THE CHANGES TO HOW TAX PRACTITIONERS WORK WITH CLIENTS

The Government has amended the legislation guiding registered tax practitioners to include compulsory reporting of material uncorrected errors to the Tax Commissioner.

The Government has legislated a series of changes to the Tax Agents Services Act 2009 that place additional requirements on registered tax practitioners and how they interact with clients.

The reforms are in response to the recommendations of a Senate enquiry into the actions of accounting group PwC and the consulting industry in Australia generally. The enquiry was sparked when a now former PwC Partner shared confidential information from Treasury consultations and through his engagement with the Board of Taxation. Despite having signed multiple confidentiality agreements, the Partner intentionally shared this confidential information with PwC partners and others in Australia and overseas, seeking to assist existing and potential new clients avoid some proposed anti-avoidance tax laws. The Senate enquiry estimates that the scandal put at risk $180 million in tax revenue per annum and generated new income of at least $2.5 million for the first tranche of PwC’s services assisting clients to “sidestep the new laws”.

Among other issues, the scandal revealed a series of flaws and deficiencies within the regulation of tax practitioner services, the investigative powers of the Tax Practitioners Board (TPB), and the ability of Government departments to share information.

While many of the resulting legislative reforms impact consulting services to Government, we are now obligated to advise clients of: how to check the currency of our registration as tax practitioners; how to access the complaints process for registered practitioners; and, our obligation to report material uncorrected errors and omissions to the Tax Commissioner.

Tax practitioner registration

The TPB registers and regulates tax practitioners in Australia. Only licensed practitioners can provide tax or BAS services to you. You can check the public register here: https://www.tpb.gov.au/public-register

Firm name’s registration number is 25992551.

Managing complaints

We are committed to providing quality services to you. If we fall short of your expectations and you would like to make a complaint, in the first instance, please contact Manuel Imbardelli.

If your matter is not resolved to your satisfaction, you have the right to make a complaint to the TPB: https://www.tpb.gov.au/complaints.

Correcting errors and omissions

We are prohibited from making a statement to the Tax Commissioner or other government agency that we know, or ought to know, is false, incorrect or misleading, or incorrect or misleading by omission.

If we become aware that a statement made to the Tax Commissioner is materially incorrect, we are obligated to either:

Correct it, if we made the misstatement; or

If the misstatement was made by you, advise you that it needs to be corrected.

If the misstatement is not corrected, we are obligated to report this to the Tax Commissioner.

Concerned?

If you have any concerns about the changes, please contact Manuel Imbardelli on 03 8400 6500.

KEY DATES – SEPTEMBER 2024

21 September

Lodge and pay August 2024 monthly business activity statement.

30 September

Lodge PAYG withholding payment summary annual report if prepared by a BAS agent or tax agent excluding large withholders whose annual withholding is greater than $1 million.

Lodge Annual TFN withholding report 2024 if a trustee of a closely held trust has been required to withhold amounts from payments to beneficiaries.

$20K INSTANT ASSET WRITE-OFF PASSES PARLIMENT

Legislation increasing the instant asset write-off threshold from $1,000 to $20,000 for the 2024 income year passed Parliament just 5 days prior to the end of the financial year.

Purchases of depreciable assets with a cost of less than $20,000 that a small business makes between 1 July 2023 and 30 June 2024 can potentially be written-off in the year of purchase. It’s a major cashflow advantage because the tax deduction can be taken in the year of purchase instead of over a number of years.

To be eligible, the asset must be first used, or installed ready for use, for a taxable purpose between 1 July 2023 and 30 June 2024. For example, you cannot simply have a receipt for an industrial fridge, it must have been delivered and installed to be able to claim the write-off in 2024.

The write-off threshold applies per asset, so a small business entity can potentially deduct the full cost of multiple assets across the 2024 year as long as the cost of each asset is less than $20,000. A Bill to extend the instant asset write-off threshold increase to 30 June 2025 is currently before Parliament.

IS YOUR FAMILY HOME REALLY TAX FREE?

The main residence exemption exempts your family home from capital gains tax (CGT) when you dispose of it. But, like all things involving tax, it’s never that simple.

