As the end of tax year approaches, the Australian Taxation Office (ATO) has announced its 3 key areas of focus for Tax Time 2023. Landlords, those working from home and capital gains tax (CGT) will all be the subject of an ATO crackdown when it comes to tax returns this year. According to ATO Assistant Commissioner Tim Loh, the areas being targeted are due to the high number of common mistakes being made in these areas. With access to the financial information of 1.7 million rental property investors from 17 of the countries largest banks and mortgage lenders, the ATO will be able to use new data matching techniques to crosscheck claims made by landlords in 2023.

The ATO Targets For Tax Time 2023

Rental property deductions

As landlords (and homeowners) feel the pinch from mortgage interest rate hikes, many have been trying to push the boundaries with their claimed deductions. While there are a number of legitimate deductions available on rental properties, it’s vital that you stay within the law and understand what is acceptable and what’s not. As many as 9 out 10 rental property investors made mistakes on their annual tax returns and incorrectly claimed expenses.

The ATO is particularly focused on interest expenses and ensuring owners understand how to correctly apportion loan interest expenses where part of the loan was used for private purposes (or the loan was refinanced with some private purpose).

“You can only claim interest on a loan used to purchase a rental property to earn rental income – don’t forget, if your loan also includes a private expense, such as for a new car or a trip to Bali, you can only claim an interest deduction for the portion relating to producing your rental income,” Mr Loh said.

Work-related expenses

From March 1st taxpayers claiming working from home expenses are required to provide more detailed documentation and calculations. This means you can’t do a copy-paste from last year’s annual return. Previously you could choose from a number of different methods to calculate how much you could claim when working from home. However, as the working landscape changes and more people are working back in the office more frequently, the methods of calculation have changed and there are limits on what you can claim.

The ATO crackdown is particularly focused on ensuring taxpayers understand the changes to the working from home methods and are able to back up their claims.

“Keeping good records will give you flexibility to choose the right method that suits your circumstances and gives you the best deduction this tax time,” Mr Loh said.

Capital gains tax

Do you rent your home out for example on AirBnb or Stayz? Then you may need to pay capital gains tax (CGT). CGT is generally incurred when you dispose of assets such as shares, crypto, managed investments or properties.

The ATO wants to make sure that taxpayers have considered all their assets when calculating capital gains tax as well as apportionment of the main residence exemption if taxpayers have used their property to earn income.

It’s important that you have kept records of the income-producing period and the portion of the property used to produce income to calculate your capital gain.

“Generally, your main residence is exempt from CGT, however if you have used your home to produce income, such as renting out all or part of it through the sharing economy, for example Airbnb or Stayz, or running a business from home, then CGT may apply,” Mr Loh said.

Avoid an ATO Crackdown

By announcing it’s focus areas in advance, the ATO aims to promote fairness, transparency and greater compliance with tax laws through increasing awareness of the issues and providing guidance on how to avoid them.

Outside of these 3 main areas of focus, it has also been reported that income earned from the ‘gig economy’ or side hustles would attract greater scrutiny. This includes ride-share drivers and even social media influencers.

“If you’re running bootcamp sessions in addition to your nine-to-five job, well this is a side hustle and you need to declare this income to the ATO. If you’re an online content creator earning money or receiving gifts, you’re also likely to be running a business and there are tax obligations you need to comply with.” Mr Loh said.

A hobby crosses over to a business when there is an intention to earn a profit and the activity is planned and organised to achieve that goal.

The best way to avoid the issues highlighted as a focus in this ATO crackdown is to work with experienced tax accountants. Please contact the team at MGI if you need any assistance.

The looming financial new year heralds an unwelcome extra cost for thousands of people who currently have a HECS HELP debt. This is because every unpaid debt is going to automatically increase when it’s indexed on June 1. In previous years, the HECS indexation rate was relatively modest, but thanks to soaring inflation, this year’s indexation rate is set to hit more than 3 million Australians hard. So how do you avoid indexation on HECS?

Here’s what you need to know.

What is indexation?

Indexation means that the price of something is changed in correspondence with an external factor. In this case, the price of something is your student debt and the external factor is the Consumer Price Index (CPI). Each year your student loans increase based off the CPI percentage — which is a set of figures released by the Australian Bureau of Statistics (ABS) every three months to track the cost of living.

