Tax-Smart Aussie SMEs: Stay on Track

Learn the ATO's top strategies for Australian small businesses to manage taxes and superannuation effectively.

Running a small business in Australia is no small feat, especially when it comes to staying on top of your tax and superannuation responsibilities. With the economic landscape ever-changing, it's crucial to ensure that your business isn't just surviving, but thriving. Here's how you can stay tax-smart and keep your business on the right track.

ATO Compliance: The Foundation of Efficiency

The Australian Taxation Office (ATO) suggests that effective cash flow management and accurate separation of private and business expenses are fundamental to running your business efficiently. On the flip side, a lack of understanding of tax responsibilities and not seeking professional advice are pitfalls of poorly managed small businesses.

Getting Business Habits Right

A well-operating small business nails the basics. According to the ATO's Small Business Random Enquiry Program, successful businesses maintain excellent records and have robust reconciliation processes. They also invest time to understand their tax and super obligations.

Embracing Digital Tools

In today's digital era, technology is a boon for businesses, helping to streamline processes and cut costs. Digital tools can bolster your business systems, product offerings, and customer and employee data management. Remember, some costs associated with digital adoption, like hardware purchases and subscription fees, are tax-deductible.

Strategic Cash Flow Management for Australian SMEs

The ATO has observed that savvy business owners utilise cash flow projection or budgeting tools. With cash flow issues being a common downfall for small businesses, a clear view of your financial status is vital. Effective cash flow management allows you to meet obligations like tax and employee super payments and assess if you're trading profitably or merely covering bills.

Careful Tax Management

A hallmark of a well-run business is the declaration of all income, including cash transactions. Missteps like ommiting income, not declaring cash sales, or incorrect recording of director's fees can lead to ATO scrutiny, especially as they return to a more stringent stance post-COVID.

Lodging Paperwork on Time

Timeliness in lodging tax returns is a good indicator of a business's engagement with the tax system. Currently, there's a tax amnesty for small businesses with overdue returns, applicable to documents originally due between 1 December 2019 and 28 February 2022.

Seeking Trusted Advice

Regular contact with a tax professional often correlates with correct tax reporting. The ATO provides tools and information, but professional advice is invaluable, especially in uncertain times.

10 Tips for Keeping Your Business Records

• Keep comprehensive records for all business stages.
• Document business and personal expenses separately.
• Ensure GST tax invoices are valid.
• Record all transactions, including cash and electronic.
• Maintain unaltered records for five years.
• Separate business from personal records.
• Ensure records support BAS and tax return claims.
• Digitise paper receipts to prevent fading.
• Back up electronic records.
• Ensure accuracy when changing record-keeping software.

Seeking advice from trusted sources like House of Wealth can significantly improve your business operations. Feel free to reach out; we'd love to help. We offer a free half-hour consultation to explore how we can assist you.¹

¹ This article is intended as an information source only and should not be relied upon as financial or tax advice. All readers should seek advice from a professional adviser regarding their particular situation.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Navigating Rental Property Tax Returns in Australia

With Treasury estimating the government misses out on billions in potential tax revenue from rental property deductions and the ATO recently warning extra care is needed when lodging returns with this type of income, rental investors can consider themselves well and truly in the tax man’s sights. This article takes a look at ways to navigate some of the common challenges in getting your property tax returns right.

In fact, the ATO’s Random Enquiry Program (REP) showed 9 out of 10 returns reporting net rental income needed adjustment, leading ATO second commissioner Jeremy Hirschhorn to note: “This is startling and clearly something we need to address”.

So, if you’re a rental property investor, it’s time to ensure you’re getting your deductions right.

Understanding Key Deductions

Rental property investors can claim a wide range of deductions for expenses associated with maintaining and financing their property interests. These include interest expenses, capital works and other deductions required to maintain the property.

It’s clear from the REP, however, many rental property investors need to learn a little more about what is deductible and also when they can claim a deduction for the amount.

Although some expenses can be claimed immediately (such as management fees and council rates), other expenses (such as borrowing costs and capital works) must be claimed over a number of years.

