Tax time focus on rental property income and deductions

The ATO is focusing on four major concerns this tax season when it comes to rental properties.

Concern 1: Include all rental income 
When preparing tax returns, make sure all rental income is included, such as from short-term rental arrangements, renting part of a home, and other rental-related income like insurance payouts and rental bond money retained.
Concern 2: Accuracy of expenses 
Not all expenses are the same – some can be claimed straight away, such as rental management fees, council rates, repairs, interest on loans and insurance premiums.
Other expenses such as borrowing expenses and capital works need to be claimed over a number
of years.
Depreciating assets such as a new dishwasher or new oven costing over $300 are also claimed over
their effective life.
Concern 3: Capital Gains Tax upon sale of a rental property 
When selling a rental property, capital gains tax (‘CGT’) needs to be considered and any capital gains or capital losses need to be reported. When calculating a capital gain or capital loss, it’s important to get the cost base calculation right.
It is also important to note that when selling any property for $750,000 or more, vendors/sellers must have a clearance certificate otherwise 12.5% will be withheld.
These clearance certificate applications can take up to 28 days to process so to avoid delays, sellers should apply as early as practical using the online form.
Concern 4: Record keeping 
​Records of rental income and expenses should be kept for five years from the date of tax return lodgments or five years after the disposal of an asset, whichever is longer.

Sessional lecturer entitled to superannuation support

The Federal Court has agreed with the ATO that a lecturer providing services to a higher education
provider was a common law employee and therefore entitled to superannuation support, despite being engaged as an independent contractor.
The ATO reviewed the situation and concluded that the lecturer was entitled to receive superannuation support. This was on the basis that for superannuation guarantee purposes they were either an ‘employee’ within the ordinary meaning of that term, or was what is referred to as an ‘extended definition employee’ as someone engaged primarily for the provision of their labour services.
​
Some of the factors which indicated the lecturer was in an employment relationship with the higher
education provider included:
    that the lecturer was engaged in his personal capacity and not through an interposed entity (such as a company or trust);
   that the higher education provider had a right of control over the lecturer, including the question of how, when and where he was required to provide the relevant teaching services; and
    the mode or manner by which the lecturer was to be remunerated was clearly expressed by reference to the time that the lecturer was engaged in delivering lectures and marking, not by reference to any readily
identifiable or quantifiable product or result.

TD 2022/11 – Discretionary trusts and corporate beneficiaries

When a trustee of a trust makes a decision to create an entitlement to income of the trust in favour of a corporate beneficiary (i.e., a privately held company), certain steps need to be taken to ensure that if the entitlement to the distribution remains unpaid (that is, no cash equal to the amount of the entitlement is paid to the corporate beneficiary), that this does not trigger what is called a ‘deemed dividend’ in the hands of the trust.
A deemed dividend is likely to give rise to unwanted taxation consequences for the trust. Historically, one way to avoid triggering a deemed dividend in such circumstances was to place the amount representing an unpaid distribution in a sub-trust for the benefit of the corporate beneficiary.
With these sub-trust arrangements, the relevant funds are generally being invested in the main trust to be used for working capital or to make plant and equipment or real property acquisitions.
These sub-trust arrangements were typically based on interest only loan arrangements, with the requirement that the principal be repaid at the end of either seven years (i.e., as an Option 1 arrangement) or ten years (i.e., to as an Option 2 arrangement).
The ATO has now formed the view that for entitlements to trust income that come about from 1 July 2022 (effectively from the 2023 income year) that these interest only Option 1 and Option 2 arrangements are no longer sufficient to avoid the potential triggering of a deemed dividend with respect to any unpaid present entitlements.
Broadly speaking, from 1 July 2022, in relation to an unpaid distribution payable to a corporate beneficiary, one way to avoid the unpaid distribution giving rise to a potential deemed dividend is for the unpaid distribution to be replaced with what is referred to as a complying Division 7A loan.
These Division 7A loans are made under S.109N of the Income Tax Assessment Act 1936 (‘ITAA 1936’).
Ordinarily, such a loan is repaid on a principal and interest basis, over seven years, based on an interest rate provided by the ATO for each year of the loan, with annual minimum loan repayments calculated based on a formula provided by the income tax legislation.

Pandemic Leave Disaster Payment reinstated

In recognition of the risks associated with more infectious new Covid-19 variants through the winter period, the Federal Government has agreed to reinstate the ‘Pandemic Leave Disaster Payment’ to 30 September 2022, which was otherwise set to end as of 30 June 2022.
Eligibility for the payment will be backdated to 1 July 2022, to ensure that anyone unable to work owing to isolation requirements in this period, without access to paid sick leave, is supported.
Access to these payments will commence from Wednesday 20 July 2022, with existing eligibility 
requirements to continue.
The Commonwealth and the States and Territories have agreed to share the costs of the payment 50:50.
For each 7-day period of self-isolation, quarantine or caring, the Pandemic Leave Disaster payment
is:
 $450 if you lost at least 8 hours or a full day’s work, and less than 20 hours of work:
or
 $750 if you lost 20 hours or more of work. 
As a reminder, Pandemic Leave Disaster Payments are assessable income and should be reported in the tax return of the recipient in the year of receipt.

ATO’s small business focus for 2022 income year

The ATO announced that it will be focussing on the following matters for small business tax returns for the 2021/22 year:
​
    Deductions that are private in nature and not related to business income, as well as overclaiming of        business expenses (especially for taxpayers running a homebased business).
     Omission of business income (e.g., income from the sharing economy or new business ventures).
     Record keeping – including insufficient or non-existent records that are needed to substantiate claims.

