2023 Year End Tax Highlights Summary
2023 Tax Highlights
TAX RATES
Income Tax Rates
| Resident tax rates 2022–23
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Medicare Levy
The above table excludes Medicare levy of 2.0%.
Low and Middle Income Tax offset (LMITO) – NOT EXTENDED TO 30/6/2023
The LMITO provides a benefit of up to $675 for taxpayers with taxable income of $37,000 or less. Between $37,000 and $48,000, the value of the offset will increase at a rate of 7.5 cents per dollar to the maximum benefit of $1,500. Taxpayers with taxable incomes from $48,000 to $90,000 will be eligible for the maximum benefit of $1,080. From $90,001 to $126,000, the offset will phase out at a rate of 3 cents per dollar. The offset is available until 30 June 2022 and will not be continued.
The benefit of the LMITO is in addition to the existing Low Income Tax Offset (LITO)
Company Tax Rates
If you are a ‘base rate entity’, your company tax rate is :
27.5% from the 2017-18 to 2019-20 income years
26.0% for the 2020-21 income year
25.0% from the 2021-22 income year onwards
For your company to be a ‘base rate entity’, it needs to meet the following eligibility criteria :
- Aggregated turnover of less than $25 million for the 2017-18 income year or $50 million for the 2018-19 income year onwards, and
- If your company earns passive income, it cannot exceed 80% of the company’s assessable income.
WORK RELATED DEDUCTIONS
ATO Approach
- The ATO are continuing to focus on work related deductions such as mobile phones, internet claims, computer claims and home office expenses.
Home Office Expenses
To be eligible to claim a deduction for working from home expenses, you must:
- Incur additional running expenses as a result of working from home
- Be working from home to fulfil your employment duties, not just completing minimal tasks
- Keep records at the time you work to provide you incur the cost
To calculate your working from home expenses, you can use the revised fixed rate method or the actual cost method.
Revised fixed rate method
The revised fixed rate method allows you to claim 67 cents per hour you work from home for the expenses listed below. You no longer require a dedicated home office to use this method. Expenses included in the revised fixed rate are :
- Data and internet
- Mobile and home phone usage
- Electricity and gas
- Computer consumables (e.g. printer ink)
- Stationery.
You can’t claim a separate deduction for any of the expenses the revised fixed rate includes.
You can claim a separate deduction for :
- The decline in value of assets used while working from home, such as computers and office furniture
- The repairs and maintenance of these assets
- Cleaning (only if you have a dedicated home office)
Actual cost method
The actual cost method allows you to claim a deduction for the actual expenses you incur as a result of working from home. You may be able to claim a deduction for each of the expenses you incur, such as :
- Data and internet
- Mobile and home phone usage
- Electricity and gas
- Computer consumables (e.g. printer ink)
- Stationery
- The decline in value of assets used while working from home, such as computers and office furniture, as well as any maintenance and repairs of these items.
- Cleaning (only if you have a dedicated home office)
The actual cost method requires detailed calculations and records. For example, you will need to know and have records of the cost per unit of electricity and average units used per hour.
Motor Vehicle Expenses
- A reminder of the substantiation requirements under the following log book method:
- Log Books must be kept for at least 12 weeks in the first year and then every five
- Odometer records are to be kept in each year in which the method is used. Odometer
records must also contain details of the make, model, registration number and engine
capacity of the car and all entries must be made before lodging the Income Tax Return.
- Written evidence of expenses is also required.
- Pursuant to the cents per kilometre method, taxpayers are able to claim up to 5,000km business kilometres per year without written evidence, but must have support for the business kilometres travelled.
SUPERANNUATION
Please refer to attached Summary of Superannuation Issues and Recent Changes paper for update on superannuation matters.
