Tax time 2023: lodgment period underway

The ATO has given the green light for taxpayers with uncomplicated financial affairs to lodge their returns. It says that the information it collects from employers, banks, private health insurers, share registries and other institutions has now been pre-filled and is ready to go on either myTax (accessed through myGov) if you’re lodging your own return, or through tax portals of registered agents, if you’re using those services.

The ATO notes that income such as amounts from rental properties, government payments, capital gains from the sale of investments, or other income from “side hustles” – in particular sharing economy platforms and any cash received for work performed – can’t be pre-filled, so will need to be manually entered. There are multiple current ATO data-matching programs running, for example in the areas of residential property and ride-sourcing, so it’s important to get your income reporting right the first time this year.

You should also be aware of some changes this year which may negatively affect the amount of refund you receive, and in some cases may result in tax amounts payable. These include the cessation of the low and middle income tax offset (LMITO), and the replacement of the “shortcut” method for calculating working from home (WFH) with the revised fix rate method, which allows claiming 67 cents per hour instead of 80 cents for each hour you work from home.

Due to these and other changes, the ATO reminds that the initial tax estimate you receive from myTax or your registered tax agent may not match the final tax outcome. It’s best to wait for your finalised notice of assessment before making any plans for spending an anticipated tax refund.

Simplifying individual tax residency: government consultation

Movement may be afoot on the complex issue of individual tax residency in Australia. In 2019, the Board of Taxation released a report which contained a proposed model for modernising individual residency. The new framework was designed to simplify the tax system and reduce compliance costs for individuals and employers.

The model proposed uses a two-step approach of primary tests and secondary tests. Apart from the government official test, which would replace the Commonwealth superannuation test, the main primary “bright line” test will be the 183-day test, in which a person who is physically present in Australia for 183 days or more in any income year would be considered an Australian tax resident.

One of the secondary tests proposed would require an individual to be physically present in Australia for a minimum of 45 days in an income year before commencing residency, or a maximum of 45 days in an income year before ceasing residency. However, due to various global factors (eg the COVID-19 pandemic), the government is seeking views on whether this 45-day threshold is still appropriate and whether there are any circumstances where days spent in Australia should be disregarded for this threshold.

In addition to the 45-day threshold, the proposed secondary test includes the factor test, which focuses on four specific types of connection an individual may have to Australia. Any individual whose circumstances meet any of the four factors will be deemed to have a stronger connection to Australian than someone who does not.

The Federal Government is now soliciting public feedback on the proposed model before making a decision about whether to proceed with the changes.

ATO crackdown on TPAR lodgments

This tax time, the ATO is cracking down on taxpayers not lodging their taxable payments annual report (TPAR) on time. It has recently issued more than 16,000 penalties for businesses who failed to lodge their TPARs for previous years despite receiving multiple reminders. The average penalty for non-lodgment was approximately $1,110.

TIP: The deadline to lodge TPARs was 28 August 2023; businesses that have not yet lodged should do so as soon as possible.

As a reminder, the TPAR applies to businesses in the building and construction industry as well as businesses that provide cleaning, courier and road freight, information technology and security, investigation or surveillance services and have paid contractors in relation to those services.

Businesses that may have received a reminder from the ATO to lodge a TPAR but do not actually need to lodge still need to submit a TPAR non-lodgment advice form to avoid an unnecessary follow-up. The form allows entities to notify the ATO about multiple years, as well as to advise that they will not need to lodge in the future.

Around $400 billion in payments made to almost 1.1 million contractors were reported in the TPAR system in the last financial year. The ATO uses the information obtained to check for red flags, including non-reporting of income, non-lodgment of tax returns or activity statements, overclaiming of GST credits or misusing of ABNs.

The ATO will also include information reported in the TPAR in its pre-filling service to help contractors get their income right in their tax returns. The pre-filled data will give taxpayers transparency about the data that has been provided to the ATO about their business transactions.

Small business bonus deduction: technology investment

Small businesses may be able to get a bonus 20% tax deduction for any business expenses and depreciating assets used to improve their digital operations. This includes digital enabling items such as computer software and hardware, digital media and marketing, e-commerce related goods or services, and systems or monitoring services related to cyber security. The bonus deduction applies to up to $100,000 of eligible expenditure incurred in each relevant period, with a maximum bonus deduction amount of $20,000 per income year or specified time period. This bonus deduction is available to all entities that meet the definition of a small business entity.

