Budget incentives and crackdowns on unpaid tax debts and rental deductions
Although this year’s Federal Budget was short on big changes when it came to tax, there still have still been some important developments in this area. Here are some of the latest developments in the world of tax.
Small business tax incentives and write-offs
The budget ushered in some valuable new tax incentives for small businesses, including halving the increase in quarterly tax instalments from 12 per cent to 6 per cent for both GST and income tax during 2023-24.
The government also introduced a bonus 20 per cent deduction for businesses with turnovers under $50 million when they spend on energy saving upgrades. Up to $100,000 of total expenditure will be eligible, with the maximum bonus tax deduction being $20,000 per business.
Although smaller than the previous year, the instant asset write-off continues in 2023-24 with up to $20,000 available for immediate deduction on eligible assets.
The planned third tranche of personal income tax cuts due to start next financial year also remained in place, while >the low and middle income tax offset was not extended.
Super changes for employers
Another significant tax change announced in the budget will affect employers. From 1 July 2026 employers will be required to pay their Super Guarantee (SG) obligations at the same time they pay employee salary and wages.
The ATO has received additional resources to help it detect unpaid super payments earlier.
Employers also need to remember the SG amount for employee super rises to 11 per cent from 1 July 2023.
Tax debt warnings sent out
The ATO is continuing to write to directors of companies with tax debts warning if the company hasn’t paid the amount owing or contacted it to make other arrangements, a director penalty notice(DPN) may be issued.
DPNs are issued to current directors and anyone who was a director at the time the company failed to pay. They make directors personally liable for failure to meet pay-as-you-go withholding (PAYGW), GST and Super Guarantee Charge obligations.
Directors receiving these letters need to arrange payment of the overdue amount or enter into a payment plan.
Data will be obtained from financial institutions including all the major banks, regional banks and building societies.
The information is being collected following the ATO’s identification of a tax gap of $1 billion for individuals in the 2020-21 financial year due to incorrect reporting of rental property expenses.
Self-education expenses under spotlight
The ATO is currently developinga new draft taxation ruling covering the deductibility of self-education expenses incurred by an employee or an individual carrying on a business.
The draft ruling will reflect the current rules in this area following repeal of several sections of the Income Tax Assessment Act and some new legal decisions. The new ruling is expected to be completed in late June.
Taxpayers claiming self-education expenses recently had the existing requirement to exclude the first $250 of deductions removed.
GST fraud enforcement continues
Search warrants were executed in three states against individuals suspected of promoting the fraud. This follows previous compliance action against more than 53,000 people, with two individuals sentenced to jail time for their GST fraud activities.
Cyber safety checklist released
The ATO is again emphasising the importance of business cyber safety by releasing a new checklist for small businesses.
The tips include simple ideas for keeping business and client data safe from cybercriminals, such as turning on automatic updates and using multi-factor authentication when possible.
Resources for training staff on preventing, recognising, and reporting cyber incidents are available from the government’s Australian Cyber Security Centre.
After taking a softly, softly approach with taxpayers during the pandemic, the ATO has made it clear it will start chasing taxpayers for their outstanding tax related debts.
Starting with its aged debt book, the ATO is sending letters to taxpayers asking them to engage or face firmer action. An aged debt is an uneconomical debt the ATO has placed on hold and not taken any recent action to collect, but this is about to change.
Potential action includes offsetting tax refunds to pay tax debts and disclosing tax debts to credit reporting bureaus, a move that could affect your business’ credit rating and ability to raise funds.
Dealing with your tax debts
What are your options if you are having difficulty meeting your tax or employee super obligations?
The first thing to remember is not to panic. Ensure you lodge all your tax returns on time to avoid a late lodgment penalty and to show the ATO you are aware of your obligations and are doing your best to meet them.
Where you have a good payment history or are in serious hardship, the ATO will offer you support and you are likely to be treated more generously than if you have deliberately set out to avoid tax, or regularly fail to pay your tax.
If you can’t pay by the due date, you may be allowed to set up a payment plan. The ATO has a Payment Plan Estimator tool you can use to work out a suitable payment schedule. Daily interest on your unpaid debt will accrue, however, at an annual rate of 8.00 per cent in the July to September 2022 quarter.
Eligible small businesses owing activity statement amounts may also be able to make interest-free payments over 12 months.
What will the ATO do if I don’t pay?
Aside from charging interest, if you don’t pay, the ATO will begin offsetting future tax refunds to reduce your tax debt and debts to other government agencies, such as overdue child support.
