Tax me less…. Please!

Who doesn’t want to pay less tax, especially when the costs of living are now getting a little ridiculous. For the next tax year (from 1st July 2024 onwards) most of us will benefit with quite a bit less tax taken from our back pockets. For the tax year just finished, and for the year we are about to prepare all your tax returns (2024) not much changed from the year before. But see below for the exciting changes affecting us all next tax year:

So how much really is this worth to you?  If you are an employee, you should see an immediate increase in your net wage deposits from 1st July 2024, and for our business clients your year end 2025 year tax positions will lower per the amounts below:

A few more articles are attached that might affect you concerning employer obligations, holiday homes, home office claims, cyber crime tips, benchmarking at the ATO, new business asset purchase claims and more. So please take the time to read over these and feel free to contact our office if you need any of these matters further clarified.

The forever growing team at Lidgerwoods

SOPHIE, MARC, KYLIE, LOUISE, DAVID, JACOB, DARCY, TALEIA, CATH AND JO

BREAKING NEWS - $20,000 ASSET WRITE-OFF IS NOW LAW

Small Business Entities (SBE’s) can elect to immediately write off assets valued up to $20,000 ex GST for the 2024 and 2025 tax years. This legislation only passed through the parliament in recent days but is retrospectively applied back for qualifying business assets acquired by SBE’s since 1st July 2023. This will affect a lot of our clients, but importantly this does not relate to employees, only business clients.

Editor: The asset item must be installed and ready for use in the business before midnight on 30th June to be able to claim this deduction in the respective tax year.

ATO says: "Be cyber wise, don't compromise"

Throughout the 2022 income year, one cybercrime was reported every seven minutes. The ATO encourages taxpayers to implement the following four quick steps to protect themselves.

Step 1: Install updates for your devices and software
Regular updates ensure taxpayers have the latest security in place which can help prevent cyber criminals from hacking their devices. They should also make sure they are downloading authorised and legitimate programs.

Step 2: Implement multi-factor authentication
Multi-factor authentication ('MFA') is a security measure that requires at least two proofs of identity to grant access. Businesses as well as individuals should implement MFA wherever possible. MFA options can include a physical token, authenticator app, email or SMS.

Step 3: Regularly back up your files
Backing up copies of files to an external device or the 'cloud' means taxpayers can restore their files if something goes wrong.

It is a precautionary measure that can help avoid costly data recovery.

Step 4: Change your passwords to passphrases
By using passphrases, taxpayers can boost the security of their accounts and make it harder for cyber criminals to access their information.

Passphrases use four or more random words and can include symbols, capitals and numbers. A password manager can help generate or store passphrases.

Government warns of 'malicious' myGov scammers

The Government has urged Australians to be vigilant regarding scammers who target ATO log-in details to commit tax fraud.

The ATO has received a large number of reports of scammers using fake myGov sites to steal myGov sign-in details, which can be used to commit tax and refund fraud in other people's names.

These criminals will often use text message or email to lure people into clicking a link using phrases such as 'You are due to receive an ATO Direct refund' or 'You have a new message in your myGov inbox - click here to view'.

The Government says the ATO or myGov will never send an email or text message with a link to sign in to myGov.

Last year, the ATO introduced new fraud controls to help protect Australians from online identity theft. This included using myGovID to strengthen security during the sign-in processes on myGov accounts, making it more difficult for criminals to gain access.

Claiming deductions in relation to a holiday home

Taxpayers should remember that they can only claim deductions for holiday home expenses to the extent they are incurred for the purpose of gaining or producing rental income.
They need to consider the following in determining whether the deductions they wish to claim are valid rental deductions:

• How many days during the income year did they use or block out the property for their own use? Taxpayers cannot claim deductions for the periods the property was used or blocked out by them.
• How and where did they advertise the property for rent, and is the rent in line with market values? If they only used obscure means of advertising, or put unreasonable restrictions or conditions in the advertisement, they may not be entitled to claim deductions.
• Will any restrictions, or the general condition of the property, reduce interest from potential holiday makers? If their property is not in a tenantable condition, they may not be entitled to claim deductions.
• Has the taxpayer or their family or friends used the property? Taxpayers cannot claim for periods of private use or when the property is kept vacant for personal reasons.
• Is any part of the property off limits to tenants? When taxpayers claim deductions, they should ensure they calculate and apportion deductions in relation to the part of the property that is available for rent.

Editor: You need to advise our office if you do personally use your rental property, or even if you rent out your own home at times. The ATO has lots of ways to identify if taxpayers are not declaring this, including sourcing clients who utilise providers like AirBnB, or Stayz etc. The ATO receives annual information from most online accommodation providers, as well as some real estate agencies. 

Deductions denied for work-related expenses

The Administrative Appeals Tribunal ('AAT') recently held that a taxpayer should not be allowed deductions for various work-related expenses, largely because the substantiation requirements had not been satisfied.

The taxpayer, a real estate salesperson, claimed tax deductions for the 2018 to 2020 income years, during which time he derived income from his employment with a real estate company.

However, the ATO disallowed the taxpayer's claims for various work-related expenses, including car expenses, and gifts and donations.