The ATO acknowledges that it has been a tough couple of years for many small business owners and encourages taxpayers to act early to find a solution if they are getting behind in their tax obligations, either by contacting their tax agent or the ATO.

ATO targeting SMSFs that fail to lodge annual returns
​
The ATO has observed an increase in the number of SMSFs that fail to lodge their first annual return and become what the ATO refers to as ‘NEVER’ lodgers. The ATO is particularly concerned where there has been a roll-over into these SMSFs, as this is a strong indicator illegal early release of superannuation benefits may have occurred.
​
A minority of SMSF trustees continue to ignore ATO reminders about lodging annual returns. This group is now being targeted with a compliance campaign the ATO calls ‘3 strikes and you’re out’.
Under this campaign, the ATO will take the following action:
    1. The ATO’s compliance action starts with a blue letter, that encourages trustees to take immediate action and lodge their return and provides a pathway for those in need of support.
    2. If the ATO does not receive a response to the blue letter, it will issue an amber letter warning the trustees of the consequences of failing to lodge their return.
     3. If the ATO still does not receive a response, it will issue a final warning, a red letter advising the ATO is commencing the disqualification process and considering other enforcement action.
​
Last year the ATO issued red letters to trustees who had never lodged their first annual return and has now commenced disqualifying the 95 trustees that did not respond.

ATO updates ‘cents per kilometre’ rate for individuals
​
The ATO has updated the cents per kilometre rate relating to individual car expenses for the 2023 income year to 78 cents per business kilometre.
The cents per kilometre method:
     uses a set rate for each kilometre travelled for business;
     allows taxpayers to claim a maximum of 5,000 business kilometres per car, per year;
    does not require written evidence to show exactly how many kilometres were travelled (but the ATO may ask taxpayers to show how they worked out their business kilometres, for example by means of diary
records); and
     uses a rate that takes all vehicle running expenses (including registration, fuel, servicing and insurance) and depreciation into account.

The cents per kilometre rate was 72 cents for the 2021 and 2022 income years.

ATO to target ‘wash sales’ this Tax Time

The ATO is warning taxpayers to not engage in ‘asset wash sales’ to artificially increase their losses to reduce gains (or expected gains). Wash sales are a form of tax avoidance that the ATO is focussed on this tax time.

Wash sales typically involve the disposal of assets (e.g., cryptocurrency and shares) just before the end of the financial year, where after a short period of time, the taxpayer reacquires the same or substantially similar assets. Such sales are usually done to create a loss to be offset against a gain already derived, or expected to be derived, in certain circumstances, in a tax return.
The ATO’s sophisticated data analytics can identify wash sales through access to data from share registries and crypto asset exchanges.

When the ATO identifies this behaviour, the capital loss is rejected, resulting in an even bigger loss to the taxpayer.
​
The ATO has warned taxpayers engaging in wash sales that they are at risk of facing swift compliance action and additional tax, interest and penalties may apply. Taxpayers are urged to ignore any advice encouraging a wash sale of any asset. The clear advice from the ATO is to check the ATO website or check with an independent registered tax professional and not to rely on advice received through media, social media, or advertisements.

Downsizer contributions age changes from 1 July 2022
​
From 1 July 2022, people aged 60 years and over will be eligible to make downsizer contributions of up to $300,000 per person ($600,000 per couple) from the sale proceeds of their home into their super. For downsizer contributions made prior to 1 July 2022, eligible individuals must have been aged 65 years or older at the time of making their contribution.

Eligible downsizer contributions do not impact or count towards the member’s concessional or nonconcessional super contribution caps.
​
During the 2022 Federal election, the previous Coalition Government announced it would support a further reduction to the downsizer eligibility age to 55 years. However, this announcement has not become law. Accordingly, contributions received on or after 1 July 2022 from members who are 55 to 59 will:
 be ineligible for treatment as downsizer contributions; and
 generally count towards either the member’s non-concessional or concessional superannuation contributions caps.

Super guarantee contribution due date for June 2022 quarter

The due date for employers to make super guarantee contributions for their employees for the June 2022 quarter is 28 July 2022. Note that the super guarantee rate in relation to salary and wages paid on or before 30 June 2022 is 10%. 

Employers that do not pay an employee’s superannuation guarantee amount on time (and to the right fund) are liable to pay the ‘superannuation guarantee charge’ (‘SGC’). The SGC is more than the superannuation amount that is otherwise payable for the employee and is not tax deductible.
As we reported last month, the super guarantee rate increases to 10.5% in relation to salary and wages paid on or after 1 July 2022 (even if they are paid in relation to work performed before that date).
​
Note also, contributions received by superannuation funds after 30 June 2022 will not be deductible in the 2022 income year, even if they are made in relation to work performed during the 2022 income year.

ATO priorities this tax time
The ATO has announced four key areas that it will be focusing on for Tax Time 2022:
   Record-keeping.
   Work-related expenses.
   Rental property income and deductions.
   Capital gains from crypto assets, property, and shares.
Before claiming income tax deductions for their expenses, taxpayers must ensure:
   they spent the money themselves and were not reimbursed;
  if an expense is for both income-producing and private use, only the portion relating to producing income is claimed; and
   they have a record to prove it.

