a price that’s higher than usual. But ultimately, it’s the market that decides what your business is worth. Even if you’re not thinking about selling your business right now, it’s still important to think about its value. Someday, you’ll probably want to sell, so it’s smart to do things that increase its value over time. And if you do decide to sell, think about who might want to buy it. You might find a buyer who’s willing to pay top dollar because your business would be a great addition to their plans for growth.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Yvonne Shao @ Pitt Martin Tax

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ATO cracks down on Professional Services Firms' Tax Avoidance Tactics

ATO cracks down on Professional Services Firms’ Tax Avoidance Tactics

The Australian Taxation Office (ATO) is tightening its grip on professional services firms suspected of diverting profits to evade taxes.

Two recent cases brought before the Administrative Appeals Tribunal have underscored the ATO’s commitment to ensuring that businesses, including lawyers, accountants, architects, medical practices, and engineers, fulfill their tax obligations.

In both instances, the ATO invoked Part IVA of the income tax law, a powerful tool that allows the Tax Commissioner to dismantle schemes designed solely to secure tax benefits. Even if a structure is legally sound, if its primary aim is tax reduction, then Part IVA can be exercised by the Commissioner to nullify any tax advantages obtained through such arrangements. Moreover, offenders under Part IVA may face additional tax liabilities along with hefty administrative penalties of either 25% or 50% of the tax shortfall.

The core of these cases involved a solicitor who oversaw multiple practice trusts generating profits from marketing and facilitating tax planning schemes.

Despite the complexity of these case arrangements involving intricate steps, the core strategy involved the practice trusts channeling their business profits through a series of trusts to entities with existing tax losses or tax-exempt status to ensure that the business profits are being shielded from taxation. However, the actual funds tied to these trust distributions, minus a commission paid to these entities, were funneled back to the solicitor or related entities in the form of loans.

Professional services firms have long been under the ATO’s scrutiny for their profit distribution practices. In 2021, the ATO issued comprehensive guidance on profit allocation within professional firms, establishing risk ratings and gateway tests. These recent cases showed the ATO’s determination to address the matter through litigation, leveraging the Commissioner’s authority outlined in Part IVA.

Professional services firms must be informed of various avenues through which the ATO can challenge their profit distribution arrangement. Here are some scenarios:

1. Personal Services Income (PSI): If a trading entity derives PSI primarily from the skills and efforts of an individual, the ATO expects profits to be attributed to that individual for tax assessment.

2. Business Structure Income: For income derived from professional practice business structures, the ATO scrutinizes arrangements that fail to allocate a reasonable level of profit to individual practitioners.

3. Trust Distributions: For a trust making paper distributions to entities with losses to manipulate deductions, the ATO can refer to the integrity rules under section 100A of the tax law.

Professional services firms must heed these warnings and ensure compliance with tax laws to avoid potential legal and tax repercussions. The ATO’s recent actions signal a heightened focus on combating tax avoidance tactics, underscoring the importance of transparent and lawful business practices within the professional services sector.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Angela Abejo @ Pitt Martin Tax

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Reminder from ATO: Australian Taxpayers’ Unpaid Tax Debt

Reminder from ATO: Australian Taxpayers’ Unpaid Tax Debt

In recent times, the Australian Taxation Office (ATO) has been sending shockwaves through the taxpayer community by alerting individuals and their tax agents to unpaid historical tax obligations. This unexpected notice confused many people who were previously unaware of the existence of these debts. In this article, we will focus on the latest developments in historical tax debt, the ATO’s approach, and the basic steps taxpayers take in managing their obligations.

Understanding the Situation

The ATO possesses the authority to waive debts only under specific circumstances, such as severe financial hardship. Occasionally, ATO may choose to place a debt “on hold” if it is not economical to do so. In such scenarios, the debt is temporarily suspended, not cancelled, meaning it could resurface in the taxpayer’s account later, potentially being deducted from future refunds. Notably, the ATO paused this practice of offsetting debts during the COVID period, leaving these amounts untouched.

However, in 2023, the Australian National Audit Office highlighted that excluding debts from offsetting contradicts the law, regardless of the debt’s age. Consequently, the ATO initiated contact with taxpayers regarding the historical debts placed on hold, catching many off guard.

Unveiling Hidden Debts

Numerous taxpayers accumulated debt unknowingly, as these obligations remained labelled as “inactive” within the ATO’s systems. Although the ATO has assured that action on debts placed on hold before 2017 has been suspended while they reevaluate their approach, it’s vital to understand that this does not nullify the debt. The burden of unpaid tax obligations can have significant implications for individuals and businesses alike, making it imperative to address these issues promptly and effectively.

Impact on Small Businesses

Small businesses, which constitute two-thirds of the $50 billion collectible debt owed to the ATO, are particularly affected by these developments. With the ATO resuming its standard debt collection practices as of July 2023, including reporting debts exceeding $100,000 to credit bureaus, small business owners must remain vigilant. Proactive engagement with the ATO is crucial for businesses with outstanding tax debts to mitigate the risk of further escalation.

