In a recent case heard by the Administrative Appeals Tribunal (AAT), the timing of employment income plays a significant role in determining an individual’s tax obligations, especially in the context of changing tax residency.

The individual in question was a non-resident taxpayer working in Kuwait and was entitled to a ‘milestone bonus’ as part of their employment. However, the employer was unable to pay this bonus while the taxpayer was working abroad. As the taxpayer later relocated to Australia and became a tax resident here, the bonus was eventually paid in instalments. This situation led to a dispute between the taxpayer and the Australian Taxation Office (ATO) when the Commissioner issued amended assessments to tax the bonus payments received.

The main focus of the dispute was the critical question of when the bonus should be deemed as “derived” for taxation purposes. If the bonus had been derived while the taxpayer was still a non-resident, it would not have been subject to taxation in Australia. Typically, non-residents are only taxed in Australia on income sourced within the country, and employment income is generally sourced where the work is performed, with some exceptions.

The outcome of this determination had significant impacts on the taxpayer’s tax liability. It relies on a fundamental tax principle – tax residency.

The Significance of Tax Residency

In the realm of international taxation, a person’s tax residency status can significantly affect their tax obligations, encompassing not only income earned within the country but also worldwide income. In Australia, tax residency is determined by a complex set of rules, including the primary “resides” test, the “183-day” test, and various secondary tests. The ATO provides guidance and guidelines to assist taxpayers in understanding these residency tests and how they apply in different scenarios. Accurate determination of tax residency is essential for individuals and businesses engaged in cross-border activities, as it can influence the allocation of taxing rights between Australia and other countries.

In the case discussed, the taxpayer transitioned from being a non-resident to becoming a tax resident in Australia. This shift in tax residency was a critical moment, as it changed the jurisdiction that had the right to tax his global income.

In most countries, including Australia, tax residents are generally subject to taxation on their worldwide income. Non-residents, on the other hand, are typically only taxed on income that is sourced within the country’s borders. This concept is known as the “source rule” and is a fundamental principle of international taxation.

Timing Matters: Employment Income and the Source Rule

Australian tax law, like that of many other countries, considers employment income to be “derived” when it is received by the taxpayer. In simpler terms, income is typically recognized for tax purposes when it is physically received, not when it is earned or entitled. This principle has been reinforced by Australian tax case law.

In the case under consideration, the taxpayer received the bonus payments from his former employer after becoming a tax resident of Australia. This seemingly minor detail triggered a significant tax consequence. Since the bonus was received while he was a tax resident in Australia, it fell under the purview of Australian taxation.

The Impact of Timing on Tax Liabilities

The outcome of this case serves as a reminder of how the timing of income recognition can significantly impact an individual’s or business’s tax liabilities, especially in the context of changing tax residency. Had the taxpayer received his bonus when it was originally due in Kuwait, he would have been entirely exempted from Australian taxation. Kuwait does not impose income tax on its residents.

This case underscores the need for individuals and businesses engaged in international activities to carefully consider the timing of income recognition in different jurisdictions. It emphasises the importance of understanding tax residency rules and their implications, as well as the specific rules governing the taxation of various types of income, such as employment income, dividends, and capital gains.

In conclusion, the interplay between timing, tax residency, and the source rule in international taxation is a complex puzzle. The case before the AAT serves as a compelling illustration of how seemingly minor details can lead to significant tax consequences. It highlights the necessity of seeking professional advice and conducting thorough tax planning when navigating the complex landscape of international taxation to optimise tax outcomes and remain compliant with the tax laws of multiple jurisdictions.

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

Many Australians have noticed a significant reduction in their expected tax refunds for financial year 2023, prompting questions about what’s behind this change. This article will tell you why.

The Impact of the Missing Tax Offset

One of the key factors contributing to smaller tax refunds for many Australians is the discontinuation of a time-limited low and middle-income tax offset (LMITO). This offset was introduced as a response to the economic challenges posed by the COVID-19 pandemic. Over the years, it had provided substantial tax relief to individuals, making tax time a bit brighter. However, as it came to an end, its absence cast a shadow over tax returns, resulting in smaller refunds for those who had come to rely on it.

The low and middle-income tax offset delivered up to $1,080 from 2018-19 to 2020-21, and an even more generous $1,500 in 2021-22 for individuals earning up to $126,000. For many, this was a significant boost to their annual finances. Its discontinuation has left a noticeable dent in the pockets of taxpayers who had grown accustomed to these additional funds.

Australia’s Tax System: Complex but Balanced

To comprehend the full scope of these changes, we must first understand Australia’s tax system. Australia leans heavily on personal and corporate income tax to fund its government services. In fact, personal income tax, which includes capital gains tax, constitutes a substantial 40% of the country’s total revenue, a figure significantly higher than the OECD average of 24%.

