After almost a year since its announcement in the 2022-23 Federal Budget, the 120% tax deduction for technology investments and skills and training expenditure by small and medium businesses (SMEs) has finally become law. People who follow our social media has been informed to record these types of expense into a separated account in order to easily capture the figures when the law is enacted and tax return is prepared. This boost is aimed at providing SMEs with added incentives to invest in technology and improve the skills of their workforce.

Who Qualifies for the Boosts?

The 120% technology investments and skills and training boosts are accessible to small business entities (individual sole traders, partnership, company or trading trust) with an aggregated annual turnover of less than $50 million. The aggregated turnover includes not only the business’s turnover but also that of its affiliates and connected entities.

$20k Technology Investments Boost

The Technology Investments Boost offers SMEs a bonus deduction for expenses and depreciating assets related to digital operations or digitizing activities from 7:30 pm (AEST) on 29 March 2022 until 30 June 2023.

To qualify for the deduction, an expense is considered “incurred” when the SME is legally liable for the cost, either through a tax invoice or a contractual agreement. For depreciating assets like computer hardware, the technology must have been purchased and installed ready for use by 30 June 2023. Simply ordering the assets on 29 June won’t suffice; they must have been received and set up for use.

Eligible expenses for the technology investments boost include:

• Digital enabling items: Computer and telecommunications hardware and equipment, software, internet costs, and systems and services that support the use of computer networks.

• Digital media and marketing: Audio and visual content accessible on digital devices, including web page design.

• E-commerce: Goods or services that facilitate digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, cloud-based service subscriptions, and advice on digital operations.

• Cybersecurity: This includes cybersecurity systems, backup management, and monitoring services.

The technology must be “wholly or substantially for the purposes of an entity’s digital operations or digitizing the entity’s operations.” This means that there must be a direct link between the technology and the business’s digital operations, which generate income.

It’s essential to note that the technology investments boost does not cover costs related to employing staff, raising capital, constructing business premises, or the cost of goods and services the business sells. Additionally, assets that are purchased and sold within the relevant period, capital works costs, financing costs, salary or wage costs, and training or education costs are not eligible for the boost.

Claiming the Bonus Deduction

The bonus deduction is subject to an annual cap of $20,000, with eligible expenditures up to $100,000 qualifying for this deduction. However, over the entire period, the maximum total bonus deduction that a business can claim is limited to $40,000. The $20,000 bonus deduction is not given to the business in cash; rather, it is used to offset against the business’s assessable income. If the business is in a loss position, the bonus deduction will increase the tax loss. The value of the bonus deduction depends on whether the business generates a taxable profit or loss during the relevant year and the applicable tax rate.

If the expenditure has mixed use, meaning it is used for both business and private purposes, the bonus deduction will be applied only to the portion of the expenditure that is utilized for business purposes.

The bonus deduction can be applied to expenses related to a depreciating asset. To be eligible, the asset must have been first utilized or installed and ready for use for taxable purposes between 7:30 pm AEDT on 29th March 2022 and 30th June 2023. However, this rule does not extend to expenses incurred in developing in-house software allocated to a software development pool, in line with the current pooling regulations. Additionally, the costs associated with repairing and improving depreciating assets are also eligible for the bonus deduction, provided they are incurred within the specified time frame.

The bonus deduction is calculated as 20% of the expenditure on the qualifying depreciating asset, given that the expenditure occurs during the relevant period and the asset is used or installed and ready for use for taxable purposes by 30 June 2023. This calculation applies regardless of the depreciation method utilized by the business. If a business acquires a depreciating asset within the relevant period, the expenditure will be considered as the cost of the asset.

Conclusion

The 120% technology investments ‘boost’ deduction presents a valuable opportunity for eligible small and medium businesses to invest in technology. By carefully understanding the eligibility criteria and timing, SMEs can maximize their deductions and take full advantage of the boost to support their digital operations and business growth. It is recommended that businesses seek professional advice to ensure compliance and optimize their tax benefits under this scheme. We will continue discuss the skills and training boost in our next article.

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

As the world continues to adapt to the new normal brought on by the COVID-19 pandemic, remote work and home offices have become increasingly common. The Australian government acknowledges the significant shift in work arrangements and has made certain adjustments to the working from home deduction for the 2023 financial year, building upon the policies implemented previously. In this article, we will explore the changes in the home office deduction in Australian between the financial year 2023 and 2022, providing an overview of the key updates.

For the financial year 2023, taxpayers have the option to choose one of two methods to claim their deductions for working from home: the “fixed rate” method or the “actual cost” method. Only the fixed rate method is changing in FY2023, while the Shortcut method, which was temporarily used during the pandemic, will no longer be available so won’t be compared here.

Method 1: Revised Fixed Rate Method

• Rate and Scope

The revised fixed rate method increases the rate from 52 cents per work hour to 67 cents per work hour. This higher rate encompasses energy costs, phone usage, internet expenses, stationery, and computer consumables. It simplifies the taxpayer’s calculation process and includes costs that are difficult to accurately measure.  However, the 52 cents per work hour doesn’t include phone usage and internet expenses which is on top of the fixed rate method.

