Superannuation – Concessional Cap Increases

Superannuation Caps

 

From 1 July 2024, the concessional contribution cap for superannuation is increasing to $30,000.  This will have a flow on effect to other areas of super as well:

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Self-Education Expenses – TR 2024/3

Self-Education Expenses 

New Tax Ruling – TR 2024/3

On 21 February 2024, the ATO finalised the ruling for Self-Education Expenses (TR 2024/3).  The ruling sets out the principles on the deductibility of self-education expenses under the Income Tax Assessment Act and provides 38 examples.

When are self-education expenses deductible?

Self-education expenses are deductible to the extent they:

  • Are incurred in gaining or producing your assessable income; AND
  • Are not:
    • Capital, private or domestic in nature
    • Incurred in gaining or producing exempt income
    • Prevented from being deductible by a specific provision in the tax law.

If you are reimbursed for the self-education expenses, you cannot claim a personal deduction.

Gaining or producing assessable income

You need to be able to show one (or both) of the following apply:

  • Your income-earning activities are based on the exercise of a skill or specific knowledge, and the self-education enables you to maintain or improve that skill;
  • The self-education is likely to lead to an increase in income from your current income-earning activities.

They will not be deductible if you have incurred them to obtain new employment or open up a new income-earning activity.

Types of self-education expenses

Some of the self-education expenses that may be deductible include:

  • Course fees but not if you have a Commonwealth Supported Place (CSP) (including where you have used a FEE-HELP loan or personal loan to fund the fees)
  • Interest on monies borrowed to fund the self-education expenses
  • Books, digital subscriptions, stationery
  • Travel (including airfares, accommodation and meals)
  • Depreciation of equipment

Action to take

If you are personally paying for any self-education costs that are related to your current employment, please ensure you keep all details and invoices of the costs incurred.  We can review these at tax time to determine whether they are deductible in your individual tax return.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Navigating FBT at Christmas Time

Navigating Fringe Benefits Tax at Christmas

 

Fringe Benefits Tax (FBT) is a tax that employers pay for non-cash benefits they provide to their employees.  Rather than taxing the employees on these benefits, the employer pays fringe benefits tax.

Christmas provides employers with a great opportunity to reward their staff.  Understanding the key FBT considerations during Christmas time is crucial to avoid potential pitfalls and optimise tax outcomes.

Christmas parties

Hosting a Christmas party is also a great way to celebrate the end of the year.  However, there may FBT implications associated with the party.

The costs associated with Christmas parties (for example, food and drink) are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. 

Alternatively, if you hold your Christmas party away from your business premises, the party will be exempt if it costs less than $300 per employee.

Christmas presents

Gifts that are given to employees can attract FBT.  However, if the value of the gift is below $300 per employee, it is exempt. 

Tax deductions and GST

You can only claim a tax deduction and GST on benefits that are subject to FBT.  So, if the benefits you are providing to your employees (gifts and/or Christmas party) are under $300 and exempt from FBT, they will not be tax deductible nor can you claim any GST on the cost.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Small Business Lodgement – Penalty Amnesty

Small Business Lodgement – Penalty Amnesty

As part of the 2023-24 Budget the Federal Government announced a small business lodgement penalty amnesty.  This is a time-limited initiative introduced to provide small business owners with the chance to get their tax obligations up-to-date without incurring any late lodgement penalties.  The amnesty is effective from 1 July 2023 until 31 December 2023.

To be eligible you will need to meet the following criteria:

  • You are a small business with an aggregated turnover of less than $10 million at the time the original lodgement was due.
  • You have outstanding income tax returns, business activity statements and/or fringe benefits tax returns that were due between 1 December 2019 – 28 February 2022.
  • Eligible overdue forms are lodged between 1 June 2023 and 31 December 2023.

If you lodge your outstanding returns as part of the amnesty, any late lodgement penalty will be remitted.

The amnesty doesn’t apply to private owned groups or individuals controlling over $5 million of net wealth.

