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November 2023 – Accounting and SMSF Roundup

November and Christmas Round up

With Christmas just around the corner, this month’s accounting and SMSF round up looks at the Fringe Benefit Tax and how to keep your Christmas parties and gifts tax friendly.

1. Christmas Parties and Fringe Benefit Tax
2. Christmas Gifts and Fringe Benefit Tax

Christmas Parties and FBT

With work Christmas parties just around the corner, we look at the tax treatment of such occasions.

Key concepts

To begin with, there are two critical issues to understand.

Entertainment

Typically, fringe benefits tax (FBT) will only apply to a party if it involves the provision of ‘entertainment’. This means the provision of (a) entertainment by way of food, drink, or recreation, or (b) accommodation or travel in respect of such entertainment, such as taxis, hotel accommodations, etc.

In this case, recreation includes amusement, sport and similar leisure-time pursuits and provides recreation and entertainment in vehicles, vessels or aircraft (for example, joy flights, sightseeing tours, harbour cruises).

Minor Benefits

In simple terms, a minor benefit is provided to an employee/associate (spouse) if done so on an infrequent or irregular basis (typically, no more than twice per year), and the cost is less than $300 inclusive of GST per employee/associate. This is $300 per expense (i.e., $300 per meal and drinks and a separate $300 per accommodation, etc.).

Note that for this piece, we will assume the employer (like most employers) uses the Actual method to calculate FBT, whereby FBT is paid only to employees and their associates (not clients or other outside individuals).

Venue

Business premises

Holding your Christmas party on the business premises on a working day (logically, Friday after work) usually gives an employer the most tax-effective outcome. Expenses such as food and drink are exempt from FBT for employees with no dollar limit, but no tax deduction or GST credit can be claimed. The reason why FBT does not apply is because there is typically no “recreational” component in play. Thus, the following rules apply to parties on the business premises:

Employees	Tax Treatment
Food and drink per person (no dollar limit) –	No FBT applies, no tax deduction, and no GST credit is claimable.
Recreation (e.g., band) per person < $300 –	No FBT, no deduction, no GST credit.
Recreation $300 or more –	FBT applies, is tax deductible, and GST credit is available.
Associates
Food and drink <$300 per person –	No FBT, no deduction, no GST credit
Food and drink $300 or more	FBT applies, is tax deductible and GST credit available
Recreation <$300-	No FBT, no tax deduction, no GST
Recreation >$300-	FBT applies, is tax deductible and GST credit available.

EXAMPLE – Christmas party on business premises

A company holds a Christmas lunch on its business premises on a working day.

Employees, their partners and clients attend.
The company provides food and drink and taxi travel home.
The cost per head is $125.

Entertainment is being provided. A party for employees, associates and clients is entertainment because the purpose of the function is for the people attending to enjoy themselves.

Employees – no FBT; exemption applies.

The employer doesn’t pay FBT for the following:

food and drink for employees, because it is provided and consumed on a working day on the business premises.
taxi travel because there is a specific FBT exemption for taxi travel directly to or from the workplace.

Associates – no FBT; exemption applies.

The employer doesn’t pay FBT for the food, drink and taxi travel provided to the employees’ partners (associates) because it is a minor benefit – that is, it has a value of less than $300, and it would be unreasonable to treat it as a fringe benefit.

Clients – no FBT

There is no FBT on benefits provided to clients.

Income tax and GST credits

The employer can’t claim an income tax deduction or GST credits for the food, drink or taxi travel provided for employees, associates, or clients.

Offsite (e.g., restaurant)

The party is held offsite, and the tax treatment is slightly different as follows:

Employees	Tax Treatment
Food and drink <$300 per person –	No FBT, no deduction, no GST credit.
Food and drink $300 or more –	FBT applies, tax-deductible, GST credit available.
Recreation (e.g., band) <$300 –	No FBT, no deduction, no GST credit.
Recreation $300 or more –	FBT applies, tax-deductible, GST credit available.
Associates
Food and drink <$300 per person-	No FBT, no deduction, no GST credit.
Food and drink $300 or more –	FBT applies, tax-deductible, GST credit available.
Recreation <$300 –	No FBT, no deduction, no GST.
Recreation >$300 or more –	FBT applies, tax-deductible, GST credit available.