Red flags for the ATO

Common mistakes rental property investors are making include failing to include rental income for short-term arrangements and insurance payouts, overclaiming deductions, and claiming for improvements to private properties.

Rental income must be the gross amount received and must be reported in the same financial year the tenant pays.

It's essential to be meticulous with your records, ensuring all income is accurately reported to avoid potential discrepancies.

Another common mistake is claiming an immediate deduction for initial repairs when purchasing. Existing damage must be claimed over several years as a capital works deduction and is also used to work out your capital gain or loss on selling.

Improvements such as renovating a bathroom, are a building cost and must be claimed at 2.5% annually2.5 per cent annually over 40 years from completion, while damaged detachable items costing more than $300 should be claimed as a depreciating asset.

Essential Guidelines for an Accurate Tax Return

When completing your return, it’s essential to apportion both your rental income and deductions in line with your ownership share of the property.

If there is a mortgage over the property and the loan is also used for private purposes (such as a buying a new car or taking a holiday), your interest expenses must be apportioned. This needs to continue for the duration of the loan, even if you repay the personal expense.

Deductions also need to be split to reflect any private use. This also applies if you only use part of the property to earn rent.

Ensure your deductions are in order
Borrowing expenses (such as loan establishment fees and title searches costing over $100) must be deducted over five years. Being organised and understanding the timeframe for various deductions here can save you from potential pitfalls. In the first year, these expenses should be apportioned for the number of days of ownership.

Purchase costs (such as conveyancing fees and stamp duty outside the ACT) cannot be claimed but form part of your capital gains tax (CGT) calculations.

Ask the previous owner for details of any capital works deductions claimed so you can correctly calculate your own deductions. Alternatively, hire a qualified professional to estimate previous construction costs.

Although payments to a body corporate administration fund are fully deductible in the year incurred, payments to a special purpose fund for capital improvements or repairs are not immediately deductible.

Capital Gains Tax: What You Need to Know

It sounds obvious, but it’s essential to have evidence of all your rental income and expenses when lodging a claim. This needs to be retained while you own the property and for five years after selling.

Another tip is to ensure you calculate your capital gain (or loss) correctly when selling.A precise calculation not only ensures compliance but also maximises your financial benefits.

You are not permitted to include amounts already claimed as a deduction, including depreciation and capital works.

Capital gains must be included in your tax return for the income year the property is sold, while capital losses can be carried forward.

Please don’t hesitate to call if you have any questions regarding the preparation of documentation for your next tax return.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Tax Alert September 2023

Lodgement amnesty and new landlord data matching program

While the government is boosting the tax deductions available for small business spending on staff training, other taxpayers such as landlords are facing closer scrutiny from the Australian Taxation Office. Here are some of the latest developments in the world of tax.

Amnesty for small business late lodgements

If your small business is not up-to-date with its tax lodgements, it could be a smart idea to take advantage of the government’s current Lodgement Penalty Amnesty.

The program is designed to encourage small businesses to re-engage with the tax system and fix any outstanding income tax, FBT returns and business activity statements due between 1 December 2019 and 28 February 2022.

Taxpayers have until 31 December 2023 to lodge their overdue forms without lodgement penalties being applied (general interest charges still apply).

Businesses with an annual turnover under $10 million when the original lodgement was due are eligible for the amnesty.

Insurance focus for latest data-matching

As part of its ongoing data-matching program, the ATO has announced it will require both income protection (IP) and landlord insurers to provide information on their customers for the period 2021-22 to 2025-26.

Insurers must provide detailed information on the policy and policy owner to help the ATO “identify and educate” taxpayers failing to meet their lodgement obligations.

The landlord data is expected to net records relating to around 1.6 million landlords, while the IP data will cover 800,000 individuals.

New skills and training boost starts

Small business owners keen to upskill their employees can now take advantage of the government’s new skills and training boost if they spend money on these activities before 30 June 2024.

If you have an aggregated annual turnover of less than $50 million, you can claim a bonus deduction equal to 20 per cent of qualifying expenditure on external training courses provided by eligible registered training providers.

