Self-Education Expenses – TR 2024/3

Self-Education Expenses 

New Tax Ruling – TR 2024/3

On 21 February 2024, the ATO finalised the ruling for Self-Education Expenses (TR 2024/3).  The ruling sets out the principles on the deductibility of self-education expenses under the Income Tax Assessment Act and provides 38 examples.

When are self-education expenses deductible?

Self-education expenses are deductible to the extent they:

  • Are incurred in gaining or producing your assessable income; AND
  • Are not:
    • Capital, private or domestic in nature
    • Incurred in gaining or producing exempt income
    • Prevented from being deductible by a specific provision in the tax law.

If you are reimbursed for the self-education expenses, you cannot claim a personal deduction.

Gaining or producing assessable income

You need to be able to show one (or both) of the following apply:

  • Your income-earning activities are based on the exercise of a skill or specific knowledge, and the self-education enables you to maintain or improve that skill;
  • The self-education is likely to lead to an increase in income from your current income-earning activities.

They will not be deductible if you have incurred them to obtain new employment or open up a new income-earning activity.

Types of self-education expenses

Some of the self-education expenses that may be deductible include:

  • Course fees but not if you have a Commonwealth Supported Place (CSP) (including where you have used a FEE-HELP loan or personal loan to fund the fees)
  • Interest on monies borrowed to fund the self-education expenses
  • Books, digital subscriptions, stationery
  • Travel (including airfares, accommodation and meals)
  • Depreciation of equipment

Action to take

If you are personally paying for any self-education costs that are related to your current employment, please ensure you keep all details and invoices of the costs incurred.  We can review these at tax time to determine whether they are deductible in your individual tax return.

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.

Federal Budget 2023-24

On Tuesday night, 9 May 2023, Federal Treasurer Jim Chalmers handed down his second Federal Budget for the Labor Government.  According to the Budget papers, the Budget has returned “into the black”, delivering a surplus for the first time in 15 years.  Our country’s financial position has benefited from high commodity prices and a stronger than expected jobs market.  Similar to last year, the Treasurer has cast the Budget with aims to provide cost of living relief whilst not placing additional pressure on inflation.

Some wins from the Budget will be for those eligible for the Government’s energy relief package.  High income earners are also winners with no mention of changing or removing the stage 3 income tax cuts legislated to come into effect on 1 July 2024.

Those not so happy with the budget will be middle income earners who lost the low and middle income tax offset (LMITO) in the October 2022 budget and who are ineligible to share in most of the incentive packages announced in this budget.

The Treasurer warned of more “difficult decisions” to come.  Hopefully those difficult decisions are answered from a position of fiscal responsibility and not just a politically motivated standpoint.  Difficult decisions do need to be made around a well-rounded, broad tax revenue base in years to come.

We’ve outlined below some of the measures that were announced in the Budget that will impact on our clients.  As with all budgetary measures, these measures are not final until the relevant legislation has been passed by the Government.  We will keep you updated on the status of any proposed measures.

Income tax measures

The previously legislated stage 3 tax cuts for individuals starting 1 July 2024 remain untouched.

There was no extension announced to the low and middle income tax offset (LMITO) beyond the 2021-22 year.  As such, the LMITO has now ceased.  Consequently, low-to-middle income earnigns (incomes up to $90,000 but phasing out up to $126,000) will see their refunds reduced between $675 and $1,500 from the 2023 year onwards.

The Medicare Levy low-income thresholds will marginally increase from 1 July 2022 (which increases the point from which the Medicare Levy will start to apply). 

Business measures

The Budget contained a few measures to help small businesses:

Instant asset write-off threshold increased to $20,000

From 1 July 2023, the instant asset write-off threshold was due to reduce to $1,000.  This budget measure has increased this threshold to $20,000 for businesses with an aggregated turnover of less than $10 million.  The increased threshold will apply until 30 June 2024.

Assets acquired for more than $20,000 can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first year and 30% thereafter.

Small Business Energy Incentive

Small businesses with a turnover of less than $50 million can deduct an additional 20% of the cost of eligible depreciating assets that promote greater energy efficiency.

A range of depreciating assets will be eligible for the incentive (including energy efficient fridges, heat pumps and electric heating or cooling systems, batteries and thermal energy stores).  The assets will need to be first used (or installed ready for use) between 1 July 2023 and 30 June 2024.

Up to $100,000 of total expenditure will be eligible for the incentive (which will provide a maximum bonus deduction of $20,000).

Energy Price Relief Plan

Small businesses customers of electricity retailers will benefit from $1.5 billion in funding that the Government has committed to provide energy bill relief.

Payday Super

From 1 July 2026 employers will be required to pay their employees’ super guarantee at the same time as their salary and wages.

Help to manage tax instalments

The GDP adjustment factor for PAYG tax instalments and GST instalments will be 6% for the 2023-24 financial year (down from 12% under the statutory formula).

Startup support

$431.9 million is being provided over 4 years to support small and medium businesses and startups to commercialise their ideas and grow their operations.  This funding will be targeted at businesses operating in the priority areas of the National Reconstruction Fund.

