As we come to the finish line on another 30 June year end, now is the time to turn your minds to taxation considerations specific to the end of the 2023 financial year as well as the perennial issues that should not be overlooked.
Business clients
Ending of temporary full expensing measure
With the temporary full expensing measure ending on 30 June 2023, it is crucial to consider the timing of any upcoming asset purchases. To fully expense a depreciating asset under these sunsetting provisions, a business needs to first use or install the asset ready for use by the end of 30 June 2023. Merely signing a contract, paying a deposit or receiving an invoice will not be sufficient.
If the asset is not first used or installed ready for use until after 30 June 2023, the asset will be subject to the rules that apply for the subsequent income year:
- For small business taxpayers:
- If the asset costs less than $20,000 (GST-exclusive), it will be able to be fully written off under the yet-to-be-legislated increase in the instant asset write-off threshold to $20,000 (only for 12 months); or
- If the asset costs $20,000 or more, the asset will need to be allocated to a general use pool and depreciated according to the pooling rules;
- Larger business taxpayers (aggregated turnover of $10 million or more) will need to depreciate the asset in accordance with the normal depreciation rules, noting the ATO has an administrative approach of allowing low-cost assets to be fully deducted in the year in which they were acquired, but only up to $100 (GST-inclusive).
Also consider the tax treatment of any depreciating assets that were sold during the current financial year and which had previously been fully expensed/written-off. The proceeds received on sale are generally assessable income.
Loss carry back
This COVID-19-era temporary measure also ends on 30 June 2023. Any corporate tax entity with an aggregated turnover of less than $5 billion that makes a tax loss in the 2023 financial year can choose to carry that loss back against taxable income made from the 2019 to 2022 year. The refundable income tax offset is available by lodging the 2023 income tax return. We will consider this upon preparing your tax work
Professional practice profits
The ATO’s guidance on its compliance approach to the allocation of profits or income from professional firms applies from 1 July 2022. Professional firms need to review their position and self-assess whether they satisfy the two gateways — whether there is a sound commercial rationale for the arrangement, and whether it exhibits ‘high-risk features’ — to ascertain their risk zone. The risk zone indicates the likelihood of the ATO reviewing the arrangement, not the likelihood of the arrangement falling foul of the law.
Division 7A and trust issues
The Commissioner’s revised position on unpaid present entitlements (UPEs) was finalised mid-last year and applies from 1 July 2022. Broadly, all UPEs will be considered to be the provision of financial accommodation (and therefore a Division 7A loan) where the corporate beneficiary:
- Consents to the trustee retaining an amount it can demand immediate payment of and continuing to use it for trust purposes; and
- Does not demand payment of the amount.
Sub-trusts arrangements previously endorsed by the Commissioner for managing UPEs may continue their legacy and can even be managed with a new complying loan arrangement on their maturity if the principal is not fully repaid by that time. However, new sub-trust arrangements consistent with those in the Commissioner’s withdrawn guidance are no longer effective for Division 7A purposes.
Historical UPEs (those arising before 16 December 2009) continue to be grandfathered.
Individuals
The ATO has clearly indicated across its various media channels that, this Tax Time, it will be focusing on the accuracy of claims for work-related expenses, rental properties and capital gains tax liabilities.
Accordingly, we may ask for more supporting documentation to substantiate your work-related expense claims and investment property expenses when completing your tax return this coming year. And for capital gains or losses it is imperative to supply us everything to support an assets cost base, sale proceeds and cost of sales. This most commonly applies to shares, properties and crypto assets. However, if you have sold any assets it is best to discuss with us if not sure whether there are any taxation implications.
The following checklist may assist you in preparing your year end documentation for our office:
- The rate per kilometre for claiming car expenses is 78 cents per kilometre for 2023.
- Refresh your understanding of the limited circumstances in which claims for conventional clothing are allowable, such as occupation-specific clothing, protective clothing, compulsory work uniforms and registered non-compulsory work uniforms (plus the cleaning of such clothing).
- The fixed rate method (52 cents per hour) and the temporary shortcut method (80 cents per hour) for working from home (WFH) expenses both ended on 30 June 2022. From 1 July 2022, the ATO is unlikely to challenge a taxpayers claim WFH expenses at the rate of 67 cents per hour. From 1 March 2023 to 30 June 2023 (and later income years), taxpayers must keep a record of the total number of actual hours WFH, while from 1 July 2022 to 28 February 2023 only, the ATO will allow taxpayers to keep a representative record of the total number of hours WFH.
- Ensure you provide us all rental income received and not seek to report net rent (instead of gross rent) then claim expenses (such as property management fees) again against the net rent.
- Ensure that interest expenses are correctly apportioned where the property is used for private use, the property is not genuinely available for rent or there is mixed use of borrowed funds. Providing us all loan statements covering the tax year will avoid any unintended mistakes
- Correctly characterise building expenditure as a deductible repair, a non-deductible initial repair or capital works. Providing all invoices will allow us to make sure you get this right.
Superannuation
Making contributions
To ensure you do not exceed the concessional contributions cap of $27,500, check with your superannuation funds and employers to determine what contributions have already been made during the 2023 year. This includes identifying any contributions made under salary sacrifice arrangements. Note that high salary earners may always fall above the cap and subject to either or both Division 293 tax and excess contribution tax
If further contributions are intended to be made by 30 June 2023 to maximum the concessional contributions cap (including any carry forward limits that are available), allow sufficient time for processing and receipt of payment. This is particularly important when using external payroll services and commercial clearing houses to ensure that the contribution is received by the fund by the end of 30 June and not merely paid (and still sitting within the banking system such that the fund does not receive the payment until July). If you are unsure if you have any unused carry forward concessional contributions which could be beneficial to claim this year to minimise your tax then we can check for you
While employers have until 28 July to satisfy their superannuation guarantee obligations, payments need to be made (i.e. received by the fund) by the end of 30 June if the employer seeks a deduction for the payments for the current financial year (instead of 2023–24).
Changes to the work test from 1 July 2022 have removed the need for individuals aged 67–74 years to pass the work test when making non-concessional contributions and salary sacrifice contributions, but the work test still applies when making personal deductible contributions.
Transfer balance cap and income streams
The increase in the transfer balance cap (TBC) to $1.9 million from 1 July 2023 will ensure more earnings on superannuation balances in retirement phase are tax-free, but the cap remains $1.7 million for the 2023 year. Calculating the proportionate indexation of an individual’s personal TPB will become even more complex as the general TBC continues to increase.
Ensure income stream recipients make their minimum annual payments.
Incentive schemes
Changes to the First Home Super Saver Scheme from 1 July 2022 increased the maximum releasable amount of voluntary concessional and non-concessional contributions to $50,000 (from $30,000). Changes to the downsizer contributions measure, also from 1 July 2022, reduced the eligibility age from 65 years to 60 years.
