New controls for ATO Online and tax charges non-deductible
Following the use of stolen personal data to access ATO Online accounts, the federal government has tightened the access rules to online tax accounts as part of an increased focus on the vulnerability of small and medium businesses to cyber incidents.
ATO interest non-deductible
From 1 July 2025, taxpayers will no longer be able to claim tax deductions for ATO interest charges.i
Although not yet law, the government made the announcement in its 2023-24 Mid-Year Economic and Fiscal Outlook.
Since deductions for general interest charges (GIC) and shortfall interest charges (SIC) will not be permitted after July 2025, any GIC or SIC later remitted by the ATO need not be included in assessable income.
New fraud controls
Tighter controls for taxpayers’ ATO online accounts will make it more difficult for criminals to commit identity fraud using stolen personal information such as bank and ATO statements and tax file numbers.
The changes mean taxpayers who use their myGovID to log into the ATO will need to use myGovID for all future logins, leaving criminals unable to access the account without it.
The government is urging Australians to upgrade to myGovID when interacting with government agencies online and has released its new Cyber Security Strategy to support small and medium businesses vulnerable to cyber incidents.
Holiday home claims
The ATO is continuing its crackdown on tax deductions for holiday homes by encouraging tax professionals to check how clients are using their property and if they are correctly apportioning deductions in line with the time period the property is producing income.ii
Some holiday homeowners are not reducing deduction claims if they are reserving their property during peak periods or are placing unreasonable conditions restricting the likelihood the property will be rented.
We have been requested to check the number of days the property is blocked out for the owners, how and where the property is being advertised, whether family or friends used the property, and if any parts of the property are off-limits to tenants.
Checking R&D claims
Working in conjunction with the Department of Industry, Science and Resources, the ATO will be undertaking random reviews of companies taking advantage of the government’s R&D tax incentive.
The reviews will be assessing the eligibility of company’s R&D tax incentive activities and expenditure, with companies selected for review being contacted directly.
If common errors are identified during the review process, the ATO will share them with all program participants.
Tough times may mean a payment plan
With some small businesses facing difficult trading conditions, the ATO is reminding taxpayers in financial distress they may be eligible to set up a payment plan if they are unable to pay their tax bill in full and on time.
Eligible taxpayers who have a tax bill of up to $200,000, may be able to set up their own payment plan using the ATO online or self-help phone services.
Payment plan eligibility requires the business to be viable and able to make an up‑front payment with completion within the shortest possible timeframe to minimise accruing GIC (currently 11.15 per cent).
Medicare safety net thresholds increase
Thresholds for the Medicare safety nets rose from 1 January 2024, resulting in an increase taxpayers need to spend on out-of-hospital medical expenses before qualifying for a higher rebate.
The increase is in line with indexation based on inflation and rose to $560.40 on the original Medicare safety net for concessional and non-concessional individuals and families.
The extended Medicare safety net increased to $811.80 for concessional individuals and families and $2,544.30 for non-concessional.
Translated cybersecurity guides available
The government’s Australian Cyber Security Centre has released five popular cyber security guides in more than 20 languages to help business owners from non-English speaking backgrounds to improve their cyber security knowledge.
The five free guides include a small business cyber security guide, personal and top tips for cyber security, easy steps to securing devices and accounts, and a seniors guide to securely using the internet.
Prime Minister Anthony Albanese has announced proposed changes to address ongoing cost of living pressures with all 13.6 million Australian taxpayers receiving a tax cut from 1 July 2024, compared to the tax they paid in 2023-24.
Now is the time to assess what it means to your hip pocket and what implications it may have for end of financial year planning as a result of the new rules, due from 1 July 2024.
The Federal Government has recently announced changes to the third stage of a series of tax reforms introduced by the previous Coalition government almost six years ago which were designed to deliver tax cuts to most, simplify the tax system and protect middle income earners from tax bracket creep.
