Archive for category: Newsletter

From 1 July 2022 the eligible age is 60 years old or older. Prior to 30 June 2022 it was 65 years old or older.

Some of the eligibility criteria you must satisfy are:

• The home must be in Australia, have been owned by you or your spouse for at least 10 years and the disposal must be exempt or partially exempt from capital gains tax (CGT).
• You have not previously made a downsizer contribution to your super from the sale of another home or from the part sale of your home.
• Prior to (or at the same time) as making your contribution you must provide your fund with the ‘Downsizer contributions into super form.
• If you’re a couple, you can contribute up to $600,000 — but $300,000 into each superannuation account
• For the full eligibility criteria and other details find out more at Downsizer contributions for individuals.

The greatest advantage of the downsizer measure is the huge injection into your superannuation. There’s no work test, (upwards) age limit or condition to buy a new house. With the 90-day window to contribute, you can use that money however you like (including investing).

As an after-tax downsizer super contribution, there’s no tax paid on it. For individuals over 65, it’s returned tax-free when the funds are withdrawn in the future.

However, downsizer contributions will be taken into account when determining age pension eligibility. Because your main residence is exempt from the assets and income tests, it’s important to know you’ll be moving your money into the non-exempt category. An individual’s super balance is used to determine eligibility for residential aged care and home care services. While this might not be a need now, it’s worthwhile understanding for the future.

The ATO website is the best source for up-to-date information on the downsizer measure. To complete a contribution, a specific form is required.

Source: Downsizers Guide To Superannuation Contributions | Homesuite

Downsizing contributions into superannuation | Australian Taxation Office (ato.gov.au)

Single Touch Payroll (STP) is the way you report your employees’ tax and super information to the ATO. Single Touch Payroll (STP) is part of the government’s commitment to streamlining employer reporting obligations. STP was legislated on 16 September 2016 as part of the Budget Savings (Omnibus) Act 2016External Link.

The mandatory start date for STP Phase 2 reporting is 1 January 2022. Some DSPs, despite their best efforts, will need more time to get ready and transition their customers. They will advise you if we have approved a deferral for you to start reporting later than the mandatory start date. If you need more time in addition to your DSP’s deferral, you must apply. See STP expansion (Phase 2) delayed transitions.

How STP works

STP works by sending tax and super information from your STP-enabled payroll or accounting solution to us when you run your payroll.

This has not changed with Phase 2.

Your STP Phase 2 solution will send us a report with the information we need from you, such as:

• details of the remuneration you pay
  • the type of income for the employee (such as salary and wages, or working holiday maker income)
  • the components which make up the amounts (such as gross pay, paid leave, allowances or overtime)
• details of your pay as you go (PAYG) withholding
  • the amounts you have withheld from payments you make
  • information about how you calculated the amount, which you currently provide to us by sending a copy of the employee’s TFN declaration
• super liability information.

Source: Single Touch Payroll Phase 2 employer reporting guidelines | Australian Taxation Office (ato.gov.au)

What’s next on the agenda for the government?

With the election campaign finally over and a new government sworn in, many Australians will be wondering what a Labor government is likely to tackle over the next term. A helpful starting point is Labor’s election promises, which provide a useful indication of possible areas that will be targeted over the next few years. Two significant policies that Labor took to the election were child care changes (both in terms of the subsidy and structural changes) and dealing with multinational tax avoidance. In relation to the latter, it proposed a multifaceted approach by limiting debt-related deductions for multinationals, denying a tax deduction for intellectual property in some instances, and increasing transparency.

