Getting your house in order this year end

Tax

Time is running out to get your tax and superannuation affairs, and those of their clients, in order before year end.

By Robyn Jacobson, The Tax Institute • 06 June 2024 • 22 minute read

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As we enter the final weeks of 2023–24, this is the last opportunity to ensure your tax and superannuation affairs, and those of your clients, are in order for this income year.

What we know

Stage 3 tax cuts

Practitioners will be well aware of the legislated changes made in March 2024 to the Stage 3 personal income tax cuts and the new rates and thresholds that apply from 1 July 2024.

Key points

The tax cuts do not affect taxpayers’ tax positions for 2023–24 or the lodgment of 2024 returns.
Only those subject to PAYG withholding will see an immediate benefit from the tax cuts through increased take-home pay due to reduced PAYG withholding. Those in the PAYG instalments system will not see relief until they lodge their 2025 returns and determine their final tax liability. Any overpaid tax for 2024–25 will be refunded following lodgment of the 2025 return.
Employers need to apply the correct PAYG withholding tables for salaries and wages paid on or after 1 July 2024. The ATO will update the tables in mid-June 2024.

Work-related expenses

The ATO continues to focus on claims for work-related expenses (WREs) by more than eight million people (in 2023), of which around half claimed a working from home (WFH) deduction.

Taxpayers can calculate their WFH deduction using the fixed rate method (FRM) at the rate of 67 cents for each hour worked from home during 2023–24. Taxpayers need to keep a record showing the actual number of hours WFH (e.g. timesheet, roster, diary or spreadsheet), as well as a copy of a relevant bill for the additional running costs (e.g. electricity or internet bill). Alternatively, they can claim a deduction for the actual expenses they incurred in 2023–24.

The ATO often speaks of the three Golden rules when claiming a WRE deduction:

you must have spent the money yourself and were not reimbursed;
the expense must directly relate to earning your income; and
you must have a record (usually a receipt) to substantiate the deduction.

ATO focus on rental properties

In response to ATO data that shows nine out of 10 rental property owners are getting their income tax returns wrong (including those prepared by agents), the ATO will pay particularly close attention to rental properties this year to ensure all income is declared and deductions are correctly claimed. The ATO’s Top 10 tips to help rental property owners avoid common tax mistakes is a useful resource.

New reporting requirements for non-charitable not-for-profits (NFPs)

Non-charitable NFP organisations are required to self-assess their eligibility for income tax exemption by lodging an annual NFP self-review return. With the new annual reporting requirement taking effect on 1 July 2023, the first self-review return covers the 2023–24 income year.

The mandatory self-review return will assist NFPs to determine the basis on which they self-assess as income tax exempt, and report this to the ATO. NFPs that do not meet the eligibility criteria in one of the eight categories to be income tax exempt will be taxable and will be required to instead lodge an income tax return (or notify the ATO that a return is not necessary)

The self-review return for 2023–24 must be lodged by 31 October 2024 through Online services for business (OSB) or by a registered tax agent authorised to lodge on the NFP’s behalf. To access OSB, NFPs can prepare for lodgment by updating any new associates and authorised contacts appointed to the NFP and related ABN details. NFPs choosing to appoint a tax agent for the first time will need to securely nominate the agent through client-agent linking.

Charitable NFPs with an ABN are income tax exempt only if they register as a charity with the Australian Charities and Not-for-profits Commission and are formally endorsed by the ATO.

Trust distributions

Trustee resolutions

Trustees who make beneficiaries presently entitled to trust income for 2023–24 need to record that decision through trustee resolutions. Purported distributions may not have their intended effect under trust law or tax law if they are not validly made.

When distributing trust income and/or capital, trustees should consider whether:

the deed permits the purported distributions;
the intended beneficiaries are validly appointed under the deed;
the trust has vested during the year;
a family trust election or interposed entity is in force for the trust;
capital gains and/or franked distributions are being streamed to particular beneficiaries;
the distributions will trigger CGT event E4, or not satisfy the requirements of the trust loss provisions or the small business CGT concessions.