You can also claim an additional 20 per cent bonus for expenditure on digitising your business operations and relevant assets such as portable payment devices, cyber security systems and subscriptions for cloud-based services.

Tax penalties increase again

The unit amount used by the ATO to calculate penalties it imposes has increased again, rising to $313 from 1 July 2023.

The government had already increased the penalty amount for the 1 January to 30 June 2023 period, making this the second increase this calendar year.

If the ATO decides to impose a penalty, the unit amount is used to calculate your actual fine. Activities such as giving false or misleading statements, or behaving with intentional disregard for example, result in a 60 penalty unit fine.

GST food and beverage list updated

If you supply or sell food and beverage products, it’s time to recheck the ATO’s detailed food list showing the GST status of major food and beverage product lines, as the tax regulator recently made around 30 updates to the list.

Although some changes corrected existing entries, new food and beverage lines have been added and some current entries deleted.

The ATO encourages businesses to review this list regularly to ensure they are meeting their GST obligations accurately.

Reminders about tax offsetting rules

The ATO is currently writing to businesses with a debt on hold of more than $10 to explain its tax offsetting process.

Under the offsetting rules, any tax refund and credit entitlements are automatically used to pay off an existing tax debt.

If you have an outstanding tax debt, you can choose to pay all or part of it at any time, including through a payment plan.

New-look ATO Charter

Taxpayers could find their interactions with the ATO improving following the release of its revised Taxpayers’ Charter, now called the ATO Charter.

The Charter explains what you can expect when interacting with the ATO, the regulator’s commitments to taxpayers, and the steps you can take if you’re not satisfied.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

ATO Compliance: Essential Tips for Small Businesses and SMSFs

As the Australian Taxation Office (ATO) continues to enhance its data matching programs, it's vital for small businesses and SMSFs to stay informed. This article explores key areas to consider when preparing your tax returns, ensuring you stay on the right side of the law.

Data matching involves comparing information you've provided to the ATO with that held by a wide range of private and government organisations. Essentially, it gives the ATO extensive and ever more sophisticated means to automatically verify the story your tax return tells with data held by many of those you transact with.

Today there are some 26 different data matching programs covering a wealth of transactions including various insurances (health, landlord, income protection); electoral rolls, bank accounts and credit cards, real estate, online sales platforms, international travel and crypto assets. So, if you leave out income from your tax return or inflate deductions, your chances of getting caught are much higher.

We take a look at some of the key areas to be mindful of when preparing your tax return this year.

Navigating Tax Obligations for Investment Properties

The ATO says that, while 87 per cent of taxpayers who own rental properties use a registered tax agent to lodge their return, a review has found that nine in ten rental property owners are getting their returns wrong. It is crucial that you provide us the right information to prepare your return correctly because you are responsible for what you include in your tax return, even when using an agent.ⁱ

For example, the new landlord insurance data-matching program provides information about any insurance payouts that might have been made during the year. These must be reported as income.

Along with the new landlord insurance data matching program, a review of investment loan data will also get underway. We can guide you to ensure we are capturing all the relevant information to submit a complete tax return.

Side hustles

The ATO is actively investigating income generated from side hustles and the sharing economy.

It is now requiring platforms that provide taxi services and short-term accommodation, such as Uber and Airbnb, to report their data. All other electronic distribution platforms will have to begin reporting their data to the ATO from 1 July 2024.

The ATO says the data will give it a clear picture of the people earning income on the platforms and will be matched against their tax returns and activity statements.

Understanding Small Business Tax Obligations

Businesses are also under growing ATO scrutiny using a combination of sophisticated data matching and a requirement for further reporting.

The Single Touch Payroll (STP) program, first introduced five years ago, underwent some major changes last year, known as STP phase 2. Now, all businesses are required to use STP each time they pay their employees to report salaries, amounts withheld and superannuation guarantee liability information.

