Category Archives: Tax

What Education Expenses Can I Claim?

Get the latest information surrounding self-education expenses (item D4 of the tax return), especially in relation to the recent changes made to deductibility rules. We’ll also cover off some key information about what can and cannot be claimed and at what stage a legitimate claim can be made.

Items that can be claimed

Typical expenses that can be claimed as a tax deduction in personal tax returns include the following: tuition fees (direct full-course fees, fees payable under FEE-HELP, fees payable under VET student loans, and costs under OS-HELP loans), meals and accommodation during temporary overnight stays to participate in a course, textbooks, stationery, union fees, amenities fees, parking fees, a proportion of the decline in value of a computer, and travel costs in either direction between home and place of education or workplace and place of education. Note that with travel costs, only one leg of the trip is tax deductible.

Items that cannot be claimed

Fees paid under the HECS-HELP, HELP, SFSS, SSL, TSL or VSL programs cannot be claimed. Additional legs of trips made between home, work and place of education cannot be claimed.

Further, any formal courses provided by professional associations, or seminars, workshops or conferences cannot be claimed as part of self-education expenses. These are, however, tax deductible but claimable at Other Work-Related Expenses (item D5 of the tax return).

Timing of claimable deductions

In order to claim self-education expenses, you must be working in that same industry and show that the course undertaken was leading to, or would likely lead to an increase in income from those current work activities. You cannot claim self-education expenses if you undertake a course to obtain a job in the future in that industry, or if you’re looking to move into a different area of specialty in your current industry. Should this be satisfied, all items that can be claimed (as listed above) will be deductible expenses.

The removal of the $250 reduction

Commencing from the 2023 financial year, the ATO have removed the requirement to reduce the first $250 of self-education expenses. This simply means that for every deductible amount claimed, the tax benefit for claiming self-education expenses commences from the first dollar of claimable costs – in line with other work-related deductions.

Conclusion

The above is a summary of the claiming of self-education expenses as a tax deduction for individual taxpayers. It outlines key items that can be claimed, at what stage they can be claimed and the key change that took place in the 2023 financial year which removed a reduction in the claimable amount by $250.

Small Business Tax Incentives

This article details information surrounding newly legislated small business tax incentives which take effect from 29 March 2022 and run until 30 June 2023 for one incentive and 30 June 2024 for the other.

The Small Business Technology Investment Boost provides a bonus tax deduction for eligible businesses to assist with the digital operations, and to help digitise business operations, and runs from 29 March 2022 to 30 June 2023.

The Small Business Skills and Training Boost provides a bonus tax deduction for eligible businesses to participate in external training courses delivered by registered training providers and runs from 29 March 2022 to 30 June 2024.

Businesses eligible for these incentives include companies, sole traders, partnerships, Self-Managed Super Funds, and trading trusts.

Small Business Technology Investment Boost

For small businesses with less than $50m in turnover, this incentive allows for businesses to obtain a 20% bonus deduction (effectively claiming 120% of eligible expenses) for any eligible expenditure incurred to support their digital operations and to digitise their operations. This is for any expenses from 29 March 2022 through to 30 June 2022 and is capped at $100,000 of expenses per financial year applicable, meaning a bonus deduction of up to $20,000 per year.

These costs can include any expenses that are either immediately tax deductible, or depreciable assets, however if the item being claimed is a depreciable asset, it must be held and ready for use by 30 June 2023. Given the ability to claim a full-tax deduction for ordinarily depreciating assets (temporary full expensing) for small businesses which qualify for this incentive, unless a business elects not to claim a full deduction for certain assets, it would be expected that a depreciating asset would be fully depreciated on the depreciation schedule and relevant sections of the tax return, and then claim the bonus 20% deduction at the newly created section of the tax return.

Expenditure which falls under this incentive includes: computer and phone hardware and equipment, software, internet costs as well as systems and services which aid in the use of computer networks; digital media and marketing and web design; cyber security systems, backups and monitoring services; and anything relating to e-commerce goods and services.

For small businesses satisfying the eligibility criteria, it would be expected that most would be able to take advantage of this incentive, especially given the broad range of eligible expenses falling within this boost.

Small Business Skills and Training Boost

Like the Small Business Technology Investment Boost, the eligibility criteria for this incentive is quite similar. If business turnover is less than $50m, a bonus deduction of 20% is available for eligible expenditure between 29 March 2022, up until 30 June 2024. Again, this is capped at $100,000 of expenses per financial year, providing a maximum bonus deduction of $20,000 per eligible year.

Expenditure available under this incentive is for in-person or online training of employees of your business in Australia. However, the added criteria for expenditure to be eligible under this incentive is that the charge must be by a registered external training provider and cannot be a related business or yours or an associate of yours. An example of such expenditure would be first-aid training provided by a registered provider (such as St John Ambulance), or industry specific training, where the training provider is formally registered. This key item of eligibility means a little more work from your side to confirm whether a provider is in fact a registered training organisation.

