Author: Glance Consultants

Tax deductions relate to expenses paid from your pocket to run your business or complete workplace duties. The Australian Office outlines eligible costs that can reduce your assessable income, minimising your final tax bill. 

As a home-based business owner, you’re more likely to invest more of your personal finances into performing your role. For instance, your energy bill will encompass personal use and electricity used to power your computer, printer, and other devices. 

Taking advantage of tax deductions can maximise your finances, allowing you to expand crucial elements of your business. Read on as we summarise the key deductions for home-based businesses you need to know about before June 30th. 

 

4 Deductions for Home-Based Businesses

A home-based business operates primarily from home, unlike an external workplace like an office or warehouse. Review four expenses you can claim on your tax return below:

 

Occupancy Expenses

According to the ATO in 2023, You can claim occupancy costs, such as the following:  

• Rent
• Mortgage bills
• Land taxes
• Council rates
• Home insurance

Calculate the deductible by measuring the area of your home dedicated to work in square metres. You then compare that area to your home’s total area. Here’s a calculation you can use:

• House (2 floors): 186 square metres = 100%

• Home office: 8 square metres = 

• Rent: $1,200

You can use the formula: 100% (186 sqm) – 8 sqm = 92% divided 100 = 0.92 X $1200 = $1,104. Here, the deduction would be ($1200 – $1,104) $96. 

 

Utility Bills

Running expenses usually encompasses utility bills, including:

• Electricity
• Mobile phone bill
• Furniture
• Repairs on furniture
• Internet

If you don’t have a dedicated work area, you might be unable to deduct occupancy and running expenses simultaneously. For items with dual purpose (personal and professional), you must calculate the usage and take that percentage from the price you paid. 

 

Business Transport

Vehicle expenses cover the fuel spent on travelling to the following locations is claimable:

• Visiting clients’ premises to deliver or provide goods and services
• Retailers or vendors for supplies
• Bank for business banking purposes, like depositing cash
• Attend financial appointments with tax agents and advisors
• Post office to send work-related documents and items like invoices or goods

 

Work Equipment

Work equipment like printers and accessories like ink and paper are deductible. You can claim on work-related equipment, such as computerised electronic devices. 

 

What Deductions Can’t You Claim?

You cannot claim refreshments like food, tea, and coffee. Personal expenses aren’t applicable either. For example, if you purchased a printer but only used it for personal documents, you cannot claim the cost of that device. 

You can’t claim further deductions on the above expenses if you receive the 0.67 cents per hour through the Fixed Rate Method. 

You may be subject to capital gains tax if you sell the house where you worked. You may not deduct this tax but could be eligible for small business CGT concessions. Ensure you maintain your tax and financial records to apply this initiative. 

 

Speak to Our Certified Accountants

Let’s tackle your tax return together to ensure you optimise your annual savings. Contact us to see how our certified accountants and advisors can best support you.

 

Electronic tax lodgement offers a more accessible way for small businesses and individuals to meet their obligations. Unfortunately, online criminals take advantage of this convenience, with the Australian Taxation Office reporting more than 25,000 cases of impersonation in the 2021–2022 financial year alone.

Losing money to unlawful situations can have devastating effects on small businesses trying to establish themselves in their chosen industry. We’ve constructed this useful guide outlining prevalent tax scams you should know about and several tips on mitigating them.

 

What Are Tax Scams?

Scammers falsify their identity, posing as the ATO and misleading small businesses into paying what they believe is their business tax bill or an “excess”. Besides financial damage, responding to scams also puts businesses’ confidential information, such as direct bank details. 

Scammers are most likely to reach you through the following mediums: 

• Phishing: Fake SMS, WhatsApp, and email messages requesting finances or information. The sender may pose as myGov or software providers.
• Cold calls: ATO impersonators may suggest that you’ve underpaid tax and must follow a process to complete your tax bill. Alternatively, they may say you’re due a refund to steal your financial information. 

 

How to Avoid Tax Scams

Protect yourself by reviewing the preventative measures against tax scams below:

 

Understand How the ATO Communicates

The ATO enables you to assign communication preferences of:

• Direct electronic mail via your myGov portal
• Paper mail sent via post

Although you may receive texts or emails alerting you of unread notifications in your myGov portal, the ATO will never demand action, like paying money or submitting files using these methods. It won’t call you either.

One way to check the legitimacy of email senders is by clicking on the address. Scammers usually have odd-looking email addresses containing sporadic numbers and letters. Seeing household address providers like “gmail.com” also indicates a scam.

Log into your myGov account properly and review your communication history to see all correspondence sent to you.

 

Avoid Application Fees

Scammers create websites offering tax file numbers (TFN) and Australian business numbers (ABN) for a fee. Avoid these websites completely and process all applications via the ATO’s website. TFN and ABN applications are free to complete, so avoid any source requesting payment.

 

Don’t Click on the Links Provided

Scam messages might provide a false link, posing as a shortcut to the myGov login. These links could contain malware, viruses, or trojans that could corrupt your device. 

They could also seize control over your device, downloading recording software, meaning scammers can see your activity, such as logging into bank accounts. Always use the correct process to access your financial accounts and remove messages containing suspicious links.

 

Get Advice From Reliable Sources

False social media accounts appearing as the ATO or other reputable tax sites could provide advice via private messages. While this advice could be highly inaccurate, meaning you submit your tax documents incorrectly, they could also demand payment or confidential login information. 

The ATO doesn’t communicate via social media, so omit any messages on these platforms. Only liaise with certified agents who can prove their credentials.

 

Receive Legitimate Support From Glance Consultants

Working with certified accountants at Glance Consultants gives you peace of mind, knowing your finances and information are safe. You’ll receive quality support and advice on taxes, accounting, bookkeeping, auditing, strategy planning, and more that you can trust. Contact us today to see how we can help you.

 

Disclaimer: Glance Consultants cannot provide legal advice. Please contact the authorities, banking institute, or a legally recognised body for support if you’ve fallen victim to a scam.

 

“Business structure” defines the legal organisation of an entity providing goods and services. 

