Year-end seems to roll around faster than ever, so as we enter the last few weeks of the 2023–24 income year, now is the time to ensure your tax and superannuation affairs, and those of your clients, are in order.
What we know
Stage 3 tax cuts
The changes to the Stage 3 personal income tax cuts were enacted in March 2024 and the new rates and thresholds apply from 1 July 2024. The tax position of taxpayers for the 2023–24 income year will not be affected, nor will the tax cuts affect or be informed by lodgment of 2024 income tax returns.
The benefit of the tax cuts will pass immediately only to those who are subject to PAYG withholding when they will see an increase in their first take-home pay after 1 July 2024 due to reduced PAYG withholding. PAYG instalments are subject to an annual 12% GDP uplift so those who pay quarterly instalments will not see relief until they lodge their 2025 tax returns and determine their final tax liability. Any overpayment of tax for 2024–25 will result in a refund.
The PAYG withholding tables will be updated in mid-June 2024 to reflect the tax cuts. Employers will need to ensure they correctly apply the updated withholding rates to salaries and wages paid on or after 1 July 2024.
ATO focus on work-related expenses
Not surprisingly, the ATO remains focused this tax time on claims by more than eight million people (in 2023) for work-related expenses (WREs). Around half of those claimed a deduction related to working from home (WFH).
The WFH rules changed in 2022–23 and taxpayers who seek to claim a deduction for WFH need to either claim a deduction for the actual expenses they have incurred in 2023–24 for WFH or use the revised fixed rate method (FRM). The FRM allows taxpayers to calculate a deduction for expenses incurred in WFH at the rate of 67 cents for each hour worked from home during the income year. A record that shows the actual number of hours worked from home (e.g. timesheet, roster, diary or spreadsheet) must be kept, as well as a copy of a relevant bill for the additional running costs (e.g. electricity or internet bill). Deductions that are already included in the FRM cannot be separately claimed.
The rate of 67 cents per hour replaced the former rate of 52 cents per hour from 1 July 2022, and the temporary 80 cents shortcut method ended on 30 June 2022.
Broadly, three rules apply when claiming any deduction for a WRE:
- you must have spent the money yourself and were not reimbursed;
- the expense must directly relate to earning your income; and
- you must have a record (usually a receipt) to substantiate the deduction.
ATO focus on rental properties
The ATO has also indicated it will continue to pay particularly close attention to rental properties, as ATO data shows that nine out of 10 rental property owners are getting their income tax returns wrong. The ATO has published the Top 10 tips to help rental property owners avoid common tax mistakes.
Skills and training boost
The skills and training boost enables businesses with an aggregated turnover of less than $50 million to claim an additional 20% deduction for eligible expenditure incurred on external training courses provided to employees until 30 June 2024. Exclusions apply to in-house or on-the-job training and training provided to contractors and non-employee business owners.
New reporting requirements for not-for-profits (NFPs)
Non-charitable NFPs
A non-charitable NFP organisation with an active Australian Business Number (ABN) is now required to lodge an annual NFP self-review return in order to self-assess as eligible for income tax exemption. The new annual reporting requirement came into effect on 1 July 2023. The first self-review return that NFPs will lodge covers the 2023–24 income year. The self-review return will assist NFPs to determine the basis for which they self-assess as income tax exempt, and report this to the ATO. While NFPs need to report using the self-review return, they will not pay tax on their income unless they are a taxable NFP.
The self-review return for 2023–24 must be lodged by 31 October 2024. It can be submitted online through Online services for business, or by a registered tax agent if they are authorised to lodge on the NFP’s behalf. The crucial first step in preparing for lodgment is to update any new associates and authorised contacts appointed to the NFP and related ABN details to access Online services for business. The NFP may also choose to appoint a tax agent for the first time, which will necessitate securely nominating the agent through client-agent linking.
An NFP will be taxable if it does not meet the eligibility criteria in one of the eight categories of NFPs that can self-assess as income tax exempt. A taxable NFP is not required to lodge the NFP self-review return, as it will already be required to lodge an income tax return (or notify the ATO that a return is not necessary).
Charitable NFPs
Charitable NFPs with an ABN are income tax exempt only if they:
Charitable NFPs that do not register as a charity with the ACNC will be taxable, as they are not eligible to self-assess as income tax exempt. In this case, the taxable NFP may need to lodge an annual income tax return (or notify the ATO if a return is not necessary).
