Archive for category: Blog

Financial Services Minister Stephen Jones said Labor plans to tackle tax concessions once an objective of the superannuation system has been put into legislation. People with millions of dollars in their superannuation are receiving tax concessions that ultimately have a “real cost to the budget”, the Minister said.

“The concessional taxation of superannuation is a lightning rod for discussion. When I see the size of some fund balances, I’m not surprised,” Mr. Jones said.

If the objective of superannuation is to provide a tax preferred means for estate planning, then you could say it’s done its job pretty well. Don’t get me wrong, the government celebrates success but the concessional taxation of funds like these has a real cost to the budget,” Mr. Jones continued.

Citing Mercer, the Minister said the tax concessions on a single $10 million self-managed super fund could support 3.1 full-aged pensions.

At the time, Mercer also found that tax concessions offered to SMSFs with balances exceeding $10 million could fund 240,000 full age pensions each year.

“Those who support the status quo will need to demonstrate how concessional tax arrangements for high balance super funds meet the common objective we’ve all agreed on. Those who argue for change will need to show that that approach meets the objective.”

There is no other foundational public policy that has existed for 30 years without a clear and shared understanding of what its objective is, but here we are.”

“There are many opinions about how the super system can be improved and many of these opinions are well meaning. But can we have a conversation about the directions if we don’t know what the destination is? This is why we’ve announced a conversation, the need to legislate an objective for superannuation. With a clear objective, we can be focused and have a meaningful conversation,” the Minister said.

“With an agreed destination enshrined by parliament, we can embark on the journey to a more prosperous retirement,” he concluded.

Warren Day has called on Australians to actively engage with their super in order to set themselves up for retirement.

In a recent interview with the ABC, Mr Day stated that retirement outcomes depended significantly on when individuals begin planning and whether they have accumulated enough wealth during their working life.

“While super is not the only source of retirement savings – the money may also come from investments, government benefits and your home, if you downsize – it is the only significant asset for many Australians,” he said.

“So, it’s important people actively manage their super and check the performance of their fund.”

The median balanced super fund ended the 2021-22 financial year down 3.3 per cent, the third lowest return since the introduction of the super guarantee in 1992. The country’s largest super fund, AustralianSuper, also reported a negative return for its balanced option.

However, Mr Day suggested that individuals should look beyond just the past financial year when considering the performance of their super.

He said that members of MySuper products should check the performance of their fund using the Your Super comparison tool from the ATO, which incorporates the findings of APRA’s annual performance test.

The test was due to be expanded beyond MySuper products this year before the federal government earlier this month announced a review of Your Future, Your Super laws and a pause of the extension.

Mr Day also encouraged individuals to make sure they are in the right investment option for their risk tolerance, which would likely be impacted by how close they are to retirement.

 

SOURCE: https://www.investordaily.com.au/superannuation/51698-asic-tells-australians-to-actively-manage-their-super#:~:text=The%20regulator%20has%20encouraged%20active,set%20themselves%20up%20for%20retirement.

Tax Time 2022: businesses get ready

As the end of another tax year approaches, the ATO is reminding businesses that it is time to:

• see if there are tax-deductible items the business needs before 30 June;
• check if there are any concessions the business can access before 30 June – for example, the small business restructure rollover CGT concession or the increased small business income tax offset (now 16%) for sole traders (capped at $1,000);
• think about their recordkeeping habits this past year – should anything be done differently in future?

For businesses with employees, the Single Touch Payroll (STP) information for 2021–2022 must be finalised by 14 July. Businesses should let their employees know when the information is finalised, so they can lodge their income tax returns.

Deductions

Increasing tax deductions will lead to a lower tax bill. For example, businesses can bring forward expenditure from the next tax year to the current tax year and may be able to deduct the full cost of a depreciating asset under the temporary full expensing rules. An immediate deduction is also available for start-up costs and certain prepaid expenses.

Businesses that are in an industry that requires physical contact with customers, such as healthcare, retail or hospitality, can claim deductions for expenses related to COVID-19 safety. This includes hand sanitiser, sneeze or cough guards, other personal protective equipment and cleaning supplies.

Charitable donations (including, in some circumstances, donating trading stock) are a good way to increase deductions. Don’t forget to keep receipts for all charitable donations. The deductibility status of charities can be checked at https://www.abn.business.gov.au/Tools/DgrListing.

For sole traders or partners in a partnership, the benefits of reducing their taxable income could include:

• reducing their marginal tax rate from, for example, 45% to 37%, or 37% to 32.5%;
• qualifying for the maximum amount of the low and middle income offset – remember it has been increased to a maximum of $1,500 for this tax year; and
• avoiding liability for the Medicare levy surcharge (at least 1%) if they don’t have appropriate private health insurance.

