Taxation Archives | JD Scott and Co

Self-Education Tax Deduction: Navigating TR 2024/3 for Taxpayers

How much can I tax deduct for self education expenses? Are my course fees and books deductible? What about if I am changing careers? Are these costs deductible?

The ATO recently released an updated tax ruling on Self Education Tax deductions, replacing their previous tax ruling issued in 1998. Taxation Ruling TR 2024/3 discusses what expenses constitutes deductible self-education expenses.

When is Self-Education tax deductable?

Self Education expenses are deductible when they are incurred in gaining or producing your assessable income and are not private or domestic in nature, or otherwise prevented from being deductible. Essentially this means that you can deduct the amounts if you make a living from it.

Self education is not tax deductible to the extent it is reimbursed by an employer or other party.

Understanding Gaining or Producing Assessable Income

In order for self-education to be tax deductible, it must be incurred in gaining or producing assessable income. This will be the case where either;
– you are either maintaining or improving certain knowledge or skills, or
– it leads to or is likely to lead to an increase in income from your current income producing activity.

These are explained more fully below.

It is not incurred in gaining or producing assessable income where it enables you to gain new employment or new income producing activities, or you are not undertaking income earning activities at the time you incur the expenses. That is, you can’t currently be an accountant, undertake a course to be a sous-chef and tax deduct the course fees.

Principle 1: Maintenance or Improvement of Specific Knowledge or Skills

Self-education expenses are deductible when they are incurred to maintain or improve the knowledge or skills required for an individual’s current income-earning activities. It needs to specific to your role and not too general – for example a self improvement course may struggle to be deductible for many roles.

For example, a trainee accountant undertaking a commerce degree to improve their job performance directly aligns with this principle, rendering the associated costs deductible. As would a driving course for a mechanic.

However, a company director who is struggling a work due to stress with a difficult family situation, undertakes a stress management course. This would unlikely be deductible as its not designed to maintain or increase the skills or specific knowledge in the current position.

Principle 2: Leads to or is likely to lead to an increase in Income

This principle applies when self-education leads to or is likely to result in an increase in income from an individual’s current income-earning activities.

An instance illustrating this principle would be an apprentice mechanic attending a heavy vehicle driving course, which not only enhances their skill set but also opens up avenues for pay rises and promotions.

Exclusions to Deductibility

While TR 2024/3 outlines the conditions under which self-education expenses can be deducted, it also specifies exclusions where deductibility does not apply:

Exclusion 1: New Employment or New Income-Earning Activity

Expenses incurred with the intention of gaining new employment, obtaining a new position, or embarking on a new income-earning venture do not qualify for deductions. This exclusion addresses the timing of the expense in relation to income-earning activities, emphasizing that the expenditure must be directly connected to current professional undertakings rather than future aspirations.

Exclusion 2: Not Currently Undertaking Income-Earning Activities

This exclusion highlights that self-education expenses are not deductible if, at the time they are incurred, the individual is not engaged in any income-earning activities. It ensures the necessity of a direct link between the educational investment and the generation of assessable income.

Types of Deductions for Self-Education Expenses

TR 2024/3 delineates various categories of self-education expenses that can be considered for deductions, including course fees, books, digital subscriptions, stationery, and transport costs, among others. For instance, course fees for full fee-paying places are deductible, emphasizing the role of formal education in professional development. Similarly, the ruling acknowledges the deductibility of transport costs to and from the place of education, recognizing the logistical aspect of undertaking self-education.

Conclusion

Taxation Ruling TR 2024/3 serves as an essential resource for individuals seeking to understand the intricacies of self-education tax deductions. By clarifying the conditions under which self-education expenses can be deducted, the ruling supports the pursuit of professional development while ensuring compliance with Australian tax law. For taxpayers, this guidance is invaluable in making informed decisions about their educational investments and their implications for tax deductions.

You can read more about self-education expenses from the ATO here.

Contractor v Employee for ATO purposes

Ever wondered if a member of staff is an employee or a contractor for tax purposes? Ever lay awake at night thinking whether you should have withheld PAYG on their income? Probably not, but if you ever wondered, you can now relax. The ATO recently released TR 2023/4 Income Tax: pay as you go – who is an employee? This tax ruling clarifies when a business is required to withhold PAYG.

