Important October Updates
Important information from the Australian Taxation Office (ATO) that could impact your business and personal tax obligations. Staying informed is essential to ensure compliance, optimise your tax benefits, and avoid potential penalties. Here are some of the key areas of focus for this financial year:
ATO data matching on high-value lifestyle assets
The ATO is intensifying its data-matching efforts concerning "lifestyle" assets such as luxury cars, marine vessels, and high-value artworks. If your business owns or insures high-value items (e.g., motor vehicles over $65,000, boats, and fine art over $100,000), it is vital to accurately document their ownership, valuation, and use. Personal use of business assets must be properly reported to avoid potential Fringe Benefits Tax (FBT) liabilities. Regularly reviewing asset valuations and ensuring your records align with business usage will help avoid compliance issues.
Key Points to Consider:
Types of Assets Under Scrutiny: Motor vehicles over $65,000, boats, fine art over $100,000, and other high-value items.
Accurate Documentation: Ensure ownership, valuation, and use of assets are properly documented.
Personal Use Reporting: Report personal use of business assets to avoid FBT liabilities.
Regular Review: Regularly review asset valuations to ensure they align with business usage and avoid potential compliance issues. For more details, visit the ATO Data Matching Overview.
Small Business Restructure Rollover (SBRR)
Eligible small businesses can take advantage of the Small Business Restructure Rollover (SBRR) to reorganise without triggering immediate capital gains tax (CGT). This allows businesses with an annual turnover of less than $10 million to transfer active assets while deferring CGT obligations. For example, moving from a sole trader to a company structure is made more flexible, supporting sustainable growth. Documentation must prove that the restructure is genuinely for business purposes and not merely tax-motivated, which is key for ensuring compliance.
Key Points to Consider:
Eligibility Requirements: Annual turnover must be less than $10 million.
Asset Transfer Flexibility: Allows businesses to transfer active assets without triggering immediate CGT.
Genuine Restructure Requirement: The restructure must have a genuine commercial purpose, not be solely tax-driven.
Documentation: Maintain thorough records to prove that the restructure is genuine for compliance purposes.
Types of Structures: Supports transitioning from a sole trader to other structures like a company or trust.
For more details, visit the Small Business Restructure Rollover Guide.
Cryptocurrency and taxation
The ATO views cryptocurrency as property, which has specific implications for taxation. Capital gains tax (CGT) applies when disposing of cryptocurrency, while mining or staking activities generate income tax obligations. It is crucial to keep detailed records of all transactions, including dates, transaction types, and valuations in AUD. Personal use of cryptocurrency by employees may attract FBT liabilities, and income earned from cryptocurrency must be reported as part of the business's income. Accurate reporting is critical to avoid penalties under the ATO’s increasing audit scrutiny.
Key Points to Consider:
Cryptocurrency Classification: Treated as property, not foreign currency, for tax purposes.
Capital Gains Tax (CGT): CGT applies on disposal of cryptocurrency, calculated on the difference between acquisition cost and sale price.
Income from Mining or Staking: Income from cryptocurrency mining or staking must be reported as ordinary business income.
Record-Keeping: Maintain detailed transaction records, including dates, transaction types, and AUD valuations.
FBT Implications: Personal use of business-owned cryptocurrency by employees may trigger FBT liabilities.
Accurate Reporting: Ensuring all crypto transactions are reported to avoid ATO penalties.
For more details, visit the Cryptocurrency Tax Guidelines.
Main residence Capital Gains Tax (CGT) exemption
The main residence CGT exemption remains a valuable relief for homeowners selling their family homes. To qualify, the property must be your primary residence, with specific rules governing periods of absence and any rental or business use. The "six-year rule" allows homeowners to rent out their home while still maintaining the CGT exemption for up to six years, provided no other property is treated as their primary residence. Keeping accurate records of periods of residence and rental use is essential for substantiating your exemption claims.
Key Points to Consider:
Primary Residence Requirement: The property must be your main residence to qualify for CGT exemption.
Six-Year Rule: Homeowners can rent out their property for up to six years and still maintain the exemption if no other property is nominated as the main residence.
Partial Exemption: If the property has been rented or used for business, a partial exemption may apply based on the proportion of time it was used as a primary residence.
Record-Keeping: Maintain records of residence periods, rental use, and any business activities within the property to support exemption claims.
For more details, visit the Main Residence CGT Exemption.
Managing tax debt
If your business or personal tax situation involves a debt to the ATO, there are several strategies to help manage it effectively. Options include setting up flexible payment plans, negotiating deferrals, seeking interest remission for hardship, or exploring tax debt relief for serious financial difficulties. Engaging with us early can help us liaise with the ATO on your behalf, ensuring suitable arrangements and preventing debt escalation.
Key Points to Consider:
Flexible Payment Plans: Tailored plans to pay off tax debts in manageable instalments.
Interest Remission: Apply for interest remission if debt is due to circumstances beyond your control.
Deferral Options: Request short-term deferrals to address temporary cash flow issues.