Minimum account based pension drawdown
| Minimum pension requirement | ||
| Age | Standard | Revised |
| <65 | 4% | 2% |
| 65-74 | 5% | 2.5% |
| 75-79 | 6% | 3% |
| 80-84 | 7% | 3.5% |
| 85-89 | 3.5% | 4.5% |
| 90-94 | 11% | 5.5% |
| 95 | 14% | 7% |
Please note that revised rates are a 50% reduction of the standard rate as a consequence of COVID-19 relief for the years ended 30 June, 2020, 30 June, 2021, 30 June, 2022 and 30 June, 2023.
Superannuation contributions
Please be aware that if you make a personal contribution to your Superannuation Fund you MUST provide us with written confirmation from your Superannuation Fund that this payment has been received and processed by 30 June 2023. If we are not provided with confirmation from your Superannuation Fund we will not be able to claim a tax deduction in your income tax return.
Statutory superannuation rate
Current rate is 10.5 % until 30 June 2023, and then increases to 11.0% for the year ended 30 June, 2023.
PLANNING CONSIDERATIONS - BUSINESSES
Non-Commercial Business Losses – Losses for High Net Worth Individuals
- Business losses by individuals are quarantined where the individual’s adjusted taxable income is $250,000 or more, unless a determination is received from the Commissioner of Taxation.
Super Guarantee and Contractors
- Under the SGC rules, employers are required to make contributions for eligible employees. Employees include independent contractors who are engaged under a contract primarily for the provision of labour.
- Where you engage independent contractors, you should determine whether the individuals are really employees for SGC purposes.
- Clauses in contracts which push the SGC obligations down to the contractors are not effective.
Super Guarantee and Hours of Work
- SGC contributions are generally based on an employee’s ordinary hours of work. Ordinary hours of work generally refer to standard hours which a relevant employee is required to work (not necessarily 9am to 5pm).
- SGC contributions do not apply to overtime payments.
- SGC contributions are required based upon all wages paid.
Temporary loss carry-back
This measure allows eligible companies to carry back (utilise) tax losses from the 2019-20, 2020-21, 2021-22 and the 2022-23 income years to offset previously taxed profits from the 2018-19 income year onwards. The amount carried back must not generate a franking deficit and is limited by the level of previously taxed profits.
The tax refund will be available upon lodgement of the 2020-21, 2021-22 and 2022-23 income tax returns. Companies that do not elect to carry back losses under this measure can still carry losses forward as normal. This measure is not extended after 30 June, 2023.
Company Loss Integrity Tests
- Where you control a company or trust which has carried forward tax losses, ensure the entity can satisfy the loss integrity tests prior to 30 June, 2023.
Division 7A
- Loans or financial assistance by private companies to shareholders or their associates can be deemed dividends.
- Associates include trusts, companies and partnerships controlled by shareholders or their relatives.
- Loans for income producing purposes can be caught by Division 7A.
- Ensure you have loan agreements for all loans.
- Ensure minimum repayment amounts are paid.
- The private use of company owned assets is now assessable under Division 7A.
Unpaid Trust Distributions
- Unpaid trust distributions to private companies are subject to Division 7A.
- Ensure these unpaid distributions that were created between 16 December 2009 and 30 June 2023 are :
- Placed in a sub-trust for the exclusive benefit of the company by 30 June 2023;
- Turned into a complying loan by the lodgement due date for the 2023 trust tax return; or
- Repaid by the lodgement due date for the 2023 trust tax return.
Small Business tax instalments
It is proposed that the gross domestic product (GDP) adjustment factor for PAYG and GST instalments will be set to 6% for the 2023-24 year.
The 6% GDP adjustment rate will apply to :
- Small businesses and individuals who are eligible to use the relevant instalment methods (up to $10 million aggregated annual turnover for GST instalments and $50 million annual aggregate turnover for PAYG instalments)
- Instalments for the 2023-24 income year that are due after the enabling legislation receives royal assent.
Small Business Energy Incentive
It is proposed that businesses with an annual turnover of less than $50 million will be entitled to an additional 20% deduction on spending that supports electrification and more efficient use of energy.
Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024.
The measure will help small businesses make investments like :
- Electrifying their heating and colling systems
- Upgrading to more efficient fridges and induction cooktops
- Installing batters and heat pumps.
Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.