The ATO has also released Practical Compliance Guideline – PCG 2023/2 – Classifying workers as employees or independent contractors – ATO compliance approach, which provides an outline of the ATO’s approach to compliance in this area, based on a series of process/governance risk factors.

What is PAYG Withholding (or why do I care)?

PAYG Withholding are amounts that employers withhold from their employees salary and wages each period. The employer is then required to remit this amount to the ATO.

As a business owner, you are required to withhold amounts from your employees salaries and wages but not from contractors. If you don’t withhold, the ATO can issue fines and penalties, hence, why its imperative to work out whether an individual is an employee or a contractor.

So what does the tax ruling say?

Over the past year or so, the High Court has handed down a number of decisions that impacted who is considered an employee and who is a contractor. These rulings altered the common law definition of who would be considered an employee and who would be a contractor.

TR2023/4 now makes clear that the written contract between the workers and the business is critical in determining whether that worker is an employee or a contractor.

The ruling goes through a number of factors that should be considered and says that where these are detailed in the contract, then it is the legal rights in the contract that is important and not any evidence in how the contract was performed (unless the contract was a sham). The factors set out below are not a checklist, but must be considered holistically to determine if the worker is an employee or not.

These factors include:

Serving in the business or on the business

At its core, the distinction between an employee and an independent contractor is that:

an employee serves in the business of an employer, performing their work as a part of that business
an independent contractor provides services to a principal’s business, but the contractor does so in furthering their own business enterprise; they carry out the work as principal of their own business, not part of another.

Control and the right to control. The important lies not in the actual exercise but the contractual right of the employer to exercise such control

Ability to delegate or subcontract work – an employee usually cannot subcontract their work; they are hired for their own skill and labour.

“Results” – is the person paid to achieve a result or paid by the hour? Hourly rate remuneration is often consistent with employment relationships.

Provision of tools and equipment – if the worker is required to provide tools and equipment at their own expense, this may be an indicator that they are a contractor and not an employee.

Risk – where the worker bears little or no risk they are more likely to be an employee, whereas a contractor bears commercial risk and risk of injury.

Other consideration include:

A person can be both an employee and a contractor. Its not an either / or situation.

Also merely calling yourself a “contractor” or “employee” does not make it so. It is the terms of the contract that is important, not just the label applied to the worker.

Whether the person has an ABN or not is not relevant to whether they are a contract or an employee.

The ATO have set out the various tax consequences where the worker is an employee

Consequences for the engaging entity

report via Single Touch Payroll (STP)
withhold amounts under the pay as you go (PAYG) withholding regime
make superannuation contributions or be liable for the superannuation guarantee charge
meet fringe benefits tax obligations for benefits provided
not entitled to claim GST credits for wages paid

Consequences for the worker

not entitled to an ABN in relation to that employment
not entitled to register for goods and services tax (GST) and no GST reporting obligations in relation to that employment

And where the worker is a contractor

Consequences for the engaging entity

report via Taxable Payments Annual Reporting (TPAR) as legislated or on a voluntary basis if they satisfy the turnover-threshold test
if the worker satisfies the extended definition of employee, make superannuation contributions or be liable for the superannuation guarantee charge
if the engaging entity and worker are both registered for GST, claim eligible GST credits
if the worker does not quote an ABN when required, or the parties enter into a voluntary agreement, withhold amounts under the PAYG withholding regime

Consequences for the worker

make provision for income tax through PAYG instalments, if required
entitled to apply for an ABN
register for and pay GST, if required
consider the personal services income implications

Stage 3 tax cuts are here - sort of

On 27 February 2024, the stage 3 tax cuts passed parliament, with effect from 1 July 2024.

From 1 July 2024, the revised Stage 3 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.

There will be no change to the current tax-free threshold of $18,200 or the tax-free threshold of $416 on eligible income under the taxation of minors rules.

While no tax payer will pay more tax under the changes, higher income earners (those over $180,000) will not receive as much of a reduction as they would have under the previous proposals.

The table below sets out the new tax rates, effective 1 July 2024.