The ATO recommends you discuss your current payroll processes with your tax or payroll provider to make sure you are complying with Phase 2 reporting. “If you don’t have a tax or BAS agent, consider engaging one,” the ATO says.ⁱⁱ

And, in a move to ensure employees receive their super on time, the Federal Government will introduce what it calls ‘payday super’.

From 1 July 2024, all employers will be required to pay the superannuation guarantee amount to their workers’ super funds on each payday rather than quarterly as is currently the case.

Compliance for Self-Managed Super Funds

According to the ATO, self-managed superannuation funds generally demonstrate strong tax and regulatory performance.

Nonetheless it is a massive sector providing more than 1.1 million people with their retirement income. With an estimated total asset value of $868 billion, it is not far behind the industry funds sector, which holds just over $1 trillion in assets.

The SMSF sector’s importance and value to individuals brings it under close attention from the ATO, which is scaling up its compliance activities because it is seeing indicators of “heightened risk” that put retirement savings at risk or take unfair advantage of the favourable tax environment.ⁱⁱⁱ

In particular, the ATO is chasing down fraud and investment scams, illegal early access to super funds by members and failure to lodge annual SMSF returns.

As the ATO intensifies its focus on taxpayer and business compliance, we're here to guide you through the evolving rules and regulations, answering any questions you may have.

Stay ahead of the game with our expert advice. Contact us today for personalised guidance on your tax obligations.

i https://www.ato.gov.au/Media-centre/Media-releases/ATO-expands-data-matching-to-ensure-fair-play/
ii https://www.ato.gov.au/Business/Single-Touch-Payroll/Expanding-Single-Touch-Payroll-(Phase-2)/Employer-STP-Phase-2-checklist/
iii https://www.ato.gov.au/Media-centre/Speeches/Other/SMSF-compliance---What-s-on-the-regulator-s-radar-/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

June 2023 Tax Alert: Key Changes Affecting Australian Businesses and Individuals

Get the latest on Australia's tax updates with our June 2023 Tax Bulletin. From tax debt warnings to GST fraud enforcement, we're here to keep you informed.

Budget incentives and crackdowns on unpaid tax debts and rental deductions.

Although this year’s Federal Budget was short on big changes when it came to tax, there still have still been some important developments in this area. Here are some of the latest developments in the world of tax.

Exploring Small Business Tax Incentives and Write-offs

The budget ushered in some valuable new tax incentives for small businesses, including halving the increase in quarterly tax instalments from 12 per cent to 6 per cent for both GST and income tax during 2023-24.

The government also introduced a bonus 20 per cent deduction for businesses with turnovers under $50 million when they spend on energy saving upgrades. Up to $100,000 of total expenditure will be eligible, with the maximum bonus tax deduction being $20,000 per business.

Although smaller than the previous year, the instant asset write-off continues in 2023-24 with up to $20,000 available for immediate deduction on eligible assets.

The planned third tranche of personal income tax cuts due to start next financial year also remained in place, while >the low and middle income tax offset was not extended.

Understanding Super Guarantee Changes for Employers

Another significant tax change announced in the budget will affect employers. From 1 July 2026 employers will be required to pay their Super Guarantee (SG) obligations at the same time they pay employee salary and wages.

The ATO has received additional resources to help it detect unpaid super payments earlier.

Employers also need to remember the SG amount for employee super rises to 11 per cent from 1 July 2023.

Navigating ATO Tax Debt Warnings

The ATO is continuing to write to directors of companies with tax debts warning if the company hasn’t paid the amount owing or contacted it to make other arrangements, a director penalty notice(DPN) may be issued.

DPNs are issued to current directors and anyone who was a director at the time the company failed to pay. They make directors personally liable for failure to meet pay-as-you-go withholding (PAYGW), GST and Super Guarantee Charge obligations.

Directors receiving these letters need to arrange payment of the overdue amount or enter into a payment plan.

ATO's Data-Matching Approach to Investment Properties

Residential investment property loans (RIPL) are the latest target of the ATO’s increasingly wide-ranging data-matching program.

Data will be obtained from financial institutions including all the major banks, regional banks and building societies.