Debt Relief: Explore tax debt relief options in cases of severe financial difficulty.
Early Engagement: Contact us early to help negotiate with the ATO and prevent escalation.
Key offsets for self-funded retirees
Self-funded retirees may benefit from the Seniors and Pensioners Tax Offset (SAPTO), with a tax-free threshold of $33,088 for singles and $29,974 for couples. Superannuation income streams remain tax-free for those over 60, provided they are within the $1.9 million transfer balance cap. Additionally, the main residence CGT exemption still applies when downsizing or reallocating assets, offering an efficient way to fund retirement.
Key Points to Consider:
SAPTO Eligibility: Provides tax relief for retirees above the age-pension age, with different thresholds for singles and couples.
Tax-Free Superannuation Income: Income from superannuation is tax-free for individuals over 60, within the $1.9 million cap.
Downsizer Contributions: Contributions of up to $300,000 from downsizing home sale proceeds can be added to superannuation, outside of standard caps.
CGT Exemption for Downsizing: The main residence CGT exemption can still be utilised when selling the primary home to fund retirement.
Updated guidelines for work-related expenses
For the 2024-2025 financial year, work-related expenses (WRE) remain under scrutiny by the ATO. To claim deductions, expenses must be directly related to earning your income, not reimbursed, and substantiated with accurate records.
Key Points to Consider:
General Deduction Criteria: Expenses must be directly related to earning income, not reimbursed by the employer, and properly substantiated.
Vehicle and Travel Expenses: Only work-related travel is deductible, not regular commuting. Maintain records using the logbook or cents-per-kilometre method.
Home Office Expenses: A fixed rate of 67 cents per hour is available for claiming home office costs, provided a log of hours worked is maintained.
Clothing and Self-Education: Only specific protective or occupation-specific clothing, as well as self-education directly related to current employment, is deductible.
Record-Keeping: Retain detailed records for at least five years to support any WRE claims.
Superannuation legislation: What you need to know
The Australian government has introduced significant updates to superannuation regulations this financial year that may influence your retirement savings strategy.
These changes include:
Adjustment to Contribution Caps:
The concessional contribution cap for the 2024-2025 financial year is set at $30,000.
The non-concessional contribution cap for the 2024-2025 financial year is set at $120,000.
Tax Regulation Updates:
Updates to Division 293 tax thresholds remain at $250,000, impacting high-income earners.
Superannuation Guarantee (SG) Rate:
The SG rate increased to 11.5% from 1 July 2024, affecting employer obligations and employee benefits.
Fund Performance and Transparency:
Measures have been introduced to enhance transparency in fund performance, providing greater security for retirees.
Retirement Income Covenant:
New requirements for funds to provide a clear retirement income covenant, ensuring members have appropriate income stream options.
These legislative updates ensure that you remain informed and well-positioned to optimise your contributions while adhering to compliance requirements.
Key Points to Consider:
Assess your eligibility for increased contribution caps to make the most of available tax benefits.
Understand the impact of the SG rate increase on both employer contributions and your retirement planning.
Review the performance metrics and transparency standards of your chosen super fund to ensure alignment with your financial goals.
Important FBT changes for plug-in hybrid vehicles
For the Australian financial year starting 1 July 2024, employers should note specific Fringe Benefits Tax (FBT) considerations that apply to plug-in hybrid electric vehicles (PHEVs) provided to employees. Currently, PHEVs benefit from an FBT exemption if they meet certain eligibility requirements. However, from 1 April 2025, this exemption will no longer apply to new plug-in hybrid acquisitions, except in limited circumstances.
Key Details on Upcoming Changes:
Current Exemption Validity: Employers can provide PHEVs FBT-free up until 31 March 2025, as long as the vehicle meets low-emissions criteria and the arrangement is financially binding before the cut-off date. If these conditions are satisfied, the FBT exemption can continue for the entire lease term, even after April 2025.
New Acquisitions: From 1 April 2025, PHEVs acquired or committed to after this date will incur FBT. Employers planning to offer PHEVs as employee benefits should take note of this shift and adjust their long-term vehicle benefit strategies accordingly.
Electricity Charging Costs: Costs associated with charging a PHEV are treated as exempt car expenses. However, employers need to maintain accurate records for these costs. The Australian Taxation Office (ATO) currently applies a simplified "home charging rate" of 4.2 cents per kilometre, but this only applies to fully electric vehicles, not PHEVs.
Impact on Reportable Benefits: Even if PHEVs remain exempt from FBT, providing them to employees will still need to be reported on income summaries as reportable fringe benefits. This could affect employees’ taxable income and other entitlements linked to reportable benefits.
Action Points for Employers:
Review your current vehicle leasing arrangements and evaluate if they meet eligibility for ongoing FBT exemption.
Be aware of the 1 April 2025 deadline for financially committing to any new PHEVs, to avoid future FBT liabilities.
Maintain detailed records of electricity charging costs, especially if offering a mixed fleet of electric and hybrid vehicles.
For further clarity or to discuss the potential impacts on your business, please contact our team.