• No Dedicated Home Office Required

Unlike before, under the revised fixed rate method, taxpayers no longer need to have a dedicated home office space to claim deductions for working from home. This change recognizes the evolving nature of contemporary work arrangements.

• Additional Claimable Items

There have been changes in separately claimable items for the 2023 financial year. Taxpayers can claim the decline in value of assets used for work at home, such as computers and office furniture, as well as the costs of repairing and maintaining these assets. They can also claim the expenses related to cleaning the dedicated home office.

• Record-keeping

Taxpayers need to maintain more precise records than before. Starting from March 1, 2023, the Australian Taxation Office (ATO) will no longer accept estimates, representative four-week diary, or similar documents under this method. Instead, taxpayers are required to keep records of all their time spent working from home throughout the entire income year. Records can be kept in any form as long as they are saved at the time of occurrence, such as schedules, rosters, time logs from accessing employer or business systems, or a diary for the whole year. Records must be kept for each expense incurred by the taxpayer that is covered by the fixed rate per hour (for example, if the taxpayer uses the phone and electricity while working from home, a bill must be retained for each expense).

Method 2: Actual Cost Method

• Compared to previous years, the actual cost method remains unchanged.

Taxpayers can deduct the actual portion of operating expenses that are work-related. This method requires keeping all receipts, bills, and similar documents to demonstrate that the taxpayer has incurred the expenses, along with records of the time spent working from home during the income year (actual hours or representative four-week diaries or similar documents are acceptable). Additionally, taxpayers need to provide records of how they calculated the work-related and private portions of their expenses. Please note that expenses reimbursed by the employer cannot be claimed as deductions.

Regardless of the method chosen, if taxpayers purchase assets and equipment for work that cost more than $300, they cannot claim the full amount immediately and must depreciate the expenses over a set number of years based on the proportion of work usage.

The above summary outlines the changes in the home office deduction for the Australian financial year 2023 compared to the financial year 2022. By introducing revised fixed rate method, the government aims to provide simplified avenues for employees to claim working from home expenses. However, individuals need to stay informed about the latest updates and requirements to ensure compliance and maximize their entitlements.

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

The Australian Tax Office (ATO) is aware of an increasing number of Australians buying and selling cryptocurrency over the past few years, the most popular types are Bitcon (BTC), Ethereum (ETH), Tether (USDT), etc. However, not every one of them are aware of their tax obligations. It is essential for investors and traders to understand the tax implications associated with these digital assets. ATO has provided comprehensive guidelines on how crypto assets are treated for tax purposes. To help you along the way, this article will outline the implication of tax on crypto assets in two aspects, which is Capital Gains Tax (CGT) for crypto investors and income tax for crypto traders.

Investor or Trader?

It is important to identify whether you are a crypto investor or crypto trader to determine whether your activities will be taxed under CGT rules or income tax rules. The most common use of cryptocurrency is as an investment, individuals who buy and sell crypto assets to make a profit would be considered as a crypto investor, any gains made from the disposal of crypto assets will be subject to CGT. On the other hand, for individuals who actively engage in trading cryptocurrency in an organised, business-like manner, would be considered as a crypto trader who carry on a crypto trading business. The trading income from the activities would be treated as business income.

Crypto Assets Investors

For individuals who hold crypto assets as investments, CGT becomes a crucial aspect to consider when selling, trading, or disposing of these assets. According to the ATO, cryptocurrencies are considered to be a form of property for tax purposes. This means that any gains made from the sale or disposal of crypto assets may be subject to CGT.

CGT Event:

A CGT event happens when you sell, gift, trade, exchange or swap crypto assets, even when you convert a crypto asset into Australian or foreign currency or buy goods or services with it. By simply buying or holding a crypto asset, you would not need to calculate any capital gains or losses. You are only required to calculate it when a CGT event happens.

Determining Capital Gain or Loss:

To calculate CGT, the ATO requires investors to determine the cost base of their crypto assets, which includes the original purchase price, transaction fees, and any incidental costs. When a crypto asset is sold or disposed of, the capital gain or loss is calculated by subtracting the cost base from the sale proceeds. If the resulting value is positive, a capital gain has been made, and if negative, a capital loss has been incurred. Any capital loss can be used to deduct against capital gains you made.

Holding Period and CGT Discount:

The duration for which a crypto asset is held can impact the amount of CGT payable. If an investor holds their crypto assets for longer than 12 months before selling or disposing of them, they may be eligible for the CGT discount. This discount allows you to reduce the capital gains by 50%, effectively lowering the overall tax liability.

Record-Keeping:

It is essential to maintain accurate records of all cryptocurrency transactions, including purchase and sale dates, amounts, and values. This documentation is crucial when calculating capital gains and losses for tax reporting purposes.

Crypto Assets Traders

For individuals who actively engage in cryptocurrency trading as a business, the ATO views the trading income as assessable income for tax purposes.