Clients

Irrespective of the cost or the party’s location (business premises or offsite) under the Actual method, there is no FBT, nor is there a tax deduction or GST credit available for food and drink or any recreation component provided to clients or suppliers. The reason for this is that FBT applies to employment. As a result, clients and suppliers fall outside the FBT system (except where the employer elects to use the 50/50 method to calculate their FBT liability).

Christmas Gifts and FBT

To correctly determine the tax treatment of a gift given to an employee or their associate, e.g., spouse (not just at Christmas time but at any time during the year), a distinction needs to be drawn as to whether the gift is categorised as a “non-entertainment gift” or on the other hand as “entertainment”.

“Entertainment” type gifts include movie theatre tickets, sporting tickets, holiday vouchers or admission to an amusement centre. Whereas “Non-Entertainment” type gifts include Christmas hampers, a bottle of whiskey or wine, gift vouchers, perfume, flowers or a pen set.

For gifts given to entertainment-based clients, no FBT is applicable nor a tax deduction is available. However, these would be tax deductible if you give a client a bottle of wine, a carton of beer or a Christmas ham rather than movie tickets.

Mindful of this, the treatment is as follows:

Entertainment gifts

Employees	Tax Treatment
Cost <$300 per person –	No FBT, no deduction, no GST credit
$300 or more –	FBT, tax-deductible, GST credit available
Associates
<$300 –	No FBT, no deduction, no GST credit
> $300 or more –	FBT applies, tax-deductible, GST credit available

Non-entertainment gifts

Employees	Tax Treatment
Cost <$300 per person –	No FBT, no deduction, No GST credit
$300 or more –	FBT, deduction deductible, GST credit available
Associates
<$300 –	No FBT, tax-deductible, GST credit available
$300 or more-	FBT applies, tax-deductible, GST credit available

No FBT would apply for gifts costing less than $300 to employees and associates, but these are tax-deductible, so feel free to hand out Christmas hams, perfume or shopping vouchers. This is the most tax-effective and economic option.

The rules regarding the minor benefit exemption have changed, so you should feel free to give the gifts at the Christmas Party rather than a few weeks before, as was previously the case. This is because the gift and the cost of the function are considered separate benefits and have their own $300 threshold.

The FBT implications for Christmas parties and gifts can be quite complicated. There are many different variables and combinations that can change the tax-deductible nature and the fringe benefits implications for having an event or giving a gift. Speak with us if you have any questions.

October 2023 – Accounting and SMSF Roundup

October Round up

Our October Roundup focuses on:

1. Cryptocurrency
2. Deductions for superannuation contributions
3. Gifts and donations

Cryptocurrency

Crypto assets are a digital representation of value that you can transfer, store, or trade electronically.

Crypto assets are a subset of digital assets that use cryptography to protect digital data and distributed ledger technology to record transactions. They may run on their blockchain or use an existing platform such as Ethereum. A blockchain is a secure digital ledger used to store a record of crypto transactions.

Crypto generally operates independently of a central bank, authority, or government. However, crypto asset transactions usually are subject to the same tax rules as assets. There are no special tax rules for crypto assets. The tax treatment will depend on how you acquire, hold, and dispose of the purchase.

For tax purposes, crypto assets are not a form of money.

Taxation

You can acquire or dispose of a crypto asset on a crypto trading platform or directly from a digital or hardware wallet. You can exchange or swap crypto assets for other crypto assets, fiat currency or goods and services.

Using or transacting with crypto assets will determine how you treat them for tax purposes. The most common use of crypto assets is as an investment (investors acquire and hold crypto assets to make a financial profit from holding or disposing of them).

Generally, for investors:

crypto assets are taxed as CGT assets, including for self-managed super funds (SMSFs) investing in crypto assets.
rewards for staking crypto are ordinary income for tax purposes.

Businesses transacting in crypto assets may need to account for them as trading stock or ordinary income (that is, on the revenue account rather than as investment capital gains or losses). In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income or a deductible expense, depending on the nature of the transaction.

In some circumstances, crypto assets are not kept mainly for investment but for personal use. Where specific conditions are met, crypto assets are not subject to CGT because they are considered personal use assets.

Tax Calculation

As with other CGT assets, if your crypto assets are held as an investment, you may pay tax on your net capital gains for the year. This is:

total capital gains.
less any capital losses.
less entitlement to any CGT discount on your capital gains.

Before you calculate CGT on your crypto assets, you will need to:

check you have records for your crypto assets and crypto transactions.
convert the value of the crypto assets into Australian dollars.

