Staff and Office Updates

Thank you all for your patience in receiving this quarterly update. We hope you enjoyed your Easter holidays and keep warm for the upcoming winter season.

We are fast approaching the deadline for lodgements of Tax Returns for the 2023 financial year. If you need any help finalising these please contact us in the office.

Now is also the time to consider any tax planning opportunities. If you are interested in managing strategies please make an appointment.

Everyone at Veritas are now back from the Easter Holidays.

back to top

Individual Income Tax Rates and Threshold Changes Now Confirmed

On 25 January 2024, the government announced changes to Individual income tax rates and thresholds with effect from 1 July 2024. These changes are now law.

From 1 July 2024, the proposed tax cuts will:

• Reduce the 19 per cent tax rate to 16 per cent.
• Reduce the 32.5 per cent tax rate to 30 per cent.
• Increase the threshold above which the 37 per cent tax rate applies from $120,000 to $135,000.
• Increase the threshold above which the 45 per cent tax rate applies from $180,000 to $190,000.

For more information search:

Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024

back to top

Contribution caps set to increase from 1^st July 2024

The concessional and non-concessional contribution caps are set to increase from 1 July 2024, following the release of the latest average weekly ordinary time earnings (AWOTE) figure.

The concessional contribution cap will increase from $27,500 to $30,000 and the non-concessional contribution cap from $110,000 to $120,000.

Seasonally adjusted figures released by the Australian Bureau of Statistics yesterday revealed that the average weekly ordinary time earnings for full-time adults was $1,888.80 in November 2023.

The annual increase of 4.5 per cent of $81 a week, was the strongest since May 2013, aside from a brief spike in average earnings early in the COVID-19 pandemic.

The increase was enough to see the concessional contributions cap indexed by $2,500, increasing the cap to $30,000. For those on salary sacrifice arrangements, you may wish to increase your super contributions from July 2024.

SMSF Association chief executive Peter Burgess said with the increase in the contribution caps occurring at the same time as the stage 3 tax cuts, super members may have additional disposable income to contribute to super.

Mr Burgess said the increase in the contribution caps also means that the maximum available under the non-concessional contribution bring-forward provisions will increase from $330,000 to $360,000.

While the general transfer balance cap will remain the same, the thresholds used to determine the maximum amount of bring-forward non-concessional contributions available to an individual will also be adjusted, he stated.

Commenting on the latest AWOTE figure, ABS head of labour statistics Bjorn Jarvis said the recent rise in average earnings reflects strong wage growth, with the Wage Price Index rising by 4.2 per cent in the year to December quarter of 2023.

“This was the highest annual increase in underlying wage growth since March quarter 2009,” said Mr Jarvis.

“Average earnings growth was supported by increases in both the private sector, which rose by 4.4 per cent, and public sector, up by 4.9 per cent.”

“They are now focused on low and middle-income taxpayers, who were previously not well served by the tax cuts, have been suffering from increases in the cost of living and are far more numerous than the high-income earners.”

back to top

Government warns of malicious myGov scammers

The Albanese Government urges Australians to be vigilant to scammers targeting ATO log in details to commit tax fraud.

The ATO has received a large number of reports of scammers using fake myGov sites to steal myGov sign in details that can be used to commit tax and refund fraud in other people's names.

These criminals will often use text message or email to lure people into clicking a link using phrases such as 'You are due to receive an ATO Direct refund' or ‘You have a new message in your myGov inbox – click here to view’.

To be clear – the ATO or myGov will never send an email or text message with a link to sign in to myGov.

The Albanese Government is working hard to protect Australians from scammers and early signs show this plan is working.

Earlier this month, the Assistant Treasurer released the second quarterly National Anti‑Scam Centre report, which found scam losses reported to Scamwatch reduced by 43 per cent from the same quarter in 2022, and 26 per cent from the July to September 2023 quarter.

This is only phase one of the Government’s scammer crackdown. The next phase involves mandatory industry codes, which will introduce minimum, consistent obligations for all regulated businesses to prevent, detect, disrupt, and respond to scams.

Last year, the ATO introduced new fraud controls to help protect Australians from online identity theft. This includes using myGovID to strengthen security during the sign‑in processes on myGov accounts, making it more difficult for criminals to gain access.

In last year’s Budget, the Government committed $223 million to the ATO‑led Serious Financial Crimes Taskforce, as part of our continued commitment to crack down on fraud.

Quotes attributable to Assistant Treasurer and Minister for Financial Services, Stephen Jones MP:

“The Albanese Government is working hard to fight the scourge of scammers, but it’s important that Australians remain vigilant to the warning signs and report any suspicious activity.

“Scam losses are going down for the first time in years and almost halved in the last quarter of 2023.

“This is a direct result of the Government’s investment to crack down on scammers and make it harder for them to target to Aussie consumers.”

Quotes attributable to Minister for Government Services, Bill Shorten MP:

“A very secure way to interact with myGov is via the myGov app. In the same way many of us use banking apps, most modern phones will allow you to sign in to myGov with fingerprint or face recognition, so you don’t need to use a user ID, password and an SMS code.

“With the number of scam websites increasing dramatically, everyone needs to be vigilant. Last year, Services Australia and partners responded to over 6,000 scams attempting to impersonate myGov.

“The Albanese Labor Government wants a safe and secure myGov, and the myGov app is fast, convenient and secure. You can also set up push notifications within the app to securely receive new messages and updates about myGov.”

back to top

Scammers are targeting ASIC’s customers

Scammers impersonating ASIC

Scammers pretending to be from ASIC may contact our customers asking them to pay fees and give personal information to renew their business or company name.

These emails often have a link that provides an invoice with fake payment details or infects your computer with malware if you click the link. Do not click the link.

Scammers may contact you via email, text message, phone or website, all with the aim to deceive you.

Example of a scam ASIC email

An email is probably a scam if it asks you:

• to make a payment over the phone
• to make a payment to receive a refund
• for your credit card or bank details directly by email or phone
• pay fees that are different to the fees on our website

ASIC would never:

• request payment to recover lost funds, goods or services
• endorse a particular investment

Example of genuine ASIC email:

• ASIC email notifications come from ASIC.Transaction.No-reply@asic.gov.au.
• ASIC sends renewal notices via email only.
• ASIC issues renewal notices 30 days before your renewal date.