The ATO’s golden rules

The ATO has three golden rules for a valid business deduction.

1. The expense must have been for business, not private, use.
2. If the expense is for a mix of business and private use, only the business portion can be claimed as a deduction.
3. The business must have records to prove it incurred the expense.

For example, if a business owner buys a laptop and only uses it for their business, they can claim a deduction for the full purchase price. However, if the laptop is used 50% of the time for the business and 50% of the time for private use, only 50% of the purchase price can be claimed as a deduction.

The GST component of the purchase price cannot be claimed as a deduction if it can be claimed as a GST credit on the business activity statement.

Recordkeeping

Records explain the tax and super-related transactions conducted by a business. Businesses are legally required to keep records of all transactions relating to their tax and superannuation affairs as they start, run, sell, change or close the business, specifically:

• any documents related to the business’s income and expenses;
• any documents containing details of any election, choice, estimate, determination or calculation made for the business’s tax and super affairs, including how any estimate, determination or calculation was made.

Your clients should make sure that they understand what records are needed for their business and make accurate and complete recordkeeping practices a part of their daily business activities. You may like to use the following general information to talk to your clients about what records they need to keep and for how long.

Tax return checklists

The May 2022 edition of Client Alert included a handy set of checklists for individual tax returns, super fund tax returns and company, trust or partnership tax returns to assist your clients in compiling all of the necessary information before seeing you about their returns this tax time.

Source: www.ato.gov.au/Tax-professionals/TP/Tax-Time-Toolkit—Small-business/

www.ato.gov.au/Media-centre/Media-releases/Tax-time-for-small-business–how-to-nail-your-tax-return/

www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/

www.ato.gov.au/Media-centre/Media-releases/COVID-19-and-getting-your-tax-right/

ATO guidance update: debt relief and waivers

Tax-related debts are sometimes ignored by those struggling with inflationary pressures and sky-high energy prices. However, this may not be the wisest course of action, since these disregarded debts are likely to continue to accumulate general interest charges. A simpler way of dealing with these debts, particularly if experiencing hardship, is to apply to be released from the debt. The ATO has recently updated its Practice Statement on debt relief and waivers, which may provide more clarity for affected taxpayers.

The ATO has recently updated its Law Administration Practice Statement on debt relief, waivers and non-pursuit of debt. Specifically, the Practice Statement provides guidance on the Commissioner of Taxation’s discretion to not pursue the recovery of tax debts, and the ATO’s ability to release individual taxpayers from their obligation to pay certain tax-related liabilities.

Generally, the ATO will not pursue a debt if it is satisfied that the debt is uneconomic or irrecoverable at law. There are many factors which determine whether debts are uneconomical to pursue, including, but not limited to:

• the anticipated cost of future recovery likely to exceed the amount of the debt;
• the age of the debt;
• the type of debt involved (ie super guarantee charge debts are more likely to be pursued);
• the taxpayer cannot be located (the debt may be re-raised when the taxpayer is located); and
• the asset position of the taxpayer.

However, in certain instances, such as where a taxpayer has a significant history of non-compliance or where there are public interest considerations, the ATO may pursue a debt even though it is uneconomical.

The Practice Statement also details the tax liabilities that taxpayers can be fully released from in cases of serious hardship, and sets out the application process to obtain a release. “Serious hardship” is given its ordinary meaning in this context. According to the ATO, serious hardship exists where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education.

To decide whether serious hardship exists, the ATO will use the income/outgoings test, the assets/liabilities test, and other relevant factors to determine whether the consequences of paying the tax would be so burdensome that the person would be deprived of what are considered necessities according to normal community standards.

The income/outgoings and the assets/liabilities tests are quite straightforward. The former assesses the taxpayer’s capacity to meet their tax liabilities from their current income, taking into account household income and expenditure. The latter assesses the taxpayer’s equity in, or access to, assets which may be indicative of their capacity to pay (including residential property, motor vehicle, life insurance or annuity entitlements, collections, furniture and household goods, tools of trade etc).

It is the category “other relevant factors” that has recently been updated in the Practice Statement. The information now states that when deciding whether release should be granted, the ATO should take into consideration the facts of the case and have regard to the taxpayer’s particular circumstances. In addition, the examples of factors the ATO may consider in arriving at its decision have been reordered and reworded in the recent update.

Applying all three tests – income/outgoings, assets/liabilities, and other relevant factors – will enable the ATO to decide whether serious hardship exists and to what extent. It may be the case that hardship exists, but it is not serious enough to warrant a full release of a tax debt. In this case, a partial release may be applied. Nevertheless, if any of your clients wish to apply for release of debts based on serious hardship, you should revisit this updated Practice Statement.

