EOFY is almost here: Brace Yourself for an ATO Clampdown

“Rental property deductions: landlords – listen up!”

This headline is taken directly from the ATO website so if you own a rental property or are thinking about renting out your home for a while take note. The ATO is concerned that they are seeing several mistakes in tax returns with property related deductions or rental income not being recorded at all.

The main areas where mistakes occur include:

• The treatment of building improvements, renovations, and repairs.
• Proper apportionment of interest expenses and what to do about borrowing expenses.
• The difference in reporting of Gross Rent v the Net Rent the Property Agent transfers to your bank account.

Landlords – Be prepared!

1. Keep receipts for repairs and maintenance organised by your Property Agent for your rental property. This will help determine if they qualify as immediate deductible repairs as the agent may sometimes classify assets or improvements incorrectly in the statements.
2. Properly classify building expenditure as either a deductible repair, non-deductible initial repair, or capital works.
3. Familiarise yourself with limitations on depreciation deductions for second-hand assets in residential rental properties.
4. Note that one-off Special Strata Levies for specific capital expenditure are not immediately deductible.
5. Accurately apportion interest expenses for properties with private use or mixed borrowed funds.
6. Understand that immediate asset write-off concessions available to businesses do not apply to rental properties.
7. Local travel to and from your rental property to inspect it or for whatever reason is not deductible.

“Work-related expenses: avoid the ‘copy-paste’”

“We continue to see shifts in the way Aussies are working, and it’s important to consider whether your claims reflect your working arrangements this year.” ATO Assistant Commissioner Tim Loh

This is a nice way for the ATO to say you must be able to provide evidence of your expenditures, substantiate your hours worked from home, and establish the work-related nature of your claims.

Did you work from home (WFH) during the year?

New rules for claiming work-from-home expenses came into effect during the 2023 financial year.

If you intend to claim work-from-home expenses, last year’s approach may not satisfy the tax office. It’s crucial to revise your record-keeping practices; otherwise, you might miss out on a tax deduction. Take note:

• The simple temporary shortcut method of 80 cents per hour for working from home expenses concluded on 30 June 2022.
• Starting from 1 July 2022, the new fixed rate method of 67 cents per hour applies. This rate covers the extra electricity and gas incurred for working from home, phone and mobile, internet, stationery and computer consumables. You can’t claim these expenses separately and in addition to the hourly rate. You also have to prove you incurred each expense and not someone else in the house. You need to keep an electricity bill, phone bill showing you incurred the expense.
• From 1 July 2022 to 28 February 2023, you can keep a representative record of the total number of hours worked from home.
• For the period of 1 March 2023 to 30 June 2023, as well as future income years, you must maintain a record of the actual hours worked from home. Eg diary or timesheets.
• You can claim the depreciation on assets used while working from home such as computers and office furniture.

Other risk areas for work-related deductions

• The set rate per business km is 78c per km for the 2023FY (max 5,000km per car)
• If you keep a logbook for your electric car and claim a % of your running costs, the home charging rate is 4.2c per km per draft ATO guidelines.
• If you maintain a logbook to work out your work-related car travel, you should update it every 5 years so that it reflects the pattern of usage of your car.
• Work Uniforms or Protective Clothing – there are very few instances when claims for regular clothing are acceptable. You may be able to claim occupation-specific attire, protective gear, mandatory work uniforms, registered optional work uniforms you pay for.
• You can claim deductions for self-education expenses if they are directly related to your employment, such as enhancing or maintaining skills in your current job or resulting in increased income from your current job. The $250 non-deductible threshold no longer applies.

Capital gains from crypto assets, property and shares

“Through our data collection processes, we know that many Aussies are buying, selling or exchanging digital coins and assets so it’s important people understand what this means for their tax obligations”  ATO Assistance Commissioner Tim Loh

In other words, the ATO has data matching capabilities to identify when transactions like this occur.

If you’ve engaged in cryptocurrency trading, sold investment properties, shares, or other assets during the year, don’t hesitate to contact us early. We’ll assist you in gathering the necessary documents and information for your tax return, and help determine your potential capital gains tax (CGT) liability and its payment deadline. You may have less tax to pay than you think.

