Now is the time to start planning and reviewing your records to maximise your tax deductions for the 2022/2023 financial year.
Here are some of our accountant’s top tax tips for year-end planning for businesses:
1. Pay Quarterly Super early
Super Guarantee (SG) contributions must be paid before 30 June to qualify for a tax deduction in the 2022/2023 financial year. Consider bringing forward your June quarter SG payments to increase the benefit.
2. Write-off bad debts
Review your debtor list to identify those who owe you money but are unlikely to pay. Write-off bad debts before 30 June - the debt must not be merely doubtful and must have been previously included as assessable income.
3. Prepaid Expenses
Small business entities may bring forward deductible expenses such as rent, repairs and office supplies, that cover a period of no more than 12 months.
4. Stocktake
Trading stock should be reviewed before 30 June 2023 to identify any obsolete, slow moving or damaged stock. Obsolete stock must be physically disposed of for income purposes to receive a deduction.
5. Take advantage of the final year for Temporary Full Expensing
Temporary full expensing - the productivity measure designed to encourage business investments that enables a business to fully expense the cost of depreciable assets in the first year of use - is set to expire on 30 June 2023. The 2023/2024 budget will be release on the 9th of May 2023, where the government will either extend, redevelop the small business instant asset write-off, or remove the concession altogether.
6. Review your invoicing
Review and postpone some of your invoicing for the current tax year, if appropriate.
7. Contribute to your Super
Top up your voluntary superannuation contributions. You can contribute up to $27,500 in deductible super contributions each year.
If you have a super balance of less than $500,000 at the 30th June then consider using the carry forward rules to claim a deduction for any unused super contribution caps from previous years.
8. Undertake strategic tax planning with your accountant
Great accountants look at two types of tax planning: short-term and long-term tax planning. Short-term planning looks at what you can do before 30 June to minimise your tax this financial year. Long-term tax planning looks at how you can utilise your business structure and the type of investments you can make to minimise tax over the long term.
Taxpayers claiming deductions on holiday homes are in the ATO’s sights.
The ATO is more than a little concerned that people with holiday homes are claiming more deductions than they should and have published the starting questions they will be asking to scrutinise claims:
The problem is blanket claims for the holiday home regardless of the time the home was rented out or available for rent. You will need to apportion your expenses if:
The ATO has also indicated that deductions might be limited if a property is only made available for rent outside peak holiday times and the location of the property (or other factors) mean that it is unlikely to be rented out during those periods.
The regulator is also likely to be suspicious if the owner claims that the property was genuinely available for rent during peak holiday periods but wasn’t deriving any income during those periods. This might indicate that the property was really being used for private purposes or that the advertised rental rate was unrealistic.
Whether a property is genuinely available for rent is a matter of fact. Factors that help demonstrate a property is genuinely available for rent include; it is available during key holiday periods, kept in a condition that people would want to rent it, tenants are not unreasonably turned away, advertised in ways that give it broad exposure to possible tenants, and the conditions are not so restrictive that tenants are unlikely to rent the property.
The Australian Taxation Office (ATO) has updated its approach to how you claim expenses for working from home.
The ATO has ‘refreshed’ the way you can claim deductions for the costs you incur when you work from home. From 1 July 2022 onwards, you can choose either to use a new ‘fixed rate’ method (67 cents per hour), or the ‘actual cost’ method depending on what works out best for your scenario. Either way, you will need to gather and retain certain records to make a claim.
The first issue for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a deduction.
The second key issue is that you need to incur costs associated with working from home. For example, if you are living with your parents and not picking up any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the expenses, even if you are paying board (the ATO treats this as a private arrangement).
The new ‘fixed rate’ method
Previously, there were two fixed rate methods to choose from for the 2021-22 income year:
- A cover-all 80 cents per hour rate for expenses incurred while working from home (which was available from 1 March 2020). This COVID-19 related rate was intended to cover all additional running expenses incurred while working from home; or
- If you had a space dedicated to work but were not running a business from home, you could claim 52 cents for every hour you worked from home to cover the running expenses of your home. This rate doesn’t cover certain items such as the depreciation of electronic devices, which can be claimed separately.