As the character of Darryl Kerrigan in The Castle said, “it’s not a house. It’s a home,” and the Australian Taxation Office’s (ATO) interpretation of a main residence is not fundamentally different. A home is generally considered to be your main residence if:

It’s where you and your family live

Your personal belongings have been moved into the dwelling

It is where your mail is delivered

It’s your address on the electoral roll

You have connected services such as telephone, gas and electricity (in your name); and

It is your intention for the home to be your main residence.

The length of time you have lived in the home is important, but there are no hard and fast rules. Your intention takes precedence over time spent as every situation is different.

When does the main residence exemption apply?

In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you can offset the tax against a capital loss.

If you are an Australian resident for tax purposes, you can access the full main residence exemption when you sell your home if:

Your home was your main residence for the whole time you owned it (see Can the main residence apply if you move out?).; and

You did not use your home to produce any income (see Partial exemption below), and

The land your home is on is 2 hectares or less. If your home is on more than 2 hectares, for example on farmland, the exemption can apply to the home and up to 2 hectares of adjacent land.

Partial exemption

If you have used your home to produce income, you won’t normally be able to claim the full main residence exemption, but you might be able to claim a partial exemption.

Common scenarios impacting your main residence exemption include:

Running a business from home (working from home is ok), and

Renting the home or part of the home.

In these scenarios, from the time you started to use the home to generate income, that part of the home is likely to be subject to CGT. And, a word of caution here, as of 1 July 2023, platforms such as Airbnb must report all transactions to the ATO every 6 months. This data will be used to match against the income reported on income tax returns.

Foreign residents and changing residency

Foreign residents cannot access the main residence exemption even if they were a resident for part of the time they owned the property.

If you are a non-resident at the time you enter into the contract to sell the property, you are unlikely to be able to access the main residence exemption. Conversely, if you are a resident at the time of the sale, and you meet the other eligibility criteria, the rules should apply as normal even if you were a non-resident for some of the ownership period. For example, an expat who maintains their main residence in Australia could return to Australia, become a resident for tax purposes again, then sell the property and if eligible, access the main residence exemption.

It’s important to recognise that the residency test is your tax residency, not your visa status. Australia’s tax residency rules can be complex. If you are uncertain, please contact us and we will work through the rules with you.

Can the main residence apply if you move out?

You might have heard about the ‘absence rule’. This rule allows you to continue to treat your home as your main residence for tax purposes:

For up to 6 years if the home is used to produce income, for example you rent it out while you are away; or

Indefinitely if it is not used to produce income.

When you apply the absence rule to your home, this normally prevents you from applying the main residence exemption to any other property you own over the same period. Apart from limited exceptions, the other property is exposed to CGT.

Let’s say you moved overseas in 2020 and rented out your home while you were away. Then, you came back to Australia in 2023 and moved back into your house. Then in early 2024, you decided it is not your forever home and sold it. You elected to apply the absence rule to your home and didn’t treat any other property as your main residence during that same period. In this case, you should be able to access the full main residence exemption assuming you are a resident for tax purposes at the time of sale.

The 6 year period also resets if you re-establish the property as your main residence again, but later stop living there. So, if the time the home was income producing is limited to six years for each absence, it is likely the full main residence exemption will be available if the other eligibility criteria are met.

Timing

Your home normally qualifies as your main residence from the point you move in and start living there. However, if you move in as soon as practicable after the settlement date of the contract, that home is considered your main residence from the time you acquired it.

If you buy a new home but haven’t yet sold your old home, you can treat both properties as your main residence for up to six months without impacting your eligibility to the main residence exemption. This applies if the old home was your main residence for a continuous period of 3 months in the 12 months before you disposed of it and you did not use your old home to produce income in any part of that 12 months when it was not your main residence.

If the sale takes more than six months and if eligible, the main residence exemption could apply to both homes only for the last six months prior to selling the old home. For any period before this it might be possible to choose which home is treated as your main residence (the other becomes subject to CGT).

If your new home is being rented to someone else when you purchase it and you cannot move in, the home is not your main residence until you move in.

If you cannot move in for some unforeseen reason, for example you end up in hospital or are posted overseas for a few months for work, then you still might be able to access the main residence exemption from the time you acquired the home if you move in as soon as practicable once the issue has been resolved. Inconvenience is not a valid reason and you will need to ensure that you have documentation to support your position.

Can a couple have a main residence each?