Reporting Trading Income:

As a trader, you are required to report your trading activities and include the profits as part of your taxable income. This includes gains from selling cryptocurrencies, profits from mining activities, and any other trading-related income. Ensure that you accurately track your trading income and report it in the appropriate section of your tax return.

Deductible Expenses:

As a trader, you are entitled to claim deductions for expenses directly related to your trading activities. These may include transaction fees, exchange fees, trading software subscriptions, and other expenses incurred in the process. You would need to keep receipts for everything related to your operating expense to substantiate any claims made.

Business Structures:

Depending on the scale and complexity of your trading activities, you may consider operating as a sole trader or setting up a business structure such as a company or trust. Each structure has its own tax implications, and it is advisable to seek professional advice to determine the most suitable option for your circumstances.

Conclusion

As the cryptocurrency market continues to expand, understanding the tax implications associated with crypto assets becomes increasingly important. Whether you are an investor or a trader, it is essential to comprehend how taxes apply to your specific situation. By adhering to the ATO guidelines, maintaining accurate records, and seeking professional advice, you can ensure compliance with tax obligations and minimise any potential risks or penalties from ATO.

Our team have enormous experience in the crypto compliance work and tax advice. By using professional crypto capital gain/profit calculation platform, we can assure you that your new year tax return could save ample accountant fees this time. Please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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

The Australian Federal Budget 2023-24 is announced on 9 May 2023. As usual, in this article, we mainly look into the details of the business and super fund tax changes given there isn’t much individual tax changes in this budget including any amendment on the controversial stage three tax cuts.

Business & employers

$20,000 small business instant asset write-off

Date	1 July 2023 to 30 June 2024

Small businesses with an aggregated turnover of under $10 million can deduct the full cost of eligible depreciating assets under $20,000 if they are used or installed between 1 July 2023, and 30 June 2024. This means they can claim a tax deduction in the same year of purchase and use. If the business is GST registered, the asset cost must be under $20,000 after subtracting GST credits; otherwise, it includes GST. The deduction applies per asset, and assets worth $20,000 or more can be placed in a depreciation pool. The suspension on re-entry into the simplified depreciation regime for small businesses opting out will continue until 30 June 2024. The temporary full expensing rules will end on 30 June 2023, so businesses should consider this cut-off date when acquiring assets.

$20,000 small business incentives for energy efficiency

Date	1 July 2023 to 30 June 2024

The Small Business Energy Incentive allows small and medium businesses with annual turnover below $50 million to receive an additional 20% deduction on eligible depreciating assets that support electrification and energy efficiency. Businesses can claim up to $20,000 as a bonus deduction, with a total expenditure cap of $100,000. The incentive applies to assets like electrified heating and cooling systems, energy-efficient fridges and induction cooktops, and the installation of batteries and heat pumps. Exclusions include electric vehicles, renewable electricity generation assets, capital works, and assets not connected to the electricity grid or reliant on fossil fuels. To qualify for the bonus deduction, eligible assets or upgrades must be first used or installed ready for use between 1 July 2023, and 30 June 2024.

Increase payment frequency of employee super

Date	1 July 2026

Starting from 1 July 2026, employers will be obligated to pay their employees’ super guarantee entitlements on the same day as their salary and wages. Currently, super guarantee payments are made quarterly. The government plans to engage in a consultation process to finalize the details of this measure, with the intention of providing more information in the 2024-25 Federal Budget.

Small business ATO compliance

From	1 July 2024

To alleviate the compliance burden on small businesses, several measures have been introduced to streamline paperwork, including:

• Starting from 1 July 2024, small businesses will have the option to authorize their tax agent to submit multiple Single Touch Payroll forms on their behalf.
• Beginning 1 July 2024, the Australian Taxation Office (ATO) will minimize the use of cheques for income tax refunds.
• Effective from 1 July 2025, small businesses will be allowed up to 4 years to make amendments to their income tax returns, which is an extension from the usual 2-year timeframe.

Lower tax instalments for small business

Date	1 July 2023 to 30 June 2024

The adjustment of GST and PAYG instalment amounts is typically done using a GDP uplift factor. However, for the 2022-23 income year, the government reduced this factor to 2% instead of the expected 10% rate. Now, for the 2023-24 income year, the government has set the uplift factor to 6% instead of the usual 12% rate. This 6% uplift rate will be applicable to small to medium enterprises that meet the eligibility criteria and use the relevant instalment methods for their 2023-24 income year instalments. The instalments will be due after the amending legislation becomes effective, with the criteria being an annual aggregated turnover of up to $10 million for GST instalments and $50 million for PAYG instalments.

Small business lodgement penalty amnesty

Date	1 June 2023 – 31 December 2023

Small businesses with an aggregated turnover below $10 million will have the opportunity to participate in a lodgement penalty amnesty program. This amnesty will waive failure-to-lodge penalties for outstanding tax statements that were originally due between 1 December 2019 and 29 February 2022, and are lodged between 1 June 2023 and 31 December 2023.