How much is my HECS-HELP loan going to go up by?

This year, your HECS HELP debt will increase by 7.1% after indexation. For example, on a $25,000 HECS Debt, your debt will increase by $1,775 to $26,775.

When is HECS HELP indexed?

June 1 — one week from now.

How can I pay off my HECS HELP debt?

There are two ways:

• Voluntary
• Compulsory

Voluntary payment can be made at any time through the MyGov portal.

Compulsory payments are taken from your wages once you earn over the $48,361 threshold. These payments aren’t deducted from your overall debt until after you’ve submitted your tax return.

If I voluntarily pay off my whole loan, do I avoid the indexation?

Only if you pay your entire debt off. Indexation will apply to whatever you’re still owing by June 1.

So, when do I have to pay my HECS back by?

Well, technically the cut-off date for repayments is May 31st.

The Australian Tax Office (ATO) recommended making payments four days before the cut-off date to make sure you avoid extra indexation because of how long it can take for the payment to be processed.

So, if you are making a voluntary payment to avoid indexation – lodge your payment by May 25th. The ATO assured us it’s not expecting a backlog of payments in the lead up to indexation.

However, they expressed the importance of providing the correct Payment Reference Number (PRN) when making the payment, which is visible when viewing your account in ATO Online Services. You can find that by using the ATO portal in your myGov app.

What happens to my compulsory payments if I pay off my whole loan?

Compulsory loan payments are garnished from your salary and held by your employer. When you lodge your tax return, the gathered monies are applied to your loan balance and your debt reduces.

If you are in the fortunate position to make a voluntary payment of the entire balance:

• Previous Payroll Runs – “If an individual pays their loan account in full prior to lodging their tax return, their compulsory repayment will be nil, and as part of the normal Tax Return processes, any balance of PAYG amounts remaining, after applying against the tax and other assessment liabilities, is refunded,” said an ATO spokesperson.  So for the garnishing that has already occurred during the 2023 financial year in previous payroll runs, the refund will occur upon lodgement of the tax return for the year ending 30 June 2023.
• Future Payroll Runs – An updated Tax File Number (TFN) declaration should be provided to your employer to advise you no longer have a HECS-HELP debt. This will mean for future payroll runs your employer will cease having the compulsory repayments garnished from your salary.

What did the budget include for HECS-HELP?

If you’re looking for some future reprieve from high indexation payments in the budget you’re out of luck.

The 23/24 budget papers did outline $87.8 million in funding over the next five years towards the HELP system, but this will be used to improve the administration process and increase data security. Federal Treasurer Jim Chalmers also indicated that there are no plans to alter HELP indexation at a press conference in April.

When it comes to purchasing an investment property, a big decision you’ll need to make is whether to use super to buy the investment property.

Unfortunately there is no one size fits all answer. It depends on what you are trying to achieve and the resources you have at hand. When it comes to purchasing an investment property, a big decision you’ll need to make is whether to purchase the property inside or outside of super.  Unfortunately there is no one size fits all answer. It depends on what you are trying to achieve and the resources you have at hand.

Do you have what it takes to purchase a property through an SMSF?

There are much higher set up costs associated with purchasing a property through a self-managed super fund. As an example, you may need to have a combined superannuation balance of at least $200,000 to purchase a property worth approximately $600,000 to cover:

• the cost of setting up an SMSF
• high bank fees
• and the required deposit (lenders are requiring 30% deposit or more when purchasing through your SMSF).

If you can only just scrape together this balance it may not be in your best interest to tie up most of your super in an illiquid asset. Let me explain.  Typically a property loan goes for 30 years, so unless you have many working years ahead of you, you’ll need to consider whether you have enough cash left in superannuation to cover pension payments. Secondly superannuation balances can be used to provide a much needed payout should you be diagnosed with a terminal illness.  If all your superannuation is tied up in property you will not be able to access this quickly in the event of a terminal illness.

Is superannuation the best option?

If superannuation is a viable option, the next step is to consider why you are purchasing an investment property and whether purchasing through superannuation will allow you to achieve your objectives. To determine this let’s look at the benefits of using super to buy investment property.

Benefit of purchasing an investment property inside superannuation

1. Using your superannuation balance to get a deposit

   For most of us, superannuation is one of our biggest long-term investments. You may well need to access this to be able to afford the deposit for your investment property. In this case purchasing through super is your only option. However if you have enough cash inside and outside of super then it pays to keep considering the benefits under each.