Let’s say you and your spouse each own homes that you have separately established as your main residences.

The rules don’t allow you to claim the full CGT exemption on both homes. Instead, you can:

Choose one of the dwellings as the main residence for both of you during the period; or

Nominate different dwellings as your main residence for the period.

If you and your spouse nominate different dwellings, the exemption is split between you:

If you own 50% or less of the residence chosen as your main residence, the dwelling is taken to be your main residence for that period and you will qualify for the main residence exemption for your ownership interest;

If you own greater than 50% of the residence chosen as your main residence, the dwelling is taken to be your main residence for half of the period that you and your spouse had different homes.

The same rule applies to your spouse.

The rule applies to each home that the spouses own regardless of how the homes are held legally, i.e., sole ownership, tenants in common or joint tenants.

What happens in a divorce?

Assuming the home is transferred to one of the spouses (and not to or from a trust or company), both individuals used the home solely as their main residence over their ownership period, and the other eligibility conditions are met, then a full main residence exemption should be available when the property is eventually sold.

If the home qualified for the main residence exemption for only part of the ownership period for either individual, then a partial exemption might be available. That is, the spouse receiving the property may need to pay CGT on the gain on their share of the property received as part of the property settlement when they eventually sell the property.

The main residence exemption looks simple enough but it can become complex quickly. You will need more than a ‘vibe’ to work with the exemption. In the words of the character of Dennis Denuto in The Castle, “it’s the vibe of it. It’s the constitution. It’s Mabo. It’s justice. It’s law. It’s the vibe and ah, no that’s it. It’s the vibe. I rest my case.”

KEY DATES – AUGUST 2024

14 August

Lodge PAYG withholding payment summary annual report for:

  • large withholders whose annual withholding is greater than $1 million

  • payers who have no tax agent or BAS agent involved in preparing the report.

21 August

Lodge and pay July 2024 monthly business activity statement.

25 August

Lodge and pay quarter 4, 2023–24 activity statement if you lodge electronically.

28 August

Lodge and pay quarter 4, 2023–24 Superannuation guarantee charge statement if the employer did not pay enough contributions on time.

Note: Employers who lodge a Superannuation guarantee charge statement can choose to offset contributions they paid late to a fund against their super guarantee charge for the quarter. They still have to pay the remaining super guarantee charge.

Lodge Taxable payments annual report (TPAR).

Note: The TPAR tells us about payments that are made to contractors for providing services. Some government entities also need to report the grants they have paid in a TPAR.

 

CGT PROPERTY TAX THAT COULD COST YOU THOUSANDS IN CGT

With the dramatic increase in the value of the family home, the capital gains tax (CGT) main residence exemption is more important than ever. Imagine selling your home and not having enough to buy another one after paying CGT.

The main residence exemption is not a given as one family found out when the tax office successfully argued that their electricity bill was too low for them to be actually living there.

In that 2007 case, the Administrative Appeals Tribunal ruled that the family spent most of their time at their daughter’s place, so they could not cover their home with their main residence exemption.

Here are just a few traps that could cost you thousands in CGT:

Name not on the title: It might be held in a trust or company name or maybe your parent’s name, but they don’t live there. Unless it can be established that the property is held in a bare trust for you, it cannot be covered by your main residence exemption.

Renting out a room or Airbnb while you are on holidays: If part of your home is used to produce income, that area cannot be covered by your main residence exemption for the time it is used that way.

 The same problem arises if you rent out the home while away on holiday. Some people mistakenly think they can use the “six-year rule” to cover the home while it is producing income. This rule requires you to be absent from the property. That is living somewhere else, not just holidaying.

Selling your Australian home while living overseas: That is all it takes for you to lose your main residence exemption right back to the day you purchased the property. Once you become a non-resident for tax purposes, returning for a holiday to sell it will not resolve the problem.

Not actually living there: Let’s say, for example, your are transferred before the house settles, so you never get to move in. The six-year rule can’t protect you then either.

Young people buying a home while still living with their parents should live in the house first for at least three months. Another trap is having a home provided by your employer that would be considered your real home base.

Having the name of someone not living there on the title: If they technically own half the house then half of the house is not protected from CGT. This happens when parents help their children buy a home or make their unmarried child a joint tenant to make sure they have somewhere to live if the parent dies. Later the child may move out.