Any private-use portion of expenditure is not eligible for the bonus deduction. Also, the bonus deduction does not cover general operating costs related to employing staff, raising capital, construction of business premises, and the cost of goods and services the business sells. Training and education costs are also excluded, as they are specifically covered under the skills and training boost measure (which provides a separate 20% bonus deduction).

Small business energy incentive

The Federal Government has released plans to introduce a small business energy incentive to help small and medium businesses electrify and save on their energy bills. The proposal was in the consultation stage until late July, but once implemented it may see businesses with an aggregated annual turnover of less than $50 million gain access to a bonus 20% tax deduction for the cost of eligible depreciating assets that support electrification and more efficient use of energy. It is projected to apply for the 2023–2024 income year.

Eligible depreciating assets would include any asset that:

• uses electricity and there is a new reasonably comparable asset that uses a fossil fuel available in the market – for example, a electric reverse cycle air-conditioner in place of a gas heater may considered to be a eligible depreciating asset;
• uses electricity and is more energy efficient than the asset it is replacing or, if not a replacement, a new reasonably comparable asset available in the market – an asset that uses electricity may be eligible for the bonus deduction even if there is no comparable asset available on the market which uses a fossil fuel, in which case the energy efficiency of the asset will determine its eligibility. Otherwise the energy rating label could be used the compare energy efficiency; or
• is an energy storage, demand management or efficiency-improving asset – an asset may be eligible for the bonus deduction if it enables the storage of electricity, or the storage of energy that is generated from a renewable source (eg batteries). Assets can also qualify if they allow energy to be used at a different time (eg time-shifting devices) or are used in monitoring energy use (eg data-logging devices).

In order to claim the bonus deduction, the business must make the expenditure for a taxable purpose; therefore, costs will need to be apportioned if the asset has a mix of private and business use.

If both the small business and the asset meets eligibility requirements, the amount of bonus deduction is 20% of the total eligible cost, up to a maximum of $20,000 across the bonus period.

ATO motor vehicle data matching program extended

The ATO has extended its motor vehicles data matching program once again to encompass the 2022–2023 to 2024–2025 financial years. For each financial year, the ATO will acquire information from all eight of the state and territory motor registries regarding where a vehicle has been transferred or newly registered during the applicable period, and where the purchase price or market value is $10,000 or more. Records relating to approximately 1.5 million individuals will be obtained each financial year.

While the program is being used to obtain intelligence about taxpayers that buy and sell motor vehicles so the ATO can identify risks and trends of non-compliance with various tax and super obligations, the ATO will also be using the data obtained as an indicator of risk. For example, the motor vehicle data (along with other data) will be used to identify taxpayers who have purchased vehicles with values that don’t align with the income they have reported.

Other uses of the data will include identifying taxpayers who may have not met their obligations in terms of GST, FBT, luxury car tax, fuel schemes and income tax.

Using the cents per kilometre method for claiming car expenses

The cents per kilometre method is a simple way to work out how much you can deduct for car-related work or business expenses. Only individuals, including sole traders, or partnerships (where at least one partner is an individual) can use the cents per kilometre method. So if you operate your business through a company or trust, the business will have to use the actual costs method to claim car and vehicle running expenses.

The cents per kilometre rate takes into account all your car running expenses (including registration, fuel, servicing and insurance) and depreciation.

To work out how much you can claim, you simply multiply the total work/business kilometres you travelled by the appropriate rate. The rate for the 2022–2023 tax year is 78 c/km, and the rate for the 2023–2024 tax year is 85 c/km.

Importantly, you can’t claim more than 5,000 work/business kilometres per car, per year using this method – if you use your car for more than 5,000 kilometres a year for work or business, you need to use the logbook method to calculate your deductible car expenses.

You don’t need formal written evidence to show exactly how many kilometres you travelled, but if you use the same vehicle for both work/business and private use, you must be able to correctly identify and justify the percentage that you claim for work/business. You can’t claim a deduction for the private use. You can use a logbook or diary to record private versus work/business travel.

Tip: Travelling between your home and your place of work/business is considered private use, unless your home is considered your place of work, or you operate a home-based business and your trip was for work/business purposes.

Paying contractors? Get ready for your TPAR

Businesses that make payments to contractors may need to report these payments and lodge a taxable payments annual report (TPAR).

You will need to lodge a TPAR if your business made payments in the last financial year (ending 30 June 2023) to contractors providing the following services:

• building and construction;
• cleaning;
• courier and road freight;
• information technology (IT); or
• security, investigation or surveillance.