Managing Tax Obligations

For taxpayers struggling with unpaid historical tax debts, a strategic approach is needed to address the issue. Firstly, individuals and businesses should carefully assess their tax records to identify any outstanding debts. Seeking professional advice from a tax professional or accountant can provide valuable insight into the complexities of tax law and the ATO’s procedures. In addition, discussing payment plans or hardship clauses directly with the ATO can help reduce the burden of outstanding tax debts.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Zoe Ma @ Pitt Martin Tax

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Reclaiming Investments: Tax issue for business withdraw the initial injection

Reclaiming Investments: Tax issue for business withdraw the initial injection

Entrepreneurs often invest their personal finances into launching and sustaining their businesses until they become self-sufficient. However, a recent case underscores the importance of understanding the tax consequences associated with withdrawing funds from a company for personal use.

A recent case brought before the Administrate Appeals Tribunal (AAT) serves as a cautionary tale for those who blur the lines between personal and business expenses within their company.

The individual in question, a shareholder and director of a private company, had been making withdrawals and covering personal expenses directly from the company’s bank account over several years. These transactions were not initially treated as taxable income.

Upon audit, the Australian Taxation Office (ATO) assessed these withdrawals and payments in one of two ways:

  • As ordinary income for the taxpayer.
  • As deemed dividends under Division 7A of the tax code.

Division 7A is designed to address situations where private companies provide benefits to shareholders or their associates in the form of loans, payments, or forgiven debts. If triggered, Division 7A treats the recipient as having received a deemed unfranked dividend for tax purposes.

The taxpayer attempted to argue before the AAT that the withdrawals were repayments of loans he had extended to the company originally, and thus should not be considered ordinary income. Alternatively, he contended that the payments constituted a loan to him, and there was no deemed dividend under Division 7A because the company lacked a “distributable surplus.”

However, the AAT found flaws in the evidence presented by the taxpayer, concluding that he had failed to substantiate his claims. Among the factors considered were the inconsistencies in his financial records and his inability to explain the source of the original loans, particularly during years when he declared tax losses.

Although the taxpayer asserted that some of the loans to the company originated from borrowings from his brother, the AAT deemed this explanation implausible given the brother’s modest income as reflected in his tax returns.

So, how should contributions from an owner to launch a business be treated? It largely depends on the circumstances. For small startups, common approaches include structuring contributions as loans to the company or issuing shares with the amounts paid treated as share capital.

The decision on the best approach hinges on various factors, including commercial considerations, the ease of withdrawing funds from the company later on, and compliance with regulatory requirements.

The manner in which funds are injected into the company also influences the available options for withdrawing them later. However, it’s crucial to remember that withdrawing funds from a company will likely have tax implications that require careful management.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Yvonne Shao @ Pitt Martin Tax

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Profit Intentions in Property Transactions: Lessons from a Tax Dispute

Profit Intentions in Property Transactions: Lessons from a Tax Dispute

In a recent case before the Administrative Appeals Tribunal, the intricacies of tax law and property transactions came to the forefront as a taxpayer successfully argued for a significant deduction on the sale of her apartment. The decision, which favored the taxpayer, sheds light on the complexities surrounding profit-making ventures and the tax implications associated with them.

Case Overview

The key of the case revolved around a taxpayer who claimed a substantial loss of $265,935 on the sale of her apartment in her tax return. The taxpayer contended that despite living in the apartment as her primary residence, her primary intention was profit-oriented, thus justifying the loss as deductible.

Taxpayer’s Argument

The taxpayer insisted that the purchase and subsequent sale of the apartment constituted a short-term profit-making venture. Despite using the apartment as her private residence, the taxpayer maintained that her overarching intention was to generate profit from the transaction.

Case Timeline

The timeline of events provided critical context to the case:

  • July 2015: The taxpayer entered into an ‘off-the-plan’ contract to purchase the apartment.
  • December 2016: Completion of the apartment was delayed until June 2020.
  • May 2018: The taxpayer sold her family home and purchased another apartment with the intention to make a profit.
  • April 2020: The contract to sell the apartment was entered during the COVID lockdown.
  • July 2020: The sale of the apartment occurred, and the purchase of the off-the-plan apartment was settled.

ATO’s Position

The Australian Taxation Office (ATO) disagreed with the taxpayer’s claim, contending that a profit-oriented venture typically wouldn’t involve residing in the property and would likely wait for a more favorable market.

Tribunal’s Decision

Contrary to the ATO’s position, the Tribunal sided with the taxpayer. The Tribunal emphasized a low threshold for proving profit-making intentions and deemed living in the property as secondary to such intentions.

