The Government has announced that from 2025‑26, the 15% concessional tax rate applied to future earnings for superannuation balances above $3 million will increase to 30%.

The concessional tax rate on earnings from superannuation in the accumulation phase will remain at 15% up to $3m. From $3m onwards, the rate will increase to 30%. The amendment applies to future earnings; it is not retrospective.

80,000 people are expected to be impacted by the measure.

The announcement doesn’t propose any changes to the transfer balance cap or the amount that a member can have in the tax-free retirement phase.

Please feel free to contact our team to discuss this further.

The general transfer balance cap (TBC) – the amount of money you can potentially hold in a tax-free retirement account, will increase by $200,000 on 1 July 2023 to $1.9 million. The TBC is indexed to the consumer price index each December.

The TBC applies individually. If your transfer balance account reached $1.7m or more at any point before 1 July 2023, your TBC after 1 July 2023 will remain at $1.7m. If the highest amount in your account was between $1 and $1.7m, then your cap is proportionally indexed based on the highest ever balance your transfer balance account reached.

That is, the ATO will look at the highest amount your transfer balance account has ever been, then apply indexation to the unused cap amount.

For example, if you started a retirement income stream valued at $1,275,000 on 1 October 2022 and this was the highest point your account reached before 1 July 2023, then your unused cap is $425,000 ($1.7m-$1.275m). This unused cap amount is used to work out your unused cap percentage ($425k/$1.7m=25%). The unused cap percentage is then applied to the indexation increase ($200k*25%=$50k) to create your new TBC of $1,750,000.

But don’t worry, you don’t have to calculate this yourself, you can see your personal transfer balance cap, available cap space, and transfer balance account transactions online through the ATO link in myGov.

If you would like to discuss this further, please contact our team.

The ATO has released its final position on how it will apply some integrity rules dealing with trust distributions – changing the goal posts for trusts distributing to adult children, corporate beneficiaries, and entities with losses. As a result, many family groups will pay higher taxes because of the ATO’s more aggressive approach.

Section 100A

The tax legislation contains an integrity rule, section 100A, which is aimed at situations where income of a trust is appointed in favour of a beneficiary, but the economic benefit of the distribution is provided to another individual or entity. For section 100A to apply, there needs to be a ‘reimbursement agreement’ in place at or before the time the income is appointed to the beneficiary. Distributions to minor beneficiaries and other beneficiaries who are under a legal disability are not impacted by these rules.

If trust distributions are caught by section 100A, this generally results in the trustee being taxed on the income at penalty rates rather than the beneficiary being taxed at their own marginal tax rates.

While section 100A has been around since 1979, until recently there has been relatively little guidance on how the ATO approaches section 100A. This is no longer the case and the ATO’s recent guidance indicates that a number of scenarios involving trust distributions could be at risk.

For section 100A to apply:

· The present entitlement (a person or an entity is or becomes entitled to income from the trust) must relate to a reimbursement agreement;

· The agreement must provide for a benefit to be provided to a person other than the beneficiary who is presently entitled to the trust income; and

· A purpose of one or more of the parties to the agreement must be that a person would be liable to pay less income tax for a year of income.

High risk areas

Until recently many people have relied on the exclusions to section 100A which prevent the rules applying when the distribution is to a beneficiary who is under a legal disability (e.g., a minor) or where the arrangement is part of an ordinary family or commercial dealing (the ‘ordinary dealing’ exception). It is the ordinary dealing exception that is currently in the spotlight.

For example, let’s assume that a university student who is over 18 and has no other sources of income is made presently entitled to $100,000 of trust income. The student agrees to pay the funds (less tax they need to pay to the ATO) to their parents to reimburse them for costs that were incurred when the student was a minor. This situation is likely to be considered high risk if the student is on a lower marginal tax rate than the parents because the parents are receiving the real benefit of the income.

The ATO is also concerned with scenarios involving circular distributions. For example, this could occur when a trust distributes income to a company that is owned by the trust. The company then pays dividends back to the trust, which distributes some or all of the dividends back to the company. And so on. The ATO views these arrangements as high risk from a section 100A perspective.

Common scenarios identified as high risk by the ATO include:

· The beneficiary is a company or trust with losses and the beneficiary is not part of the same family group as the trust making the distribution.

· A company or trust which is entitled to distributions from the trust returns the funds to the trustee (i.e., circular arrangements).