Contractors can include subcontractors, consultants and independent contractors. They can operate as sole traders (individuals), companies, partnerships or trusts.

If reportable services are only part of the services your business provides, you need to work out what percentage of the payments you receive are for taxable payment reporting (TPR) services each financial year. You do this to determine if you need to lodge a TPAR.

This doesn’t apply to building and construction services you provide.

If the total payments you receive for TPR services are 10% or more of your business income, you must lodge a TPAR. If they are less than 10% of your business income, you don’t need to lodge a TPAR.

TPARs are due on 28 August each year. If you don’t lodge on time, you may have to pay a penalty. You can help prepare for your TPAR by keeping records of all contractor payments.

If you’ve previously lodged a TPAR but you don’t need to lodge one this year, you can submit a TPAR Non-lodgment advice to let the ATO know.

Instant asset write-off: is your business eligible?

Remember temporary expensing, which allowed just about every business (unless annual turnover was at least $5 billion) to immediately write off the cost of an eligible depreciating asset? Well, that is no longer available. To use temporary full expensing, you had to acquire and use, or install ready for use, an eligible depreciating business asset by 30 June 2023.

The good news for small businesses is that the instant asset write-off is still available.

What is the instant asset write-off?

Eligible businesses can claim an immediate deduction for the business portion of the cost of a depreciating asset in the year the asset is first used or installed ready for use.

Any small business that uses the simplified depreciation rules can claim the instant asset write-off. A small business is a business with an aggregated annual turnover of less than $10 million.

The instant asset write-off applies to eligible depreciating assets costing less than the specified threshold (these are called low-cost assets).

For 2023–2024, the low-cost asset threshold will be $20,000. To take advantage of the $20,000 threshold, you will need to acquire the asset and first use it, or install it ready for use, between 1 July 2023 and 30 June 2024.

The $20,000 threshold applies on a per-asset basis, so small businesses can instantly write off multiple assets. In certain circumstances, the instant asset write-off also applies to additional expenditure incurred on a low-cost asset.

Developments in GST guidance for crypto assets

The ATO has recently issued new GST guidance specifically relevant to crypto assets.

For GST purposes, the ATO considers that digital currency is a crypto asset utilising cryptography and distributed ledger technology to make secure transactions. The ATO has excluded loyalty points, in-game tokens, non-fungible tokens (NFTs), stablecoins, and initial coin offerings (ICOs) (if they fall under securities or derivatives) from this definition.

Digital currency as payment

If receiving digital currency as payment for a taxable supply, the GST amount must be reported in Australian dollars on the business activity statement. Don’t forget: the tax invoice should include the GST payable in Australian dollars or provide sufficient information to calculate it accurately.

When using digital currency for purchases and claiming GST credits, be sure to report the GST amount in Australian dollars on your business activity statement. Remember, your tax invoice is key and must providing the necessary information.

Buying or selling digital currency

Identifying the location of your trading partners can be difficult. Thankfully, the ATO accepts using the location of the digital currency exchange as a reliable indicator.

When you trade with Australian residents, it falls under the category of input-taxed financial supply. You don’t need to pay GST on these supplies.

When your trades extend beyond Australian borders or involve foreign digital currency exchanges, GST takes a back seat. Trading with non-residents qualifies as a GST-free supply, freeing you from GST obligations.

Be warned! While GST-free supplies spare you from paying GST, there’s a vital checkpoint to remember. If you supply digital currency, carry on an enterprise and exceed the GST annual turnover threshold (generally $75,000), you must register for GST.

Beware SMSF schemes: residential property purchase

The ATO has warned taxpayers against entering into a scheme through their self managed superannuation fund (SMSF) which claims to allow individuals to purchase property using money from their super.

This sort of scheme typically involves the rollover of a member’s super benefits from an existing fund into a new or existing SMSF, which then invests in a property trust for a fixed period and rate of return, being a contributory fund with other investors. However, the money from the property trust is then on-lent to individuals from a third-party in the form of a loan to assist in the purchase of real property secured by mortgages over the property.

Depending on the type of scheme, the money on-lent to the individual may be used for all or part of the deposit, the balance of the purchase price, costs relating to the purchase, or even to help consolidate a member’s personal debts to enable them to secure a home loan. The scheme promoter will usually charge a high fee to the fund and establish both the SMSF and the property investment, as well as organising the purchase of the property (in some cases house and land packages).