You need to keep details for each crypto asset as they are separate CGT assets. You can work out your CGT using the ATO’s online calculator and record-keeping tool.

This can be a complex area of the taxation law. For this reason, reach out to us if you are still determining your crypto tax position and the records you are required to keep.

Deduction for Superannuation Contributions

Did you know you can make retirement provisions while improving your tax position? This can be achieved by creating a personal, after-tax contribution to your superannuation fund.

You’re eligible to claim a deduction for personal super contributions if:

You made the contributions to your fund that was not a:

- Commonwealth public sector super scheme in which you have a defined benefit interest.
- constitutionally protected fund (CPF) or other untaxed fund that would not include your contribution in its assessable income.
- super fund that notified us before the start of the income year that they elected to treat all member contributions to the super fund as non-deductible.
  - defined benefit interest within the fund as non-deductible.
You meet the age restrictions. If you are under 67, you meet the limits. If you are 67 to 74, you must meet the work test, meaning you must work 40 hours or more in a consecutive 30-day period in the financial year to make contributions.
You have given your fund a notice of intent to claim in the approved form.
Your fund has validated your notice of intent form and sent you an acknowledgement.

Example

Narrelle is a fulltime teacher. During 2022/23, she earned $85,000 before tax.

She makes a personal $15,000 contribution to an eligible superannuation fund during the income year and notifies it that she intends to claim a deduction.

Narrell’s superannuation fund acknowledges that she will claim a $15,000 deduction and taxes the contribution at 15% ($2,250).

Narrelle is eligible to claim a deduction for $15,000 and does this in her 2022/23 income tax return. This deduction will increase her tax refund by $5,175, an overall tax saving of $2,925.

Please feel free to contact us if you have any questions about this strategy or the taxation of superannuation more generally.

Gifts and Donations

With statistics indicating that Australia is one of the most philanthropic nations in the world (per capita), did you know that – if the rules are followed – you can claim a deduction for donations you make?

Deductible Gift Recipient (DGR)

You can only claim a tax deduction for a gift or donation to an organisation with the status of a deductible gift recipient (DGR). A DGR is an organisation or fund that registers to receive tax-deductible gifts or donations.

Not all charities are DGRs. For example, crowdfunding campaigns are a popular way to raise money for charitable causes. However, many of these crowdfunding websites are not run by DGRs. Donations to these campaigns and platforms aren’t deductible.

You can check the DGR status of an organisation at ABN Look-up: Deductible gift recipients.

No Benefits

The second condition is that you must not receive any material benefit from your donation. You voluntarily transfer money or property without obtaining or expecting any material benefit or advantage in return. A material use is something that has a monetary value.

Example

Robbie is an office worker. Each year, his workplace gets involved in the Daffodil Day appeal to raise money and awareness for the Cancer Council. Robbie buys a teddy bear toy on Daffodil Day for $30.

Robbie can’t claim a deduction for the cost of the toy as he has received a material benefit in return for his contribution to the Cancer Council.

Money or property

The donation must be in the form of money or property. This can include financial assets such as shares.

Conditions

Your donation must comply with any relevant gift conditions – for example, for some DGRs, the income tax law adds conditions affecting the types of deductible gifts they can receive.

Records

Most DGRs will issue you a receipt for your donation, but they’re optional, too. You can still claim a deduction using other records, such as bank statements if you don’t have a ticket.

If a DGR issues a receipt for a deductible gift, the ticket must state:

the name of the fund, authority or institution to which the donation has been made.
the DGR’s Australian business number (ABN) (some DGRs listed by name in the law may not have an ABN).
that it is for a gift.

TIP

If you and your spouse (and children) make donations throughout the year, you can pool the amounts and have the highest-income earner donate. This will maximise your deduction.

Atkins Group

Email: david@ppatkins.com.au77 Willarong Rd
Caringbah, nsw 2229 Australia

September 2023 – Accounting and SMSF Roundup

September Roundup

Our September Roundup focuses on GST rules and maximising GST claims, differences in paying employees travel or living-away-from-home allowances, considerations for appointing SMSF auditors and tax implications of the sharing economy.

GST refresher for your business

Most businesses are familiar with how GST works. But here are a few reminders to make sure you’re being compliant and maximising your GST claims.