Taxable Income	Marginal Rates	Tax Liability Calculation
$0 - $18,200	0%	$nil
$18,201 - $45,000	16%	16% of excess over $18,201
$45,001 - $135,000	30%	$4,288 + 30% of excess over $45,000
$135,001 - $190,000	37%	$31,288 + 37% of excess over $135,000
$190,001 +	45%	$51,638 + 45% of excess over $190,000

What do Stage 3 tax cuts mean for me?

Well, to put it simply for most people in business it will mean less of a tax cut.

This just means more of a need to carefully plan your year end tax. Whether its looking at (legitmate) ways to defer income or bring forward expenses, getting an efficient tax plan set up early makes more sense than ever.

If spend anymore than a few minutes dealing with Australian tax matters, you’ll hear the word “tax ruling”. But what exactly is a tax ruling and how does it impact you and your businesses taxes?

Basically, a tax ruling is the ATOs interpretation of tax law. Tax law is complex and a issues may arise from time to time that requires interpretation. Tax rulings are usually narrow in the topics they deal with. They are written in such a way as to set out the issue, what is the ruling and then provide a detailed section on why the ATO says what is says.

Rulings are binding on the ATO, even if they are found later to be invalid by the Courts (not every interpretation the ATO makes is correct). If you follow a ruling, you won’t be penalised by the ATO. However, if you don’t follow a tax ruling, which is possible if you think the ATO is wrong, then you can leave yourself open to ATO action.

For example, tax law says that entertainment is not tax deductible. But what is entertainment? Is a coffee catch up with a client entertainment? Or what about a banquet dinner at a restaurant? Well luckily the ATO has a ruling for that (TR97/17 Income tax and fringe benefits tax: entertainment by way of food or drink). The ruling provides guidance and rules to assist you in answering the question “what is considered “entertainment” for income tax and FBT purposes”.

Types of tax rulings

There are three types of tax rulings, public rulings, private rulings and oral rulings.

Public rulings are the ones most often discussed and are the ATOs interpretation of issues they see. TR 97/17 is a good example of that. They are usually released in draft form to allow time for tax practitioners to comment on them. Over time they may be amended, withdrawn or updated as tax law changes or as the courts issue judgements different to the ATO interpretation.

Private rulings are where a tax payer asks the ATO for their interpretation of a certain set of facts. For example, if you have a large business dealing and you wont certainty on the tax treatment of a specific matter. The ATO will give its interpretation of the tax law and it will be binding on them.

Finally, there are oral rulings. These are used for simple matters and are given over the phone by the ATO officers.

Tax rulings help provide you with a level of certainty in the interpretation of tax matters.

If your business does not meet its superannuation guarantee (SG) obligations, it may have to pay additional penalties or charges on top of the superannuation guarantee charge (SGC).

Note! SG contributions are payable (that is, they must be received by the superannuation fund) by the 28th day of the month following the end of a quarter. If this is not done, the SGC is payable, and an SG statement must be lodged with the ATO by the 28th day of the second month following the end of a quarter.

What are the penalties for not meeting superannuation obligations?

The ATO recently published on its website an overview of the additional penalties and charges.

Failure to provide an SG statement when required. The maximum penalty is 200% of the SGC. This penalty cannot be remitted to less than 100% if the SG shortfall relates to a quarter in the period from 1 July 1992 to 31 March 2018.

False or misleading statement. If your business pays less of the SGC than it should because it made a false or misleading statement, the ATO can impose an administrative penalty. The base penalty amount can be up to 75% of the shortfall, depending on the particular circumstances.

Avoidance. If your business made arrangements to avoid its SG obligations, an additional penalty may be imposed (on top of the SGC avoided).

Director penalties. f you are a director of a company, you need to make sure the company pays the SGC in full by the due date. If it does not, you’ll be liable for a penalty equal to the unpaid amount. The penalty is reduced if the company pays the outstanding amount at any time. Under some conditions, it may be reduced if the company goes into voluntary administration or liquidation.

General interest charge (GIC) – This is applied if an SGC assessment is made and the SGC is not paid by the due date. The GIC is calculated on a daily compounding basis.

Choice shortfall – If your business does not comply with the choice of fund obligations, it could receive a ‘choice shortfall’ penalty. The penalty increases the SGC.

Failing to keep adequate records – The maximum fine for an individual convicted of failing to keep records is 30 penalty units (a penalty unit is $222 where the infringement occurred on or after 1 July 2020).