It’s clear that working from home arrangements are here to stay for many workplaces even though COVID restrictions have eased. So, from the 2022-23 financial year onwards, the ATO has combined these two fixed rate methods to create one revised method accessible by anyone working from home, regardless of whether they have a dedicated space or are just working at the kitchen table.
The new rate is 67 cents per hour and covers your energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. You can separately claim the cost of the decline in value of assets such as computers, repairs, and maintenance for these assets, and if you have a dedicated home office, the cost of cleaning the office. If there is more than one person working from the same home, each person can make a claim using the fixed rate method if they meet the basic eligibility conditions.
What proof do the ATO need that I am working from home?
To use the fixed rate method, you will need a record of all of the hours you worked from home. The ATO has warned that it will no longer accept estimates or a sample diary over a four week period. For example, if you normally work from home on Mondays but one day you have an in-person meeting outside of your home, your diary should show that you did not work from home for at least a portion of that day.
Having said that, the ATO will allow taxpayers to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023.
There is nothing in the ATO guidance to suggest that claims are limited to standard office hours. That is, if you work from home outside standard office hours or over the weekend, then make sure you keep an accurate record of the hours you are working so that you can maximise your deductions.
You also need to keep a copy of at least one document for each running cost you have incurred during the year which is covered by the fixed rate method. This could include invoices, bills or credit card statements.
Where bills are in the name of one member of a household but the cost is shared, each member of the household who contributes to the payment of that expense will be taken to have incurred it. For example, a husband and wife, or flatmates where they jointly contribute to costs.
You need to keep these records for five years so that if the ATO come calling, you can prove your claim. If this proof is not available at the time, the deduction will be denied. If your work from home diary is electronic, ensure you can access this diary over time (such as producing a PDF summary of your calendar clearly showing the dates and times of your work at the end of each financial year).
The ‘actual’ method
Some people might find that the actual method produces a better result if their expenses are higher. As the name suggests, you can claim the actual additional expenses you incur when you work from home (and reduce the claim by any personal use and use by other family members). However, you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work.
Using this method, you can claim the work related portion of:
- The decline in value of depreciating assets – for example, home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices.
- Electricity and gas (energy expenses) for heating, cooling and lighting.
- Home and mobile phone, data and internet expenses.
- Stationery and computer consumables, such as printer ink and paper.
- Cleaning your dedicated home office.
Be careful with this method because the ATO are looking closely to ensure these expenses are directly related to how you earn your income. For example, you can’t claim personal expenses such as coffee, tea and toilet paper even if you do use these items when you are at work. Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is a place of business. It is unusual for an employee’s home to be classified as a place of business.
I run a business from home, what can I claim?
Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be a doctor who runs their surgery from home.
The doctor may have one-third of the home set aside as a place of business where they see patients.
It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose, although if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain.
The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 passed Parliament on 2 December 2022. The legislation is extensive and brings into effect a series of changes and obligations that will impact on many workplaces.
The Bill also addresses many of the complexities of the enterprise bargaining process by streamlining the initiation and approval process. For example, to initiate bargaining to replace an existing single-employer agreement, unions and representatives no longer need a majority work determination and instead can make the request to initiate bargaining in writing to the employer.
Employers are prohibited from entering into fixed-term employment contracts with employees for a period of longer than two years (in total across all contracts). The prohibition also prevents a fixed term contract being extended or renewed more than once for roles that are substantially the same or similar. Some exclusions exist such as for casuals, apprentices or trainees, high income workers ($162k pa), work covering peak periods of demand, where the work is performed by a specialist engaged for a specific and identifiable task, or where the modern award or FWA allows for longer fixed term contracts.
Employers will need to provide employees with a Fixed Term Contract Information Statement (to be drafted by the Fair Work Ombudsman) before or as soon as practicable after entering into a fixed term contract.
From 1 January 2023, the maximum penalty for contravening the 2 year limitation is $82,500 for a body corporate and $16,500 for an individual.