Multinational tax avoidance

One of the big tax policies that Labor took to the election was the party’s commitment to ensuring that multinationals pay their fair share of tax in Australia. To do this, Labor proposes a multipronged approach which includes:

• Limiting debt-related deductions (ie interest payments) by multinationals at 30% of profits to put an end to the creation of artificial debts and repayment arrangements within related entities. Further deductions over 30% may be considered if firms can substantiate those under either the arm’s length or the worldwide gearing ratio test.
• Limiting the ability of large multinationals to abuse Australia’s tax treaties while holding intellectual property in tax havens from 1 July 2023. Essentially, this means that if a firm makes payments for the use of intellectual property to a jurisdiction where they do not pay “sufficient tax”, a tax deduction in Australia will be denied for those payments.
• Increasing transparency by requiring large multinational firms to publicly release high-level data on how much tax they pay in the jurisdictions they operate in, along with the number of employees working in their business.
• Implementation of a public registry of beneficial ownership to show who ultimately owns, controls, or receives profits from a company or legal vehicle. This will stop individuals hiding behind complex corporate structures that avoid accountability and obscure their tax liabilities.
• Mandatory reporting to shareholders as a “material tax risk” where the company is doing business in a jurisdiction with a tax rate below the global minimum (15%).
• Requiring government tenderers for contracts worth more than $200,000 to disclose their country of tax domicile.

Child care subsidy

During the election campaign, Labor also promised to reduce the cost of child care by lifting the maximum child care subsidy rate to 90% for those with a first child in care. The following table summarises the current and Labor-proposed child care subsidy income thresholds and percentages.

In addition, Labor will be seeking to retain the higher child care subsidy rates for second and additional children in care. For those with school-aged children, the promise of the increased child care subsidy will be extended to outside school hours care.

Over the longer term, it is also likely that Labor will be engaging with the Australian Competition and Consumer Commission (ACCC) to design a price regulation mechanism for child care and with the Productivity Commission to conduct a comprehensive review of the sector with the aim of implementing a universal 90% subsidy for all families.

Other areas to watch

During the election campaign Labor also made announcements which will affect individuals and businesses, both big and small. These include more security for gig economy workers, making wage theft illegal, and training more apprentices.

Tax time 2022: ATO focus areas

Tax time 2022 is fast approaching, and this financial year, the ATO will again be focusing on a few key areas to ensure that individuals are doing the right thing and paying the right amount of tax. These key areas are considered by the ATO to be problem areas where individuals make the most mistakes.

Like last year, the ATO recommends that people wait until the end of July to lodge their tax returns, rather than rushing to lodge at the beginning of July. This is because much of the pre-fill information will become available later in the month, making it easier to ensure all income and deductions are reported correctly the first time, avoiding the need for amendments which can delay processing and refunds. In the past, it has been noted that individuals who lodge early often forget to include information about interest from banks, dividend income and payments from government agencies and private health insurers.

The ATO also reminds taxpayers that while it receives and matches information on rental income, foreign sourced income and capital gains, not all of that information will be pre-filled for individuals. Taxpayers will therefore need to ensure that all that information is included to avoid being caught up in ATO data-matching programs later on.

Some of the traditional areas that the ATO will be focusing on this year include record-keeping, work-related expenses and rental property income and deductions, as well as capital gains from property and shares. In addition, this year the ATO will focus on capital gains from cryptocurrency assets. It should be noted, however, that with recent crashes in cryptocurrency values, individuals are more likely to have related capital losses.

The ATO reminds taxpayers that any deductions that are claimed require substantiation, and those individuals who deliberately attempt to increase their refunds by falsifying records or are unable to provide evidence to substantiate their claims will be subject to “firm action”. For taxpayers who are working from home or in hybrid working arrangements and claim related expenses, the ATO has said it will be expecting a corresponding reduction in other expenses claimed, such as car, clothing, parking and tolls expenses.

Currently, there are still three methods available for taxpayers to deduct working from home expenses. These are actual cost, fixed rate and the all-inclusive shortcut method (80 cents per hour). Taxpayers should check their eligibility and work out which one that suits their own situation the best.

With the intense flooding experienced earlier this year, the ATO notes that some rental property owners may have insurance payouts related to their property. Any insurance payouts, along with other income received such as retained bonds or short-term rental arrangement income, need to be reported.

Lastly, the ATO will be keeping a close eye on individuals disposing of property, shares, and cryptocurrency, including non-fungible tokens (NFTs). Those with a capital gain need to include the gain in their tax return and pay tax on the gain at their marginal tax rates. Individuals who have recently sold out of cryptocurrency assets may have experienced a capital loss, which the ATO warns cannot be offset against other income such as salary and wages, and only against other capital gains.