The proposed changes
The new rules will see the current lowest tax rate reduced from 19 per cent to 16 per cent and the 32.5 per cent marginal tax rate reduced to 30 per cent for individuals earning between $45,001 and $135,000.
The current 37 per cent marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45 per cent rate will now apply to income earners with taxable incomes exceeding $190,000.
In addition, the low-income threshold for Medicare levy purposes will be increased for the current financial year (2023-24).
A single taxpayer with a taxable income of $190,000 paid $59,967 tax in 2023-24. Under the revised rules, they will now pay $55,438 tax, a tax cut of $4,529. While still a reduction in tax paid, this compares with the $7,575 tax cut received if the original Stage 3 tax cuts had proceeded.
On the other hand, low-income earners will receive a bigger tax cut under the revised rules.
A single taxpayer with a taxable income of $40,000 who paid $4,367 in tax in 2023‑24, would have received no benefit from the original Stage 3 tax plan, but will now receive a tax cut of $654 under the revised rules.
Implications for investment strategies
For high-income earners, the key take-away from the government’s new changes to the tax rules is you will now receive a lower amount of after-tax income than you may have been expecting from 1 July 2024.
This reduction makes it sensible to revisit any investment strategies you had planned to take advantage from your larger tax cut to ensure they still stack up.
For example, the smaller tax cut for some may impact the effectiveness of property investment.
Investment strategies such as negative gearing into property or shares, however, may become more attractive. Particularly for investors close to the new tax thresholds and looking for opportunities to avoid moving onto a higher tax rate.
Timing expenditure and contributions
Investors considering repairs or maintenance for an existing investment property should revisit when these activities are undertaken. Depending on your circumstances, this expenditure may be more suitable in the current financial year given the difference in tax rates starting 1 July 2024.
Selling an asset liable for CGT also needs to be reviewed to determine the most appropriate financial year for the best tax outcome.
Other investment strategies that may need to be revisited include those involving making contributions into your super account.
If you are considering bringing forward tax-deductible personal super contributions, making carry-forward concessional contributions, or salary sacrificing additional amounts before 30 June, you should seek advice to ensure the timing of your strategy still makes sense.
If you would like help with reviewing your investment strategies or superannuation contributions in light of the new rules, contact us today.
This year’s Federal Budget was full of talk about one-off support for households in the form of tax offsets, but most people are a bit hazy on the difference between a tax offset and a tax deduction.
Both can help reduce the amount of tax you pay each year, but a tax offset generally results in a bigger dollar tax saving than a tax deduction of the same amount. The key difference is the point at which they are applied to your income when calculating the final amount of tax payable.
What is a tax deduction?
A tax deduction is one of the first things applied to your income when calculating your tax bill. It reduces your taxable income and hence the amount of tax you pay, potentially moving you into a lower tax bracket. Deductions are intended to ensure you only pay tax on income exceeding the costs associated with earning that income.
For a small business, deductions ensure it doesn’t pay tax if its running costs exceed its revenue. Common deductions include operating expenses such as stationery, and capital expenses such as equipment.
Employees can claim deductions in a similar way. Personal deductions include work-related expenses like the cost of a computer if you have a home office, or supplies purchased for classroom use by a teacher. Other deductions include the cost of managing your tax affairs, donations and income protection insurance.
Offsets are similar but different
Tax offsets on the other hand, are deducted at the end of the calculation process and directly reduce the tax you pay.
Offsets are used by the government to encourage specific outcomes, such as uptake of health insurance through the Private Health Offset, or adding money to your spouse’s super through a contribution offset. They are also used to provide tax relief or financial support to certain groups in the community.
Calculating tax using offsets and deductions
The easiest way to understand the difference between an offset and a deduction is to walk through an example.
In the table below, we have two taxpayers. One person has an income of $30,000 a year paying tax of 19c on every dollar above the tax-free threshold of $18,200. This results in tax of $2,242 before any deductions or offsets. The other earns $130,000 a year, paying the top marginal tax rate of 37c in every dollar above $120,000, resulting in tax of $33,167.