How to claim

Although these two incentives were announced in March 2022, the legislation to allow for these boosts to be claimed only passed in late June 2023. As such, there has been much talk and speculation as to how businesses are to claim expenditure from 29 March 2022 through to 30 June 2022. There is no requirement to amend a 2022 tax return. Instead, the ATO is allowing a claim for the 2022 financial year and 2023 financial year boosts to be included in the 2023 income tax return.

The above simply means that eligible businesses would claim the ordinary deduction in the 2022 tax return, but then in the 2023 tax return, would be entitled to claim the bonus 20% deduction for eligible 2022 expenditure, plus the 120% deduction for eligible 2023 expenditure. For the Small Businesses Skills and Training Boost, which carries on for a further financial year, the 2024 financial year eligible expenditure will be claimed, along with the 20% boost in the 2024 tax return.

Conclusion

The above is a summary of the limited time-frame available to claim a bonus 20% tax deduction for eligible expenditure for small businesses when investing in skills and training for employees and technology and digitisation for their business operations. It is key to understand the eligibility criteria and the expenses available for such incentives when preparing financial accounts and tax returns for your business.

This information should provide valuable insight into a program, which even though it is available only for a finite period, will assist many small businesses in receiving additional tax deductions that either spend, or choose to invest in training and/or digitising in their business.

Electric vehicles (EVs) will be Exempt from Fringe Benefits Tax (FBT), subject to certain requirements.

The Treasury Laws Amendment (Electric Car Discount) Bill 2022 has now passed both Houses of Parliament and received Royal Assent on 12 December 2022.

From 1 July 2022 employers do not pay FBT on eligible electric cars and associated car expenses.

Here are the Main Points:

  • To be eligible for the exemption, the car must be classified as zero or low emissions, i.e. battery electric vehicles, hydrogen fuel cell electric vehicles and plug-in hybrid electric vehicles
  • Applies to fringe benefits on an eligible vehicle that is first held and used on or after 1 July 2022
  • The EV must be priced under $84,916, the luxury car tax threshold
  • If the EV was purchased before 30 June 2022 but wasn’t delivered by this date, it might still be eligible for the exemption 
  • The FBT exemption can also apply to second-hand electric cars.

What is Fringe Benefits Tax?

Many employers provide vehicles to employees in respect of their employment. Where the vehicle is made available for the employee’s private use, an FBT liability is likely to arise for the employer, unless it is exempt from FBT.

How does this exemption benefit the Employer?

The estimated FBT savings for an employer who provides an electric car to an employee and qualifies for the FBT exemption provided below:

ItemAmount / Details
FBT valuationStatutory Formula method
Electric car cost$60,000
FBT Taxable value where no FBT exemption exists$9,600
(calculated as $48,000 x 20% statutory fraction)
FBT liability where no FBT exemption exists$9,385.86
(calculated as $9,600 x 2.0802 x 47%)
FBT where electric car exemption applies$Nil
Employer FBT saving$9,385.86


How does this exemption benefit an Employee?

Where an employee enters into a novated lease arrangement, or otherwise agrees to financially contribute towards the provision of a car fringe benefit, some or all of the employee contribution will typically be made from after-tax salary.

For electric cars that qualify for this exemption, the total contribution made by an employee may now be made from pre-tax amounts. This change is expected to provide significant tax savings for the employee due to reduced taxable income.

DetailsWithout salary sacrifice
($)		With salary sacrifice
($)
Total remuneration150,000150,000
Less: Salary sacrificed car & running costs (pre-tax)           0(25,000)
Cash Salary150,000125,000
Less: PAYG Withholding*(40,567)(31,317)
Net pay109,43393,683
Electric car costs (after-tax)(25,000)           0
Net$84,433$93,683
Savings for the employee   $9,250


Reportable Fringe Benefits Amounts

As a requirement of the FBT exemption, an exempt electric car will be included in the calculation of an employee’s Reportable Fringe Benefit Amount (RFBA).

Whilst an employee does not pay income tax on an RFBA, it will be included as part of the employee’s tax return and will be taken into account for the calculation of items like government entitlements and welfare, HECS repayments, Division 293 income for superannuation.

Charging the Vehicle – FBT implications

A car expense is defined for FBT purposes to include fuel. The ATO has confirmed in its recent guidance that fuel which includes ‘electricity to charge and run electric cars’, constitutes a car expense.

Employees who charge their cars at home using their own electricity may seek reimbursement. In the absence of a separate meter to measure the electricity consumption, how will an employee calculate and record the electricity costs associated with charging their electric car?

The ATO has indicated a Draft Practical Compliance Guideline should be issued around March 2023.