Failing to provide employee’s TFN to their superannuation fund – a penalty (10 penalty units) may be imposed if an eligible employee has provided a TFN to your business and your business does not provide it to the employee’s superannuation fund or retirement savings account within the required time.

For advice on how to never miss a SGC payment again check out our tips here .

Make sure you discuss your business’ SG and choice of fund obligations with us to make sure the business is fully compliant.

According to ASIC, there has been surge of promoters encouraging individuals to set up SMSFs in order to invest in crypto-assets. It warns that crypto-assets are high risk and speculative, as well as being an attractive target for scammers. While SMSFs are not prohibited from investing in crypto-assets, individuals thinking of setting up an SMSF are encouraged to be informed around the decision. Remember, trustees bear all the responsibility for the decisions of the SMSF complying with the law, and breaches may lead to administrative or civil and criminal penalties.

Current record low deposit rates and volatility in stock markets around the world has motivated many retirees to seek alternative asset classes to either protect their investments or get a higher return. In conjunction with these sentiments, there has been a noticeable increase in spruikers encouraging individuals to invest in crypto-assets through SMSFs, with many recommending switching from retail or industry super funds in order to do so.

While promoters of these investments often bill them as high return and low risk, that is far from the truth. ASIC has recently issued a warning to SMSF trustees on the nature of crypto-assets which it says are a high risk and speculative, in addition to being an attractive target for scammers.

For example, late last year, ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs. The money obtained from investors was allegedly used by the directors of the business for personal benefit, including acquiring real property and luxury vehicles in their personal names.

Professional advice should be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose test”. Remember, trustees bear all the responsibility for the decisions of the SMSF complying with the law, and breach or non-compliance may lead to administrative or civil and criminal penalties. This is the case even if you as the trustee rely on the advice of other people, licensed or otherwise.

SMSFs are not generally prohibited from investing in crypto-assets. If you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you are able to do so. Although, consideration must be given to the following factors:

fund’s governing rules – trustees need to ensure that any investments in crypto-assets are allowed under the SMSF’s deed;
investment strategy – documentation of how the SMSF’s investments will meet retirement goals, taking into account diversification, liquidity, and ability of the fund to discharge its liabilities. Trustees need to consider the level of risk of the crypto-assets invested in, and review/update the fund’s investment strategy to ensure the investment being considered is permitted;
ownership and separation of assets – crypto-assets must be held and managed separately from any personal or business investments of trustees and members. The SMSF must maintain and be able to provide evidence of a separate crypto-asset “wallet”; and
valuation – SMSFs must obtain fair market valuations for their crypto-assets for the purposes of calculating member balances.

In addition, other considerations include restrictions on related-party transactions (ie if you currently own crypto-assets and want to transfer it to the SMSF for various purposes, you will be unable to do so), and potential CGT consequences when an in specie lump sum payment of crypto-assets occur upon a condition of release.

Need advice?

If you think you would like to set up an SMSF and/or invest in crypto-assets, we can explain in simple terms of what your responsibility will be as a trustee of an SMSF. We can also help you navigate any pitfalls in relation to the administration and regulation of the fund. Contact us today for expert advice.

As investing in cryptocurrency becomes more popular in Australia, there is also a corresponding increase in the amount of scams being reported. Due to the unregulated nature of cryptocurrency and the recent failure of two Australian cryptocurrency exchanges, this investment space has become a risky free-for-all. But are crypto losses from scams tax deductible?

Scamwatch estimates that around $35m were lost to cryptocurrency scams in the first half of 2021. If you’re one of the unlucky ones to have been scammed, depending on your circumstances, a capital loss may be claimed. With the recent collapse of a second Australian cryptocurrency exchange in as many months, along with persistent reports of a range of sophisticated cryptocurrency scams targeting Australians, many owners are asking if you lose money in a scam can you deduct the loss? The short answer is it depends.

Scamwatch, a part of the ACCC (Australian Competition and Consumer Commission), estimates that Australians lost over $70m in investment scams in the first half of 2021. Of this $70m, around half, or $35m were lost to cryptocurrency, especially Bitcoin. Cryptocurrency scams were also incidentally the most commonly reported type of investment scam in 2021, with around 2,240 reports.