Selecting the right business structure is arguably one of the most vital decisions you’ll make as a business owner. It impacts the way you handle daily operations, how your business is taxed, your liability level, and the legal obligations you need to meet for compliance purposes.

We have compiled a definitive guide exploring each business structure’s requirements, advantages, and disadvantages.

 

4 Primary Business Structures in Australia

The entity’s size, number of directors or owners, and whether you’ll employ others impact a business’ structure. Review the four common entities below: 

 

Sole Trader

A sole trader is the simplest business structure. You have full control over the business, but are personally liable for all debts and losses. As a sole trader, you can employ others.

Like other structures, you must register for an Australian Business Number (ABN) and GST if your annual income exceeds the threshold. You can also access the 50% capital gains tax. 

It’s a relatively straightforward structure that can be easy to set up and run with minimal paperwork and costs. As a sole trader, you’re taxed as an individual and report your business income on your individual tax return.

The main downside of being a sole trader structure is that you incur personal liability for all business debts and obligations. If your business fails, creditors can come after your personal assets, such as your home or car.

 

Company

A company is a separate legal entity. Shareholders own the company, while directors are responsible for the day to day operations of the business. 

Companies have different tax compliance obligations compared to other types of businesses and pay corporate tax at a flat rate on their profits. 

Unfortunately, a company doesn’t have access to the same 50% capital gains tax concession that sole traders and partners do.

One advantage of setting up a company structure is that the shareholders’ liability is limited to their investment in the company; they are not personally liable for the business debts and liabilities. So, it’s usually the preferred structure for high-risk business operations that need a solid asset protection strategy in place.

 

Partnership

A partnership business structure is similar to a sole trader in that the partners are legally responsible for all aspects of the business. However, in a partnership, two or more owners share equally in the profits and losses of the business.

Partnerships are also relatively easy and inexpensive to set up and have fewer compliance requirements than companies. However, each partner is jointly liable for all debts and liabilities incurred by the partnership.

In terms of their tax obligations, partners pay tax on the share of the net partnership at their respective individual tax rates. 

 

Trust

A trust is a legal arrangement where assets are held by one party (the trustee) for the benefit of another party (the beneficiary). There are several types of trusts in Australia, including fixed, discretionary, unit, and hybrid trusts.

Discretionary trusts are often the preferred type in a business structure because of their flexibility. Essentially, a discretionary trust gives trustees complete discretion over how to distribute business profits—which is a popular (legal) tax minimisation strategy. Beneficiaries then pay tax on their distribution share at their personal income tax rates. 

Another popular benefit of a trust structure for your business is that it provides asset protection for the beneficiaries. This means that if the trustees are sued, the assets of the trust will not be at risk.

Because the trustee essentially operates the venture on behalf of the beneficiaries, we recommend you appoint a corporate trustee because its shareholders will also benefit from a company’s limited liability. 

Unfortunately, one key downside of a trust is that it must distribute all of its income to its beneficiaries. This means that if you have a business that is growing rapidly and reinvesting its profits back into the business, a trust is not the best option. The reason for this is that any profits left in the business would be subject to tax at the highest marginal tax rate.

Contact Glance Consultants today for help, let’s get the best out of your business

Thought of registering a trademark for your new business?

The ATO has issued a reminder around trademarks!

For background, a trademark legally protects your brand and helps customers distinguish your products or services in the market from others. Trademarks can be used to protect a logo, phrase, word, letter, colour, sound, smell, picture, movement, aspect of packaging or any combination of these. In short, they protect your brand, products and services.

Trademarks are different from a business name which is the name you trade under.

For exclusive rights to your business name, you’ll need to protect it with a trademark. This will help you:

■ protect your name and stop others from trading with it
■ get exclusive use of that trademark throughout Australia
■ have protection in all Australian states and territories for an initial period of ten years.

Trademarks are intellectual property. Other types of intellectual property include:

■ patents
■ design rights
■ plant breeder’s rights
■ copyright
■ trade secrets.

While you don’t need a registered trademark to apply for an ABN, registering a trademark for your business name, logo, or other sign means you have exclusive rights to use your trademark in Australia.

■ A registered trademark is a licensable and saleable asset. It also provides a legal avenue to stop others from using it on similar goods and services. A 5-minute check can help save you a lot of disappointment and work.
■ Check out IP Australia for more information and get your trademark sorted today.
■ The same ATO release, reminds taxpayers of the business registrations and insurances that may be required for your new business.

As a new business, you may also need to:

■ register for goods and services tax (GST)
■ register for pay as you go (PAYG) withholding and meet your super obligations for any employees you hire
■ register for fringe benefits tax (FBT) when you are providing fringe benefits to your employees.

You can apply for an ABN and other key business registrations through the Business Registration Service.

You may also need business insurance and licences to protect your business. It’s important to understand the licences and permits you need to do certain activities and help protect your business and employees.

 

Self-education: when is it deductible?

If the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer’s income from current (but not new) income-earning activities, a deduction for self-education expenses incurred will be allowable.

There is no specific provision in the income tax legislation that allows a deduction for self-education expenses. Rather the expenditure falls for consideration under the general deductibility provision of the Tax Act. In broad terms this allows for, but also limits, deductible expenses to those incurred in the course of earning assessable income. This requires a close nexus between the outgoing and assessable income: the outgoing must be incidental and relevant to the gaining of the assessable income.

Principle 1 – the self-education maintains or improves current skills or knowledge

Where a taxpayer’s income-earning activities are based on the exercise of a skill or some specific knowledge, a deduction for self education expenses incurred will be allowable where the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge. The High Court decision of FC of T v Finn [1961] HCA 61; 106 CLR 60 is a leading authority for this principle. In this case, Finn, a senior government architect, was allowed deductions for expenses incurred on an overseas tour focused on the study of architecture.

This principle requires an assessment of a taxpayer’s current skills and knowledge compared against the subject of self-education, and a consideration of how close the subject is to those current (not future) income-earning activities. (The ATO advises the relevant employment activities are the duties and tasks expected of an employee to perform their job and are usually set out in an employee’s duty statement / contract of employment.)

Principle 2 – the self-education leads to, or is likely to lead to, an increase in income from current income-earning activities

If the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer’s income from current (but not new) income-earning activities, a deduction for self-education expenses incurred will be allowable.