Notify them of a potential scam email impersonating ASIC

If you have received a suspicious email from ASIC, you can notify them by following the instructions below:

• Send them an online inquiry with details and/or an attachment of the suspicious email
• Delete the suspicious email.

Their team will review your online inquiry and will reach out to you if they need further information.

Alternatively, you can call ASIC’s Customer Contact Centre on 1300 300 630 for verification if you are unsure whether you have received the email from ASIC.

back to top

Common FBT mistakes flagged as FBT season kicks off

Business clients should be closely considering their fringe benefits (FBT) tax compliance as they approach the FBT compliance season this year, with employee benefits now much more of a focus in the current labour market.

One of the key areas where mistakes happen is the misclassification of a vehicle for either private or business use and not understanding which vehicles are FBT-exempt and which are not.

Other areas where businesses can fall into trouble with FBT compliance are inconsistencies between FBT and income tax returns, where employee contributions are miscategorised during reporting, and incorrect application of employee contributions.

Other problem areas include fringe benefit amounts being incorrectly reported and failing to take prompt action when a mistake has been made.

Recent changes with FBT              

Employers should also be aware of the recent changes to the FBT regime and other areas of tax reform that affect FBT application for FBT compliance season 2024.

Updates have been made to the electric vehicle home-charging rate in PCG 2024/2.

This is the introduction of a safe harbour of 4.2 per cent per kilometre that can be used for calculating electric charging costs of vehicles at home-charging stations in effect from 1 April 2022 for FBT tax and 1 July 2022 for income tax purposes.  

While electric vehicles are exempt from FBT, they are required to be included on individual’s employee’s earnings statement meaning that this safe harbour method provides a practical alternative where employers use the operating cost method to calculate the taxable value.

Alternative record-keeping measures have also been introduced to reduce and simplify FBT record-keeping requirements for employers while producing similar compliance outcomes with lower compliance costs.

It allows employers the choice to use existing records in place of travel diaries or employee declarations for certain types of benefits. This applies to the 2025 FBT year (1 April 2024 to 31 March 2025) and onwards.

back to top

Staff and Office Updates

Thank you all for your patience in receiving this belated update. We hope you enjoyed your Christmas holiday and had a wonderful start to the New Year.

Everyone at Veritas started 2024 by getting a refreshing break and having a good time with families and loved ones. We are all be back on deck from the start of February.

Back to top

Update about Liontown and Chalice from Jodie

Dear Client,

Not the start to 2024 we had hoped for with LTR and CHN both having suffered further price drops early in the new calendar year.

Our view on these companies has always been long term and we encourage you to remember that as you consider the affect the drop in these assets has had on your overall portfolio value.

LTR's drop in trading price is a direct result of the current lithium price fall that may impact on the shorter term funding available to LTR and hence its timeline for ramping up production. This lithium price fall is predicted by some to last (possibly) until 2026 with prices then predicted to increase significantly as world lithium demand significantly outstrips supply.

Timing for LTR's supply to hit the market is always going to be affected by market conditions. LTR continue to manage these conditions well, being agile with their plans as they keep the long term future of the company intact. Production will commence as planned this year and the company remains on track to become a world leading provider of Lithium.

There is a similar story with CHN as the price of nickel and PGE resources fall. These prices are also predicted to increase significantly over the following few years.

Importantly we are navigating a period of significant world change and the markets of the past do not reflect the expected future. Such change is inevitably going to be wrought with volatility but we remain confident and excited that the companies you are invested in will have a long term place in the process of that change.

As in the past, we see the biggest challenge through this period to be in cash flow management. We importantly set portfolios in such a way so that defensive assets and income producing assets (that are less volatile) are available to provide your income needs whilst we manage this period of change.

If you feel the need to review your cash flow requirements please do not hesitate to make a time to come in to the office (or video call) and see me.

Regards,

Jodie and the team at Veritas Wealth Solutions.

Back to top

Government to unveil stage 3 tax cut overhaul

Stage 3 tax cuts have been a topic of discussion since they were announced in 2018. These tax cuts were aimed to provide Australian taxpayers with some relief from “bracket creep”, while making the tax system a bit simpler.

Prime Minister Anthony Albanese will present a revised version of the contentious stage three tax cuts at the National Press Club today in a bid to refocus on “middle Australia” by reducing savings for high-income earners.

The redesign, approved by cabinet on Tuesday and by the Labor caucus on Wednesday, was expected to involve raising the tax-free threshold to $19,000, taxing lower-income earners at 16 per cent while changing the top 45 per cent tax bracket to $190,000.

“I'll be giving a full exposition of economic policy and our response to provide assistance to middle Australia on cost of living at the National Press Club,” he said yesterday.

“This proposal will be all about supporting middle Australia. We know there are cost-of-living pressures on middle Australia and we’re determined to follow the Treasury advice to provide assistance to them.”

H&R Block director of tax communications Mark Chapman supported the redesign.

“The heavy weighting of the original package towards those on the highest incomes is difficult to justify in the current economic climate and, with the cost of living impacting disproportionately on those low and middle-income taxpayers, this will provide some much needed extra cash in the pockets of hard-working families to pay mortgages, food and fuel bills,” he said.

The cuts were first introduced by the then-Coalition government in 2018 as part of a three-stage package. The first two rounds of cuts benefited low and middle-income households, and the final round, set to take effect in July, would give tax breaks to higher-income earners.

In their original form, the cuts would collapse the 32.5 per cent and 37 per cent tax brackets into a single 30 per cent bracket and the threshold for the top 45 per cent tax bracket would be raised from $180,000 to $200,000.

Mr Chapman said this delivered most of the benefit to those on high incomes, translating into “nothing at all for people earning $45,000, only $875 for people earning $80,000 but a whopping $9,075 for people earning $200,000”.

Radio station 2GB reported on Monday that the government would revamp the cuts, keeping the 45 per cent bracket unchanged but raising the tax-free threshold.

On Tuesday the Australian reported that the 37 per cent bracket would be reinstated but changed from $120,000-$180,000 to $135,000-$190,000.