Please contact us if you have outstanding lodgements and would like assistance in getting these up-to-date.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Increased Penalty Units: Implications for Taxpayers

Increased Penalty Units: Implications for Taxpayers


Under tax laws, the ATO can impose administrative penalties if you fail to meet your tax obligations.

From 1 July 2023, the base penalty unit has increased by almost 14% to $313. 

When the ATO imposes penalties, they can calculate the penalty using either:

  • a statutory formula, based on the taxpayers behaviour and the amount of tax avoided; or
  • multiples of the base penalty unit.
Examples of Tax Penalties

These are some of the examples of penalties that the ATO may impose:

  • Failing to retaining records as required (maximum 20 penalty units = $6,260)
  • Failing to register (or cancel) GST registration when required (maximum 20 penalty units = $6,260)
  • Failure to lodge a return or statement for a small entity (1 penalty unit for each 28 days late, up to 5 penalty units = $313 to $1,565)

Superannuation funds

The increase in penalty units can impact significantly on superannuation funds.  For superannuation funds, the penalty units are imposed per trustee.  Where a fund has a corporate trustee, the penalty will be imposed solely on the corporate trustee.  However, where a fund has individual trustees, the penalty will be imposed on each trustee.  Effectively doubling the penalty where the fund has two individual trustees.

This is another reason that we recommend that a superannuation fund should have a corporate trustee.

It is possible to change the trustee of your superfund to a corporate trustee.  Please contact us if you would like to discuss this further.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

2023 End of Year Tax Planning

End of Financial Year

In a previous article (see here), we discussed the ideal timing for tax planning.  It is crucial to regularly assess your business performance and implement strategies that optimise tax outcomes.  We recommend conducting a minimum quarterly review of your business to allow ample time for the implementation of growth and tax-related strategies.

If you haven’t yet reviewed your business performance and tax outcomes for this financial year, now is your final opportunity to make a difference before 30 June.

When we engage in end of year tax planning for our clients, we begin by evaluating their year-to-date performance.  This analysis provides insights into their projected financial position at year-end and estimates their tax liability for the year.

Outlined below are some key tax planning ideas for 2023, along with upcoming changes that will come into effect on 1 July 2023. 

Remember, there is still time to schedule an end-of-year tax planning meeting with us.  This will enable us to provide specific advice tailored to your business – click to book in with Jeanette or Troy.

Depreciation of assets

For businesses with a turnover under $50 million, up to 30 June 2023 you can claim a deduction for the acquisition of any eligible depreciating assets (there is no limit for most assets).

For small businesses (turnover under $10 million) that use simplified depreciation rules, the balance of your small business pool can be written off at the end of the income year.

We note that there is still a cost limit on certain assets – for example, you can only claim a maximum deduction of $64,741 for a passenger vehicle during the 2023 financial year.  A passenger vehicle is a vehicle that is designed to carry a load less than one tonne and fewer than 9 passengers.

From 1 July 2023, the depreciation limit changes to $20,000 – this means you can only claim a full deduction at time of purchase for assets that cost $20,000 or less.  After 1 July 2023, any assets that you acquire for more than $20,000 will need to depreciated for tax purposes.

EOFY Tax tip: If you are looking to acquire capital assets for your business, we recommend doing so prior to 30 June to get the deduction in the current financial year.  If the deduction puts your company in a loss position – consider the loss carry-back provisions below.

Business tip: While you get the benefit of deducting the full cost of the asset in the current financial year, this means that you will not receive any depreciation on this asset in future years.  It also means that when you sell the asset, any income from the sale will be subject to income tax.

Business tip: The tax depreciation deduction is only available once the asset is installed and ready for use.  Getting assets installed and ready for use by 30 June might be difficult for some businesses given the current lack of supply for equipment and vehicles.

Company loss carry-back

Companies that make a loss in the 2020 to 2023 financial years, can carry this loss back to reduce taxable profits made on or after the 2019 financial year.  The company can then elect to receive a refund of the tax paid in that year when lodging the later year tax return.