2. Minimise tax paid on investment earnings

   Especially if you have a high yield property it may be appealing to purchase the property through your superannuation where any income earned will be taxed at 15% rather than your personal tax rate which is generally much higher.

   If you plan to hold the asset until your superannuation is in pension phase, you may pay no tax on capital gains if your balance is under the $1.9M transfer balance cap. This can be a significant saving compared to an asset owned outside of superannuation, where you’ll pay tax at your marginal tax rate on the taxable capital gain.

   If you don’t hold the asset until retirement you will pay 15% tax on two thirds of the capital gain on a property held for more than 12 months.

3. Asset protection

   If you are looking for additional asset protection superannuation can be a great way to go. Assets held in superannuation are generally protected in a lawsuit and are not at risk of creditors.

4. Diversification

   Owning an investment property can provide diversification to your investment portfolio, which can help spread risk. This can be particularly useful if your superannuation fund is heavily invested in traditional assets like stocks and bonds.

5. Long-Term Growth

   Property has historically shown the potential for long-term capital growth. This can help your superannuation account grow over time, potentially providing a source of retirement income.

6. Purchasing your business premises (rather than renting)

   If you are a business owner who is looking to purchase your business premises, superannuation can be a very appealing option. Business premises are generally high yield rental properties. By purchasing the premises in an SMSF business owners can minimise tax paid on rental income and can secure an asset for their retirement without changing their business cash flow.

Benefits in purchasing outside of super

1. Greater negative gearing opportunities

   You can claim interest on a loan to acquire a property in a SMSF, however, the tax benefits here are less because:
   – Generally the banks will only loan you 50 – 70% of the purchase price so you will have a smaller loan
   – You are only paying 15% tax on superannuation earnings where as you are paying anywhere up to 45% on personal income tax.

   Therefore if a property will be significantly negatively geared, and if you have a high personal tax rate, then it is likely that you will achieve a better tax outcome purchasing outside of superannuation.  But to make an educated assessment, you would need to “do your numbers” using some assumptions.

2. Flexibility in how you use the property

   There are a number of additional restrictions on how you can use properties held by SMSFs. Firstly you or any fund member’s related parties cannot live in or rent the property. The exception to this is a commercial property which can be used to house a fund member’s business. Also there are restrictions on improving a property that has been acquired by a SMSF using a loan.

3. Regulatory Changes

   The rules governing superannuation investments can change over time. There’s a risk that future changes in regulations could impact your ability to invest in property through your super.

4. Borrowing Risk

   If you borrow to purchase the property within your superannuation fund (using a limited recourse borrowing arrangement or LRBA), you may be exposed to additional risks if the property’s value declines, as you’re still responsible for repaying the loan.

5. Less complicated

   If you use super to buy an investment property, particularly if it is a commercial property, it requires time-consuming paperwork and regular valuations. If ease of investment is a top priority you should think carefully before purchasing property through an SMSF.

   At the end of the day whether you should use superannuation to purchase an investment property will come down to what you want to achieve. Superannuation may well present an opportunity to purchase a property that you could not do otherwise. It can also provide tax savings and better asset protection. It is definitely worth having a conversation with an experienced MGI adviser, particularly if you are a business owner, to explore whether you should be looking to at super to fund your next property investment.

Give the team of SMSF Accountants at MGI South Queensland a call or book an appointment for a review of your super strategy today.

Disclaimer

This article was first published in December 2017 and has been updated and republished in May 2023.

The content above has been prepared by Accountable Financial Solutions Pty Ltd (“Accountable”), ABN 36 146 520 390. The above information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice. Although every effort has been made to verify the accuracy of the information contained above, Accountable, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained on this website or any loss or damage suffered by any person directly or indirectly through relying on this information.

The ATO has issued PCG (Practical Compliance Guideline) 2023/1 in relation to deductions for working from home related expenses. The PCG is applicable from 1 July 2022.

Prior to 1 July 2022, a client had the choice of using either the shortcut method, fixed-rate method or actual expenses incurred for working from home expenses. From 1 July 2022, a client can continue to claim actual expenses or a ‘revised fixed-rate method’ at 67 cents. Broadly, in order to claim the revised rate, the following criteria must be satisfied:

• Working-from-home requirement
• Incurring deductible additional running expenses
• Keeping and retaining additional records

The work has to be substantive and directly related to income-producing activities. The PCG states that “minimal tasks, such as occasionally checking emails or taking phone calls while at home will not qualify”.