ONGOING YEAR END ISSUES
Small Business Entities
- The taxpayer is eligible to be a small business entity for the 2022 financial year if their annual turnover is less than $10 million.
- Benefits include simplified depreciation and trading stock rules.
Note : Small business CGT concessions are only available for businesses with an annual turnover of less than $2 million.
Depreciation
- You are able to increase depreciation rate by reassessing effective life of assets if the use of the assets exceeds ATO estimates of effective life.
- Temporary full expensing measure :
- Businesses can deduct the full cost of eligible capital assets acquired after 6 October 2020 and first issued or installed ready for use by 30 June 2023.
- Small Business $20,000 instant asset write-off
It is proposed that small businesses with an aggregated turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2024.
The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write off multiple assets.
Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each income year after that.
Income Received in Advance
- Income received in advance is not taxed until the services are provided as long as the income is credited to an unearned income account, and released to profit only when the services are provided. Rent is an exception to this and is taxed as received.
Timing of Expenses
- Expenses are deductible if incurred by 30 June 2023.
- Provisions are generally not deductible.
- Some accruals are not deductible.
- Some prepayments are not deductible.
- Interest paid after business ceases may continue to be deductible.
Repairs
- Deduct expenses for repairs and maintenance incurred before 30 June 2023, unless expenses relate to initial repairs, substantial replacement or improving an asset.
Gifts
- Check the recipient is an endorsed “deductible gift recipient”.
- Gifts are not deductible if some benefit is received by the donor except when given at an eligible fundraising event.
Trading Stock
- Valuation – choose cost, market value or replacement.
- Identify any obsolete stock – special valuation rule.
- Small business entity taxpayers do not have to undertake a stock valuation if the difference between opening and closing value is less than $5,000.
Prepayments/Expenditure in advance
- Prepayment rules can operate to spread the deduction over more than one year.
- The prepayment rules do not apply to salary, amounts required to be paid by law or a court, or expenditure under $1,001.
- Small business entity taxpayers and non-business individuals are allowed prepayments if the benefit does not extend beyond 12 months.
Imputation
- If shares are not held at risk for at least 45 full days the franking offset may not be available (except for individuals whose franking offset is less than $5,000).
- For non-fixed trusts receiving dividends, the franking offset will be lost unless beneficiaries have a vested and indefeasible interest or a family trust election is made.
Rental Properties
- Deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property are not allowable and have not been allowable from 1 July 2017.
- Plant and equipment depreciation deductions will be limited to outlays actually incurred by investors in residential real estate properties from 1 July 2017.
Private Health Insurance
- Please be aware that if ALL members/dependants of your family are not covered by private health insurance you could be liable for an ATO surcharge levy.
Trust reimbursement agreements and Unpaid present entitlements (Section 100A reimbursement agreements).
The ATO has issued guidance on Section 100A Trust reimbursement agreements.
A reimbursement agreement generally involves making someone presently entitled to trust income in circumstances where both:
- someone other than the presently entitled beneficiary actually benefits from that income.
- At least one party enters into the agreement for purposes that include getting a tax benefit.
This guidance is controversial as it calls into question long standing practices relating to trust distributions.
The ATO have further advised; “A distribution to an adult child who has a low marginal tax rate will not attract Section 100A where they simply receive or enjoy the benefit of their distribution”.
Where applicable, we will work with you having regard to this issue, with a view to being compliant with these requirements.
VICTORIA STATE BUDGET 2023-24 MAJOR CHANGES
The State Budget 2023-24 includes a number of announcements related to legislation administered by the State Revenue Office.
Land transfer duty
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 for 10 years after the transaction.
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.
COVID-19 debt – temporary land tax surcharge
A new COVID-19 debt temporary land tax surcharge will apply in additional to existing land tax from the 2024 land tax year for ten years.
Exempt properties – including our home – remain exempt from this surcharge. This means the value of exempt property is not included in our 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.
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). This is effective from 2024 land tax year.
Payroll Tax
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.
Shane O’Brien
30 May 2023