EOFY Tax tip: Your company may be able to take advantage of the asset depreciation rules to write off the full value of new assets purchased.  If the depreciation puts your company into a loss, this loss may be applied against the taxable profits from 2019 to 2022.  You may then receive a refund of tax paid in those financial years.

Employee super

The June quarter superannuation guarantee liability is required to be paid by 28 July.  However, a business can only claim a tax deduction for employees’ superannuation when it is actually paid.  As such, to ensure you get a deduction in the current year, you need to pay your employees’ June superannuation guarantee liability prior to 30 June (cashflow permitting).  We recommend that the payment be made by 20 June (to ensure it is processed by the recipient superfund). 

EOFY Tax tip: Pay your employee June quarter superannuation by 20 June 2023 to get a deduction in the current financial year.

Business tip: The ATO are currently allocating considerable resources to reviewing employer compliance with paying employees’ superannuation guarantee.  There are significant penalties that apply if you pay your employee superannuation late. 

Business tip: The payment of your June quarter superannuation liability does not impact on your profit and loss position (as the superannuation liability has already been recorded in your profit and loss).  The payment before 30 June simply brings the tax deductibility of the payment forward to the current financial year.  If you make the payment after 1 July (and before the 28 July cut-off), the payment will be deductible next financial year.

Business tip: From 1 July 2023, the superannuation guarantee rate increases to 11%.  This will continue to increase by 0.5% per year until it reaches 12%.  This will have flow-on implications for payroll tax, workcover etc. 

Personal superannuation

You may also want to make personal contributions to super.  For the 2022/23 financial year, the maximum concessional (deducted) contribution cap is $27,500.

However, if your superannuation balance was less than $500,000 as at 30 June 2022, it may also be possible for you to contribute more super by taking advantage of the unused concessional cap carry forward rules. 

EOFY Tax tip: If you have unusually high income during the 2023 financial year, consider whether making additional deductible superannuation contributions fits within your personal financial plan.  We recommend speaking with your financial adviser with regards to your superannuation contributions.

Trade debtors

You should review your trade debtors as at 30 June.  You must ensure that any debts that are uncollectible are written off prior to 30 June in order to claim a tax deduction for the write-off in the current financial year.  This is particularly important given the on-going effect of COVID-19 on many businesses.

EOFY Tax tip: To write off a bad debt – you must have made reasonable and commercial attempts to recover the debt and have now determined it is uncollectible.  You then need to make a decision in writing to write off the bad debt (eg. you have removed the debt from the customer’s account and have recognised a bad debt expense).

Prepay or bring forward your expenses

Make sure you review all of your expenses and bring forward any expenses to June (where possible).  For example, stock up on stationery and office consumables, prepay your insurance and interest (if applicable) and look at any other expenses you may be able to pay in June.  By bringing these expenses forward to June, you are obtaining a tax deduction in the current financial year which will reduce your overall tax bill for the 2023 year.

EOFY Tax tip: If your business is in a loss position, it may not be advantageous to bring forward expenses to the current financial year.  Please contact us to discuss whether this strategy is appropriate for you.

Defer assessable income

Consider whether it is possible to defer your assessable income (being mindful of cashflow implications) to next financial year. 

Motor vehicles

If you are using a vehicle for a high percentage of work-related travel, make sure you keep a logbook.  Without a logbook, an individual is limited to claiming a maximum of 5,000km at $0.78 (or $3,900) in the 2023 financial year.  If you keep a logbook, you can claim the business percentage of the operating costs of the vehicle (petrol, registration, servicing, depreciation, interest etc).

Logbooks must be kept for 12 continuous weeks and remember to record your vehicle’s opening and closing odometer readings each year.

EOFY Tax tip: A logbook started prior to 30 June can be used to support a logbook claim even if the logbook isn’t completed until after 30 June.