The ATO may take stronger action with taxpayers unwilling to engage, repeatedly defaulting on payment plans, found to have deliberately avoided paying tax, or who are engaged in phoenix activities.
These harsher powers include issuing a garnishee notice or a DPN. Garnishee notices require an employer, bank or trade debtor to pay your money directly to the ATO to reduce your tax debt.
The ATO may also file a claim or summons, which can result in you receiving a bankruptcy notice, or a statutory demand and application to wind-up your company.
Missing super contributions
Failing to meet your obligation as an employer to pay Superannuation Guarantee (SG) contributions into your employees’ super accounts is also in the ATO’s sights.
If you don’t pay your required SG contributions by the quarterly payment deadlines, you must pay the SG Charge (SGC) and lodge an SGC Statement. The SGC consists of a shortfall amount, 10 per cent annual interest and an administration fee for each unpaid employee per quarter. You are also ineligible to claim a tax deduction for the SG contributions against your business income.
Penalties for SG non-payment
The ATO is prepared to support employers who engage and try to get things right with their SG payments but will take firmer action with businesses repeatedly failing to pay correct SG amounts or supply the necessary information.
With employers who pay and lodge their SGC Statement late, or who fail to provide information during an audit, the ATO can impose a Part 7 Penalty, which is up to 200 per cent of the SGC amount payable.
Company directors failing to meet their SGC liabilities risk having the business’ liability become their personal liability. The ATO may also start bankruptcy action or seek to wind-up your business.
Don’t ignore a tax debt
Communication with the ATO is essential when it comes to tax and super debts.
To get on top of the situation, contact the ATO or make an appointment with us to discuss your financial position and possible ways to pay your tax and super obligations. The sooner you act the better the outcome is likely to be.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
As we move towards the end of the 2022-2023 financial year, tax planning becomes a crucial part of any business’s success.
So, it’s never too early to start thinking about how to minimise your tax liability, and RGM is here to help you navigate the complexities of the Australian tax system.
Whether you’re an established business or a startup, there are strategies you should be discussing with your RGM advisor to ensure you’re taking advantage of all available tax planning opportunities.
For established businesses, tax planning is about maximising profits and minimising tax liability. Here are some strategies you should consider discussing with your RGM accountant:
CGT Concessions
As an established business, it’s important to consider the Capital Gains Tax (CGT) concessions available to you. These concessions can help reduce the tax you owe on the sale of certain assets, which can have a significant impact on your financial success.
Small businesses in Australia can access specific CGT concessions, including the 15-year exemption, 50% active asset reduction, retirement exemption, rollover, and restructure rollover. By applying these concessions, you may be able to reduce your capital gain and potentially eliminate some or all the tax owed on the sale of assets.
However, the rules around these concessions are complex and can be costly if you get them wrong. That’s why we recommend seeking professional advice before restructuring or disposing of assets and ensuring your business structure is designed to take advantage of the available concessions.
At RGM, our team of qualified tax professionals can help you navigate the complexities of CGT concessions and advise on the most effective strategy to minimise your tax liability while complying with Australian tax laws and regulations. We can review your business’s financials and provide tailored advice to help you maximise the benefits of CGT concessions and position your business for long-term financial success.
For established businesses, the Instant Asset Write-off can be a powerful tax planning strategy to help stay competitive in the market. This measure enables businesses to claim an immediate deduction for the full cost of newly acquired assets in the first year they are used or installed, rather than depreciating the cost over several years.
This can help free up cash flow, allowing you to invest in new equipment, technology, or other assets that can help grow your business and improve your bottom line.
It’s worth noting that this temporary full expensing measure is set to expire on June 30, 2023, so if you’re considering purchasing new assets, it’s important to act quickly to take advantage of this opportunity.
It’s also crucial to carefully assess your options and determine whether the Instant Asset Write-off is the right strategy for your business. Our team can help you identify whether this measure aligns with your business goals and needs, and ensure that you’re taking advantage of all the available tax planning opportunities.
Contact us today to discuss your business’s unique situation and how we can assist you in optimising your tax planning strategy.
The loss carry-back strategy is a tax planning tool that can provide relief to established businesses facing financial difficulties. It allows businesses to offset losses incurred in the current financial year against profits made in the previous financial years, potentially resulting in a refund of taxes paid in those years.
This strategy can help businesses to manage cash flow and remain financially stable during challenging times such as we are currently seeing, economic downturns or changes in the market.
However, it’s important to be aware that utilising this strategy can reduce a company’s franking account balance, which may impact the ability to pay fully franked dividends to shareholders and affect investor confidence.
