Key Super Changes and Tax Updates Every Australian Should Know in 2025

/in /by

Understanding the new 20% student loan reduction

The Australian government’s promise to cut student loan debts by 20% has now become law. If you’re one of more than three million Australians who have a student loan, you’re probably wondering what this means for you and when you’ll see the benefits.

The change applies to all types of student loans, including VET Student Loans, Australian Apprenticeship Support Loans, and even older schemes like the Student Financial Supplement Scheme.

If you had an outstanding student loan debt on 1 June 2025, you’re eligible. The reduction is calculated on your debt balance as at that date, before the annual indexation was applied. Even if you’ve made payments since June or completely paid off your loan after that date, you’ll still receive the full 20% reduction based on what you owed on 1 June.

If you’ve already paid off your loan since 1 June, the reduction might actually put your ATO account into credit, potentially resulting in a refund to your bank account (as long as you don’t have tax debts owing).

If you’d already paid off your student loan completely before 1 June 2025, unfortunately you won’t benefit from the 20% reduction. The relief only applies to debts that existed on that date.

The ATO’s responsible for applying the change, and is currently updating its systems to process these reductions. Most people should see their 20% reduction applied before the end of 2025.

You don’t need to do anything to receive the reduction – it will be applied automatically. The ATO will notify you when it’s been processed, and you’ll be able to see your new lower balance through your myGov account or the ATO app.

Don’t delay lodging your tax return while you wait for your changed loan balance to appear in your MyGov account. There’s no benefit in waiting, and you should continue with your normal tax obligations.

Remember to update your bank details with the ATO if you’re expecting a potential refund, and if your loan gets paid off completely, don’t forget to tell your employer to stop withholding additional amounts from your pay.

Productivity Commission recommends business tax reform

As part of a major review requested by the government to find ways to boost Australia’s productivity and economic resilience, the Productivity Commission has released an interim report that recommends company tax reform aimed at encouraging businesses to invest more and help the economy grow.

The report notes that Australia has a relatively high company tax rate compared to similar countries and suggests that the current system makes it harder for new and smaller businesses to compete with large established firms. Tax rules on claiming deductions for investments (like equipment or buildings) are complicated, making investment less attractive, and the system tends to favour companies that borrow (use debt) over those that raise money from investors (equity), which can disadvantage smaller businesses.

The Commission’s interim report recommends a new approach to company tax, including:

  • lowering the company tax rate for most businesses from the current 25% (for most small to medium businesses) or 30% (for larger companies) to 20% for all companies with annual revenue below $1 billion – only the largest companies (with over $1 billion in revenue) would stay on the 30% rate; and
  • introducing a new net cashflow tax (NCT) of 5% on company profits; and
  • allowing businesses to immediately deduct the full cost of investments (like equipment, technology or buildings) in the year they buy them, rather than spreading deductions over several years.

Importantly, these are only draft recommendations in an interim report. The Productivity Commission is seeking public feedback until 15 September 2025 and will produce a final report with more refined recommendations by the end of the year.

The government would then need to consider, accept and legislate any changes. If adopted, reform measures could be phased in or introduced at once. So, there’s currently no fixed date for when changes would take effect; at the earliest it could be sometime in 2026, depending on government decisions.

Since the report’s release, the government has responded cautiously. Treasurer Jim Chalmers acknowledged the tax reform proposals as “an important input” into policy discussions that would feed into the Economic Reform Roundtable in late August 2025, but hasn’t endorsed or rejected the specific recommendations.

Your guide to the ATO super clearing house closure

If you’re a small business owner who’s been using the ATO’s Small Business Superannuation Clearing House (SBSCH) to pay your employees’ super, we’ve got some news that might make you reach for another coffee. The free service that’s been making your life easier is closing down, and you’ll need to find an alternative before July 2026.

The government has announced that the SBSCH will be shutting down as part of the new “payday super” reforms. Here are the key dates:

  • 1 October 2025: no new businesses can register for the SBSCH;
  • 30 June 2026: last day existing users can use the service; and
  • 1 July 2026: the SBSCH closes completely.

The closure coincides with new legislation that will require employers to pay super contributions at the same time as wages (payday super), rather than using the current quarterly system. Under these new rules, super contributions must reach your employees’ funds within seven days of each payday.