Source: www.ato.gov.au/law/view/document?DocID=PSR/PS201117/NAT/ATO/00001

www.ato.gov.au/General/Support-to-lodge-and-pay/In-detail/Release-from-your-tax-debt/

www.ato.gov.au/general/paying-the-ato/if-you-don-t-pay/

What might the Federal Government’s proposed electric car discounts mean for taxpayers?

Under the current statutory formula for valuing car fringe benefits, electric cars are arguably at a disadvantage compared to fossil fuel-consuming cars, but this may soon change.

One of the new Federal Government’s policies, announced as part of its election platform, is to introduce import tariff and FBT concessions for certain electric vehicles from 1 July 2022.

Such vehicles would be exempt from:

• import tariffs – a 5% tax on some imported electric cars; and
• FBT – this is imposed on electric cars that are provided through work for private use.

These exemptions would apply to vehicles valued below the threshold for the luxury car tax for low-emission vehicles, which for the 2021–2022 financial year is $79,659.

FBT exemption

The taxable value arrived at using the statutory formula for valuing car fringe benefits covers a variety of expenses associated with the ability to use the car, such as leasing costs, fuel, maintenance and insurance.

However, the statutory formula only uses 20% of the cost price of the car as the principal component of the formula. Running costs such as fuel and maintenance are not part of the calculation at all.

Therefore, a car with a relatively high purchase cost to running cost ratio (as would typically be the case with an electric car) generally incurs a higher FBT burden for every dollar the employer spends on the car.

The Federal Government’s proposal to treat a car fringe benefit arising from the availability of an electric car for private use as FBT-exempt will therefore tilt the balance very much back in favour of electric cars.

An employee on a salary of $150,000 who salary-packages a $60,000 electric car with annual running costs (including lease payments) of $17,000 net of GST could expect to be around $4,500 better off annually after tax, due to the change in FBT treatment.

Import tariff exemption

The exemption from the import tariff should make certain electric models cheaper for Australian consumers and businesses.

Several models are already exempt from import tariffs because they are manufactured in countries with which Australia has a free trade agreement covering electric cars.

Looking ahead

The Government has not yet confirmed when the next Parliamentary sittings will take place, and so a start date of 1 July 2022 may require an element of retrospective legislation.

The Government has indicated that the electric car discount policy would be reviewed after three years, taking account of developments in the adoption of electric cars by that time. However, as we have seen with the low- and middle-income tax offset, it can be politically challenging to remove tax concessions even when they have been introduced as temporary. Watch this space!

Source: www.alp.org.au/policies/electric-car-discount

www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Types-of-fringe-benefits/Car-fringe-benefits/

Tax benefits for unused “carry forward” concessional superannuation contributions

From 1 July 2019, new rules were introduced that allow eligible taxpayers to claim tax deductions for the unused portion of their super concessional contributions caps from prior years. This brings tax deductions into the current financial year that would have otherwise been in excess of the ordinary annual concessional contribution cap.

The fundamentals behind the “carry forward” unused cap rules are outlined here.

Outline of rules

A concessional contribution is defined as a contribution to a super fund before tax. This type of contribution is taxed at a flat rate of 15% in the fund.

Concessional contributions can come from several sources: from a person’s employer, from pre-tax salary sacrificed contributions the person has elected to make through their employer, and from contributions they have made personally where they claim a tax deduction for those contributions. The combined total of the contributions from each of these sources counts towards the person’s concessional contribution cap.

The 2022 financial year concessional contribution cap is $27,500, an increase from the previous financial year’s $25,000.

The new rules give people the capacity to look back on each financial year commencing from 1 July 2018 to calculate the “unused” portion of their concessional contributions cap in each financial year. Once this is calculated, the individual can “carry forward” and, when desired, “catch up” and claim the unused portion of their concessional contributions caps in a later financial year. Claiming the unused portion of concessional contributions caps in a later financial year can achieve a better tax outcome for that financial year, and maximise the amount the person is able to contribute to their super.

The “unused” cap is effectively the difference between the concessional contribution cap for the financial year less the total of all before tax contributions made in that same financial year.

A person can only claim unused super contributions from previous years if their total super balance is less than $500,000 at 30 June in the financial year before the year in which they make their catch-up contributions. For example, if a person’s total super balance is $450,000 at 30 June 2021, they can make catch-up contributions for their unused cap in the 2022 financial year. If their total super balance at 30 June 2021 is $550,000, they are not eligible to claim unused super contributions from previous years.

Unused concessional cap amounts can only be carried forward for a maximum of five years. After five years, the unused amounts expire.

What are the benefits of catch-up contributions?

Making a catch-up contribution is an easy way to boost a super balance at a time when a person has the financial resources to do so, while offering significant tax benefits.