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References:

Six Member SMSFs allowed from 1 July 2021

It has been a few years since the proposal to increase the number of members in a self-managed super fund (SMSF) from four to six was put forward by then Treasurer Scott Morrison.

On 22 June 2021, the legislation for this proposal received Royal Assent.

SMSFs are permitted to have up to six members from 1 July 2021.

There is a lot to consider when adding members to a SMSF and may not suit everyone.

Key Considerations:

  • More members can pool their balances to purchase larger or higher value assets such as property.
  • It could increase the ability to make contributions which in turn could increase cashflow.
  • Allows families to include more family members. It would allow Mum & Dad to include up to four children under the same SMSF.
  • Increased complications when there are disputes, in particular family law disputes
  • Increased risk of control imbalance if voting is based on weighted balances.
  • All trustees/directors are responsible for decisions made, even if they are not directly involved. Succession planning and future control will need to be carefully considered to help manage the risk of loss of capacity and death
  • Most States and Territorities, include New South Wales only permit up to four individual trustees. Accordingly, the SMSF will need to have a corporate trustee where all members would be directors in order to have up to six SMSF members.
  • Some trust deeds specify the four member limit and would need to be varied before increasing the number of members.

NSW Payroll Tax Rate Reduction

The NSW Government has announced a reduction in the payroll tax rate to 4.85 per cent for the 2020/21 and 2021/22 financial years.

The threshold has also increased to $1,200,000 for the 2020/21 and subsequent financial years.

These changes apply retrospectively from 1 July 2020.

Tax yearThresholdTax rate
01/07/2020 to 30/06/2021$1,200,0004.85%
01/07/2019 to 30/06/2020$900,0005.45%
01/07/2018 to 30/06/2019$850,0005.45%

About a Payroll Tax

If you’re an employer who pays wages in NSW, you must register for payroll tax if your total Australian wages exceed the relevant monthly threshold.

Days in the monthThreshold
28$92,055
30$98,630
31$101,918

What are ”Wages”?

Wages and other payments to employees engaged on a permanent, temporary or casual basis are subject to payroll tax.

  • Wages
  • Allowances
  • Bonus / Commissions
  • Director Fees
  • Fringe Benefits
  • Superannuation
  • Salary Sacrifice
  • Termination payments
  • Third party payments
  • Salary Sacrifice

If you would like a review of your “Wages” to staff and contractors in light of Payroll Tax please contact us for a quote.

ATO scam calls may soon be a thing of the past

Last year, some 107,000 ATO impersonation scam calls were reported to the authorities. The real number is likely to be much higher, given that most of these type of calls go unreported. Scammers are increasingly using technological advances to appear more legitimate and nab unsuspecting victims.

One technique commonly used is “spoofing”, where scammers use software to mislead the caller ID technology on mobile phones and modern fixed line phones. Rather than transmitting the actual, typically overseas, phone number the call is coming from, the software “overstamps” it with another phone number. Commonly, the numbers used are widely publicised, such as the legitimate numbers used by the ATO.

Tip: The ATO has recently alerted the community to an SMS scam which claims that you’re due to receive a tax refund and asks you to click on a link. The ATO will never send an email or SMS asking people to access online services via a hyperlink.

Due to the prevalence of these scams and the large amount of money lost by individuals, Australian telcos, the ATO and the Australian Communications and Media Authority (ACMA) recently collaborated on a three-month trial of technology to block scam calls appearing to originate from legitimate ATO phone numbers. Under the Scam Technology Project, participating telcos used software to identify calls which had been “overstamped” with specified ATO phone numbers and blocked them.

According to the government, the trial has been “highly successful” in blocking spoof calls from specified ATO numbers. While this blocking technology will not stop scammers randomly ringing Australians pretending to be from the ATO, it will stop specific ATO numbers appearing in the caller ID on the recipient’s phone, making the scam seem less convincing.

Tip: If you receive a call from someone who says they are from a government department, such as the ATO, but you’re not sure whether the call’s legitimate, the best course of action is to hang up and phone back on a widely publicised number from an official website or source.

Additional cash flow boost coming for businesses

If your business is one of many that received the initial cash flow boosts as a part of the government’s COVID-19 economic stimulus measures, prepare for more help coming your way. When you lodge your monthly or quarterly activity statements for June to September 2020, your business will receive additional cash flow boosts.

Generally, the additional amount will be equal to the total amount that you initially received and will be split evenly between the lodged activity statements. Quarterly payers will generally receive 50% of their total initial cash flow boost for each activity statement, while monthly payers will generally receive 25% of their total initial cash flow boost for each activity statement.

However, if you’ve made adjustments or revised your activity statements after lodgment, the amount of additional cash flow boost payments you receive may be different.

Remember, if you haven’t made payments to employees subject to withholding, you need to report zero for PAYG withholding when lodging your activity statements to ensure you receive the additional cash flow boost payments. It’s important that you don’t cancel PAYG withholding registration until you have received the additional cash flow boosts.