Avoid double dipping on your deductions
Taxpayers are reminded not to make the mistake of ‘double dipping’ on deductions (that is, claiming
expenses twice) in their tax return this year.
Some of the ‘double dipping’ mistakes commonly made relate to the following deductions:
   Working from home expenses
A common mistake involves using the 'shortcut method' to claim working from home expenses and then claiming additional amounts for expenses such as mobile phone and internet bills, as well as the decline in value of equipment and furniture.
The working from home shortcut method is all inclusive. There are three methods available to claim a
deduction for working from home expenses depending on individual circumstances; namely, the shortcut, fixed rate and actual cost methods. The method that gives the best outcome can be used, as long as the eligibility and record-keeping requirements for the chosen method are observed.
   Car expenses
A common mistake involves using the 'cents per kilometre' method to claim car expenses, and then
double dipping by separately claiming expenses such as fuel, car insurance, and registration.
The cents per kilometre rate is all-inclusive and already covers decline in value, registration, insurance, maintenance, repairs, and fuel costs.
   Reimbursed expenses
Taxpayers cannot claim expenses that have already been reimbursed by their employer.

Get ready for super changes from 1 July 2022
As the new financial year approaches, employers need to be aware of two important super changes.
From 1 July 2022, employees can be eligible for super guarantee (‘SG’), regardless of how much
they earn, because the $450 per month eligibility threshold for when SG is paid has been removed.
Employers only need to pay super for workers under 18, when they work more than 30 hours in a week.
Furthermore, the SG rate will increase from 10% to 10.5% on 1 July 2022. Employers will need to use the new rate to calculate super on payments made to employees on or after 1 July, even if some or all of the pay period is for work done before 1 July.
Employers should update their payroll and accounting systems to ensure they continue to pay the right amount of super for their employees.

ATO to start clearing backlog of ENCC release authorities
Due to "unavoidable delays caused by improvements to" its systems, the ATO will start issuing requests to release excess contributions and other charges for individuals who did not make an election on the tax treatment of their excess non-concessional contributions ('ENCC') for prior financial years.
This may result in a higher than normal number of release authorities for members of superannuation funds over the coming months while the ATO works through the backlog.

ATO warns about GST fraud
Taxpayers are being warned to be on the lookout for dodgy online ads, often on social media platforms, promising easy GST refunds.
The ATO recently issued a media release about large-scale GST fraud attempts exceeding $850 million, that involve customers setting up an ABN without operating a business, and then submitting fictitious BAS statements to get a GST refund.
The ATO said it has already successfully stopped $770 million in attempted fraud before payment. “The people who are involved in these activities aren’t accidentally ticking a box on an online form.
They’re signing to say that they’ve set up an ABN for a business that doesn’t exist, then lodging a BAS with false information on it, to receive GST refunds that they are not entitled to,” the ATO said.
Taxpayers who think they’ve been involved in this arrangement are urged to let the ATO know (before the ATO contacts them) by calling 1300 130 017.
Confidential reports of suspected tax evasion or crime can be made online (visit ato.gov.au/tipoff) or by calling the ATO’s Tax Integrity Centre on 1800 060 062.

Employers need to prepare for changes under STP expansion Single Touch Payroll ('STP') reporting has been expanded.
This expansion, known as ‘STP Phase 2’, means that employers will need to start reporting extra information to the ATO each time they run their payroll.
Some digital service providers (‘DSPs’) needed more time to update their products and applied for deferrals, which cover their customers – therefore, when an employer can start Phase 2 reporting
depends on when their payroll product is ready.
Employers that have not already started Phase 2 reporting should ask their DSP when their product will be ready (if they don't already know).
Employers need to be across the changes and get ready to start Phase 2 reporting. This includes:
  checking if changes need to be made to payroll pay codes/categories so they align with Phase 2 requirements;
   reviewing allowances employers pay and how they need to be reported in Phase 2;
   understanding changes to salary sacrifice reporting; and
   understanding how to assign an income type to each payment.
The ATO is also reminding employers that amounts paid to 'closely held payees' should now be reported through STP.
A ‘closely held payee’ is an individual directly related to the entity they receive payments from. For example, family members of a family business, directors or shareholders of a company and beneficiaries of a trust.
There are concessional reporting options for closely held payees reporting which include the following:
   Reporting actual payments on or before the date of payment (along with arm's length employees).
   Reporting actual payments quarterly.
   Reporting a reasonable estimate quarterly.

No reduction in the Private Health Insurance rebate as of 1 April 2022

​An event that we have become accustomed to every 1 April, is that the amount of the Private Health Insurance (‘PHI’) rebate decreases.
The Australian Government rebate on PHI is annually indexed on 1 April by a Rebate Adjustment Factor (‘RAF’) representing the difference between the Consumer Price Index and the industry weighted average increase in premiums.
The RAF for 2022 has been calculated as 1. This means there will be no changes to the PHI rebate on 1 April 2022.

Disclosure of business tax debts

The ATO is in the process of writing to taxpayers that may be eligible to have their tax debts
disclosed to credit reporting bureaus (‘CRBs’). The ATO can potentially report outstanding tax
debts to a CRB where the following criteria are satisfied:
    The taxpayer has an Australian business number and is not an excluded entity;
    The taxpayer has one or more tax debts and at least $100,000 is overdue by more than 90 days;
    The taxpayer is not engaging with the ATO to manage their tax debt; and
    The taxpayer does not have an active complaint with the Inspector-General of Taxation about the ATO’s intent to report its tax debt information.
Excluded entities are a deductible gift recipient, a complying superannuation fund, a registered charity and a government entity.
The purpose of this letter from the ATO is to raise awareness of the actions that the ATO can now take under the Disclosure of Business Tax Debts measure.
The letter will be sent to all taxpayers with business tax debts that currently meet the criteria (discussed above) for disclosure.
This letter from the ATO provides business taxpayers with information on how to effectively engage with the ATO to manage their tax debt.
Taxpayers can avoid disclosure to a CRB by making payment in full or negotiating a payment plan.
If an eligible taxpayer does not take steps to actively manage their debt, they will remain eligible for disclosure.
Before the ATO takes any final action to disclose a tax debt, it will issue the taxpayer with a formal Intent to Disclose Notice.
If a taxpayer receives an Intent Notice, asking them to 'Act now or your tax debt will be reported to credit reporting bureaus', the taxpayer or their tax agent must contact the ATO within 28 days of receiving the notice to avoid the debt being reported.
It is crucial for taxpayers to engage with the ATO early before their debts become unmanageable