The rules give greater flexibility in making contributions to a range of taxpayers, at a time that suits their personal circumstances. For example:

• Work patterns and income may fluctuate from year to year. A tax deduction for super contributions may not be required in a low income year, but may be the following financial year if income is significantly higher.
• Restricted cash flow may prevent making super contributions. As cash flow improves, catch-up contributions can be made.
• Usual income may mean there is little to no tax advantage in making super contributions, but the sale of a large capital asset, such as shares or rental property, could result in a significant capital gain. In this instance, a catch up contribution made by harnessing unused caps from previous years would reduce taxable income in the year of the sale.

Beware complexity

Concessional superannuation contributions can be complex, and implementing the right strategies is vital to ensure people maximise their superannuation savings.

Case study

In the 2019 financial year, Virginia was employed on a full-time basis. The superannuation contributions from her employer and her salary sacrificed pre-tax contributions totalled $25,000. In that financial year, Virginia maximised her concessional contributions cap and has no “unused cap” to carry forward.

During the 2020 financial year, Virginia lost her job due to the impacts of COVID-19. Her employer had made $8,000 in super guarantee contributions during that financial year. Virginia was concerned about her short-term employment prospects and chose to make no personal super contributions in that year. At the end of the 2020 financial year, Virginia had an unused cap amount of $17,000 – the annual concessional contributions cap of $25,000, minus the $8,000 employer super guarantee contributions.

Virginia remained unemployed throughout the 2021 financial year and made no personal contributions. Her concessional contributions cap for that year was again $25,000, with the total amount counting towards her unused cap. Virginia’s total unused cap of $42,000 across the 2020 and 2021 financial years carries forward to the 2022 financial year: $17,000 from the 2020 financial year plus $25,000 from the 2021 financial year.

During the 2022 financial year, Virginia finds employment and her employer pays $16,000 in super guarantee contributions to her fund.

Virginia’s total super balance at 30 June 2021 is $468,000. Because this is under the $500,000 threshold, she is eligible to utilise all of the unused cap of $42,000 from the previous two financial years.

In addition, Virginia has a 2022 financial year cap of $11,500 remaining, which is the 2022 cap limit of $27,500 minus the $16,000 employer super guarantee contributions made by her employer.

Virginia can therefore choose to make a total concessional contribution of $53,500 in the 2022 financial year, which provides an immediate tax benefit by reducing her taxable income and allowing her to boost her super balance.

After contributing the $53,500, Virginia has no unused cap to carry forward to the 2023 financial year, but will continue to accumulate cap space in future years if she chooses not to maximise her concessional cap.

It is unlikely she will use her unused cap space again in future years, given that her total super balance at 30 June 2022 may exceed the $500,000 threshold once contributions are made during the 2022 financial year.

The following table shows Virginia’s use of the carry forward rules for concessional super contributions across the 2019 to 2022 financial years.

Financial year	Concessional contributions made in year	Concessional contributions cap for year	Unused concessional cap for year	Cumulative unused cap to carry forward
2019	$25,000	$25,000	$0	$0
2020	$8,000	$25,000	$17,000	$17,000
2021	$0	$25,000	$25,000	$42,000
2022	$69,500*	$27,500	$0	$0
Total	$102,500	$102,500	$42,000	N/A
* The $69,500 in contributions made during the 2022 financial year are the combination of Virginia’s employer’s super guarantee contribution of $16,000, plus the concessional cap in 2022 of $11,500, plus her full cumulative unused carry forward cap of $42,000.

Source: www.ato.gov.au/individuals/super/in-detail/growing-your-super/super-contributions—too-much-can-mean-extra-tax/?page=5

Personal super deductions: remember the notice of intent

The end of financial year is fast approaching, and individuals with excess savings or those who have received a bonus since the beginning of the year may want to use the extra cash to grow their super. One of the easiest ways to grow super and get a tax deduction at the same time is to make a personal superannuation contribution. However, there are certain factors that need to be considered including eligibility requirements and contribution caps, as well as giving the required notice in time.

If you are considering making a personal contribution to your super and would like to claim a deduction on the contributions made, it is important to remember to give the required notice to your super fund before making a claim in your tax return. There have been recent cases of taxpayers being denied deductions for personal super contributions made where the required notice to a super fund was not made on time.

There are a few different types of contributions that can be made to super funds. These include compulsory super guarantee that is paid by an employer, salary sacrifice super amounts usually paid from before-tax income, reportable employee super contributions such as having a bonus paid directly into super, and personal contributions to super funds made from after-tax income.

With regard to personal contributions to super funds made from after-tax income, a deduction can only be claimed by an individual if eligibility requirements are met. A deduction for a personal contribution can be claimed if the income earned came from salary and wages, a personal business, investments, government pensions or allowances, superannuation, partnership or trust distributions, or a foreign source.