The information is being collected following the ATO’s identification of a tax gap of $1 billion for individuals in the 2020-21 financial year due to incorrect reporting of rental property expenses.

Deciphering Self-Education Expenses Deductions

The ATO is currently developing a new draft taxation ruling covering the deductibility of self-education expenses incurred by an employee or an individual carrying on a business.

The draft ruling will reflect the current rules in this area following repeal of several sections of the Income Tax Assessment Act and some new legal decisions. The new ruling is expected to be completed in late June.

Taxpayers claiming self-education expenses recently had the existing requirement to exclude the first $250 of deductions removed.

Keeping Up with GST Fraud Enforcement Measures

Search warrants were executed in three states against individuals suspected of promoting the fraud. This follows previous compliance action against more than 53,000 people, with two individuals sentenced to jail time for their GST fraud activities.

Implementing the ATO's Cyber Safety Checklist

The ATO is again emphasising the importance of business cyber safety by releasing a new checklist for small businesses.

The tips include simple ideas for keeping business and client data safe from cybercriminals, such as turning on automatic updates and using multi-factor authentication when possible.

Resources for training staff on preventing, recognising, and reporting cyber incidents are available from the government’s Australian Cyber Security Centre.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Federal Budget 2023 Tax Focus: Small Biz Tax Relief & Energy Boost

Australia's Federal Budget 2023 reveals the first surplus in 15 years, highlighting tax measures and energy incentives for small businesses. Our in-depth analysis covers the Budget's focus on electrification and efficient energy use, as well as the tax support and relief available to over 2 million eligible small businesses.

Tax measures were less central to this year’s Federal Budget than they have been in recent years. While there were some new tax measures, the Budget this year was more about the first surplus in 15 years and various spending measures.

After highlighting the gloomy outlook for the global economy, Treasurer Jim Chalmers emphasised Australia’s future as an “energy superpower”, with small business to be a key beneficiary.

Energy incentives for small business

The new Small Business Energy Incentive will provide businesses with annual turnovers under $50 million with a bonus 20 per cent deduction on expenditure supporting electrification and more efficient energy use.

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

The assets or upgrades must be first used or installed ready for use between 1 July 2023 and 30 June 2024.

Tax support continues for business

Over 2 million eligible small businesses will also enjoy welcome cashflow relief, with the government halving the increase in quarterly tax instalments for GST and income tax in 2023-24. Instalments will only increase by 6 per cent, instead of the expected 12 per cent.

While businesses may enjoy the extra cashflow, the government is also increasing efforts to reduce tax avoidance and minimisation. There will be greater scrutiny of GST returns as the ATO will receive extra resources over the next four years to promote GST compliance.

The ever-popular instant asset write-off received another year of life, with small businesses permitted to immediately deduct eligible assets costing up to $20,000 from 1 July 2023 to 30 June 2024.

Super payments crackdown

The days of businesses having access to employee super payments for a quarter are over, with employers required to pay their employees’ super at the same time they pay their wages from 1 July 2026.

The ATO picked up an additional $27 million in 2023-24 to improve its data matching capabilities and $13.2 million for a new compliance system to identify in near-real time instances of under or unpaid super. There will also be new unpaid super recovery targets set for the ATO in 2023-24.

The Budget also confirmed legislation for the new tax on earnings from super balances exceeding $3 million will be introduced to Parliament. From 1 July 2025, these earnings will attract an increased concessional tax rate of 30 per cent.

New tax incentives for housing

Businesses in the residential housing sector are now eligible for some attractive incentives, with the Budget providing two new perks.

The capital works deduction (depreciation) rate will be increased from 2.5 per cent to 4 per cent a year for eligible new build-to-rent projects, while the withholding tax rate for eligible fund payments for build-to-rent developments will be reduced from 30 per cent to 15 per cent.

Support measures for smaller business

The Budget unveiled several support measures, including timely relief for businesses’ electricity bills. From July 2023, an estimated one million eligible small businesses will receive up to $650 in assistance.

Over $23 million will also be invested to help small businesses train in-house cyber wardens to deal with cyber security attacks.