Exclude hybrid cars from FBT exemption

Date	1 April 2025

Starting from 1 April 2025, plug-in hybrid electric cars will no longer qualify for the fringe benefits tax (FBT) exemption that applies to eligible electric cars. However, arrangements made between 1 July 2022 and 31 March 2025 will remain eligible for the FBT exemption if the car was already exempted before 1 April 2025 and the employer has a legally binding commitment to continue providing private use of the car on and after this date.

Franked distributions funded by capital raisings start date shifted

Date	15 September 2022

The Government, in the 2016-17 fiscal year, announced its intention to prevent shareholders from benefiting from franking credits linked to dividends funded by capital raisings. The Budget reiterates this commitment, with a revised implementation date of 15th September 2022.

According to the measure, a distribution (dividend) paid by an entity will be considered funded by capital raising if:

• The distribution deviates from the entity’s established practice of regularly making such distributions.
• There is an issuance of equity interests in the entity.
• Considering all relevant circumstances, it is reasonable to conclude that either:
  • The primary effect of issuing any of the equity interests was to directly or indirectly fund all or part of the distribution.
  • An entity that issued or facilitated the issuance of the interests did so with the purpose of funding all or part of the distribution.

The proposed changes aim to prevent the utilization of artificial arrangements where capital is raised specifically to fund franked dividends, allowing for the distribution of franking credits. The Government is concerned that such arrangements involve manipulating the system, enabling existing shareholders to benefit from both the franking credits and the retained profits generating those credits within the company.

If implemented, direct or indirect recipients of affected dividends would not be eligible for a tax offset, and the franking credit amount would not be included in their assessable income. Additionally, these dividends would not be exempt from non-resident withholding tax.

The initial application date for the measure was set for 19th December 2016, but it has been rescheduled to 15th September 2022.

This measure is outlined in the Treasury Laws Amendment (2023 Measures No. 1) Bill 2023, which was introduced to Parliament on 16th February 2023.

15% minimum tax for multi-national global and domestic

From	1 January 2024

The Government will implement key elements of the OECD’s Two Pillar Solution, including:

• A 15% global minimum tax for large multinational enterprises, with the Income Inclusion Rule effective from 1st January 2024 and the Undertaxed Profits Rule effective from 1st January 2025.
• A 15% domestic minimum tax, applicable from 1st January 2024.

These taxes are based on the OECD Global Anti-Base Erosion Model Rules, ensuring that large multinationals pay a minimum level of tax in each jurisdiction where they operate. Australia will have the authority to impose a top-up tax on resident multinational parent or subsidiary companies if their income is taxed below 15%. These minimum tax rules will be applicable to large multinationals with annual global revenue of EUR 750 million (approximately $1.2 billion) or more.

Tax breaks for build-to-rent developments

From	9 May 2023

In line with previous announcements, the Government is introducing attractive incentives for build-to-rent developments. For qualifying new build-to-rent projects commencing construction after 9th May 2023 at 7:30 pm AEST, the Government will:

• Increase the capital works tax deduction (depreciation) rate from 2.5% to 4% per annum.
• Reduce the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments from 30% to 15%.

These incentives are applicable to build-to-rent projects that offer 50 or more apartments for rent to the general public. The dwellings must be held under a single ownership for a minimum of 10 years before they can be sold, and landlords must provide a minimum lease term of 3 years for each dwelling.

The reduced MIT withholding tax rate for residential build-to-rent will take effect from 1st July 2024. The Government will engage in a consultation process to determine the specific implementation details, including any required minimum proportion of affordable tenancies and the duration of single ownership retention for the dwellings.

 Increase of tobacco excise and duty from September

From	1 September 2023

Starting from 1st September 2023, the tobacco excise and excise-equivalent customs duty will undergo a 5% annual increase for a period of 3 years, in addition to regular indexing. Moreover, the duty on products subject to per kilogram excise and excise-equivalent customs duty (such as roll-your-own tobacco) will also see an increase. The “equivalisation weight” will be gradually reduced from 0.7 to 0.6 grams on 1st September each year, starting from 2023, and the new weight will be fully implemented by 1st September 2026.

This measure is anticipated to result in a revenue increase of $3.3 billion and lead to a $290 million rise in GST payments to the states and territories over a span of 5 years, starting from 2022-23.

Heavy vehicle user charge increase

From

2023 – 24

The Heavy Vehicle Road User Charge will increase by 6% per year for 3 years starting from 2023-24, resulting in a rate of 32.4 cents per litre of diesel in 2025-26. The current rate of 27.2 cents per litre will progressively rise over this period.

Tax law changes for general insurers

From	1 January 2023

The implementation of the new accounting standard, AASB17 Insurance Contracts, by the Australian Accounting Standards Board, has resulted in a misalignment between tax law and accounting standards. To address this, a legislative amendment will be introduced to allow general insurers to use audited financial reporting information based on the new standard when filing their tax returns. This will enable them to maintain consistency in their reporting practices.