High Court rejects attempt to disclaim interest in trust distribution

The High Court has rejected a taxpayer’s attempt to disclaim an interest in trust income that arose
as a result of a default beneficiary clause being triggered.
Facts
The taxpayer, Ms Natalie Carter, was one of five default beneficiaries of the Whitby Trust, a discretionary trust.
For the 2014 income year the trustee had failed to appoint or accumulate any of the income of the Trust.
The Trust Deed contained a default beneficiary clause, nominating Ms Carter and four other beneficiaries, as the default beneficiaries, in the event that the trustee had failed to allocate trust income for the benefit of beneficiaries by 30 June of a particular year.
The ATO issued each of Ms Carter and the four other default beneficiaries with an assessment for one-fifth of the income of the Whitby Trust for the 2014 income year on October 2015.
This was done on the basis that they were “presently entitled” to that income within the meaning of S.97(1) of the Income Tax Assessment Act 1936.
An initial unsuccessful attempt was made by the default beneficiaries to disclaim their entitlement to default distributions in November 2015.
A further attempt by the default beneficiaries to disclaim their interest in trust income for the 2014 income year was made in September 2016 in what was referred to as the “Third Disclaimers”.The Administrative Appeals Tribunal held that the Third Disclaimers were ineffective whereas the Full Federal Court found in the taxpayers’ favour that they were effective.
The High Court was then asked to consider the legal status of the Third Disclaimers.
Decision
It was the unanimous decision of the High Court that the Third Disclaimers were ineffective. The High Court carefully analysed the words of S.97(1). In particular, the phrase “is presently entitled to a share of the income of the trust estate” in S.97(1) is expressed in the present tense.
The plurality found that expression "is directed to the position existing immediately before the end of
the income year for the stated purpose of identifying the beneficiaries who are to be assessed with the income of the trust – namely, those beneficiaries of the trust who, as well as having an interest in the income of the trust which is vested both in interest and in possession, have a present legal right to demand and receive payment of the income."
The High Court took the view that the question of the "present entitlement" of a beneficiary to income of a trust must be tested and examined "at the close of the taxation year", not some reasonable period of time after the end of the taxation year.
Accordingly, Ms Carter and the other four beneficiaries had been appropriately assessed by the ATO under S.97(1) given their status as default beneficiaries under the Trust Deed.
For the sake of completeness, the High Court also rejected the taxpayers’ argument that a beneficiary of a discretionary trust, with reference to events that may occur in a “reasonable period” after the end of an income year, can trigger an event that would disentitle the beneficiary to a distribution.
This decision is significant, because it backs the proposition that disclaimers of trust income cannot
be effective if they occur after the end of the income year that gave rise to a present entitlement.
It will be interesting to see in any subsequent Decision Impact Statement how the ATO intends to apply the decision in Carter’s case. As we head towards the end of another income year, this case serves as a timely reminder to ensure for discretionary trusts, that steps are taken before the end of the income year to
effectively distribute trust income.
This is done to avoid the operation of default beneficiary clauses, or the situation where no beneficiary is presently entitled to trust income and the trustee is assessed at the highest marginal rate.

2022-2023 Budget Measures that are now law

Low and Middle Income Tax Offset

A measure that will no doubt be beneficial for individual taxpayers is the increase in the Low and Middle Income Tax Offset (‘LMITO’) for the 2022 income year by $420. The LMITO is a tax offset which reduces an individual taxpayer’s tax liability.
This means that the maximum amount of the LMITO for the 2022 income year will now be $1,500 (up from $1,080 for the 2021 income year).
However, the LMITO will not be extended to the 2023 income year.

Reduction in Fuel Excise

Fuel excise on petrol and diesel will be reduced by 50% (a reduction of 22.1 cents per litre) from 30 March 2022 to 28 September 2022.
This temporary reduction in the fuel excise is to soften the impact of increased petrol and diesel prices that have been triggered by Russia’s invasion of Ukraine.
​
Tax deductions for work-related COVID-19 tests
Last month’s edition of Practice Update discussed a proposal for COVID-19 tests, to be both:
      tax-deductible; and
      exempt from FBT;
broadly where they are purchased for workrelated purposes.
This proposed legislative change is now law with effect from 1 July 2021.

Reminder of March 2022 Quarter Superannuation Guarantee (‘SG’)
​
Employers are reminded that their SG obligation for the 1 January 2022 to 31 March 2022 quarter
is due by 28 April 2022.
An advance warning is also provided to employers that the compulsory 10% SG rate is going to increase to 10.5% from the period 1 July 2022 to 30 June 2023.
So now might be a good time to ensure your payroll systems and SG calculators are updated by the start of the next income year.

Cents per kilometre deduction for car expenses – 2023 income year

The ATO has proposed for individual taxpayers that use the cents per kilometre method when calculating tax deductions for their work-related car expenses, that the rate per kilometre for the income year starting
1 July 2022 (the 2023 income year) will be 75 cents per kilometre.