A further $392 million Industry Growth Program will be available help support small to medium sized businesses and start-ups develop new products and services.

Other tax measures

The Budget also included changes to the Petroleum Resources Rent Tax (PRRT). These will collect an additional $2.4 billion over four years by limiting to 90 per cent the proportion of PPRT assessable income that can be offset by deductions.

Tobacco excise taxes will also increase, rising by 5 per cent each year for three years from 1 September 2023.

The government is also getting behind the OECD’s push for a minimum 15 per cent tax rate for multinationals.

Despite strong lobbying, the planned third tranche of tax cuts legislated to come into effect next year survived the Budget process and as expected, the low and middle income tax offset was not extended beyond 2021-22.

Information from this article has been sourced from: https://budget.gov.au/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Tax Alert March 2023: Family trust rules and new guidance on contractors

The ATO has confirmed its position on family trust distributions, while also providing employers with new information to simplify completion of Single Touch Payroll (STP) activity statements. Here are some of the latest developments in the world of tax.

Prefilling of PAYGW

Completion of PAYG withholding via STP will become easier for employers when the ATO begins prefilling some of the required activity statement data.

From the July 2023 statement, PAYG withholding labels W1 and W2 will be prefilled for all monthly PAYG employers. Quarterly withholders will find the information on their September 2023 statement.

The ATO is also piloting an employer reminder system for businesses with a late activity statement and STP-reported PAYG withholding. If you fail to lodge by the reminder date, the ATO will consider there are no corrections to report and the recorded amounts will be added to your client account.

Final rules on family trusts

Taxpayers with family trusts should check the implications of the ATO’s final guidance on the taxation of family trust payments, as the new rules may reduce the attractiveness of these tax structures.

Under the ATO’s new approach, common tax planning strategies relying on the section 100A exemption covering trust distributions to companies and family members may no longer be available in some situations.

Taxpayers with a discretionary trust should discuss the implications with us, particularly where there are parent controllers of the trust and adult-aged child beneficiaries. The ATO website provides a number of case studies outlining common situations.

Employees vs. independent contractors

The ATO is consulting on its new draft guidance covering both classification of employees and independent contractors, and its proposed compliance approach in this area.

The draft guidance outlines the regulator’s priority areas, which include situations where particular risk factors are present and where an unpaid superannuation query has been received from a worker.

The guidance also indicates employers must have specific advice from an appropriately qualified third-party confirming their classification of a worker as a contractor is correct.

Recordkeeping for self-education expenses eased

Taxpayers claiming self-education expenses will find things a little easier this tax time, as new legislation has removed the requirement to exclude the first $250 of deductions for education courses.

The new rules can be used when completing your 2022-23 tax return, while for employers, the change applies to the Fringe Benefits Tax year starting 1 April 2023.

Sharing economy reporting extended

Providers of ride-sourcing and short-term accommodation services will find themselves swept into the compulsory Taxable Payments Reporting System (TPRS) from 1 July 2023.

Electronic platform operators for these services (such as Uber and Airbnb) are required to report all transactions involving Australian purchasers under new legislation passed in December 2022.

Annual TPRS reporting is already compulsory in industries such as building and construction, cleaning, courier and security services.

Plug-in hybrid electric vehicles to face FBT

Under rules applying from 1 April 2025, plug-in hybrid electric vehicles will no longer be considered zero or low emissions vehicles and will not be eligible for the fringe benefits tax exemption applying to these vehicles.

You can apply for the exemption if the hybrid vehicle was exempt before 1 April 2025 and there is a financially binding commitment to continue providing private use of the vehicle after this date.

No business activity could mean no ABN

The ATO is again reminding small businesses their Australian Business Number (ABN) may be flagged for cancellation if there is no reported business activity in their tax return, or no signs of business activity in other lodgements or third-party information.

If an ABN is identified as inactive, the ATO will contact the holder by email, SMS or mail to check if the ABN is still required and explain the action required to keep it. Where the business is no longer operating, the ABN will be cancelled.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Tax Update December 2022

Tax compliance, higher fines in spotlight

Business taxes remained largely unchanged in the second Federal Budget of 2022, but employees working from home can expect less generous deduction rules for the 2022-23 financial year. Here’s some of the latest tax developments.