Clean building MIT withholding tax concession extended

From	1 July 2025

The clean building managed investment trust (MIT) withholding tax concession will now be expanded to include eligible data centres and warehouses that meet the required energy efficiency standard. This extension applies to constructions starting after 7:30pm AEST on 9 May 2023. Additionally, the minimum energy efficiency requirements for both new and existing clean buildings will be raised to a 6-star rating from either the Green Building Council Australia or the National Australian Built Environment Rating System. The Government will engage in consultations to establish transitional arrangements for existing buildings.

Tax treatment of exploration and mining, quarrying and prospecting rights

From	Expenditure incurred from 21 August 2013

As previously stated, the Government plans to make changes to the Petroleum Resource Rent Tax (PRRT) to provide clarity on the definition of ‘exploration for petroleum’. The amendment will specify that exploration activities are limited to the process of discovering and identifying the existence, extent, and characteristics of petroleum resources. It will exclude activities and feasibility studies focused on assessing the commercial viability of extracting the resource. This clarification aims to provide a clear distinction between exploration and activities related to commercial recovery, ensuring appropriate taxation within the petroleum sector.

Also, from 7:30pm AEST, 9 May 2023, the tax treatment of depreciation deductions for mining, quarrying, and prospecting rights will be revised. The clarification ensures that deductions will only begin when these rights are actively used, rather than when they are simply held. This measure aims to align the tax treatment with the actual utilization of the rights, ensuring a fair and accurate depreciation calculation for mining, quarrying, and prospecting activities.

Bringing forward tax on natural gas

Date	Consultation later 2023

The Government will introduce amendments to the Petroleum Resource Rent Tax (PRRT) targeting deductions and implementing integrity measures for the offshore LNG industry. Consultation on these changes will take place in 2023. It is expected that this measure will result in a revenue increase of $2.4 billion over a five-year period starting from 2022-23. Additionally, the Australian Taxation Office (ATO) will receive $4.4 million in funding to administer and ensure compliance with these amendments.

Development of Hydrogen industry

From

2023-24

Over $2bn will accelerate Australia’s hydrogen industry, drive clean energy sectors, and enable global hydrogen supply chains. The Hydrogen Headstart program will support renewable hydrogen investment, while the Guarantee of Origin scheme, funded with $38.2m, will certify renewable energy and track emissions, including hydrogen.

Critical technology industry support

From

2022-23

$116m over 5 years will foster critical technology development, including integrating quantum and AI into businesses. Initiatives include a Challenge Program for quantum projects, expanding the National AI Centre, establishing the Australian Centre for Quantum Growth, and aiding SMEs in adopting AI. Additionally, the Powering Australia Industry Growth Centre will contribute to advanced technology and skills for the Australian Made Battery Plan.

Child care workforce support

From

2022-23

The Early Childhood Education and Care (ECEC) sector will receive support through measures including subsidizing services with $34.4 million over 5 years, providing financial assistance of $33.1 million for teacher education practicums, and allocating $4.8 million for practicum exchanges for ECEC workers.

15% pay increase for Aged Care Workers

From

2022-23

$515 million over 5 years will fund the outcome of the Aged Care Work Value Case, raising award wages by 15% for various aged care workers from 30 June 2023. The increase will be offset by temporarily reducing the residential aged care provision ratio.

‘Patent Box’ regime scrapped

From

2022-23

The Patent Box regime, which offered a concessional tax rate of 17% on patent-derived income for R&D conducted in Australia, has been completely scrapped. Originally intended for medical, biotech, agriculture, and emissions industries, it is no longer in effect.

Streamlining excise administration for fuel and alcohol

From	1 July 2024

The implementation of the fuel and alcohol excise compliance streamlining measure from the 2022-23 March Budget has been rescheduled to commence on 1 July 2024.

Film industry location offset

From

2022-23

In order to encourage investment from major screen productions and create more employment and training opportunities, the Location Offset rebate rate will be raised to 30%. Additionally, the minimum Qualifying Australian Production Expenditure thresholds will be increased to $20 million for feature films and $1.5 million per hour for television series.

Superannuation & investors

Non-arms length income rules clarification

From	Expenditure that occurred after the 2018-19

The non-arms length income (NALI) rules aim to prevent artificial inflation of superannuation fund balances and accessing preferential tax treatment by not recognizing expenses provided by a related party at a reduced rate. Proposed amendments suggest capping NALI taxable income to twice the level of a general expense. Contributions will be excluded from NALI taxable income, and expenditure before the 2018-19 income year will be exempt. Large APRA regulated funds would be exempt from NALI provisions for both general and specific expenses, based on Treasury consultation recommendations. Awaited legislation will clarify details.

30% tax on super earnings above $3m

From	1 July 2025

From 1 July 2025, individuals with a total superannuation balance exceeding $3 million will face an additional 15% tax on earnings. The tax calculation considers contributions, withdrawals, and both realized and unrealized gains, with negative earnings carried forward. Defined benefit scheme interests will be valued and taxed similarly to other interests. Individuals can choose to pay the tax personally or from their superannuation fund, and those with multiple accounts can designate the paying fund. This measure is expected to raise tax receipts by $950 million and payments by $47.6 million over a 5-year period starting from 2022-23.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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.