This is an increase from the 72 cents rate applicable for both the 2021 and 2022 income years.
A reminder that the ability to claim a deduction under the cents per kilometre method is subject to
a cap of 5,000 business kilometres annually.
​
Individual taxpayers will claim deductions for work-related car expenses (where eligible) under one of two alternative methods: the log-book method or the cents per kilometre method.
Many taxpayers find that they are not able to use the log-book method as they have not maintained
a valid 12-week logbook in the last five years.

JobMaker Year 2: adjusting baseline headcount

If you have been claiming the JobMaker Hiring Credit, please be aware that the ATO will now calculate an adjusted baseline headcount for the claim.
The ATO will amend the prefill in the claim form based on information provided in earlier claims.
The ATO does this each period by calculating the greatest headcount increase that occurred in a
period that began 12 months or more before the current claim period.

The ATO then adds that increase to the baseline headcount.
This adjustment will happen because eligible businesses can only claim the JobMaker Hiring Credit for up to a year for each additional job they create.

The baseline headcount is an integrity measure designed to ensure that where an employer is claiming a JobMaker Hiring Credit for a new employee aged between 16-35, that they have also increased their overall number of employees.

This is designed to prevent employers terminating the services of current employees and then replacing them with employees aged 16-35.
​
Broadly speaking, to qualify for the JobMaker Hiring Credit an employer needs to have not only employed an eligible individual but to have also increased their overall employee headcount.

Re-contribution of COVID-19 early release super amounts

Individuals can now re-contribute amounts they withdrew under the COVID-19 early release of super program without the re-contribution counting towards their non-concessional contributions cap.
These contributions can be made between 1 July 2021 and 30 June 2030.

Individuals can make COVID-19 re-contribution amounts to any fund of their choice where the funds' rules allow. COVID-19 re-contribution amounts are reported as personal contributions. If the fund member is
found to be ineligible to make the re-contribution (for example, the fund member may be required to
satisfy the work test and does not do so at the time of a re-contribution) it may result in that member
exceeding their non-concessional contributions cap.
​
It should be noted that once an amount originally withdrawn under the COVID-19 early release of super program has been re-contributed into a superannuation fund, it will not be able to be released from that fund until the fund member satisfies a condition of release – such as obtaining the age of 65 or having met their preservation age and they have ‘retired’.

Penalties for overdue TPAR

The Taxable payments annual report (‘TPAR’) must be lodged by 28 August each year. Taxpayers who operate in certain industries and that make payments to contractors may need to report these payments in a TPAR.

Affected industries where taxpayers may have an obligation to lodge a TPAR are:
      Cleaning services;
      Building and construction services;
      Road freight;
      Courier services;
      Information technology services;
      Security, investigation or surveillance services.

From 23 March 2022, the ATO will apply failure to lodge penalties to those who:
      did not lodge their 2021 or prior year TPAR;
      have already been sent three non-lodgment letters about their overdue TPAR;
      do not respond to an ATO follow-up phone call about their overdue TPAR.
​
In the coming weeks the ATO may be phoning tax agents (or taxpayers directly) about their overdue
TPAR, to follow up the non-lodgment letters that have been sent.

Tax deductibility of COVID-19 test expenses
After much speculation, the Government announced that COVID-19 tests, including Polymerase Chain Reaction (‘PCR’) and Rapid Antigen Tests (‘RATs’), will be both:
 tax-deductible; and
 exempt from FBT;
broadly where they are purchased for work-related purposes.
This will require the introduction of new specific legislation (i.e., to clarify that work-related COVID- 19 test expenses incurred by individuals will be tax-deductible or FBT exempt where employers provide the tests to their staff) which will apply both where an individual is required to attend the workplace or has the option to work remotely.
The Government intends that these changes take effect from the beginning of the 2022 income year and will apply permanently once enacted.
​

Super changes and full expensing 12-month extension now law
A plethora of superannuation law tweaks has recently been made (via recent legislative reforms) which include:
    Removing the $450 monthly super guarantee threshold.
    Reducing the eligibility age for making downsizer contributions from 65 to 60.
   Changes to facilitate the removal of the work test for those aged between 67 and 75 regarding non-concessional and salary sacrificed contributions. In addition, the bring-forward rule will now be available for
people under the age of 75 (rather than 67, as is currently the case).
    Increasing the maximum releasable amount under the First Home Super Saver scheme from $30,000 to $50,000.
  Allowing super fund trustees to choose not to use the segregated assets method in certain circumstances.
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Furthermore, the Government has also ‘made good’ on their promise to extend accelerated depreciation with legislation passing to allow current Temporary Full Expensing measures to continue for another 12 months (i.e., to 30 June 2023).
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12-month extension of the temporary loss carry-back measure
As announced in the 2020/2021 Federal Budget, legislation has now passed to allow eligible corporate entities (i.e., with, amongst other things, an aggregated turnover of less than $5 billion) a 12-month extension to claim a loss carry-back tax offset in the 2023 income year.

The temporary loss carry-back rules were initially implemented in 2020 to promote economic recovery by providing cash flow support to previously profitable companies that fell into a tax loss position due to the COVID-19 pandemic.
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The law allows eligible companies to carry-back tax losses from 2020, 2021, 2022 and now the 2023 income year to previously-taxed profits in the 2019 or later income years.
A company that does not elect to carry back losses under this temporary (yet extended) measure is still eligible to carry losses forward as usual.
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Keeping and maintaining SMSF records
Trustees of SMSFs have been put on notice by the ATO that keeping and maintaining good records is one of their key responsibilities and legal obligations. Good record keeping ensures trustees can ensure accurate and timely SMSF accounts, audits and income tax return lodgements.