The ATO notes that these arrangements are established and promoted under the guise of a genuine SMSF investment with the added benefit of
helping individuals purchase a home, but they are not in fact legitimate investments. They often contravene one or more of the super laws by providing members with a current day benefit while also being set up in ways that don’t comply with the sole purpose test.

Tip: The “sole purpose test” means that the SMSF needs to be maintained for the sole purpose of providing retirement benefits to members, or to their dependants if a member dies before retirement.

The ATO will apply a “look through” approach when considering this type of scheme. That means if an SMSF’s fund money is used to help purchase a property for a member, whether it be indirectly through the SMSF’s investment in other entities, it will be treated as an illegal early access of super benefits by the member. The amount used to help purchase a property will be included in the member’s assessable income and taxed at their marginal rate, and tax shortfall penalties may apply.

People who may have been persuaded by slick marketing or promoters and inadvertently entered into these schemes are urged to contact the ATO to make a voluntary disclosure, which will be taken into account.

Key tax considerations this tax time

As the financial year draws to a close, it’s time to start thinking about whether your year-end tax planning is in order. Tax planning requires consideringyour income and deductions for the whole financial year, as well as you’ve met your obligations – for example, whether you’ve made tax-related elections on time and prepared other appropriate documentation and records. Here are some key considerations for this tax time.

Working from home deductions

The shortcut method of claiming a rate of 80 cents per hour worked from home is no longer available – the measure was temporarily introduced during the COVID-19 pandemic and ended on 30 June 2022.

Instead, you can now claim deductions using the revised fixed-rate method, at a rate of 67 cents per hour, as long as you incur deductible expenses while genuinely carrying out work from home, and keep appropriate records, like timesheets for your work hours and receipts for the expenses.

If your work from home doesn’t meet these conditions, you won’t be able to rely on the fixed-rate method and will need to calculate and apportion the actual expenses. You can also simply choose the actual expenses method if it suits your situation better.

The fixed-rate method covers work-related costs like electricity/gas, stationery, your mobile/landline phone and internet. If you use the fixed-rate method you can’t also claim additional deductions for any of these categories. Depreciation of furniture and equipment (eg if you buy a desk, computer and printer for work) may be calculated separately (and in addition) to the fixed rate.

Rental properties and holiday homes

The ATO has flagged rental properties and holiday homes as an area of particular focus for this 30 June.

It’s important to remember that the ATO receives information from sources like sharing economy platforms, rental bond agencies and state and territory revenue authorities that enables it to detect under-reporting of income and inappropriate deduction claims.

Temporary full expensing

The immediate deduction for the cost of eligible depreciating business assets that has been available under the temporary full expensing concession since 2020 is coming to an end. To access the concession, your business must use the depreciating asset or have it installed ready for use by 30 June 2023.

From 1 July 2023, an immediate deduction will only be available to small business entities (with aggregated turnover less than $10 million) for assets costing less than $20,000.

Loss carry-back for corporate tax entities

Subject to certain rules being satisfied, corporate tax entities may be entitled to claim a refundable tax offset by carrying back a tax loss arising in the 2022–2023 income year to one or more of the four previous income years (that is, as far back as 2018–2019).

Deductions for superannuation contributions

For an employer to be entitled to a deduction for superannuation contributions, the contribution must be received by the fund on or before 30 June. The super guarantee contribution rate increased to 10.5% of an employee’s ordinary time earnings from 1 July 2022.

Individuals wishing to claim a deduction for personal contributions must provide their fund with a notice of intention to claim a deduction and have that acknowledged by the fund before the earlier of the day the individual’s tax return is lodged and 30 June of the next income tax year.

Stay alert for tax time scams

The Federal Government has warned of scammers targeting Australians ahead of tax time 2023. The number of scam reports received to date this year has topped 19,843 and impersonation scams are becoming increasingly commonplace. These scams typically consist of unsolicited contact through SMS, email, or on social media offering refunds or help to solve tax issues. The ATO recommends not engaging with any unsolicited contact, ending any conversations as soon as possible and independently looking up the ATO’s number to initiate contact in order to verify any communication is genuine.