As you can see in the table below, the impact of a $1,000 tax deduction provides a bigger tax saving of $370 for the higher income earner, compared with $190 for the lower income earner.
However, not only does a $1,000 tax offset provide both taxpayers with a bigger tax saving of $1,000 each, but it’s worth relatively more to the lower income earner at 3.3 per cent of $30,000 compared with less than one per cent of $130,000.
Impact of a $1,000 tax deduction and tax offset on tax owed
Unlike tax deductions, the ATO automatically applies most offsets to your tax payable when you lodge your tax return.
In general, tax offsets can reduce your tax payable to zero, but they can’t be used to generate a tax refund if you don’t pay tax. If your taxable income is $18,200 or less, an offset won’t reduce the tax you pay as your tax payable is already zero. If you have paid any tax on this amount, you receive the tax back as a refund, but no offset is applied.
Also, most tax offsets don’t reduce the Medicare Levy and Medicare Levy Surcharge (if any) you are required to pay.
The amount of tax offset you receive also depends on the particular offset and your taxable income. For example, with the Low and Middle Income Tax Offset (LMITO) for 2021-22, if your taxable income is $37,0000 or less, you will receive a $675 offset on your tax payable when you lodge your tax return. If your income is $48,001 to $90,000, however, the offset is worth $1,500.
It can be easy to overlook your personal use of business assets when it comes to completing your business and self managed super fund tax returns but be warned, the ATO is taking an interest in this area.
The ATO’s Small Business Random Enquiry Program found around 16 per cent of small businesses were either carelessly or deliberately overclaiming expenses in their tax returns.
If business assets are used for a mix of business and private use – such as vehicles and phones – the amount claimed must reflect only the business-related portion of the expense.
Holiday home rentals are also an area where many taxpayers are failing to follow the tax rules.
Deductions for holiday home expenses can only be claimed to the extent they relate to producing rental income, so you need to apportion your expenses if the property is only genuinely available for rent part of the year.
Apportionment is also required if you use the property for private purposes during the year, only use part of it to earn rent, or if it is used by family or friends at various times during the year.
Expenses relating solely to the rental of the property (such as agent commissions and advertising costs), don’t need to be apportioned.
Avoiding mistakes
To ensure you don’t invite attention from the ATO, review your treatment of business asset expenses annually, in case your private usage has changed.
New or additional private usage of the asset means you need to recalculate the percentage of business used to determine the correct deduction claim.
Proper business records explaining all relevant transactions (including payment to and receipts from employees, shareholders and associates) need to be kept to support your claims.
Common taxpayer errors
The ATO says there are some common errors when it comes to claiming deductions.
Taxpayers are not permitted to claim any deductions against business income for expenses relating to an asset entirely used for private purposes.
An example is an asset (such as a boat or plane) purchased and used for private purposes.
Deductions can only be claimed for the relevant percentage of business use. For example, if the private use component represents 60 per cent, only 40 per cent of the expense amount can be claimed in your return.
FBT and deemed dividends
Another common mistake is claiming a deduction for an asset giving rise to a deemed dividend. This arises when an asset is purchased through a company and used for private purposes by a company shareholder or their associates.
Under the tax rules, both the company and the dividend recipient must record such dividends in their income tax returns, as the asset is being used for their personal benefit.
Some small businesses also misunderstand the implications of purchasing an asset (such as a motor vehicle), that is used by an employee or the associate of an employee for personal purposes.
When this occurs, the benefit must be reported in the business’s fringe benefit tax (FBT) return and the resulting FBT liability paid.
Fixing lodgement mistakes
To avoid finding your business in the ATO’s spotlight, check you have correctly apportioned all expense claims before lodging your business or SMSF return.
You also need to consider whether the rules for private company benefits and FBT apply to any of your business assets. If you make a mistake with a deduction claim, you will need to amend or lodge an income tax or FBT return to correct your tax position. There are time limits on both business and super amendments.