Before deciding to implement the loss carry-back strategy, it’s important to carefully consider the potential benefits and drawbacks and seek professional advice to ensure it aligns with your business goals and overall tax planning strategy.
Our team at RGM can provide expert advice and guidance tailored to your business needs and we encourage you to discuss any tax planning opportunities with us.
Writing off bad debt is another tax planning strategy that can benefit established businesses in Australia.
When a business sells goods or services on credit and the customer fails to pay, the business may have to write off the debt as bad debt. By doing so, you can claim a tax deduction on the amount of the bad debt, which can reduce your taxable income and lower your tax liability.
For instance, let’s say that your business has a bad debt of $50,000 from a customer who failed to pay for goods or services delivered on credit. By writing off this bad debt, your business can claim a tax deduction of $50,000, which would reduce the taxable income and lower the tax liability for the financial year.
However, it’s important to note that there are strict rules and requirements around writing off bad debt for tax purposes, and businesses must ensure your meet these requirements to claim the tax deduction.
For example, the debt must be considered irrecoverable, and your business must have taken reasonable steps to recover the debt before writing it off.
At RGM, we can help established businesses navigate the complex rules and requirements around writing off bad debt for tax purposes. Our team can review your business’s financials and advise on the most effective way to write off bad debt and claim the tax deduction while ensuring compliance with Australian tax laws and regulations.
If you’re a startup business, tax planning is equally important. Our team can help you develop a comprehensive tax strategy that aligns with your unique needs and goals.
Some tax planning strategies that may be relevant for startups include:
Structuring your business:
Choosing the right business structure is one of the most important tax planning strategies for startup businesses. The structure you choose can have a significant impact on your tax liability, as well as your legal and financial obligations.
For example, setting up a businessas a sole trader may be the simplest and most cost-effective option, but it also means that you are personally liable for any debts the business incurs. Alternatively, incorporating your business as a company can provide more legal protection but may result in higher compliance costs.
Our team of experts can help you navigate the different business structures available and determine which one is the most tax-effective for your startup. This may involve assessing factors such as your business goals, the size and complexity of your business, your expected profits, and your personal financial situation.
Additionally, we can help you understand the ongoing tax obligations associated with your chosen structure, such as tax reporting requirements, compliance with regulations, and managing your tax liabilities. By having a clear understanding of your tax obligations, you can avoid costly penalties and ensure that your startup is positioned for success.
Contact our team today to discuss how we can help you choose the right business structure for your startup and minimise your tax liability.
In addition to choosing the right business structure, startups can also benefit from taking advantage of the Research and Development (R&D) Tax Incentive. This government program provides tax offsets for eligible R&D activities, which can be a crucial source of funding for startups looking to invest in innovation and growth.
To determine if your startup is eligible for the R&D Tax Incentive, our team can help you assess your R&D activities and expenses to ensure they meet the program’s eligibility criteria. We can also guide you through the application process to ensure you receive the maximum benefit available.
Our team can also provide ongoing support to ensure that you continue to meet the program’s requirements and maintain your eligibility over time. By taking advantage of the R&D Tax Incentive, your startup can potentially access significant funding to fuel your growth and innovation efforts.
As a startup business, you may have incurred significant expenses in setting up your business. These expenses can add up quickly and put a strain on cash flow, which is why it’s important to take advantage of any tax deductions available.
Our team of experts can help you identify which startup expenses are tax-deductible and how to claim them. This can include expenses associated with registering your business, such as ASIC fees, legal fees for setting up your business structure, and costs associated with obtaining any necessary licences or permits.
Other deductible startup expenses may include advertising and marketing costs, website development expenses, and expenses related to product development or research and development activities.
By properly claiming these startup expenses, you can potentially reduce your taxable income and minimise your tax liability.
Our team can work with you to ensure that you are taking advantage of all available deductions and claiming them correctly on your tax return. This can help to improve your cash flow and allow you to reinvest in your business.
Overall, tax planning is essential for businesses as it can significantly impact your financial success.
By taking a proactive approach and seeking professional guidance where necessary, you can ensure that you’re taking advantage of all available tax deductions and concessions. This can result in improved cash flow, reduced tax liability, and increased profitability.
Businesses need to prioritise tax planning and work with qualified tax professionals to develop a comprehensive strategy that aligns with their unique needs and goals. By doing so, you can position yourself for long-term financial success and stability.
At RGM, we are committed to helping businesses of all sizes achieve their financial goals through effective tax planning strategies.