While this may paint Australia as one of the highest taxing nations in the OECD for personal income tax, it’s crucial to consider the flip side. Australia also boasts a robust system of means-tested benefits that help alleviate the tax burden for many individuals. When factoring in these benefits, the discrepancy between Australia and other countries becomes clearer. The take-home pay of the average single worker is 77% of their gross wage in Australia, compared to the OECD average of 75.4%. For families, the Australian take-home pay average is 84.1%, nearly on par with the OECD average of 85.9%.

Progressive Taxation and the Road Ahead

Australia’s tax system is known for its progressive nature, meaning that the more you earn, the greater your share of the tax burden. The top 11.6% of Australian income earners shoulder a substantial 55.3% of the tax revenue from personal income tax. To address some of the challenges posed by this system, the government has enacted a series of legislated income tax cuts, with the final round set to commence on July 1, 2024. The goal is to reduce the nation’s reliance on personal income tax and shift toward other forms of taxation.

Considering a Second Job: A Financial Balancing Act

Turning our attention to second jobs, it’s clear that many Australians are exploring additional income streams, driven by various motivations. However, it’s crucial to navigate this terrain with a keen understanding of your overall financial position. When contemplating a second job, factors like your expected earnings, the expenses involved in generating that income, and the tax implications must be carefully considered.

For those venturing into the gig economy, where roles often entail independent contractor status, managing tax affairs becomes your responsibility. For instance, Uber drivers are required to hold an Australian Business Number (ABN) and register for GST. This introduces compliance costs, as you must remit a portion of your fees to the Tax Office quarterly, while also ensuring you have the necessary funds to cover GST and income tax obligations. On the bright side, you can claim expenses related to your second job, potentially offsetting some of your tax liabilities.

In this context, it’s essential to ensure that your tax-free threshold applies to your highest-paying job from a PAYG withholding perspective, optimizing your tax situation.

In Conclusion

The size of your tax refund, the decision to take on a second job, and your overall financial standing in the face of Australia’s tax system all depend on a multitude of factors. Australia’s progressive income tax system adds complexity, making it vital for individuals to assess their unique circumstances and obligations. By understanding these dynamics, we can make informed tax planning that align with your goals and aspirations while navigating the ever-changing tax landscape Down Under.

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

Transitioning a family business to the next generation is not just a theoretical legacy; it’s a practical endeavour that goes beyond wealthy clans. This process involves passing on the business operations, ownership, and planning strategies to ensure the smooth transformation from a business-centred family to one focused on investments. The key to successful generational succession lies in proactive communication, well in advance, rather than waiting for pivotal events or retirement triggers to formalize the transition.

Generational succession encompasses several crucial aspects: the transfer of business responsibilities, the shift in ownership, strategic planning, and the evolution from a family-run enterprise to an investment-oriented unit. It’s not merely about being a family running a business; it’s about fostering a mindset of business sustainability.

In Australia, a survey by PwC’s Family Business reports that while one-third of family businesses anticipate the next generation becoming major shareholders within five years, only a mere 25% have established a strong, well-documented, and openly shared succession plan. The methods to execute the transfer can vary widely, but the focus generally revolves around transferring equity either over a period or at a specific juncture, often involving some type of payment considerations. Alternatively, part of this equity transition might eventually become a part of the estate.

However, this transition process is not without its challenges. Here are six important areas that require careful attention:

1. Next Generation’s Capability and Enthusiasm: Before progressing, it’s vital to gauge whether the upcoming family members possess the skills and willingness required for a successful transition. This transition may be driven by goals like preserving the family legacy or providing a stable business platform for the next cohort. These goals rely on the next generation’s readiness and skills. Effective communication of expectations is imperative.

2. Moving Capital Smoothly: Exit-generation’s capital needs must be considered. High capital needs pressure both business and equity stakeholders. Often, younger generations lack sufficient capital to buy out seniors. This may necessitate continued investment by vendors or increased business debt, both needing sustainability assessment.

3. Structured Compensation Planning: Transition should elevate remuneration’s formality. Informal approach like handling owner remuneration based on personal needs rather than role responsibilities can lead to overcompensation or underpayment. Under generational succession, there’s a need for a more formal compensation framework that aligns pay with roles, ensuring equitable compensation and clarity in performance incentives.

4. Managing Authority Transition: Passing on operational control and decision-making authority is often a delicate matter. Setting expectations and agreements ahead of time about the transition of control is crucial. Unclear management structures can create confusion or a void in decision-making. Disagreements can arise when the incoming generation desires autonomy in decision-making, while the outgoing generation seeks to retain influence based on experience. Clarifying the transition of control in advance can minimise tension.