As a result, the ATO has recently confirmed that even where SMSF trustees rely upon super or tax professionals to administer their SMSF, each trustee remains personally responsible for good record keeping.
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If trustees are unsure of their obligations, the ATO has encouraged them to view the ATO’s recordkeeping
videos available on their website (refer to QC 23333) and undertake an approved education course (refer to QC 41142) to improve their understanding and knowledge.
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SMSF – statistical overview from 2020 lodgements published
As of 30 June 2021, SMSFs have been reported as making up 25% of all super assets (i.e., $822 billion as of 30 June 2021).
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At the same time, there were approximately 598,000 SMSFs with almost 1.115 million individual members. Furthermore, as of 30 June 2020, on average, each SMSF has assets of just over $1.3 million.
The ATO has also reported that the total contributions to all SMSFs in 2020 was around $17.9 billion (a 4% increase from 2019).

Finally, according to ATO statistics, over 25,000 SMSFs were established in 2021 (with average assets of $391,000 upon establishment), and of these new SMSFs, 85% were founded with a corporate trustee (i.e., rather than an individual trustee).
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New shield against debt recovery proposed for small business
Small businesses are to be afforded the ability to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (‘the Tribunal’) for orders to stay (i.e., temporarily suspend) specific ATO debt recovery actions.
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Broadly, amending legislation will allow the Tribunal to make such an order only if the proceeding is brought under the Small Business Taxation Division of the Tribunal.

This proposal (initially announced in the most recent Federal Budget) aims to provide small business entities (‘SBEs’) with a cheaper and easier way to pause the effects of an ATO decision to recover a tax debt whilst their tax dispute is being considered.
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Small employers and STP – the ATO gets serious
The ATO has advised it is in the process of shifting from its previous engagement and communication
focus on Single Touch Payroll (‘STP’). In particular, it will begin a ‘failure to lodge penalty’ process for small business employers (i.e., those with 19 or fewer employers) who have yet to commence STP reporting.

STP reporting has been mandatory for most small employers from the 2020 income year, with a final
‘nudge letter’ being issued to approximately 700 small employers in late January 2022.

Notably, the ATO advised that any remaining noncompliant small employers (i.e., those not subject
to any appropriate reporting extensions or exemptions) will have been issued pre-penalty warning letters from 18 February 2022.
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Where an employer receives a pre-penalty warning letter, they will have a further 28 days to take action by either starting to lodge or contacting the ATO before a failure to lodge penalty will be imposed.

ATO support for businesses in difficult times
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The ATO has reminded taxpayers that it has a range of support available for small businesses experiencing difficult situations, such as natural disasters, mental health challenges or financial hardship.

Depending on the business taxpayer’s circumstances, the ATO may be able to:
      give the business extra time to pay its tax;
      set up a payment plan tailored to its situation;
      re-issue tax returns, activity statements and notices of assessment;
      help the business reconstruct lost or damaged tax records;
      prioritise any refunds the business is owed; and
      remit penalties or interest charged during the time the business has been affected.

Government extends SME Recovery Loan Scheme to 30 June 2022

The Government has recently extended the SME Recovery Loan Scheme by a further six months (to 30 June 2022) to support SMEs adversely economically affected by the Coronavirus Pandemic.
Under the Scheme, eligible businesses can obtain loans through participating bank and non-bank lenders with the backing of a Government loan guarantee.

Around 80,000 loans worth approximately $7.3 billion have been written to date since the Scheme commenced in March 2020.
SMEs who are dealing with the economic impacts of COVID-19 with a turnover of less than $250 million will be able to access loans of up to $5 million over a term of up to 10 years.

Other key features of the Scheme include the following:
      Lenders can offer borrowers a repayment holiday of up to 24 months.
      Loans can be used for a broad range of business purposes, including to support investment.
      Loans may be used to refinance any preexisting debt of an eligible borrower.
      Loans can be either unsecured or secured (excluding residential property). 
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Importantly, the Government’s loan guarantee has been reduced to 50% (down from 80%) for loans
available from 1 January 2022 until 30 June 2022.

COVID-19 vaccination incentives and rewards

The ATO has reminded employers to consider their tax and super obligations when employees are provided with incentives or rewards for getting their COVID-19 vaccination.
When employees are provided a cash payment, including paid leave for employees to get their COVID-19 vaccination (or additional paid leave to recover from any vaccination side effects), employers should withhold PAYG withholding and make super contributions on the amount.

Furthermore, the payment must be reported to the ATO via Single Touch Payroll (‘STP’) as part of the employee's salary or wage.
On the other hand, employers must consider the FBT consequences of providing non-cash benefits as an incentive for their employees to get vaccinated.

Such benefits may include:
      Goods or services provided to the employee.
      Vouchers and gift cards.
      Prizes won by an employee in a competition (e.g., a raffle).
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Note that certain FBT exemptions and reductions may apply in some circumstances.
For example, if an employer provides or pays for an employee's transport to get their COVID-19 vaccination, there is generally no FBT payable.

Higher PAYG withholding rates continue to apply to backpackers

As we recently communicated, the High Court has held that the 'working holiday maker tax' (also known as the 'backpackers tax') did not apply to a taxpayer on a working holiday visa from the United Kingdom who was also an Australian tax resident.

This was due to the application of the Double Tax Agreement between Australia and the United Kingdom.
This tax treatment will only apply where the working holiday maker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany or Israel.
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However, the ATO has recently told employers that the higher PAYG withholding rates continue to apply to working holiday maker employees.