It is not necessary for the expected increase in income or promotion to be realised for self-education expenses to be deductible, for example, if the taxpayer’s employment was terminated before gaining the promotion or increase. However, the expenses should be incurred whilst the taxpayer was employed (even if on leave without pay), and generally with a real prospect or likelihood of leading to such an increase or promotion.

The important thing for taxpayers is to retain their receipts in relation to their self-education. If you have any questions around what expenses are claimable, contact us.

 

Avoid schemes targeting SMSFs

Sometimes promoters of schemes target self-managed super funds (SMSFs). Schemes can include tax avoidance arrangements that inappropriately channel money or assets into your SMSF so you pay less tax. They may also include arrangements promoting the illegal early release of benefits from your fund for personal use.

To assist you with identifying schemes that may jeopardise your SMSF’s compliance, the ATO recently updated its web content to provide more information:

■ Schemes targeting SMSFs
■ Residential property purchased through illegal schemes.

Remember, if:

■ You’ve been approached by a someone who recommends you set up an SMSF or use your existing SMSF to participate in one of these schemes or a similar arrangement, you should check the ASIC Financial Register to make sure they have a financial licence. If you’re in doubt, you should seek a second opinion from a licenced adviser who is independent from the scheme.
■ You’re already dealing with a suspected promoter of an SMSF scheme, then you should contact the ATO immediately so they can help.

CAUTION!

Don’t be tempted by ‘too good to be true’ schemes. You may risk losing some or all of your retirement savings and receive significant penalties if you enter into one of these schemes. You could also be disqualified as a trustee of your SMSF and may be required to wind up your fund.

 

Discounting your capital gain

The capital gains tax (CGT) discount can reduce by 50% a capital gain that you make when you dispose of (sell) a CGT asset that you have owned for 12 months or more. However, the discount is only available to:

■ individuals (but not foreign or temporary residents)
■ complying superannuation funds (33% discount applies, not 50%)
■ trusts, and
■ life insurance companies in respect of a discount capital gain from a CGT event in respect of a CGT asset that is a complying superannuation asset.

The most notable omission from this list is companies. They are not eligible for the general discount. This should be factored in when assessing which entity is chosen to acquire a CGT asset.

12-month requirement

The tax legislation requires that to qualify for the general discount, the asset must have been acquired at least 12-months before the time of the CGT event (sale).

The 12-month period requires that 365 days (or 366 in a leap year) must pass between the day the CGT asset was acquired and the day on which the CGT event happens…effectively 12-months and two days! If a taxpayer is nearing the 12-month mark, they should consider delaying the sale where possible until this timeframe is satisfied and therefore becomes eligible for the discount.

For the purposes of satisfying the 12-month holding period, beneficiaries can treat an inherited asset as though they have owned it since:
■ the deceased acquired the asset, if they acquired it on or after 20 September 1985
■ the deceased died, if they acquired the asset before 20 September 1985.

Note more generally that for CGT assets acquired before 20 September 1985, no CGT is payable anyway.

Foreign residents

The CGT discount no longer applies to discount capital gains of foreign or temporary residents or Australian residents who have a period of foreign residency after the below date. However, the CGT discount will still apply to the portion of the discount capital gain of a foreign resident individual that accrued up until 8 May 2012 (the date of announcement).

This measure applies where:

■ an individual has a discount capital gain, including a discount capital gain as a result of being a beneficiary of a trust, from a CGT event that occurred after 8 May 2012, and
■ the individual was a foreign resident or a temporary resident at any time on or after 8 May 2012.

The effect of the measure is to:

■ retain the full CGT discount for discount capital gains of foreign resident individuals to the extent the increase in value of the CGT asset occurred prior to 9 May 2012
■ remove the CGT discount for discount capital gains of foreign and temporary resident individuals accrued after 8 May 2012, and
■ apportion the CGT discount for discount capital gains where an individual has been an Australian resident, and a foreign or temporary resident, during the period after 8 May 2012. The discount percentage is apportioned to ensure the full 50% discount percentage is applied to periods where the individual was an Australian resident.

If you have any questions about the 50% discount, please contact us.

 

Appointing an SMSF auditor

Early last month, the ATO issued a reminder around auditors. If you have an SMSF, you need to appoint an approved SMSF auditor for each income year, no later than 45 days before you need to lodge your SMSF annual return (SAR).

Your SMSF’s audit must be finalised before you lodge, as you’ll need some information from the audit report to complete the SAR. You must ensure the correct auditor details are provided in the SAR, otherwise you may be penalised.

Your auditor will perform a financial and compliance audit of your SMSF’s operations before lodging.

Remember, an audit is required even if no contributions or payments are made in the financial year.

Your approved SMSF auditor must be:

■ registered with the Australian Securities and Investment Commissioner – and you’ll need to provide their SMSF auditor number on your SAR
■ independent – auditors shouldn’t audit a fund where they:
• hold any financial interest in the fund, or where they have a close personal or business relationship with members or trustees
• work for a firm which provides your fund with other services such as certain accounting services, tax, super or financial planning advice.

If a fund doesn’t meet the rules for operating an SMSF, the auditor may be required to report any contraventions to the ATO.

Approved SMSF auditors can be busy so it’s a good idea to start this process early when the time comes around.

You can find a list of approved SMSF auditors on the ASIC website.

 

Costs of a caravan/motor home for work-related travel

SCENARIO

I run a small business that requires me to travel quite a lot, particularly to country areas where I will often stay overnight. To save on accommodation costs, I have purchased a caravan. I have a business logo on the side of the caravan that is on display when I attend town shows and events. Will the costs of purchasing and maintaining my caravan be deductible in my individual income tax return?

GUIDANCE

In these challenging and changing times, many have jumped on the modern version of the proverbial band wagon and purchased a caravan or motor home to use for work or business-related travel.

It is a common misconception that specific rules govern whether you can claim a tax deduction for the costs of purchasing and maintaining a caravan or motor home. A caravan or motor home is no different to any other work or business asset you own, and the extent the expenses are deductible will depend upon the extent you use the caravan or motor home for income producing purposes. The complexity does not arise because the expenses relate to a caravan or motor home, but that the expenses (in our scenario above) are essentially travel and accommodation expenses, and this is an area of tax law that can be difficult to apply in practice.

