Proposed Changes to Taxation of Superannuation

Proposed Changes to Taxation of Superannuation

In a joint media release on 28 February 2023, the Treasurer and Assistant Treasurer announced changes to the taxation of superannuation.  We have outlined below the information released by the Government.  Please note, draft legislation has not yet been released for consultation.  These proposed measures are not final until the legislation has been enacted.

Who is impacted?

The proposed measures will commence on 1 July 2025 and will impact on individuals who have a total superannuation balance in excess of $3 million.

What are the changes?

Where your total superannuation balance exceeds $3 million, there will be an additional 15% tax on the earnings on the balance over this $3 million threshold.  Given the existing 15% tax an accumulation balances, an additional 15% tax will mean that earnings on the balance over $3 million will be taxed at an effective rate of 30%.

How is it calculated?

The 15% additional tax is imposed on the earnings on the balance over $3 million.  The earnings will be calculated as follows:

Earnings = Closing super balance – Opening super balance + Withdrawals – Net contributions

These earnings are then apportioned to the balance over $3 million as follows:

Proportion of Earnings = (Closing super balance – $3 million) / Closing super balance

The 15% tax liability is then imposed on the proportion of earnings on the account balance over $3 million:

Tax liability = 15% x Earnings x Proportion of earnings

Example calculation

Let’s assume that your opening total super balance was $4 million and your closing total super balance was $4.5 million and that you had no contribution and no withdrawals through the year.  The calculation of your additional tax liability is as follows: 

Earnings = $4.5 million – $4 million = $500,000

Proportion of earnings = ($4.5 million – $3 million) / $4.5 million = 33%

Tax liability = 15% tax rate x $500,000 earnings x 33% = $24,750

This calculation determines that your super balance has total earnings of $500,000 for the financial year.  Two-thirds of these earnings relate to your balance below $3 million and one-third of the earnings relate to your balance above $3 million.  Tax is then imposed on the profit which has been earned on your balance over $3 million.

Who pays the tax?

The additional 15% tax will be imposed on the individual member and the member can elect that an amount be released from super to pay for the liability.  The member will receive a notice from the ATO to pay the additional tax (similar to the current Division 293 notices).

When does it come into effect?

The total superannuation balance will first be tested on 30 June 2026 and the first notice of tax liability will be issued to individuals in the 2026-27 financial year.

Things to consider

At the moment, it is reported that these changes will impact less than 80,000 people.  However, there is currently no provision for the $3 million cap to be indexed which means that with inflation, over time more people will be impacted by the changes.

The way in which “earnings” has been calculated means that tax will be imposed on unrealised gains (eg. if you hold real property in your fund and it increases in value, you will pay tax on this increase even though you haven’t sold the property).  This is a significant change as previously tax has only been imposed on realised gains.  This may present problems for funds that do not have sufficiently liquid assets to be able to fund the additional tax liability for members. 

Will this impact on me?

If you currently have a total superannuation balance in excess of $3 million (and it is anticipated to remain at this amount or higher), you will be impacted by these changes. 

If you do not currently have a superannuation balance in excess of $3 million, you should still consider the assets in your fund and whether it is possible that your account balance to increase above the $3 million threshold by 30 June 2026.

Further, you may also be considering making additonal contributions into super over the next few years which will impact on your total super balance.  For example, if you are thinking about selling your business in the next few years, you may be considering taking advantage of CGT concessions that enable you to roll some of your capital gain into super.  This may result in your balance going over the $3 million threshold.  These proposed changes should be considered when you are deciding whether to contribute additional funds into super.

What should I do?

As noted above, at the moment, draft legislation hasn’t been released.  We always advise clients to act cautiously where legislation has not yet been enacted.

However, it is also prudent for you to review your current balance and your proposed future investment into super to consider whether your balance may exceed the $3 million threshold and what impact this will have.  Even if you consider that your balance does (or may in the future) exceed the threshold, it may still be more tax advantageous for you to have the money in super.