· The beneficiary is issued units by the trustee of the trust (or a related trust) with the amount owed for the units being set-off against the entitlement and where the market value of the units is less than the subscription price or the trustee is able to do this without the consent of the beneficiary.

· Adult children are made presently entitled to income, but the funds are paid to a parent in relation to expenses incurred before the beneficiary turned 18.

Where to from here?

If you have a discretionary trust, it will be important to ensure that all trust distribution arrangements are reviewed in light of the ATO’s guidance to determine the level of risk associated with the arrangements. It is also vital to ensure that appropriate documentation is in place to demonstrate how funds relating to trust distributions are being used or applied for the benefit of the beneficiaries.

The ATO’s new approach applies to entitlements before and after the publication of the new guidance but for entitlements arising before 1 July 2022, the ATO will not generally pursue these if they are either low risk under the new guidance, or if they comply with the ATO’s previous guidance on trust reimbursement agreements.

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

21 March

 

Lodge and pay February 2023 monthly business activity statement.

31 March

Lodge tax return for companies and super funds with total income of more than $2 million in the latest year lodged (excluding large and medium taxpayers), unless the return was due earlier.
Payment for companies and super funds in this category is also due by this date.

Lodge tax return for the head company of a consolidated group (excluding large and medium), with a member who had a total income in excess of $2 million in their latest year lodged, unless the return was due earlier.
Payment for companies in this category is also due by this date.

Lodge tax return for individuals and trusts whose latest return resulted in a tax liability of $20,000 or more, excluding large and medium trusts.

Payment for individuals and trusts in this category is due as advised on their notice of assessment.

In the wake of the Optus data leak, legislation before Parliament will lift the maximum fine for serious or repeated breaches of the Privacy Act from $2.2m to up to $50m. But there are no guarantees that even the strongest safety measures will prevent an attack. So, what does that mean for business and their customers?

Legislation before Parliament will lift penalties for serious or repeated privacy breaches, provide new powers to the Australian Information Commissioner, require entities to provide detailed data to the Information Commissioner to assess public risk, and give the regulator greater information sharing powers. In a statement, Attorney General Mark Dreyfus said, “When Australians are asked to hand over their personal data they have a right to expect it will be protected.” But the question is, can any business claim that customer data will be protected from hackers?

If a customer needs to disclose their personal information to your business to work with you, at the point the data is collected, your business is the custodian of that data. A duty of care exists from the moment the data is collected to the point the information is no longer required and destroyed.

The Privacy Act requires organisations to take “reasonable steps” to protect the data collected. ‘Reasonable’ steps “requires the existence of facts which are sufficient to [persuade] a reasonable person.” That is, in the event of a data breach, the business will need to prove the steps they have taken to protect client data.

Lessons from RI Advice

Australian Competition and Consumer Commission v RI Advice Group Pty Ltd was a landmark case. While specific to the obligations of an Australian Financial Services License (AFSL), it demonstrates that ASIC are willing to pursue not just companies that breach their duty of care but the directors and officers involved.

RI advice is a financial services company that, through its AFSL, authorised representatives to provide financial services. As you would expect, as part of providing financial services, the authorised representatives received, stored and accessed confidential and sensitive personal information. Between June 2014 and May 2020, nine cybersecurity incidents occurred at practices of RI Advice’s Authorised Representatives. Enquiries following the incidents revealed:

· Computer systems which did not have up-to-date antivirus software installed and operating

· No filtering or quarantining of emails

· No backup systems or back-ups being performed; and

· Poor password practices including sharing of passwords between employees, use of default passwords, passwords and other security details being held in easily accessible places or being known by third parties.

RI Advice took steps to manage their cybersecurity introducing a cyber resilience program, controls and risk management measures for its representatives including training, incident reporting, and contractual professional standard terms, but by its own admission, it took too long to implement.

RI Advice was ordered to pay $750,000 towards ASIC’s costs. Handing down the decision Justice Rofe said, “It is not possible to reduce cybersecurity risk to zero, but it is possible to materially reduce cybersecurity risk through adequate cybersecurity documentation and controls to an acceptable level.”

Information for registered agents about preparing and lodging tax statements and returns due in December 2022.

1 December

Pay income tax for taxable large and medium taxpayers, companies and super funds. Lodgment of return is due 15 January 2023.