GST is paid at each step in the supply chain, and businesses charge GST in the price of goods, services or anything else they supply. If an entity is registered for GST, it can claim input tax credits from the ATO for any GST included in the price paid for goods, services or anything else bought for the business. However, GST-registered enterprises’ liability to pay GST rests on the supplier of goods and services, not on the consumer. In other words, even if the business does not include the GST in the price of goods and services supplied, it is still liable to pay it to the ATO.

Coffee or cars, anyone?

As we move into a new financial year, you may be considering rewarding the office with an impressive new coffee machine for the staff room, or perhaps you are thinking a bit bigger, say a new vehicle. Either way, you may want to keep some of these GST issues in mind:

Second-hand goods*

Buying second-hand can often be cheaper. However, in most cases, you will not be able to claim GST on the purchase from a non-registered seller (e.g., a friend or privately via Gumtree, eBay, etc.) unless the seller is a reseller of second-hand goods registered for GST. (And if you are registered for GST, don’t forget to charge GST when you sell your business assets, regardless of whether the purchaser is registered for GST or not.)

(*excludes goods containing valuable metals)

Deposits

The purchase of a significant asset often requires a deposit to be paid. Suppose you report GST on a cash basis. In that case, you will not be entitled to claim a GST input tax credit on the deposit at the time of paying (you may be entitled to claim it if you have paid an amount in addition to the deposit or if you report GST using the non-cash accounting method and hold a tax invoice). If you haven’t claimed GST when paying the deposit, make sure to claim GST on the total purchase price, including the deposit, when the deposit is later applied towards the asset’s cost (which may occur in a later BAS reporting period).

Purchasing a car for more than the car limit

Your GST input tax credit will be limited if you purchase a car with a cost that exceeds the tax car cost limit for depreciation. The car cost depreciation limit is the maximum you can claim as depreciation deductions for income tax purposes ($68,108 in 2023-24). Where the cost of your car exceeds this value, your GST claim is limited to 1/11^th of the car limit, i.e., $6,191 (1/11^th x $68,108). Notably, there are some exceptions to this rule where your GST entitlement will not be limited, including purchasing a commercial vehicle (those not designed to carry passengers) or motor homes and campervans.

Be aware, however, that on the disposal of the car, there is no corresponding reduction or adjustment to the GST on the sale proceeds, i.e., you must pay the ATO 1/11^th of the entire sale proceeds. This is the case even if your GST and depreciation claims were limited on the purchase under these rules.

Cancelling your GST registration

A cost often overlooked when considering winding up a business is the potential need to repay GST previously claimed regarding assets you still hold. In most cases (a few exceptions), you must cancel your GST registration within 21 days of selling or closing your business. You can also choose to cancel your GST registration if your GST turnover is below the turnover threshold ($75,000). If you still hold business assets on which you previously claimed GST when you cancel your GST registration, you may need to repay some of those credits, depending on how long you have owned the asset and its original cost. The adjustment will generally be 1/11^th of the GST-inclusive value of the asset at the time of cancelling your registration (where this value is lower than its original cost).

Small but not insignificant

It’s not just on these larger transactions where we can uncover GST issues. Although the dollars involved are usually more significant when buying and selling business assets, it is straightforward to over or under-claim GST on our day-to-day transactions. Over time, these can add up to a sizeable GST adjustment. For example:

Bank fees – ordinary monthly bank account charges won’t include GST, but merchant fees do, so check your accounting system is set up to capture the GST on those merchant fees.
Insurance policies – insurance policies often include a small stamp duty component, which does not attract GST. You may be overclaiming GST if your accounting software is set up to claim a full 10% GST (or 1/11th of the premium cost).
Recharge or top-up cards – e.g., for tolls, telephone (and vouchers given as Christmas or other gifts) – GST should only be accounted for when the recharge is used or redeemed for purchases used in your business, not when the cards or vouchers are purchased.
Private apportionment – eligible small businesses can make an annual apportionment of GST where purchases are partly for business and partly for private purposes rather than each time you pay an expense. You can make this adjustment in the activity statement that covers the period your income tax return is due, making sure not to reduce your GST claim twice (once when you paid the expense and once as part of the annual adjustment).
Software subscriptions – You may not claim GST on software subscriptions because the supplier is overseas. However, from 1 July 2017, the rules changed in this area, so you may be paying GST when you do not have to or not claiming GST when you could be – you will need to check your tax invoices and let your bookkeeper or accountant know if the software subscriptions you are paying include GST (or provide the software supplier your ABN so you are not charged in the first instance).