We recommend that you speak to your financial advisors with regards to your superannuation strategy and whether this needs to be adjusted in light of the proposed changes.

We are happy to discuss these changes with you.  We note, however, that we cannot provide you with advice regarding whether it is appropriate for you to contribute or withdraw money from superannuation – this advice needs to be provided by your financial planner.  We can, however, work with you and your financial planner to calculate your tax liability based on your superannuation balance.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

When Should I think about End of Year Tax Planning?

End of year tax planning – when should I think about this?

 

There is always a rush at the end of the financial year for businesses to book in to speak to us about their end of year tax planning options.

Rather than rushing around in June to implement strategies to optimise your tax position, you should regularly review the financial performance of your business and plan for upcoming tax liabilities.  Set aside specific time on a regular basis (eg. at the end of each month or each quarter when you are preparing your BAS) and use this time to review how your business is performing.

When you are reviewing your business for tax, think about:

  • What profit has your business made?
  • What is your estimated tax liability on your profit?
  • Are you paying tax instalments to the ATO towards this tax liability?  If not, have you made provisions for this tax liability within your cashflow forecasting?
  • Are there proactive steps you can take throughout the year to optimise your tax position?

While we sit down with business clients in May/June to review their results and plan for year end tax, there are things that you can do throughout the year to get a better tax outcome, for example:

  • If you want to purchase a new vehicle and can claim a deduction for the vehicle – it needs to be ready for business use prior to 30 June (this may mean ordering the vehicle now so it is here in time).
  • If you want to put more money into super, you may need to build this into your cashflow forecasts (or put the money in on a regular basis) so it is not a large cash drain in June.
  • If you want to pay directors an appropriate salary for their services, this should be recorded and paid throughout the year and reported via single touch payroll to the ATO.  If this is left to June, there will be a significant cashflow burden for the withholding tax and super liability.

These are just some of the examples of things you can do throughout the year to help your tax position.

So while we may refer to it as “end of year” tax planning, it is better to think of it as year round tax planning. 

We are happy to sit down with you on a regular basis to help you review your business performance, cashflow and tax planning – just give us a call to discuss.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

Working from Home – Tax Deductions

Working from Home – Tax Deductions

On 16 February 2023, the ATO released Practical Compliance Guideline PCG 2023/1 outlining the requirements that need to be met in order to claim a deduction for working from home.  There are some changes with regards to the amount that can be claimed and the records that you need to keep.  These changes will apply to deductions claimed for the 2022-23 financial year onwards.

What do you need to know?

From 1 July 2022, the Revised Fixed-Rate Method allows you to claim a deduction of $0.67 per hour for the time you have worked from home (this will not cover depreciation, which can be claimed separately).

If you want to claim a deduction for working from home anytime after 1 July 2022, you will need the following:

  1. A record of the hours you have worked from home:
    • Between 1 July 2022 and 28 February 2023, you will need a record that is a representation of the total hours worked from home.
    • From 1 March 2023, you will need an exact record of the number of hours you worked from home – eg. timesheet, roster, diary, time-tracking app records.
  2. Evidence of the additional costs you have incurred as a result of working from home (eg. electricity bills, telephone bills, internet bills).
  3. Invoices for any office furniture or plant and equipment purchased.
  4. A 4 week diary showing the personal and income-producing use of any office furniture or plant and equipment purchased.

We will be requesting the above information when preparing your 2023 tax return.  Without this information, we will not be able to claim a deduction for working from home.

PCG 2023/1 in Detail

2022 Financial Year and Earlier

If you are claiming a deduction for working from home prior to 1 July 2022, you can choose to use one of the following methods:

  • The Temporary Shortcut Method – available from 1 March 2020 to 30 June 2022 (a flat rate of $0.80 per hour during COVID to cover electricity, internet, mobile and home phone, stationery and computer consumables, depreciation of home office furniture and equipment, cleaning)
  • The Fixed-Rate method – available from 1 July 1998 to 30 June 2022 (a flat rate of $0.52 per hour to cover electricity, depreciation of office furniture, cleaning)
  • The Actual Expenses Method – this is a claim for the actual expenses incurred as a result of working from home.

