In this month’s issue we focus on the impending superannuation rate rise, small business energy incentives, fuel tax credits and car expense claims. There are also important discussions on the review of business restructuring and small business lodgement amnesty.
Superannuation rises to 11%
The superannuation guarantee (SG) rate increase from 1 July 2023 will see more employees (and some contractors) entitled to additional SG contributions to their superannuation fund. However, what happens when income earned before 1 July is paid after 30 June? Will employees be entitled to a higher SG rate of 11%?
What happens if the pay period crosses over between June and July
On 1 July 2023, the SG rate increases from 10.5% to 11%. In some cases, an employee’s pay period will cross over between June and July when the rate increases. However, the percentage employers must apply is determined based on when the employee is paid, not when the income is earned. The rate of 11% will need to be applied to all salaries and wages paid on or after 1 July 2023, even if some or all of the pay period it relates to is before 1 July 2023.
This means that if the pay period ends on or before 30 June, but the pay date falls on or after 1 July, the 11% rate applies to those salary and wages. To reiterate, the date of the salary and wage payment determines the rate of SG payable regardless of when the work was performed, as illustrated in the following example:
| Example
Nicholas is an employee. If Nicholas performed work: · In June 2023 (or partly in June and partly in July), but he was paid in July, the SG rate would be 11% on his entire payment totalling 11% of his ordinary time earnings for the September 2023 quarter, which must be paid to his superannuation fund by 28 October. · In July, but was paid in advance (before 1 July), the SG rate would be 10.5% of his ordinary time earnings for the June 2023 quarter, which must be paid to his superannuation fund by 28 July. |
Legislated SG rates
Employers should prepare for ongoing annual increases to the SG rate over the next couple of years. The following already-legislated increases will proceed as follows:
| Period | SG Rate |
| 1 July 2019 to 30 June 2020 | 9.5% |
| 1 July 2020 to 30 June 2021 | 9.5% |
| 1 July 2021 to 30 June 2022 | 10% |
| 1 July 2022 to 30 June 2023 | 10.5% |
| 1 July 2023 to 30 June 2024 | 11% |
| 1 July 2024 to 30 June 2025 | 11.5% |
| 1 July 2025 onwards | 12% |
Small business energy incentives are now open
The recently announced Small Business energy incentive is now open for business. The Energy Incentive will help up to 3.8 million small and medium-sized businesses save energy and save on their energy bills.
The incentive is delivered through a bonus tax deduction for businesses with an annual turnover of less than $50 million. An additional 20% deduction is announced for expenses supporting electrification and more efficient energy use. It will help small businesses make investments like electrifying their heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.
Tradies, manufacturers, restaurants, hairdressers, real estate agents and other small businesses may find it particularly attractive. This incentive helps ensure these businesses share in the benefits and opportunities of the energy transition that’s now underway. It will support investments that deliver ongoing power bill savings for businesses while at the same time helping Australia lower emissions.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business. Eligible assets or upgrades must be first used or installed and ready for use between 1 July 2023 and 30 June 2024.
Time for a review of business restructuring?
The new financial year can be when business owners look at their operating structure and consider whether it still meets their needs. Choosing a structure is not simply about minimising tax; instead, a range of factors should be considered, such as asset protection, tax minimisation, establishment, ongoing compliance costs, succession planning and understanding each structure.
Most small businesses operate as sole traders, companies, trusts, or partnerships. The following table is a comparative snapshot of each of the four structures:
| Business structures | Sole trader | Company | Trust |
| Factors to Consider | |||
| Less expensive to set up and administer | Yes | No | No |
| Limited record-keeping and reporting | Yes | No | No |
| Minimal legal requirements | Yes | No | No |
| Protection from personal liability | No | Yes | Yes |
| Profits are added to personal income | Yes | No* | No* |
| Easy to understand | Yes | No | No |
| Ability to admit business partners/successional planning friendly |
No |
Yes |
No |
| CGT friendly | Yes | No | Yes |
*Subject to the Personal Services Income (PSI) rules
You may find that your chosen structure no longer serves your needs as your business grows or your priorities change. For example, many people commence businesses as sole traders (often for reasons of simplicity as well as keeping start-up costs to a minimum) but later find that this structure is no longer appropriate. From an income tax perspective, a drawback with sole traders is that income from the business is assessed at your marginal tax rates. In this case, your tax rate increases as your business grows and the revenue increases.