5. Setting Transition Expectations and Timeline: Generational succession is a process, requiring managed expectations to avoid derailment due to frustration. An extended transition phase can be beneficial, particularly if the older generation intends to scale down their involvement gradually. This phased approach aids not only in managing change but also in facilitating income and capital withdrawals.

6. Formalizing Management Structure: Maintaining clear distinctions between the roles of the board, shareholders, and management becomes even more crucial during generational succession. The formality of these structures is important, with clearly defined roles and expectations. Some families use a family constitution to outline rules, while others seek external advisory groups to ensure independent expertise contributes to decisions.

In conclusion, the success of generational succession lies in careful planning, transparent communication, financial prudence, and structured management. This complex process, involving evaluating capabilities, managing finances, handling operational shifts, and maintaining structured governance, ensures that the transition not only sustains the business but also upholds the family’s unity and values. The ultimate objective is not just passing on a legacy but facilitating the growth of a resilient business with a shared sense of purpose. We are here to assist you in skilfully navigating the process of effectively handling generational shifts. Feel free to discuss with us how we can support you in creating a well-structured pathway for a successful transition.

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

You possess a piece of land that is ideal for a subdivision. All the necessary arrangements have been sorted out with the Council, builders, and the bank. However, a crucial aspect has been overlooked: the tax implications.

Many small-scale developers often assume that they will face minimal tax risk. Nevertheless, this assumption isn’t always accurate, as the tax treatment of a subdivision project can significantly influence cashflow and the project’s financial feasibility.

Recent guidance from the Australian Taxation Office (ATO) delves into the tax consequences of small-scale subdivision projects. Let’s explore some key points:

Tax Treatment of Subdivision: When subdividing land, the tax treatment, even for a small subdivision, can rapidly become intricate. Taxation depends on the specific circumstances. One should not presume that just because the development is small, any eventual sale profit will automatically be considered as a capital gain, qualifying for Capital Gains Tax (CGT) concessions.

Generally speaking, if you personally own a property that has been used for private purposes over an extended period and you divide and sell the newly created lots, capital gains tax may apply to any profit obtained. The gain is calculated from the moment you acquired the land, though you’ll need to divide the property’s initial cost among the subdivided lots. If you’re subdividing a property that includes your primary residence, the main residence exemption typically won’t apply if you sell a subdivided block separately from the main block, even if the land was solely used for residential purposes related to your home.

If a property is initially co-owned but then subdivided, distributing the lots among the owners, this usually triggers immediate tax consequences, even before selling to an unrelated party. Such arrangements, known as ‘Partitioning’, can be challenging to manage from a tax standpoint.

Property Development: What if you decide to develop the land? It’s quite common for individuals to subdivide and develop their property by constructing a house or duplex, followed by selling the new structure.

When someone develops a property with the intention of selling the finished product for a short-term profit, there’s a possibility that it will be treated as income rather than falling under capital gains tax rules. This may limit access to CGT concessions, such as the 50% CGT discount, and often result in GST obligations. This applies even to isolated property developments.

Illustrative Case: Let’s consider an example involving Conrad. He acquired his home in July 2001 for $300,000. By July 2020, he explored subdividing his property, constructing a new house, and selling it. A valuation revealed that the original house and land were now worth $360,000 (60%), while the subdivided lot was valued at $240,000 (40%). Conrad obtained a $400,000 loan for the development and sold the property for $1,210,000 (GST inclusive) in July 2021.

For Conrad’s situation:

• Conrad’s total economic gain was $580,000.
• This gain stemmed from sale proceeds ($1,100,000, excluding GST) minus development expenses ($400,000) and the initial cost of the subdivided lot ($120,000 which is 40% of the acquisition cost $300,000).
• The increase in value of the subdivided lot from acquisition (July 2001) to the start of profit-making activities (July 2020) qualifies as a capital gain.
• The capital gain for the subdivided lot ($240,000 in July 2020 minus $120,000 initial cost proportion of acquisition) is $120,000.
• With the 50% CGT discount (as Conrad held the subdivided lot for more than 12 months), the discounted capital gain is $60,000.
• The increase in value of the subdivided lot from the start of profit-making activities to the sale is treated as ordinary income.
• The net profit ($460,000) considers sale proceeds ($1,100,000) minus development expenses ($400,000), and the lot’s value ($240,000).

Unless Conrad is engaged in a business, he can’t deduct development expenses as they’re incurred; instead, they impact the net profit upon sale. If Conrad opted not to sell after development, it would complicate income tax and GST treatment.

GST Considerations: For individuals subdividing land held for private use, GST registration might not be necessary, depending on circumstances. However, engaging in a property development business or a business-like one-off project could require GST registration.

In Conrad’s case, since the projected sale price exceeded the $75,000 GST threshold, he likely needs to register for GST. This entails:

• A ‘default’ GST liability of $110,000 on the sale price (unless the GST margin scheme applies).
• Notifying the purchaser of the amount to withhold and remit to the ATO.
• Eligibility to claim $40,000 credits for GST within development expenses, adhering to regular GST rules.
• Reporting these transactions through business activity statements.