Trustees should also consider:

the date by which the trustee must determine to make the distributions — some deeds specify a date earlier than 30 June; and
the TFN reporting rules — ensure new beneficiaries have provided their TFN details by 30 June 2024 and a TFN report is lodged by 31 July 2024 to avoid withholding obligations and penalties, and that an annual TFN withholding report is lodged by 30 September 2024 where amounts have been withheld from payments to beneficiaries.

New tax return labels

The Modernisation of Trust Administration Systems (MTAS) means trustees, beneficiaries and their tax agents will see changes to 2024 return forms. The changes, which start on 1 July 2024 and affect lodgments for the 2023–24 and later income years:

modify the labels in the statement of distribution in the trust return form by adding four new capital gains tax (CGT) labels to improve the reporting of beneficiary details;
introduce a new ‘trust income schedule’ that replicates the fields from the statement of distribution issued by the trust — beneficiaries just need to copy the information across to the trust income schedule and lodge it with their return;
add new data validations to the trust return form in the Practitioner lodgment service (PLS) to strengthen the integrity of data reported.

Reimbursement agreements under section 100A

Section 100A of the Income Tax Assessment Act 1936 (ITAA 1936) is an integrity rule that can apply where a beneficiary’s present entitlement to trust income arose from a reimbursement agreement. The potential application of section 100A to trust arrangements should be carefully considered. Where section 100A applies, the beneficiary is treated as if they were never presently entitled to the trust income, and the trustee is assessed on that share of the trust’s taxable income at the rate of 47%.

A reimbursement agreement broadly means that someone other than the beneficiary has received a benefit in connection with the arrangement and at least one of the parties entered into the agreement for a purpose of reducing tax. Arrangements entered into in the course of ordinary family or commercial dealing are excepted, but this turns on the facts and circumstances of each case. Trustees should keep records to explain the transactions that have happened. Practice Compliance Guideline PCG 2022/2 sets out the ATO’s compliance approach to section 100A.

Division 7A

Where loans, payments or other benefits have been made by private companies to shareholders and associates of shareholders, the Division 7A implications need to be considered, including:

ensuring loans made during 2023–24 are repaid or placed on complying loan terms before the company’s 2024 return is lodged;
ensuring minimum yearly repayment (MYRs) are made on complying loans (made in 2022–23 or earlier) by 30 June 2024;
applying the increased benchmark interest rate of 8.27% when making MYRs for 2023–24, up from 4.77% for 2022–23;
correctly declaring dividends by 30 June 2024 that are used by a shareholder to set off their obligation to make a MYR for 2023–24;
checking whether any company assets have been used by a shareholder or their associate;
reviewing the treatment of any unpaid present entitlements (UPEs) a company has to the income of an associated trust;
ensuring payments are made under legacy sub-trust arrangements for UPEs arising before 1 July 2022 or those UPEs are being otherwise managed; and
whether the Commissioner’s discretion should be sought to disregard a deemed dividend that has already arisen.

Skills and training boost

Until 30 June 2024, businesses with an aggregated turnover of less than $50 million can use the skills and training boost to claim an additional 20% deduction for eligible expenditure incurred on external training courses provided to employees. Exclusions apply to in-house or on-the-job training and training provided to contractors and non-employee business owners.

Superannuation

Superannuation guarantee (SG) and employer contributions

The increased SG rate for 2024–25 of 11.5% (up from 11% for 2023–24) applies to the ordinary time earnings of salaries and wages paid from 1 July 2024, irrespective of when the work was done or the pay period to which the payment relates.

Employers can deduct contributions in 2023–24 only if the payment is made by 30 June 2024 (that is, the contribution must be received by the employee’s superannuation fund by that date). The ATO’s free Small Business Superannuation Clearing House (SBSCH) allows eligible employers to meet their SG obligations when the payment is received by the SBSCH (this approach for SG purposes does not apply to commercial cleaning houses).