Sky News said the tax rate for individuals earning between $45,000 and $135,000 would be 30 per cent while income of $19,000-$45,000 would be taxed at a reduced rate of 16 per cent, providing relief to those previously not eligible under the cuts. 

The Australian Financial Review said the net effect of the revisions meant those earning up to $150,000 would be better off than they would have been under the currently legislated package, while the benefit for those on the highest incomes would almost be halved.

Mr Chapman said, “those on higher incomes (say, $200,000) will now only benefit by $4,546 (which is still quite generous) as opposed to $9,075”.

“With the cost of the tax cuts package overall expected to remain the same, this means that the tax savings have been distributed much more widely,” he said.

“They are now focused on low and middle-income taxpayers, who were previously not well served by the tax cuts, have been suffering from increases in the cost of living and are far more numerous than the high-income earners.”

Back to top

Macquarie Bank Changes to Cash & Cheque Services

As a digital bank, the Macquarie Bank is focused on transitioning to completely digital payments as a safer, quicker and more convenient way to bank.

What’s changing?

Between January 2024 and November 2024, they will be phasing out their cash and cheque services across all their banking and wealth management products, including super and pension accounts. They will also be switching off their automated telephone banking service used to make payments over the phone.

From November 2024, all payments to and from your Macquarie accounts will need to be made digitally. You can make payments securely from you Macquarie accounts via Macquarie Online Banking or the Macquarie Mobile Banking app.

If you’re not already banking digitally, now is a good time to start. If you encounter any problems or issues please feel free to contact us.

Back to top

Borrowing from the Business and Div 7A

Business owners of private companies often borrow money from their own companies for all sorts of reasons. However there is an area of the tax law that seeks to sanction against situations in which private companies dole out money to those within a business, in a form other than salary or dividends that needs to be understood by business owners. This is known as Division 7A.

What is Division 7A?

Division 7A exists as an integrity measure, and deals with benefits such as payments, loans, or even debt forgiveness made by private companies. The Division 7A law prevents private companies making tax-free profit distributions to shareholders (and their associates).

Such transactions can include:

– amounts paid by a private company to a shareholder (or associate), including transfers or uses of property for less than market value

– amounts lent to the same without a specific loan agreement constructed in conformity with prescribed legislative requirements (unless the relevant loans are fully re-paid by lodgment day*)

– debts that the business forgives.

Through applying the Division 7A rules, such loans, debt forgiveness or other payments are treated as assessable unfranked dividends to the shareholder (or associate), and taxed accordingly in their hands.

Who does it apply to?

“Private companies” are covered by Division 7A. The rules thereby apply to the shareholders of such companies (typically, the principals of the business) and their “associates”.  This last term is widely defined and can include family members and related entities. Employees may be affected if they are shareholders (although fringe benefits rules may also apply in preference).

If you find yourself in circumstances where there is a possibility of Division 7A provisions applying, and the tax consequences that go along with it, consult this office.

What commonly triggers Division 7A?

Most commonly, Division 7A applies where there is a loan by the company to the business’s owners (that is, shareholders). A loan will generally be treated as a dividend if a company lends money to a shareholder (or associate) in an income year and the loan is not fully repaid by the lodgment day* of the same income year.

Another example, which is not all that uncommon, is where an asset of the company is made available for use of the shareholders — a holiday house owned by the company is a typical example. Where shareholders of the private company use that holiday house for free over a certain period, this will likely trigger Division 7A as a “payment”, as this use is viewed as having a commercial value. That value is deemed to be a distribution to shareholders that would otherwise be tax-free were it not for the Division 7A provisions.

What can be the consequences?

Any loans, payments and debt forgiveness from the business to its shareholders (or associates) may be deemed to be an assessable dividend that should be taxed in the hands of the shareholder (or their associates) typically at their marginal tax rate, under the Division 7A rules. The dividend is “unfranked” meaning that there are no franking credits available to the recipient (unless the Commissioner exercises his discretion to the contrary).

But one important aspect of Division 7A, broadly speaking, is that there needs to be “profits” from which the business can make payments. This is referred to as a “distributable surplus”.

In general terms, provided there is a sufficient distributable surplus in the company, all payments made by a private company to a shareholder (or their associate) to which Division 7A applies are treated as dividends at the end of the income year.

Back to top

Staff and Office Updates

With the onset of the coldest months which usually see people suffer from the seasonal illnesses we hope everyone is staying safe and healthy.

We are excited to announce that we have moved our tax system to Xero, which is a secure online platform with a variety of new features like secured digital signing. We have been testing it for weeks and found it to be very productive. If you would like to migrate your business platform to Xero as well, please do not hesitate to contact us and we are more than happy to assist you.

back to top

Don’t forget to make super contributions

Since we are fast approaching the end of the financial year, if you would like to make super contributions please don’t forget. We recommend doing it as soon as possible as it could take 3 days or more for a contribution to be received if using BPAY or cheque. Don’t leave it until the last week.

back to top

Minimum pension withdrawal and drawdown rate change

For our super fund clients, if you haven’t withdrawn your minimum pension for this financial year, it is time to do it! You will be able to find the exact amount of your minimum pension requirement on the cover letter of your financial statements issued to you for the 2022 financial year. We also recommend you attend to this as soon as possible because sometimes the processing time does take longer than you might think. Give it at least one week to be safe.

Also, because of the Covid-19 pandemic, the government has applied reduced minimum pension drawdown rates for all account-based pensions up to 30 June 2023. However, from 1 July 2023, the government’s standard minimum drawdown rates will apply to all account-based pensions:

If you have scheduled payments for pension withdrawals, the easy approach is to double the scheduled amount to avoid a big withdrawal at the end of the 2023-24 financial year.

back to top

Changes to Working from Home tax deductions 2022-2023

The revised fixed rate method applies from 1 July 2022 onwards. The amount of the fixed rate is $0.67 cents per hour.

The revised fixed rate of $0.67 cents per work hour covers:

• Energy expenses (electricity and gas)
• Phone usage (mobile and home)
• Internet
• Stationery and computer consumables

No additional deduction for any expenses covered by the rate can be claimed if you use this method.