While the figure of around 2,000 Australians being scammed does not seem particularly high, keep in mind that most scams go unreported due to embarrassment or other factors, so the real figure is likely to be much higher.

Cryptocurrency scams can come in a variety of forms. The most common being impersonation, where scammers pretend to be from a reputable trading platform and have a legitimate-looking digital assets (e.g. fake trading platforms which look like the real thing, email addresses that approximate a genuine company they are impersonating etc) to lure investors in. Investors who fall into this trap will usually see their initial investment skyrocket on fake trading platforms and may even be allowed to access a small return. Once hooked, the scammers will ask for further investments of large sums of money before cutting off contact and disappearing completely.

So are crypto losses tax deductible?

So, back to the original question of can you deduct a loss? It all boils down to whether you actually owned an asset. For example, if you actually owned cryptocurrency such as Bitcoin in a digital wallet and due to the collapse of an exchange all the cryptocurrency you owned has disappeared, then it is likely that are able to claim a capital loss. Similarly, this would also apply if the cryptocurrency you own is stolen in a scam.

According to the ATO, to claim a capital loss on cryptocurrency, you may need provide the following kinds of evidence:

when the private key to the cryptocurrency was acquired and lost;
the wallet address that the private key relates to;
costs incurred to acquire the lost or stolen cryptocurrency;
amount of cryptocurrency in wallet at the time of loss of private key or access;
able to show that the wallet was controlled by you (ie transactions linked to your identity) and that you are in possession of the hardware that stores the wallet; and
transactions to the wallet from a digital currency exchange for which you hold or held a verified account or is linked to your identity.

If you have the above supporting information, you will be able to claim a capital loss on your tax return in the year that the loss or theft of Bitcoin occurred. This can be offset against current year capital gains, or carried forward to offset future capital gains.

For those individuals that have been scammed into investing in cryptocurrency, although no actual cryptocurrency ownership occurred, it is unlikely that deduction can be claimed, capital or otherwise. This is because you have not technically lost an asset as you did not own it in the first place and under tax law, money is not considered to be a CGT asset.

Want to learn more?

If you have been dabbling in cryptocurrency and/or NFTs, we can help you understand the tax implications involved, including any income you have to report or any losses you can deduct depending on individual circumstances. Contact us today for expert help and advice.

You’ve worked hard for years, built your business but its now time to consider something else. Usually, selling an asset such as a business would generate a significant amount of tax, however tax legislation has specific exemptions (called CGT small business concessions) that you can take advantage of when selling your business. These exemptions could save you millions in tax. The downside is that the law is very complex in this area and takes significant planning.

Recently, the ATO has noticed that some larger and wealthier businesses have mistakenly claimed small business CGT concessions when they weren’t entitled. By incorrectly applying the concessions these businesses were able to either reduce or completely eliminate their capital gain. The ATO has urged all taxpayers that have applied the small business CGT concessions to check that they were eligible, this firstly means that the business should meet the definition of a CGT small business entity or the maximum net asset value test.

If you’re a small business owner and the pandemic has made you reassess your future, whether it be retirement or selling your business and starting afresh somewhere else, just remember that there may be capital gains tax (CGT) consequences to such a move. However, the tax law does provide four concessions to enable eligible individuals to eliminate or at least reduce the capital gain on a CGT asset provided certain conditions are met.

Eligibility

To be eligible to apply these CGT concessions, the business must have a maximum net asset value of less than $6m (ie the net value of assets owned by the business and related entities), or failing that, the business must qualify as a CGT small business entity.

The definition of a CGT small business entity is essentially the same as a small business entity except that the aggregated turnover threshold to qualify is $2m and not $10m.

In addition, the CGT asset that gives rise to the gain must be an active asset, which just means it is an asset used in carrying on a business by either you or a related entity. It should be noted that shares in a company or trust interests in a trust can qualify as active assets although additional conditions may apply.