If your workplace has existing fixed term contracts in place, it will be important to review the operation of these to ensure compliance with the new laws.
The concept of gender equality is now included as an object in the Fair Work Act.
Previously, to grant an Equal Remuneration Order (ERO) the Fair Work Commission (FWC) assessed claims utilising a comparable male group (male comparator). The legislation removes this requirement opening the way for historical gender based undervaluation to be taken into account and for the FWC to issue a ERO on that basis. That is, female dominated industries may be undervalued generally not specifically compared to men working in that industry or sector. The FWC is no longer required to find that there is gender-based discrimination in order to establish that work has been undervalued. And, the FWC will be able to initiate an ERO on its own volition without a claim being made.
Prohibits pay secrecy clauses in contracts or other agreements and renders existing clauses invalid.
Employees are not compelled to disclose their remuneration and conditions but have a positive right to do so.
Provides stronger access to flexible working arrangements by enabling employees to seek arbitration before the FWC to contest employer decisions or where the employer has not responded to a request for flexible work conditions within the required 21 days.
If an employer refuses a request for flexible work conditions, the requirements for refusal have been expanded so that employers must discuss requests with the employee and genuinely try and reach agreement prior to refusing an employee’s request. Now, to refuse a request the employer must have:
The provisions also expand the circumstances in which an employee may request a flexible working arrangement, for example where they, or a member of their immediate family or household, experiences family or domestic violence.
The amendments introduce stronger provisions to prevent sexual harassment and a new dispute resolution framework. Employers may be vicariously liable for acts of their employees or agents unless they can prove they took all reasonable steps to prevent sexual harassment. The amendments build on the Respect@Work report and the Anti-Discrimination and Human Rights Legislation Amendment (Respect at Work) Bill 2022 that passed Parliament in late November 2022. Broadly, the amendments:
Adds special attributes to the FWA to specifically prevent discrimination on the grounds of breastfeeding, gender identity and intersex status.
The reforms make it easier for unions/applicants to negotiate pay deals across similar workplaces with common interests creating two new pathways for multi-employer agreements, supported bargaining, and single-interest. The FWC will need to authorise the multi-employer bargaining before it commences.
Applies to low-paid industries and is intended to support those who have difficulty negotiating at a single enterprise level – e.g., aged care, disability care, and early childhood education and care. The Minister will have authority to declare an industry or occupation eligible for supported multi-employer bargaining (MEB) and the FWC will decide if it is appropriate for the parties to bargain together. The employer does not have to give their consent to be included.
Employers cannot negotiate a separate agreement once they are included in supported multi-employer bargaining – they need to apply to the FWC to be removed from the supported bargaining authorisation.
Single interest multi-employer bargaining draws together employers with “common interests”. These may include geographical location, regulatory regime, and the nature of the enterprise and the terms and conditions of employment. It’s a very broad test.
Unless the employer consents, the FWC will not authorise multi-employer bargaining where it applies to a business with fewer than 20 employees. For businesses with less than 50 employees, to be excluded, the employer needs to prove that they are not a common interest employer or its operations and business activities are not reasonably comparable with the other employers.
For the FWC to authorise single interest multi-employer bargaining, the applicant will need to prove that they have the majority support of the relevant employees.
A Productivity Commission report found that 56% of employees covered by an enterprise agreement are on an expired agreement, or ‘zombie agreement’. Prior to the reforms, pre 2009 enterprise agreements could operate past their expiry date unless they were replaced with new agreements or terminated by the FWC. As these ‘zombie agreements’ remained fully enforceable, despite being expired, the terms of the agreement were often out of sync with modern awards. The Government notes one zombie agreement terminated in January 2022 saw employees $5 per hour on Saturdays, $10 per hour on Sundays and $24+ per hour on public holidays, worse off than the relevant modern award. The ‘Secure Pay, Better Pay’ reforms generally sunset these zombie agreements.
Important: This article is for information only. If your workplace is likely to be impacted by the amendments, please ensure you seek professional assistance from an industrial relations specialist. We are not specialists and cannot assist with the application of industrial law, awards, or applicable pay rates.