Changes to Low and Middle Income Tax Offset (LMITO) could affect your tax refund

This year, you might notice a difference in your tax refund or even receive a tax bill. Why? The Low and Middle Income Tax Offset (LMITO) is no longer applicable starting from the 2023 income year.

• If your earnings fall between $48K and $90K, you’ll be paying approximately $1,500 more in tax for 2023 compared to the previous year (2022).
• If you are earning between $90K and $126K, the increased tax amount could range from $1,500 to $420.

Expect your tax return outcome to be different this year. You may receive a lower refund (compared to when LMITO was available) or potentially receive a tax bill. It’s essential to be prepared and understand your tax situation to avoid any surprises.

Superannuation

• The Concessional Contributions cap for 2022-23 is $27,500.
• Make sure you don’t exceed the contributions cap in 2022-23 by checking all employer contributions including salary sacrifice arrangements.
• Allow sufficient time for processing of further contributions before 30 June 2023 including any carry forward limits available.
• To ensure your personal concessional (after-tax) contributions are eligible for a tax deduction, it’s important to complete and submit a Notice of intent to claim or vary a deduction for personal super contributions to your Superannuation fund promptly. Make sure to receive an acknowledgement from the Fund as proof. Proper documentation and communication between you, your fund, and the ATO will avoid any discrepancies.
• Work test is still required for personal deductible contributions for individuals aged 67-74.
• The work-test is not required for non-concessional and salary sacrifice contributions for individuals aged 67-74.
• Transfer balance cap (TBC) increases to $1.9 million from 1 July 2023 (Still $1.7million for 2022-23 financial year).
• Minimum Drawdown from Pension – If you have a Pension fund make sure you make the minimum drawdown. The 50% reduction in the drawdown rates still applies for the 2023 financial year. From 1 July 2023, the 50% reduction in the minimum pension will no longer apply.

For Your Business

Depreciating Assets – End of “Temporary Full Expensing”

Temporary Full Expensing of depreciating assets ends on 30 June 2023 – Don’t be caught unawares.

At this late stage of the financial year, to fully expense a depreciating asset you will need to have it ready for use by 30 June, 2023. You can’t just order an asset, pay a deposit, receive an invoice or have it sitting in a warehouse doing nothing to get the full deduction this year. Be confident you will have the asset delivered.

If the asset doesn’t meet the deadline, then it will need to be depreciated using the rules that apply for the 2023-24 Income Year.

For Smaller Businesses – If your business turnover is less than $10mil (“small business”)

• You can write-off each asset that costs $20,000 (GST exclusive) or less
• Assets that cost more than $20,000 will need to be depreciated over time under the Pooling rules.

For Larger Businesses – If your group business turnover is $10mil or more

• Assets will need to be depreciated in accordance with the normal depreciation rules. The threshold is $100 including GST for these businesses.

Tax Implications of Selling Depreciable Assets in 2022-23

If you’ve sold an asset during the 2022-23 period, it’s important to understand the potential tax implications. For depreciating assets that were previously fully expensed the proceeds received from the sale of these assets are typically assessable for tax purposes.

Business “boosts” – Annual Turnover less than $50 mil

With the change in government this year there is some confusion over which “boosts” are actually in force:

Here is the current status:

Small Business Energy Incentive Boost 

(announced in the May 2023 budget)

• Not yet Law.
• Additional 20% deduction on spending that supports electrification and more efficient use of energy.
• Eligible assets like electrifying heating and cooling, efficient fridges and induction stove tops.
• Maximum Expenditure is $100,000 and max bonus deduction is $20,000 per business.
• Incentive is temporary and will end 30 June 2024.

Small Business Technology Investment Boost

(announced by the Morrison government before the election)

• Not yet Law.
• Additional 20% deduction on max expenditure of $100,000 on eligible tech hardware and digital upgrades.
• Expenditure must be incurred between 29 March 2022 and 30 June 2023.
• Cannot claim the boosts until the law is enacted even though it relates to the 2023FY.

