As the financial year draws to a close, it’s time to start thinking about whether year-end tax planning is in order. Tax planning requires consideration of income and deductions for the whole year, as well as whether compliance requirements have been met – for example, whether appropriate elections have been made on a timely basis and other appropriate documentation has been prepared.
The ATO has updated its guidance (contained in Practical Compliance Guideline PCG 2023/1) on an accepted method that individuals may use in calculating deductions for working from home expenses as an alternative to the actual expenses method.
The shortcut method of claiming a rate of 80 cents per hour worked from home is no longer available – the measure ended on 30 June 2022. It was temporarily introduced during the COVID-19 pandemic (between 1 March 2020 and 30 June 2020 in the 2019–2020 income year, and for the 2020–2021 and 2021–2022 income years).
From 1 July 2022, taxpayers can claim deductions using the revised fixed-rate method, using a rate of 67 cents per hour (up from 52 cents per hour in previous years) provided they satisfy three conditions:
The fixed-rate method estimates the expenses incurred in relation to the following categories:
This means two things. First, taxpayers who use the fixed-rate method cannot claim additional deductions for expenses in relation to any of these categories, even if they are incurred in relation to working somewhere other than home (eg using a mobile for phone or internet when travelling or at the office). Second, depreciation of furniture and equipment (eg desk, computer and printer) may be calculated separately (and in addition) to the fixed rate.
Taxpayers who don’t meet all three conditions will not be able to rely on the fixed-rate method and will need to utilise the actual expenses method.
The ATO has flagged rental properties and holiday homes as an area of particular focus for this 30 June.
Include all income: data-matching
The ATO receives information from a number of sources (eg sharing economy platforms, rental bond agencies and state and territory revenue authorities) that enables it to detect under-reporting of income.
Interest on loans
Interest on loans may not fully be deductible if the property is not genuinely available for rent, if it is used for private purposes for part of the year, or if family or friends are charged a below-market rent. Additionally, interest on the loan secured against the property will need to be apportioned if part of the amount borrowed is used for private expenses, such as holidays or a new car.
Depreciation
Where the rental property was acquired after 8 May 2017, no deduction will be available in respect of depreciating assets installed in a rental property at the time of acquisition unless the property qualified as “new residential premises” within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) or the taxpayer’s rental activities amount to the carrying-on of a business. Where the rental property was acquired before 9 May 2017, no deduction will be available in respect of depreciating assets installed in the property as at 30 June 2017 if no depreciation deduction was available in the year ended 30 June 2017 because, for example, the property was not available for rent at any time during that year.
These rules do not apply to limit depreciation deductions for companies, superannuation entities (other than self managed superannuation funds) and certain other entities.
Travel expenses
No deduction is available for travel expenses related to inspecting, maintaining or collecting rent for a rental property unless the expenses were incurred in carrying on a business of providing residential accommodation or were incurred by a company, self managed superannuation fund or certain other trusts or partnerships. There are exceptions where the taxpayer’s rental activities amount to the carrying on of a business, or the taxpayer is a company, superannuation entity (other than a self managed superannuation fund) or managed investment trust.
The immediate deduction for the cost of eligible depreciating business assets that has been available under the temporary full expensing concession since 2020 comes to an end this 30 June. In order to access the concession, the depreciating asset must be used or installed ready for use by 30 June 2023. The Federal Government announced in its May 2023 Budget that from 1 July 2023, an immediate deduction will only be available to small business entities (that is, those with aggregated turnover less than $10 million) and will be limited to assets costing less than $20,000.
Subject to certain eligibility criteria and integrity rules being satisfied, corporate tax entities may be entitled to claim a refundable tax offset by carrying back a tax loss arising in the 2022–2023 income year to one or more of the four prior income years (that is, as far back as the 2018–2019 income year).
For an employer to be entitled to a deduction for superannuation contributions, the contribution must be received by the fund on or before 30 June. The super guarantee contribution rate increased to 10.5% of an employee’s ordinary time earnings from 1 July 2022.
Individuals wishing to claim a deduction for personal contributions must provide their fund with a notice of intention to claim a deduction and have that acknowledged by the fund before the earlier of the day the individual’s tax return is lodged and 30 June of the next income tax year.
In addition to ensuring the requirements of the trust deed and the constitution of the corporate trustee, where relevant, are satisfied, trustees need to consider the implications of the Victorian Court of Appeal decision in Owies v JJE Nominees Pty Ltd [2022] VSCA 142 and the ATO guidance in relation to reimbursement agreements.
In Owies, two of the three primary beneficiaries of the Owies Family Trust took action against the trustee (a company controlled by their parents) claiming that, in making distributions over a period of years, it breached its fiduciary duty to give “real and genuine consideration” to their needs. The beneficiaries were successful in getting an order that the trustee be removed and replaced by an independent trustee, such that the family no longer had control over trust distributions. The Court also noted that the beneficiaries may have been successful in having prior distributions being declared void and an order for compensation to be paid. The commercial risk this case highlights is that an aggrieved beneficiary may be able to challenge prior year distributions and have them declared void and have the trustee removed.
Transactions involving a company and any associated entity (individual, trust or partnership) to which Div 7A of Pt III of the Income Tax Assessment Act 1936 might apply (eg a payment, a loan, forgiveness of a debt or use of the company’s assets) should be carefully considered to determine whether a deemed dividend arises and, if so, what action could be taken to avoid that consequence.
Ensure that minimum yearly repayments (MYRs) are made before 30 June in respect of Div 7A loans made in prior years. Where dividends need to be declared by 30 June to enable MYRs to be made, ensure necessary resolutions are made and offset agreements are entered into before year end. For prior year unpaid trust entitlements that have been placed on investment agreements, ensure that appropriate amounts of interest have been recorded and that the interest has been paid in cash.
Source: www.ato.gov.au/Tax-professionals/Prepare-and-lodge/Tax-Time/Overview-of-key-changes/