Expanded instant asset write-off for businesses

If you’ve purchased assets for your business, remember that you may be eligible to claim an immediate deduction under the instant asset write-off, which was recently expanded.

From 12 March to 30 June 2020 inclusive, the instant asset write-off threshold for each asset increased to $150,000 (up from $30,000) for business entities with aggregated annual turnover of less than $500 million (up from $50 million).

To get it right, remember:

  • check if your business is eligible;
  • both new and secondhand assets can be claimed, as long as each asset costs less than $150,000;
  • assets must be first used or installed ready for use between 12 March and 30 June 2020;
  • a car limit applies for passenger vehicles;
  • if the asset is for business and private use, only the business portion can be claimed;
  • you can claim a deduction for the balance of a small business pool if its value is less than $150,000 at 30 June 2020 (before applying depreciation deductions); and
  • different eligibility criteria and thresholds apply to assets first used or installed ready for use before 12 March 2020.

Don’t jump the gun and lodge too early

Tax time 2020 is here, but it’s likely to be anything but routine. Many individuals on reduced income or have increased deductions may be eager to lodge their income tax returns early to get their hands on a refund. However, the ATO has issued a warning against lodging too early, before all your income information becomes available. It’s important to remember that employers have until the end of July to electronically finalise your income statement, and the same timeframe applies for other information from banks, health funds and government agencies.

For most people, income statements have replaced payment summaries. So, instead of receiving a payment summary from each employer, your income statements will be finalised electronically and the information provided directly to the ATO. Your income statements can be accessed through myGov and the information is automatically included in your tax return if you use myTax.

Tip: Tax agents can also access this information, and we’re here to help you get your return right this year.

Although you may be eager to lodge as soon as possible, the ATO has warned against lodging too early, as much of the information on your income may not be confirmed until later. It’s generally important to wait until income statements are finalised before lodging a tax return to avoid either delays in processing or a tax bill later on. Your income statement will be marked “tax ready” on myGov when it’s finalised, and other information from banks, health funds and government agencies will be automatically inserted into your tax return when it’s ready towards the end of July.

If you still choose to lodge early, the ATO advises carefully reviewing any information that’s pre-filled so you can confirm it’s correct. When lodging early you’ll
also have to formally acknowledge that your employer(s) may later finalise income statements with different amounts, meaning you may need to amend your tax return and additional tax may apply.

Tax return tips

With the great disruptors of the Australian bushfires and the global coronavirus (COVID-19) pandemic, and the associated government economic stimulus measures, there are some key tax-related matters for everyone to be aware of this year.

The ATO has a range of approaches to support taxpayers through tax time 2020, especially where new circumstances mean you might be receiving a different type of income or be able to claim new deductions. The ATO’s Tax Time Essentials page (www.ato.gov.au/taxessentials) provides a one-stop-shop for the things that are a little different this year and how they impact tax returns.

People accessing super early as a part of the COVID-19 early release scheme can rest assured that this money will not form a part of their assessable income. To date, 1.98 million people have withdrawn an average of $7,475 from their super under the scheme.

Another key difference this year is the introduction of the optional simplified method for claiming work from home expense deductions. This method allows you to claim 80 cents for each hour you worked from home from 1 March 2020 to 30 June 2020, to cover all deductible expenses. However, if you were working from home before 1 March 2020 or have documented actual expenses that work out to be more than 80 cents per hour you can still use the usual method to claim expenses related to working from home.

If you were unable to work from home and had to take leave or were temporarily stood down, if your employer made any kind of payment, either regular or one-off, those amounts will need to be declared as wages and salary on your return and tax will apply at your usual marginal rates. This applies regardless of whether the payments are funded by the government JobKeeper scheme.

If you’ve been made redundant or had your employment terminated, any payment you receive may consist of a tax-free portion and a concessionally taxed portion, which means that you could potentially pay less tax.

ATO’s employees guide for work expenses updated

The ATO has updated its employees guide for work expenses for 2019–2020. The document is designed to assist employees to determine whether incurred expenses are tax deductible, and outlines the substantiation requirements.

The following are highlighted as being new for 2019–2020:

  • The additional method for calculating running expenses incurred as a result of working from home (the “shortcut method” allowing an 80 cents per hour deduction) was introduced to help employees working from home during the COVID-19 pandemic. This method was initially only available to use from 1 March 2020 to 30 June 2020, but has now been extended to 30 September 2020.
  • Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under s 8-1 of ITAA has been released. This ruling provides guidance on when an employee can claim a deduction for a work expense.

The employees guide highlights “common myths” about expenses – for example, the myths that everyone can automatically claim $150 for clothing and laundry, 5,000 km of travel under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money, or that employees can claim gym membership if they need to be fit for work.