Electric cars are becoming increasingly popular as a more environmentally-friendly and cost-effective alternative to traditional petrol or diesel vehicles. As a result, many people are wondering how tax applies to electric cars. The Australian Taxation Office (ATO) has released updated information on electric vehicles just in time for the Fringe Benefits Tax (FBT) year that began on April 1.

Under the new regulations, employers can potentially qualify for an FBT exemption when providing employees with the use of a zero or low emissions vehicle, regardless of whether it is through a salary sacrifice arrangement or not. The exemption applies if the value of the car is below the luxury car tax threshold ($84,916 for 2022-23) for fuel-efficient vehicles when it was initially purchased, and if the vehicle is both first held and used on or after July 1, 2022. The FBT exemption covers associated benefits, such as registration, insurance, repairs, maintenance, and fuel, but not the charging stations.

Employees are still required to report the value of the fringe benefit on their income statement and tax return, which is taken into account when determining their adjusted taxable income for various areas, such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments. The FBT exemption does not apply to sole traders, partners of a partnership, or shareholders of a company, unless the benefit is provided in their capacity as an employee or director of the entity.

If an employer provides a charging unit to an employee, FBT could be triggered. Nevertheless, employees can potentially claim depreciation deductions if they purchase a home charging unit for income-producing purposes.

In addition, the ATO has set a running cost rate of 4.20 cents per km for EVs provided to an employee from 1 April 2022 for FBT purpose and 1 July 2022 for income tax purpose. Like the other actual cost method to the normal motor vehicle, you can use actual electricity costs for tax claiming too.

In summary, if your employer provides you with the use of a zero or low emissions vehicle, there is an FBT exemption that may apply. However, this exemption does not extend to home charging units. The cost of electricity can be calculated using the ATO’s set rate or actual costs if you can calculate them accurately. It is important to keep in mind that the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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.

The ATO has recently published its final position (TR 2022/4) on trust distributions that pose a risk to the integrity of the tax system. Specifically, the ATO has clarified how section 100A, an integrity rule that aims to prevent distributions of trust income being used to shift tax liability to lower-taxed individuals or entities, will be applied. As a result, trusts distributing to adult children, corporate beneficiaries, and entities with losses may face higher taxes due to the ATO’s more aggressive stance.

To trigger section 100A, a “reimbursement agreement” must be in place at or before the time the income is appointed to a beneficiary. This rule does not apply to distributions to minor beneficiaries or those under a legal disability. If section 100A applies, the trustee is taxed on the income at penalty rates instead of the beneficiary being taxed at their own marginal tax rates.

Previously, section 100A exceptions protected beneficiaries under a legal disability or those receiving distributions as part of an ordinary dealing. However, the ordinary dealing exception is now under scrutiny, leaving some vulnerable to higher taxes. For example, a university student who is presently entitled to trust income may reimburse their parents for expenses incurred when they were a minor. This arrangement is high risk if the student has a lower marginal tax rate than their parents, as the parents are ultimately receiving the income’s real benefit. Circular distributions, such as when a trust distributes income to a company owned by the trust, which then pays dividends back to the trust, are also considered high risk by the ATO. Other scenarios identified as high risk include when a beneficiary is a company or trust with losses that is not part of the same family group as the trust making the distribution, or when trustee of the trust issue units for the distribution owed to the beneficiary and the subscription price of the units is much higher than the market value. In these cases, the ATO views the arrangements as high risk from a section 100A perspective.

To ensure compliance, those with discretionary trusts should review all trust distribution arrangements in light of the ATO’s guidance and ensure that appropriate documentation is in place to demonstrate how funds relating to trust distributions are being used or applied for the benefit of the beneficiaries. The ATO’s new approach applies to entitlements before and after the publication of the new guidance, but entitlements arising before 1 July 2022 will not generally be pursued if they comply with the ATO’s previous guidance on trust reimbursement agreements or are low risk under the new guidance.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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.

The Australian Taxation Office (ATO) has updated its approach to claiming expenses for working from home. In the past during Covid-19 period, taxpayers could choose between two fixed rate methods, depending on their scenario. These included an 80 cents per hour rate or a 52 cents per hour rate, which only applied to those with a dedicated workspace. However, from the 2022-23 financial year onwards, the ATO has introduced a new ‘fixed rate’ method that combines the previous two methods. Taxpayers can now claim 67 cents per hour for all expenses related to working from home, including energy expenses, phone usage, internet, stationery, and computer consumables.

If you work from home, it is essential to keep records of all the hours you work from home, as well as at least one copy of each the bills or invoices for any expenses you incurred. You need to retain these records for at least five years so that you can prove your claim in case the ATO comes calling. Moreover, the ATO will no longer accept estimates or a sample diary over a four-week period as proof. Instead, you must have an accurate record of the total number of hours worked from home. You can keep an electronic record or a PDF summary of your calendar.

The first issue for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If the expense does not relate to your work or only partially relates to your work, you cannot claim the full cost as a deduction. The second key issue is that you must incur costs associated with working from home. If you live with your parents and do not pay any expenses for running the home, you cannot claim deductions for working from home, even if you are paying board.