Implications

The implications of this decision extend beyond the specific case, potentially impacting how property transactions are taxed in Australia:

  • Tax Treatment: If deemed commercial, profits from property transactions may be taxed as ordinary income rather than under Capital Gains Tax (CGT) provisions.
  • CGT Exemptions: The decision challenges the assumption that living in a property automatically qualifies it for CGT exemptions, highlighting the importance of intention in property transactions.

Lessons Learned

This case underscores several important lessons for property owners and investors:

  • Unexpected Tax Consequences: Property owners, including those engaged in flipping properties, may face unexpected tax consequences on gains without access to CGT concessions.
  • Complexity of Tax Treatment: Determining the appropriate tax treatment for property transactions can be complex and often requires professional advice to navigate effectively.

Pending Decision

As of now, the ATO has not confirmed whether it will appeal the decision, leaving the full implications of the case uncertain for the time being.

In conclusion, this case serves as a reminder of the nuanced nature of tax law, particularly concerning property transactions. It underscores the importance of understanding the intentions behind such transactions and seeking professional guidance to navigate the complexities of tax implications effectively. 

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Zoe Ma @ Pitt Martin Tax

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stage 3 tax cuts

Stage 3 of the personal income tax cuts significant adjustment

Originally set to commence on July 1, 2024, the Stage 3 of the personal income tax cuts will undergo a significant overhaul as proposed by the Federal Government.

Following widespread speculation, the Prime Minister has confirmed the Government’s intent to revise the scheduled Stage 3 tax cuts set to begin on July 1, 2024. In contrast to the current plan, the proposed redesign aims to extend the benefits of the tax cuts to individuals earning below $150,000 in taxable income. If implemented, an additional 2.9 million Australian taxpayers are expected to see an increase in their take-home pay starting from July 1.

This departure from the original vision of Stage 3, part of a 5-year plan to restructure the personal income tax system, reflects a response to the sharp rise in living costs, altering the prevailing sentiment within the community. As stated by the Prime Minister, the focus now lies on addressing immediate concerns rather than long-term structural changes.

The redesign is anticipated to generate an estimated $28 billion in additional Government revenues from personal income tax by 2034-35, primarily due to bracket creep.

So, what’s changing?

The revised tax cuts will reallocate resources to benefit lower-income households that have been disproportionately affected by rising living costs.

Tax rate2023-242024-25 legislated2024-25 proposed
0%$0 – $18,200$0 – $18,200$0 – $18,200
16%$18,201 – $45,000
19%$18,201 – $45,000$18,201 – $45,000
30%$45,001 – $200,000$45,001 – $135,000
32.5%$45,001 – $120,000
37%$120,001 – $180,000$135,001 – $190,000
45%>$180,000>$200,000>$190,000

Under the proposed redesign, resident taxpayers with taxable income below $146,486 will experience larger tax cuts compared to the existing Stage 3 plan. For instance:

  • A taxpayer with a taxable income of $40,000 will receive a tax cut of $654, as opposed to no tax cut under the current Stage 3 plan (though they may have benefited from Stage 1 and Stage 2 tax cuts).
  • A taxpayer with a taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan.

However, those earning $200,000 will see their expected benefit from the Stage 3 plan nearly halved, from $9,075 to $4,529. While there’s still a benefit compared to current tax rates, it’s not as significant.

Additionally, low-income earners will receive relief through a 7.1% increase in the Medicare Levy low-income threshold, indexed to inflation. This adjustment means individuals won’t begin paying the Medicare Levy until their income reaches $26,000, and they won’t pay the full 2% levy until their income reaches $32,500 for singles.

While the proposed redesign aims to maintain revenue neutrality compared to the existing budgeted Stage 3 plan, it is estimated to incur approximately $1 billion more in costs over the next four years before the effects of bracket creep mitigate the gains.

It’s not a done deal yet!

The implementation of the redesigned Stage 3 tax cuts is contingent upon the enactment of amending legislation by July 1, 2024. This necessitates securing support from independent or minor parties in Parliament, which convenes from February 6, 2024.

How did we get here?

Initially introduced in the 2018-19 Federal Budget, the personal income tax plan aimed to tackle the issue of ‘bracket creep’—where tax rates fail to keep pace with wage growth, leading to increased taxes over time. The three-point plan sought to simplify tax thresholds and rates, reduce the tax burden on many individuals, and align Australia’s tax system with some neighboring countries (e.g., New Zealand’s top marginal tax rate of 39% applying to incomes above $180,000).

The plan introduced incremental changes starting from July 1, 2018, and July 1, 2020, with Stage 3 slated to take effect from July 1, 2024.

What’s next?

For tax planning purposes, those with taxable incomes of $150,000 or more will find fewer planning opportunities with the redesigned Stage 3 tax cuts. Nevertheless, any alteration in tax rates presents an opportunity to review and adjust to ensure you’re maximizing available opportunities and not paying more than necessary.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Robert Liu @ Pitt Martin Tax

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