The AAT agreed with the ATO, and held that the expenses claimed were not deductible and that the taxpayer had failed to substantiate his claims.

The taxpayer had claimed deductions for car expenses using the logbook method, but the AAT noted that the car was owned by a company and was not leased to the taxpayer. Therefore, the car was not 'held' by the taxpayer, as required by the logbook method. The taxpayer's logbook also lacked "sufficient specificity" for this method.

While the taxpayer produced credit card statements and telephone tax invoices (in relation to credit card interest and telephone expenses), it was not clear from these documents whether the costs claimed related to work expenses.

The taxpayer sought to rely on bank transaction statements in relation to other expenses, but they were considered to be insufficient, as it was unclear from these statements what the relevant expense was, how the expense was incurred in earning the taxpayer's assessable income, and any apportionment between business and personal use.

There were also no receipts or tax invoices for any of the claimed donations.

Editor: This stresses the need to keep good and clear records to prove your tax deductions.

How to claim working from home expenses

Taxpayers who have been working from home this financial year, and who consequently incurred work-related expenses, have two ways to calculate their work from home deduction:

• the actual cost method; or
• the fixed rate method.

Using the fixed rate method, taxpayers can claim a rate of 67 cents per hour worked at home.

This amount covers additional running expenses, including electricity and gas, phone and internet usage, stationery, and computer consumables. A deduction for these costs cannot be claimed elsewhere in their tax return, although taxpayers can separately claim any depreciating assets, such as office furniture or technology.

Taxpayers need to have the right records (timesheet records or diary), and the record-keeping requirements differ for the fixed rate method and the actual cost method. You need to work in a defined separate home office space, pay the bills at home yourself, and prove that you actually worked there.

Editor: If you need more information regarding making these claims, please contact our office. We once again have a detailed worksheet to go through with most clients when preparing your returns this year. This claim process is not a simple one, and the team here at Lidgerwoods are here to help you navigate your own personal claim.

Using the ATO's small business benchmarks

The ATO has updated its small business benchmarks for 2021-22. These benchmarks help taxpayers compare their business turnover and expenses with other small businesses in the same industry.

Taxpayers can access the benchmarks on the ATO's website, and then calculate their benchmark using the ATO app 'Business performance check' tool.

For example, consider Deb who runs a pizza shop as a sole trader. She would like to track her business against other pizza shop businesses, and see how she can improve.

Deb downloads the ATO app and opens the 'Business performance check' tool. She uses this tool to work out the cost of sales to turnover benchmark for her pizza shop. It is within the higher end of the range and above the average for pizza shop businesses.

Deb works out her main supply costs. She then negotiates a better deal to reduce her business expenses and improve profit.

Editor: We do know that the ATO uses these benchmark results to assess audit risk, especially to identify if any businesses are hiding income or overclaiming certain costs, so if your industry has been benchmarked, you need to ensure that you are within their defined ranges. If you have any concerns with these benchmarks and their applicability to your business, please contact us here at Lidgerwoods.

End of financial year obligations for employers

The ATO reminds employers they need to keep on top of their payroll management. This includes:

• using their tax and super software to record the amounts they pay;
• withholding the right amount of tax; and
• ensuring that the annual workers compensation reconciliation is lodged and paid; and
• calculating superannuation guarantee ('SG') correctly and paying this on time.

As 30 June 2024 gets closer, employers should check their reporting obligations, along with any upcoming key dates, including for:

• PAYG withholding — From 1 July, the individual income tax rate thresholds and tax tables will change, which will impact their PAYG withholding for the 2025 tax year;
• SG rate change — From 1 July, the SG rate will increase to 11.5%. Employers must pay their SG contributions by 28 July in full, on time and to the right fund; and
• Single touch payroll ('STP') reporting — Employers should remember to make STP finalisation declarations by 14 July for all employees the employer has paid during the financial year, and also check their employees' year-to-date amounts are correct.

Editor: If you need assistance with attending to any of the above, please contact our office in the coming months.

Support available for businesses experiencing difficulties

By paying their tax bill in full and on time, taxpayers can avoid paying the general interest charge ('GIC'), which is currently 11.34%, and which accrues daily for any overdue debts.

The ATO advises taxpayers that, if their business is dealing with financial difficulties, there are some options to help make their tax bill "less taxing".

Taxpayers who are struggling to pay in full or on time may be eligible to set up a payment plan. If they owe $200,000 or less, they may be able to do this themselves using online services. If they cannot do so, or they owe more than $200,000, they can contact the ATO to discuss their options.

Taxpayers can ask the ATO to remit their GIC. The ATO will then consider whether the tax bill was paid late because of circumstances that were:

• beyond the taxpayer's control, and what steps the taxpayer took to relieve the effects of those circumstances; or
• within the taxpayer's control, but led to results that the taxpayer could not foresee.

Editor: If you need assistance in relation to paying your tax bill, please contact our office.

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.

Lastly we welcome your feedback.  If you found this E-Newsletter very useful (or not?),
we’d appreciate your feedback either way.

'The Team' at Lidgerwoods Accountants