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

The 120% technology and skills ‘boost’ deduction is a tax incentive introduced in the 2022-23 Federal Budget for small and medium-sized businesses (SMEs) in Australia. The boost allows eligible SMEs to claim a 120% tax deduction for certain types of expenses related to technology, skills, and training for their staff.

In the last article, we discussed the eligibility requirement and details of the $20k technology investment boost. This article will be focused on the Skills and Training Boost, which breaks down into the following key points:

The Skills and Training Boost

The Skills and Training Boost provides a 120% tax deduction for external training courses offered to employees. The goal of this boost is to help SMEs grow their workforce by upskilling employees and improving their efficiency.

Who qualifies for the Skills and Training Boost?

Only employees of the business are eligible for the boost. Sole traders, partners in a partnership, independent contractors, and non-employees do not qualify. Additionally, associates, for example, spouses or partners, or trustees of a trust, are also not eligible.

Rules for the Skills and Training Boost:

• Registration for the training course must have occurred from 7:30 pm (AEST) on 29 March 2022 until 30 June 2024.
• The training must be deductible to the business under ordinary rules, meaning it must be related to how the business earns its income.
• The training must be delivered by a registered training provider, and the provider must charge the business (either directly or indirectly) for the training.
• The training must be for employees of the business and must be delivered in-person in Australia or online.
• The training provider cannot be the business itself or an associate of the business.

What can be included in the Training Expenditure?

Training expenditure includes the costs of the training itself, as well as incidental costs such as books or equipment necessary for the training course. However, these incidental costs are eligible for deduction only if the training provider charges the business for these expenses.

How is the bonus deduction calculated?

The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct. For example, if a business spends $10,000 on eligible training, the bonus deduction would be 20% of $10,000, which equals $2,000. This bonus deduction is not received in cash but is used to reduce the business’s taxable income.

What organizations can provide training for the boost?

Not all training courses provided by companies will qualify for the boost. Only courses charged by registered training providers within their registration will be eligible. Typically, these are vocational training courses that lead to a trade or contribute to a qualification, rather than professional development courses.

Qualifying training providers are registered by organizations such as:

• Tertiary Education Quality and Standards Agency (TEQSA)
• Australian Skills Quality Authority (ASQA)
• Victorian Registration and Qualifications Authority
• Training Accreditation Council of Western Australia

It’s worth noting that while not all courses may be delivered by registered training organizations, there are still plenty of eligible options available, particularly short courses offered by universities or flexible courses designed for upskilling rather than degree qualifications.

Conclusion

If your business is eligible and has made eligible expenses, it’s essential to keep track of the documentation and ensure compliance with the rules to maximise the deductions. Consulting with a tax professional or accountant can also be beneficial in navigating the complexities of these deductions.

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

Employers & Business:

• The Superannuation Guarantee has been raised to 11% from its previous rate of 10.5%.
• National and Award minimum wage increases have been implemented.
• The Temporary Full-Expensing measure has come to an end.
• The Temporary Skilled Migration Income Threshold, which denotes the minimum salary for sponsored employees, has increased to $70,000 from $53,900.
• Work restrictions for student visa holders have been reintroduced, allowing them to work up to 48 hours per fortnight.
• The cap on claims via small claims court procedures for workers seeking unpaid work entitlements has significantly increased from $20,000 to $100,000.
• Small businesses can benefit from the Energy Bill Relief Fund, subject to meeting specific criteria, which provides assistance with energy bills.
• Sharing economy reporting to the Australian Taxation Office (ATO) has commenced for electronic distribution platforms.

Superannuation:

• Superannuation guarantee has been raised to 11%.
• The general transfer balance cap has been increased to $1.9 million due to indexation.
• Minimum pension amounts for super income streams have reverted to default rates.
• Self-Managed Superannuation Fund (SMSF) transfer balance event reporting has shifted from an annual to quarterly requirement for all funds.

For You and Your Family:

• A new fixed rate method for working from home deductions, at 67 cents per hour, has been introduced. Proper records of working hours from home are required, as a simple weekly calculation is no longer acceptable to the ATO.
• The cents per kilometre rate for motor vehicle expenses for the year 2023-24 has risen to 85 cents.
• First home loan guarantee access has been expanded to include “friends, siblings, and other family members.”
• The Medicare low-income threshold has been increased for the year 2022-23.
• The child care subsidy has increased from 10th July 2023 for families with household income under $530,000. For more information, refer to the Services Australia website.
• New parents can now claim up to 20 weeks of paid parental leave.
• The age at which individuals can access the age pension has been increased to 67 years of age.

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

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.