The ATO is pulling the plug because the SBSCH was designed for the old quarterly super payment system, and it simply doesn’t fit with the new payday super world we’re heading into.

If you’re one of the over 200,000 small businesses currently using the SBSCH, this change will impact you in several ways:

  • You’ll need to find a new solution before the June 2026 deadline.
  • Costs might increase – the SBSCH is free to use, but many alternative solutions charge fees.
  • Timeframes will be tighter – under the new rules from 1 July 2026, super contributions must reach funds within seven days of payday.
  • Your processes will change because you’ll need to integrate super payments into every pay run.

If you’re already using payroll software for wages, payroll software with built-in super payments might be your easiest transition. Many popular accounting packages now include super payment features that let you pay contributions directly through the same system you use for payroll. The beauty of these integrated solutions is that once you’ve run payroll, paying super can be as simple as clicking a button.

Most super funds also offer free clearing house services to employers. These typically require you to register as an employer with that fund, but then you can manage contributions to multiple funds in one place. The main trade-off is that you’ll need to use a separate web portal and either upload data from your payroll system or enter it manually.

There are also independent commercial providers. These tend to offer more sophisticated features and can handle high volumes of transactions. Commercial providers often charge fees, but they typically offer robust compliance features and reliable processing.

The ATO recommends starting your transition early – don’t wait until 2026. This gives you time to test your new process and iron out any issues before the deadline.

Looking to invest ethically? There’s a lot to think about

If you’re considering investing your money or your super in line with your values, you’re certainly not alone. A growing number of Australians want their investment to reflect what matters to them, and the marketplace is responding with “socially aware”, “responsible”, “sustainable” or “ethical” options. But with so many choices and claims out there, how can you tell if a company or super fund’s strategy genuinely lives up to what they’re promising?

When researching ethical investments, you’ll often come across the abbreviation “ESG”. ESG means “environmental, social and governance”, but different funds and companies may define ESG differently, and the term can cover a wide range of factors:

  • “Environmental” may include pollution control, biodiversity protection, carbon emissions reduction, or sustainable agriculture.
  • “Social” encompasses gambling exclusions, labour standards, diversity and inclusion, human rights, or military contracting policies.
  • “Governance” often covers board diversity, business ethics, whistleblower protection schemes and anti-bribery and corruption measures.

Because ESG can mean different things to different organisations, you’ll need to very carefully examine each fund’s investment strategy and product descriptions to understand the claims they are making and how their business practices align with those claims.

Think hard about what you personally want to achieve with your investments. What ESG factors are most important to you? How much weight do you want to give those factors? This will give you a solid foundation to work from when you’re comparing different products.

Look for clear, specific claims rather than vague, overarching statements. Check company reports, market announcements or their website for information.

Be wary of vague terms like “green”, “eco-friendly”, “zero emissions” or “carbon neutral” without supporting details. Do you understand the ESG or sustainability-related terms the fund or company are using? Are they backed up with evidence?

You may have heard about “greenwashing” in the news. Greenwashing (or greenhushing) describes false or misleading claims made by companies or products to make them seem more environmentally friendly, sustainable or ethical than they are. Sometimes, information about specific investments that don’t align with the expectations of ethically minded investors might be omitted or obscured.

Every fund operates differently. Some funds may exclude products that don’t meet certain ESG criteria (negative screening) or seek products that do meet a set ESG criteria (positive screening). Look for clear and detailed information about revenue thresholds, investment selection methodology, and which sectors or themes the investments are focused on.

Higher fees may be charged for management of ESG investments when compared to traditional options, so make sure you understand the full fee structure.

Timing’s everything: SMSFs and minimum pension payments

As an SMSF trustee, it’s your responsibility to ensure that all members receiving an account-based pension are paid their minimum pension amounts by 30 June each financial year. If you don’t meet the minimum pension payment amounts in full and on time, this could result in adverse tax consequences for the member.

The minimum pension payment amount is calculated using a formula that takes into account the member’s age, their account balance, and the start date of the pension:

Minimum payment amount = account balance × percentage factor

The percentage factor is set according to your age on 1 July in the financial year the pension amount is to be paid. Once an income stream is started, minimum annual payments are calculated using your account balance on 1 July each year, multiplied by a percentage factor that increases as you age.

