The start of July ushered in a raft of changes that impact agents and small businesses.
How the tax landscape changes in fresh financial year
On the close of Parliament in late June ahead of the five-week winter recess, the enabling bill containing the first two boosts was enacted. This means that eligible businesses can claim qualifying expenditure for the period from 7:30pm AEDT on 29 March 2022 to 30 June 2023 in their 2023 income tax returns (for both boosts) and to 30 June 2024 in their 2024 income tax returns (for the skills and training boost only).
The technology investment boost is available for expenditure on a depreciating asset only if the asset was first used, or installed ready for use, by 30 June 2023.
The energy incentive boost, announced as part of the May budget, is designed to encourage businesses to invest in their operations and sustainability but has yet to be introduced into parliament. It will be available only for expenditure incurred in the 2023–24 income year.
While we are only days into the new financial year, any lengthy delay in legislating this measure creates uncertainty that undermines the intent of the measure.
The first and the third boosts are subject to a maximum cap of $20,000 (or $100,000 of eligible expenditure) per business. The second and third boosts will end on 30 June 2024.
What’s next for full expensing?
Temporary full expensing ended on 30 June 2023. Claims for the cost of eligible depreciating assets by eligible entities can continue to be made in 2023 tax returns, but a different set of rules applies to assets first used or installed ready for use on or after 1 July 2023.
Generally, documentation such as invoices, contracts, bank statements and general ledgers are evidence only of when a contract was signed, a deposit was paid, or an invoice for the purchase of the asset was issued. None of these are sufficient to determine the date on which your clients’ assets were first used or installed ready for use.
Accordingly, it is vitally important that you ascertain this date with your clients as this will establish whether the asset can be fully expensed under the former temporary full expensing rules. Asking your clients is a starting point, but evidence of first use or installation may be reflected in other records, such as an invoice or payment relating to the installation of the asset.
These sunsetted rules are contained in:
- Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997) as modified by the Income Tax (Transitional Provisions) Act 1997 (IT(TP)A) for small business entities (SBEs).
- Subdivision 40-BB of the IT(TP)A for larger businesses.
If the asset is first used or installed ready for use on or after 1 July 2023, the asset will be subject to the rules that apply this financial year:
- For SBEs that choose to use the simplified depreciation rules in Subdiv 328-D of the ITAA 1997, assets that cost:
- Less than $20,000 (GST-exclusive) must be fully written off under the yet-to-be-legislated increase in the instant asset write-off threshold to $20,000 (from 1 July 2023 to 30 June 2024). Assets that cost $20,000 or more will need to be allocated to a general small business pool and depreciated according to the pooling rules.
- Larger businesses (aggregated turnover of $10 million or more) must depreciate their assets under the normal depreciation rules. No legislative provision enables an immediate deduction for these businesses, however the ATO’s administrative approach of allowing low-cost assets to be fully deducted in the income year in which they were acquired assists for assets that cost up to $100 (GST-inclusive).
Don’t forget to consider the tax treatment of any depreciating assets which have previously been fully expensed and were sold during 2022–23 as the sale proceeds are generally assessable.
The end of loss carry back
This temporary COVID-19 measure ended on 30 June 2023. Any corporate tax entity with an aggregated turnover of less than $5 billion that made a tax loss in 2022–23 can choose to carry that loss back against taxed profits made from 2018–19 to 2021–22. The refundable income tax offset is available by lodging the 2023 income tax return.
Division 7A matters
Loans made by private companies to shareholders or their associates need to be fully repaid or placed on complying loan terms before the company’s lodgment day for the 2023 tax return. If the choice is made to manage such a loan as a complying loan, the first minimum yearly repayment (MYR) is due by 30 June 2024.
The sizeable jump in the benchmark interest rate from 4.77 per cent for 2022–23 to 8.27 per cent for 2023–24 will add to existing cost of living pressures on those managing complying loans, particularly where the interest is non-deductible to the borrower.
MYRs on complying loans that were made in the 2021–22 or an earlier income year should have been made by 30 June 2023, or a Division 7A shortfall may arise, resulting in a deemed dividend in 2022–23 for the amount of the shortfall.
If a journal entry will be used to set off a dividend payment against the shareholder’s obligation to make the MYR by 30 June 2023, the dividend must have been properly declared by 30 June 2023 and all related documentation correctly prepared and filed. This includes the company issuing a distribution statement to the shareholder by 31 October 2023.
Regard should also be had to the Commissioner’s revised position in TD 2022/11 for any unpaid present entitlements (UPE) of corporate beneficiaries that arose on or after 1 July 2022, including those that arose on 30 June 2023.