Working from home

If you worked from home during the 2023 financial year, you may be able to claim a deduction for a percentage of the running costs of your home.  There are two different methods you can use to calculate your deduction:

(1) Revised Fixed-Rate method ($0.67 per hour) – this method covers electricity, internet, mobile and home phone, stationery and computer consumables.  It does not cover depreciation of office equipment.  From 1 March 2023, if you are using this method, you need to have a diary of your actual hours worked from home.

(2) Actual cost method – you can calculate and claim the work-related portion of your actual expenses provided you have kept appropriate records.

For more information about your working from home deduction – see our earlier article.

EOFY Tax tip: From 1 March 2023, You must have a diary to record your hours working from home.  If you do not have diary evidence, we cannot claim a deduction for these hours.

EOFY Tax tip: The ATO will be specifically reviewing deductions for working from home during the 2023 year.  Ensure you have appropriate documentation for your hours and you are not claiming twice, by claiming the rate per hour ($0.67) plus a deduction for your phone for example.

Trust minutes

Prior to 30 June, make sure the trustees of your discretionary trusts decide how they are going to distribute their income and capital.  This decision must be documented in a trust minute before 30 June (or as otherwise specified in your trust deed).  It is important that you review your trust income for the 2023 financial year to ensure that the trust minute accurately reflects the trustee’s intention.  Given the recent announcements from the ATO with regards to the distribution of income to adult children and other tax advantaged beneficiaries, it is important that you get tax advice for your end of year tax minutes.

EOFY Tax tip: Your trust minutes must be prepared prior to 30 June to evidence the trustee’s decision regarding the distribution.  Keep this minute with your tax records.

Rental properties

For your rental properties, if you have any expenses coming up in the next few months, try to pay these prior to 30 June – this will bring the deduction into the current tax year and will help you to reduce your 2023 tax bill.

In relation to any interest you are claiming on your rental property, make sure you only claim the interest on the loan that was used to purchase the property.  If you have drawn down on the same loan for private purposes (eg. for a holiday), the interest that relates to the private usage is not deductible.

EOFY Tax tip: Consider getting a depreciation report for your rental property.  You may be able to claim additional tax deductions for the cost of the building and potential its fixtures and fittings.

EOFY Tax tip: Consider undertaking repairs to your property prior to 30 June.

EOFY Tax tip: Rental property deductions are being specifically reviewed by the ATO during the 2023 year.  Make sure your rental expenses are correct and that you have appropriate supporting documentation.

Cryptocurrency

The ATO have specifically announced that they will be reviewing cryptocurrency transactions in the 2023 tax returns.  It is important to ensure you include all cryptocurrency transactions on your tax return.  If you have had any cryptocurrency gains in the current financial year, you may wish to consider some additional tax planning measures before 30 June to reduce any tax liability.

EOFY Tax tip: Make sure you have all of your documentation available for all cryptocurrency transactions.  Noting that changing your investment from one cryptocurrency to another constitutes a transaction which may result in a tax liability. 

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore, it should be regarded as confidential and not be made available to any person without our consent,

Maximising Downsizer: A Strategy to Boost your Retirement Savings

Maximising Downsizer:

A Strategy to Boost your Retirement Savings

The Downsizer Contribution enables individuals to contribute additional money into super after selling their family home.

Eligibility

You are eligible to make a downsizer contribution if you meet the following conditions:

  1. You have reached the eligible age:
    • From 1 January 2023 – 55 years or older
    • From 1 July 2022 – 60 years or older
    • From 1 July 2018 – 65 years or older
  2. Your home was owned by you or your spouse for 10 years or more prior to sale (generally calculated from settlement of purchase to settlement of sale);
  3. Your home is in Australia (and is not a caravan, houseboat or other mobile home);
  4. The capital gain/loss on sale would be exempt (or partially exempt) under the CGT main residence exemption;
  5. You have not previously made a downsizer contribution.

How do I make the contribution?

If you meet the above conditions and can make a downsizer contribution, to make the contribution, you must:

  1. Provide your superfund with a Downsizer contribution into super form before or at the time of making the contribution (if you make multiple contributions, you must provide a form for each contribution – up to the maximum contribution limit of $300,000);
  2. Make the contribution within 90 days of receiving the proceeds of the sale (this is generally the settlement date).