For taxpayers who have high expenses, the actual cost method might be a better option. This method allows taxpayers to claim the actual additional expenses they incurred when working from home. However, they will need to keep records of these expenses and prove the extent to which they relate to their work. Examples of expenses that can be claimed under this method include the decline in value of home office furniture, electricity and gas expenses, phone and internet expenses, stationery and computer consumables, and cleaning expenses for a dedicated home office.

When it comes to claiming deductions, it is important to remember that there are no restrictions on claiming outside standard office hours. If you work from home outside standard office hours or over the weekend, you need to keep an accurate record of the hours worked to maximize your deductions.

In summary, the ATO has updated its approach to how you claim expenses for working from home. Taxpayers can now choose between a new fixed rate method and the actual cost method, depending on which one works best for their scenario. For the fixed rate method, taxpayers can claim 67 cents per hour for all expenses related to working from home. To claim the actual cost method, taxpayers must keep records of all additional expenses they incurred when working from home, and prove the extent to which these expenses relate to their work. Regardless of which method you choose, keeping accurate records is crucial to prove your claim.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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.

As a law firm in New South Wales or Victoria, it is crucial that you understand your obligations when it comes to managing your trust accounts. One of these obligations is to have your trust account audited or examined by an external examiner every year between 1 April and 31 May. In this article, we’ll take a closer look at the process of external examination, and how our specialty in performing external examination can help your firm stay compliant with the trust account regulation and legislation.

The Law Society of New South Wales requires that all law firms taking trust money maintain a trust account, which is a separate account used to hold clients’ money. This ensures that clients’ funds are kept separate from the firm’s own money, and provides a layer of protection for clients’ funds. However, with this comes the responsibility of ensuring that the trust account is managed in accordance with the Legal Profession Uniform Law (NSW) and the Legal Profession Uniform General Rules 2015.

One of the key requirements of trust account management is the annual external examination. This involves engaging an external examiner to review your trust account records and verify that your trust account is being managed in compliance with the relevant laws and regulations. The external examination process involves a detailed review of your trust account transactions, including bank statements, cheque books, receipts and payments, and other relevant documentation. Any discrepancies or errors will be noted, and the law firm will be required to take corrective action to ensure compliance.

At our firm, we specialize in performing external examinations for law firms. We have a team of experienced and qualified professionals who are well-versed in the trust account system and the requirements of external examination. Our team is committed to helping law firms achieve compliance with the trust account system, and to providing practical solutions for any issues or problems that may arise.

One of our key strengths is our knowledge of the trust account system and our ability to help law firms solve compliance issues. We understand that managing a trust account can be complex and challenging, and that mistakes can easily be made. Common non-compliance breaches that we often witness are failure to enter a receipt or payment of trust money into the trust ledger account within 5 working days, and failure to perform a month-end reconciliation within 15 working days.

To overcome these issues, we recommend implementing a system for tracking and recording trust account transactions on a daily basis or at least weekly basis. This will help ensure that all receipts and payments are promptly entered into the trust ledger account and that month-end reconciliations can be performed in a timely manner. We also recommend providing regular training and support to staff on trust account management, and establishing clear policies and procedures for managing trust accounts.

In summary, as a law firm in New South Wales or Victoria, it is important to understand your obligations when it comes to managing your trust accounts. This includes the requirement for an annual external examination, which ensures that your trust account is being managed in compliance with the relevant laws and regulations. At our firm, we specialize in performing external examinations, and we have a team of experts who can help you stay compliant and solve any compliance issues that may arise. Contact us today to learn more about our services and how we can assist your law firm.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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.

Not to be overly skeptical, but we are just curious about the ability of this latest AI software – ChatGPT – in dealing with the Australian tax system, so we conducted a simple test.

Firstly, it is worth noting that what impressed us most in the test was ChatGPT’s tone and approach, rather than its ability to handle the complexity of the tax question. The results of our test, including the example below, indicate that you may get some fairly accurate summary comments, but you cannot rely on a definitive answer. As most technical comments are formed into databases based on personal recommendations, rather than comments that can be explored on the internet, it is difficult for us to obtain reliable answers in a short time.

Here are the results of our test questions and comments (ChatGPT’s responses are presented in italics).

Question: How much capital gains tax do Australian residents pay on investment properties, with an example?

ChatGPT: Australian residents pay capital gains tax (CGT) on the profits earned from the sale of investment properties. The calculation of CGT is the sale price minus the cost of the property (purchase price plus any expenses related to acquiring and owning the property). For example, if an Australian resident purchased an investment property for $500,000 and spent $50,000 on expenses related to purchasing and owning the property (such as legal fees, stamp duty, and repair costs), the total cost of the property would be $550,000.

Accountant: Let’s take a moment to review. When calculating the asset cost base, there are some techniques and pitfalls to consider. Although in some cases, repair costs can be part of the property cost base, it is not always the case. If the asset sold is an investment property rented to tenants, the situation is usually different. When the landlord repairs damage that occurred during the rental period, this can usually be deducted in the financial year when the landlord incurs the repair costs. Since these repair costs are deductible, they should not be included in the property’s cost base.