Contributions caps

The concessional contributions (CC) cap for 2023–24 is $27,500, increasing to $30,000 from 1 July 2024. An individual can carry forward any unused CC cap amounts from 2018–19 to 2022–23 to increase their 2023–24 CC cap where their total superannuation balance (TSB) is less than $500,000 on 30 June 2023. The oldest available unused cap amounts are carried forward first, and a 2018–19 unused cap amount not used by the end of 2023–24 will expire.

Individuals seeking to claim a deduction for a personal contribution in 2023–24 need to:

provide their fund trustee with a notice of intent to claim a deduction before the earlier of the day on which they lodge their 2024 return or 30 June 2025;
receive a written acknowledgment of the receipt of the notice from the trustee;
consider a range of circumstances that can invalidate a notice.

The non-concessional contributions (NCC) cap for 2023–24 is $110,000, increasing to $120,000 from 1 July 2024. An individual who exceeds their NCC cap in 2023–24 is eligible to automatically apply the ‘bring-forward’ rule (up to $330,000) but only where they are under 75 years throughout the whole of 2023–24.

The amount of the brought-forward NCC cap for 2023–24 is determined by their TSB on 30 June 2023:

under $1.68 million — the NCC cap is $330,000 for the first year of the three-year bring-forward period (2023–24 to 2025–26);
$1.68 million to under $1.79 million — the NCC cap is $220,000 for the first year of the two-year bring-forward period (2023–24 to 2024–25);
$1.79 million to under $1.9 million — the NCC cap is $110,000 (bring-forward is not available);
$1.9 million or over — the NCC cap is nil.

Other superannuation measures

Superannuants should also have regard to:

for those receiving an income stream — the pension standards that set a minimum payment amount based on their age on 1 July 2023 (or the commencement day of the pension if it started during 2023–24).
for those who started a retirement phase income stream in 2023–24 for the first time — the $1.9 million general transfer balance cap (TBC);
for those who started a retirement phase income stream in 2017–18 to 2022–23 — their partially indexed personal TBC;
for those aged 67 to 74 years who seek to deduct a personal contribution — the work test or the work test exemption;
for high-income earners whose combined Division 293 income and superannuation contributions exceed $250,000 — Division 293 tax which taxes their CC at an additional 15%;
for low- or middle-income earners who make a personal NCC and are aged less than 71 years at the end of 30 June 2024 — the government co-contribution of up to $500;
for those aged 55 years or older — downsizer contributions; and
the tax offset of up to $540 for NCC made on behalf of a spouse (married or de facto) whose income is less than $40,000.

New breach reporting rules

Registered tax and BAS agents have new obligations to report breaches of the Code of Professional Conduct in the Tax Agent Services Act 2009 where they have reasonable grounds to believe that they, or another practitioner, have breached the Code and the breach is significant.

The Tax Institute joined with eight other professional associations in a joint submission to the Tax Practitioners Board (TPB) on its draft guidance on the new rules that apply to breaches on or after 1 July 2024. I encourage all registered agents to read our submission to understand our concerns with these vaguely drafted provisions.

As I’ve previously stated, we have an overarching concern that registered tax practitioners will be left wondering how to apply the new law and when their actions or that of another registered agent constitute a transgression that meets the threshold beyond which they have a reporting obligation. Practitioners should be rightfully asking what their role actually is under the legislative provisions, and what it should be in an ideal world, in regulating each other in view of the TPB’s core role as regulator of the profession.

What we’re waiting on

Small business instant asset write-off (IAWO)

2023–24 measure

The IAWO threshold is proposed to increase to $20,000 for eligible assets first used or installed ready for use from 1 July 2023 to 30 June 2024. Without this change, the threshold reverts to the legislated threshold of $1,000 from 1 July 2023.