How much can I contribute as a downsizer contribution?

You can make a downsizer contribution up to a maximum of $300,000 (each spouse) but the contribution can’t be greater than the total proceeds from the sale of your home.

How does a downsizer contribution differ to other types of super contributions?

The contribution doesn’t count towards any of the contribution caps (so these caps will still be available to you). 

The downsizer contributions will count towards your transfer balance cap.  This cap will be considered when determining eligibility for the age pension.

If I’m eligibility, should I make a contribution to super as a downsizer contribution?

This is a good question, and one that we are often asked as accountants.  Unfortunately, the question of should you make this contribution is one that a financial planner needs to answer for you.  As an accountant, we can give you the facts about whether or not you are eligible and the limits on what you are able to contribute.  However, we cannot advise whether you should do so.  We work closely with several financial planners and we can put you in touch with these planners.  They can provide you with holistic advice for your financial position and whether or not a downsizer contribution is right for you.

What should I do next?

If you are over the relevant age to make the downsizer contribution and you are thinking of selling your home, give us a call or book in a meeting to talk about your eligibility.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Proposed Changes to Taxation of Superannuation

Proposed Changes to Taxation of Superannuation

In a joint media release on 28 February 2023, the Treasurer and Assistant Treasurer announced changes to the taxation of superannuation.  We have outlined below the information released by the Government.  Please note, draft legislation has not yet been released for consultation.  These proposed measures are not final until the legislation has been enacted.

Who is impacted?

The proposed measures will commence on 1 July 2025 and will impact on individuals who have a total superannuation balance in excess of $3 million.

What are the changes?

Where your total superannuation balance exceeds $3 million, there will be an additional 15% tax on the earnings on the balance over this $3 million threshold.  Given the existing 15% tax an accumulation balances, an additional 15% tax will mean that earnings on the balance over $3 million will be taxed at an effective rate of 30%.

How is it calculated?

The 15% additional tax is imposed on the earnings on the balance over $3 million.  The earnings will be calculated as follows:

Earnings = Closing super balance – Opening super balance + Withdrawals – Net contributions

These earnings are then apportioned to the balance over $3 million as follows:

Proportion of Earnings = (Closing super balance – $3 million) / Closing super balance

The 15% tax liability is then imposed on the proportion of earnings on the account balance over $3 million:

Tax liability = 15% x Earnings x Proportion of earnings

Example calculation

Let’s assume that your opening total super balance was $4 million and your closing total super balance was $4.5 million and that you had no contribution and no withdrawals through the year.  The calculation of your additional tax liability is as follows: 

Earnings = $4.5 million – $4 million = $500,000

Proportion of earnings = ($4.5 million – $3 million) / $4.5 million = 33%

Tax liability = 15% tax rate x $500,000 earnings x 33% = $24,750

This calculation determines that your super balance has total earnings of $500,000 for the financial year.  Two-thirds of these earnings relate to your balance below $3 million and one-third of the earnings relate to your balance above $3 million.  Tax is then imposed on the profit which has been earned on your balance over $3 million.

Who pays the tax?

The additional 15% tax will be imposed on the individual member and the member can elect that an amount be released from super to pay for the liability.  The member will receive a notice from the ATO to pay the additional tax (similar to the current Division 293 notices).

When does it come into effect?

The total superannuation balance will first be tested on 30 June 2026 and the first notice of tax liability will be issued to individuals in the 2026-27 financial year.

Things to consider

At the moment, it is reported that these changes will impact less than 80,000 people.  However, there is currently no provision for the $3 million cap to be indexed which means that with inflation, over time more people will be impacted by the changes.

The way in which “earnings” has been calculated means that tax will be imposed on unrealised gains (eg. if you hold real property in your fund and it increases in value, you will pay tax on this increase even though you haven’t sold the property).  This is a significant change as previously tax has only been imposed on realised gains.  This may present problems for funds that do not have sufficiently liquid assets to be able to fund the additional tax liability for members. 

