August 16th, 2024 kicked off the Hoops4School Challenge to take aim at the urgent issue of education disengagement in Australia. For 20 days, participants were sinking hoops daily to spotlight the 20% of teenagers disengaged from mainstream education.

As part of the fundraising activities over August through to September, team members from MGI, including Antonio, Gavin, Nick and Jemma, had the pleasure to get involved and show support in the Hoops4Schools Corporate Challenge held at Coomera Indoor Sports Centre to also raise money for The BUSY Schools program. The BUSY School is part of The BUSY Group which was formed initially to provide Apprenticeships support services to businesses across Queensland.

With the group continually growing to offer a range of additional services, The BUSY School started opening campuses in 2019, offering an alternative, supportive and innovative approach to education. Their initiative is to help transform the lives of year 11-12 students who have become disengaged from traditional education and support them to reengage, complete their QCE and find a career pathway. They now have 9 campuses in total across the south-east including Cairns. We were proud to get involved in the round-robin team corporate challenge and help fundraise for such an important cause. There was over 120 corporate attendees and students participating across 16 teams and MGI and CoAct finished a credible 3rd place overall.

This year, the Busy Schools goal has been to enlist over 1,000 participants and raise $80,000 for The BUSY School. The funds raised through the year including the Corporate Challenge will support students, staff, and programs for alternative learning solutions, expanding engagement in communities across Australia.

From 1 July 2024, non-charitable not-for-profit entities with an active Australian Business Number (ABN) that want to access an income tax exemption are required to lodge an annual self-review return.

The new rules and their application seem to be causing a lot of confusion, so it’s worth noting who IS NOT required to report under the new rules. Entities that are not required to report include:

• Charities registered with the Australian Charities and Not-For-Profits Commission cannot self-assess, therefore, are not captured by these new reporting requirements. This would include for example, the Active Surf Clubs and RSL Sub Branches
• Entities that are taxable, but their income is wholly or partially exempt because of the principal of mutuality, for example, the Supporters of Surf Clubs and RSL Memorial Clubs.

We understand you may require some assistance navigating this new regime in the first year, so please do not hesitate to contact our tax team if you have questions or concerns over your requirement to lodge, or assistance with lodgement of you are required to lodge an annual self-review return.

For small businesses to enhance their efficiency and productivity.

This support includes funded activities in 3 project areas:

• Future planning
• Specialised and automated software
• Planning and systems for staff management and development.

Available Funding:

• $10,000 – $20,000 excluding GST
• Applicants to contribute an equal amount to the funding requested

Stage 1 is open (registration of interest)

Closes on Friday 5^th of July at 5.00pm

More information on eligibility and the application process can be found here.

Don’t hesitate to reach out to MGI if you have any questions or need assistance to complete the application.

At the recent 2024 Australian Accounting Awards, MGI Australasia was awarded the Network of the Year Award for our outstanding commitment to supporting our clients in achieving ‘Success Your Way’.

As a proud member of the MGI Australasia network, spanning across Australia and New Zealand, MGI South Queensland’s involvement in this network makes us a stronger firm, allowing us to work with fellow member firms to ensure we are at the forefront of our knowledge and understanding of the latest changes to our industry. This allows us to continue to provide accurate and expert advice to our clients. Our involvement in this network also allows us to provide training and development to our team, so we can continue the incredible work of MGI South Queensland for years to come.

Some other benefits within the MGI Australasia network include; The Graduate Academy, MGI Australasia Future Leaders Conference, MGI Australasia Leaders Conference, MGI Australasia Tax Seminar, MGI Australasia Annual Conference, plus our sub-committees and our connection to the MGI Worldwide International Network.

The value of membership with MGI Australasia extends to the entire teams of all the member firms, allowing them to feel connected to other like-minded professionals across Australia and New Zealand as well as around the world.

We would like to thank all of our clients and staff for your support. We are incredibly proud of what we have achieved as a network and we look forward to continuing to build on our offering and continuing to support you in achieving your success. Also, thank you to Accountants Daily, the judging panel for this prestigious award.

Launched by The Department of Industry, Science and Resources, participants in the Industry Growth Program Advisory Service may apply for Commonwealth Commercialisation and Growth Grants to support specific commercialisation and/or growth projects. The commercialisation and growth stages may include developing marketplace strategies for entry to market, accelerating growth and scaling up into national and international markets.

Grant Opportunities are open for SME’s to apply for grants of $100,000 to $5,000,000 to support commercialisation and growth. To be eligible you must:

• have a combined annual turnover of less than $20 million for each of the three financial years prior to the lodgement of the application
• have received a report through the program’s Advisory Service
• own or have access to any Intellectual Property (IP) you need to undertake your commercialisation and growth project and own or have the exclusive right to commercialise any IP generated from it
• can provide evidence of your ability to fund at least your share of eligible project expenditure, such as funding strategy and a bank statement or loan agreement. You must provide an accountant declaration that confirms your ability to fund the project.