We can help you to correct any mistakes and to deal with the ATO to ensure your tax reporting is smooth and worry-free.
Stay up to date with what’s happened in markets and the Australian economy over the past month.
Consumer prices eased by more than expected in October. The news that inflation may have been tamed means interest rate rises may be behind us, for now.
Even the Organization for Economic Cooperation and Development (OECD) is optimistic about our economic recovery, predicting rate cuts from late 2024.
The ASX200 regained most of its October losses through November. Hopes the US may be ceasing its interest rate hikes impacted investor sentiment, as did the better than expected inflation figures locally.
Click the video below to view our update.
Please get in touch if you’d like assistance with your personal financial situation.
How much tax you pay on your super contributions and withdrawals depends on:
your total super amount
your age
the type of contribution or withdrawal you make
If you inherit someone’s super after they die, the person’s super fund pays you a super death benefit. You may have to pay tax on some of this benefit.
Because everyone’s situation is different, it’s always best to get advice about tax matters. Contact the Australian Taxation Office (ATO) or us.
How super contributions are taxed
Money paid into your super account by your employer is taxed at 15%. So are salary-sacrificed contributions, also known as concessional contributions.
If your income and super contributions combined are more than $250,000, you pay Division 293 tax, an extra 15%.
If you make contributions from your after-tax income — known as non-concessional contributions — you don’t pay any contributions tax.
See tax on contributions on the ATO website for more information about how much tax you’ll pay on super contributions.
To avoid paying extra tax on your super, make sure you give your super fund your Tax File Number.
How super investment earnings are taxed
Earnings on investments within your super fund are taxed at 15%. This includes interest and dividends less any tax deductions or credits.
How super withdrawals are taxed
The amount of tax you pay depends on whether you withdraw your super as:
a super income stream, or
a lump sum
Everyone’s financial situation is unique, especially when it comes to tax. Make an informed decision. We recommend you speak to us to get financial advice before you decide to withdraw your super.
Super income stream
A super income stream is when you withdraw your money as small regular payments over a long period of time.
If you’re aged 60 or over, this income is usually tax-free.
If you’re under 60, you may pay tax on your super income stream.
Lump sum withdrawals
If you’re aged 60 or over and withdraw a lump sum:
You don’t pay any tax when you withdraw from a taxed super fund.
You may pay tax if you withdraw from an untaxed super fund, such as a public sector fund.
If you’re under age 60 and withdraw a lump sum:
You don’t pay tax if you withdraw up to the ‘low rate threshold’, currently $230,000.
If you withdraw an amount above the low rate threshold, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.
If you have not yet reached your preservation age:
You pay 22% (including the Medicare levy) or your marginal tax rate, whichever is lower.
When someone dies, their super is usually paid to their beneficiary. This is called a super death benefit.
If you’re a beneficiary, the amount of tax you pay on a death benefit depends on:
the tax-free and taxable components of the super
whether you’re a dependent for tax purposes
whether you take the benefit as an income stream or a lump sum
See super death benefits on the ATO website for detailed information or contact us today.
Source: Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/tax-and-super Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns. Important Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
It is a special feeling to welcome a new child or grandchild into the world and watch them grow. Sharing their joy as they reach new milestones is priceless.
Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.
So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.
Taking care of the basics
The first step is to update your Will to nominate guardians for your children in case the worst happens. You may also consider life insurance and income protection to ensure your family is protected.
Next, a savings and investment plan will help you navigate the years ahead with more certainty. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.
Meanwhile, some longer-term investments such as shares, exchange traded funds or listed investment companies may provide financial support for later expenses. They can offer the possibility of capital growth and diversification for a relatively low cost.
Super splitting
Keeping an eye on the future also means thinking about your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.
There are also some tax considerations, so it is important to make sure you understand the implications for you.