The take-home message is that you should periodically review your structure to ensure it continues to serve your needs. However, be mindful that changing structures can have CGT and stamp duty consequences – these one-off costs must be considered when deciding whether to change. Also note that under the small business rollover provisions, it may be possible for you to change your structure without incurring CGT.
Is your business eligible for fuel tax credits?
The rates for fuel tax credits are changing from 1 July 2023. The fuel purchase must be taxable to be eligible for the fuel tax credits. In other words, an excise or customs duty must be paid on the fuel purchase to be eligible for the fuel tax credits. The eligible fuel types include liquid fuels, such as petrol, diesel, kerosene and heating oil. The eligible fuels are also gaseous fuels such as LPG, LNG, and compressed natural gas (CNC).
Once you establish that the fuel type is eligible, you need to find out if the fuel is used in the following business activities.
- road transport
- agriculture
- fishing
- forestry
- mining
- marine and rail transport
- nursing and medical services
- burner applications
- electricity generation by a commercial generator plant, stationary generator or a portable generator
- construction
- manufacturing
- wholesale/retail
- property management
- landscaping
- dredging
- panel beating
- greenhouse heating
- cement kilns
- quarrying
- industrial furnaces (this list is not exhaustive).
Small business lodgment amnesty
Since Budget night, the ATO has released more information about the small business lodgment amnesty, which can now be taken advantage of from 1 June 2023. The amnesty was announced in the recent Budget. It applies to tax obligations initially due between 1 December 2019 and 28 February 2022 and runs from 1 June 2023 to 31 December 2023.
A small business must be an entity with an aggregated turnover of less than $10 million when the original lodgment was due to be eligible for the amnesty. During this time, eligible small businesses can lodge their eligible overdue forms, and the ATO will then proactively remit any associated failure to lodge (FTL) penalties.
ATO Assistant Commissioner Emma Tobias urged small businesses to take advantage of the amnesty to get back on track with their tax obligations if they have fallen behind. When forms are lodged with the ATO under amnesty, businesses or their tax professionals will not need to request a remission of FTL penalties separately.
The ATO offers a range of support options, including payment plans. Many small businesses can also set up their payment plan online. Ms Tobias also explained that if a business has ceased trading, it must advise its registered tax professional or the ATO directly.
The amnesty applies to income tax returns, business activity statements, and fringe benefits tax returns. It does not apply to superannuation obligations and excludes other administrative penalties, such as penalties associated with the Taxable Payments Reporting System.
Claiming car expenses – which method?
The ATO has just announced that the cents per kilometre rate have increased to 85 cents per kilometre for 2023/24. There are two methods to claim work-related car expenses as follows:
Cents per kilometre method
This method is easier for record-keeping, involves simpler calculations, and is generally suited to those with less vehicle use.
You simply record the number of kilometres you’re travelling for work or business over the duration of the year, and you claim these using a set rate.
The drawback of this method is that you are limited to a maximum of 5000 work-related or business kilometres per year. That gives you a total maximum claim of $4,250. Thus, if you’re using your car a lot for work, you may find that this method is quite limiting.
Logbook method
This method can allow for greater claims depending on how much you use your car for work or business.
However, there are more record-keeping requirements – the main one being that you must keep a 12-week logbook that records all of your business and private trips for those 12 weeks. At the end of the 12 weeks, you calculate your work-related or business percentage use, and you can claim that percentage of all deductions for your car.
You must also keep all receipts for fuel, insurance, registration, interest, and servicing throughout the year. As mentioned, despite the additional effort, it can often lead to a greater claim if you use your car a lot for work and business.
Comparison
| Logbook method | Cents per kilometre meth | |||||
| Pros | · Potentially allows for much larger deductions.
· Ability to claim a percentage of actual expenses and depreciation of the vehicle. |
|
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| Cons | · More time-consuming record-keeping requirements.
· Must keep records of all car expenses. |
· Total claim limited to 5000kms, or $4,250.
· No separate depreciation claims are available. |
Both methods do have their differences and can have their benefits depending on the situation. It’s best to consider which is most realistic for you. Think about:
- Will you have the time or the ability to save all of your car-related records?
- Do you have a lot of business-related vehicle use?
- Are you willing to put in more effort for a better return?