The PCG will only apply to ‘additional running expenses’ defined as energy expenses, internet expenses, mobile and home phone expenses and stationery and computer consumables.

In relation to the record keeping criterion, clients will need to keep:

• records showing total number of hours spent working-from-home during the year; and
• one document (such as an invoice, bill or credit card statement) for each type of additional running expense that was incurred in the income year.

The full record keeping requirement commenced from 1 March 2023.

The PCG clarifies that a record of the total number of hours worked can take any form, provided it is kept contemporaneously. Examples include timesheets, rosters, logs of time spent accessing employer systems or online business systems, time-tracking apps, or a diary or other documents kept contemporaneously. Alternatively, we’ve put together a working from home diary template to help you record your hours for the July 2023 – June 2024 period.

In many instances, clients may choose to claim actual costs incurred over the revised fixed rate method if this results in a higher claim.

If you have any queries in relation to tax compliance and claiming working from home expenses, please contact the team at MGI for assistance.

The 2023 Federal Budget was announced on Tuesday 9 May 2023, with a focus on cost-of-living relief and modernising our economy. But what does it means for you as a business owner?

There were only a few tax and superannuation changes announced, which is good news. However, no mention was made of the previously announced Stage 3 Income Tax cuts that are planned to begin on 1 July 2024.

There were 2 very important things not mentioned in the 2023 Budget that may affect you as a business owner:

1. With Temporary Full Expensing finishing on 30 June 2023 and its replacement with a Small Business Instant Asset Write-off capped at $20,000, a business that sells or trades in a motor vehicle would have 100% of its sale price included in taxable income in the year it is sold if it fully expensed its purchase in an earlier year.For example, if a business trades in a vehicle (that was fully expensed) for $50,000 and purchases another vehicle for $60,000 in 2024, $50,000 will be included in its taxable income but only a portion of the $60,000 purchase price of the new vehicle will be allowed as a depreciation tax deduction. This may result in significantly higher tax payable by the business compared with previous years.
2. The Low and Middle Income Tax Offset was not extended by the Government. This means individuals who received up to $1,500 in extra tax refunds last year will not receive them again in 2023.

Here is a brief summary of the Budget updates relating to tax and superannuation.

Taxation Changes

Key Change	How This Will Affect You
Temporary Full Expensing is Ending Currently, most businesses that purchase business assets can claim 100% of its price in full, in the year that its purchased and ready for use. This will finish on 30 June 2023.	Purchase Business Assets Before 30 June 2023 If you need to purchase a business asset and have the cashflow to do so, we recommend you purchase it BEFORE 30 June 2023 to be able to claim 100% of its cost in the 2023 year.
Low and Middle Income Tax Offset (LMITO) has Ended The temporary LMITO was introduced in the 2019 Budget and then extended during the COVID-19 pandemic. It resulted in extra tax refunds of between $675 and $1,500 (depending on your level of income) for individuals. The Government didn’t extend the LMITO, so it has ended as at 30 June 2022.	Lower Tax Refund for 2023 Individuals who received an extra tax refund of up to $1,500 in 2022 will not receive it again this year in 2023.
Small Business Instant Asset Write-Off Small businesses, with a turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 inc. GST that are first used or installed ready for use between 1 July 2023 and 30 June 2024.	Lower Asset Write Off Tax Deductions Compared with prior years, from 1 July 2023 a small business can only claim up to $20,000 inc. GST as an instant write-off. Any assets that cost more than this amount will be added into the small business simplified depreciation pool and depreciated at 15% in the first year and 30% each year thereafter. Remember, this is a tax deduction, and it is not $20,000 cash back to you.
Small Business Energy Incentive The Government is introducing a tax break to help small businesses electrify and save on your energy bills. Businesses with annual turnover of less than $50 million will have access to a bonus 20 per cent tax deduction for eligible assets supporting electrification and more efficient use of energy, from 1 July 2023 until 30 June 2024.	Extra $20,000 Tax Deduction Businesses will be able to make investments like: electrifying your heating and cooling systems upgrading to more efficient fridges and induction cooktops installing batteries and heat pumps. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.
Small Business Tax Lodgement Penalty Amnesty This new amnesty will apply to small businesses with a turnover of less than $10 million to encourage them to re-engage with the tax system.	No Penalties for Certain Overdue Tax Lodgements A small business will not be charged failure-to-lodge penalties for outstanding tax lodgements that are lodged between 1 June 2023 and 31 December 2023 that were originally due between 1 December 2019 to 29 February 2022.
Pay As You Go (PAYG) Instalments Uplift Factor If you pay PAYG instalments towards next year’s tax, the Government bases these payments on last year’s tax increased by GDP “uplift”. The Government was happy to announce this GDP uplift for 2024 is only 6% and not the legislated 12%.	Plan for Higher PAYG Instalments in 2024 The 6% uplift for your 2024 PAYG tax instalments is higher this year due to high inflation. If you continue to make good business profits with tax to pay, you will need to plan for slightly higher PAYG instalments in 2024.

