Tax consequences of sharing your home

Homeowners can share their homes in a range of ways – you might have an agreement to rent out a room, offer short stays through a platform like Airbnb, accept money from a friend who sometimes needs a bed, or receive board payments from family members. Some of these situations will affect your assessable income and what expenses you can claim at tax time.

Whether you rent out your whole home or just a room or granny flat, when it comes to lodging your tax return you’ll need to declare the rent you receive as income. Rent and associated amounts (such as bond money or booking cancellation fees) are assessable income no matter the arrangement length, from a single-night booking to an ongoing rental agreement.

You can claim immediate deductions for some expenses related to rental income, while other deductions need to be claimed over time. It’s important to note that rental expenses can only be claimed when your home is rented out or genuinely available for rent. If you only rent out part of your home, only expenses related to that part are deductible.

Where family members or friends who stay in your home pay board and lodging to cover their food and accommodation, this is generally considered a “domestic arrangement” rather than a rental one, so the payments don’t need to be declared as assessable income. Because of this, you also can’t claim tax deductions for expenses related to having the friend or family member staying in your home.

Take care, though: if you have an arrangement with friends or family where you intend to make a profit, or that’s otherwise generally consistent with an ordinary commercial tenancy agreement, simply calling the payments “board and lodging” isn’t enough to avoid the tax implications of receiving rental income. It’s best to seek professional advice if you’re not sure how the ATO might view your particular situation.

Unlocking value: subdividing your family home’s land

Many retirees find themselves cash-poor but asset-rich. For those living on larger properties, subdividing and selling unused land can be a potential retirement strategy to generate funds for income-producing assets. While this approach may suit some circumstances, it’s crucial to understand the capital gains tax (CGT) implications and downsizer contribution limitations.

When you subdivide a block of land, each new block receives a separate title and is treated as a distinct asset for tax purposes. Selling a subdivided block triggers CGT.

Typically, selling a main residence is entirely exempt from CGT if it hasn’t been used for income-producing purposes, but this exemption may not apply to subdivided blocks.

The CGT main residence exemption requires that the capital gain relates to your “dwelling”, which includes your home and up to two hectares of adjacent land used primarily for private or domestic purposes. This two-hectare limit includes the land beneath your home. Consequently, if you subdivide and sell a block of vacant land on a new title, it’s no longer considered part of your dwelling and doesn’t qualify for the CGT main residence exemption.

Eligibility to contribute any sale proceeds to superannuation as a “downsizer contribution” requires the contribution to be equal to part or all of sale proceeds from the sale of a dwelling.

Before proceeding with any subdivision plans, it’s crucial to seek expert advice to ensure you’re making informed decisions that align with your retirement goals and comply with current tax regulations.

Employee overpayments: what to do

Once the end of financial year workload abates and payroll staff have time to have a closer look at what occurred in the previous income year, it’s not unusual for unintended overpayments to employees to come to light. If this happens for your business, it’s important to follow ATO guidance and consider all parties’ rights and obligations when deciding what to do next.

Critically, the first step is to confirm whether the business will seek to recover the overpayment. This should be decided by business management in consultation with human resources, not by payroll staff. If no recovery will be sought then the original payment processing remains as is. Keep a clear record of the decision not to recover the overpaid amount.

If the business will seek recovery, you need to consider whether the overpayment relates to a previous income year, the current income year or both. Remember to communicate clearly with the employee about any adjustments made to their Single Touch Payroll (STP) record as part of recovering overpayments.

For an income year that’s been finalised, the business will need to seek repayment of the gross overpaid amount directly from the employee. The STP record must be amended to reduce the gross by the amount of the overpayment. No tax adjustment should be made.

When the employee later lodges their tax return, the overpayment will no longer be taxable because it’s no longer shown in STP, so they should get back any tax previously withheld on it.

Where an overpayment affects a current income year, the process is to reduce the gross and the tax in STP by the original overpayment. The business then only needs to recover the net amount from the employee.

If the business paid superannuation on the original overpayment, the overpaid super can be used to offset future obligations for the same employee for up to 12 months.

Payday super: policy design released

As part of the 2023–2024 Federal Budget, the government proposed a “payday super” reform. A newly released government fact sheet sets out some key elements of the policy.

From 1 July 2026, instead of the current requirement to pay quarterly, superannuation guarantee (SG) contributions will need to be made on “payday”. This is the date an employer makes an ordinary time earnings (OTE) payment to an employee. When OTE is paid, there’ll be a new seven-calendar-day “due date” for the payment to arrive into an employee’s superannuation fund. Some limited exceptions will apply for small or irregular payments outside the usual pay cycle, and contributions for newly commencing employees.

The SG charge framework will be updated for the payday super environment, including larger penalties for employers who repeatedly do the wrong thing.

Contributions will automatically count towards the earliest possibly payday not yet assessed for SG charge and which still has an outstanding shortfall so employers no longer need to make an election or choose the period for which each late contribution should count.

Other changes include the following:

• The deadline for super funds to allocate or return contributions will reduce from 20 business days to three days.
• Employer reporting in Single Touch Payroll (STP) will include employees’ OTE and total super liability, ensuring correct identification of the SG.
• The ATO’s Small Business Superannuation Clearing House will be retired on 1 July 2026. The ATO will support small businesses in transitioning to suitable payroll software solutions.
• Revised choice of fund rules will apply to make it easier for employees to nominate their super fund when starting a new job.
• Advertising of super products during onboarding will be limited to MySuper products passing the most recent performance test, to protect employees from poor outcomes.