All quiet on the small business tax front

There were no significant tax changes affecting small business in the October 2022 Federal Budget, although there was a big focus on tax compliance.

The ATO will receive $685 million over four years to help it raise $2.1 billion from a crackdown on shadow economy activities. This may be of concern to some small and mid-size enterprises (SMEs), as the ATO believes the bulk of these activities occur among smaller business taxpayers. The Budget also included a $15.1 million boost for the existing small business debt helpline and programs focused on the financial and mental wellbeing of small business owners. Help with rising energy costs included $63 million to improve SME energy efficiency and energy use.

It’s unknown whether measures of the popular instant asset write-off and carry back of losses will be extended past 30 June 2023. We may need to wait for the May 2023 Budget for the answer.

STP Phase 2 deadline soon

With Single Touch Payroll (STP) Phase 2 reporting now well underway, small business employers need to remember their next reporting deadline is 1 January 2023.

Common STP reporting mistakes seen by the ATO this year include incorrect re-mapping of pay codes and not separately itemising bonuses, overtime and commissions; failure to correctly input existing year-to-date amounts; and incorrectly categorising allowances. The ATO has a range of factsheets and resources available to help employers get their STP reporting right.

Draft guidance on work from home deductions

Taxpayers working from home are likely to face significant rule changes when claiming tax deductions this financial year following release of the ATO’s draft guidance on the issue.

Under the new guidelines, employees will only be permitted to claim a deduction of 67 cents for every hour they genuinely work from home, instead of the 80 cents under the short-cut method available prior to 1 July 2022.

Asset depreciation on items used for work purposes will require a separate depreciation calculation. Employees will not require a separate home office or dedicated work area to claim the deduction, but normal substantiation rules apply.

Alternatively, employees working from home can claim a deduction for their expenses using the traditional actual cost method.

Increase in ATO penalty units

Taxpayers running afoul of the taxman will find themselves facing bigger bills this year after the Federal Budget included measures to increase the fines for regulatory penalty units. From 1 January 2023, fines will jump from $222 to $275 per penalty unit, a 19.3 per cent increase.

This is on top of regular indexation by the CPI, which is every three years, and this will remain in place, with the next one due to take effect on 1 July 2023.

Enhancing tax transparency

Large private business entities will face more scrutiny of their tax affairs after new legislation passed through Parliament to require greater transparency of the tax affairs of private companies.

The reform reduces the tax information reporting threshold for private corporate tax entities to companies with a total income of $100 million or more (previously $200 million or more). This lower threshold applies to reporting for 2022-23 and subsequent financial years.

The previous grandfathering of the exemption applying to certain large proprietary companies from the normal obligation to lodge their annual reports with ASIC was also removed.

Super for holiday season employees

Employers planning to hire staff on a short-term basis for the holiday season need to remember changes to the Superannuation Guarantee (SG) rules mean temporary staff may be eligible for super contributions.

From 1 July 2022, employers must make SG contributions at 10.5% for eligible employees regardless of how much they earn after removal of the $450 per month eligibility threshold.

For new employees who are offered choice of super fund but fail to choose, you must request their stapled super fund details from the ATO to meet your super obligations.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

Federal Budget 2022-23: From a tax perspective

Quiet on the tax front, for now

For once, tax measures took a back seat in a Federal Budget, with the second version for this year being billed as a “solid and sensible Budget suited to the times”.

The October 2022 Budget resisted the recent trend to continually tinker with our tax system, but it seems likely this steady-as-she-goes approach won’t last long, with the new Treasurer, Jim Chalmers, repeatedly referring to the need for tax reform in the days prior to delivering his first Budget.

Tax was not entirely forgotten, however, with the ATO to extend many of its tax compliance programs, a new focus on multinational corporate tax and higher fines for tax breaches.