 

Superannuation Changes

Key Change	How This Will Affect You
Extra Tax on Super Account Balances Above $3 million The Budget confirmed the Government’s intention to apply an additional 15% tax on total superannuation balances above $3 million from 1 July 2025.	Extra Super Earnings Tax to Pay If your super member balance is less than $3 million, then this won’t affect you. If it is more than $3 million from 1 July 2025, then your super will be taxed 30% on its earnings, up from the current rate of 15%.
Super Payable by Employers on Pay Day Currently, employers must make employee superannuation payments quarterly. From 1 July 2026, employers will be required to pay their employee’s superannuation at the same time as they pay their salary and wages.	Plan for this Additional Cashflow Requirement While this won’t begin for 3 years, you need to be aware of this and factor this into your future cashflow planning.

 

To get the maximum benefits from the new measures announced in the 2023 Federal Budget, please contact us immediately to book in your 2023 Tax Planning meeting with us. We also have a federal budget 2023 overview for individuals.

If you’re a business owner, now is the time to start considering effective tax strategies. Tax planning is more than just putting your tax return together. It’s about making sure that your business is structured in a way that will allow you to grow and expand, while minimising the amount of income tax payable. Take a read of our 2023 tax planning guide for the most effective tax minimisation strategies you should consider.

Imagine what you could do with tax saved? You could:

• Reduce your home loan
• Top up your super
• Save for a holiday (when we can travel again!)
• Deposit for an Investment Property
• Pay for your children’s education
• Upgrade your Car

Here’s a guide to the tax minimisation strategies you can use to reduce your business tax.

Is your business a small business entity?

Small businesses can access a range of tax concessions from the ATO. To qualify as a “Small Business Entity”, the business must have an aggregated turnover (your annual turnover plus the annual turnover of any business connected / affiliated with you) of less than $10 million and be operating a business for all or part of the 2023 year.

LOWER COMPANY TAX RATES

The 2023 company tax rate for businesses with less than $50 million turnover is 25%, if 80% or less of a company’s assessable income is “passive income” (such as interest dividends, rent, royalties, and net capital gains).

If you use a Trust structure, one strategy is to allocate profits to a “Bucket Company” and cap your tax at 25% for the 2023 year. Note that this company must qualify as a “base rate” entity to be eligible for the lower 25% company tax rate. Please discuss with us whether your company will qualify.

TEMPORARY FULL EXPENSING FOR ASSET PURCHASES

Businesses with an aggregated turnover of less than $5 billion can immediately deduct the business portion of the cost of eligible new depreciating assets.

For businesses with an aggregated turnover of less than $50 million, temporary full expensing also applies to the business portion of eligible second-hand depreciating assets.

Temporary full expensing is ending on 30 June 2023. You should buy these assets and use them or have them ready for use before 30 June 2023 to qualify for a 2023 tax deduction.

MAXIMISE DEDUCTIBLE SUPER CONTRIBUTIONS

The concessional superannuation cap for 2023 is $27,500 for all individuals. Do not go over this limit or you will pay more tax. Note that employer super guarantee contributions are included in these caps. Where a concessional contribution is made that exceeds these limits, the excess is included in your assessable income and taxed at your marginal rate, plus an excess concessional contributions charge. For the contribution to be counted towards the employee’s 2023 contribution cap, it must be received by the fund by 30 June 2023.