For the first time, phone usage and internet expenses are included in the fixed rate method. These were previously excluded from the fixed rate method, which allowed a separate deduction to be claimed for these expenses. Note that under the new rules, if you use your mobile phone for work purposes when you are out-and-about, as well as at home, you can no longer claim a separate deduction for this use and still use the fixed rate method. If you wish to claim actual use of your mobile phone (or home internet), you must claim using the actual method for all working from home expenses.

Also, from 1 March 2023, you need to keep a record of all the hours worked from home for the entire income year. Before then, a 4-week representative diary or similar document will be required for the period 1 July 2022 to 28 February 2023.

The ATO won’t accept estimates, or a 4-week representative diary or similar document for any period after 1 March 2023.

Records of hours worked from home can be in any form provided they are kept as they occur, for example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.

Records must be kept for each expense that you have incurred which is covered by the fixed rate per hour (for example, if you use your phone and electricity when working from home, you must keep one bill for each of these expenses).

The actual cost method hasn’t changed. You can claim the actual work-related portion of all running expenses. To claim this method, you must have an area set aside as a dedicated home office.

back to top

Taking advantage of temporary full expensing before 30 June 2023

Temporary full expensing, or TFE for short – allows businesses to deduct the full cost of eligible capital assets from their profits for the year, rather than depreciating the cost over several years. TFE is scheduled to last until 30 June 2023 so it’s vital that businesses take advantage now.

To be eligible, businesses must have an aggregated annual turnover of less than $5 billion. This high turnover threshold means almost every Australian business is included in the scheme.

For full details, please check the third topic of our April Newsletter.

back to top

Welcome to our April newsletter. In this quarter’s issue, we have provided articles on the following topics:

• Staff and Office Updates.
• Superannuation fund earnings for balances over $3m to be taxed at 30% from 1 July 2025 (Just a proposal).
• To support Australia’s recovery from the pandemic, a package of relief measures are available to let businesses save on tax when investing in new capital assets.
• Thoughts on recent developments in the US banking sector (SIVB).

Staff and Office Updates

With the onset of the colder months which usually see people suffer from the seasonal illnesses we hope everyone is staying safe and healthy.

We are fast approaching the deadline for lodgements of Tax Returns for the 2022 financial year. If you need any help finalising these please contact us in the office.

Planning perspective pre 30-6-2023. If interested in managing strategies please make an appointment.

back to top

Government Proposes Changes to Tax Concessions for Large Superannuation Balances

In the lead-up to the May budget, the Albanese Government has announced a major change to taxes on superannuation earnings for balances over $3 million.

Current superannuation taxes:

An individual’s retirement savings, held in a complying superannuation fund, is subject to concessional taxation on earnings of income and capital gains. The extent of the tax concession on the super fund earnings will depend on whether the individual has satisfied the conditions for release – this will generally be based on your age and whether you have retired or met a condition of release.

Individuals that are yet to satisfy their condition of release will have their superannuation fund earnings subject to tax at 15% on income. Individuals that have satisfied the super funds condition of release, and have elected to convert some or all of their super fund balance to support a pension, will not be taxed on the earnings arising on that balance. 

Importantly the balance that is tax free is limited by the transfer balance cap, which is currently up to $1.7m. Earnings arising on amounts not supporting their pension, or above the transfer balance cap, are subject to 15% tax.

Proposed changes to superannuation taxes:

The government is now proposing to limit the concessional 15% tax rate to member balances less than $3m.

It is proposed that, starting from 1 July 2025, for individuals with total superannuation account balances of more than $3m, an additional tax of 15% on earnings will be charged on the balance over $3m.

Earnings on the balance below $3m will continue to be taxed at 15% or 0% depending on whether the fund is in accumulation or pension phase, whereas earnings on funds over the $3m will be taxed at 30%.

For the purposes of administering the additional 15% tax, earnings are calculated as the difference in the total superannuation balance at the start and the end of the financial year, adjusting for withdrawals and contributions.

This means that earnings will include unrealised gains.  It also means that any realised capital gains included in the earnings above $3m will potentially not attract the one third CGT discount which applies to superannuation funds.

Where a superannuation fund makes an earnings loss in a financial year, this can be carried forward to reduce the additional tax liability in future years.

Limited details are available on how this tax will be collected, but the announcement provides that:

• individuals will have a choice of either paying this additional tax themselves or from their superannuation funds, and
• this tax will be separate from an individual’s personal income tax, similar to the existing Division 293 tax regime.

Impact of the changes:

This proposed change will impact Australians with superannuation account balances greater than $3m.

Estimates provided by the government suggest this will be around 80,000 superannuation members.

Should this change be passed into law, large and small superannuation trustees will also need to consider how their systems will operate to comply with the law.

Below is an example from the fact sheet released by the Treasury:

Carlos is 69 and retired. His SMSF has a superannuation balance of $9 million on 30 June 2025, which grows to $10 million on 30 June 2026.

He draws down $150,000 during the year and makes no additional contributions to the fund.

This means Carlos’s calculated earnings are:

$10 million – $9 million + $150,000 = $1.15 million

His proportion of earnings corresponding to funds above $3 million is:

($10 million – $3 million) ÷ $10 million = 70%

Therefore, his tax liability for 2025-26 is:

15% × $1.15 million × 70% = $120,750

This is a proposal only, nothing have been passed.

back to top

Instant Tax Write-off for Capital Expenses

Temporary full expensing, or TFE for short – allows businesses to deduct the full cost of eligible capital assets from their profits for the year, rather than depreciating the cost over several years. TFE is scheduled to last until 30 June 2023 so it’s vital that businesses take advantage now.

For small businesses in particular, the measures could, with some fairly significant caveats, represent a significant opportunity to boost your bottom line.

What assets are included in the write-off?

Most Australian businesses can now immediately deduct the full business-related costs of all purchases of capital items – typically depreciating assets bought for the business, which could include:

• fixtures and fittings (such as shop or cafe fit-outs)
• technology, such as laptops, computers, EFTPOS systems and security equipment
• tools, plant and equipment
• office furniture
• motor vehicles such as utes, delivery vans and most cars (deductions for these are capped at a certain limit each financial year – $64,741 in 2022/23)
• motorbikes
• solar systems.

What eligibility criteria apply for instant tax write-offs?