Will this impact on me?

If you currently have a total superannuation balance in excess of $3 million (and it is anticipated to remain at this amount or higher), you will be impacted by these changes. 

If you do not currently have a superannuation balance in excess of $3 million, you should still consider the assets in your fund and whether it is possible that your account balance to increase above the $3 million threshold by 30 June 2026.

Further, you may also be considering making additonal contributions into super over the next few years which will impact on your total super balance.  For example, if you are thinking about selling your business in the next few years, you may be considering taking advantage of CGT concessions that enable you to roll some of your capital gain into super.  This may result in your balance going over the $3 million threshold.  These proposed changes should be considered when you are deciding whether to contribute additional funds into super.

What should I do?

As noted above, at the moment, draft legislation hasn’t been released.  We always advise clients to act cautiously where legislation has not yet been enacted.

However, it is also prudent for you to review your current balance and your proposed future investment into super to consider whether your balance may exceed the $3 million threshold and what impact this will have.  Even if you consider that your balance does (or may in the future) exceed the threshold, it may still be more tax advantageous for you to have the money in super.

We recommend that you speak to your financial advisors with regards to your superannuation strategy and whether this needs to be adjusted in light of the proposed changes.

We are happy to discuss these changes with you.  We note, however, that we cannot provide you with advice regarding whether it is appropriate for you to contribute or withdraw money from superannuation – this advice needs to be provided by your financial planner.  We can, however, work with you and your financial planner to calculate your tax liability based on your superannuation balance.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

When Should I think about End of Year Tax Planning?

End of year tax planning – when should I think about this?

 

There is always a rush at the end of the financial year for businesses to book in to speak to us about their end of year tax planning options.

Rather than rushing around in June to implement strategies to optimise your tax position, you should regularly review the financial performance of your business and plan for upcoming tax liabilities.  Set aside specific time on a regular basis (eg. at the end of each month or each quarter when you are preparing your BAS) and use this time to review how your business is performing.

When you are reviewing your business for tax, think about:

  • What profit has your business made?
  • What is your estimated tax liability on your profit?
  • Are you paying tax instalments to the ATO towards this tax liability?  If not, have you made provisions for this tax liability within your cashflow forecasting?
  • Are there proactive steps you can take throughout the year to optimise your tax position?

While we sit down with business clients in May/June to review their results and plan for year end tax, there are things that you can do throughout the year to get a better tax outcome, for example:

  • If you want to purchase a new vehicle and can claim a deduction for the vehicle – it needs to be ready for business use prior to 30 June (this may mean ordering the vehicle now so it is here in time).
  • If you want to put more money into super, you may need to build this into your cashflow forecasts (or put the money in on a regular basis) so it is not a large cash drain in June.
  • If you want to pay directors an appropriate salary for their services, this should be recorded and paid throughout the year and reported via single touch payroll to the ATO.  If this is left to June, there will be a significant cashflow burden for the withholding tax and super liability.

These are just some of the examples of things you can do throughout the year to help your tax position.

So while we may refer to it as “end of year” tax planning, it is better to think of it as year round tax planning. 

We are happy to sit down with you on a regular basis to help you review your business performance, cashflow and tax planning – just give us a call to discuss.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Working from Home – Tax Deductions

Working from Home – Tax Deductions

On 16 February 2023, the ATO released Practical Compliance Guideline PCG 2023/1 outlining the requirements that need to be met in order to claim a deduction for working from home.  There are some changes with regards to the amount that can be claimed and the records that you need to keep.  These changes will apply to deductions claimed for the 2022-23 financial year onwards.

What do you need to know?

From 1 July 2022, the Revised Fixed-Rate Method allows you to claim a deduction of $0.67 per hour for the time you have worked from home (this will not cover depreciation, which can be claimed separately).