This is regardless of the country they are from (unless the employer receives an PAYG variation notice from the ATO).

Broadly, the working holiday maker withholding rates apply as follows:
      If the employer is registered with the ATO as an employer of working holiday makers, they should withhold tax at the tax rate of 15% from the first dollar the working holiday maker employee earns up to $45,000. Tax rates change for amounts above $45,000.
      If the employer is not registered with the ATO as an employer of working holiday makers, they must withhold tax at 32.5% from every dollar the working holiday maker employee earns up to $120,000. 

The foreign resident withholding rates must be applied to income over $120,000.
If a working holiday maker employee has had excessive amounts of PAYG withheld from their salary, they can lodge a tax return at the end of the income year to receive a tax refund (where eligible).

Single Touch Payroll exemption extended for WPN holders

The ATO has extended the Single Touch Payroll (‘STP’) reporting exemption available to entities that have a withholding payer number (‘WPN’).

As a result of this extension, certain entities that have a WPN (but not an ABN) will not be required to report under STP for the 2021‑22 and 2022-23 financial years.

This continues the exemption that has been provided to relevant entities since the commencement of the 2018-19 financial year.

Payment extension relating to JobKeeper objections

The JobKeeper rules have been amended to ensure the ATO can make payments to certain taxpayers after 31 March 2022.
​
Where a taxpayer has objected to an ATO decision relating to JobKeeper, a payment can be made by the ATO after 31 March 2022 to give effect to the objection decision and decisions of the AAT or a court.

Importantly, this extended payment date will only apply where a valid objection was given to the ATO on or before 30 November 2021.

Super is now following new employees
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The ATO is reminding employers that, as of 1 November 2021, there is an extra step they may need to take to comply with the choice of super fund rules.
If a new employee does not choose a super fund, most employers will need to request the employee's 'stapled super fund' details from the ATO to avoid penalties. A stapled super fund is an existing super account which is linked, or 'stapled', to an individual employee so that it follows them as they change jobs.
When a new employee starts, employers need to:
 offer eligible employees a choice of super fund;
 if the new employee does not choose a super fund, the employer will need to request stapled super fund details using Online services for business; and
 pay super contributions into one of the following:
– the super fund they choose;
– the stapled super fund the ATO provides if they have not chosen a fund; or
– the employer's default fund (or another fund that meets the choice of fund rules) if the employer cannot pay into the two above.

ABN 'intent to cancel' program
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The ATO is reviewing Australian business numbers ('ABNs') to identify potentially inactive ABNs for cancellation, and it has introduced a new automated process to allow taxpayers (or their tax agents) to confirm if their ABN is still required via a secure voice response system.
An ABN may be selected if the taxpayer has not reported business activity in their tax return, or there are no signs of business activity in other lodgments or third-party information.
The ATO reminds taxpayers that any income earned under an ABN needs to be reported in their tax return, regardless of the amount. By keeping their tax obligations up to date, the ATO can see they are actively undertaking a business (so, therefore, their ABN should not be cancelled).

'Backpacker tax' may not apply to some backpackers
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The High Court has held that the 'working holiday maker tax' (also known as the 'backpackers tax') did not apply to a taxpayer on a working holiday visa from the United Kingdom who was also an Australian tax resident, due to the application of the Double Tax Agreement between Australia and the United Kingdom.
The ATO has responded to this High Court decision, noting that it is only relevant where a working holiday maker is both an Australian resident for tax purposes and from Chile, Finland, Japan, Norway, Turkey, the United Kingdom, Germany or Israel.
Working holiday makers who may potentially be affected by this decision are encouraged to check the ATO website for updated guidance prior to lodging or amending a return or lodging an objection.
Employers should continue to follow rates in the published withholding tables for working holiday
makers until the ATO updates its website with further guidance.
The ATO notes that a working holiday maker’s residency status for tax purposes is determined by the taxpayer’s individual circumstances, but most working holiday makers will be non-residents (consistent with their purpose of being in Australia to have a holiday and working to support that holiday).

Beware of scams

Scamwatch is warning that scams cost Australian consumers, businesses and the economy hundreds of millions of dollars each year and cause serious emotional harm to victims and their families.
Cryptocurrency scams are the most 'popular' type of investment scams, representing over 50% of losses. Often the initial investment amount is low (between $250 and $500), but the scammers pressure the person to invest more over time before claiming the money is gone or ceasing communication and blocking access to the funds.
All age groups are losing money to investment scams, but the over-65s have lost the most, with $24 million lost this year.
Some simple steps individuals can take to protect themselves (and their businesses) are:
 Never give any personal information to someone who has contacted you.
 Hang up and verify the identity of the person contacting you by calling the relevant organisation directly — find them through an independent source such as a phone book, past bill or online search.
 Do not click on hyperlinks in text/social media messages or emails, even if it appears to come from a trusted source.
 Go directly to a website through a browser (e.g., to reach the MyGov website, type ‘my.gov.au’ into the browser).
 Search for reviews before purchasing from unfamiliar online traders.
 Be wary of sellers requesting unusual payment methods.
 Verify any request to change bank details by contacting the supplier directly.
Consider a multi-factor approval process for transactions over a certain dollar amount. 
 Never provide a stranger remote access to your computer, even if they claim to be from a telco company such as Telstra.
Feel free to contact our office if you need any help at all with this or anything else.