“Super saver” scheme now more flexible for first home buyers

In welcome news for first home buyers, the government has made changes to the operation of the First Home Super Saver Scheme (FHSSS) to improve its flexibility for users.

The FHSSS allows you to withdraw certain voluntary superannuation contributions from your fund (plus associated earnings) to assist with purchasing or constructing your first home. There are detailed rules governing the amounts you can withdraw, but essentially the scheme enables you to withdraw up to $50,000 of eligible voluntary contributions (plus an earnings amount). Eligible voluntary contributions are those made since 1 July 2017, up to $15,000 per year and capped at $50,000. Saving for a home via the FHSSS can have tax benefits, either as part of a salary-sacrifice arrangement or by using personal deductible contributions.

When you want to access these savings to put towards your first home, you must follow a certain process. This firstly involves requesting a determination from the ATO, which will advise you of your maximum FHSSS release amount. You can then request a release of the funds, receive the funds, and then notify the ATO when you’ve signed a contract to purchase or construct your home – which must generally occur within 12 months of requesting a release of funds. You can request a release of the funds either before you sign the contract or within a 14-day timeframe after signing the contract.

Changes taking effect from 15 September 2024 will improve this process. They include:

• expanding the timeframe for requesting a release;
• expanding eligibility for requesting a determination; and
• allowing more flexibility to amend applications.

The changes also provide an opportunity for prior applicants who were unsuccessful to reapply, even if they now own their home. If you applied to access the FHSSS between 1 July 2018 and 14 September 2024 and were unsuccessful, the ATO will assess your eligibility and, if you’re eligible, contact you to confirm whether you want to request a release.

Accessing super from age 60 to 65

From 1 July 2024, the rules for accessing superannuation became somewhat simplified: the preservation age when you can begin to access your benefits is now effectively age 60. However, until you reach age 65, there are still potential restrictions on how you can access your super. You’ll need to “retire” before you can make lump sum withdrawals from your super account or move it into the favourable “retirement phase” when investment earnings within the fund become tax-free. If you’re aged between 60 and 65 and wish to access some of your super, it’s a good time to re-examine the rules.

For anyone born after 30 June 1964, preservation age is age 60.If you are between 60 and 65 years old but haven’t yet retired, you can commence a transition to retirement income stream (TRIS). This allows you to receive a regular income of between 4% and 10% of your pension account balance each year. If you want to access more of your super, or withdraw it as a lump sum, you’ll need to satisfy a further condition of release. This includes reaching age 65, or “retirement”.

Meeting these conditions is also relevant for tax purposes. TRIS payments to a person aged 60 or over are generally tax-free – regardless of whether they are retired or not – but the TRIS itself does not move into the “retirement phase” until a further condition such as retirement (or reaching age 65) is met.

To satisfy the retirement condition, an arrangement under which you were gainfully employed must have come to an end. If you’d already reached age 60 when that position ended, there are no further requirements, and your future work intentions aren’t relevant.

If you hadn’t yet reached aged 60 when the position ended, the trustee of your fund must be reasonably satisfied that you intend never to again become gainfully employed, either on a full-time or a part-time basis. “Part-time” means working for at least 10 hours per week, so you could intend to work for less than 10 hours per week and still meet the “retirement” condition.

Any withdrawal strategy should be carefully planned to ensure you understand the implications of accessing your super. There are many factors to consider, such as the ongoing requirement to withdraw minimum pension amounts each year if you start a pension, implications for your transfer balance account, and interactions with the Age Pension.

Claiming the tax-free threshold: getting it right

If you’re an Australian resident for tax purposes, you don’t have to pay income tax on the first $18,200 you earn each year, from any source. This is called the “tax-free threshold”. If you have more than one job, change employers during the year, have a sole trader side gig or get government payments, it’s important to think about the tax-free threshold and which employer, job or payment you’ll claim it for.

The ATO advises claiming the tax-free threshold once from your “main” payer – typically the job, gig or payment that pays you the most during the year. That payer will not withhold income tax from the first $18,200 they pay you but will withhold tax from payments once your earnings go over the threshold.

At the end of the financial year, the ATO calculates your total income and tax withheld. If not enough tax has been withheld, you can expect a tax bill. If more tax has been withheld than you owe for your total earnings, you can expect a refund.

When starting a new job, your employer should ask you to complete a withholding declaration.

To claim the tax-free threshold, you must be an Australian resident for tax purposes on the declaration and answer “yes” to the question “Do you want to claim the tax-free threshold from this payer?”. Where you answer “no”, tax will be withheld from all income from that payer.

Avoid claiming the threshold from multiple payers simultaneously unless you’re sure you’ll earn less than $18,200 total for the year. Overclaiming might make your take-home pay higher each pay cycle but will likely mean a tax debt later.

When changing jobs you can claim the threshold from your new payer even if you have claimed it from your previous one.

If you add a job or side gig that will provide more income than your existing main payer, you can change your claim at any time using ATO online services, via your myGov account.

If you’re earning income outside of employment (eg as a sole trader) you’ll need to pay tax yourself on that income. Consider setting aside a percentage for tax or using pay as you go (PAYG) instalments each time you are paid.

Withholding for foreign residents: an ATO focus area

Does your business or investment structure make payments such as interest, dividends or royalties to any foreign residents? You may be required to withhold tax from these payments. The ATO is currently focusing on ensuring that taxpayers are aware of these obligations.