From 1 July 2022

From 1 July 2022, you can claim a deduction for working from home using either of the following methods:

  • Revised Fixed-Rate Method – available from 1 July 2022 (a flat rate of $0.67 per hour to cover electricity, internet, mobile and home phone, stationery and computer consumables)
  • Actual Expenses Method – as noted above, this is a claim for the actual expenses incurred as a result of working from home.

Revised Fixed-Rate Method

To claim a deduction using the Revised Fixed-Rate Method, you need to satisfy three criteria:

  1. You must be working from home (minimal tasks such as checking emails and taking some calls at home will not qualify)
  2. You must incur additional running costs (you must incur the costs and not be reimbursed these from your employer)
  3. You must keep and retain the relevant records.

Record of Hours Worked

For the 2023-24 and later income years, you must keep a record for the entire year of the number of hours that you worked from home.  An estimate is not acceptable.

A record of your hours can be kept in any form.  For example, it may be one of the following:

  • Timesheets
  • Rosters
  • Logs of time spent accessing employer systems or online business systems
  • Time-tracking apps
  • A diary

For the 2022-23 income year, you only need to keep a record which is representative of the total hours worked from 1 July 2022 to 28 February 2022 and then a record of the actual hours worked from 1 March 2023 to 30 June 2023.

Documents for Costs

For electricity, mobile and home phone and internet expenses, you must keep one monthly or quarterly bill as evidence of the additional running expenses you have incurred.  For stationery and computer consumables, you must keep a receipt for the item purchased. 

If you do not keep a record of the total hours you worked from home and evidence of the running costs incurred, you cannot use the revised fixed-rate method for claiming a deduction for working from home during the 2023 (and later) financial years.

Depreciation

The revised fixed rate method covers your costs for electricity, internet, mobile and home telephone and stationery and computer consumables.  This means you cannot claim a separate deduction for these items.  It does not cover depreciation for home office furniture or equipment (for which you can claim a separate deduction).

To claim a deduction for depreciation of your home office furniture or equipment, you must keep a purchase invoice which shows:

  • the name or business name of the supplier;
  • the cost of the asset to you;
  • the nature of the asset;
  • the day you acquired it; and
  • the day the record was made out.

You must also keep records which demonstrate your work-related use of the asset.  This can be evidenced by a 4-week period showing the personal use and income-producing use of the asset.

Home Office Occupancy Costs (rent, mortgage interest, rates, land tax)

 We note that the above only relates to deductions for home office running costs.  It does not provide guidelines for home office occupancy costs (like rent, mortgage interest, property insurance and land tax).   More information is provided here in relation to home occupancy costs.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice. Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information. We recommend that our formal advice be sought before acting in any of the areas. The article is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our consent.

ASIC and ATO scam emails

As your appointed tax agent, all official ATO contact about your tax affairs should be with our office.

There have been recent cases of fake ATO emails containing malware with the potential to infect your computer systems and lock access to your own data. Please do not open any emails allegedly from the ATO (or links or attachments in such emails). Contact us for assistance.

Any telephone callers purporting to be ATO officials or ATO debt collection agencies should also be referred to us. Under no circumstances should you give any personal or financial information over the phone. Nor should you transfer any funds as a result of such contact.

There have also been cases of fake ASIC emails. In some cases, these request you to click on a link to renew your company. While the emails look legitimate, they have been confirmed as a scam.

Whenever you are in doubt about email or telephone contact, please contact us immediately to confirm the authenticity.

DISCLAIMER: The information in this article is general in nature and is not a substitute for professional advice.  Accordingly, neither TJN Accountants nor any member or employee of TJN Accountants accepts any responsibility for any loss, however caused, as a result of reliance on this general information.  We recommend that our formal advice be sought before acting in any of the areas.  The article is issued as a helpful guide to clients and for their private information.  Therefore it should be regarded as confidential and not be made available to any person without our consent,