Eligibility and instructions on how to apply can be found on the Australian Government’s Grant Connect website.

Please contact the team at MGI if you have any questions or require further information.

Launched by the Department of Industry, Science and Resources, the objective of the early-stage commercialisation grants is to help businesses to undertake the steps necessary to establish the commercialise viability of an innovative product, process or service, including steps to undertake feasibility and proof-of-concept through to prototyping.

These Early-Stage Commercialisation grants can be used to undertake projects and business activities that progress a business toward the following outcomes:

• improve the commercialisation capabilities of participating businesses
• further develop innovative products, processes or services in preparation for commercialisation (e.g. prototypes, early testing)
• improve capability to seek and attract investment for the participating business.

SME’s can apply for grants of $50,000 to $250,000 to support early-stage commercialisation projects.

Eligibility and instructions on how to apply can be found on the Australian Government’s Grant Connect website.

Please contact the team at MGI if you have any questions or require further information.

The Business Growth Fund Program (BGF) targets high-growth businesses who can accelerate growth, drive Queensland’s economy and employ more Queenslanders. The program is administered by the Department of Employment, Small Business and Training (DESBT).

Eligible Business Size?

Small and medium-sized businesses that employ 5-49 people (headcount).

Interested businesses will be invited to submit an expression of interest from 9am on Wednesday 1 May.

Businesses with high-growth plans should review the guidelines and eligibility criteria for the upcoming round of the Business Growth Fund program.

This program offers grants of $50,000 to $75,000 to support the purchase of specialised equipment as a co-contribution with eligible businesses.

Successfully funded businesses are expected to:

• increase confidence for growth, transitioning from small to medium-sized
• increase productivity, turnover, profit and/or employment by 20%
• improve confidence to automate, scale up, increase market share, diversify and/or exploit exporting opportunities.

Expressions of Interest (EOI) are now open.

The application process involved 3 stages:

• Stage 1 – Expression of interest (EOI)
• Stage 2 – Full application
• Stage 3 – Pitch

Expressions of Interest close: 5pm Tuesday 14 May 2024.

Please contact the team at MGI if you have any questions or require further information.

Following on from our post a couple of months ago about tax and superannuation deadlines the following are the upcoming contribution cap and superannuation changes.

1. Contributions – cap increase

From 1 July 2024 a number of rates and thresholds will increase, including the contribution caps. There has been no further indexing of the transfer balance cap so there will be changes to the eligibility to use the 3 year bring forward non-concessional contributions (see table below).

A reminder to review any salary sacrifice agreements to avoid excess concessional contributions with the increase in super guarantee to 11.5% from 1 July 2024.

2. Defined benefit interest (CSS/PSS) calculation for Division 296 – in relation to superannuation balances above $3million

From 1 July 2025 tax concessions will be reduced for certain earnings for superannuation balances above $3 million. On 28 February 2023, the Australian Government announced from 1 July 2025 a 30% concessional tax rate will be applied to future earnings for superannuation balances above $3 million, known as Division 296.

If you are wondering how the balance of your CSS or PSS pension will be calculated for the purposes of the proposed Division 296 tax you will need to wait a little longer.

While draft legislation has been released, the calculations for determining the balance of defined pensions will be contained in the regulations which no one has seen (or possible written).

3. Reminder about the changes in Small Business Super Clearing House

From 15 March 2024, the ATO will introduce SMSF bank account validation in the Small Business Superannuation Clearing House (SBSCH). This will require any small employer using the SBSCH to ensure that their employees’ SMSF bank accounts match the bank account details registered with the ATO for contributions.

If you are receiving contributions via SBSCH or using the SBSCH to pay employer contributions, it is important to contact employees to confirm that the SMSF bank account that superannuation contributions are paid to, is the same as the SMSF bank account registered against the superannuation role, with the ATO. A mismatch will mean that their superannuation contributions can’t be processed through the SBSCH.

This also applies for any member roll-in and roll-out requests.

Please contact us if you need to check the details of the bank account registered with the ATO for your SMSF.

Proactive steps are essential to ensure any SG obligations for the March 2024 quarter can be met by 28 April 2024.

4. Non-Arm’s Length Income/Expense (NALI/NALE) Bill Passed Through Parliament

An important reminder to the trustees and the members of the fund, that NALI/NALE bill has now passed through both houses of Parliament and it is essential to review all general expenses incurred/not-incurred within the fund.

It is crucial to understand and review transactions within the superfund that there is no expenditure at non-arm’s length that will trigger the rules concerning non-arm’s length income.

This rule specifically dives into general expenses such as discounted accounting or adviser fees, legal fees or any other general expenses which are non-arm’s length.

If you have any queries or concerns or need further advice and support about superannuation changes please don’t hesitate to reach out to the team at MGI.