Tax return checklists

Last month’s edition of Client Alert (May 2022) 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/Media-centre/Media-releases/Four-priorities-for-the-ATO-this-tax-time/

Single Touch Payroll: Phase 2

While Single Touch Payroll (STP) entered Phase 2 on 1 January 2022, many employers might not yet be reporting the additional information required under this phase because their digital service providers (DSPs) have obtained deferrals for time to get their software ready and help their customers transition. However, once these deferrals expire, employers will need to start reporting additional information in their payroll software such as tax file numbers (TFNs) or Australian business numbers (ABNs) for payees, employment start dates for employees and details about employees’ basis of employment according to work type. Income and allowance information for individual employees will be further disaggregated and will also require reporting of more details.

Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting software solution directly to the ATO when the payroll is run. Entering STP Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems will need to be reported through the payroll software. A salient example is the start date of employees. While many newer businesses may have that information handy, older businesses may have trouble finding records of exact start dates, particularly for their long-serving employees. In those instances, the ATO notes that a default commencement date of 01/01/1800 can be reported for STP Phase 2 purposes.

Employers will also be required to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN is not available for an employee, a TFN exemption code must be used. If a payee is a contractor and an employee within the same financial year, both their ABN and their TFN must be reported.

In addition to reporting TFNs and commencement dates for employees, employers are now also required to report the basis of employment according to work type. That is, whether an individual is full-time, part-time, casual, labour hired, has a voluntary agreement (is a contractor with their own ABN but is in a voluntary agreement with the business to bring payments into the PAYG system), a death beneficiary, or a non-employee (ie not in the scope of STP but included for the voluntary reporting of superannuation liabilities).

The report generated for STP Phase 2 will include a six-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from payments to these employees. Most STP solutions will automatically report these codes, but employers should still understand what the codes are to ensure that they are correct. For example, RTSXXX refers to regular (R) employees with a tax-free threshold (T), who have study and training support loans (S) and who have not asked for a variation of amount withheld due to Medicare levy surcharge (X) or Medicare levy exemption (X), or Medicare levy reduction (X).

The income and allowance details attributed to employees will also be further drilled down in Phase 2. For example, instead of reporting a single gross amount of employees’ income, employers need to separately report on gross income, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payments (lump sum W) and salary sacrifice amounts.

If your DSP has a deferral in place, you do not need to apply for your own deferral and will only need to start reporting STP Phase 2 information from your next pay run after your DSP’s deferral expires. However, if your business needs more time in addition to your DSP’s deferral, you can apply for your own deferral using ATO Online Services.

Source: www.ato.gov.au/Business/Single-Touch-Payroll/Expanding-Single-Touch-Payroll-(Phase-2)/

www.ato.gov.au/Business/Single-Touch-Payroll/Need-more-time/STP-expansion-(Phase-2)-delayed-transitions/

ATO resumes collecting aged debts

Taxpayers with aged debts that the ATO had paused collecting or put on hold should be aware that offsetting aged debts against tax refunds or credits has now resumed. The aged debts can be offset either from ATO accounts or credits from other government agencies, although a debt will not be offset if the only available credit relates to a Family Tax Benefit amount.

“Aged debts” is a collective term the ATO uses to refer to uneconomical non-pursued tax debts that it has placed on hold and has not undertaken any recent action to collect. These debts do not typically show up on the online accounts of the taxpayers as an outstanding balance as the ATO has made them “inactive”.

Usually when a debt is put on hold, the ATO notifies the taxpayer via a letter that the debt collection has been paused, although any credits that the taxpayer is entitled to will be offset against the debt. In addition, the ATO will note that it reserves the right to re-raise the debt in the future, depending on the circumstances of the taxpayer. Letters were sent out in May 2022 to remind taxpayers that they have aged debts and June 2022 will see the recommencement of debt collection.