Tax time scams typically involve the impersonation of the ATO to obtain personal information or solicit unlawful payment. The common tricks tax scammers are using recently include:

• posing as the ATO on social media and offering to help individuals with tax and super questions, which require the individuals to hand over personal information such as tax file numbers, dates of birth, names, addresses etc;
• luring unsuspecting individuals with an offer of a fake tax refund in return for the provision of personal information;
• initiating conversations via phone, social media private messages, email and SMS, attempting to keep the individual engaged for as long as possible through various means including threats and intimidation, offers to help and so on, to either collect personal information or solicit payment.

Many scammers will use spoofing technology to show a real ATO or Australian phone number in the caller ID or call log. The ATO’s genuine calls will be in fact be shown as No Caller ID. The ATO will also never insist on a conference call with a third party, not even your own tax agent or law enforcement officers.

In terms of SMS and emails, the ATO will never send an unsolicited message asking you to return personal identifying information through these channels. It also does not send links or attachments for you to open or download.

If you think you may have fallen victim to a scam, you should contact your bank or financial institution, make an official report to local police, and report the scam through either the ATO’s phone hotline or its specific scams email address.

Tip: The ATO now has a dedicated team that monitors queries and assists taxpayers who have fallen victim to scammers. You can look up and use the ATO’s phone numbers and other contact details on the official ATO website, www.ato.gov.au.

Small business lodgment amnesty: reminder

The ATO has reminded eligible small business taxpayers to take advantage of the lodgment penalty amnesty program announced in the recent 2023–2024 Federal Budget. The amnesty applies to tax obligations covering income tax returns, business activity statements or FBT returns that were originally due between 1 December 2019 and 28 February 2022. Superannuation obligations and penalties associated with the taxable payments reporting (TPAR) system are not included as a part of the program. The amnesty is running for the period 1 June 2023 to 31 December 2023.

To be eligible for the amnesty, your small business must have had an annual turnover of less than $10 million at the time the original lodgment was due, and lodge the relevant overdue forms and returns during the amnesty period.

Where your eligible business lodges relevant overdue forms and returns during the amnesty period, any associated failure to lodge (FTL) penalties will be proactively remitted – you won’t need to separately request a remission.

Although FTL penalties will be remitted, the ATO emphasises that no other administrative penalties or general interest charge (GIC) amounts will be remitted as a part of the amnesty. So, businesses with an existing debt or that accrue a new debt through late lodgment may still have GIC applied to those debts.

The ATO is also encourages businesses outside of the amnesty to lodge any overdue forms or returns to avoid being classified as “not being actively engaged with the tax system”, which is a red flag that may lead to other action. While FTL and other penalties may apply to those businesses, the ATO will consider the unique circumstances and may remit penalties on a case-by-case basis.

The ATO has a range of support options available for businesses where debts arise out of their lodgment activity, including payment plans, compromise of tax debt, or deferring repayments.

“Buy now pay later” sector facing more regulation

As foreshadowed last year, the “buy now pay later” (BNPL) market will soon be facing more regulation. Assistant Treasurer Stephen Jones recently announced that the government will be moving forward to bring BNPL within the Credit Act’s application to apply a tailored version of the responsible lending obligations to BNPL products.

Late in 2022, the Federal Government released a consultation paper seeking views on options to regulate the BNPL market. The paper outlined three increasingly rigorous options for the regulation of the BNPL market, consisting of: strengthening the BNPL industry code plus an affordability test; limited BNPL regulation under the Credit Act; or full regulation under the Credit Act.

Consultation has since ended, and the Assistant Treasurer has announced that the government will moving forward with law changes to bring in limited BNPL regulation under the Credit Act, applying a tailored version of the responsible lending obligations to BNPL products so that BNPL providers must hold an Australia credit licence or be a representative of a licensee with a requirement to comply with most general obligations, including internal/external dispute resolution, hardship provisions, compensation arrangements and marketing rules.

Under the proposed changes, providers would be required to assess that credit is not unsuitable for an individual, and would be prohibited from increasing a consumer’s spending limit without explicit instructions from that consumer. Fee caps for charges relating to missed or late payments would be required, combined with additional warning and disclosure requirements. Merchants who offer BNPL products to consumers would not be required to be an authorised credit representative of the BNPL provider.

The government will be consulting with the industry and consumer groups in the coming months to bed down the details of the potential legislation. Draft legislation is expected to be released for consultation later this year, and the final Bill is expected to be introduced into Parliament by the end of the year.

Minimum pension payment changes

Retirees who draw an account-based pension from their super need to be aware that the 50% reduction in
the minimum pension drawdown rate for superannuation and annuities which applied for previous years will no longer apply from 1 July 2023.