Personal Services Income can be a confusing topic, particularly if you’re a sole trader. However, it’s vital to understand what it is so you know what tax deductions you can claim. Personal Services Income (PSI) is a concept introduced by the Australian Taxation Office (ATO) to govern how income from personal services is reported and taxed. PSI is particularly relevant for independent contractors, freelancers, and consultants who provide their professional or technical expertise. The ATO’s guidelines around PSI help ensure that individuals who earn a significant portion of their income from their personal efforts or skills pay the appropriate amount of tax. So what is personal services income? In this blog we’ll explain the PSI rules, outline how it is calculated and explore its impact on tax deductions.

What is Personal Services Income (PSI)?

Personal Services Income refers to income that is primarily generated from your personal skills or efforts as an individual. According to the ATO, income is classified as PSI if more than 50% of the amount you received for a contract was for your labour, skills or expertise. The concept is usually applicable to knowledge-based services such as:

• IT consultants
• Architects
• Medical practitioners
• Dentists
• Accountants
• Lawyers
• Engineers

However, it doesn’t apply if your income is generated from the use or sale of a product, the use of an income-producing asset or other business structures involving more than just personal effort.

Examples of PSI and Non-PSI Income

Jayne is a marketing consultant operating as a sole trader. She has two clients who she has recently completed work for.

Client 1: Jayne delivered a Marketing Strategy training session for her client. She charged the client $1,500 for the session which included materials that cost $150. That means that $1,350  or 90% of the work was for her personal skills and knowledge and should be classified as PSI.

Client 2: Jayne provided email marketing software for a client for which she charged $5,000. The cost of the software licence was $4,000 and the remainder was for her skills and expertise in setting up the software for the client. Since only 20% of the cost was for her expertise, this is not classified as PSI.

While your taxable income can be a mix of PSI and non PSI you should establish whether you are a personal service business (PSB) in the year that you received the PSI income as this affects the deductions you can claim.

PSI Rules

The PSI rules are in place to determine how income is reported and what deductions are permissible. The purpose of these rules is to prevent individuals from diverting their income through companies, partnerships or trusts to exploit lower tax rates. Essentially, if the PSI rules apply, the income is treated as personal income and taxed at individual tax rates.

To determine if the PSI rules apply to you, the ATO applies a series of tests:

• The Results Test: You must be paid for producing a specific result, use your own equipment, and be liable for rectifying any defects in your work.
• The 80% Rule: No more than 80% of your PSI can come from one client, unless the unusual circumstances exemption applies.
• The Unrelated Clients Test: You must provide services to two or more unrelated clients who are not associated with each other.
• The Employment Test: Your business must employ others who do at least 20% of the principal work.

If you fail these tests, you need to treat your income as PSI and comply with the relevant tax implications.

Why Were The Personal Service Income Rules Introduced?

The Personal Services Income (PSI) rules were introduced by the Australian Taxation Office (ATO) to address tax avoidance issues associated with the income earned primarily from the personal skills or efforts of an individual. Essentially the rules ensure that contractors pay similar amounts of tax as those who are employed, preventing them from gaining tax advantages by diverting their income through companies, trusts, or partnerships. The PSI rules now prevent the misuse of business structures for the purpose of tax minimisation.

Before the PSI rules, individuals could reduce their tax liability by channeling their income through such entities. These entities would then potentially claim deductions that would not normally be available to an individual, or split income among various members to reduce the overall tax rate. This approach could substantially lower the tax obligations compared to what an individual might pay if taxed at personal income rates.

Calculating PSI and Tax Implications

Calculating your PSI involves identifying all income received from personal efforts and applying the relevant PSI rules to determine your taxable income. If the PSI rules apply, you will need to attribute all income and deductions to yourself, regardless of whether your business structure involves other entities.

The PSI determination directly influences how you claim deductions. Generally, deductions are allowed for expenses incurred in generating PSI, including:

• Salaries and wages for individuals directly engaged in producing PSI.
• Operating expenses related to performing the services.
• Equipment used directly in performing the services.

However, certain deductions, typically available to businesses, may not be claimable if they do not directly relate to the earning of PSI. These may include rent, occupancy expenses, or salaries paid to associates who do not contribute directly to contract fulfilment.

Key Takeaways

For professionals and freelancers, understanding PSI is crucial to ensuring compliance with ATO guidelines and optimising tax obligations. Here are the main points to remember:

• Determine if your income qualifies as PSI based on the nature of your work and how it is earned.
• Understand the PSI rules and apply them to ascertain if your income is treated as PSI.
• Be mindful of how PSI is calculated and ensure accurate reporting.
• Know what deductions are permissible under the PSI rules to avoid potential audits or penalties.

By understanding and adhering to the PSI rules, individuals can better navigate their tax obligations and plan their financial affairs accordingly. For further guidance, consulting a tax professional or visiting the ATO’s website can provide additional clarity and personalised advice.

This overview should serve as a starting point for anyone dealing with PSI and aiming for a compliant and optimised tax handling of their personal services income in Australia.

If you require assistance with understanding your tax obligations and ensuring you claim the correct tax deductions, our team of expert business tax accountants can help.