An individual between 67 and 74 years old must also meet the work test or satisfy the work test exemption criteria to be able to claim a deduction for any personal contributions made. To satisfy the work test, an individual must work at least 40 hours during a consecutive 30-day period each income year. For those individuals 75 years or older, a deduction for personal contributions can only be claimed if made before the 28th day of the month following the month in which they turned 75.

Provided an individual satisfies the eligibility criteria and has made a personal contribution for the year, a notice of intent to claim or vary a deduction must be made to the super fund by the earlier of:

• the day they lodge their tax return for the year in which they made the contributions; or
• the end of the income year following the one in which they made the contributions.

The ATO provides a standard form for giving this notice to super funds. However, many super funds also have their own online forms which can be lodged easily. A super fund will then send a written acknowledgment indicating that they have received a valid notice from an individual. Only then can a claim for the deduction be made in the person’s tax return.

Remember, the notice must be given by “earlier of” the two date options, so if an individual inadvertently forgets to give notice by the time their tax return is lodged, they will be unable to claim a deduction for the personal contributions made for the year. Cases have shown that there is no discretion in s 290-170 of the Income Tax Assessment Act 1997, or in any other provision of legislation, to extend the time for giving the notice or to disregard non-compliance with the time frame specified, even if the delay is caused by external factors.

Source: www.ato.gov.au/Individuals/Super/In-detail/Growing-your-super/Claiming-deductions-for-personal-super-contributions/

Support for flood-ravaged areas

The recent devastating flooding in South East Queensland and parts of New South Wales has left many people homeless, caused vast amounts of property damage and has sadly led to loss of life. While the clean-up effort continues in many areas, there is some immediate financial help available for those affected, including the Disaster Recovery Payment and Disaster Recovery Allowance. Flood-impacted small businesses will receive an automatic lodgment deferral and can apply for a refund of previously paid PAYG instalments. Any GST refunds will also be “fast-tracked”.

While these floods have finally been declared a national emergency by the Federal Government, thus allowing it to intervene and deploy resources, details including the scale and type of funding as well as the mechanisms for distribution have been slow in forthcoming.

As with previous disasters, those who need immediate help can apply for the Australian Government Disaster Recovery Payment. This is a one-off financial assistance of $1,000 per eligible adult and $400 for each eligible child under 16. This includes Australian resident individuals in various local government areas who have been seriously injured, lost their homes, have had their homes/major assets directly damaged, or those who have lost immediate family members as a direct result of the floods. This payment is also available to eligible New Zealand visa holders (Subclass 444) who have been affected by the floods.

In addition to the lump sum Disaster Recovery Payment, Australian residents and eligible New Zealand visa holders may be eligible to apply for the Disaster Recovery Allowance. This is a short-term payment for a maximum of 13 weeks. Eligible individuals will need to be 16 years or over, have lost income as a direct result of the storms/floods, and earn less than the average Australian weekly income (currently $1,737.10 per week) in the weeks after the income loss.

Those who earn more than $1,737.10 per week will have their payment reduced to nil and those already receiving income support payments such as the pension, parental leave pay and ABSTUDY will not qualify for the Disaster Recovery Allowance.

Individuals who qualify for the Disaster Recovery Allowance will receive the equivalent of the maximum JobSeeker or Youth Allowance payment depending on their personal circumstances (single, partnered, with children, living at the parental home, or requiring long term support). Both the Disaster Recovery Payment and the Disaster Recovery Allowance can be applied for through MyGov and Services Australia.

Small businesses affected by the floods in parts of Queensland and New South Wales will have more time to lodge their business activity statements (BASs) and instalment notices with an original due date of 28 February 2022 or 21 March 2022. Those taxpayers can lodge relevant returns up until 28 March 2022 without the need for a lodgment deferral. However, taxpayers need to be aware that the payment due date for these lodgments will not change, so general interest charge (GIC) may apply to any payments not made by the original payment date.

To further help flood-impacted small businesses with cash flow, a refund of previously paid PAYG instalments can be claimed and any GST refunds will be “fast-tracked”. Small businesses will also be able to change their GST reporting cycle and vary their PAYG instalments without penalty, provided reasonable care is taken. Any flood-affected small businesses that are unable to meet their lodgment and payment obligations are encouraged to contact the ATO directly for tailored support.

Temporary full expensing of assets extended

Businesses will have another year to utilise the temporary full expensing of depreciating assets measure, now that it has been extended to end on 30 June 2023. The measure was originally introduced to encourage business investment in the backdrop of the COVID-19 pandemic and allowed eligible businesses to deduct the full cost of eligible depreciating assets of any value. Building and other capital works, as well as software development pools, do not generally qualify for full expensing. Neither do second-hand goods for certain entities. Special rules also apply to cars.