Government support
Take the time to discover the government payments and supports available for families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.
A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.
You will need to meet income and work tests and claim within certain timelines.
Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.
Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.
Grandparent gifting
Grandparents who are keen to help out their families financially can gift money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.
However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:
it is a transfer of money or property.
the transfer is made voluntarily.
the donor does not expect anything in return.
the donor does not materially benefit.
Tax may apply in some cases where property or shares are gifted.
The joys of raising a little one are many, and having a plan to manage the financial implications can let you enjoy the journey. Get in touch with us to create a plan to secure your family’s future.
This time of year, people’s thoughts start turning to their tax return, but it can also be a good time to set things up so you don’t pay more tax than required next financial year.
Simply talking to your employer about setting up an arrangement to “sacrifice” some of your pre-tax salary could potentially lower your tax bill – and boost your retirement nest-egg.
Reducing your tax bill
A salary sacrifice arrangement simply involves coming to an agreement with your employer to pay for everyday items or services you would normally pay for out of your after-tax salary directly from your before-tax salary. This might include things like childcare, health insurance or super. The benefit is that this reduces the level of income the ATO uses to calculate your tax bill.
If you set up a salary sacrifice arrangement with your employer, it’s important to understand that while your taxable income is lower, the benefits are still listed on your annual payment summary. For some people, this reduces the tax offsets, child support payments or other government benefits they receive, limiting the value of salary sacrifice.
Salary sacrificing options
The items or services you can pay for using salary sacrifice depends on your employer.
Some employers let their employees salary sacrifice for expenses such as cars, health insurance, school fees and home phones. Others are not prepared to do this, as they may end up paying Fringe Benefits Tax (FBT) on the benefits you receive.
Employers are usually more willing to allow you to package FBT-exempt work-related items such as portable electronic devices, computer software, protective clothing or tools of trade, as these generally don’t result in FBT bills.
Boost your super account
One of the most popular forms of salary sacrifice is redirecting some of your pre-tax salary into your super fund. Most companies are willing to provide this option as it not only helps you build retirement savings, but it can also earn them a tax deduction.
When you salary sacrifice into your super, your contributions are taxed at 15 per cent when your super fund receives the money. For most people this is a lower tax rate than if they received the money as normal income.
A further bonus with salary sacrificing into super is you only pay 15 per cent on any investment earnings you receive inside super, instead of your marginal tax rate for investments held outside super.
Find out what’s on offer
If you’re interested in a salary sacrifice arrangement, it’s a good idea to discuss the subject with your employer or HR team to find out the company’s policy.
It’s also a good idea to talk to us, as the value of these arrangements needs to be weighed up carefully against your reduced take-home pay and the potential loss of government benefits.
These arrangements should be put in writing before you earn the income you are sacrificing, so you need to talk to your employer prior to the start of the new financial year if your salary will change from 1 July.
Tips for employers
Allowing your employees to salary sacrifice can help them reduce their tax bill and it boosts engagement with your business. Another overlooked benefit is if your employee salary sacrifices into their super, you can claim a tax deduction for their contributions, as they are considered employer contributions.
To do this, you need to ensure you create an ‘effective’ salary sacrifice arrangement meeting the ATO’s guidelines. Otherwise the benefits your employee receives are considered part of their taxable income.
Effective arrangements require a clear agreement stating the terms and conditions and they must be documented in writing to avoid any uncertainty or future disputes.
Sacrifice arrangements can only apply to wage and salary payments for work yet to be performed, not past earnings. Salary and wages, leave entitlements, bonuses or commissions accrued prior to the arrangement cannot be used.
A simple way to avoid problems is to document your employees’ salary sacrifice arrangements before the start of a new financial year – or whenever there is a change to their salary – so it covers future earnings.
You need to keep detailed records of these arrangements for five years and list all sacrifice amounts on the employee’s annual payment summary.
If you would like help working out if a salary sacrifice arrangement makes sense for you, call our office today.