To be eligible, businesses must have an aggregated annual turnover of less than $5 billion. This high turnover threshold means almost every Australian business is included in the scheme, although if you’re a medium to large business, bear in mind that ‘aggregated’ turnover means the turnover of any parent companies (including overseas parents) and subsidiaries need to be included.

That said, businesses whose aggregated turnover is more than $5 billion but whose Australian income is less than $5 billion can also claim the tax break, provided their aggregate turnover was less than $5 billion in either 2018/19 or 2019/20, and provided they have previously invested more than $100 million in tangible, depreciating assets in the period 2016/17 through to 2018/19.

TFE applies to new depreciable assets and the cost of improvements to existing eligible assets (even if the existing assets were acquired before the scheme started).

What happens if I make a purchase greater than a write-off amount?

There is no limit on the cost of assets that can be deducted. So, provided deductions for the asset are not specifically excluded or limited under the scheme (see below), it doesn’t matter what the cost of the asset is.

Whether the asset you purchase is $100 or $1 million, the full cost can be written off against your profits, provided both the asset and your business are eligible for full expensing.

Are there exclusions or limits for instant tax write-offs?

The main categories of assets that are not eligible for full expensing are:

• ‘expensive’ cars (for the 2022/23 financial year, this means cars costing more than $64,741)
• buildings and other assets that are eligible for capital works deductions
• assets located overseas
• some primary production assets (such as fencing and water facilities) that already have an existing instant write-off scheme in place
• assets that are not used in a business.

What timing applies for instant tax write-offs?

The tax break applies to assets acquired through to 30 June 2023.

It is worth pointing out that any assets purchased must either be in use or installed and ready for use by 30 June 2023 in order to qualify. If assets have been ordered and paid for but haven’t actually arrived at your premises (or they have arrived but they are still sitting in boxes in a corner of your workplace), the instant deduction cannot be claimed on them.

How do I claim the instant tax write-off?

Claims need to be made through your tax return, so the first opportunity to make a claim will arise when you lodge your return.

Make sure you keep all the purchase documentation you need to prove your purchase.

back to top

Thoughts on recent developments in the US banking sector (SIVB)

On the 10^th of March, US regulators (the Federal Deposit Insurance Corporation) took control of Silicon Valley Bank (SIVB) and placed it into receivership. This is the largest US bank failure since Washington Mutual in 2008.

Why did it happen?

SIVB was a bank with very high geographic and customer concentration; it effectively exclusively banked the US West Coast tech sector. This meant it had a very undiversified deposit base; few retail investors, many business deposits, all from the same industry and region. As the Fed lifted interest rates and funding costs rose, many of the tech start-ups banked by SIVB found it increasingly difficult to obtain funding from traditional sources (such as Venture Capital funds). They started to draw on cash deposits instead. Reports suggest that SIVB lost ~USD20bn in deposits in 2022. This process – deposit drain – accelerated in 2023. In order to facilitate these deposit withdrawals, SVB had to sell bonds from its “Hold to Maturity” (HTM) portfolio. SIVB held a large amount of bonds because somewhat unusually, it didn’t lend very much of its deposit base. Instead, it invested excess deposits in fixed income securities. Unfortunately, many of these bonds were purchased at very low interest rates, exposing the bank to a significant risk of loss if interest rates rose. Somewhat unusually, SIVB appeared not to hedge any of this interest rate risk.

Observations and Implications:

In many respects, this is not a usual bank failure. Normally, banks fail due to credit issues which negatively impact asset quality (the loans they issued are unable to be repaid). This time, the bank failed due to a combination of

1) geographic and industry concentration; and

2) asset and liability mismatch (long duration assets vs. very short duration liabilities).

However, regardless of the cause of the failure, there are some important observations we can make. First, the root cause of SIVB’s failure was the rising cost of capital. Second, there will be runs on other smaller banks and distress in the tech start-up sector. Third, Venture Capital (VC) and Private Equity (PE) funds who have invested in the tech start-up sector will find themselves the subject of intense scrutiny as valuations in that sector are called into question. Fourth, markets will remain in risk-off mode, wary of further headline risk and nervous about movements in front end funding spreads in US dollar markets.

Conclusion:

At this point, it is hard to know whether recent developments represent a tiny crack or a major fracture in the US financial system and economy. However, we think that there are a number of implications that will sustain regardless of developments in coming days; namely

1) Valuation pressures for sectors, companies, and asset classes that are vulnerable to structurally higher interest rates and / or cost of capital;

2) A shift in the distribution of risks around economic growth in the US to the downside as the ramifications of SIVB’s collapse are fully understood; and

3) A potential rethink about the likely duration of the Fed’s tightening cycle and balance sheet shrinkage.

back to top

Welcome to our January newsletter. In this quarter’s issue, we have provided articles on the following topics:

• Staff and Office updates.
• ATO announces changes to working from home deductions.
• From 1 July 2022 employers do not pay FBT on eligible electric cars and associated car expenses.
• Indexation of the general transfer balance cap (TBC) is due to increase on 1 July 2023 by an increment of $200,000.

Staff and Office Updates

Thank you all for your patience in receiving this belated update. We have been kept busy with the change of systems that had an end of life.

We are sad to say that Allison has resigned and Snow has decided to move to Melbourne, we wish both girls all the best for the future.

We also have the pleasure of welcoming two new staff members Adam and Aman and look forward to them being here for a long time to come.

back to top

ATO announces changes to working from home deductions

The Australian Taxation Office (ATO) has refreshed the way that taxpayers claim deductions for costs incurred when working from home. The changes better reflect contemporary working from home arrangements.

Assistant Commissioner Tim Loh explained that taxpayers can choose one of two methods to claim working from home deductions: either the “actual cost” or “fixed rate” method. Only the fixed rate method is changing.

The revised fixed rate method applies from 1 July 2022 and can be used when taxpayers are working out deductions for their 2022–23 income tax returns.