Pay income tax for the taxable head company of a consolidated group with a member deemed to be a large or medium taxpayer in the latest year lodged. Lodgment of return is due 15 January 2023.

Pay income tax for companies and super funds when lodgment of the tax return was due 31 October 2022.

21 December

Lodge and pay November 2022 monthly business activity statement.

Change to taxation of off-market share buy-backs by listed companies

From 7:30pm AEDT, 25 October 2022

From Budget night, 7:30pm AEDT, 25 October 2022, the Government intends to align the tax treatment of off-market share buy-backs undertaken by listed public companies with the treatment of on-market buy-backs. The result is expected to deliver a saving of $550m.

An on-market buy-back is when a listed company buys its shares back on the stock exchange. All other buy-backs are treated as off-market buy-backs.

Under the current rules, when a company undertakes an off-market buy-back it is necessary to consider which portion of the proceeds is taxed as a dividend and which portion is taxed under the CGT rules. Franking credits can potentially be attached to the dividend component.

On the other hand, when a listed company undertakes an on-market buy-back the full proceeds are generally taxed under the CGT rules and franking credits cannot be passed onto the shareholders.

Off-market buy-backs potentially offer a tax advantage to low-taxed shareholders such as superannuation funds. It appears that the Government has become concerned that the difference in the tax treatment between on-market and off-market buy-backs has been exploited inappropriately.

The Budget measure only refers to listed public companies which presumably means that the current tax treatment for off-market buy-backs undertaken by private companies and public companies that are not listed will continue to apply.

While this measure is yet to legislated, with a Budget night implementation date, this could have an immediate tax impact on the treatment of new off-market share buy-backs.

‘Downsizer’ eligibility reduced to 55

From First quarter after Royal Assent

As previously announced, the Government will reduce the age an individual can make a ‘downsizer’ contribution to superannuation from the current 60 years to 55 years of age.

Currently, eligible individuals aged 60 years or older can choose to make a ‘downsizer contribution’ into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home.

Downsizer contributions can be made from the sale of your principal residence in Australia that you have owned for the past ten or more years. These contributions are excluded from the age test, work test, and your total superannuation balance (but not exempt from your transfer balance cap).

Legislation enabling the expanding eligibility for downsizer contributions is currently before Parliament.

Delayed Relaxation of SMSF residency requirements

The 2021-22 Budget announced that the residency rules for Self-Managed Superannuation Funds (SMSFs) and small APRA regulated funds (SAFs) will be relaxed by extending the central control and management test safe harbour from two to five years for SMSFs, and removing the active member test for both fund types.

This measure was due to commence from 1 July 2022. The Government has announced that it will defer the start date to the income year commencing on or after the date of Royal Assent of the enabling legislation.

Scrapped 3 year SMSF audit requirement

Back in the 2018-19 Budget the Government announced that SMSFs with a history of good record-keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time, will only be required to have their fund audited every three years.

The Government has now officially announced that this measure will not be proceeding.

Cryptocurrency not a foreign currency

As previously flagged, the Government will legislate to clarify that digital currencies such as Bitcoin will continue to be excluded from the Australian income tax treatment of foreign currency. The exclusion does not apply to digital currencies issued by, or under the authority of, a government agency, which continue to be taxed as foreign currency.

21 November

Lodge and pay October 2022 monthly business activity statement.

25 November

Lodge and pay quarter 1, 2022–23 activity statement if you lodge electronically.

28 November

Lodge and pay quarter 1, 2022–23 Superannuation guarantee charge statement if the employer did not pay enough contributions on time.

Employers lodging 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.

Note: The super guarantee charge is not tax deductible.
Use our Super guarantee charge statement and calculator tool to work out the super guarantee charge and prepare the Superannuation guarantee charge statement – quarterly.

21 October

Pay annual PAYG instalment notice (Form N). Lodge only if you vary the instalment amount or use the rate method to calculate the instalment.

Lodge and pay quarter 1, 2022–23 PAYG instalment activity statement for head companies of consolidated groups.

Lodge and pay September 2022 monthly business activity statement.

28 October

Lodge and pay quarter 1, 2022–23 activity statement if electing to receive and lodge by paper and not an active STP reporter. Pay quarter 1, 2022–23 instalment notice (form R, S, or T). Lodge the notice only if you vary the instalment amount.