Travel and accommodation expenses are deductible under the tax legislation where you incur these expenses gaining or producing assessable income, or they are necessarily incurred in carrying on your business.

Travel between two unrelated work locations is also deductible where neither of the two work locations is your home (although in this case, the costs may still be deductible under the general deduction provision).

Travel costs will not be deductible if they are a prerequisite to earning income, if you are living away home (rather than travelling on work) nor if they are as a result of your own personal choice or circumstances, eg, the costs are not deductible just because you decide it is more convenient to stay overnight. It would seem that if it is reasonable that you would stay overnight rather than travelling to and from a location within a day, and the reason cannot be attributed to a personal choice, then it is more likely the travel would be viewed as work-related.

Keeping a diary would help support your deduction (and is necessary as a sole trader travelling for six or more consecutive nights).

Generally, the depreciation and GST claim on a caravan or motorhome is not limited by the car limit (currently $68,108) because a caravan or motorhome (designed to carry a load of more than one tonne) is not a ‘car’ as defined in the tax legislation.

What if my business logo is on my caravan?

The good news is while the cost of the business logo will ordinarily be tax deductible as advertising, the bad news is the ATO is firmly of the view that placing a business logo on the side of a caravan (or any type of motor vehicle) will not turn private travel into business travel, even if the signage is affixed permanently. This means if the travel expenses are not tax deductible without a logo, the travel expenses will not be deductible with a logo.

 

Click to view Glance Consultant’s September 2023 newsletter via PDF

 

 

 

 

Whether running a small business or operating as a sole trader, having a good eye for financial planning and meeting obligations is key to keeping your services afloat. 

A good strategy should facilitate growth, raise profit margins, and prepare for tax. Analysing your cash flow and understanding how to manage various reporting sheets will give you the information needed to succeed. So, where do you start?

We’ve compiled a helpful checklist outlining the fundamental aspects of developing a reliable strategy. 

 

Manage Taxes Obligations 

Regardless of whether you’ve registered your small business under a company, trust or sole trader structure, you may have the following obligations:

• Goods and services (GST) tax (You must register and pay GST if you generate revenue greater than $75,000 on an annual basis)
• Superannuation contributions (if you employ yourself or staff)
• Income tax
• PAYG Tax withholding

If you’re keen to discuss a few strategies around tax, then we’re ready to give you a hand and provide some expert advice.

Remember, setting aside profit for taxes is important as well, because your quarterly BAS and income tax obligations come around quicker than you might think!

 

Mastering the basics: Financials Statements

These are the foundations (pun intended) of understanding your business’s financial health and there are two primary areas to focus on for you.

• Balance sheet: This provides a snapshot of your business’s financial position at any given time. It shows your assets, liabilities and equity giving you the best overview of what your business owns and owes.
• Profit-and-loss statement: This statement summarises all your revenue, expenses and profit over a specific period of time (usually a month, quarter or year) and helps provide the best insight into whether your business is making a profit or a loss. It’s handy for knowing if you have made money over a specific period of time, even if you don’t get paid for a while after.

Accounting software such as Xero, makes creating and managing these financial statements easier. 

 

Identify Your Profit Margins

Evaluating your business’ profitability lets you identify expansion opportunities, whether that’s by recruiting new individuals so you can take on more jobs efficiently or investing in cutting-edge equipment. It also encourages you to review your pricing strategy to ensure it remains profitable but reasonable. 

So, how do you work out your profit margin? Using your profit-and-loss statement, try this calculation: Net Profit divided by your Total Revenue = Net Profit Margin.

This indicator then shows you that on average, when you make $1 dollar of revenue, how much money do you make as profit as a result. A healthy profit margin ensures your business remains sustainable going forward.  

 

Receive Professional Support 

Financial management is a whole job in itself. Enlisting the support of skilled accountants takes the weight off and lets you focus on the work you enjoy. Contact us to get the ball rolling on developing a financial strategy right for your business’ unique needs.

 

As a business, keeping your tax logging and books updated is essential. Suppose you use your vehicle for work purposes. In that case, the Australian Taxation Office allows you to claim a deduction for these expenses, which is a huge help for small and self-employed businesses.

 

To learn more about vehicle expense tax deductions and how this can affect your business, read on, as our guide covers all the essential points you need to know! 

 

How to Figure Out Your Eligibility 

The first step to figuring out if your vehicle qualifies for tax deductions is to check if you are eligible. Of course, you can’t claim anything for the personal use of your vehicle, and the following only applies if you use your vehicle for work-related pursuits. Work-related motor use includes;

• A car owned, leased or hired in your name (under a hire-purchase arrangement)
• Someone else’s car
• Any other motor vehicle (not defined as a car)

 

Which Work-Related Activities Are Included in Vehicle Tax Deductions? 

If you’re unsure if the activity you have used a vehicle for is tax deductible, the following list should provide some clarity; 

• Essential work duties, including travelling from your regular workplace to meet clients off-site. 
• Attending work meetings.
• Collecting or delivering items.
• Travelling to and from different work locations. 

 

Grey Areas of Vehicle Tax Deductions

It’s a common misconception that you must own your car for vehicle tax deductions, but deductions cover leased, hired, and other people’s cars you’ve used for work-related activities. 

While travelling to work meetings from your site is included in tax deductions, you generally can’t claim the journey between home and work. This commuting is considered private travel, so you can’t include it in your tax deductions. However, there are some cases that you could look into regarding travelling from home, such as if you usually work remotely but are now required to travel to various sites. 

 

How to Calculate

If your vehicle is classified as a car, you can use the cents per kilometre or logbook calculation methods, utilising ATO’s expenses calculator to use either method efficiently. 

You must use the actual cost method for vehicles not classed as cars. You must calculate the percentage ratio of work-related travel to the total travel and multiply this by the total expenses. 