Once the basic conditions are satisfied, your small business can choose to apply one or all of the four CGT concessions provided the additional conditions to each concession is also met. Meeting all the conditions means that the concessions can be applied one after another to completely eliminate the entire capital gain in some cases. The concessions consist of the following:

15 year exemption – the business may be entitled to a total exemption on a capital gain if the asset has been continuously owned for at least 15 years up to the time of the CGT event. Or in cases where the CGT asset is a share or trust interest, the company or trust must have a “significant individual” for at least 15 years. For individuals (ie sole trader businesses), there is an additional condition that they must be at least 55 years of age and the CGT event occurs due to either retirement or incapacitation.
50% reduction – the business may be entitled to an automatic 50% reduction of a capital gain if the basic conditions are satisfied, and the asset does not have to held for more than 12 months.
retirement exemption – a business that is an individual, company or trust, may be able to choose to disregard all or part of a capital gain made from a CGT event, up to a lifetime limit of $500,000. Note, there is no age limit on using this concession, nor is there any requirement to retire, even though it is called the retirement exemption. However, individuals under 55 who apply this exemption must rollover the exempt amount to a complying super fund.
roll-over concession – a business can choose to roll-over all or part of the capital gain and then acquire a replacement asset if the basic conditions are met. In the event a replacement asset is not acquired within the required timeframe, the rolled over capital gain will be reinstated.

The 15 year exemption takes precedence over the other concessions listed and is applied without first having to use prior year capital losses. If the 15 year exemption cannot be applied, then depending on the circumstances of the capital gain, the other concessions can be used in any order to reduce the amount of tax payable.

Taxwise, not a lot has changed for individuals this year. We are seeing is a renewed focus by the ATO on outstanding tax returns and ensuring you have substantiation in place.

1. Working from home deductions

Working from home deductions, so simple yet so complex. So what is the difference between 52c and 80c methods?

Over the past year, many of us have been forced to work from home. Last year the ATO introduced a temporary shortcut method to help those affected. You are able to claim 80c per hour working from home. This rate covers everything, including power, internet and depreciation of furniture and equipment. You don’t get to claim both the 80c per hour and your mobile phone for example. It’s also where you were required to perform your duties from home. Just checking email doesn’t count (unfortunately).

The 52c per hours method covers things like depreciation of equipment (eg a desk), heating and power, but does not cover internet and mobile usage. The ATO has a very detailed guide on work from home expenses.

And what about coffees? I know your office has an espresso bar for its employees (and beers and wine on Friday), but unfortunately, the ATO considers these domestic in nature and hence you can’t claim them.

Note that you have to be able to substantiate the hours worked from home – if you usually work part-time, you can’t claim 40 hours a week. A logbook or online time tracker of hours and days worked would be strongly recommended. Additionally, you can only claim the work from home deductions where you are required to work from home. If you’re a builder, for example, it’s probably a bit hard to argue you work from home – especially if you have to be on-site to generate income.

2. Superannuation – unused superannuation concession cap

This one gets forgotten about sometimes, but it can be useful if you want to top up your super. Normally concessional contributions are capped at $25,000 per annum. However, if you contribute less than that amount, the gap can be rolled forward to later income years. Very useful if you wanted to add to your superannuation.

From 1 July 2021, the concessional cap increases to $27,500 per annum.

3. Car – got a lot book?

We see a lot of people looking to claims car expenses, but who don’t have a logbook in place. Without a logbook, you are limited to the cents per kilometre basis. That is, you can’t claim petrol, service, insurance etc. on the car – just the standard 72c per kilometre travelled. If you drive a lot for work (remembering that home to your usual place of employment doesn’t count), then you should consider keeping a logbook.

4. Substantiation

Substantiation is often key to claiming many tax deductions. If you can’t substantiate something, then your deduction is likely to be denied by the ATO. But substantiation doesn’t just mean keeping a receipt – it also means being able to justify why something was “incurred in gaining or producing your assessable income”. A classic example is car-related travel deductions. If you catch the bus into the CBD every day for work and work in the same office every day, it becomes a little hard to substantiate.

5. Investment Properties

One thing I’m seeing as we head into this tax season is a smaller and smaller number of people with negatively geared investment properties because falling interest rates have reduced the number of tax deductions available. The impact is some people will find they have to pay tax on their investment property income.

Also, don’t forget that you can no longer claim a tax deduction for travel costs to a residential investment property and that costs for holding vacant land are also no longer deductible.