This temporary measure was introduced by the previous Federal Government as part of its response to the COVID-19 pandemic, which was negatively impacting super and pension/annuity balances.

Most income streams paid from a super account held in an individual member’s name are account-based pensions. These pensions are required to meet minimum standards, including not being able to increase the capital supporting the pension using contributions or rollover amounts once the pension has commenced, and paying a minimum amount at least once a year.

In general, minimum payments need to be made at least once a year and are determined by the age of the beneficiary and the value of the account balance as at 1 July each year. For example, people aged between 65 and 74 will need to apply a 5% standard percentage factor to work out the minimum pension amount for 2023–2024.

While the minimum annual payments are mandated, there are no maximum annual payments, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year. This means that retirees can draw a pension above the minimum pension payment amount, which may be especially welcome given the current cost of living pressures.

Tip: With the cost of living going up every day, you may find that your pension arrangement is no longer fit for your lifestyle. Contact us today – we can help you work out the best strategy for your situation.

PERSONAL TAXATION

Personal tax rates unchanged for 2023–2024

In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.

The 2023–2024 tax rates and income thresholds for residents (unchanged since 2021–2022) are:

• taxable income up to $18,200 – nil;
• taxable income of $18,201 to $45,000 – nil plus 19% of excess over $18,200;
• taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
• taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
• taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.

Stage 3: from 2024–2025

The Budget did not announce any changes to the Stage 3 personal income tax changes, which are set to commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.

Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Low income offsets:

Low and middle income tax offset (not extended)

The 2023–2024 Budget did not announce any extension of the low and middle income tax offset (LMITO) beyond the 2021–2022 income year. The LMITO has now ceased and been fully replaced by the low income tax offset (LITO).

With no extension of the LMITO announced in this Budget, 2021–2022 was the last income year for which that offset was available.

As a result, low-to-middle income earners may see their tax refunds from July 2023 reduced by between $675 and $1,500 (for incomes up to $90,000 but phasing out up to $126,000), all other things being equal.

Low income tax offset (unchanged)

While the LMITO has now ceased, low and middle income taxpayers remain entitled to the low income tax offset (LITO). No changes were made to the LITO in the 2023–2024 Budget, and so it will continue to apply for the 2023–2024 income year and beyond.

The LITO was intended to replace the former low income and low and middle income tax offsets from 2022–2023, but the new LITO was brought forward in the 2020 Budget to apply from the 2020–2021 income year.

The maximum amount of the LITO is $700. The LITO is withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Medicare levy low-income thresholds for 2022–2023

For the 2022–2023 income year, the Medicare levy low-income threshold for singles will be increased to $24,276 (up from $23,365 for 2021–2022). For couples with no children, the family income threshold will be increased to $40,939 (up from $39,402 for 2021–2022). The additional amount of threshold for each dependent child or student will be increased to $3,760 (up from $3,619).

For single seniors and pensioners eligible for the seniors and pensioners tax offset (SAPTO), the Medicare levy low-income threshold will be increased to $38,365 (up from $36,925 for 2021–2022). The family threshold for seniors and pensioners will be increased to $53,406 (up from $51,401), plus $3,760 for each dependent child or student.

Medicare levy exemption for lump sum payments in arrears from 1 July 2024

The Government will exempt eligible lump sum payments in arrears from the Medicare levy from 1 July 2024. This measure seeks to ensure low-income taxpayers don’t pay higher amounts of the Medicare levy as a result of receiving an eligible lump sum payment, for example as compensation for underpaid wages.

Eligibility requirements will ensure this relief is targeted to taxpayers who are genuinely on low incomes and should be eligible for a reduced Medicare levy. To qualify, taxpayers must be eligible for a reduction in the Medicare levy in the two most recent years to which the lump sum accrues. They must also satisfy the existing eligibility requirements of the existing lump sum payment in arrears tax offset, including that a lump sum accounts for at least 10% of the taxpayer’s income in the year of receipt.

Government to waive student loans impacted by delayed records transfer to ATO

The Government will forgo $5.4 million in receipts over five years from 2022–2023 (and $15.5 million over two years to 2033–2024) to support students affected by a delay in the transfer of some historical tertiary education loan records to the ATO. This will mean waiving the following debts for affected loans, as determined at the date of transfer to the ATO:

• historical indexation, as well as indexation that will be applied on 1 June 2023 on loans issued prior to 1 July 2022 under the Higher Education Loan Program, the VET Student Loans program, the Trade Support Loans program and on loans issued in 2017 and 2018 under the VET FEE-HELP program; and
• outstanding debt for VET FEE-HELP loans issued from 2009 to 2016.