 

Keep Your Records Safe

The best way to ensure you accurately calculate your vehicle tax deductions is by having good record-keeping. The records you keep will depend on the calculation method you use. Let’s take a look at these options:

Logbook: Represent your past year’s travel for at least 12 weeks, detailing each journey’s purpose, odometer readings for the starts and ends of trips, and the total kilometres travelled during the period. You should also include odometer readings at the beginning and end of each income year. 

Cents per kilometre: record work-related trips and clearly show how you work out business kilometres, either in a diary or the myDeductions in the ATO app.

 

Need Help Calculating Your Business Expenses and Vehicle Tax Deductions? We Can Help

We understand that calculating taxes can be challenging, and you may need support with your vehicle tax deductions. Contact us today, and we will provide you with the help you need.

 

Super guarantee increases to 11%

The increase to the superannuation guarantee (SG) rate from 1 July 2023 will see more employees (and certain contractors) entitled to additional SG contributions on their pay. But what happens when income earned before 30 June is paid after 30 June 2023 – will employees be entitled to the higher SG rate of 11%?

 

SG is based on when an employee is paid

On 1 July 2023, the SG rate increased from 10.5% to 11%. In some cases, an employee’s pay period will cross over between June and July when the rate changes.

However, the percentage employers are required to apply is determined based on when the employee is paid, not when the income is earned. The rate of 11% will need to be applied to all ordinary time earnings (OTE) that are paid on and after 1 July 2023, even if some or all of the pay period it relates to is before 1 July 2023.

This means if the pay period ends on or before 30 June, but the pay date falls on or after 1 July, the 11% SG rate applies on those salary and wages. The date of the salary and wage payment determines the rate of SG payable, regardless of when the work was performed.

 

Example

Nicholas is an employee of ABC Pty Ltd.

If Nicholas performed work:

• In June (or partly in June and partly in July) but he was paid in July, the SG rate is 11% on his entire payment and contributions, totalling 11% of his OTE for the September 2023 quarter. This must be made to his superannuation fund by 28 October.

• In July, but was paid in advance (before 1 July), the SG rate is 10.5% and contributions totalling 10.5% of his OTE for the June 2023 quarter must be made to his superannuation fund by 28 July.

 

SG rate will continue to rise 

Employers should prepare for ongoing, annual increases to the SG rate over the coming years. The following already-legislated increases to 12% by 2025 will proceed as follows:

 

Basis of SG

SG is only payable on a workers’ OTE. OTE is the amount you pay employees for their ordinary hours of work, including things like commissions and shift loadings, but not in relation to overtime hours (being those outside the ordinary hours stated in a worker’s award or other employment agreement).

 

More information?

If you are still uncertain around the application of the new SG rate or need guidance on which payments constitute OTE, reach out to us.

 

Superannuation and the right to delegate

Another key Federal Court case may have a bearing on whether you owe certain workers you engage superannuation guarantee or not.

For background, early last year the High Court made a game-changing decision in determining whether a worker is an employee or contractor at common law. It ruled that this is determined by the employment contract/agreement and whether it contains the usual indicators that tend toward a finding that a worker is an employee at common law including:

■ Does the business have control over the worker (e.g. what hours they work and how they do the work)?
■ Must the worker perform the work personally (rather than having the ability to delegate or subcontract the work to an outside party)?
■ Is the worker paid like an employee (e.g. hourly rate)?
■ Does the business supply the tools and equipment for the worker?
■ Does the business bear the risk and liability to outside parties for any defects in the work?

Where the answer to most of those questions is yes, then the worker is an employee at common law. Up until the High Court’s decision, lower courts were looking at how individual work arrangements were playing out in practice when answering the above questions. The High Court however ruled that you should instead look at the rights and obligations set out in the respective contract between the parties rather than how the situation plays out after the contract is signed. This is provided that the contract was not a sham.

With this new approach in mind, in early June 2023 a case came before the Full Federal Court where it was asked to determine whether a worker was an employee or contractor. Adopting the High Court’s new approach, the Full Federal Court examined the contract and found that the answers to some of the above questions were yes, while the answers to others were no.

However, ultimately it found that because the worker had the ability to delegate/subcontract the work (although a limited ability subject to the approval of the business) the worker was not an employee for superannuation purposes at common law:

.. if a person engaged to perform work has a contractual right to have someone else perform that work, that is a matter which at the very least tends against a conclusion that the person is an employee. The existence of the right is inherently inconsistent with an employee relationship. In the absence of significant countervailing considerations, how can you be an employee if, within the scope of the contract, you can lawfully get someone else to perform the entirety of your contractual obligations, whether for a short period, or for a longer period?

Because the worker had the ability to delegate, he was also not entitled to superannuation under the wider definition of “employee” in the superannuation legislation either which provides that if a person works under a contract that is wholly or principally for the labour of the person, the person is an employee of the other party to the contract. The ability to delegate meant that this test was not met.

The take-home message for employers is that the terms of the written agreement will determine whether a worker is owed superannuation at common law (but that contract cannot be a sham).

However, where the workerhas the ability to delegate, this will generally be decisive – no superannuation will be owed at common law or under the superannuation legislation.

All told, this is a complex area. Reach out to us if you are unsure of whether a superannuation = obligation is owed to a worker.

 

Time for a restructure?

The new financial year can be a time where business owners look at their operating structure and consider whether it still meets their needs. Choosing a structure is not simply about minimising tax, rather a range of factors should be considered as such as asset protection, establishment and ongoing compliance costs, succession planning, and your understanding of each structure etc.

Most small businesses operate as a sole trader, company, trust, or partnership. The table below is a comparative snapshot of each of the four structures:

You may find that, as your business grows or as your priorities change, your chosen structure no longer serves your needs. For example, a number of people commence businesses as sole traders (often for reasons of simplicity as well as keeping start-up costs to a minimum) but later find that this structure is no longer appropriate. From an income tax perspective, a drawback with sole traders is that income from the business is assessed personally to you at your marginal tax rates. As your business grows and the revenue generated increases, your tax rate also increases.

The take-home message is that you should periodically review your structure to ensure it continues to serve your needs. Be mindful however that changing structures can have CGT and stamp duty consequences – these one-off costs need to be taken into account when making the decision whether to change. Also note that under the small business rollover provisions, it may be possible for you to change your structure without incurring CGT.