Register of beneficial ownership

$1.9 million provided to establish a public register of beneficial ownership of companies and other legal vehicles (including trusts).

Expanded ATO Compliance Programs

Funding is being provided to extend several ATO compliance programs. 

Personal Income Tax Compliance Program

$90.2 million will be provided to the ATO and Treasury to extend the Personal Income Tax Compliance Program for 2 years from 1 July 2025 and to expand the scope from 1 July 2023.  This enables the ATO to continue to deliver a combination of proactive, preventative and corrective activities in key areas of non-compliance, including over-claiming of deductions and incorrect reporting of income. 

GST compliance

$588.8 million will be provided to the ATO from 1 July 2023 for the ATO to continue a range of activities that promote GST compliance. 

Debt collection

Additional funding will be provided to the ATO to facilitate engagement with taxpayers who have high-value debts over $100,000 and aged debt older than 2 years.

Lodgement penalty amnesty

Small businesses with an aggregated turnover of less than $10 million will have failure to lodge penalties remitted for outstanding tax statements lodged between 1 June 2023 and 31 December 2023 (where those statements were originally due between 1 December 2019 and 29 February 2022).  This is designed to encourage small business owners to re-engage with the tax system.

Superannuation guarantee compliance

$40.2 million provided to the ATO in the 2023-24 year to assist with enforcing superannuation guarantee compliance.  The ATO will continue to use data matching to identify superannuation guarantee underpayment.

Superannuation

Tax changes for super account balances above $3 million

The Government confirmed their commitment to increasing the tax rate for earnings on superannuation accounts in excess of $3 million from 1 July 2025.  Earnings that correspond to the proportion of an individual’s superannuation balance over $3 million will be taxed at 30%.  Earnings that relate to assets below the $3 million threshold will continue to be taxed at 15% (or 0% if held in a retirement pension account).

Other measures of interest

Some other measures of interest include:

  • Increase to certain government payments
    • The base rate of the working age and student payments will increase by $40 per fortnight from 20 September 2023 (this applies to JobSeeker, Youth Allowance, Parenting Payment, Austudy, ABSTUDY, Disability support pension, special benefit).
    • The maximum rates of Commonwealth Rent Assistance allowance will increase by 15%.
    • Parenting Payment (single) will be extended to single principal carers with a young child under 14 years of age (currently, the payment only supports single principal carers with a child under 8 years of age).
  • Household Energy Upgrades
    • $1.3 billion in funding is being provided to establish the Household Energy Upgrades Fund which will provide low-cost finance and mortgages (in partnership with private institutions) for home upgrades to save energy.
  • Childcare
    • $72.4 million in funding over 5 years to support the Early Childhood Education and Care sector to build and retain their workforce.
  • Aged Care
    • From 30 June 2023, there will be a 15% increase to the award wages for many aged care workers. 
    • Over $1.1 billion provided to improve the in-home aged care system and the delivery of aged care services.

We will keep you up-to-date with the progress of the implementation of these Budget measures.

If you would like to discuss the tax implications of the budget proposals, please call us on (07) 56656469.

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.

Exit Strategies for Business Owners: Planning your Successful Departure

Exit Strategies for Business Owners:

Planning Your Successful Departure

When is the best time to start thinking about your business exit strategy?  To be honest, it should be before you even start your business.  Before you start your business and invoice your first client or customer, you should be thinking about what you would like to achieve with your business and where you would like it to go. 

But let’s say you’re now several years into running your business and you haven’t even thought about your exit strategy…that’s okay because the second best time to start thinking about your business exit strategy, is today (cue that Chinese Proverb about planting trees…). 

We have been working with a number of clients over the past few years to successfully exit their business.  “Successfully exiting a business” can mean different things to different people, but generally includes:

* Selling for an acceptable price
* Minimising the resulting tax liability on the sale
* Minimising the disruption to the business during the due diligence and negotiation stages, and then the actual changeover
* Getting the right advice on how to best utilise the net sales proceeds.

No business exit is the same as another.  Some of the recent sales we have assisted with involved very different purchasers, we have had:

* A sale to a ASX listed company
* A sale to a private equity group
* A sale to an employee
* A sale to an overseas buyer.

One commonality with each of these sales, however, is that each involved technical legal and accounting advice and involvement to ensure each party was adequately protected and achieved the best outcome.

Your business exit strategy is something that you should think about at least on an annual basis.  We generally have this conversation with each client around tax planning time.  If you haven’t previously done so, spend some time this week thinking about your exit strategy from your business, specifically:

1) What is your exit strategy?  Is it sale to a third party?  Is it a sale to employees? Will your children take over the business?
2) What is your timeframe for exit?
3) Is your business in the best shape to achieve your exit strategy goals?

We recommend that business exit plans start at least 5 years before your proposed exit.  This will give us enough time to help you get your business “sale ready” and ensure it is appropriately structured for the exit you want.

Feel free to book in a time with us 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.

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.