Practice Update
ATO’s three focus areas this tax time
The ATO will be taking a close look this ‘tax time’ at the following common errors made by taxpayers:
Work related expenses: Taxpayers using the ‘revised fixed rate method’ of calculating a working from home deduction must have comprehensive records to substantiate their claims, including records that show the actual number of hours they worked from home, and the additional running costs they incurred to claim a deduction.
Rental properties: Performing general repairs and maintenance on a rental property can be claimed as an immediate deduction. However, expenses which are capital in nature (such as initial repairs on a newly purchased property) are not deductible as repairs or maintenance.
Failing to include all income in tax return: The ATO warns taxpayers against rushing to lodge their tax return on 1 July. If they have received income from multiple sources, they need to wait until this is pre-filled in their tax return before lodging.
End of financial year obligations for employers
The ATO reminds employers they need to keep on top of their payroll governance. This includes:
- using their tax and super software to record the amounts they pay;
- withholding the right amount of tax; and
- calculating superannuation guarantee (‘SG’) correctly.
As 30 June 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.
Getting trust distributions right
As trustees prepare for year-end distributions, they should do the following:
- review the relevant trust deed to ensure they are making decisions consistent with the terms of the deed;
- consider who the intended beneficiaries are and their entitlement to income and capital under the trust deed;
- notify beneficiaries of their entitlements, so that the beneficiaries can correctly report distributions in their tax returns;
- consider whether the trust has any capital gains or franked distributions they would like to stream to beneficiaries; and
- check any requirements under the trust deed governing the making of trustee resolutions (e.g., that the resolution must be in writing). In any case, resolutions regarding distributions need to be made by the end of the income year.
Editor: If you need any assistance in relation to your trusts, please contact our office.
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.
Importance of good record keeping when claiming work-related expenses
The ATO is advising taxpayers that having records to substantiate claims is essential to prove deductions can be claimed, having regard to the following in particular:
- A bank or credit card statement on its own will generally not be enough evidence to support a work-related expense claim. Taxpayers instead need detailed written evidence such as a receipt.
- If a taxpayer’s total claim for deductible work expenses is $300 or less, they can claim a deduction without written evidence, but they must still be able to show that they spent the money and how they calculated the amount being claimed.
- While some deduction types do not require receipts (e.g., laundry expenses), some kind of record may still be necessary. Taxpayers may also need a record that shows their private and work-related use (e.g., a diary), and how the amount claimed as a deduction was calculated.
SMSFs acquiring assets from related parties
SMSFs cannot acquire an asset from a ‘related party’ (such as a member or their spouse or relative) unless it is acquired at market value and is:
- a listed security (e.g., shares, units or bonds listed on an approved stock exchange);
- ‘business real property’ (broadly, land and buildings used wholly and exclusively in a business);
- an ‘in-house asset’ as defined, provided the market value of the SMSF’s in-house assets does not exceed 5% of the total market value of the SMSF’s assets; and/or
- an asset specifically excluded from being an in-house asset.
If the asset is acquired at less than market value, the difference between the market value and the amount actually paid is not considered to be a contribution. Instead, income generated by the asset will be considered ‘non-arm’s length income’ and will be taxed at the highest marginal rate.
Federal Court overturns AAT’s tax resident decision
The Federal Court has recently overturned an Administrative Appeals Tribunal (‘AAT’) decision that a taxpayer was a resident of Australia for tax purposes (even though he was mostly living and working overseas during the relevant period).
The taxpayer was a mechanical engineer who became an Australian citizen in 1978.
He lived and worked in Dubai, United Arab Emirates, from September 2015 until 2020, and he spent less than two months in Australia for each of the 2017 to 2020 income years visiting his family.
The AAT nevertheless held that he was a tax resident of Australia for each of the 2016 to 2020 income years, as he “maintained an intention to return to Australia and an attitude that Australia remained his home.”
On appeal to the Federal Court, the taxpayer succeeded in having the AAT’s decision overturned.
The Federal Court held, in considering whether the taxpayer was a resident of Australia according to ‘ordinary concepts’, that the AAT applied the wrong test, confusing it with the ‘domicile test’.
Also, in relation to the ‘domicile test’, the Federal Court noted that the AAT further misunderstood how to establish that a person had a ‘permanent place of abode’ outside of Australia.
The Federal Court accordingly held that the taxpayer’s appeal be allowed, and the matter be remitted to the AAT for determination according to law (i.e., the AAT needs to reconsider the matter).
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.
Minimum yearly repayments on Division 7A loans
To avoid an unfranked dividend under the Division 7A rules, loans from a private company to its shareholders or their associates must be either repaid in full or be covered by a ‘Division 7A complying loan agreement’ before the company’s lodgment day.
Complying loan agreements require minimum yearly repayments (‘MYRs’) comprising of interest and principal to be made each year, starting from the income year after the loan is made.
Taxpayers must ensure they can meet the required MYRs on complying loans.
If they miss the MYR or do not pay enough in an income year, the shortfall may be treated as an unfranked dividend.
Note also that borrowing additional amounts from the same company, directly or indirectly, to make repayments on complying loans may result in the repayment not being taken into account in working out if the MYR has been made.
When making MYRs, borrowers need to:
- start repayments in the income year after the complying loan was made;
- use the correct benchmark interest rate (8.27% for the 2024 income year) to calculate the MYR for the current year; and
- make the required payments on the loan by the due date — the end of the income year (i.e., usually by 30 June).
ATO issues notice of crypto assets data-matching program
The ATO has advised that it will acquire account identification and transaction data from crypto designated service providers for the 2024 to 2026 income years.
This data will include the following:
- client identification details (names, addresses, dates of birth, phone numbers, social media accounts and email addresses); and
- transaction details (bank account details, wallet addresses, transaction dates, transaction times, transaction types, deposits, withdrawals, transaction quantities and coin types).
The ATO estimates that records relating to approximately 700,000 to 1,200,000 individuals and entities will be obtained each financial year.
The data will be acquired and matched to ATO systems to identify and treat clients who failed to report a disposal of crypto assets in their income tax return.