Talk to us if you are contemplating changing your business operating structure.

*subject to the Personal Services Income (PSI) rules

 

 

Fair Work changes

Although not related to tax, there are a number of changes on the Fair Work front that employers should be aware of.

 

MINIMUM WAGE INCREASE

The National Minimum Wage applies to employees who aren’t covered by an award or registered agreement. From 1 July 2023, the new National Minimum Wage will be $882.80 per week or $23.23 per hour.

The new National Minimum Wage will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

Note that if a worker is covered by a registered agreement, the minimum wage increase may apply to them. This is because the base pay rate in a registered agreement can’t be less than the base pay rate in the relevant award. Check your agreement by searching for it on the Commission’s website: Find an agreement

 

AWARD MINIMUM WAGE INCREASE

The Fair Work Commission has also announced that minimum award wages will increase by 5.75%. Most employees are covered by an award. Awards are legal documents that outline minimum pay rates and conditions of employment in your industry or occupation.

If you’re not sure which award applies to a worker, use Find my award.

This increase will apply from the first full pay period starting on or after 1 July 2023. This means if your weekly pay period starts on Monday, the new rates will apply from Monday, 3 July 2023.

 

SECURE JOBS, BETTER PAY: 6 JUNE – CHANGES TO WORKPLACE LAWS

From 6 June 2023, changes also came on stream related to:

■ requesting flexible working arrangements
■ extending unpaid parental leave
■ agreement-making
■ bargaining.

For more information, visit, Secure Jobs, Better Pay: Changes to Australian workplace laws.

 

AGED CARE SECTOR

Direct care and some senior food services employees in the aged care sector will receive a 15% wage increase from 1 July 2023.

For more information, visit, 15% wage increase for aged care sector.

 

PAID PARENTAL LEAVE SCHEME

From 1 July 2023, the Paid Parental Leave scheme is changing.

From this date the current entitlement to 18 weeks’ paid parental leave pay will be combined with the current Dad and Partner Pay entitlement to two weeks’ pay. This means partnered couples will be able to claim up to 20 weeks’ paid parental leave between them. Parents who are single at the time of their claim can access the full 20 weeks.

These changes affect employees whose baby is born or placed in their care on or after 1 July 2023.

Other changes include:

■ allowing partnered employees to claim a maximum of 20 weeks’ pay between them, with each partner taking at least two weeks (except in some circumstances)
■ introducing a $350,000 family income limit (indexed annually from 1 July 2024) for claiming paid parental leave pay
■ expanding the eligibility rules for fathers or partners to claim paid parental leave pay
■ making the whole payment flexible so that eligible employees can claim it in multiple blocks until the child turns two
■ removing the requirement to return to work to be eligible for the entitlement.

 

Small business lodgement amnesty

Since Budget night, the ATO has released more information around the small business lodgment amnesty…which can now be taken advantage of from 1 June 2023!

The amnesty was announced in the recent Budget. It applies to tax obligations that were originally due between 1 December 2019 and 28 February 2022 and runs from 1 June 2023 to 31 December 2023.

To be eligible for the amnesty, the small business must be an entity with an aggregated turnover of less than $10 million at the time the original lodgement was due.

During this time, eligible small businesses can lodge their eligible overdue forms and the ATO will then proactively remit any associated failure to lodge (FTL) penalties.

ATO Assistant Commissioner Emma Tobias urged small businesses to take advantage of the amnesty to get back on track with their tax obligations if they have fallen behind.

“The past few years have been tough for many small businesses, with the pandemic and natural disasters having a significant impact. We understand that things like lodging ATO forms may have slipped down the list of priorities. But it is important to get back on track with tax obligations. Lodging these forms are not optional, so we hope our amnesty will make it easier for impacted small businesses to get back on track. When forms are lodged with the ATO under the amnesty, businesses or their tax professionals will not need to separately request a remission of FTL penalties. All you need to do is lodge your outstanding tax returns or activity statements and we’ll take care of the FTL penalty remission from our end. You might see an FTL penalty on your account for a short period of time, but don’t worry, we will remit it.”

Ms Tobias also noted that outstanding lodgements can be an early indicator that a small business is not actively engaged with the tax system, which can be a red flag:

“We encourage all businesses to lodge any overdue forms even if they are outside the eligibility period. Whilst forms outside the amnesty eligibility criteria will attract FTL penalties, the ATO will consider your circumstances and may remit such penalties on a case-by-case basis. We understand that some small businesses may be worried about paying an amount owing on their overdue lodgment. If you are unable to make full payment of your debt, remember we can work together with you or your registered tax or BAS agent to figure out the right solution for you. We want to make this process easy and encourage small businesses to do the right thing. If you have a registered tax or BAS agent, now is a good time to reach out to them to make sure you are up to date with your tax affairs. Taxpayers still have an obligation to lodge overdue forms during the amnesty period and we will continue to work with them to help ensure they meet their obligations,” Ms Tobias said.

The ATO offers a range of support options, including payment plans. Many small businesses are also able to set up their own payment plan online.

Ms Tobias also explained that if a business has ceased trading, they need to advise their registered tax professional, or the ATO directly.

The amnesty applies to income tax returns, business activity statements and fringe benefits tax returns. It does not apply to superannuation obligations and excludes other administrative penalties such as penalties associated with the Taxable Payments Reporting System.

If you are ready to come forward and get your overdue lodgements up to date, we can help you, and hopefully secure the amnesty for you.

 

Book yourself in for the ‘super health check’ initiative

This tax time, the ATO is introducing the ‘super health check’ initiative. This consists of five simple and important things that individuals can do to get on top of their super, including:

1. Check your contact details.
2. Check your superannuation balance and employer contributions.
3. Check for lost and unclaimed super.
4. Check if you have multiple super accounts and consider consolidating, and
5. Check your nominated beneficiaries.

Individuals are encouraged to complete the check on ATO online services, through myGov or the ATO app at least once a year at tax time. Alternatively, you may wish to contact your superannuation fund to perform this check.

Although the super health check can be done at any time, the ATO is suggesting individuals do it when they prepare their tax return.