Make super guarantee contributions for quarter 1, 2022–23 to funds by this date.

Employers who do not pay minimum super contributions for quarter 1 by this date must pay the super guarantee charge and lodge a Superannuation guarantee charge statement by 28 November 2022.

Note: The super guarantee charge is not tax deductible.

Lodge and pay annual activity statement for TFN withholding for closely held trusts where a trustee withheld amounts from payments to beneficiaries during the 2021–22 income year.

31 October

Final date to add new clients to your client list to ensure their 2022 tax return is covered by the lodgment program.

Note: The lodgment program is a concession to registered agents. We can ask for documents to be lodged earlier than the lodgment program due dates.

Lodge tax returns for all entities if one or more prior year returns were outstanding as at 30 June 2022.

Note: This means all prior year returns must be lodged, not just the immediate prior year.
If all outstanding prior year returns have been lodged by 31 October 2022, the lodgment program due dates will apply to the 2022 tax return.

SMSFs in this category must lodge their complete Self-managed superannuation fund annual return by this date.

Lodge and pay Self-managed superannuation fund annual return for (taxable and non-taxable) new registrant SMSF if we have advised the SMSF that the first-year return has a 31 October 2022 due date.

Lodge tax return for all entities prosecuted for non-lodgment of prior year returns and advised of a lodgment due date of 31 October 2022:

Some prosecuted clients may have a different lodgment due date – refer to the letter you received for the applicable due date.

Payment (if required) for individuals and trusts in this category is due as advised in their notice of assessment.

Payment (if required) for companies and super funds in this category is due on 1 December 2022.

SMSFs in this category must lodge their complete Self-managed superannuation fund annual return by this date.

Lodge Annual investment income report (AIIR).

Lodge Departing Australia superannuation payments (DASP) annual report.

Lodge Franking account tax return when both the:

return is a disclosure only (no amount payable)

taxpayer is a 30 June balancer.

Lodge PAYG withholding annual report no ABN withholding (NAT 3448).

Lodge PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report (NAT 7187). This report advises amounts withheld from payments to foreign residents for:

interest and unfranked dividend payments that are not reported on an Annual investment income report (AIIR) royalty payments.

Lodge PAYG withholding annual report – payments to foreign residents (NAT 12413). This report advises amounts withheld from payments to foreign residents for:

entertainment and sports activities

construction and related activities

arranging casino gaming junket activities.

Lodge lost members report for the period 1 January – 30 June 2022.

Lodge TFN report for closely held trusts for TFNs quoted to a trustee by beneficiaries in quarter 1, 2022–23.

The Government has reinvigorated the 120% skills training and technology costs deduction for small and medium business.

An election ago, the 2022-23 Budget proposed a 120% tax deduction for expenditure by small and medium businesses on technology, or skills and training for their staff. This proposal has now been adopted by the current Government and details released in recent exposure draft by Treasury.

Timing

Two investment ‘boosts’ will be available to small and medium businesses with an aggregated annual turnover of less than $50 million:

· Skills & Training Boost

· Technology Investment Boost

The Skills and Training Boost is intended to apply to expenditure from 7.30pm ACT time on Budget night, 29 March 2022 until 30 June 2024. The business, however, will not be able to start claiming the bonus deduction until the 2023 tax return. That is, for expenditure incurred between 29 March 2022 and 30 June 2022, the additional 20% ‘boost’ deduction will not be claimable until the 2022-23 tax return (assuming the announced start dates are maintained if and when the legislation passes Parliament).

The Technology Investment Boost is intended to apply to expenditure from 7.30pm ACT time on Budget night, 29 March 2022 until 30 June 2023. As with the Skills and Training Boost, the additional 20% deduction for eligible expenditure incurred by 30 June 2022 will be claimed in the 2023 tax return.

The boost for eligible expenditure incurred on or after 1 July 2022 will be included in the income year in which the expenditure is incurred.

When it comes to expenditure on depreciating assets, the bonus deduction is equal to 20% of the cost of the asset that is used for a taxable purpose. This means that, regardless of the method of deduction that the entity takes (i.e., whether immediate or over time), the bonus deduction in respect of a depreciating asset is calculated based on the asset’s cost.

Technology Investment Boost

The Technology Investment Boost is a 120% tax deduction for expenditure incurred on business expenses and depreciating assets that support digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services.

The boost is capped at $100,000 per income year with a maximum deduction of $20,000.