If these withholding requirements apply to you, you’ll need to lodge a PAYG annual report or an annual investment income report, and withhold and pay the correct amount of tax.

Figuring out whether an obligation to pay withholding tax arises from a particular payment can be complex. Assuming your structure is resident in Australia, the starting point is that the withholding tax regime generally applies to interest, dividends and royalties derived by foreign residents, unless an exemption applies. This means the withholding tax obligation arises whether you make the payment to the foreign resident, credit it to their account, or deal with the payment on their behalf or at their direction. (Certain payments can also be captured if your structure is not resident but has a permanent establishment in Australia.)

However, a number of exemptions apply. These can be technical in operation, so it’s important to seek advice specific to your circumstances if you make any payments to non-residents.

The ATO is alert to payers who have not withheld and paid amounts (or have withheld and paid incorrect amounts), incorrectly relied on an exemption or treaty relief, or misclassified deductions for interest or royalty payments to an offshore entity.

Small business restructure roll-over: tax relief for genuine business restructures

With the latest statistics showing a significant rise in liquidations and with the ATO’s focused efforts on debt collection, small businesses face significant financial pressures. However, the answer isn’t to evade responsibilities or take shortcuts – business restructuring has to be done properly and in compliance with the relevant laws. The small business restructure roll-over (SBRR) provides a legitimate, structured path for businesses to reorganise their operations, allowing them to better meet these challenges without prejudicing creditors or engaging in unethical practices.

To qualify for the SBRR, each party to the transfer must meet the small business entity definition. A small business entity is defined as an entity with an aggregated turnover of less than $10 million. This includes businesses that operate as a sole trader, partnership, company or trust, provided they meet the turnover threshold. Entities connected with or affiliated with a small business entity also fall under this definition.

The assets being transferred must be active assets, which include CGT assets, trading stock, revenue assets or depreciating assets. Non-active assets, such as loans to shareholders, are not eligible.

The transfer must be part of a genuine restructure of an ongoing business, not an artificial or inappropriately tax-driven scheme, and there must be no change in ultimate economic ownership of the transferred assets.

Opting for the SBRR has several tax implications:

• The transfer does not trigger an income tax liability at the time of the transfer.
• The transferor is deemed to have received an amount equal to the asset’s cost, and the transferee acquires the asset at this cost.
• Potential liabilities like GST or stamp duty must be considered, as they might still apply.
• The roll-over does not protect against the application of anti-avoidance rules, ensuring the transaction is not purely tax-motivated.

For CGT assets, the transferee must wait at least 12 months to claim the CGT discount on any subsequent sale, and pre-CGT assets retain their status. For trading stock, the roll-over cost is based on the transferor’s cost or value at the beginning of the income year. Depreciating assets allow the transferee to continue deducting the decline in value using the transferor’s method and effective life. Revenue assets are transferred without resulting in a profit or loss for the transferor.

Super guarantee a focus area for ATO business debt collection

The ATO has recently confirmed that collection of business debts – including debts relating to superannuation guarantee (SG), pay as you go (PAYG) withholding and GST – is among its key focus areas. This is a timely reminder for all businesses to ensure they’re meeting their obligations.

The most recent ATO statistics show that although 94% of employers are meeting their SG obligations without ATO intervention, the ATO still raised over $1 billion in SG charge liabilities in the 2022–2023 financial year.

To ensure your business doesn’t incur these extra liabilities, you must pay SG contributions for your employees and eligible contractors on time and to the correct funds. Some contracts and awards may require you to pay contributions more regularly than quarterly.

If you make contributions to a commercial “clearing house”, the contribution is considered to be paid when it’s received by the employee’s fund, not by the clearing house. However, if you use the ATO’s Small Business Superannuation Clearing House, the contribution is “paid” when received by that clearing house.

From 1 July 2026, employers will need to pay SG at the same time as salary and wages (commonly known as “payday super”).

If you miss a payment, taking action promptly is essential to accessing the ATO’s support services and minimising your exposure to penalties. You must lodge an SG charge statement with the ATO within one month of the missed quarterly due date. You can ask the ATO for an extension to the lodgement date, but you must do this before the due date.

You’ll also need to pay the SG charge. This charge is more than the amount of contributions you would have paid if you had paid them on time, and it’s not deductible. The charge is paid to the ATO, not your employee’s fund. General interest charge will accrue on any outstanding SG charge, and the ATO may also issue a director penalty notice if it remains unpaid.

New “bring-forward” contribution thresholds for 2024–2025

You may have heard that the annual cap on non-concessional contributions (NCCs) has increased for 2024–2025. This is great news for superannuation members who want to maximise their retirement savings.

NCCs are your own after-tax contributions, meaning they’re distinct and separate from concessional contributions such as compulsory employer contributions made for you, additional salary sacrifice contributions, and personal contributions you’ve made for which you claim a deduction. From 1 July 2024, the annual cap on NCCs increased from $110,000 to $120,000 due to indexation.

This increase means that the maximum amount that can be contributed under a “bring-forward” arrangement has also increased. A “bring-forward” arrangement allows eligible members to contribute up to three years’ worth of NCCs in a shorter timeframe. This may be an attractive contribution strategy for those with an inheritance, a large bonus payment, or proceeds from the sale of an investment.

If you already commenced a bring-forward arrangement in the last year or two, you won’t get the benefit of the increased NCC cap for that arrangement. However, if you’ve been thinking about commencing one of these strategies, now is great time to consider this further.