Whether you’re an established business or a startup, we have the expertise to help you navigate the complexities of the Australian tax system.
Start your tax planning today by booking a meeting with your RGM advisor.
The ATO is cracking down hard on GST frauds after finding a significant number of taxpayers falsely claiming GST refunds.
The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.
The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.
Falsely claiming a GST refund
GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office.
In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.
Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.
Rules for claiming GST credits
It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.
You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.
GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.
Warning signs for GST fraud
The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The tax regulator has significant data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.
Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.
If you are caught
The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.
If you are involved in a fake GST arrangement, the first step is to contact the ATO or your accountant so they can assist you to work through various self-help options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.
Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.
Fraud and compromised IDs
Selling or sharing your myGov credentials may result in other people accessing your personal information and using it for their financial gain.
If you have become involved in a GST fraud because your identity was compromised, you should contact the ATO immediately so additional controls can be placed on your tax account.
Taxpayers who have given their myGov details to a criminal should contact the ATO so it can assist them to protect their identity from being used to commit further crimes, including future tax crimes undertaken in their name.
Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).
Liability limited by a scheme approved under Professional Standards Legislation.
Business taxes remained largely unchanged in the second Federal Budget of 2022, but employees working from home can expect less generous deduction rules for the 2022-23 financial year. Here’s some of the latest tax developments.
All quiet on the small business tax front
There were no significant tax changes affecting small business in the October 2022 Federal Budget, although there was a big focus on tax compliance.
The ATO will receive $685 million over four years to help it raise $2.1 billion from a crackdown on shadow economy activities. This may be of concern to some small and mid-size enterprises (SMEs), as the ATO believes the bulk of these activities occur among smaller business taxpayers. The Budget also included a $15.1 million boost for the existing small business debt helpline and programs focused on the financial and mental wellbeing of small business owners. Help with rising energy costs included $63 million to improve SME energy efficiency and energy use.
It’s unknown whether measures of the popular instant asset write-off and carry back of losses will be extended past 30 June 2023. We may need to wait for the May 2023 Budget for the answer.
STP Phase 2 deadline soon
With Single Touch Payroll (STP) Phase 2 reporting now well underway, small business employers need to remember their next reporting deadline is 1 January 2023.
Common STP reporting mistakes seen by the ATO this year include incorrect re-mapping of pay codes and not separately itemising bonuses, overtime and commissions; failure to correctly input existing year-to-date amounts; and incorrectly categorising allowances. The ATO has a range of factsheets and resources available to help employers get their STP reporting right.
Draft guidance on work from home deductions
Taxpayers working from home are likely to face significant rule changes when claiming tax deductions this financial year following release of the ATO’s draft guidance on the issue.
Under the new guidelines, employees will only be permitted to claim a deduction of 67 cents for every hour they genuinely work from home, instead of the 80 cents under the short-cut method available prior to 1 July 2022.
Asset depreciation on items used for work purposes will require a separate depreciation calculation. Employees will not require a separate home office or dedicated work area to claim the deduction, but normal substantiation rules apply.
Alternatively, employees working from home can claim a deduction for their expenses using the traditional actual cost method.
Increase in ATO penalty units
Taxpayers running afoul of the taxman will find themselves facing bigger bills this year after the Federal Budget included measures to increase the fines for regulatory penalty units. From 1 January 2023, fines will jump from $222 to $275 per penalty unit, a 19.3 per cent increase.
This is on top of regular indexation by the CPI, which is every three years, and this will remain in place, with the next one due to take effect on 1 July 2023.
Enhancing tax transparency
Large private business entities will face more scrutiny of their tax affairs after new legislation passed through Parliament to require greater transparency of the tax affairs of private companies.
The reform reduces the tax information reporting threshold for private corporate tax entities to companies with a total income of $100 million or more (previously $200 million or more). This lower threshold applies to reporting for 2022-23 and subsequent financial years.
The previous grandfathering of the exemption applying to certain large proprietary companies from the normal obligation to lodge their annual reports with ASIC was also removed.
Super for holiday season employees
Employers planning to hire staff on a short-term basis for the holiday season need to remember changes to the Superannuation Guarantee (SG) rules mean temporary staff may be eligible for super contributions.
From 1 July 2022, employers must make SG contributions at 10.5% for eligible employees regardless of how much they earn after removal of the $450 per month eligibility threshold.
For new employees who are offered choice of super fund but fail to choose, you must request their stapled super fund details from the ATO to meet your super obligations.
