2022 and That’s A Wrap!

Federal Budget

Our second annual Federal budget was delivered in October 2022.

Some of the Key Tax Measures to come out of this Budget are:

• Stage 3 personal tax cuts confirmed
• Temporary full expensing to cease from 30 June 2023
• Temporary loss carry-back to cease from 30 June 2023
• Low and middle income tax offset (LMITO) scrapped from 30 June 2022
• Superannuation ‘Downsizer’ eligibility reduced from 60 to 55
• SMSF 3 year audit requirement shelved
• Energy efficiency grants for SME
• ATO armed with extra audit resources, and targeting personal income tax deductions, cash payments & tax evasion, and Focus on Multinational business

Distributions to Adult Beneficiaries & reimbursement agreements

In December 2022, the ATO released the tax ruling TR 2022/4 on Section 100A of the ITAA 1936.  The original legislation was introduced in 1979 to ensure that beneficiaries of trusts ultimately receive the income they have been distributed. 

The ATO has reviewed and reinterpreted the original legislation, with significant impact now on the relevance of discretionary trust structures going forward. 

The two key areas of concern that the ATO have identified are: 

1.   Trust distributions to adult children: The ATO have taken the view that such arrangements are typically used for the purpose of lowering the tax liabilities of those receiving the economic benefit of the trust and not to the children. Such arrangements have been common practice for a long time for small businesses with adult children on lower income thresholds whilst they are working part-time or attending further education after high school.
2.   Washing machine distributions; A ‘washing machine’ distribution (or circular funds of flow) occurs when a corporate beneficiary of the trust becomes entitled to income at the end of an income year and pays tax at the corporate rate then subsequently pays out a franked dividend the following year back to the trust (as shareholder of the company).

Working from Home deductions have changed

The ATO’s draft Practical Compliance Guide PCG 2022/D4 outlines deductions for working from home, and replaces the previously issued PCG 2020/3.

You may claim a deduction for additional expenses you incur as a result of working from home, provided they meet the usual requirements (for example, they are not private or domestic in nature). This may require quite burdensome record-keeping for relatively minor expenses. To simplify this the Commissioner has adopted a practical approach whereby you can adopt a simplified method. 

From 1 July 2022 onward, a revised fixed-rate method will replace both the shortcut method and the old fixed-rate method. Under this new method, taxpayers may claim as a deduction:

•   67 cents per each hour worked from home, covering all additional costs incurred in relation to energy, internet, telephone, stationery and computer consumables as a result of working from home; and
•   the work-related decline in value of depreciating assets, such as laptops and monitors.

More tax for Professionals

The ATO’s Practical Compliance Guide PCG 2021/4 outlines the ATO’s compliance approach to reviewing the profit allocations of ‘Professional firms’ (such as accounting, law, medical, engineering, architecture, management consulting, and financial service practices).  ‘Professionals’ must review their profit allocation arrangements using these guidelines from 1 July 2022 (with a transitional start date of 1 July 2024 for existing arrangements).  

The ATO is reviewing the amounts of assessable income declared by a professional firm (and associated entity) compared to the assessable income of the individual professional practitioner (IPP).  It aims to address arrangements that alienate, or inappropriately redirect, the income of an IPP to an associated entity (such as a spouse or family trust) with the effect of reducing the IPP’s tax liability.

Professional firm owners and operators need to review their profit allocation arrangement against 2 ‘gateways’ in PCG 2021/4.  If their arrangement passes both gateways, then they must self-asses their level of risk, using a risk assessment framework.  This framework operates under a green, amber or red system, with an increased level of ‘risk’ increasing the likeliness of ATO review.

Electric Vehicles are now FBT exempt

Electric cars will be exempt from FBT from 1 July 2022 as part of the government’s plan for a Better Future.  Specifically, this legislation will exempt battery, hydrogen fuel cell and plug-in hybrid electric cars from Fringe Benefits Tax (FBT) and import tariffs.  This exemption applies to eligible cars acquired and held for use from 1 July 2022 and have a first retail price below the luxury car tax threshold for fuel-efficient cars (currently $84,916).

Director Identification Numbers now law

All Directors of Australian companies are required have a Director ID from 30 November 2022.  If you have not done so (even after receiving a number of reminders), then please apply ASAP at www.abrs.gov.au to avoid a potential $13,000 fine.

Privacy Policy Changes

The Privacy Act 1988 (Cth) (Privacy Act) was amended in November 2022, and the act applies for businesses with a turnover above $3m.

The amendments increase the maximum penalty for a serious or repeated breach of privacy for a body corporate from $2.22 million to the greater of:

•   $50 million;
•   three times the value of any benefit obtained that is attributable to the breach; or
•   if the benefit cannot be determined, 30% of the adjusted turnover of the body corporate during the breach period.

Cyber Security in Focus

In 2022, we saw a number of significant companies including Optus and Medibank held to ransom by hackers.  Given these breaches, we suggest businesses review their current IT security, devices, and consider taking out cyber insurance policies.

Key Dates

• 28/1/23  Super for Dec22 quarter due 
• 28/2/23  Dec22 BAS due