You must be aged under 75 at some point in the financial year when you commence a bring-forward arrangement, and your total superannuation balance (TSB) as at 30 June of the previous financial year affects your eligibility.

Be aware that the TSB eligibility limits have changed since last year – and they’ve decreased. So, while the NCC cap and the maximum bring-forward cap have increased, the cut-off points when your eligibility reduces or ceases are lower. Be careful about referring to older advice or information (eg online) that is based on the TSB thresholds for 2023–2024.

Regulations coming for “buy now, pay later” market

In recent years, the financial landscape in Australia has been significantly transformed by the advent of buy now, pay later (BNPL) services. These innovative credit products have provided consumers with a convenient and often cheaper alternative to traditional credit forms such as credit cards, small amount credit contracts and consumer leases.

BNPL arrangements typically involve a third-party provider financing consumer purchases of goods and services, with repayments collected in instalments. Unlike traditional credit products, BNPL services generally don’t charge interest but may impose small fees on consumers and service fees on merchants. Australian BNPL transactions were worth around $19 billion in 2022–2023, accounting for approximately 2% of all Australian card purchases.

Currently, BNPL products aren’t regulated under the National Consumer Credit Protection Act 2009 (Credit Act). As a result, providers aren’t subject to responsible lending obligations (RLOs) or other Credit Act requirements, and they don’t need to hold an Australian credit licence. Some of the most common concerns about the BNPL sector include unaffordable lending practices, inadequate complaint resolution and hardship assistance, excessive late payment fees, and a lack of transparency in product disclosures and warnings.

Although BNPL providers adhere to the Australian Finance Industry Association’s voluntary Buy Now, Pay Later Industry Code, which covers approximately 90% of the market, this self-regulation isn’t enforceable by the Australian Securities and Investments Commission (ASIC). Consequently, breaches of the Code don’t attract criminal or civil penalties, highlighting the need for more robust regulatory oversight.

A Bill currently before Parliament aims to extend application of the Credit Code to BNPL contracts and regulate most BNPL contracts as low cost credit contracts (LCCCs). Once the Bill passes, providers of LCCCs will be required to hold and maintain an Australian credit licence and comply with the relevant licensing requirements and licensee obligations, with some modifications to ensure regulation is proportionate to the relatively low risk posed by LCCCs. The existing RLO framework will also be modified to create an alternative, opt-in framework that scales better with the risks posed to consumers and requires each LCCC provider to develop and review a written policy on assessing whether an LCCC would be unsuitable for the consumer.

Deducting gifts and donations: getting it right at tax time

Have you made charitable gifts or donations in the past financial year? The good news is these items are often deductible, giving many Australians a welcome boost to their tax refund. Make sure you know the rules this tax time.

When gathering your donation receipts, it’s important to understand what can and can’t be claimed as a deduction. The first general rule is that a donation of money of $2 or more may be deducted if the donation was made to a “deductible gift recipient” (DGR). A DGR is an entity that has registered with the ATO as being eligible to receive deductible gifts and donations.

Some charities may not have DGR status, so check if you’re unsure. Many online crowdfunding platforms are also not DGRs, which means you typically won’t be able to claim your donation towards fundraising for individual causes, such as someone’s funeral or medical costs.

The second general rule is that a donation is only deductible if you didn’t receive a benefit in return. This means you can’t make a claim if you received things like raffle tickets or items that have an advertised price, such as toys and food items. However, you may receive a “token” promotional item such as a sticker or lapel pin and still qualify for a deduction. Note that donations to a school’s building fund won’t be deductible if you received benefits such as reduced school fees or a certain placement on a waiting list in return for the donation.

Small cash donations totalling up to $10 don’t require a receipt. However, beyond that you must be able to provide evidence of your claim. You aren’t required to keep an original paper receipt, provided you keep an electronic copy that is a true and clear reproduction. If you don’t have a receipt, you may be able to substantiate the claim with other documentation such as a bank statement evidencing the donation.

If you make donations through a “workplace giving program” operated by your employer, you can simply claim the amount of donations shown in your income statement or payment summary. You can claim this deduction in your tax return regardless of whether your employer has reduced the tax withheld each pay period. In both cases, your gross salary or wages and deductible donations for the year will be the same, but any difference in the tax withheld during the year will factor into your eventual tax refund. Workplace giving programs aren’t the same as salary-sacrifice, as they don’t lower your gross salary or wages.

Motor vehicle expenses: which method should my business use?

If your business owns or leases a vehicle that’s used for business purposes, it’s essential to keep proper records to ensure you’re entitled to the maximum deduction for your vehicle expenses. Running costs like fuel and oil, repairs, servicing, insurance premiums and registration are all potentially claimable, as well as interest payments on a loan to purchase the vehicle, lease payments, and depreciation. However, the method used to calculate your claim depends on your business structure and the type of vehicles you’re claiming for.

If your business operates in a trust or corporate structure, you must use the “actual costs” method for all types of vehicles used in your business. This means you can claim the expenses actually incurred, which requires you to keep receipts.

You can only claim for business-related use, so if you use the vehicle for any private purposes you must identify the percentage that relates to business use. Keeping a diary that records your business and private use will allow you to justify your claim. Travel between your home and your business is treated as “private” use, unless you operate your business from home and need to travel away from home for business purposes.