To be eligible for the bonus deduction:

· The expenditure must be eligible for deduction (salary and wage costs are excluded for the purpose of these rules)

· The expenditure must have been incurred between 7.30pm (AEST), 29 March 2022 and 30 June 2023

· If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use by 30 June 2023.

To be eligible, the expenditure must be wholly or substantially for the entity’s digital operations or digitising its operations. For example:

· digital enabling items – computer and telecommunications hardware and equipment, software, systems and services that form and facilitate the use of computer networks;

· digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices; and

· e-commerce – supporting digitally ordered or platform enabled online transactions.

Repair and maintenance costs can be claimed as long as the expenses meet the eligibility criteria.

Where the expenditure has mixed use (i.e., partly private), the bonus deduction applies to the proportion of the expenditure that is for an assessable income producing purpose.

The bonus deduction is not intended to cover general operating costs relating to employing staff, raising capital, the construction of the business premises, and the cost of goods and services the business sells. The boost will not apply to:

· Assets that are sold while the boost is available

· Capital works costs (for example, improvements to a building used as business premises)

· Financing costs such as interest expenses

· Salary or wage costs

· Training or education costs

· Trading stock or the cost of trading stock

For example:

A Co Pty Ltd (A Co) is a small business entity. On 15 July 2022, A Co purchased multiple laptops to allow its employees to work from home. The total cost was $100,000 (GST-exclusive). The laptops were delivered on 19 July 2022 and immediately issued to staff entirely for business use. As the holder of the assets, A Co is entitled to claim a deduction for the depreciation of a capital expense.

A Co can claim the full purchase price of the laptops ($100,000) as a deduction under temporary full expensing in its 2022-23 income tax return. It can also claim the maximum $20,000 bonus deduction in its 2022-23 income tax return.

The $20,000 bonus deduction is not paid to the business in cash but is used to offset against A Co’s assessable income. If the company is in a loss position, then the bonus deduction would increase the tax loss. The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies.

Skills and Training Boost

The Skills and Training boost is a 120% tax deduction for expenditure incurred on external training courses provided to employees.

External training courses will need to be provided to employees in Australia or online, and delivered by training organisations registered in Australia.

To be eligible for the bonus deduction:

· The expenditure must be for training employees, either in-person in Australia, or online

· The expenditure must be charged, directly or indirectly, by a registered training provider and be for training within the scope (if any) of the provider’s registration

· The registered training provider must not be the small business or an associate of the small business

· The expenditure must be deductible

· Enrolment for the training must be on or after 7.30pm, 29 March 2022.

The training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income. That is, there needs to be a nexus between the training provided and how the business produces its income.

Only the amount charged by the training organisation is deductible. In some circumstances, this might include incidental costs such as manuals and books, but only if charged by the training organisation.

Some exclusions will apply, such as for in-house or on-the-job training and expenditure on external training courses for persons other than employees. The training boost is not available to:

· Sole traders, partners in a partnership, or independent contractors (who are not employees)

· Associates of the business such as a relative, spouse or partner of an entity or person, a trustee of a trust that benefits an entity or person and a company that is sufficiently influenced by an entity or person.

For example:

Cockablue Pets Pty Ltd is a small business entity that operates a veterinary centre. The business recently took on a new employee to assist with jobs across the centre. The employee has some prior experience in animal studies and is keen to upskill to become a veterinary nurse. The business pays $3,500 (GST exclusive) for the

employee to undertake external training in veterinary nursing. The training is delivered by a registered training provider, whose scope of registration includes veterinary nursing.

The bonus deduction is calculated as 20% of 100% of the amount of expenditure that can be deducted under another provision of the taxation law. In this case, the full $3,500 is deductible under section 8-1 of the ITAA 1997 as a business operating expense. Assuming the other eligibility criteria for the bonus deduction are satisfied, the bonus deduction is calculated as 20% of $3,500. That is, $700.

In this example, the bonus deduction available is $700. That does not mean the business receives $700 back from the ATO in cash, it means that the business is able to reduce its taxable income by $700. If the company has a positive amount of taxable income for the year and is subject to a 25% tax rate, then the net impact is a reduction in the company’s tax liability of $175. This also means that the company will generate fewer franking credits, which could mean more top-up tax needs to be paid when the company pays out its profits as dividends to the shareholders.