This reminder from the ATO is timely given the superannuation guarantee increases to 11% on 1 July 2023.

So make sure you start the new financial year strong and get on top of your super savings.

 

Work-related car expenses updated

The ATO has just announced that the cents per kilometre rate has increased to 85 cents per kilometre for 2023/24.

To recap, there are two methods to claim work-related car expenses as follows:

 

1. Cents per kilometre method

This method is easier for record keeping, involves a more simple calculation, and is generally suited to those with less vehicle use.

You simply keep a record of the number of kilometres you’re traveling for work or for business over the duration of the year and you claim these using the set rate.

The drawback of this method is that you are limited to a maximum of 5,000 work-related or business kilometres per year. That gives you a total maximum claim of $4,250. Thus, if you’re using your car a lot for work, you may find that this is method quite limiting.

 

2. Logbook method

This method can allow for greater claims depending on how much you’re using your car for work or business.

However, there are more recordkeeping requirements – the main one being that you must keep a 12-week logbook that records all of your trips, both business and private, for those 12 weeks.

At the end of the 12 weeks, you calculate your work-related or business percentage use, and you can claim that percentage for all deductions for your car.

You also need to keep all receipts for fuel, insurance, registration, interest, and servicing throughout the year.

As mentioned, despite the additional effort, it can often lead to a greater claim if you are using your car a lot for work and business.

 

Comparison

 

Summary

As you can see, both methods have their downsides and can have their benefits too depending on your situation. Consider which is best for you, taking into account:

■ If you have the time or the ability to save all of your car-related records
■ The level of your business-related vehicle use.

 

Click to view Glance Consultants July 2023 newsletter via PDF

 

 

 

 

Navigating the tax world as a small business can seem like an uphill battle, especially when the Australian tax system regularly introduces new changes that can take time to follow. 

To give you a helping hand, we’ve compiled the following guide that lays out the new tax changes in the 2023 financial year to ensure your small business has all the necessary information.

 

No More Take Back Initiatives

Many measures the Australian Government introduced to help businesses during the COVID-19 pandemic are gradually drawing to a close. The Loss Carry Back Tax Offset program is one that won’t be extended past FY23, meaning businesses won’t be able to offset tax losses against previous years’ profits from FY24. 

As a result, businesses must be vigilant regarding tax strategies, as it won’t be as easy to receive financial relief if tax losses occur in FY24. 

 

Temporary Full Expensing Draws to a Close

The Temporary Full Expensing scheme enabled eligible businesses to immediately write off asset purchases (upto a certain value for passenger vehicles), as opposed to writing the cost off over a few years (depreciation). 

The scheme will not expand into FY24. Those with an annual turnover of less than $10 million can still continue to enjoy the privilege of instantly deducting the full cost of eligible assets, as long as they fall under the new $20,000 threshold, until 30 June 2024. (This returns the asset write-off limit to the same level it was at in 2015.)

 

Working From Home Deductions Altered

The ATO will no longer accept deductions calculated with the shortcut or old fixed rate method. Instead, individuals must use the revised fixed rate method or the actual method and have reliable and accurate evidence for their working-from-home hours over the entire income year. 

The revised fixed rate is 67 cents per hour and covers expenses relating to energy, computer consumables, internet usage, mobile and home phone usage, and stationery. You can claim deductions for assets separately. 

 

Introduction to The Small Business Energy Incentive

Details surrounding the Small Business Energy Incentive are yet to be finalised, but it’s looking promising. With the incentive, small businesses with less than $50 million in turnover can claim an additional 20% deduction on energy-efficient expenses, such as electric heating systems. 

Going hand in hand with the energy incentive is the Energy Bill Relief Fund. This incentive means small businesses become eligible for energy bill relief of up to $650, depending on their area. The fund reflects the rise in energy bills and ensures small businesses don’t suffer from inflated prices. 

 

Lodgment Penalty Amnesty to Help You Get it Right

Small businesses with annual turnover of less than $10 million will be eligible for the Lodgment Penalty Amnesty to get back on track with taxes. With the amnesty, any outstanding taxes from 1st December 2019 and 29th February 2022 won’t be penalised as long as you lodge them from 1st June to 31st December 2023. 

 

Technology Investment Boost (not yet law)

In March 2022, as part of the 2022-23 Budget, the Morrison Government announced the Technology Investment Boost for small businesses, which would allow businesses with an annual turnover of less than $50 million, to deduct an additional 20% of the expenditure incurred for their digital operations. 

However, the legislation underpinning these tax breaks hasn’t been passed yet, and you won’t be able to claim the boosts until the law has been enacted. 

Were the legislation to pass, even something as simple as getting a Xero subscription could result in an extra deduction. It’s a free kick for small businesses – but only if the legislation ends up passing. 

As such, good detailed records will go a long way to identifying these extra deductions.

 

Other considerations

While small business owners should be aware of the extra perks and opportunities available, it’s important to approach tax planning holistically, and consider factors beyond tax benefits. 

There are always opportunities to optimise your tax position – but you should never make decisions based solely on the tax benefits. 

For instance, small businesses can claim a large upfront deduction by pre-paying their rent up to a year in advance. But then you may have strained your cash flow for a year to get a temporary tax advantage, and limited your ability to invest in other business needs throughout the year. Striking a balance between tax optimisation and business sustainability should be the goal.

When you’re dealing with complicated financial & tax matters, it’s always a good idea to get help from experts who are skilled and have the necessary experience. They’ll offer personalised advice and help you make smart money decisions that fit your business goals and set you up for long-term success.

 

Need Help Getting On Track With Your Taxes? We Can Help

If you have any questions, reach out to us at Glance Consultants on 03 98859793 or at enquiries@glanceconsultants.com.au

 

As the end of the financial year draws ever closer, it can be a stressful time for business owners, especially given the last 12 months have had their fair share of ups and downs. However, there is no better time than now to look optimistically to the future, and here’s how you can hit June 30th with some needed momentum:

 

Tidy Up Loose Ends

We’re all guilty of putting bookkeeping to one side now and then, so you’ll likely have some unfinished work in this area. Now is the time to get all your receipts/invoices and books upto date to ensure your data for the past year is reliable and accurate. A clear overview of your finances over the last twelve months is vital to boost your business into the new financial year with a sense of direction and purpose.

