By Sessional Lecturer in Accounting Ms Liza Byrnes (pictured, inset) in the Charles Sturt School of Business.

Tax time has crept up on us quickly but quietly it seems this year, with the focus of most discussions being directed towards interest rates and the rising cost of living.

This doesn’t mean, however, that there aren’t things to consider in relation to tax and particularly end of financial year matters.

The Federal Budget, or should we say Budgets, as there were two this year - one in October and the most recent in May, provide guidance on what to expect.

In his Budget speech delivered on 9 May 2023, the Treasurer, The Hon. Dr Jim Chalmers, stated, “In all our decisions, we seek to strike a considered, methodical balance. Between spending restraint to keep the pressure off inflation, while doing what we can to help people struggling to make ends meet”.

True to his word, the 2023-24 budget reflected this sentiment with some tax initiatives that have been in-play for the past few years now being scaled back or removed altogether.

This is likely a move by Treasurer Chalmers to try and claw back what could only be described as a ‘haemorrhage’ of funds from the government in recent times due to the effects of drought, fire, floods and of course COVID-19.

As always, both business and individual taxpayers are keen to know what affects them this year in terms of what measures are good, and what are not so good.

Small Business

Arguably, one of the biggest tax measures to have ever impacted on small business taxpayers ─ temporary full expensing ─ has finally reached its expiry date.

While this should come as no surprise, it’s likely led to a scramble in recent months by small business owners to get their assets installed and ready for use by 30 June to take advantage of the unlimited tax write-off.

-After 1 July 2023, the small business simplified depreciation rules will be resurrected for those with turnover of less than $10 million. The instant asset write-off threshold of $20,000 will apply and assets costing over the threshold will be pooled and depreciated at 15 per cent in the first year and 30 per cent thereafter.

For businesses with turnover of less than $50 million, an additional 20 per cent deduction will be available for expenditure on the electrification of assets and improvements to energy efficiency by way of the Small Business Energy Incentive.

This will provide a deduction of an additional 20 per cent of the cost of eligible depreciating assets installed ready for use between 1 July 2023 and 30 June 2024. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business.

Individual Taxpayers

The Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 contained multiple taxation measures, but of relevance to individual taxpayers was the removal of the requirement under Section 82AA ITAA 1936 to reduce work-related self-education expenses by $250.

The reason for establishing this reduction originally, no longer exists, so after being part of the legislation for almost fifty years, this has now been repealed and it’s a good thing.

One of the other measures to affect individuals is the change to how working from home expenses are to be claimed.

For the year ended 30 June 2023 there will only be two methods available, the ‘Revised fixed rate method’ and the ‘Actual cost method’. These two methods replace the three that were available up to 30 June 2022, being the ‘Fixed rate method’ ($0.52 per hour), the ‘Shortcut method’ ($0.80 per hour) or the ‘Actual cost method’.

The Revised Fixed rate method of $0.67 per hour covers deductible costs such as electricity, gas, internet, phone and stationery but not depreciation on assets such as computers and furniture which can be claimed separately.

A taxpayer must keep records showing the total number of hours worked from home during the year and have supporting documentation for the expense being claimed.

Note that taxpayers working from home no longer need to have a dedicated home office or dedicated work area set aside in their home to claim a deduction.

The Actual method is basically just how it sounds with the taxpayer calculating the costs associated with working from home, generally as a per cent of actual expenditure on things like electricity and telephone.

Also worth noting is that the Low to Middle Income Tax Offset was removed for the 2023 financial year. This was previously targeted at those with a taxable income up to $126,000, with a maximum offset of $1,500 available. While this has been removed, however the Low Income Tax Offset still applies to those with taxable income up to $66,667, with the maximum capped at $700.

Superannuation

Aside from income tax, there are a few measures in relation to superannuation. Of particular note relating to employer businesses, is the plan to introduce ‘Payday Super’ which requires the employer to make employee super guarantee contributions each pay day rather than quarterly.

While it’s not scheduled to start until 1 July 2026, depending on the type of business you are, the number of employees you have and the systems you are using, this could increase compliance for employers. On the other hand, however, for employees it’s likely to be viewed as a good thing.

The 50 per cent reduction in minimum pension drawdowns that had applied from the 2020 to 2023 income years will end on 30 June 2023. This was an initiative originally introduced by the government to allow pensioners to retain funds surplus to their needs, in their superannuation accounts, rather than having to compulsorily withdraw them. From 1 July 2023, they will now need to take the minimum pension amounts required as determined by their age.

One announcement by the government which has raised eyebrows, is their intention to start taxing income derived by superannuation funds with a balance over $3 million at an additional 15 per cent from 1 July 2025. While it’s not a flat tax on all earnings, but rather the proportion over the total super balance of $3 million, it will result in some earnings of the fund being subject to a 30 per cent tax rate.

Also of concern is the way the proposal is worded, and the calculation is to be undertaken; ‘unrealised gains’, which are typically not taxed, may end up being subject to income tax.

What are the key ATO focus points for 2023?

Each year the Australian Tax Office (ATO) announces its key focus areas for tax time and this year it has highlighted the following:

Rental property deductions

The ATO will be looking at how landlords are claiming their expenditure, for example, loan interest and ensuring loans are apportioned between income-producing and private portions. Also, of interest to the ATO are property repairs and making sure that these fit within the criteria of a repair rather than a capital expense such as an improvement which may only be deductible over time.

Work-related expenses

This covers a broad range of outgoings but of particular note will be working from home expenses and making sure taxpayers are using the correct method and have the required substantiation when making their claims.

It’s also worth mentioning that motor vehicle and travel expenses are always on the ATO radar and taxpayers need to make sure they are not incorrectly claiming in this area; for example, not double-dipping on kilometre claims or claiming deductions on vehicles subject to salary sacrifice and Fringe Benefits Tax.

Capital gains tax

“Don’t fall into the trap of thinking we won’t notice if you sell an asset for a gain and don’t declare it,” Mr Loh, ATO Assistant Commissioner.

The ATO has the ability to data match and is aware of most transactions in relation to the disposal of capital gains tax assets. However, the responsibility rests on the taxpayer to include any capital gain or loss in their tax return, and to make sure they retain relevant records of the transactions.

The disposal of private homes which have been used to produce income will be one of the areas of capital gains tax that the ATO will be keeping a close eye on.

Preparing your return

The information contained in this article should not be relied upon as legal authority when determining your eligibility to any of the tax concessions it contains.

Not all measures mentioned in this article may have been enacted as law at the time of writing and as such you should make your own enquiries as to what is currently applicable and relevant to your particular circumstances.

You should therefore seek advice from a qualified Accountant or Registered Tax Agent in relation to your own personal tax affairs.