Managing business cash flow

The ATO has issued a reminder to businesses that paying regular attention to their recordkeeping and reporting tasks will help them better manage their cash flow and allow them to plan for the future.
The best way to make sure a business has enough cash available to meet its tax and other obligations is to do a cash flow budget or projection. This information will help the business to:
 see its likely cash position at any time;
 identify any fluctuations that may lead to potential cash shortages;
 plan for tax payments;
 plan for any major expenses; and
 provide lenders with information.
Accounting for income and expenses can help keep a business running smoothly — by giving it an overview of when it can expect money to come in and when it may go out, and highlighting where the business may need to direct its money.
The ATO provides resources about record keeping for business, and there is also information on business.gov.au regarding how to create a budget, and how to improve a business's financial position.

Data-matching program: Services Australia benefits and entitlements

The ATO has advised it will acquire Medicare Exemption Statement ('MES') data relating to approximately 100,000 individuals from Services Australia for the 2021 financial year through to the 2023 financial year inclusively, and compare it with claims made by taxpayers on their tax returns.

Preparing for the new Director ID regime
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As part of its Digital Business Plan, the Government announced the full implementation of the 'Modernising Business Registers' program.
This included recently enacted legislation introducing the new director identification number ('director ID') regime.
The director ID is a unique identifier that a director will need to apply for once and will keep forever.
The introduction of director IDs is intended to create a fairer business environment by helping prevent the use of false and fraudulent director identities, which "will go a long way to better identifying and eliminating director involvement in unlawful activity".
Editor: Note that all directors will need to apply for a director ID, including directors of corporate trustees of self-managed super funds ('SMSFs') and of family trusts.
Individuals will be able to apply for a director ID from 1 November 2021 on the new Australian Business Registry Services ('ABRS') website (at abrs.gov.au) and will need to log in using the myGovID app (set to a 'Standard' or 'Strong' identity strength).
When an individual must apply for a director ID depends on the date they became a director. For directors under the Corporations Act:
 who became a director on or before 31 October 2021, they must apply for a director ID by 30 November 2022;
 who become a director between 1 November 2021 and 4 April 2022, they must apply for a director ID within 28 days of appointment; and
 who become a director from 5 April 2022, they must apply for a director ID before their appointment.
Individuals will need to apply for their director ID themselves to verify their identity (i.e., no one can apply for it on their behalf, including agents).

Varying PAYG instalments due to COVID-19
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Taxpayers can vary their pay as you go ('PAYG') instalments throughout the year if they think they will pay too much, compared with their estimated tax for the year.
To assist taxpayers who continue to be affected by COVID-19, the ATO has stated that it will not apply penalties or interest on varied instalments for the 2021/22 income year for excessive variations when the fund has taken reasonable care to estimate its end of year tax.
The ATO says this means making a reasonable and genuine attempt to determine the tax liability. When considering if a genuine attempt has been made, the ATO takes into account what a reasonable person would have done in the same circumstances.
Note that variations do not carry over into the new income year.
Therefore, if a taxpayer made variations in the 2020/21 income year, they may need to vary again in 2021/22. The varied amount or rate will apply for all of the remaining instalments for the income year, or until the taxpayer makes another variation.
The ATO encourages taxpayers to review their tax position regularly and vary their PAYG instalments as their situation changes.
If a taxpayer realises they have made a mistake working out their PAYG instalment, they can correct it by lodging a revised activity statement or varying a subsequent instalment.
If a taxpayer is unable to pay an instalment amount, they should still lodge their instalment notice and discuss a payment arrangement with the ATO to ensure they will not have a debt at the end of the year.
Contact our office if you need help with any PAYG  (or any related) issues.

Permanent changes to AGMs and electronic communications
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The Government has introduced into Parliament a Bill to permanently allow companies to use technology to meet their regulatory requirements, and ensure that companies can continue to meet their obligations amid the uncertainty of the COVID‑19 pandemic.
These reforms build on the recently renewed temporary relief, which we reported in September 2021, and which will remain in place until 31 March 2022. Specifically, the new permanent reforms will:
 ensure that meetings can be held physically, as a hybrid, or (if expressly permitted by the entity’s constitution) virtually, provided that members, as a whole, are given reasonable opportunity to participate in the meeting;
 ensure that companies (and registered schemes) can meet their obligations to send documents in hardcopy or softcopy, and give members the flexibility to receive documents in their preferred format; and
 allow documents, including deeds, to be validly executed in technology neutral and flexible manners, including by company agents.

AUSTRAC transaction report information data-matching program
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The ATO will acquire transaction report information data from AUSTRAC for the period of 17 June 2021 through to 30 June 2027. 
Editor: AUSTRAC (the Australian Transaction Reports and Analysis Centre) is the Australian Government agency responsible for "detecting, deterring and disrupting criminal abuse of the financial system to protect the community from serious and organised crime".
The data elements made available to the ATO will depend on what is captured in the reporting process and can include identifying information of customers and institutions facilitating transactions, identifiers such as ABNs, ACNs and Australian Financial Services Licence details, and transaction details (including transaction type, accounts, instruments, amounts and currency).
The ATO estimates that records relating to approximately nine million individuals will be obtained each financial year. The data will be acquired and matched to ATO data to support the administration and
enforcement of tax and superannuation laws, including registration, lodgment, reporting and payment responsibilities.

Government payments datamatching program
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The ATO will acquire government payments data from government entities who administer government programs for 2017/18 to 2022/23 financial years. The data items include:
 service provider identification details (names, addresses, phone numbers, email, dates of birth, service type, ABN, ACN); and
 payment details (service provider ID, name of service, type of service linked to program, value of payments received for the financial year, count and type of claim, withholding and re-credit amount).
The ATO estimates that records relating to approximately 36,000 service providers will be obtained each financial year (including approximately 11,000 individuals each financial year).