If you’re a sole trader (or operating in a partnership that includes at least one individual), the method to use depends on whether the vehicle you’re claiming for is a “car” (a vehicle designed to carry fewer than nine passengers and a load less than one tonne). For non-cars, you must use the “actual costs” method. But for car expenses, you have a choice of which method to use: either the “cents-per-kilometre” method or the “logbook” method.

The cents-per-kilometre method allows you to claim a set rate per kilometre travelled for business use, up to a maximum 5,000 km per year. The current rate for 2024–2025 is 88 cents per business kilometre. The law requires you to make a “reasonable estimate” of your business kilometres, which means you need to be able to show the ATO how you derived your total number of hours.

The logbook method isn’t limited to 5,000 km, but you’ll need to keep more detailed records. A logbook of your business kilometres travelled is required in order to calculate the percentage of total kilometres travelled for business during the year. This is then multiplied by your car expenses. In the first logbook year, you’ll need to record detailed odometer readings for each trip in a 12-week continuous period. This representative period can then be used as the basis for calculating your claim for the year, and for the next four years.

Time for a superannuation check-up

The new financial year has begun, and with it have come some important changes to superannuation from 1 July 2024. With these changes coming into effect, it’s a good time to give your super a check-up. Your super could be one of the biggest assets you ever have, so getting into the habit of checking in regularly can help you stay on top of it and make better choices for your future.

On 1 July 2024, the superannuation guarantee rate increased from 11% to 11.5%. Employer super contributions are calculated on a worker’s ordinary time earnings, for payments of salary and wages. For employers, the maximum super contribution base increased from $65,070 to $62,270 (the limit on what you can earn each quarter before your employer can stop making super guarantee contributions). The concessional super contributions cap also increased from $27,500 to $30,000 and the non-concessional contributions cap increased from $110,000 to $120,000.

The ATO suggests the following steps as a good place to start in giving your super a check-up:

• Check your contact details: Make sure your contact details and tax file number (TFN) are up to date with the ATO and your super fund.
• Check your super balance and employer contributions: Checking your super balance and keeping track of your employer contributions can be done at any time through ATO online services or your super fund. Your employer should be paying your super at least every three months.
• Check for lost and unclaimed super: If you’ve changed your name, address or your job, you may have lost track of some of your super. Lost super is where your super fund hasn’t been able to contact you, or your account is inactive. Unclaimed super is where your fund has transferred lost super to the ATO.
• Check if you have multiple super accounts and consider consolidating: If you’ve ever moved jobs, you might have more than one super account. Each account will charge fees and may include insurance, so combining your super accounts may reduce fees, help you pay only for the insurance you need and make your super easier to manage.
• Check your nominated beneficiary: Make sure you have a valid death beneficiary nomination with your super fund, as this isn’t covered by your will. Check with your fund if there is an expiry on the nomination – some funds have options where the nominations don’t expire, while most nominations expire every three years. If you don’t have a beneficiary nominated, your fund will follow the law in determining where your super should go.

You should also take a careful look at how your fund is performing and check that you aren’t paying too much in fees. You might also think about evaluating how your super is being invested – does it match your stage in life, how much risk you are willing to bear, or even your ethics and values? If you have insurance cover with your super fund, regularly check that it still meets your needs.

Do you have enough super?

The Association of Superannuation Funds of Australia (ASFA) has developed a “retirement standard” which provides a broad approximation of how much super you need in retirement. As of March 2024, as combined amounts for couples retiring at age 67, ASFA suggests:

• $690,000 for a comfortable retirement (providing an income of $72,663 per year); and
• $100,000 for a modest retirement (providing an income of $47,387 per year).

These figures assume that you will draw down all your super, receive a part Age Pension, own your home outright and are in good health. While useful as a baseline, your personal needs may differ significantly.

Many people assume that they will just fall back on the Age Pension if there is not enough in their super. This is definitely a safety net; however, you may not be comfortable on the restrictive budget required to get by on the Age Pension. As at 1 July 2024, Age Pension for a couple is $43,752 per year.

For the most accurate assessment of your superannuation needs, it’s best to seek professional advice. Your adviser can consider factors such as your health and life expectancy, inflation and investment returns, wages growth and taxation, and fees and regular contributions. Professional advisers have access to sophisticated tools and can provide customised forecasts based on your unique situation.

New SMSF expense rules: what you need to know

If you manage a self managed superannuation fund (SMSF), recent changes to tax rules for certain fund expenses could affect you. These changes may even apply to services provided for free. If your fund doesn’t pay market price for services, it could face significant extra tax.

The new rules focus on “non-arm’s length general expenses” – services provided to your SMSF at below-market prices or for free. Income related to these general expenses may be classified as “non-arm’s length income” (NALI) and taxed at 45%. The new rules took effect on 29 June 2024, but are retroactive to 1 July 2018.

Key points to consider

• General expenses: The rules apply to general expenses not charged at market price. These are expenses that don’t relate to a specific fund asset, such as accounting fees or investment advice that does not relate to a specific investment (eg asset allocation advice).
• Trustee roles: As a trustee, under the superannuation law you generally can’t charge for your duties. However, if you provide services for free, or at a significant discount, as a professional (eg accountant, auditor or financial adviser) the NALI rules may apply.
• NALI limits: The amount of NALI is capped at twice the difference between the actual expense and the market rate. If no expense is incurred, it’s limited to twice the market rate.
• Overall cap: The non-arm’s length component can’t exceed the SMSF’s taxable income (minus assessable contributions plus related deductions).