The temporary full expensing of depreciating assets has been extended for another year until 30 June 2023. The measure was originally introduced in 2020 as a part of the Federal Government’s COVID-19 business rescue package aimed at encouraging business investment by providing a cash flow benefit. As originally introduced, the measure was due to end on 30 June 2022.

Businesses with an aggregated turnover below $5 billion or those that meet an alternative eligibility test can deduct the full cost of eligible depreciating assets of any value that are first held and first used or installed ready for use for a taxable purpose from 6 October 2020 until 30 June 2023.

For small business entities with an aggregated turnover of less than $10 million, the temporary full expensing of depreciating asset rules has been effectively replaced with simplified depreciation rules for any assets first held and used or installed ready for use for a taxable purpose between 6 October 2020 and 30 June 2023. This means that the full cost of eligible depreciating assets, as well as costs of improvements to existing eligible depreciating assets, can be fully deducted.

While businesses that are not classified as small business entities have the option of choosing to apply the temporary full expensing rules on an asset-by-asset basis, small business entities that use the simplified depreciation rules do not have that choice and are required to deduct the balance of their general small business pool in full. If a small business entity does not use the simplified depreciation rules, it has the choice to opt-out of temporary full expensing rules on an asset-by-asset basis.

A choice to not apply the temporary full expensing rules for a particular asset must be made in an approved form by the day the business lodges its income tax return for the income year to which the choice relates. Once made, the choice is irrevocable.

Not all costs relating to assets qualify for temporary full expensing. For example, building and other capital works, as well as software development pools do not generally qualify. Second-hand assets that would otherwise meet the eligibility conditions also do not qualify for temporary full expensing if the entity that holds them has an aggregated turnover of $50 million or more.

Special rules also apply to cars, where the temporary full expensing is limited to the business portion of the car limit. For example: a business entity purchases a car that costs $70,000 in 2021–2022 that is used for both business purposes (60% of the time) and personal purposes (40% of the time). The car limit for the 2021–2022 year is $60,733. The temporary full expensing amount allowed would be $36,439 (60% of $60,733).

After 30 June 2023, temporary full expensing will cease to apply (unless there is another extension by the government). Any depreciating assets purchased after that date will have their decline in value worked out in accordance with either the uniform capital allowance rules or the simplified depreciation rules, depending on whether the business qualifies as a small business entity.

Record-keeping education in lieu of ATO financial penalties

If you run a small business and are found by the ATO to have made unintentional record-keeping mistakes, you could face an administrative penalty. However, this could soon change under a proposed new law that would give ATO the power to issue a direction to complete an approved record-keeping education course instead of imposing financial penalties. Legislation to implement this measure has been introduced into Parliament but not yet passed.

This proposed change originated as a part of the Black Economy Taskforce’s final report, which found that tax-related record-keeping obligations should be made clearer for businesses, and that the ATO should have a range of administrative sanctions available at its discretion for breaches of the rules.

Currently, in instances where a business is required to keep or retain records under tax law but fails to do so, it will be liable to an administrative penalty. However, this penalty does not apply to record-keeping obligations related to retention of statutory evidentiary documents under fringe benefits tax. Nor does it apply to record-keeping obligations related to keeping and retaining documents required to substantiate expenses. The ATO also has the power to remit all or part of the administrative penalty it imposes.

Under the proposed new law, the ATO may issue a tax-records education direction in appropriate situations which will require the appropriate person within a business to take a specified, approved course of education and provide the ATO with evidence of completion. This would be applied in circumstances where the record-keeping mistakes were unintentional, due to knowledge gaps or variations in levels of digital literacy, or where the ATO reasonably believes that the entity has made a genuine attempt to comply with their obligations.

The tax-records education direction would not be available to those businesses that deliberately avoid record-keeping obligations. In those cases, financial penalties will still be applied, and if there is evidence of serious non-compliance, the ATO may also consider criminal sanctions.

“Appropriate persons” within a business include any individuals who make or participate in making decisions that affect the whole or a substantial part of the business. In the case of sole traders, the individual acting as the sole trader would be the appropriate person to complete any course of education. Businesses issued a written tax-records education direction would be required to either complete or arrange for the completion of an approved course before the end of the period specified in the direction.

Businesses that fail to comply with a tax-records written education direction, either by not completing the course or not completing the course by the set date, would be liable for the original administrative penalty.

It should be noted that since some record-keeping obligations under FBT and substantiation provisions do not give rise to an administrative penalty, the ATO would not be able to issue an education direction in those cases. Similarly, a tax-records education direction could not be issued to an entity that failed to comply with its record-keeping obligations under the Super Guarantee (Administration) Act 1992. This is dealt with separately and covered by the super guarantee education direction. The main difference is that failure to comply with a super guarantee education direction is an absolute liability offence and results in an administrative liability of 5 penalty units, whereas failure to comply with tax-records education direction attracts no additional penalty.