Similarly, other adjustments need to be considered. In the context of investment properties, it is usually necessary to adjust the cost base to account for capital works deductions. When an investment property is used to earn rental income, the landlord can usually claim capital works deductions. So when calculating the cost base, we should subtract the capital works deductions that the landlord has already claimed or can claim (although there are some exceptions, such as the property acquired before May 13, 1997, and the improvement costs incurred before June 30, 1999).

The longer an investment property is held, the more significant the impact of capital works deductions and repair costs will become, and the more substantial the impact on capital gains calculations.

ChatGPT: Several years later, the resident decided to sell the property for AUD 700,000. The profit from the sale is AUD 700,000 – AUD 550,000 = AUD 150,000. The current CGT tax rate in Australia is 45%, and the resident will pay 45% of the profit of AUD 150,000, which is AUD 67,500.

Accountant: Hang on, let’s take a closer look about this. In Australia, there is no specific CGT tax rate of 45% that applies to capital gains. Net capital gains are part of an individual’s taxable income subject to income tax. We just need to add the net capital gains to calculate the individual’s corresponding taxable income for the year. If the taxable income figure is positive, then we apply the individual’s marginal tax rate. As a result, higher taxable income generally leads to higher marginal tax rates and higher tax amounts. Meaning, the tax rate applicable to an individual’s net capital gains will be affected by the individual’s other income or losses (if any).

In addition, although the highest marginal tax rate for individuals is currently 45%, Australian residents with taxable income over AUD 180,000 per year usually also have to pay a 2% Medicare levy. This should also be considered and included in the calculation.

ChatGPT: It should be noted that there are some exemptions and reliefs for CGT calculation, such as the main residence exemption and small business CGT concessions.

Accountant: If only taxation were that simple! For capital gains, some exemptions and reliefs can be applied. Although the answer mentioned the main residence exemption and small business CGT concessions, these concessions usually do not apply to the sale of investment properties.

To qualify for the main residence exemption (or partial main residence exemption), a key requirement is that the property needs to be constructed and used as the individual’s main residence. If the property is only used as an investment property to generate taxable rental income, the exemption usually does not apply, but if the property is inherited, the situation may be different.

In addition, small business CGT concessions usually do not apply to the sale of investment properties. This is because the concessions only apply to assets that pass the active asset test, which requires the property to be used in a qualifying business activity for a minimum period of time.

For properties used by the property owner or certain related parties in a business activity, they can be considered as active assets eligible for the concessions, but this is not the case for properties primarily used to generate rental income from unrelated parties.

If the property is only used to generate rental income from unrelated parties (i.e., used in a leasing business), the property is likely to fail the active asset test, and the small business CGT concessions should not apply.

Interestingly, the answer did not mention the general CGT discount or indexation, which is actually the most likely relief to apply in this situation.

If the vendor was an Australian resident for tax purpose (not a temporary resident) during the period of owning the property and has owned the property for more than 12 months, the 50% CGT general discount is usually available to reduce the capital gain.

If the property was acquired before 21 September 1999, cost base indexation may be available. Both methods need to be compared to determine which would provide the most favorable tax result.

ChatGPT: It’s always best to consult a tax professional for specific advice on your individual circumstances.

Accountant: Yes, that’s right. Thank you, ChatGPT.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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.

New rules have been set out by the Australian Taxation Office (ATO) for Australians who are the directors of companies and now have less than two weeks to take action to avoid a big fine of $13,000.

The Australian directors of companies covered by the Corporations Act now need to have a director identification number (director ID). Meanwhile the ATO has said that a grace period will apply for those who apply for the director ID before December 14.

According to the policy-executing body, the Australian Business Registration Service (ABRS), 1.8 million company directors have already applied for a director ID. However, about 700,000 directors still yet applied.

The Director ID is a unique 15-digital number aimed to deter illegal schemes such as phoenix activity.

Who needs to apply?

The rules apply to all directors in Australia in the structure of companies, self-managed superannuation fund with corporate trustee, charities and not-for-profit entities. If you are operating your business as a sole trader or partnership, you do not need to apply for this identification number.

You can apply online through the ABRS website. Once completed, you will be issued with a Director ID instantly.

How to apply

Prior to applying for a Director ID online, you will need a myGovID with minimum a standard strength of identity.

You will need your myGovID to apply for a Director ID online by logging into the ABRS website.

If you are unable to register a myGovID with standard strength or above of identity, how you apply will be up to where you reside. If you currently reside in Australia and are unable to apply online, please call the ABRS to apply for a director ID. If you currently reside outside of Australia and are unable to apply online, you can use the Director Identification Number paper application form (NAT 75433, PDF 651KB) to apply. However, in the meanwhile, you must provide a certified copy of your identification documents.

If you are not sure whether you need to apply, you can find out by checking the ABRS website or by contacting us.

The ABRS states that you need to apply for a director ID in your own name and verify your identity so generally speaking, we as tax agents cannot make the application on your behalf.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 our 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.