Such UPEs will generally be treated as the provision of financial accommodation to the trust sometime during the 2023–24 income year. The UPE would need to be fully repaid or placed on complying loan terms before the company’s lodgment day for the 2023–24 income year (typically, May 2025) for a deemed dividend not to arise for the 2023–24 income year. If the loan is managed as a complying loan, the first MYR will be due by 30 June 2025.
Sub-trust arrangements consistent with those in the Commissioner’s withdrawn guidance are no longer effective for Division 7A purposes for UPEs arising on or after 1 July 2022 but legacy arrangements may continue.
Increase in superannuation guarantee rate and timing rules
Another legislated increase in the superannuation guarantee (SG) rate on 1 July 2023 takes the rate from 10.5 per cent to 11.0 per cent for payments of salaries and wages on or after that date. Importantly, the higher rate is not based on when the work is done or the date on which the SG contributions are made.
While employers have until 28 July 2023 to ensure they do not have an SG shortfall for the June 2023 quarter for their employees, they can claim a deduction in 2022–23 for contributions they make for their employees only if they were ‘made’ by 30 June 2023.
For SG purposes, the superannuation fund must actually receive the payment by 28 July, except in the case of employers who use the ATO’s Small Business Superannuation Clearing House (SBSCH), as it is sufficient that the SBSCH receives the payment by 28 July.
However, no concessional treatment applies for income tax purposes; if the fund did not receive the payment by 30 June 2023, the contribution is deductible to the employer in the 2023–24 income year (instead of 2022–23).
If an employer has an SG shortfall for the June 2023 quarter for an employee, the employer must lodge an SG statement and pay the SG charge by 28 August 2023.
Increase in the general transfer balance cap
High inflation has resulted in a substantial increase in the general transfer balance cap (TBC) to $1.9 million from 1 July 2023 (up from $1.7 million for 2021–22 and 2022–23). While more earnings on superannuation balances in retirement phase will be treated as tax-free, calculating the proportionate indexation of an individual’s personal TBC becomes increasingly complex as the general TBC continues to increase.
The ATO will calculate each individual’s personal TBC, which will fall somewhere between $1.6 million and $1.9 million, depending on when the individual commenced their income stream and the highest ever balance in the individual’s transfer balance account (TBA). After indexation is applied, an individual who had a TBA prior to indexation will only be able to see their personal TBC on ATO online services (via MyGov) and Online services for agents.
Anyone who already had a TBA and at any time met or exceeded their personal TBC will not be entitled to indexation and their personal TBC is unchanged.
The indexation of the general TBC also affects the amount of non-concessional contributions that an individual may make under the bring forward rule and whether they can extend the bring forward period to two or three years. An individual can make a maximum non-concessional contribution in 2023–24 under the bring forward rule of:
Minimum annual income stream payments
Following a halving of the minimum amount that must be paid for certain superannuation pensions and annuities due to the pandemic from 2019–20 to 2022–23, the percentage for making minimum annual payments to income stream recipients returned to normal levels on 1 July 2023.
Failure to make the minimum payment:
- Causes the income stream to cease for tax purposes.
- Treats the fund as not having paid an income stream from the start of the income year.
- Treats any payments made as lump sum payments.
- Prevents the fund from treating any income as exempt current pension income, so the fund loses its tax exemption on the earnings for that year.
It will be important for superannuants to be aware of and meet the rates for 2023–24 to ensure no adverse tax outcomes arise.
Cents per kilometre rate for car expenses
The cents per kilometre rate for claiming car expenses for 2023–24 is 85c per kilometre. This increases the rate from 78c per kilometre that applied for 2022–23. This may affect employer reimbursements of employees’ car expenses as well as employees’ claims in their 2024 tax return.
The ATO’s draft administrative approach for electric vehicle home charging in PCG 2023/D1 indicates 4.2c per km will be allowed for these vehicles using the logbook method and for FBT purposes from 1 July 2022. You cannot claim both the cents per kilometre rate plus a further 4.2c per kilometre.
Work from home expenses
Employees, and individuals carrying on business, who are working from home should consider the ATO’s administrative approach in PCG 2023/1 which indicates that the ATO will not apply compliance resources if taxpayers claim WFH expenses at the rate of 67c per hour. Since 1 March 2023, taxpayers choosing to use this approach must keep a record of the total number of actual hours worked from home; a representative record of the total number of hours WFH is no longer accepted.
Robyn Jacobson is the senior advocate at the Tax Institute.