While most taxpayers (or their tax agents) should have received their aged debts letter by now, some may not have received anything, due to a change of address or patchiness in the postal service. The first clue for those taxpayers that they may have an aged debt may be when they notice that their refund is less than expected or that a credit on one account is less than it should be. To avoid surprises, taxpayers who are unsure whether they have aged debt can check their online services for a transaction with the description “non-pursuit” on their statement of account.

It’s important to remember that those with multiple accounts need to check all relevant accounts for that description to ensure they do not have an aged debt.

Taxpayers with aged debts who are unable to or choose not to pay all or part of the debt may find that they end up paying more, as general interest charge (GIC) may be automatically applied even where the debt is “on hold”. Where the ATO offsets aged debts either from ATO accounts or credits from other government agencies, taxpayers will be notified that the debt has been re-raised and offset. If it is offset against an ATO account, taxpayers will be able to find a transaction on online services with the description “offset”.

By law, the ATO is required to offset credits against any tax debts owed – except in some very limited circumstances, such where the taxpayer already has a fully compliant payment plan for outstanding debts; where the tax debt is a future debt or is related to a director penalty liability; where a deferral has been granted for recovery action; or where the available credit is a Family Tax Benefit amount.

Taxpayers that do not meet these criteria and are unable to pay their aged debt may be able to apply for a review or a debt waiver depending on their circumstances. For example, a permanent release of a debt may be available to on the basis of serious hardship (ie 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).

Source: www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Resuming-offsetting-of-debts-on-hold/

www.ato.gov.au/General/Paying-the-ATO/How-much-you-owe/Debts-on-hold/

Operation Protego: detecting GST fraud

The ATO has lifted the lid on its most recent operation to stamp out GST fraud, Operation Protego, in order to warn the business community to not engage with fraudulent behaviour and to encourage those who have fallen into the trap to voluntarily disclose, before the application of tougher penalties.

Recently, the ATO has seen a rise in the number of schemes where taxpayers invent fake businesses in order to submit fictitious Business Activity Statements (BASs) and obtain illegal refunds. Most of these schemes have been promoted through social media and it has become such an issue that the ATO has commenced Operation Protego to tackle the problem.

According to the ATO, Operation Protego was initiated when its risk models, coupled with intelligence received from the banks, AUSTRAC-led Fintel Alliance, and the Reserve Bank of Australia (RBA), identified escalation of suspicious refunds. The operation itself is specifically investigating people inventing fake businesses to obtain Australian business numbers (ABNs), which are then used to submit fictitious BASs and get GST refund payments these “business owners” are not actually entitled to receive.

The amounts involved in these schemes are significant, with $20,000 being the average amount in fraudulently obtained GST refund payments. The ATO is currently investigating around $850 million in potentially fraudulent payments made to around 40,000 individuals, and is working with financial institutions that have frozen suspected fraudulent amounts in bank accounts. The ATO notes that while $850 million in fraudulent payments is a substantial sum, the operation has been able to stop many more fraud attempts.

It may be the case that not all of the individuals involved in these refund schemes know they are doing something illegal. For example, schemes promoting loans from the ATO or obtaining government disaster payments from the ATO have been on the rise on various social media platforms. Ever-changing content about all sorts of pandemic and disaster related support has become commonplace online, and many people don’t have detailed knowledge about all the requirements of Australian business and tax law. It’s really not surprising that it can be difficult to distinguish scam promotions from genuine support measures.

“We are working with social media platforms to help remove content promoting this fraud, but if you see something that sounds too good to be true, it probably is”, Will Day, ATO Deputy Commissioner and Chief of the Serious Financial Crime Taskforce, has said.

The ATO wants to make it clear that it does not offer loans or administer government disaster payments. Any advertisement indicating that the ATO does these things is a rort. Government disaster payments are administered through Services Australia if they are Federal Government payments (eg Australian Government Disaster Recovery Payments), or through various state and territory government bodies if they are state or territory government payments (eg Disaster Relief Grants from the NSW government administered by Resilience NSW).