ATO compliance focus

The ATO was a big winner in the Budget, receiving extra funding to help it achieve higher levels of tax compliance.

The tax regulator will receive $80.3 million to extend its current Personal Income Tax Compliance Program for two years from 1 July 2023. This program will focus on overclaiming tax deductions and incorrect reporting of income.

The ATO also received additional funding for its Shadow Economy Program and Tax Avoidance Taskforce, with additional compliance activities in these areas expected to raise $3.7 billion over four years.

Tax penalty increases

Fines for breaches of the tax and financial laws will rise from 1 January 2023.

The current fine of $222 per penalty unit will rise to $275 per penalty unit, with fines to be indexed in line with the CPI again from 1 July 2023. This increase is expected to raise an additional $31.6 million over four years.

Multinational tax measures

The Budget included measures designed to close tax loopholes and ensure multinationals pay their fair share of tax in Australia. The multinational tax integrity package is expected to raise around $1 billion over 4 years.

The government also intends to focus on working with other countries to reform the international corporate tax system to “better address the challenges arising from digitalisation and globalisation”.

Electric vehicle buyers

More small businesses may be tempted to go electric with their vehicles, with the $345 million Electric Car Discount to exempt eligible electric vehicles from fringe benefits tax (FBT) and the 5 per cent import tariff.

On an electric car valued at about $50,000, the new FBT exemption will save an employer up to $9,000 a year. For individuals using a salary sacrifice arrangement, the saving could be up to $4,700 a year. As an additional sweetener, customs duties of up to $2,500 are also being removed if the vehicle was previously subject to an import tariff.

Supporting small business well-being

Small businesses have not been forgotten entirely, with the Budget providing $15.1 million in additional funding to extend the small business mental health and financial counselling programs, NewAccess for Small Business Owners and the Small Business Debt Helpline.

Almost $63 million in new grants will also be available to small and medium-sized businesses so they can improve their energy efficiency and reduce their energy usage by investing in energy efficient upgrades.

Lower eligibility age for downsizer contributions

The super system was given a break from its endless reforms, with only a minor tweak to the existing rules.

The Budget included a measure to allow more people to make downsizer contributions into their super accounts by reducing the minimum eligibility age from the current 60 to 55 years of age. Older Australians will also be encouraged to downsize by exempting their home sale proceeds from pension asset testing from the current 12 months to 24 months.

End of tax offsets and low-income payments

A noticeable absence from the Budget was new tax offsets and payments to lower-income earners.

There was no extension of the previous Low and Middle Income Tax Offset (LMITO), which means eligible taxpayers will no longer receive the offset when lodging their annual tax return. The Coalition’s one-off $420 cost-of-living offset was also not renewed.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.

New ATO Crackdown on GST Fraud

The ATO is cracking down hard on GST frauds after finding a significant number of taxpayers falsely claiming GST refunds.

The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.

The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.

Falsely claiming a GST refund

GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office. It involves more than careless or accidental mistakes, and is undertaken in a deliberate or deceitful way.

In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.

Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.

Rules for claiming GST credits

It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.

You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.

GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.

Purchases that do not include GST in the price (such as bank fees and stamp duty), GST-free items (such as basic food), imported goods if you are not the importer, and purchases between entities within a GST group are all ineligible for GST credits.

Warning signs for GST fraud

The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The tax regulator has significant data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.

Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.

A key point to remember is the ATO does not offer loans or administer COVID-19 disaster payments. Advertisements offering a way to get these types of loans from the ATO by registering fake businesses are a "rort".

If you are caught

The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.

If you are involved in a fake GST arrangement, the first step is to contact the ATO or your accountant so they can assist you to work through various self-help options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.

Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.

Fraud and compromised IDs

Selling or sharing your myGov credentials may result in other people accessing your personal information and using it for their financial gain.

If you have become involved in a GST fraud because your identity was compromised, you should contact the ATO immediately so additional controls can be placed on your tax account.

Taxpayers who have given their myGov details to a criminal should contact the ATO so it can assist them to protect their identity from being used to commit further crimes, including future tax crimes undertaken in their name.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.