Remember, the best way to maximise your GST claims is by checking your tax invoices for GST paid (you have four years to claim the GST) and then keeping those and other GST records for five years.

Allowances

Do your employees travel for work?

The ATO has issued new guidance to help employers determine whether to pay employees a travel or living-away-from-home allowance (LAFHA). There are some key differences between the treatment of the two types of payments:

A travel allowance will generally need to be included in your employee’s assessable income and may require tax withheld. It covers accommodation, food, drink or incidental expenses an employee incurs when they stay away from their home overnight or for a short period to carry out their duties. It’s generally deductible to the employer.
A LAFHA payment you provide to your employees may be considered a LAFHA fringe benefit. Where this is the case, it must be reported in your annual fringe benefits tax (FBT) return. LAFHAs are paid to compensate employees for additional living expenses they incur if they’re required to live away from home for an extended period for work purposes. In certain circumstances, such payments may be exempt from FBT for the employer and not taxable to the employee!

LAFHAs are paid when an employee has moved and taken up temporary residence away from their usual residence to be able to carry out their job at the new but temporary workplace. The employee has a clear intention/expectation of returning home on the cessation of work at the temporary location (in this sense, the employee is absent for a limited/finite period).

On the other hand, a travel allowance is paid for specific trips because the employee is travelling while performing their duties but has not temporarily relocated as a LAFHA recipient would. The existing work location continues to be the employee’s regular place of work. In travelling away from home, the employee simply takes travel items (such as toiletries and a few changes of clothes). Employees receiving a travel allowance will also typically use temporary accommodation such as hotels.

A travel allowance provided by an employer is not taxed under the FBT regime but may be taxed under the PAYG withholding regime as a supplement to salary and wages. The ATO publishes guidelines yearly on what it considers reasonable amounts for a travelling employee. These guidelines give a reasonable daily travel allowance amount and consider the following factors:

Destination of travel (broken down into metropolitan cities, country centres within Australia and international countries),
accommodation,
meals,
other incidentals,
employee annual salary (in ranges), and
specific rates for truck drivers.

Countries other than Australia are split into “cost groups”, each determining the reasonable daily allowance amount. These are determined based on the cost of living in that country and then numbered between cost groups one to six. Cost group one has the lowest daily allowance, and cost group six has the highest.

The reasonable amounts are intended to apply to each full day of travel covered by the travel allowance, with no apportionment required for the first and last day of travel.

Where the employer has paid the employee less than the ATO-determined reasonable amount, the employer is not obligated to withhold from the allowance, nor does the employer have to include the allowance on the employee’s PAYG income statement.

Some key differences between the two types of payments are captured in the following table:

TRAVEL ALLOWANCE	LAFHA
The existing work location continues to be the employee’s regular place of work.	The employee has established a second or alternative work location.
The employee takes travel items (e.g., toiletries, change of clothes).	The employee effectively takes up temporary residence away from their usual residence and may take residential belongings.
The employee (and their family) reside near the existing work location.	The employee has temporarily relocated, and their family may have joined or visited them.
The employee uses temporary styles of accommodation such as a hotel.	The employee uses longer-term accommodation while away from home, e.g., a lease of residential premises.
The employee is on a specific trip for less than a month. The employee stays	The employee is staying away from work at an alternative work location for a significant period, generally more than one month.

Ultimately, travel allowances are a handy employee retention tool – helping them cover the costs of work-related expenses they may incur while travelling or relocating for business. Speak with us if you are uncertain about their taxation treatment.

Accommodation Sharing and Tax

The ATO has reminded taxpayers of the sharing economy tax implications when providing accommodation.

The sharing economy provides an excellent opportunity for individuals with spare rooms or spare entire properties to rent out space and earn rental income using facilitators such as Airbnb. Indeed, approximately 2.1 million individuals reported rental revenue of $42 billion in the past financial year. This comes as the ATO announces a new data-matching program specifically targeting around 190,000 taxpayers receiving income from short-term rentals. The ATO said it would examine the information provided by online platforms like Airbnb to identify taxpayers who had left out rental income and over-claimed deductions.

If you are renting out rooms of your home, or indeed entire properties – whether via Airbnb or another facilitator or certainly just privately – there are many tax issues to be aware of:

Rental Income

This will need to be declared in your tax return, irrespective of whether you rent out a room or an entire property or whether this is your primary source of income.