If you want to claim a deduction for working from home anytime after 1 July 2022, you will need the following:

  1. A record of the hours you have worked from home:
    • Between 1 July 2022 and 28 February 2023, you will need a record that is a representation of the total hours worked from home.
    • From 1 March 2023, you will need an exact record of the number of hours you worked from home – eg. timesheet, roster, diary, time-tracking app records.
  2. Evidence of the additional costs you have incurred as a result of working from home (eg. electricity bills, telephone bills, internet bills).
  3. Invoices for any office furniture or plant and equipment purchased.
  4. A 4 week diary showing the personal and income-producing use of any office furniture or plant and equipment purchased.

We will be requesting the above information when preparing your 2023 tax return.  Without this information, we will not be able to claim a deduction for working from home.

PCG 2023/1 in Detail

2022 Financial Year and Earlier

If you are claiming a deduction for working from home prior to 1 July 2022, you can choose to use one of the following methods:

  • The Temporary Shortcut Method – available from 1 March 2020 to 30 June 2022 (a flat rate of $0.80 per hour during COVID to cover electricity, internet, mobile and home phone, stationery and computer consumables, depreciation of home office furniture and equipment, cleaning)
  • The Fixed-Rate method – available from 1 July 1998 to 30 June 2022 (a flat rate of $0.52 per hour to cover electricity, depreciation of office furniture, cleaning)
  • The Actual Expenses Method – this is a claim for the actual expenses incurred as a result of working from home.

From 1 July 2022

From 1 July 2022, you can claim a deduction for working from home using either of the following methods:

  • Revised Fixed-Rate Method – available from 1 July 2022 (a flat rate of $0.67 per hour to cover electricity, internet, mobile and home phone, stationery and computer consumables)
  • Actual Expenses Method – as noted above, this is a claim for the actual expenses incurred as a result of working from home.

Revised Fixed-Rate Method

To claim a deduction using the Revised Fixed-Rate Method, you need to satisfy three criteria:

  1. You must be working from home (minimal tasks such as checking emails and taking some calls at home will not qualify)
  2. You must incur additional running costs (you must incur the costs and not be reimbursed these from your employer)
  3. You must keep and retain the relevant records.

Record of Hours Worked

For the 2023-24 and later income years, you must keep a record for the entire year of the number of hours that you worked from home.  An estimate is not acceptable.

A record of your hours can be kept in any form.  For example, it may be one of the following:

  • Timesheets
  • Rosters
  • Logs of time spent accessing employer systems or online business systems
  • Time-tracking apps
  • A diary

For the 2022-23 income year, you only need to keep a record which is representative of the total hours worked from 1 July 2022 to 28 February 2022 and then a record of the actual hours worked from 1 March 2023 to 30 June 2023.

Documents for Costs

For electricity, mobile and home phone and internet expenses, you must keep one monthly or quarterly bill as evidence of the additional running expenses you have incurred.  For stationery and computer consumables, you must keep a receipt for the item purchased. 

If you do not keep a record of the total hours you worked from home and evidence of the running costs incurred, you cannot use the revised fixed-rate method for claiming a deduction for working from home during the 2023 (and later) financial years.

Depreciation

The revised fixed rate method covers your costs for electricity, internet, mobile and home telephone and stationery and computer consumables.  This means you cannot claim a separate deduction for these items.  It does not cover depreciation for home office furniture or equipment (for which you can claim a separate deduction).

To claim a deduction for depreciation of your home office furniture or equipment, you must keep a purchase invoice which shows:

  • the name or business name of the supplier;
  • the cost of the asset to you;
  • the nature of the asset;
  • the day you acquired it; and
  • the day the record was made out.

You must also keep records which demonstrate your work-related use of the asset.  This can be evidenced by a 4-week period showing the personal use and income-producing use of the asset.

Home Office Occupancy Costs (rent, mortgage interest, rates, land tax)

 We note that the above only relates to deductions for home office running costs.  It does not provide guidelines for home office occupancy costs (like rent, mortgage interest, property insurance and land tax).   More information is provided here in relation to home occupancy costs.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.