To ensure the minimum pension standards are met, you must ensure that the minimum payment is received before the financial year ends. You must make payments at least once per financial year, and the first payment must be made no later than the end of the financial year in which the pension commences.

Failing to meet the minimum pension standards means the income stream will be taken to have ceased at the start of the year for income tax purposes; payments made during the year will be considered to be super lump sums for both income tax and super purposes and taxed accordingly; the fund won’t be able to claim exempt current pension income (ECPI) for that year or subsequent years; and there will be transfer balance account consequences for the member.

To restart a member’s payments, a new income stream will need to be recommenced, requiring asset revaluations, recalculations of the minimum pension payment, recalculation of the tax-free and taxable components of the new income stream, and new transfer balance account reporting.

Source: Thomson Reuters

Client Alert – Instant asset write offs and more

/in , /by

Working out your WFH expenses this tax time

To be eligible to claim working from home (WFH) expenses, you need to be genuinely working from home to fulfil your employment duties, not just checking emails or taking occasional calls. You must also incur additional running expenses because of your WFH arrangement. These additional costs can typically include energy expenses for heating, cooling and lighting, home and mobile internet or data, phone expenses, and stationery or office supplies.

When it comes to calculating your deductions, you can choose the “fixed rate method” or the “actual cost method”. For both methods, you’ll need records that accurately track your WFH hours. You can keep a diary or timesheets covering a representative four-week period showing your usual work pattern, or you can maintain a record of your entire year’s WFH hours. You’ll also need documentation showing you’ve incurred additional expenses, such as receipts and bills, and be able to demonstrate the proportion that relates to work.

The fixed rate method simplifies your calculations by applying a set rate for each hour you work from home. For the 2024–2025 income year, this rate is 70 cents per hour. To calculate your deduction, simply multiply your total WFH hours by 70 cents. Remember, if you choose this method, you can’t claim additional separate deductions for expenses already covered under the fixed rate method, such as stationery supplies.

The actual cost method requires you to keep detailed records of all additional costs incurred while working from home. You’ll need to track your WFH hours and maintain comprehensive records for all your WFH expenses.

It’s important to understand what you can’t claim when working from home. This includes items your employer might provide at the office, such as tea or coffee or other general household items. You also can’t make a claim for employer-provided laptops or mobile phones, or expenses which your employer has reimbursed.

You can make separate claims for expenses not covered by either of the above methods, such as work-related technology and office furniture like chairs, desks, computers and bookshelves, as well as repairs or maintenance on these items.

If you use depreciating assets for both work and personal purposes that cost more than $300, you’ll need to calculate the work-related proportion and only claim that percentage as a deduction for the decline in value over the effective life of the item. For items costing $300 or less, such as keyboards or computer mice, you can claim an immediate deduction in the year of purchase rather than depreciating them over time.

For a work-related expense to be deductible, it must directly relate to earning your income.

The ATO has shared some recent eyebrow-raising work-related expense claims that were rejected: a mechanic tried to claim an air fryer, a microwave, two vacuum cleaners, a TV, and gaming equipment; and, even more ambitiously, a fashion industry manager claimed over $10,000 in luxury clothing and accessories in order to be “well presented” at work and events, dinners and functions.

Instant asset write-off extended to 30 June 2025

Announced as part of the 2024–2025 Budget, and now legislated, the $20,000 instant asset write-off limit has been extended for a further 12 months until 30 June 2025 to continue to provide support for small businesses.

The instant asset write-off enables eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use. The write-off can be used for new and second-hand assets, and for multiple assets if the cost of each individual asset is less than the relevant limit.

To claim the instant asset write-off, a small business must use the simplified depreciation rules, and the write-off cannot be used for assets excluded from those rules. Eligibility criteria, the year in which you may use the instant asset write-off to claim an immediate deduction for an asset, and the threshold limits, have changed over time, and depend on:

• your aggregated turnover (the annual turnover of your business and that of any business entities that are your affiliates or connected with you);

• the date you purchased the asset;

• when it was first used or installed ready for use; and

• the cost of the asset being less than the limit.

To be able to take advantage of the $20,000 threshold for the 2024–2025 income year as a small business you will need to: have an aggregated turnover of less than $10 million; apply the simplified depreciation rules; and acquire the asset and first use it, or install it ready for use, between 1 July 2024 and 30 June 2025.