TOOLS OF TRADE / FBT EXEMPT ITEMS

The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items that can be packaged include handheld/portable tools of trade, computer software, notebook computers, personal electronic organisers, digital cameras, briefcases, protective clothing, and mobile phones.

If structured correctly, the employer will be entitled to a tax deduction for the reimbursement payment to the employee (for the equipment cost), claim any GST input credit, and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased. You should buy these items before 30 June 2023.

REPAIRS & MAINTENANCE

Make payments for repairs and maintenance (business, rental property, employment) BEFORE 30 June 2023.

PAY EMPLOYEE SUPERANNUATION NOW

To claim a tax deduction in the 2023 financial year, you need to ensure that your employee superannuation payments are received by the super fund or the Small Business Superannuation Clearing House (SBSCH) by 30 June 2023.

You should avoid making last minute superannuation payments as processing delays may cause them to be received after year-end. If for any reasons you end up having to make last minute payments and you would like to claim them as deductions for the current year, contact us before you make any payments for possible resolutions.

DEFER INCOME

If possible, defer issuing further invoices and receiving cash/debtor payments until after 30 June 2023.  This strategy pushes tax payable to future years.

BRING FORWARD EXPENSES

Other effective tax minimisation strategies include bringing forward expenses. Purchase consumable items BEFORE 30 June 2023. These include marketing materials, consumables, stationery, printing, office and computer supplies. Spend the money now and get the deduction this year.

DEFER INVESTMENT INCOME & CAPITAL GAINS

If possible, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2023.

The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date!

MOTOR VEHICLE LOGBOOK

Ensure that you have kept an accurate and complete Motor Vehicle Logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2023. You should make a record of your odometer reading as at 30 June 2023 and keep all receipts/invoices for motor vehicle expenses.

An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

INVESTMENT PROPERTY DEPRECIATION

If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.

PRIVATE COMPANY(“DIV 7A”) LOANS

Business owners who have borrowed funds from their company in previous years must ensure that the appropriate principal and interest repayments are made by 30 June 2023. Current year loans must be either paid back in full or have a loan agreement entered in before the due date of lodgement for the company return, or risk having it counted as an unfranked dividend in the return of the individual.

YEAR-END STOCKTAKE / WORK IN PROGRESS

If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2023. Review your listing and write-off any obsolete or worthless stock items.

Talk to us about your different options for valuing Stock, and how they affect your tax payable.

WRITE-OFF BAD DEBTS

Review your Trade Debtors listing and write-off all bad debts BEFORE 30 June 2023. Prepare a management meeting document listing each bad debt, as evidence that these amounts were written off prior to year-end and enter these into your accounting system before 30 June 2023.

SMALL BUSINESS CONCESSIONS – PREPAYMENTS

“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. loan interest, rent, subscriptions) BEFORE 30 June 2023 and obtain a full tax deduction in the 2023 financial year.

TRUSTEE RESOLUTIONS

Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2023 for all Discretionary (“Family”) Trusts. The ATO have recently released a number of Tax Rulings that may affect trust distributions to adult children, so Tax Planning for 2023 will be vital for anyone using a Family Trust.

PLEASE NOTE: This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from MGI.

Talk to us TODAY before the 30 June 2023 deadline for assistance in developing the most effective tax minimisation strategies for your business! You may also like our guide on how to reduce taxable income and minimising your personal tax.

Tax time is just around the corner once again but there is still time to implement some effective tax strategies. When looking at how to reduce your taxable income there’s more to consider than just the available tax concessions. Effective tax planning should be part of your longer term wealth management strategy. Here’s our 2023 tax planning guide to help you minimise your personal tax.

With tax savings, you could:

• Reduce your home loan
• Top up your super
• Save for a holiday (when we can travel again)
• Deposit for an Investment Property
• Pay for your children’s education
• Upgrade your car

The most important thing to remember is that there is no point in spending money to get a tax deduction unless it’s going to result in something useful for you.

HOME OFFICE EXPENSES

If you have been working from home, you may have expenses you can claim a tax deduction for. The ATO allows you to claim using a “Revised Fixed Rate Method” an amount of $0.67 per work hour for the 2023 year. This amount covers most expenses from working from home, and you need to keep a detailed record of how you calculated the number of hours you are claiming. You can also claim expenses using an “Actual Cost” method – so please keep all invoice and receipts during the entire year to prove all claims.