These new rules could catch out professionals trying to save their SMSF some money. If you’re providing services to your SMSF or getting services at below-market rates, you need to be aware of these rules.

If you’re unsure about how these rules affect your SMSF, it’s best to consult with a tax adviser. They can help you understand if your fund’s expenses are subject to the new rules and advise on any necessary changes.

Tax time scams: be on guard

Despite preventative approaches by the ATO and the National Anti-Scam Centre (NASC) to take down fraudulent websites and block scam text messages, ATO impersonation scams are on the rise as tax time approaches. Using unsolicited contact via SMS, email or on social media, ATO impersonators frequently offer refunds or assistance in resolving tax issues or suggest suspicious activity on a taxpayer’s account. The ATO recommends not engaging with unsolicited contact and instead looking up the ATO’s contact numbers to verify the genuine nature of the communication.

The creation of NASC, funding for the Australian Securities and Investments Commission (ASIC) and the Australian Communications and Media Authority (ACMA) to take down fake investment websites, and establishing the SMS Sender ID register to stop scammers from spoofing trusted brand names have already had some success: over 5,000 website takedowns occurred and 100 million scam text messages were blocked in the final quarter of 2023. However, the lead-up to tax time still poses a risk – updated figures for May 2024 show a 31% increase in reports of ATO impersonation scams across SMS, email, phone contact and social media channels.

The ATO is working on preventative measures to help the community to recognise legitimate ATO SMS interactions, including removing hyperlinks from all its outbound unsolicited SMSs. Cybercriminals often use hyperlinks in SMS phishing scams, directing individuals to highly sophisticated websites – for example a fake myGov login page – in order to steal personal information or install malware.

The ATO has a dedicated team to monitor for scams and to assist taxpayers who have fallen prey to scammers, and provides detailed information about email and SMS scams, phone scams and social media scams on the ATO website. The ATO also offers a reporting service where people can report an ATO impersonation scam if they encounter one.

Tax time 2024: claiming working from home expenses

Claiming work-related expenses is an area where taxpayers frequently make mistakes, and the ATO has flagged it a primary area of focus for tax time 2024. More than eight million taxpayers claimed a work-related deduction in 2023, with around half of those claiming a deduction related to working from home costs, so it’s clear that understanding the methods for calculating working from home deductions is important to help taxpayers avoid incorrect claims and get their lodgment right the first time.

“Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’”, ATO Assistant Commissioner Rob Thomson has said. “Your deductions will be disallowed if you’re not eligible or you don’t keep the right records.”

There are two methods for calculating work from home expenses: the actual cost method and the fixed rate method. Both methods require keeping detailed records and following the ATO’s three golden rules: the money must have been spent by the taxpayer without reimbursement, the expense must be directly related to earning their income, and the taxpayer must have a record to prove the expense. The two methods can’t be used in combination – you need to pick one or the other each year – so it’s important to consider which method will best suit your individual circumstances.

To be eligible to claim working from home expenses by either method, when working from home you must be fulfilling employment duties (not just minimal tasks like taking calls or checking emails); incur additional running expenses as a result of working from home (eg increased electricity or gas costs for heating/cooling or lighting); and keep detailed records showing how these expenses were incurred.

ATO focuses on rental property owners’ tax returns

Tax time 2024 sees the ATO continuing to turn the spotlight on rental property owners and inflated claims to offset increases in rental income. ATO data shows the majority of rental property owners are continuing to get information in their income tax returns wrong, even with most using a registered tax agent to complete their tax returns. The most common mistakes include overclaimed deductions; inadequate documentation to substantiate claimed expenses; and not understanding what expenses can be claimed and when.

To determine the accuracy of tax returns, the ATO cross-checks data from a range of sources including banks, land title offices, insurance companies, property managers and sharing economy providers. Incomplete documentation and the inability to substantiate claims for expenses and deduction are major causes of errors. Rental property owners need to make sure that they are keeping accurate records and are letting their tax agent (where they have one) know what is going on with their rental property so their return can be prepared correctly.

Not understanding what expenses can be claimed and when, particularly the difference between what can be claimed for repairs or maintenance versus capital expenditure, is the most common mistake rental property owners make on their returns. Deductions can generally only be claimed only to the extent that they are incurred in producing income – which means costs incurred in generating their rental income annually may be claimed for that period.

Tax time reminders for small businesses from the ATO

The ATO is encouraging small business owners to prepare for their 2024 tax return lodgment by considering the following:

• Purchase and keep records of tax-deductible items: The end of the financial year on 30 June represents the last chance to purchase any tax-deductible items that the business intends to claim for 2023–2024. Ensure that any tax-deductible items are documented both for cost and usage, including apportionment for work and private use where relevant.
• Check small business concessions: Small businesses may be able to access a range of concessions based on their aggregated turnover – this applies to sole traders, partnerships, companies and trusts – including CGT concessions, the small business income tax offset or the small business restructure roll-over.
• Finalise STP records: The ATO reminds small businesses with employees that the 2023–2024 STP information must be finalised by 14 July. This important end-of-year obligation ensures that employees have the correct information required to lodge their income tax return. STP information for all employees paid in the financial year, even terminated employees, must be finalised.
• Check your PAYG withholding and instalments: From 1 July, individual rates and thresholds will change and will impact PAYG withholding for the 2025 financial year. Check that the correct PAYG withholding tax tables are being used and that software has updated to the new withholding rates from 1 July. If PAYG instalments could result in paying too little or too much tax, instalments may be varied.
• Review record-keeping: Looking toward the next financial year, small businesses should review their record-keeping from the past year and see if anything needs to be done differently in the future.