FHSS maximum releasable amount increased

The maximum amount that individuals can take out of their super under the First Home Super Saver Scheme will be increased from $30,000 to $50,000 for any release requests made on or after 1 July 2022. The scheme was originally envisaged as a tax-effective way for first home buyers to save for a deposit, and the increase in the maximum releasable amount presumably reflects the rapidly escalating housing price increases. The scheme is available to both first home buyers and those intending to build their first home subject to certain conditions of occupation.

Cost of living pressures coupled with high house prices mean that many people in Australia are finding it increasingly difficult to get on the property ladder. This is not confined exclusively to young people. Older long-term renters, particularly in regional areas, have also been disproportionately affected due to the great migration to the regions driven by the COVID-19 pandemic.

Instead of making fundamental changes to investment/tax structures that drive up house prices, the government has sought to solve the housing issue by allowing individuals to take money out of their super under the First Home Super Saver (FHSS) scheme. The scheme allows eligible first home buyers to apply to release voluntary contributions made to their super, along with associated earnings. The maximum releasable amount is currently $30,000, but will increase to $50,000 for any release requests made on or after 1 July 2022.

Individuals planning to use the scheme must be first home buyers who will occupy the property that is being purchased or intend to do so as soon as practicable, for at least six months within the first 12 months of ownership. The FHSS scheme is also available to those intending to build their first home, provided the contract to construct the home is entered into within 12 months from the date of the super release request.

The first step in releasing eligible funds is to obtain a FHSS Determination from the ATO which sets out the maximum amount that an individual can have released under the scheme. More than one FHSS Determination can be applied for, but once a request for release of amounts has been lodged the individual will not be able to seek further FHSS Determinations. So, it is imperative for individuals to ensure that they have finished making all their voluntary contributions under the scheme before applying for a Determination, and of course, to check the accuracy of the Determination issued by the ATO.

There is a limit of $15,000 of eligible contributions that can be released each financial year (up to a total limit of $30,000 currently, or $50,000 from 1 July 2022). Eligible contributions include any voluntary concessional and non-concessional contributions that have been made (ie salary sacrifice contributions and personal after-tax contributions). It does not include super guarantee, other mandated employer contributions, spousal contributions, or co-contributions, among other things.

The most important thing to note for individuals intending to use this scheme is that they must have a FHSS Determination before any contract to purchase is signed. This includes both those purchasing pre-established homes and those intending to build their first home (ie the vacant land must not be purchased before an FHSS Determination application is made). If an individual signs a contract for any property (or interest in a property including land) first, they will not be eligible to request a FHSS Determination and hence not eligible for the scheme.

For those individuals who have a FHSS Determination and subsequently sign a contract to purchase, a valid release request must be given to the ATO within 14 days. After the release of money, if an individual does not sign a contract to purchase or construct a home within 12 months, the ATO will generally grant an extension of time for a further 12 months automatically. Individuals also have the choice to recontribute the amount back into their super funds or to keep the money and pay a flat 20% tax on assessable FHSS released amounts.

Downsizer contributions: age limit change

More people will soon be able to make up to $300,000 in downsizer contributions into their superannuation, with the lowering of the age limit to include those aged 60 years and over from 1 July 2022. Before this date, only those aged 65 and over are able to make downsizer contributions. Essentially, downsizer contributions are super contributions that can be made from the proceeds of the sale of a main residence. This measure was designed to encourage older people to move into smaller, more suitable homes and free up housing stock.

To help those nearing retirement boost their super balances, those aged 65 and over are able to make downsizer contributions to their super of up to $300,000 from the proceeds of the sale of their home. Downsizer contributions are separate from concessional and non-concessional contributions, which means that amounts contributed do not count towards the contribution caps ($27,500 for concessional and $110,000 for non-concessional contributions). However, downsizer amounts do count towards the transfer balance cap, which applies when super is moved into the retirement phase.

As part of a suite of measures introduced to provide more flexibility for those contributing to super, from 1 July 2022 the age limit for those making downsizer contributions will be decreased to include individuals aged 60 years or over. Optimistically, the government expects this decrease in the age threshold will encourage more older Australians to downsize sooner and “[free] up the stock of larger homes for younger families”.

If you or your spouse are thinking of selling the family home to capture a premium, especially in regional areas, besides the age qualification, other criteria that must be satisfied in order to make a downsizer contribution to your super include the following:

• the location of the home must be in Australia;
• the home must have been owned by your or your spouse for at least 10 years;
• the home must not be a caravan, houseboat or other mobile home;
• the disposal must be exempt or partially exempt from CGT under the main residence exemption; and
• a previous downsizer contribution must not have been made from the sale of another home or from the part sale of the current home.