I got a text the other day “Hi Mum, I have broken my phone and I am using this number.” The “Hi Mum” scam has exploded with more than 1,150 Australians falling victim to the ploy in the first seven months of 2022, with total reported losses of $2.6 million. Once the scammer establishes contact, they start requesting money for an urgent bill or a replacement phone etc. For those with children or dependant family members, it is not that hard to believe. According to the Australian Consumer and Competition Commission (ACCC), two-thirds of family impersonation scams were reported by women over 55 years of age.
Another common scam is the lost or unable to deliver package texts and voicemail. With Christmas just around the corner, we can expect to see another escalation of this scam where tracking links purportedly from Australia Post, Toll, or Amazon etc., are used to install malware. Once accessed, the malware will access your contacts and spread the malware and potentially access your personal information and bank details. In July, the Australian Taxation Office (ATO) reported a new wave of ‘Tax refund SMSF scams’.
Another scam purporting to be from the ATO advised that the recipient was suspected of being involved in cryptocurrency tax evasion and requested that they connect their wallet. At which point the wallet was accessed and any assets stolen.
The ACCC’s Targeting Scams report states that in 2021, nearly $1.8bn in losses were reported but the real figure is likely to be well over $2bn.
The largest combined losses in 2021 were:
- $701 million lost to investment scams with 2021 figures significantly increased by cryptocurrency scams - more scammers are seeking payment with cryptocurrency and losses to this payment method increased 216% to $84 million.
- $227 million lost to payment redirection scams.
- $142 million lost to romance scams.
- Help educate older relatives. The over 55s are the most likely to fall victim to a scam.
- Always use the primary website or app of your suppliers not a link from a text or email.
- Don’t click on links from emails or text messages unless you are (absolutely) certain of the source. For email, if the sending email domain is not clear or hidden, hover over the name of the sending account to check if the email is from the company domain.
- For Government services, use your MyGov account. Any messages to you from the ATO or other Government services need will be published to your MyGov account. Never click on links purporting to be from a bank, ATO or Government department.
Payment redirection scams involve scammers impersonating a business or its employees via email and requesting an upcoming payment be redirected to a fraudulent account. In some cases, scammers hack into a legitimate email account and pose as the business, intercepting legitimate invoices and amending the bank details before releasing emails to the unsuspecting business. Other times, scammers impersonate people using a registered email address that is very similar to one from a legitimate business.
- Educate your team about threats and what to look out for, the importance of passwords and password security, and how to manage customer information. Phishing attacks, if successful, provide direct access into your systems.
- Ensure staff only have access to the business systems and information they need. Assess what is required and close out access to anything not required. Also assess how customer personal information is accessed and communicated. Personal information should not be emailed. Email is not secure and it is too easy for staff to inadvertently send data to the wrong person.
- No shared login details or passwords.
- Complete a risk assessment of your systems and add cybersecurity to your risk management framework.
- Develop and implement cyber security policies and protocols. Have policies and procedures in place for who is responsible for cybersecurity, the expectations of staff, and what to do in the event of a breach. Your policies should prevent shadow IT systems, where employees download unauthorised software.
- Understand your organisation’s legal obligations. For example, beyond the Privacy Act some businesses considered critical infrastructure such as some freight and food supply operations are subject to the Security of Critical Infrastructure Act 2018. This might involve small businesses in the supply chain.
- Use multifactor authentication on your systems and third-party systems.
- Update software and devices regularly for patches
- Back-up data and have backup protocols in place. If hackers use ransomware to lock your systems, you can revert to your backup.
- If customer data is being shared with related or third parties domiciled overseas, ensure your customer is aware of where their data is domiciled and your business has taken all reasonable steps to enforce the Australian Privacy Principles. Your business is responsible for how the overseas recipient utilises your customer’s data.
- Only collect the customer data you need to provide the goods and services you offer.
- Ensure protocols are in place for accounts payable.
- Don’t forget the hardware – laptops, computers, phones.