Scam alert: fake ASIC branding on social media

The Australian Securities and Investments Commission (ASIC) has issued a scam alert warning consumers that there has been an increase in the use of ASIC’s logo in social media scams promoting fake investments and stock market trading courses; cold calling scams; and impersonation accounts on Telegram. ASIC is working with the National Anti-Scam Centre (NASC) and social media platforms to remove such content and reminds consumers that it does not endorse or promote investment training or platforms, doesn’t cold call consumers, and is not associated with any investment offerings.

ASIC’s warning to consumers covers three main areas of concern.

• Advertisements on social media platforms: ASIC has received reports of ads on social media platforms displaying the ASIC logo and claiming ASIC sponsorship for a “Stock Trading Master Class”. The ads link to a private WhatsApp group called “Lonton Wealth Management Center” – an entity listed by ASIC on the Investor Alert List in May 2024. ASIC is not associated with the entity, and ASIC does not sponsor the class.
• Cold calling: Repeated cold calls from someone purporting to be from ASIC have been reported. The caller tries to engage with consumers about obtaining a refund on an investment. ASIC does not cold call consumers about investments.
• Fake Telegram account: An account on Telegram is impersonating an ASIC social media account, with the operators asking investors for money to release their investment funds held in Australia. ASIC does not have a Telegram account as part of its social media presence and will never ask consumers for upfront payments or taxes to release Australian-held investments.

Get ready for tax time 2024

The end of the financial year is fast approaching and with that, tax time 2024 is kicking into gear. As it has in previous years, the ATO has recently flagged some primary areas where taxpayers frequently make mistakes on their tax returns. “These are the areas that people are most likely to get wrong”, ATO Assistant Commissioner Rob Thomson has said, “and while these mistakes are often genuine, sometimes they are deliberate. Take the time to get your return right.”

For 2024, the ATO’s vigilance is particularly focused on incorrect claims of work-related expenses, inflated rental property claims, and the omission of income from tax returns. In the previous year, over eight million individuals claimed work-related deductions, with a significant number related to home office expenses. With the revision of the fixed rate method for calculating home office deductions, the ATO now requires more comprehensive records to substantiate claims.

The ATO also reiterates the three golden rules for claiming any work-related expenses: you must have spent the money yourself without receiving reimbursement, the expense must be directly related to earning your income, and you must have a record, typically a receipt, to prove the expense.

Rental property owners are also under scrutiny this year, with data revealing that nine out of 10 are incorrectly completing their income tax returns. The ATO is paying close attention to deductions claimed for property repairs and maintenance, which are often mistaken for capital improvements. While immediate deductions are permissible for general repairs, such as replacing broken windows or damaged carpets, capital improvements like kitchen renovations are instead only deductible over time as capital works.

The ATO encourages rental property owners to meticulously review your records before lodging your tax return, and to ensure that your claims are accurate and backed up with documentation.

The last main area of focus is the timing of tax return lodgments. The ATO firmly warns against lodging your tax return at the earliest possibility (on 1 July), as this can often lead to errors, particularly in failing to include all sources of income. According to the ATO, taxpayers who lodge in early July will be doubling their chances of having their tax returns flagged as incorrect by the ATO. Most income information, such as interest from banks, dividend income and government payments, will be pre-filled in returns by the end of July, simplifying the process and reducing the likelihood of mistakes.

ATO crypto data-matching program extended

Hot on the heels of reports that a growing number of self managed super funds (SMSFs) are sustaining significant losses in crypto asset investments, the ATO has announced it will be extending its current crypto asset data-matching program for the 2023–2024 financial year through to the 2025–2026 financial year. Under this program, identification data will be collected from both individuals and non-individuals, such as SMSFs or other entities.

It is expected that around 700,000 to 1.2 million individuals and entities will be affected in each financial year of the data-matching program. A point of difference with this particular program is that the data retention period will be seven years from the receipt of the final instalment of verified data files from data providers, as opposed to the usual five years for other data-matching programs run by the ATO.

The ATO justifies this longer retention period by pointing to the need to conduct longer-term trend analysis and risk profiling of the crypto market, as well noting that crypto assets are often retained over many years before they are disposed of and trigger a CGT event.

The ATO will use the data obtained from the program to promote voluntary compliance and educate individuals and businesses that may be failing to meet their registration and/or lodgment obligations. In addition, insights from the data will be used to develop compliance profiles of individuals and businesses and initiate compliance action as appropriate.

Navigating complexities of crypto investments: SMSFs

The digital currency landscape continues to be treacherous terrain for self managed superannuation fund (SMSF) trustees, with a growing number of reports indicating significant losses due to a variety of factors, including scams, theft and collapsed trading platforms. The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing, including the fact that many crypto assets are not classified as financial products. This means that the platforms facilitating their trade often lack regulation, increasing the risk of loss without recourse.

The ATO has identified several causes of crypto investment losses:

• Some trustees are being duped by fraudulent crypto exchanges, which promise high returns but are designed to siphon off investors’ funds.
• Cybercriminals are increasingly targeting crypto accounts, hacking into them to steal valuable cryptocurrencies.
• A number of crypto trading platforms, particularly those based overseas, have collapsed, leaving investors with significant losses.
• Some trustees find themselves permanently locked out of their crypto accounts due to forgotten passwords, losing access to their investments.
• Scammers impersonating ATO officials are tricking some individuals into revealing wallet details under the guise of investigating tax evasion, leading to losses.