SUPERANNUATION CONTRIBUTIONS

While you might not be flush with cash now and able to put large amounts into superannuation, it’s important that you are aware of what is possible to maximise your super balance and possibly reduce your tax at the same time.

DEDUCTIBLE SUPER CAP OF $27,500 FOR EVERYONE

The tax-deductible super contribution limit (or “cap”) is $27,500 for all individuals under age 75. Individuals need to pass a work test if over age 67.

To save tax, consider making the maximum tax-deductible super contribution this year before 30 June 2023. The advantage of this strategy is that superannuation contributions are taxed at between 15% to 30% compared to typical personal income tax rates of between 34.5% and 47%.

CARRIED FORWARD CONTRIBUTIONS

Carry-forward contributions are not a new type of contribution, they are simply new rules that allow super fund members to use any of their unused concessional contributions cap on a rolling basis for five years.

This means if you don’t use the full amount of your concessional contribution cap ($25,000 from 2019 to 2021, and $27,500 for 2021 and 2022), you may qualify to carry-forward the unused amount and take advantage of it up to five years later.

Carry-forward contributions are calculated on a rolling basis over five years, but any amount not used after five years expires. These carry-forward rules only relate to concessional contributions into super, not non-concessional contributions, as they have different caps.

SPOUSE SUPER CONTRIBUTIONS

You can make super contributions on behalf of your spouse (married or de facto), provided you meet eligibility criteria, and your super fund allows it. This is known as contribution splitting.

Doing this not only helps to boost your spouse’s retirement savings, but it can also help you save tax if your spouse has limited income.

You may be eligible for a tax offset of up to $540 on super contributions of up to $3,000 that you make on behalf of your spouse if your spouse’s income is $37,000 p.a. or less.

The offset gradually reduces for income above $37,000 p.a. and completely phases out at $40,000 p.a. and above.

ADDITIONAL TAX ON SUPER CONTRIBUTIONS BY HIGH INCOME EARNERS

The income threshold at which the additional 15% (‘Division 293’) tax is payable on super $250,000 p.a. Where you are required to pay this additional tax, making super contributions within the cap is still a tax effective strategy.

With super contributions taxed at a maximum of 30% and investment earnings in super taxed at a maximum of 15%, both these tax points are more favourable when compared to the highest marginal tax rate of 47% (including the Medicare levy).

GOVERNMENT CO-CONTRIBUTION TO YOUR SUPER

If you are on a lower income and earn at least 10% of your income from employment or carrying on a business and make a “non-concessional contribution” to super, you may be eligible for a Government co-contribution of up to $500.

In 2023, the maximum co-contribution is available if you contribute $1,000 and earn $42,016 or less. A lower amount may be received if you contribute less than $1,000 and/or earn between $42,016 and $57,016.

OWNERSHIP OF INVESTMENTS

When looking at how to reduce taxable income, a longer-term tax planning strategy can be reviewing the ownership of your investments. Any change of ownership needs to be carefully planned due to capital gains tax and stamp duty implications. Please seek advice from your Accountant prior to making any changes.

Investments may be owned by a Family Trust, which has the key advantage of providing flexibility in distributing income on an annual basis and an ability for up to $416 per year to be distributed to children or grandchildren tax-free.

PROPERTY DEPRECIATION REPORT

If you have an investment property, a Property Depreciation Report (prepared by a Quantity Surveyor) will allow you to claim depreciation and capital works deductions on capital items within the property and on the property itself.

The cost of this report is generally recouped several times over by the tax savings in the first year of property ownership.

MOTOR VEHICLE LOGBOOK

Ensure that you have kept an accurate and complete Motor Vehicle Logbook for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2023. You should make a record of your odometer reading as at 30 June 2023 and keep all receipts/invoices for your motor vehicle expenses. Once prepared, a logbook can generally be used for a 5-year period.

An alternative (with no logbook needed) is to simply claim up to 5,000 business kilometres (based on a reasonable estimate) using the cents per km method.

SACRIFICE YOUR SALARY TO SUPER

If your annual income is $45,000 or more, salary sacrifice can be a great way to boost your superannuation and reduce your taxable income. By putting pre-tax salary into super rather than having it taxed as normal income at your marginal rate you may save tax. This can be especially beneficial for employees nearing their retirement age.