Revised fixed rate method:

The revised fixed rate method can be used from the 2022–23 income year onwards. The changes are:

• Rate
  • The cents per work hour has increased from 52 cents to 67 cents.
• What’s covered by the rate
  • The revised fixed rate of 67 cents per work hour covers energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. No additional deduction for any expenses covered by the rate can be claimed if you use this method.
• What can be claimed separately
  • The decline in value of assets used while working from home, such as computers and office furniture.
  • The repairs and maintenance of these assets.
  • The costs associated with cleaning a dedicated home office.
• Home office
  • The revised fixed rate method doesn’t require taxpayers to have a dedicated home office space to claim working from home expenses.  
• Record keeping
  • Taxpayers need to keep a record of all the hours worked from home for the entire income year – the ATO won’t accept estimates, or a 4-week representative diary or similar document under this method from 1 March 2023.
  • Records of hours worked from home can be in any form provided they are kept as they occur, for example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.
  • Records must be kept for each expense taxpayers have incurred which is covered by the fixed rate per hour (for example, if taxpayers use their phone and electricity when working from home, they must keep one bill for each of these expenses).

Actual cost method:

The actual cost method hasn’t changed. Taxpayers can claim the actual work-related portion of all running expenses.

This includes keeping detailed records for all the working from home expenses being claimed, including:

• all receipts, bills and other similar documents to show taxpayers have incurred the expenses, a record of the number of hours worked from home during the income year (either the actual hours or a diary or similar document kept for a representative 4-week period to show the usual pattern of working at home).
• a record of how taxpayers have calculated the work-related and private portion of their expenses (for example, a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset such as a laptop).

The ATO is reminding taxpayers that if they are claiming their actual working from home expenses, they can’t claim a deduction for expenses which have already been reimbursed by their employer.

More information:

No matter which method is used, if taxpayers purchase assets and equipment for work and it costs more than $300, they can’t claim the full amount immediately. For each of these items, the deduction must be claimed over a number of years and the work portion claimed (known as decline in value or depreciation).

back to top

Electric cars exemption

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

Eligibility:

You do not pay FBT if you provide private use of an electric car that meets all the following conditions:

• The car is a zero or low emissions vehicle
• The first time the car is both held and used is on or after 1 July 2022
• The car is used by a current employee or their associates (such as family members)
• Luxury car tax (LCT) has never been payable on the importation or sale of the car.

Benefits provided under a salary packaging arrangement are included in the exemption.

The government will complete a review into this exemption by mid-2027 to consider electric car take-up. We will provide an update when this review begins.

Zero or low emissions vehicle:

A vehicle is a zero or low emissions vehicle if it satisfies both of these conditions:

1. It is a:
   • battery electric vehicle
   • hydrogen fuel cell electric vehicle, or
   • plug-in hybrid electric vehicle.
2. It is a car designed to carry a load of less than 1 tonne and fewer than 9 passengers (including the driver).

Motorcycles and scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.

Plug-in hybrid electric vehicles – 1 April 2025 onwards:

From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law.

However, you can continue to apply the exemption if both the following requirements are met:

1. Use of the plug-in hybrid electric vehicle was exempt before 1 April 2025.
2. You have a financially binding commitment to continue providing private use of the vehicle on and after 1 April 2025. For this purpose, any optional extension of the agreement is not considered binding.

back to top

Transfer balance cap indexation

Indexation of the general transfer balance cap (TBC) is due to increase on 1 July 2023 by an increment of $200,000.

Individuals who start their first retirement phase income stream from this date will have a transfer balance cap of $1.9 million.

What is entitlement to indexation based on?

We identify the highest ever balance in the individuals transfer balance account. We'll use this information to calculate the proportional increase in their TBC and apply that new personal TBC to their account going forward. This means they'll have a personal TBC between $1.6 million and $1.9 million.

When do we do this calculation?

The calculation occurs using the information received and processed by us as at close of business 30 June 2023. We'll use and display what we consider the individual’s personal TBC to be. After indexation ATO online services (and Online services for agents) will be the only place an individual who had a transfer balance account prior to indexation will be able to see their personal TBC.

An individual who already had a transfer balance account and at any time met or exceeded their personal TBC will not be entitled to indexation and their personal TBC will remain the same.

Does late or retrospective reporting by providers after indexation have an affect?

If this occurs there may be significant consequences for the individual. We'll reconsider if there was an entitlement to proportional indexation and apply this new information to their account.

Are there consequences on other caps and limits?

Indexation will create flow on to other parts of the tax and super systems. This includes the defined benefit cap which will increase to $118,750.

back to top

Happy new financial year!  Welcome to our quarterly newsletter.  In this issue, we have provided articles on the following topics:

• Staff and Office Updates
• The ATO’s Focus this Tax Time
• Are COVID-19 tests deductible?
• Commonwealth Seniors Health Card Eligibility Changes
• How does Trustee Incapacitation affect my SMSF?

Staff and Office Updates

With the onset of the colder months which usually see people suffer from the seasonal illnesses we hope everyone is staying safe and healthy, unfortunately most of us here have suffered in some form or another.   
 
Allison has returned from maternity leave and we are all very pleased to see her back, so we can finally say we are now fully staffed again. She will be working the same hours as she was before - Tuesday to Thursday from 8am until 4pm.
 
Snow was lucky be able to take a holiday to England and Scotland, and although she was unwell for part of it did manage to enjoy herself.  We would also like to congratulate her on her recent engagement.
 
Tracey celebrated her anniversary and enjoyed a lovely surprise from her thoughtful hubby with a dinner and a night away.

back to top

The ATO’s Focus this Tax Time

The ATO assistant commissioner, Tim Loh has said the ATO will be carefully looking at car related deductions when the 2022 returns are being processed. 

Due to the changes in the last two years from the pandemic, the ATO expect car and travel expenses to be significantly less than in previous years.  This is due to the number of people working from home. 

They are also preparing to crack down on Australians who are over-claiming on other work related expenses to help increase their refunds.  To claim a deduction for a work related expense, you must have spent the money and not been reimbursed, and it must be used for a work related purpose.  If it is partly personal, then you can only claim the percentage that is used for work.

The ATO will also be watching cryptocurrency investors to ensure that any sell, swap or exchange of crypto is reported as a taxable transaction.  They have received data matching information from the cryptocurrency exchanges so will be able to identify if a taxpayer has made reportable transactions.

If you are unsure whether any of the above is relevant to your situation, please contact one of our tax accountants.

back to top

Can I claim a tax deduction for a COVID-19 test?