Energy price relief plan

There has been much interest in the Government’s plan to address rising energy prices, so although it’s not directly linked to taxation, here is a brief outline.

The Government will provide $1.5 billion over five years from 2022–2023 (and $2.7 million per year ongoing) to reduce the impact of rising energy prices on Australian households and businesses by providing targeted energy bill relief and progressing gas market reforms.

Funding includes:

• $1.5 billion over two years from 2023–2024 to establish the Energy Bill Relief Fund to support targeted energy bill relief to eligible households and small business customers, which includes pensioners, Commonwealth Seniors Health Card holders, Family Tax Benefit A and B recipients and small business customers of electricity retailers;
• $14.7 million over five years from 2022–2023 (and $2.7 million per year ongoing) to the Australian Competition and Consumer Commission (ACCC) to administer and enforce compliance with a temporary cap of $12 per gigajoule on the price of gas and to develop and implement a mandatory gas code of conduct;
• $9.5 million over three years from 2022–2023 for the Australian Energy Regulator to monitor coal and gas markets across the National Electricity Market.

The Government will also provide funding to support the NSW and Queensland governments to implement a cap of $125 per tonne on the price of coal used for electricity generation.

BUSINESS TAXATION

Small business instant asset write-off: $20,000 threshold for 2023–2024

The Government will temporarily increase the instant asset write-off threshold to $20,000 from 1 July 2023 to 30 June 2024.

Small businesses – those with aggregated annual turnover of less than $10 million – will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per-asset basis, so small businesses can instantly write off multiple assets.

Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year thereafter.

The provisions that prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out will continue to be suspended until 30 June 2024.

The instant asset write-off rules allow for the immediate deduction for the cost of a depreciating asset for small business entities. However, those rules were effectively replaced by temporary full expensing in relation to depreciating assets first held, and used or installed ready for use for a taxable purpose, between the 2020 Budget time (6 October 2020) and 30 June 2022, then extended to 30 June 2023.

Given that temporary full expensing will not be available in 2023–2024, the instant asset write-off rules come back into play. The threshold is currently $1,000 (but note again, this was not relevant while temporary full expensing allowed the cost of any qualifying asset to be written off immediately – which of course was available to other categories of taxpayers, not just small business entities).

Small business entities that use the simplified depreciation rules in Subdiv 328-D of the Income Tax Assessment Act 1997 are entitled to an outright deduction for the “taxable purpose proportion” of the “adjustable value” of a depreciating asset if:

• the asset is a “low cost asset” (and is not an excluded depreciating asset); and
• the taxpayer starts to hold the asset when the taxpayer is a small business entity (and, for a limited period, if the taxpayer also qualifies as a medium sized business).

The deduction is available in the income year in which the taxpayer first uses the asset, or first installs it ready for use, for a taxable purpose. The deduction is known as the “instant asset write-off”.

A depreciating asset is a low cost asset if its cost as at the end of the income year in which the taxpayer starts to use it, or installs it ready for use, for a taxable purpose is less than the relevant threshold.

Small Business Energy Incentive: 20% bonus deduction

The Budget papers confirmed that the Small Business Energy Incentive will provide businesses with annual turnover of less than $50 million an additional 20% deduction on spending that supports electrification and more efficient use of energy. This measure was originally announced by the Treasurer on 30 April 2023.

The Small Business Energy Incentive will apply to a range of depreciating assets, as well as upgrades to existing assets. These will include assets that upgrade to more efficient electrical goods such as energy-efficient fridges, assets that support electrification such as heat pumps and electric heating or cooling systems, and demand management assets such as batteries or thermal energy storage.

However, certain exclusions will apply, such as:

• electric vehicles;
• renewable electricity generation assets;
• capital works; and
• assets that are not connected to the electricity grid and use fossil fuels.

Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.

Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.

Full details of eligibility criteria will be finalised following consultation.

TAX COMPLIANCE AND INTEGRITY

Small business lodgment penalty amnesty

The Government announced that a lodgment penalty amnesty program will be provided for small businesses with aggregate turnover of less than $10 million to encourage them to re-engage with the tax system.