Finally, if you sell an investment property generate a capital gain and have to pay CGT on it. I do get asked from time to time “will the ATO catch me” and the answer is a strong Yes. The ATO and powers that be match the data from property sales with their records. This means trouble if your investment property is sold with no CGT reported. You’ll more than likely get a please explain letter from the Commissioner of Taxation.

6. Crypto

These are the hottest assets around right now and the ATO is making an extra special effort this year to identify transactions that might be caught in the tax net. If you have bought and sold any form of cryptocurrency, these are treated as capital gains and taxed under CGT sections of the Tax Act.

Example

Here is a nasty little example that catches a lot of people out. Let’s say you purchased A$1,000 equivalent of Bitcoin. Its price goes up (and you make a paper gain of, say A$2,000 to give you A$12,000). If you purchase goods worth A$12,000 with your Bitcoin, then you have made a capital gain of A$2,000 – which you have to pay tax on.

With 30 June fast approached, its time to have a little think about your year end tax position. Its been a relatively slow year for tax changes, with the new Labour government taking a cautious approach to much needed tax reform. As we head towards the end of the financial year, its now time to start thinking about what your year end financial position looks like. Here are 8 1/2 year end tax tips for businesses to consider now, in order to get yourself prepared for year end.

Important changes to work from home deductions

1. Bring forward deductions, push back revenue

Its a perennial comment, but important. Make sure you bring forward deductions and, where possible, push revenue into next year. Review your trading stock and make sure you formally write off any items that are slow moving or obsolete. Same with bad debts – review your outstanding invoices and if an amount is not recoverable, formally write it off. Its useful to make a note of why you’re writing off a balance. It could be that its over 90 days and the client is no longer contactable – whatever the reason make a note of it.

2. Don’t forget prepayments

Another one for businesses with turnover less than $50 million. Determine whether there is an immediate deduction for prepayments. If you have prepayments due soon, make the payment this side of 30 June, rather than waiting for 1 July.

3. Instant Asset Write Off

Introduced as a COVID-19 measure, the instant asset write off was due to expire at 30 June 2023, but has been extended for small businesses until 30 June 2024 for amounts up to $20,000. It allows businesses with less than $10 million in aggregate turnover to immediately deduct the cost of a new asset in place prior to 30 June 2024. It applies on a per asset basis.

The full expensing of assets is primarily a cashflow question. It’s very useful when you have planned capital acquisitions in the pipeline.

4. Superannuation contributions

Superannuation is only tax deductible when its paid. That is, either paid and received into the superfund or paid if the Small Business Superannuation Clearing House is used. Therefore, if you want your superannuation to be tax deductible in the current year, you need to make sure it has been paid well prior to 30 June – I would suggest 28 June at the latest.

5. Trust distributions and dividends

The days of fixing up a 30 June dividend or trust distribution paperwork sometime in October are long gone. In order to be legally valid, a dividend or trust distribution must be made prior to 30 June. Back dating paper work is also illegal (its fraud), so make sure you get this in order prior to the end of the month.

If you have a family trust tax election in place, be conscious of who you are distributing income to. Ensure all distributions remain within the family tax group.

It’s something you should be planning with your accountant or tax advisor now.

5. Loans to shareholders and associates – Div 7A

Loans to shareholders are very common among privately held businesses. However, there are very strictly anti-avoidance rules around them. Essentially, the ATO views a loan from a private company to a shareholder as an unfranked dividend, unless certain steps are followed. This includes documenting the loan and making minimum yearly repayments on the loan.

8. Single Touch Payroll Changes

Most businesses are now reporting on single touch payroll. From 1 July 2021 the remaining various exemptions from STP fell away, including for micro employers (less than 4 staff) and closely held employees (think owners and family members). That means, unless you have exceptional circumstances, you will be reporting all payments made to directors, family members and beneficiaries of discretionary trusts.

Don’t forget that finalisation of STP reporting to the ATO is required by 14 July.

The 1/2 tax tip

And the final year end tax tip?

Get your tax planning in order. Your business is constantly evolving and changing – make sure your tax structures keep up with it. I usually start by asking clients what their long term goals are. Is it growing the business and pulling dividends out or is a sale sometime in the next few years on the cards? Each of these require a different business structure to be efficient for tax purposes.