Yes, taxpayers can claim a deduction for any COVID-19 test purchased from 1 July 2021, as long as they satisfy the following 4 conditions:

1. It must have been purchased for a work related purchase;
2. You paid for a qualifying COVID-19 test (eg a PCR or a RAT);
3. You did not get reimbursed for it by your employer; and
4. You kept a record such as your receipt, or some documentation that shows the cost and the purpose

back to top

Commonwealth Seniors Health Card Eligibility Changes

The Commonwealth Seniors Health Card (CSHC) gives substantial concessions for pharmaceutical benefits and public dental work.  Anyone drawing an age pension isn’t eligible for the CSHC as they get a pensioner concession card instead.

Eligibility for the CSHC is not asset tested, but there is an income test that takes into account your adjusted taxable income, plus the deemed income from any superannuation pension you receive. 

Currently, the cut-off is $57,761 per year for singles, and $92,416 for couples.  From 1 July 2022, this increases to $90,000 for singles and $144,000 for couples which covers a much larger number of self-funded retirees.

back to top

How Does Trustee Incapacitation Affect my SMSF?

To be a member of an SMSF, you must be a Trustee of the Fund, either individually or as Director of the Trustee Company.  To be a Trustee, you need to be over 18, not under any legal disability (eg mental incapacity) or be a disqualified person.

If a member becomes incapacitated (eg accident, dementia), they can still remain a member of the SMSF with some careful planning.  The SIS Act allows for a Legal Personal Representative (LPR) to take over the Trustee responsibilities if the member is a minor, is under a legal disability or is deceased until the death benefit becomes payable.

An LPR is appointed by making an Enduring Power of Attorney (EPoA) or is the executor of a deceased person’s Will.  The EPoA is a legal document that lets you appoint someone to make certain decisions for you, if and when you are unable to make those decisions yourself.   An EPoA can cover financial decisions (paying bills, buying or selling assets), personal decisions (where you should live) and health care decisions.

Where an EPoA exists, then the attorney can become the LPR of the member which means the fund continues to be a complying fund and can continue to operate.

What happens if there is no LPR and the member is mentally incapacitated?

The member has to leave the SMSF as they can no longer act as Trustee.  Their member balance may need to be rolled over into a complying superannuation fund or paid to the member which might mean assets will need to be sold.  However, without an LPR, there is no one to make decisions on which assets to sell or which fund to roll into, so someone may need to apply for guardianship over the member.

back to top

April 2022 Newsletter

Welcome to our April newsletter. In this quarter’s issue, we have provided articles on the following topics:

• Staff and Office updates
• The Budget 2022
• Directors ID for SMFS
• The Importance of an Investment Strategy

Staff and Office Updates

We are happy to welcome back Jess from Maternity Leave, Allison will be returning in May so we will be back to full staff which will be great.

Tracey’s daughter Rhiannon and Jess’s daughter Ella are both excelling in their chosen sports, Rhiannon in basketball and Ella in dance. Both families are very proud indeed as we here are as well.

 The Budget 2022

50% minimum super drawdown extended

Super pension drawdown 50 per cent reduction extended to 2022-23 - the temporary 50 per cent reduction in minimum annual payment amounts for superannuation pensions and annuities will be extended by a further year to the 2022-23 income year.

 Super Guarantee rate unchanged

The Budget did not contain any change to the legislated Super Guarantee rate rise from 10 per cent to 10.5 per cent for 2022-23.

Personal tax rates unchanged for 2022-23; Stage 3 start from 2024-25 unchanged

The Stage 3 tax changes commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5 per cent marginal tax rate will be cut to 30 per cent for one large tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37 per cent tax bracket will be entirely abolished at this time. Therefore, from 1 July 2024, there will only be three personal income tax rates – 19 per cent, 30 per cent and 45 per cent. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30 per cent. With these changes, around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less.

 Directors ID for SMSF

If you are a corporate trustee of a self-managed super fund (SMSF), you need to apply for a director ID. Applying for a director ID is free, quick and easy.

You can apply via Australian Business Registry Services (ABRS) online. You will need a myGov Account with a Standard or Strong identity strength to apply for your director ID online.

Alternatively you can ring the ATO on 13 62 50. You will need to have two forms of identification

Such as:

Latest personal ATO Tax Assessment

Bank details of where your personal refund is paid

Drivers Licence

Passport

Birth Certificate and Marriage Certificate if applicable

When you need to apply for a director ID depends on when you first became a director.

If you:

• were appointed on or before 31 October 2021, you have until 30 November 2022 to apply
• were appointed between 1 November 2021 and 4 April 2022, you need to apply within 28 days of your appointment
• will be appointed on or after 5 April 2022, you need to apply before you're appointed.

Please note that because you need to verify your identity, so no one can apply on your behalf.

The Importance of an Investment Strategy

 Your investment strategy is your plan for making, holding and realising assets consistent with your investment objectives and retirement goals. It should set out why and how you’ve chosen to invest your retirement benefits in order to meet these goals.

The superannuation laws require that you must prepare and implement an investment strategy for your self-managed super fund which you must then give effect to and review regularly.

What needs to be included in my SMSF’s investment strategy?

SMSF investment strategy should be in writing. It should also be tailored and specific to the relevant circumstances of your fund. Your strategy should explain how your investments meet each member’s retirement objectives

Are there any restrictions under the super laws with respect to SMSF investments?

You are free to choose what type of assets you may invest in, providing those investments:

• are permitted by your fund’s trust deed
• are not prohibited by the super laws
• meet the sole purpose test

Can I invest all my retirement savings in one asset or asset class?

While a trustee can choose to invest all their retirement savings in one asset or asset class, certain risks such as return, volatility and liquidity risks can be minimised if a trustee chooses to invest in a variety of assets.

Investing the retirement savings in one asset or asset class can lead to concentration risk. In this situation, your investment strategy should document that you considered the risks associated with a lack of diversification. It should include how you still think the investment will meet your fund’s investment objectives.

How often do I need to review SMSF’s investment strategy?

You should review your strategy regularly to ensure it continues to meet the current and future needs of your members depending on their personal circumstances.

Certain significant events should also prompt you to review your strategy, such as:

• a market correction
• when a new member joins the fund or departs a fund
• when a member commences receiving a pension. This is to ensure the fund has sufficient liquid assets and cash flow to meet minimum pension payments prior to 30 June each year.