The downsizer contribution must be made within 90 days of receiving the proceeds of sale (i.e. from the date of settlement), and your super fund must be provided with the appropriate downsizer contribution form before or at the time of making the contribution.

Each individual can make the maximum contribution of $300,000, so for a couple a total contribution of $600,000 can be made. However, the total contribution amount cannot be greater than the total proceeds from the sale of the home. In instances where a home is owned only by one spouse and is sold, the spouse who did not have ownership is also able to make a downsizer contribution or have one made on their behalf, provided all other requirements are met.

Example: 

Trevor and Ian are a couple in their late 60s who have lived in their home for 20 years and have decided to downsize. Only Trevor’s name is on the title deed of the home. They meet all the other requirements for the downsizer contribution and sell their home for $500,000. In this scenario, the maximum contribution Trevor and Ian can both make is $500,000. It does not matter that only Trevor’s name is on the title deed. They also have the choice of either equally splitting the amount (putting $250,000 into each of their super accounts) or using another combination (eg contributing $300,000 for Trevor and $200,000 for Ian).

There is no maximum age for downsizer contributions. As long as the individual or couple are aged 60 years or older at 1 July 2022 and satisfy the other conditions, a contribution up to the maximum amount can be made.

Work test scrapped for super contributions: under 75s

Individuals aged between 67 and 75 will be able to make non-concessional and salary-sacrificed contributions to their superannuation without the need to pass the work test or satisfy the work test exemption criteria from 1 July 2022. The removal of the work test from that date also allows individuals aged under 75 to access the bring-forward of non-concessional contributions in some cases. Personal contributions will also be affected, although now instead of having to pass the work test to contribute, the work test only applies if a deduction is sought.

The work test will be scrapped for non-concessional and salary-sacrificed super contributions made by individuals aged between 67 and 75 from 1 July 2022. Currently, those individuals need to either pass the work test or satisfy the work test exemption criteria for each financial year that they make contributions in order for their super funds to accept these contributions. This change is designed to provide older Australians with more flexibility to contribute to their super and add to their comfort in retirement.

Contribution caps will still apply to any contributions made. The concessional contributions cap, which relates to salary-sacrificed contributions, is $27,500 from 1 July 2021 to 30 June 2022. This cap is indexed every year in line with average weekly ordinary time earnings and may increase year on year. The non-concessional contributions cap from 1 July 2021 is $110,000, and is set at four times the concessional contributions cap. This means that if the concessional contributions cap goes up due to indexing, the non-concessional cap will also increase.

With the removal of the work-test from 1 July 2022, individuals aged under 75 years will also be able to access the bring-forward of non-concessional contributions in any one financial year, which may allow them to access up to three times the annual non-concessional contributions cap in a single year (ie up to $330,000 for the 2021–2022 income year). Exactly how much can be accessed depends on the total super balance of the individual on 30 June of the previous financial year.

In addition to these incoming changes to the work test for non-concessional and salary-sacrificed contributions, a change will also be made to personal contributions made by those aged between 67 and 75 years from 1 July 2022. From that date, these individuals only need to meet the work test if they want to claim a deduction for their personal contribution.

To pass the work test, an individual must be gainfully employed for at least 40 hours during a consecutive 30-day period in each income year in which contributions were made. It is an annual test, which means that once it is met, the individual can make contributions for that entire income year. “Gainfully employed” requires the individual to be employed or self-employed for gain or reward in any business, trade, profession, vocation, calling or occupation.

Unpaid work or generation of passive income (eg interest, dividends, trust distributions, rent) do not satisfy the criterion of being gainfully employed.

If an individual cannot meet the work test, there is also a work test exemption which can be used to obtain a deduction for a personal contribution. To meet the work test exemption an individual must have:

• satisfied the work test in the financial year before the year in which the contribution was made;
• a total super balance of less than $300,000 at the end of the previous financial year; and
• not relied on the work test exemption in a previous financial year.

It should be noted that individuals who are aged 75 and meet the work test can only claim a deduction in relation to a contribution that is made on or before 28 days after the month in which they turn 75.

ATO Concerns On Luxury Car Tax

The ATO has issued an alert warning taxpayers that it is investigating certain arrangements where entities on-sell luxury cars without remitting the requisite luxury car tax amount. This applies to those selling luxury cars in the ordinary course of business in any structure (ie company or sole trader), as well as those that sell a luxury car to an employee, an associate, or an employee of an associate as a one off transaction. Remember, for the 2021-22 financial year, all non-fuel efficient vehicles over $69,152 are considered to be luxury cars.