Scheme promoters will also sometimes require individuals or businesses to hand over their myGov details as a prerequisite to obtaining a fictitious loan or government disaster payment. Taxpayers who may have shared myGov login details for themselves or their business with scheme operators are encouraged to contact the ATO for assistance.

Another red flag the ATO is on the look-out for as a part of Operation Protego is activity backdating when a business is set up. It notes that backdating in conjunction with seeking a GST refund will flag a business as high risk and will subject it to more scrutiny, as well as compliance action.

While Operation Protego is running, the ATO notes that people and businesses acting legitimately may be affected by the extra controls put in place to stop fraudulent refunds.

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-warns-community–do-not-engage-in-GST-fraud/

More ATO action on super guarantee non-compliance

Employers should take note that the ATO is now back to its pre-COVID-19 setting in relation to late or unpaid superannuation guarantee (SG) amounts. Firmer SG-related related recovery actions that were suspended during the pandemic have now recommenced, and the ATO advises it will be prioritising engaging with taxpayers that have SG debts, irrespective of the debt value.

The Australian National Audit Office (ANAO) has recently issued a report on the results of an audit conducted on the effectiveness of ATO activities in addressing SG non-compliance. While the ANAO notes that the SG system operates largely without regulatory intervention, because employers make contributions directly to super funds or through clearing houses, the ATO does have a role as the regulator to encourage voluntary compliance and enforce penalties for non-compliance.

To measure the level of non-compliance in this area, the ATO uses a measure called the SG gap, which is an estimate of the difference between the amount the ATO collects and what would have been collected if every taxpayer was fully compliant. The most recent data from the ATO was published in 2021 and indicated that the Australian total net SG gap in 2018–2019 was around $2.5 billion.

Overall, the ANAO report found that ATO activities addressing SG non-compliance have been only partly effective. This also held true for the risk-based SG compliance framework in which the ATO operates. The report notes that while there was some evidence that the ATO’s compliance activities were improving employer compliance, the extent of improvement could not be reliably assessed.

The report makes three recommendations to improve ATO compliance activities in relation to SG non-compliance. The first is that the ATO should implement a preventative approach to SG compliance. The second is that the ATO should assess its performance measures against the Public Governance Performance and Accountability Rule 2014 and enhance its public SG performance information. This includes setting targets for measures such as the SG gap and having explanations for performance results, as well as changes over time.

While the first two recommendations are likely to have a negligible practical impact on day-to-day operations for employers in general, the ANAO’s third and final recommendation may be a different story. Among other things, the ANAO recommends that the ATO maximise the benefit to employees’ super funds by making more use of its enforcement and debt recovery powers, and consider the merits of incorporating debtors that hold the majority of debt into its prioritisation of debt recovery actions.

In its reply to the ANAO report, the ATO agrees with this third recommendation and states that while it paused many of its firmer SG related recovery actions through the COVID-19 pandemic, those have now recommenced. With the recommencement of recovery actions, the ATO’s focus will generally be on taxpayers with higher debts, although it will be prioritising taxpayers with SG debts overall, irrespective of the debt value.

The ATO’s reply also agrees with the first two recommendations in whole or part. It says that it has already begun implementing a preventative compliance strategy using data sources such as Single Touch Payroll (STP) and regular reporting from super funds. The ATO expects to continuing prioritising a preventative approach while also strengthening its data capability.

In addition, the ATO has indicated it will continue to investigate every complaint received in relation to the non-payment of SG, and take action where non-payment is identified. The actions available include the imposition of tax and super penalties, as well as the recovery and back-payment of super to employees. It will also be increasing transparency of compliance activities and employer payment plans so that affected employees are aware of the expected timing of back payments of super.

Source: www.anao.gov.au/work/performance-audit/addressing-superannuation-guarantee-non-compliance

www.ato.gov.au/Media-centre/Media-releases/Statement-on-ANAO-performance-audit–Addressing-Superannuation-Guarantee-Non-compliance-audit/

www.ato.gov.au/Business/super-for-employers/missed-and-late-super-guarantee-payments/

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.