The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing. Resources such as the ACCC’s Scamwatch and ASIC’s MoneySmart provide valuable information on recognising and avoiding scams.

The ATO highlights that many crypto assets are not classified as financial products, meaning that the platforms facilitating their trade often lack regulation. This increases the risk of loss without recourse.

It is important to note that while some may still consider cryptocurrency to be private and anonymous, and may baulk at reporting any gains they’ve made, the reality is quite different. The ATO has the ability to track cryptocurrency transactions through electronic trails, in particular where it intersects with the real world. In addition, through data-matching protocols, the ATO requires cryptocurrency exchanges to furnish them with information on transactions, making it possible to trace and tax crypto trades. Trustees are therefore encouraged to report all transactions.

For SMSFs that run businesses and accept cryptocurrency as payment, the approach to accounting is akin to dealing with any other asset: the value of the cryptocurrency needs to be recorded in Australian dollars as a part of the business’ ordinary income. Where business items are purchased using crypto, including trading stock, a deduction is allowed based on the market value of the item acquired. SMSFs that run businesses should also be aware that there may be GST issues when transacting in crypto.

Superannuation switching schemes and investment scams: what to look out for

Beware of “cold callers” offering to switch your super

Following an extensive review, ASIC has uncovered a worrying trend where cold callers, after procuring personal details from third-party data brokers or through online baiting techniques, have been aggressively pushing consumers to switch their superannuation funds. These cold callers have been found collecting the details of people who use certain online comparison websites, or running competitions for prizes such as phones or gift cards and subsequently misusing the entrants’ details.These operations often have ties to a minority of unethical financial advisers who then suggest moving the consumers’ funds into superannuation products that carry hefty fees.

ASIC has expressed particular concern about these practices, noting that individuals aged between 25 and 50 – typically the primary targets of these operations – are at risk of significant retirement savings depletion due to reduced super value from unsuitable investments and excessive fees and other charges.

In addition, ASIC has observed a substantial flow of super savings into high-risk property managed investment schemes. These schemes are either channelled through super products offered by Australian Prudential Regulation Authority (APRA) regulated funds or self managed super funds (SMSFs), with subsequent kickbacks going to the cold calling entities.

ASIC has reiterated its commitment to safeguarding consumers, and is urging financial advice licensees and superannuation trustees to intensify their efforts in rooting out the nefarious elements that are targeting people’s super. ASIC will continue to take appropriate action, including enforcement action, to deter cold calling.

To raise public awareness, the regulator has launched a campaign advising consumers to hang up on cold callers and scroll past social media click bait offers to compare and switch super funds.

ASIC notes that a typical super cold calling experience does involve receiving a statement of advice (SOA) prepared by a financial advice firm – often one that the cold caller has an existing arrangement with – but it is usually “cookie cutter” advice that is expensive, unnecessary and does not consider a consumer’s individual needs, and may eventually leave the individual in a worse financial position. It reminds consumers that quality financial advice takes weeks, not days, to prepare.

Consumers who believe they have received financial advice that was not appropriate for their circumstances can initiate a complaints process, which includes contacting the business that gave the advice, then contacting the Australian Financial Complaints Authority (AFCA). Consumers who believe they have been a part of a scam should report it to their super fund at the first instance, as well as reporting it to Scamwatch and ASIC.

Bond and term deposit scams on the rise

ASIC is also concerned about the recent increase in sophisticated scams that encourage people to invest in fake bonds and term deposits. These scams are particularly insidious as they involve the impersonation of legitimate financial services businesses, many of which may not have a significant online presence of their own.

According to ASIC, scammers have been meticulously mirroring the details of real businesses, including their addresses, Australian business numbers (ABNs) and Australian financial services (AFS) license numbers. These elements are being used in scam advertisements and communications to lend an air of authenticity to the fraudulent schemes.

The scammers’ strategy involves using online advertisements and social media posts to lure consumers with fake offers to invest in well-known companies. These ads and posts often redirect to an
online enquiry form designed to harvest personal information. Consumers who show interest are provided with counterfeit investment materials and disclosure documents that appear professional and convincing.

ASIC has noted that these scammers are particularly cunning, often presenting themselves as knowledgeable and personable without pressuring potential victims into making quick decisions. The returns advertised are also crafted to sound reasonable, avoiding the typical “too good to be true” offers that are easier to spot as fraudulent.

Once they have gained the trust of their targets, scammers request personal identity documents and the completion of application forms. They then direct consumers to transfer funds into bank accounts that, while seemingly legitimate, are actually controlled by the scammers. These accounts are often held by reputable banks that are not associated with the supposed investment opportunity, further complicating the detection of the scam.

It’s important to remember that legitimate financial services businesses are required to hold client money for investments in a trust account, client segregated account or cash management trust that is held in the name of the licensee. ASIC also notes that consumers can confirm bank account details (including whether the bank account details match the name of the financial services business) via the Australian Payments Network or by independently contacting the bank directly using the details on the Australian Financial Complaints Authority (AFCA) website.

People who may have fallen victim to this type of scam are urged to contact their banks immediately and not to send any further money. If you’re concerned your ID may have been compromised, you can contact IDCARE, a free government-funded service which can help develop individualised response plans. ASIC advises that these scams should also be reported to Scamwatch to help stop scammers from entrapping more people, and that you should always be wary of follow-up scams that may promise to “get your money back”.