Schedule 1 to the enabling Bill was amended by the Senate to increase the threshold from $20,000 to $30,000 and the aggregated turnover threshold from $10 million to $50 million. The House of Representatives (House) has twice disagreed to the Senate’s amendments, and the Senate has insisted on its amendments. The Bill returns to the Senate on 24 June 2024.

Parliament sits from 24–28 June, then from 1–4 July. If not passed by then, the Bill could be enacted with an increased threshold for 2023–24 in the Spring sittings but this does not provide much-needed certainty to businesses with only 3 weeks until year end.

2024–25 measure

The 2023–24 measure has now been overlaid with the recent budget announcement that the $20,000 threshold for businesses under $10 million aggregated turnover will be extended by 12 months, for eligible assets first used or installed ready for use by 30 June 2025. Without this change, the threshold reverts to the legislated threshold of $1,000 from 1 July 2024. This will be the seventh time since 12 May 2015 that the threshold will have changed.

The enabling legislation was introduced into Parliament on 5 June 2024.

Energy incentive

Businesses under $50 million aggregated turnover will be able to claim an additional 20% deduction for the cost of eligible depreciating assets that support electrification and efficient energy usage under the proposed energy incentive. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024. Up to $100,000 of expenditure will be eligible, with a maximum bonus deduction of $20,000 allowed per business.

The enabling Bill is before the Parliament.

Bendel appeal on Division 7A unpaid present entitlements

The taxpayer’s appeal to the Full Federal Court from the Tribunal’s decision in Bendel and Commissioner of Taxation [2023] AATA 3074 is on foot. In that case, the Tribunal found a UPE arising from an entitlement to income (or capital) of a trust was not a loan for Division 7A purposes. This directly contrasts with the administrative position taken by the ATO in public guidance issued over the past 14 years. The Tribunal’s decision is administrative only and does not change the law.

No further ATO guidance beyond the interim decision impact statement issued in November 2023 is expected, so trustees will need to carefully consider how the ATO’s current interpretation of the law and the Tribunal’s administrative (non-binding) decision impact distributions for 2023–24. The treatment of UPEs of corporate beneficiaries arising in 2021–22 and 2022–23 should also be considered.

Non-arm’s length income (NALI)

Proposed retrospective amendments to the NALI provisions which apply to expenditure by superannuation funds from 1 July 2018 will:

limit the amount of NALI arising from a general non-arm’s length expense for SMSFs and small Australian Prudential Regulation Authority (APRA)-regulated funds to twice the level of a general expense;
exempt large APRA-regulated funds from the NALI provisions for both general and specific expenses of the fund; and
exempt expenditure that occurred prior to 2018–19.

The enabling Bill is before the Parliament. The ATO has not extended its administrative approach in PCG 2020/5 to 2023–24.

Change to indexation of student loans

Indexation of Higher Education Loan Program (HELP) loans will be reformed to be the lower of the consumer price index (CPI) or the wage price index (WPI). The CPI indexation rate of 7.1% applied on 1 June 2023 will reduce to the WPI rate of 3.2% and the rate of 4.7% to be applied on 1 June 2024 will reduce to 4%.

This is proposed to apply to relevant student loans that existed on 1 June 2023. Students who chose to repay their loans in full before 1 June 2023 will not be eligible for the indexation reduction.

Increase in penalty units

The amount of a penalty unit is increasing from 1 July 2024 from $313 to $330. This affects the amount of penalties imposed across the tax system for non-compliance.

The enabling Bill is before the Parliament.

About the Author

Robyn Jacobson is the Senior Advocate at The Tax Institute.

About The Tax Institute

The Tax Institute is the leading forum for the tax community in Australia. Our reach includes membership of over 10,000 tax professionals from commerce and industry, academia, government and public practice and 40,000 Australian business leaders, government employees and students. We are committed to representing our members, shaping the future of the tax profession and continuous improvement of the tax system for the benefit of all, through the advancement of knowledge, member support and advocacy. Read more at taxinstitute.com.au