Trust distributions
New tax return labels
Under the ATO project, Modernisation of Trust Administration Systems (MTAS), changes will be made to tax return forms for trustees, beneficiaries and their tax agents. The changes start on 1 July 2024 and affect lodgments for the 2023–24 and later income years.
The changes:
- modify the labels in the statement of distributionin the trust tax return form by adding four new capital gains tax (CGT) labels to improve the reporting of beneficiary details;
- introduce a new schedule (trust income schedule) that replicates the fields from the statement of distribution issued by the trust — beneficiaries just need to copy the information across to the trust income schedule and lodge it with their income tax return;
- add new data validations to the trust tax return form in the Practitioner lodgment service (PLS)to strengthen the integrity of data reported through the agent lodgment process.
Trustee resolutions
Each year, trustees make beneficiaries presently entitled to trust income for an income year by making trustee resolutions to record the decision to confer the present entitlement on the beneficiary.
If purported distributions are not made effectively, they may not have the intended effect under trust law or tax law.
Some key considerations when making distributions of trust income and/or trust capital include:
- whether the distributions are permitted under the trust deed;
- whether the distributions are made to valid beneficiaries of the trust;
- identifying the date specified in the trust deed by when the trustee must determine to make the distributions;
- whether the trust has vested during the income year;
- whether a family trust election or interposed entity is in force for the trust;
- whether the trustee wants to stream capital gains and/or franked distributions;
- ensuring beneficiaries have provided their TFN details and a TFN report is lodged by the due date to avoid withholding obligations and penalties, and an annual TFN withholding report is lodged where amounts have been withheld from payments to beneficiaries; and
- making distributions that could trigger CGT event E4, or not satisfy the requirements of the trust loss provisions or the small business CGT concessions.
Reimbursement agreements under section 100A
Section 100A of the Income Tax Assessment Act 1936 (ITAA 1936) is an integrity rule that can apply where a beneficiary’s present entitlement to a share of trust income arose from a reimbursement agreement. Where section 100A applies, the beneficiary is treated as if they were never presently entitled to the trust income, and the trustee is then assessed on that share of the trust’s taxable income at the rate of 47%.
The ATO’s guidance explains what constitutes a reimbursement agreement. Broadly, it means that someone other than the beneficiary has received a benefit in connection with the arrangement and at least one of the parties entered into the agreement for a purpose of reducing tax. An exception applies for arrangements entered into in the course of ordinary family or commercial dealing. This turns on the facts and circumstances of each case. The ATO’s Practice Compliance Guideline PCG 2022/2 sets out the ATO’s compliance approach to section 100A, and further ATO guidance sets out the records that trustees should keep to explain the transactions that have happened.
Annual distributions by trustees are often made in June, so a careful consideration of the potential application of section 100A to trust arrangements should be undertaken.
Division 7A
Private companies that have made loans, payments or other benefits to shareholders and associates of shareholders will need to consider the tax implications under Division 7A.
Some of the key considerations are to:
- ensure that loans made during the 2023–24 income year are either repaid or placed on complying Division 7A loan terms before the lodgment of the company’s 2024 return;
- ensure that the required minimum yearly repayment (MYRs) is made on complying loans (made in the 2022–23 or an earlier income year) by 30 June 2024;
- note the increased benchmark interest ratefor making MYRs for 2023–24 is 8.27%, up from 4.77% for 2022–23;
- check whether any use of company assets has been made by a shareholder or their associate;
- consider the tax treatment of any unpaid present entitlements (UPEs) the company has to the income of a trust associated with the company arising on or after 1 July 2022;
- ensure that payments are made under legacy sub-trust arrangements for UPEs arising before 1 July 2022 or those UPEs are being otherwise managed; and
- determine whether the Commissioner’s discretion should be sought to disregard a deemed dividend that has already arisen under Division 7A.
Increase in superannuation guarantee rate
The superannuation guarantee rate for the period 1 July 2024 to 30 June 2025 increases to 11.5%, up from the current rate of 11%. The increased rate applies to the ordinary time earnings of salaries and wages paid from 1 July 2024, irrespective of when the work was done or the pay period to which the payment relates.
What we’re still waiting on
Small business instant asset write-off (IAWO)
2023–24 measure
As part of the Federal Budget 2023–24, the Government announced that it would temporarily increase the IAWO threshold to $20,000 for the 2023–24 income year. Without this change, the threshold reverts to the standard legislated threshold of $1,000 from 1 July 2023. The increased threshold is proposed to apply to eligible assets that are first used or installed ready for use from 1 July 2023 to 30 June 2024.