The amnesty will remit failure-to-lodge penalties for outstanding tax statements lodged in the period from 1 June 2023 to 31 December 2023 that were originally due during the period from 1 December 2019 to 29 February 2022.

Integrity measure to target unpaid tax and super

The Government will also provide funding from 1 July 2023 over four years to assist the ATO to engage more effectively with businesses to address the growth of tax and superannuation liabilities.

The additional funding will facilitate ATO engagement with taxpayers who have high-value debts over $100,000 and aged debts older than two years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10 million, or privately owned groups or individuals controlling over $5 million of net wealth.

GST compliance program extended

The Government will provide $588.8 million to the ATO over four years from 1 July 2023 to continue a range of activities that promote GST compliance.

These activities will ensure businesses meet their tax obligations, including accurately accounting for and remitting GST, and correctly claiming GST refunds. Funding through this extension will also help the ATO develop more sophisticated analytical tools to combat emerging risks to the GST system.

SUPERANNUATION

Super to be paid on payday from 1 July 2026; more action to catch non-payers

The Budget papers confirmed the Government’s intention to require all employers to pay their employees’ super guarantee amounts at the same time as their salary and wages from 1 July 2026. This payday super measure was originally announced by the Treasurer on 2 May 2023.

The ATO will receive additional resourcing (some $40.2 million) to help it detect unpaid super payments earlier. It is estimated that $3.4 billion worth of super went unpaid in 2019–2020.

The Government will also set enhanced targets for the ATO for the recovery of payments.

The proposed 1 July 2026 start date for payday super is intended to provide sufficient time for employers, superannuation funds, payroll providers and other parts of the superannuation system to prepare for the change.

Super fund NALI to be capped at twice general expense under NALE rules

The non-arm’s length income (NALI) provisions in s 295-550 of the Income Tax Assessment Act 1997, as they apply to non-arm’s length expenses (NALE), will be amended to limit the income taxable as NALI to twice the level of a general expense for self managed super funds (SMSFs) and small APRA funds.

In addition, fund income taxable as NALI will exclude contributions to effectively exempt large APRA regulated funds from the NALI provisions for both general and specific expenses of the fund. Expenditure that occurred prior to the 2018–2019 income year will also be exempted.

These proposed changes follow industry concerns regarding the ATO’s interpretation of the NALE provisions in Law Companion Ruling LCR 2021/2, and the implications of the ruling for both APRA-regulated funds and SMSFs.

A Government consultation paper released on 23 January 2023 indicated that any proposed legislative amendments in relation to the NALE rules would apply from 1 July 2023 (following the expiry of the ATO’s transitional compliance approach for general expenses (PCG 2020/5) for the period 2018–2019 to 2022–2023).

Currently, under LCR 2021/2, NALE of a “general nature” (eg accounting fees, actuarial costs, audit fees, investment adviser fees and compliance costs) may still have a sufficient nexus to all of the income of a fund. As a result, if an SMSF incurs a small fund expense that is not on arm’s length terms, all of the income derived by the fund (including taxable contributions and capital gains) could be taxable at 45%. The Budget changes propose to limit the income taxable at 45% as NALI to twice the level of a such general expenses.

The Government’s consultation paper (noted above) was released as part of a review to consider amendments to ensure the NALE provisions operate as intended. Although the consultation paper did not represent a settled position of the Government at that time, it proposed a factor-based approach whereby the maximum amount of fund income taxable as NALI at the highest marginal rate (45%) would be five times the level of the general expenditure breach. This would be calculated as the difference between the amount that would have been charged as an arm’s length expense and the amount that was actually charged to the fund. Where the product of 5 times the breach is greater than all fund income, all fund income will be taxed at the highest marginal rate.

A Treasury official confirmed on Budget night that the Government will proceed with the factor-based approach set out in the consultation paper but it will now adopt a two times factor (instead of a five times factor). At the current highest marginal tax rate of 45%, a maximum effective tax rate of 90% (two times 45%) will be applied to a general expenditure breach (down from the 225% originally proposed). It is expected that trustees would self-assess an arm’s length price (based on objective and supportable data) when applying this calculation method.

Super tax changes for account balances above $3 million confirmed, but no further details

The Government confirmed its intention to implement superannuation tax changes for individuals with account balances above $3 million from 1 July 2025, including in relation to defined benefit schemes.

However, the Budget Papers did not reveal any further details other than to note its estimate that the measure will increase receipts by $950 million, and increase payments by $47.6 million, over the five years from 2022–2023.