The $20,000 limit applies on a per asset basis, so you can instantly write off multiple assets.

Assets valued at over $20,000 can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each year after that. Additionally, pool balances under $20,000 at the end of the 2024–2025 income year can be written off.

The simplified depreciation rules apply to most depreciating assets, including items like office furniture or equipment; computers; tractors or tools. However, the instant asset write-off doesn’t apply to certain depreciating assets, including assets leased out for more than 50% of the time on a depreciating asset lease; horticultural plants, including grapevines; software allocated to a software development pool; assets used in your research and development (R&D) activities; and capital works, including buildings and structural improvements.

 

Source: Thomson Reuters

Client Alert – Division 296, ATO Interests and more

/in /by

HECS/HELP debt reduction Bill introduced

On 23 July, the Labor government introduced legislation aimed at enacting its election promise to reduce student debt by 20%. The Bill proposes to:

  • provide a one-off 20% reduction to Higher Education Loan Program (HELP) debts and certain other student loans that are incurred on or before 1 June 2025;
  • increase the minimum repayment threshold from $54,435 in 2024–2025 to $67,000 in 2025–2026; and
  • introduce a marginal repayment system where compulsory student loan repayments are calculated only on income above the new $67,000 threshold rather than having it based on a percentage of the repayment income.

This complements measures enacted in the last Parliament which cap the level of indexation of student loans to the lower amount of either the consumer price index (CPI) or the wage price index (WPI). This is designed to ensure that loans will never be indexed by more than wages growth. Accordingly, the new threshold of $67,000 will be indexed for 2026–2027 and following years, but will never be increased by a rate exceeding wages growth.

Small and medium businesses now have more time to get tax returns right

If you run a small or medium business, you know that financial accuracy’s important but sometimes mistakes can happen or information can change. Starting this year, though, you have more time to amend your return and get things right. Before this change, small and medium businesses generally had a two-year period from the date of their tax assessment to request an amendment. If you discovered an error or omission after this two-year window, correcting it could become a more complex process.

Now, for the 2024–2025 and later income years, small and medium businesses with an annual aggregated turnover of less than $50 million will have up to four years to request amendments to their income tax returns. This gives more time to review records, reconcile figures and address any oversights – but remember, it’s not an excuse to rush your first lodgment.

For earlier income years, the two-year amendment period still applies.

Your review period starts the day after the ATO issues your notice of assessment for the relevant income year. If no notice is issued, it starts from the date you lodged your return.

Here are some common scenarios where you might need to request an amendment:

  • you made a simple error when entering figures;
  • you forgot to report some income or capital gains, or claim legitimate deductions;
  • you incorrectly claimed deductions or credits, or failed to claim ones you were entitled to; or
  • circumstances changed after lodging and affected something you’d already reported, like a revised invoice or a business event you hadn’t factored in.

Whatever the reason, it’s important to correct any errors as soon as you identify them. For example, if an amendment leads to an increased tax liability, time-based interest and penalties might apply, so prompt action’s still beneficial. There are no ATO fees for amendment requests, but processing can take a substantial amount of time.

If you discover an error that increases the tax you owe, you may face interest charges and penalties. However, voluntary disclosure of mistakes is generally viewed more favourably than errors discovered during an audit.

If the ATO’s already notified you of an audit or review, you must tell the assigned tax officer about any errors rather than lodging an amendment request.

Remember, the extended amendment period offers greater peace of mind, but good record-keeping and a proactive approach remain your best tools for managing your tax affairs effectively.

ATO interest charges no longer tax-deductible for businesses

Effective 1 July 2025, businesses can no longer claim income tax deductions for interest charges imposed by the ATO on unpaid or underpaid tax liabilities. This change applies to general interest charge (GIC) and shortfall interest charge (SIC) amounts incurred in income years starting on or after 1 July 2025.

Previously, businesses could deduct ATO-imposed interest charges on overdue tax debts, reducing the net cost of these charges. From 1 July 2025, this deduction is no longer available, meaning any GIC or SIC incurred from this date cannot be claimed as a tax deduction, regardless of when the underlying tax debt arose.