 

Make Sure Your Up To Date With New Legislation

There are often a ton of changes when it comes to legislation when the new financial year rolls around. The minimum wage increase is one of the most crucial changes to be aware of, with a rise of 5.75% starting on July 1st 2023. The superannuation guarantee %  on wages is changing, lifting from 10.5% to 11% on 1 July 2023, which means if you employ people, it’s time to adjust how much you put away for each pay run. 

Understanding these financial changes ensures you can prepare your business’s budget for the upcoming financial year and remain compliant.

 

Stock Take

If you run a product based business, a stock take is a must in June (prior to 30 June). While this may not be a fun process,  there are benefits of this process. This process can help you make informed decisions about next year and the direction you want to go when it comes to stock that sold, versus stock that lasted a bit longer than expected thus providing greater insight.

 

Know Your Deductions

While many expenses are tax deductible or a write off, unfortunately not every expense is. Connecting with your accountant as the financial year draws to a close can be an excellent way to ensure you’ve claimed all the correct expenses to avoid any issues with the ATO.

 

Working from Home

Please remember there are changes when it comes to work from home this year. You will need to make sure you have adequate records to prove your work from home hours. The revised fixed rate is now $0.67/hour.  Use timesheets, diary entries, and other proof of working from home to ensure you’ve covered your back!

 

Do You Need Support With Bookkeeping? We Can Help 

If you’re anticipating a busy year ahead, it’s best to get on top of your finances sooner rather than later. Contact Glance Consultants today.

 

The State Budget 2023–24 has just been released, included in this budget is a number of announcements related to legislation administered by the State Revenue Office.

These measures have to be approved by the Victorian Parliament before they can start. You should only rely on the exact detail of the changes once the legislation is passed.

Please get in touch with us at Glance Consultants for more information or if you have any queries.

 

Measures:

• Land transfer duty (stamp duty) on commercial and industrial properties will be abolished and replaced with an annual property tax.  From 1 July 2024, commercial and industrial properties will transition to the new system as they are sold, with the annual property tax to be payable from 10 years after the transaction.The annual property tax for commercial and industrial property will be 1 per cent of the property’s unimproved land value.

Expected start date: 1 July 2024

 

• COVID-19 debt  — temporary payroll tax surcharge

A temporary payroll tax surcharge will apply on wages paid in Victoria by businesses with national payrolls over $10 million a year.  A rate of 0.5% will apply for businesses with national payrolls above $10 million, and businesses with national payrolls above $100 million will pay an additional 0.5%.

The surcharge will apply for 10 years until 30 June 2033.

Expected start date: 1 July 2023

 

• COVID-19 debt — temporary land tax surcharge

A new COVID-19 debt temporary land tax surcharge will apply in addition to existing land tax from the 2024 land tax year for ten years.

Exempt properties — including your home — remain exempt from this surcharge. This means the value of exempt property is not included in your landholdings.

 

• General land tax rates

– For taxable landholdings between $50,000 and $100,000 — a $500 flat surcharge will apply

– For taxable landholdings between $100,000 and $300,000 — a $975 flat surcharge will apply

– For taxable landholdings over $300,000:

• • a $975 flat surcharge
  • an increased rate of land tax by 0.10 percentage points.

 

• Trust surcharge land tax rates

– For taxable landholdings between $50,000 and $100,000 — a $500 flat surcharge will apply

– For taxable landholdings between $100,000 and $250,000 — a $975 flat surcharge will apply

– For taxable landholdings over $250,000:

• • a $975 flat surcharge
  • an increased rate of land tax by 0.10 percentage points.

Expected start date: 2024 land tax year

 

• The absentee owner surcharge rate will increase from 2 per cent to 4 per cent and the minimum threshold for non-trust absentee owners will decrease from $300,000 to $50,000. (The threshold for land held by an absentee trust remains unchanged at $25,000.)

Expected start date: 2024 land tax year

 

• The land tax exemption for principal places of residence under construction or renovation will be expanded to provide the Commissioner of State Revenue with discretion to extend period by two years if builder goes into liquidation.

Expected start date: 2024 land tax year

 

• A new land tax exemption will apply to land protected by a conservation covenant with Trust for Nature.

Expected start date: 2024 land tax year

 

• A new land tax exemption will apply to land owned by an immediate family member and used as the home of an individual eligible to be a beneficiary of a special disability Trust, including where a special disability trust has not been established.

Expected start date: 2024 land tax year

 

• The deduction threshold for the land transfer duty special disability trust concession will increase from $500,000 to $1.5 million for principal place of residence transfers.

Expected start date: 1 July 2023

 

• A new land transfer duty concession will apply for the transfer of a home valued up to $1.5 million by an immediate family member to an individual eligible to be a beneficiary of a special disability trust.

Expected start date: 1 July 2023

 

• The land transfer duty pensioner exemption and concession thresholds will be aligned with the thresholds for first home buyers, at $600,000 and $750,000 respectively.In addition, eligibility will be assessed on the total value of the purchase.

Expected start date: Contracts entered into from 1 July 2023

 

• The payroll tax-free threshold will be increased:
  • commencing 1 July 2024 — from $700,000 to $900,000
  • commencing 1 July 2025 — to $1,000,000.

  The deduction associated with tax-free threshold will begin phasing out for every dollar of wages above $3 million. This means businesses with wages above $5 million will not receive any benefit associated with the payroll tax-free threshold.

Expected start date: 1 July 2024

 

• Payroll tax exemption for high-fee non-government schools to be removed.

Expected start date: 1 July 2024

 

• Business insurance duty will be abolished over a 10-year period. The rate of duty, currently 10 per cent, will be reduced by 1 percentage point each year

Expected start date: 1 July 2024

 

• The wagering and betting tax rate will increase from 10 per cent to 15 per cent of net wagering revenue.

Expected start date: 1 July 2024

 

Please click the link below for the SRO announcement in relation to the budget overview:

https://www.sro.vic.gov.au/state-budget-2023-24-announcement