You should also review your strategy at least annually and document that you have undertaken this review and any decisions made arising from the review.

What is the auditor’s role in relation to SMSF investment Strategy?

When conducting the annual audit on your fund, the auditor will check whether your fund has met the investment strategy requirements under the super laws for the relevant financial year. 

Where you don’t comply with the investment strategy requirements, your auditor may need to notify ATO about this by lodging an auditor contravention report (ACR)

Staff and Office Updates

Happy New Year to all and we would like to wish everyone a very happy and prosperous 2022.

We are pleased to announce that Jessica has welcomed the arrival of a beautiful baby boy named Kieran, bub and family are all doing well.

As most of you are aware Ken Wild has now officially and will no longer be seeing clients but will still be in the background to help us with research. Jodie Dickson will now service Ken’s clients with the same dedication that Ken has shown over the years.

10 Little-Known Pension Traps that prove the value of advice

The age pension is a major source of income for the majority of Australian retirees. A bonus is that eligibility for a part pension gives them access to most of the pension’s fringe benefits, including the prized Pensioner Concession Card, even if their age pension is only minuscule.

But the system is complex, and many people find it hard to work their way through the labyrinth of regulations. As a result, they may fail to qualify for a pension, lose their pension, or receive less than they would if they took advice.

Eligibility is tested under both an income and an assets test, and the one that produces the least pension is the one used.

1. Additional income

Most wealthier pensioners are asset tested, yet they ask if it’s okay to earn some more money. Of course it is – the income test is not relevant if you are asset tested. A couple with assets of $800,000, receiving a pension of $136.80 a fortnight each, could have assessable income of $68,000 a year including their deemed income, and employment income, without affecting their pension because they would still be asset tested.

2. Valuing assets

Your own home is not assessable, but your furniture, fittings and vehicles are assets tested. Many pensioners fall into the trap of valuing them at replacement value. This could cost them heavily because every $10,000 of excess assets reduces the pension by $780 a year. Make sure these assets are valued at garage sale value, not replacement value. This puts a value of $5,000 on most people’s furniture.

3. Don’t spend just to increase pension

There is no penalty for spending money on holidays, living expenses and renovating the family home, but don’t do this just to increase your pension. Think about it. If you spend $100,000 renovating your home your pension may increase by just $7,800 a year, but it would take almost 13 years of the increased pension to get the $100,000 back. Of course, the benefit of money spent should be taken into account too – money on improving your house or travelling could have huge benefits for you. The main thing is not to spend money with the sole purpose of getting a bigger age pension.

4. Revaluations

Each year on 20 March and 20 September, Centrelink values your market-linked investments, such as shares and managed investments, based on the latest unit prices held by them. These investments are also revalued when you advise of a change to your investment portfolio or when you request a revaluation of your shares and managed investments. If the value of your investments has fallen, there may be an increase in your payment. If the value of your investments has increased, then your payment may go down.

The rules are in favour of pensioners. If the value of your portfolio rises because of market movements, you are not required to advise Centrelink of the change. It will happen automatically at the next six monthly revaluation. However, if your portfolio falls you have the ability to notify Centrelink immediately.

5. Gifting

You can reduce your assets by giving money away but seek advice. The Centrelink rules only allow gifts of $10,000 in a financial year with a maximum of $30,000 over five years. Using these rules, you could gift away $10,000 before June 30th and $10,000 just after it, and so reduce assessable assets by $20,000.

6. Superannuation

There is devil in the detail. If a member of a couple has not reached pensionable age, it’s prudent to keep as much of the superannuation in the younger person’s name because then it is exempt from assessment by Centrelink. However, the moment that fund is moved to pension mode, it’s assessable irrespective of the age of the member.

7. Mortgaged assets

A common trap is when a loan is used to purchase an investment property with the loan secured by a mortgage against the pensioner's own residence. The debt against an investment asset is only deducted from the asset value if the mortgage is held against the investment asset. If the mortgage is secured against an asset other than the investment asset, the gross amount is counted for the assets test and the loan is not deducted.

The effect on the pension could be horrendous.

8. Family trusts

Family trusts can cause problems with both income and assets tests for the age pension. Thanks to the information sharing and matching abilities between Centrelink and the ATO, you can bet that Centrelink will know if a family trust is involved in your affairs.

Even if you have a high-risk child (such as a child with a relevant disability) who makes Mum the appointer or default beneficiary for asset protection and there is no ‘pattern of distribution’, Mum could be caught.

It’s a complex topic. If there is a family trust somewhere in your financial affairs, I suggest you take expert advice long before you think about applying for the age pension. It may pay big dividends.

9. Bequests

Bequests are another trap. There is a big difference between the asset cut-off point for a single person and that for a couple. As at 20 September 2021, the single homeowner cut-off point was $593,000, whereas for a couple it was $891,500. Many pensioner couples make the mistake of leaving all their assets to each other, which can cause a lot of extra grief when the surviving partner finds they have lost their pension as well as their partner.

An example Jack and Jill had assessable assets of $740,000 and were getting around $11,800 a year in pension. Jack died suddenly and left all his assets to Jill. This took her over the assets test limit for a single person and she lost the pension entirely. Had he left the bulk of his estate to their children she would have been able to claim the whole pension plus all the fringe benefits.

10. Jointly owned assets with adult children

A wrong decision in the past can have serious consequences in the future. Think about a couple aged 52 who want to help their daughter into her first home. Without taking advice, they bought a 50% share of a house worth $400,000 so that the daughter could obtain a loan. Fast forward 15 years when the house is now worth $900,000 of which their half share is $450,000.

Their other financial assets were worth $600,000 so they believed they would be eligible for a part pension. To their horror they discover that their equity in the daughter’s home of $450,000 took them over the assets test cut off point. If they transferred their share to the daughter the capital gains would be $225,000 after discount, on which capital gains tax could well be at least $80,000.

Furthermore, they would have to wait five years to qualify for the pension because Centrelink would treat the $450,000 as a deprived asset for the next five years. The total value of the CGT payable and the pension lost could be at least $150,000. If they had been aware of the trap, or taken advice, they could have gone guarantor for their daughter, possibly putting up their own home as part security and this would have had no effect on the future pension eligibility.