For example, if a business incurs GIC on an unpaid income tax liability after 1 July 2025, this interest expense is not deductible in its tax return for the 2025–2026 income year or subsequent years.

This legislative change is significant for businesses that manage cash flow by deferring tax payments, as the cost of carrying tax debt will effectively increase. Without the tax deduction, the real cost of ATO interest charges rises, making it more expensive to delay tax payments.

The ATO applies GIC on unpaid tax liabilities at a rate that is reviewed quarterly and compounds daily. As of the latest update, the GIC rate is 11.17%.

The removal of tax deductibility for ATO interest charges underscores the importance of timely tax compliance. Businesses should act promptly to adjust their financial strategies, ensuring that they are not adversely affected by increased costs associated with overdue tax payments.

Protect your super from pushy sales tactics: consider the risks and don’t rush to switch

Each new financial year, many of us take a closer look at our super funds’ performance, and you’re more likely to be targeted by salespeople, cold callers or social media ads offering “free super health checks” or to “find your lost super”. These offers can be the start of a high-pressure campaign to get you to switch super funds or make investments that may be unsuitable for you.

These calls and ads don’t always look like typical scams. Callers may sound genuine, claiming they want to help you find a better deal or locate lost super for free. Sometimes they’ll even refer you to a financial adviser to make the pitch sound more legitimate. But behind the scenes, there may be commission arrangements or other incentives that put their interests ahead of yours.

Here are some warning signs that a caller or an advertiser might not have your best interests at heart:

  • Cold calls and unsolicited contact: If someone you don’t know contacts you about your super, they may have bought your contact information or obtained it by more questionable means.
  • Pressure to act quickly: Remember super decisions are significant and should never be rushed.
  • “Free” super health checks or lost super services: These offers are often a hook to draw you in. You can find your own lost super for free directly through the ATO.
  • Promises of high or unrealistic returns: If an offer sounds too good to be true, it almost always is.
  • Claims your fund is underperforming: Sales agents may exaggerate issues with your current fund to make you want to switch. Always verify negative claims directly with your super fund if you have concerns.
  • Limited direct contact with a financial adviser: The caller might act as an intermediary, transferring you to an adviser only briefly. If you’re not having direct, in-depth conversations, they may not be acting in your best interests.
  • Involvement of unlicensed people: Ensure anyone discussing your super is properly licensed and qualified to provide advice.

Remember, if a deal sounds too good to be true, it probably is. Promoters often play on your fears, hopes and your politeness to rush you into a decision.

How to protect yourself
  • If someone you don’t know contacts you about your super, just hang up – don’t feel guilty or pressured to engage or explain.
  • Don’t share personal or financial information with callers or on online forms unless you initiated the contact and are sure who you’re dealing with.
  • Report suspicious calls to your super fund and ASIC. If you think your information has been compromised, let your current super fund know so they can help protect your account.
  • Contact your super fund directly or seek guidance from a licensed, independent financial adviser before making any changes.
  • You can always find lost super for free through the ATO; there’s no need to pay anyone to do it for you.

Your super is too important to risk. Take your time, ask questions and don’t rush into any decisions.

Will your super be affected when the $3 million balance tax hits?

Since February 2023, the Australian government has been planning to introduce a new tax of 15% on a portion of “earnings” relating to total superannuation balances over $3 million. The idea was to inject some equity in a system with generous tax concessions weighted in favour of the wealthy. The tax change was proposed to kick in on 1 July 2025.

Debate over issues concerning the non-indexed $3 million threshold and the taxation of unrealised capital gains then put the proposal on ice. The Bill containing the change is expected to be reintroduced now that Parliament has resumed. The Bill proposes to insert a new Division 296 into the Income Tax Assessment Act 1997, which is why you might hear the change called the “Division 296 tax”.

What will apply and when?

Currently, your entire super balance earnings in accumulation are taxed at 15%.

If your “total superannuation balance” (TSB – meaning all of your super, in all accounts, in accumulation and in pension phase) is under $3 million, the new additional tax would not apply.

The Division 296 measure would apply another 15% tax on a portion of estimated “earnings” relating to your TSB that’s over $3 million. This tax would be charged to you personally, rather than to the super fund. The “earnings” calculation is quite complicated, and doesn’t
reflect the actual earnings in your fund (which is why we’re using quotation marks for “earnings”).