Rental Expenses

Expenses from renting out your property can be a tax deduction. However, there can be several complexities. Expenses directly associated with the rented area are deductible in full. In contrast, expenses that relate to shared areas (i.e., areas that you, as the host, may share with renters) must be apportioned. Expenses that relate to the host’s private room only are not deductible.

Expenses include claims for depreciation and capital works deductions (i.e., depreciation on the building structure). Expert advice should be sought as this is a complex area, with significant beliefs potentially in play.

Capital Gains Tax

Broadly, the sale of your primary residence is free from Capital Gains Tax (CGT) when you sell it, where it was the primary residence for the entire time you owned it, and it was not used to produce income. However, if you are renting out a portion of your home, you will only be eligible for a partial principal residence exemption. If you rent out the entire house, then none of the property will enjoy the principal residence exemption for that period. Exceptions, however, apply, including the ability to rent out your home for six years yet still enjoy the full CGT principal residence exemption. This exemption, however, is subject to several conditions, and advice should be sought on your specific circumstances.

It is important to note that properties purchased before 20 September 1985 are exempt from CGT, irrespective of whether they are rented out.

Goods and Services Tax

Income from renting out part or all of a residential property is typically “input-taxed”. This means you should not charge GST on the rent you earn from guests. Conversely, you cannot claim GST credits for any rental expenses you incur, but you can claim the GST-inclusive amount of any rental payments as a tax deduction. All told, there is no requirement to register for GST because of your rental property alone.

Record Keeping

As your tax agent, we are limited in the claims we can make for you on your property to the records you keep. Retain all expense records (i.e., receipts) to maximise your deductions.

Take-Home Message

The number of people renting out their house or part of their house has exploded recently, mainly due to facilitators such as Airbnb. While this is an excellent avenue for earning essentially passive income, there are a few tax issues that landlords need to be across.

Contact us if you would like to discuss any aspect of tax around accommodation-sharing or rental properties more generally.

Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.

Small Business Lodgement Penalty Amnesty

The ATO is offering a lifeline to eligible businesses with outstanding tax debts.

Small businesses have a one-off amnesty to lodge outstanding tax returns without penalties.

The amnesty operates until 31 December 2023 and allows small businesses to lodge outstanding tax returns and business activity statements (BAS) that were due between 1 December 2019 and 28 February 2022, without incurring penalties.

The Federal Government has established the amnesty as part of the 2023-24 Federal Budget, to recover some of the estimated $30 billion in small business tax debt.

It applies to businesses with an annual turnover of under $10 million at the time the original lodgement was due.

How will the amnesty assist my business?

Lodging a tax form late can expose your small business to a $1,100 penalty. If you utilise the amnesty, that penalty will be automatically waived. Lodgements need to be done by 31 December 2023.

ATO repayment options

The outstanding lodgements are only one part of the issue. Many small businesses have outstanding tax debts, and getting your tax lodgements up to date may crystalise further tax debts.

If you are concerned about finding the funds to make payment, you should contact an advisor to discuss your available options and effectively manage your obligations. We are already seeing an increase in ATO debt recovery actions and we expect the ATO to further ramp up enforcement activities once the amnesty has ended.

An option that might be available to your business is establishing a repayment plan with the ATO. At present, the tax office has around 400,000 active payment plans – 300,000 of which belong to small businesses.

There are several repayment options offered by the ATO:

Self-service payment plan: This is only available to tax debts under $100,000 and has a standard 28-day processing time. The proposed plan should enable the debt to be paid off in two years or less, and the first payment must be scheduled within seven calendar days of the request.
Proposing a payment plan: These plans are offered on a case-by-case basis and the ATO considers many factors when assessing eligibility including compliance history, risk mitigation and the size and age of debts

How do I access the amnesty?

To access the small business lodgement penalty amnesty, lodge your relevant forms either independently or through a registered tax agent.

Failure to Lodge penalties may appear on your business’s ATO account, however eligible fines will be remitted.

While the amnesty only covers outstanding tax obligations originally due for lodgement within the period mentioned above, we urge businesses to lodge all overdue forms as the Australian Taxation Office considers circumstances on a case-by-case basis and may waive penalties.

It’s also important to communicate with the ATO because outstanding obligations and a lack of communication can trigger an ATO review or audit.

August 2023 Roundup

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.

· Simple calculation and record keeping.
. No need to keep all receipts for running expenses.

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?