Skills and Training Boost

(announced by the Morrison government before the election)

• Not yet Law.
• Additional 20% deduction on max expenditure of $100,000.
• Must be Eligible external training courses to employees by registered providers.

Energy Bill Relief – Small Businesses

In the Federal Budget the government announced small business energy relief.

According to the Department of Climate Change, Energy, the Environment and Water, your business can get “bill relief” if you meet the small business electricity usage criteria in your state or territory.

How do you get it?

You don’t need to do anything. If you are eligible, you will receive bill relief on your electricity bills from 1 July 2023. It will be administered by the State Governments.

Who can get it?

To be eligible, your business must be on a separately metered business tariff with your electricity retailer, and your business’s annual electricity consumption must be less than the threshold for your state or territory. The energy consumption threshold is:

• 100MWh in the ACT, NSW and Queensland
• 40MWh in Victoria
• 50MWh in Western Australia
• 150MWh in Tasmania
• 160MWh in the Northern Territory and South Australia

If you run your small business from home, you will not be eligible.

How much?

You will get $325 of bill relief if your eligible small business is in Victoria.

You will get $650 of bill relief if your eligible small business is in other states and the NT (different conditions apply to the ACT).

“Loss Carry Back” ends 30 June 2023

Another remnant of the temporary Covid-19 lockdown measures will come to an end on 30 June 2023.

Any Corporate business structure with annual turnover below $5 billion that makes a tax loss in 2022-23 can choose to carry that loss back against taxed profits in the 2019 to 2022 financial years and claim a refund.

Buy an Electric Vehicle during the Year? – Report the Fringe Benefit amount to the ATO

Businesses must report the Fringe Benefits value of Electric Vehicles (EVs) provided to employees, even if they qualify as exempt benefits. This information should be reported on employee annual payment summaries and submitted to the ATO by 14 July 2023.

Trusts – Make a Trustee Distribution Resolution before 30 June 2023

All Trust Distribution Resolutions need to be completed before 30 June (or before the specified date in the Trust Deed) to avoid paying extra tax of up to 47% of Trust profits.
As the Trustee of a Trust, if you don’t make a resolution within the required timeframe and maintain evidence of it, the ATO may assess the Trustee on the Trust income at the highest marginal rate of 47%, rather than applying the appropriate rate for the intended beneficiaries.

Where you may need assistance:

• Reviewing previous Resolutions.
• Examining the Trust Deed for relevant clauses regarding the definition of Trust Income distribution clauses, and eligible beneficiaries.
• Providing an estimate of the applicable tax on distributed Trust Income.
• Documenting your Resolution before 30 June 2023.
• Revisiting how ATO Guidance on Family Trusts in the past year imposes limitations on how you can distribute profits from a Family Trust to your family members and related companies.

Trusts and Unpaid Present Entitlements (UPEs) to your “bucket” company

From 1 July 2022, UPEs to your related company beneficiary could be taxed under Division 7A unless:

• The trust pays the company its present entitlement before the company’s tax return is lodged or by the lodgement due date or
• The Trust enters into a complying loan agreement with the company.

Loans from your Company – Division 7A

If your company has made new loans, payments, or paid for personal expenses using funds from the company bank account during the year, you could be personally taxed on the entire amount unless:

• The loan or payments are repaid before your company’s 2023 lodgement date or
• The loans are managed with a complying loan agreement.

The interest on loans from your company will be taxed.

For the 2023-24 year, the Benchmark interest rate has jumped to 8.27% (up from 4.77% in 2022-23).

Annual Payment for existing Complying Loans

For complying loans made in 2021–22 or earlier, the annual payment is due by 30 June 2023.

The annual minimum repayment (including interest) is often in the form of an offsetting franked dividend payment. The dividend is declared by 30 June 2023 with a director’s minute or resolution to support the transaction. It’s important that the correct documentation is in place in case the Tax Office asks for it later on.

Please keep in mind that the information provided here is of a general nature and should not be solely relied upon. If you require more specific and tailored information to help you get your tax affairs in order, we encourage you to contact us directly. We’re here to help!

The Inline Team