This proposed measure is still not yet law. In March 2024, Schedule 1 to the enabling Bill was amended by the Senate to temporarily increase the asset threshold from $20,000 to $30,000 and the aggregated turnover threshold from $10 million to $50 million for 2023–24 only. The Bill returned to the House of Representatives (House) for consideration of the Senate amendments, but on 15 May 2024, the House disagreed to the Senate amendments. The Bill returned to the Senate for reconsideration of its amendments and, on 16 May 2024, the Senate insisted on its amendments, so the Bill again returned to the House. On 29 May 2024, the House again insisted on disagreeing to the amendments insisted on by the Senate. So, back to the Senate it goes …
This oscillation between the upper and lower houses is greatly concerning as SBE taxpayers have a mere four weeks until the end of the 2023–24 income year yet still do not have certainty on the tax treatment of their depreciating assets for this year.
There is only more joint sitting week before year end, from 24–28 June, then another from 1–4 July. If not passed by then, the Bill could still be enacted in the Spring sittings with an increased threshold for 2023–24 applying retrospectively but this does not provide any certainty to businesses this side of year end.
2024–25 measure
The 2023–24 measure has now been overlaid with the announcement as part of the Federal Budget 2024–25 that the $20,000 IAWO for businesses with an aggregated turnover of less than $10 million will be extended by 12 months, for eligible depreciating assets first used or installed ready for use by 30 June 2025. Without this change, the threshold reverts to the standard legislated threshold of $1,000 from 1 July 2024. This will be the seventh time since 12 May 2015 that the IAWO threshold will have changed. At the time of writing, no enabling legislation has been introduced into Parliament.
In his recent Budget Address in Reply, the Leader of the Opposition, the Hon Peter Dutton MP, announced that a Coalition government would permanently extend the value of assets eligible for the IAWO to $30,000 for small businesses.
Energy incentive
The proposed energy incentive will enable businesses with an aggregated turnover of less than $50 million to claim an additional 20% deduction for the cost of eligible depreciating assets that support electrification and efficient energy usage. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. Up to $100,000 of expenditure will be eligible for the incentive, with a maximum bonus deduction of $20,000 allowed per business.
This measure is not yet law and, at the time of writing, the enabling Bill is currently before the Parliament.
Change to indexation of student loans
As part of the Federal Budget 2024–25, the Government announced it will reform the formula used to index Higher Education Loan Program (HELP) loans so the indexation rate will be the lower of the consumer price index (CPI) or the wage price index (WPI) in a given year. It means the CPI indexation rate of 7.1% applied on 1 June 2023 would be reduced to the WPI rate of 3.2% and the rate of 4.7% to be applied on 1 June 2024 would be reduced to 4%.
This is proposed to apply to relevant student loans that existed on 1 June 2023 and is expected to wipe $3 billion in student debt. Students who chose to repay their loans in full before 1 June 2023 will not be eligible for the indexation reduction.
Increase in penalty units
The Government is increasing the amount of a penalty unit from 1 July 2024 from $313 to $330. The enabling Bill is currently before the Parliament. This affects the amount of penalties imposed across the tax system for non-compliance.
Bendel appeal on Division 7A unpaid present entitlements
Those who control corporate beneficiaries that have UPEs with an associated trust will be closely monitoring the taxpayer’s appeal to the Full Federal Court from the Tribunal’s decision in Bendel and Commissioner of Taxation [2023] AATA 3074. The Tribunal found a UPE that arises from an entitlement to income (or capital) of a trust is not a loan for Division 7A purposes, in direct contrast to the administrative position taken by the ATO in public guidance issued over the past 14 years. An interim decision impact statement was issued by the ATO in November 2023. Importantly, the Tribunal’s decision is administrative only and does not change the law.
The ATO will not be issuing any further guidance for year-end, so trustees will need to carefully consider how the ATO’s current interpretation of the law and the Tribunal’s administrative (non-binding) decision impact distributions for the 2023–24 income year. Consideration should also be given to the treatment of unpaid present entitlements of corporate beneficiaries arising in the 2021–22 and 2022–23 income years that need to be managed to avoid a deemed dividend arising under Division 7A.
ATO resources at tax time
Tax time toolkit – general
Tax time toolkit for investors
Tax Time 2023 toolkit – small business