PREPAY EXPENSES AND INTEREST

Expenses relating to investment activities can be prepaid before 30 June 2023. You can prepay up to 12 months of interest before 30 June on a loan for a property or share investment and claim a tax deduction this financial year. Also, other expenses in relation to your investments can be prepaid before 30 June, including rental property repairs, memberships, subscriptions, and journals.

INSURANCE PREMIUMS

Possibly your greatest financial asset is your ability to earn an income. Income Protection Insurance generally replaces up to 75% of your salary if you are unable to work due to sickness or an accident. The insurance premium is normally tax deductible, plus you get the benefit of protecting your family’s lifestyle if you cannot work due to sickness or an accident. It’s a small price to pay for peace of mind. Like rental property interest, income protection premiums can also be pre-paid for 12 months to increase your deductions and further reduce your taxable income.

WORK RELATED EXPENSES

Don’t forget to keep any receipts for work-related expenses such as uniforms, training courses and learning materials, as these may be tax-deductible.

REALISE CAPITAL LOSSES

Tax is normally payable on any capital gains. You should consider selling any non-performing investments you hold before 30 June 2023 to crystallise a capital loss and reduce or even eliminate any potential capital gains tax liability. Unused capital losses can be carried forward to offset future capital gains.

DEFER INVESTMENT INCOME & CAPITAL GAINS

If practical, arrange for the receipt of Investment Income (eg. interest on term deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2023.

The Contract Date (not the Settlement Date) is generally the key date for working out when a sale or purchase occurred.

PLEASE NOTE: This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances and seek advice from MGI.

Talk to us TODAY before the 30 June 2023 deadline for assistance in how reduce your taxable income! You might also be interested in our post on tax minimisation strategies for businesses.

Land tax in Queensland will be calculated differently from 30 June 2023

If you currently pay land tax in Queensland, you will soon receive more information about these changes from the QRO (Queensland Revenue Office) previously known as Office of State Revenue.

From 30 June 2023, when calculating land tax in Queensland, QRO will consider all the land you own in Australia.

So, if you own land in Queensland and in another Australian state or territory, it may affect how much land tax you pay in Queensland.

You will need to declare any landholdings you own outside of Queensland. To prepare for the changes, you can:

1. Read about the changes to land tax.
2. Check your details are up to date in your QRO Online account.

After 1 January 2023 you will be able to use your QRO Online account to inform QRO about your interstate land.

You can find more about land tax at qld.gov.au/landtax.

Please reach out to the team at MGI South Qld if you have any questions.

With 30 June almost here, we thought it would be good timing to provide you with a Year End Planning memorandum detailing:

• key dates
• recent reforms; and
• tax planning opportunities that may affect you and your business.

Please do not hesitate to contact the MGI team if there is any further information we can assist you and your business with.

Click here to download the MGI tax planning guide for all details.

The Queensland State Government has recently announced a potentially significant stamp duty exemption for small business restructures.

Often, people going into business for the first time may set up as a sole trader, partnership or family trust. As the business grows this structure may no longer be the best option, particularly with small business company tax rates reducing to 25% from next financial year. In the past, it has been a potentially costly and complicated process to transfer business assets out of these structures and into a company.

The above concessions significantly simplify this process and remove the potentially costly stamp duty impost. Here is a summary of the new concessions:

Eligibility

• The business assets being transferred must have a value of less than $10m.
• The transferring entity must have a turnover of less than $5m.
• The concession applies to all business asset including commercial property, but not residential property.
• The transferee entity must be a company that has not traded before (i.e. a newly incorporated company).
• Underlying ownership of the recipient company immediately after the transfer must be the same as the previous ownership.

The above concessions now provide significant flexibility for businesses currently operating as a sole trader, partnership or trust structure to “rollover” into a company structure. This can have a number of benefits including:

• Potentially lower tax rate.
• Enabling outside investor shareholders.
• Ability to retain profits in order to fund growth.
• Provide asset protection.
• Simplify the business structure.

It is important to note that the legislation to implement these changes have not yet been passed by the Queensland Parliament, however will have retrospective effect from 7th September 2020. It is possible that there may be some minor changes to the above eligibility requirements so we recommend that you contact us before proceeding with any restructure.

Further Information

Please contact the team at MGI South Queensland if you wish to discuss your personal circumstances.