The key to Christmas presents for your team is to keep the gift spontaneous, ad hoc, and from a tax perspective, below $300 per person. $300 is the minor benefit threshold for Fringe Benefits Tax {FBT) so anything at or above this level will mean that your Christmas generosity will result in a gift to the Tax Office as well. To qualify as a minor benefit, the gifts also must be ad hoc (no ongoing gym membership payments or giving the same person regular gift vouchers amounting to $300 or more).
A question we often get is what is the tax impact if you give your team say a hamper and a gift card? The good news is that the tax rules treat each item (the hamper and the gift card) separately. FBT won't necessarily apply if the value of each item is less than $300. However, the minor benefits exemption is a bit more complex than this. For example, you need to look at the total value of similar benefits provided to the employee across the FBT year etc.
If you are planning to provide your team with a cash bonus rather than a gift voucher or other item of property, then this will be taxed in much the same way as salary and wages. A cash bonus at Christmas is not a gift; it's still income for the employee regardless of the intent. A PAYG withholding obligation will be triggered and the ATO's view is that the bonus will also be treated as ordinary time earnings which means that it will be subject to the superannuation guarantee provisions unless it relates solely to overtime that was worked by the employee.
If you really want to avoid tax on your work Christmas party, then host it in your office on a workday. This way, Fringe Benefits Tax is unlikely to apply regardless of how much you spend per person. Also, taxi travel that starts or finishes at an employee's place of work is also exempt from FBT. So, if you have a few team members that need to be loaded into a taxi after overindulging in Christmas cheer, the ride home is exempt from FBT.If your work Christmas party is out of the office, keep the cost of your celebrations below $300 per person. This way, you won't generally pay FBT because anything below $300 per person is a minor benefit and exempt.
If the party is not held on your business premises, then the taxi travel is taken to be a separate benefit from the party itself and any Christmas gifts you have provided. In theory, this means that if the cost of each item per person is below $300 then the gift, party and taxi travel can all be FBT free. However, the total cost of all benefits provided to the employees needs to be considered in determining whether the benefits are minor. The trade-off to this is that if the costs associated with hosting the party are not subject to FBT then it would be difficult to claim a tax deduction or GST credits for the expenses.
If your business hosts slightly more extravagant parties and goes above the $300 per person minor benefit limit, you will generally pay FBT, but you can also claim a tax deduction and GST credits for the cost of the event.
Few of us have that much time in the diary for pre-Christmas entertainment so why not give a gift instead? In addition to a few extra hours saved and a lot less calories to work-off {most of us are still struggling post lock down), there is also a tax benefit. If the gift you give to the client is given for relationship building with the expectation that the client will keep giving you work (that is, there is a link between the gift and revenue generation), then the gift is generally tax deductible as long as it doesn't involve entertainment.
Entertaining your clients at Christmas is not tax deductible. If you take them out to a nice restaurant, to a show, or any other form of entertainment, then you can't claim it as a deductible business expense and you can't claim the GST credits either. It's goodwill to all men but not much more.
The safest way to ensure that you or your business can claim a deduction for the full amount of the donation is to give cash to an organisation that is classified as a deductible gift recipient (DGR). And the charities love it as they don't have to spend any of their precious resources to receive it.
There are a few rules that make the difference between whether you will or won't receive a tax deduction.
• The charity must be a DGR. You can find the list of DGRs on the Australian Business Register.
• If you buy any form of merchandise for the 'donation' - biscuits, teddies, balls, or you buy something at an auction - then it's generally not deductible (the rules become morecomplex in this area). Your donation needs to be a gift, not an exchange for something material. Buying a goat or funding a child's education in the third world is generally ok because you are generally donating an amount equivalent to the cause rather than directly funding that thing.
• The tax deduction for charitable giving over $2 goes to the person or entity whose name is on the receipt.
If your business is donating on behalf of someone else, such as a client or that friend 'who has everything', it will depend on how the donation is structured. The tax rules generally ensure that the deduction is available to the individual or entity who makes the gift or contribution. Having receipts issued in someone else's name can make this more complex.