If this has happened, and you try to fix it, after the fact that transfer is deemed to be at market value so CGT is already accruing.

Demolish the house: Except for accidental destruction, the sale of vacant land cannot be covered by your main residence exemption. This is the case even if the dwelling has been there for 30 years. There must be a dwelling included in the sale. Though this can be a caravan you have been living in.

If you are caught out, you need to ensure you are keeping good records to keep the capital gain to a minimum. If you purchased the property after August 20, 1991, you are entitled to increase its cost base by holding costs such as interest, rates, insurance, repairs and maintenance. This could even include cleaning materials and lawn mower fuel.

Just as long as the expenses have not otherwise been claimed as a tax deduction they can increase your cost base even though they are private in nature.

WHAT’S CHANGING 1 JULY 2024?

Here’s a summary of the key changes coming into effect on 1 July 2024:

Tax cuts reduce personal income tax rates and change the thresholds.

Superannuation guarantee increases from 11% to 11.5% – check the impact on any salary package arrangements.

Superannuation caps increase from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions.

Luxury car tax threshold increases to $91,387 for fuel-efficient vehicles and $80,567 for all others.

Car limit for depreciation increases to $69,674.

$300 energy relief credit for households comes into effect (credited automatically quarterly).

 For business

$325 energy relief credit for small business commences (for small businesses that meet the relevant State or Territory definition of a ‘small customer’).

$20k instant asset write-off extended to 30 June 2025 (subject to the passage of legislation).

Work from home expenses

Working from home is a normal part of life for many workers, and while you can’t claim the cost of your morning coffee, biscuits or toilet paper (seriously, people have tried), you can claim certain additional expenses you incur. But, work from home expenses are an area of ATO scrutiny.

There are two methods of claiming your work from home expenses; the short-cut method, and the actual method.

The short-cut method allows you to claim a fixed 67c rate for every hour you work from home. This covers your energy expenses (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables such as ink and paper. To use this method, it’s essential that you keep a record of the actual days and times you work from home because the ATO has stated that they will not accept estimates.

The alternative is to claim the actual expenses you have incurred on top of your normal running costs for working from home. You will need copies of your expenses, and your diary for at least 4 continuous weeks that represents your typical work pattern.  

Investment property owners

If you do not have one already, a depreciation schedule is a report that helps you calculate deductions for the natural wear and tear over time on your investment property. Depending on your property, it might help to maximise your deductions

KEY DATES – JULY 2024

21 July

Lodge and pay June 2024 monthly business activity statement.

Lodge and pay quarter 4, 2023–24 PAYG instalment activity statement for head companies of consolidated groups.

28 July

Lodge and pay quarter 4, 2023–24 activity statement if electing to receive and lodge by paper and not an active STP reporter.

Pay quarter 4, 2023–24 instalment notice (form R, S or T). Lodge the notice only if you vary the instalment amount.

Make super guarantee contributions for quarter 4, 2023–24 to funds by this date.

Note: Employers who do not pay minimum super contributions for quarter 4 by this date must pay the super guarantee charge and lodge a Superannuation guarantee charge statement by 28 August 2024.

KEY DATES – APRIL 2023

 

Information for registered agents about preparing and lodging tax statements and returns due in April 2023.

21 April

Lodge and pay quarter 3, 2022–23 PAYG instalment activity statement for head companies of consolidated groups.

Lodge and pay March 2023 monthly business activity statement.

28 April

Lodge and pay quarter 3, 2022–23 activity statement if electing to receive and lodge by paper and not an active STP reporter.

Pay quarter 3, 2022–23 instalment notice (form R, S or T). Lodge the notice only if you are varying the instalment amount.

Make super guarantee contributions for quarter 3, 2022–23 to the funds by this date.

Employers who do not pay minimum super contributions for quarter 3 by this date must pay the super guarantee charge and lodge a Superannuation guarantee charge statement by 28 May 2023.

Note: The super guarantee charge is not tax deductible.

30 April

Lodge TFN report for closely held trusts if any beneficiary quoted their TFN to a trustee in quarter 3, 2022–23.

Lodge lost members report for the period 1 July 2021 to 31 December 2022.

WHAT’S THE DEAL WITH WORKING FROM HOME?

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).

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.

Please do not hesitate to discuss these changes with our team.