For example, if you start the year with a $3 million property in your super fund, and it’s worth $3.5 million by the end of the year, a portion of the $500,000 unrealised capital gain would be taxed to you personally. If this was the only asset in all of your super, and you made no contributions or withdrawals during the year, and received no actual investment earnings, the Division 296 tax calculation could look something like this:

TSB minus $3 million threshold: $3,500,000 – $3,000,000 = $500,000

Percentage of TSB that the excess represents: $500,000 / $3,500,000 = 14.29%

Proportional calculation to get Division 296 taxable earnings: $500,000 × 14.29% = $71,450

Division 296 tax payable: $71,450 × 15% = $10,717.50

So, $71,450 in earnings would be taxed at the additional 15%, for an additional tax liability of $10,717.50.

Further, if your property didn’t earn any real income in your fund, then you’d need to be able to fund the tax payment from an alternative source if you didn’t want to sell the property. The calculation of “earnings” is complex and adds back any withdrawals and subtracts any contributions, to ensure people don’t make last-minute withdrawals specifically to reduce their “earnings”.

This is a very simplified example – transactions like receiving insurance payouts, withdrawing amounts under the First Home Super Saver Scheme and other factors could affect your “earnings” and therefore the calculated tax amount.

How do you pay?

The ATO will advise about your liability for 2025–2026 year during the following year. You’ll be able to pay out of pocket or directly from your super fund. If you have more than one fund, you can nominate from which fund you’d prefer to pay.

Before the new policy’s set in stone, if you think you may be affected it would be wise to seek advice before making any hasty decisions.

 

 

Source: Thomson Reuters

The Comeback Issue

/in , , /by

After a little time away from your inbox, the Hurley & Co newsletter is making its return. While we’ve been quiet on the updates, we’ve been busy behind the scenes supporting our clients, growing our team, and staying across all the latest in tax, business, and compliance. We’re now back with fresh insights, practical tips, and timely updates to help you navigate the new financial year with confidence.

What’s Inside This Issue? Let’s Dive In!

  1. Money Matters for Minors: A Tax Guide for Parents

As a parent or guardian, it’s important to stay informed about how tax rules apply to your child’s finances. Whether your child earns interest from a savings account or receives income such as dividends, these amounts may be subject to tax.

The ATO treats individuals under 18 years of age as “minors” for tax purposes as at 30 June of the income year, and special rules apply until they no longer meet this definition. Knowing these rules can help you guide your child in managing their money and meeting any tax obligations.

  • Special tax rates for minors: For 2024–2025, for income of Australian resident minors:

– $0 to $416: no tax

– $417 to $1,307: 66% of the amount over $416 and

– over $1,307: 45% of the total income

  • “Excepted income” and “excepted persons”: If your child’s income is excepted income, or they’re an excepted person, they’re taxed at the same rates as an adult. This means they can usually take advantage of the $18,200 tax-free threshold. Excepted income includes amounts like employment earnings and taxable pensions from Centrelink; excepted persons include children who work full-time or have certain disabilities.
  • Bank account interest: There are specific thresholds for children under 16, until the end of the calendar year they turn 16:

– Interest under $120 per year: Financial institutions generally won’t withhold tax.

– Interest between $120 and $420 per year: If the bank has the child’s date of birth or Tax File Number (TFN), tax usually won’t be withheld, and a tax return isn’t needed for this income alone.

– Interest of $420 or more per year: If a TFN is provided, tax won’t be withheld. Otherwise, the bank will withhold tax at 47%. For children aged 16 or 17 earning $120 or more in interest, providing their TFN prevents tax withholding.

Does a child need a tax file number?

There’s no minimum age to apply for a TFN, and it can be useful for children to have one.

If you need to lodge a tax return on your child’s behalf, or they need to lodge their own (eg to claim a refund of withheld tax or because their income requires it), they will need a TFN.

Financial institutions and share registries may withhold tax at the highest marginal rate (currently 47%) from interest or unfranked dividends if a TFN isn’t provided. If money and its earnings are genuinely your child’s, you should quote your child’s TFN. If you’re holding money as a trustee for your child without a formal trust, you’d quote your TFN. If there’s a formal trust, use the trust’s TFN.

Do I include the money in my tax return, or lodge a return for my child?

This depends on who the ATO considers the owner of the income. If you (the parent or guardian) provide the funds, control how they’re used and spend the earnings, that income is generally considered yours and should be declared on your tax return.

Your child may need a separate tax return if:

  • the income’s genuinely theirs and tax has been withheld (eg from bank interest or dividends because no TFN was provided), and you want to claim a refund;
  • for share income specifically, if your child owns the shares and their dividend income (plus any other income that needs to be declared) is more than $416 for the year, a tax return must be lodged on their behalf. Even if it’s $416 or less, a return can be lodged to claim refunds of tax withheld or franking credits; and
  • generally, if their total “non-excepted income” (income subject to the higher minor tax rates) exceeds $416, a return is needed.

Managing your child’s financial beginnings and helping them learn to handle their money is an important process. Understanding these tax aspects can help ensure everything’s set up for them correctly.

2. Playing Music in Your Business? Make sure you’re licensed 

Music helps create the right atmosphere, but if you’re playing it in a business setting, it’s considered a public performance — and that means you’ll likely need a licence.

Most music is protected by copyright and playing it without permission can lead to legal issues. In one case, a Melbourne bar owner was fined nearly $200,000 for playing unlicensed music.

Getting licensed is easy with OneMusic Australia, a joint body of APRA AMCOS and PPCA. They offer a single licence covering most music used in shops, cafes, salons, gyms and other venues. Costs vary depending on business size and music use, starting from around $100 per year.

Some small businesses may even qualify for a free or low-cost licence, and the good news is that fees are generally tax-deductible.

By getting the right licence, you’re not only staying compliant – you’re also supporting the artists behind the music. Make sure to check your music source and licensing coverage, especially if you have multiple locations.

Love what you are reading? Stay for more!

Source: Thomson Reuters

Labor plans to axe super tax breaks for wealthy

/in , /by

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.

Downsizing contributions into superannuation

/in , /by

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)

 

ASIC Tells Australians to Actively mange their super

/in , /by

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.

Single Touch Payroll Phase 2

/in , /by

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)

Client Alert – July 2022

/in , /by

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.

What is a record?

A record explains the tax and super-related transactions conducted by your business.

The record needs to contain enough information for the ATO to determine the essential features or purpose of the transactions. The minimum information that needs to be on the record is generally:

• the date, amount, and character (eg sale, purchase, wages, rental) and the relevant GST information for the transaction;

• the purpose of the transaction; and

• any relevant relationships between the parties to the transaction.

Five rules for recordkeeping

The ATO has five recordkeeping rules, which are based on law and the ATO’s views.

1. You need to keep all records related to starting, running, changing, and selling or closing your business that are relevant to your tax and super affairs.

If your expenses relate to business use and personal use, make sure you have clear documents to show the business portion.

2. The relevant information in your records must not be changed (for example, by using electronic sales suppression tools) and must be stored in a way that protects the information from being changed or the record from being damaged.

You need to be able to reconstruct your original data if your record-keeping system changes over time.

3. You need to keep most records for five years.

Generally, the five-year retention period for each record starts from when you prepared or obtained the record, or completed the transactions or acts those records relate to, whichever is later. However, in some situations, the start of the five-year retention period is different. For example, for super contributions for employees, the five years starts from the date of the contribution.

You also need to keep all information about any routine procedures you have for destroying digital records.

4. You need to be able to show the ATO your records if they ask for them. The ATO will also need to be able to check that your recordkeeping system meets the recordkeeping requirements.

If you store your data and records digitally using an encryption system, you will need to provide encryption keys and information about how to access the data when asked. You also need to ensure the ATO can extract and convert your data into a standard data format (eg, Excel or CSV).

5. Your records must be in English or able to be easily converted to English.

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/

Client Alert – June 2022

/in , /by

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.

Total family income
Current child care subsidy
(first child)
Labor election promise child care subsidy (first child)
$0 to $70,015 85% 90%
More than $70,015 to below $175,015 Between 85% and 50% Between 90% and 71%
$175,015 to below $254,305 50% Between 71% and 56%
$254,305 to below $344,305 Between 50% and 20% Between 56% and 37%
$344,305 to below $354,305 20% 37%
$354,305 to $500,000 0% Between 37% and 7%

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/