Our May 2024 newsletter highlights some key tax changes and developments that may affect you or your business.

Stage 3 personal income tax cuts redesigned

The changes to the Stage 3 personal income tax cuts — to take effect on 1 July 2024 — announced by the Government earlier this year are now law. Broadly the changes amend the previously legislated tax cuts to:

• Reduce the 19% marginal tax rate for taxable incomes up to $45,000 to 16%;
• Reduce the 32.5% marginal tax rate for taxable incomes from more than $45,000 to less than $135,000 to 30%;
• Increase the threshold above which the 37% tax rate applies from $120,000 to $135,000 (this rate was previously legislated to be abolished);
• Increase the threshold above which the 45% tax rate applies from $180,000 to $190,000 (previously legislated to be $200,000).

The tax-free threshold of $18,200 is unchanged.

The table below sets out the tax rates that will now apply from 1 July 2024.

Is your business eligible for concessions?

As a small business owner, you may be eligible for concessions on the amount of tax you pay. This depends on your business structure, your industry and your annual turnover.

If you have an aggregated turnover of less than:

• $2 million, you may be able to access the small business CGT concessions;
• $5 million, you may be able to access the small business income tax offset;
• $10 million, you may be able to access the small business restructure roll-over.

You will generally need to keep records for five years to prove any claims you make. You can choose how you keep these records, but you may find electronic record keeping easier and more convenient.

Claiming working from home expenses

If you have been working from home this income year, you will probably have some work-related expenses you can claim.

There are two ways to calculate a working from home deduction — the fixed rate method and the actual cost method.

If you use the fixed rate method, you 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 your tax return.

You can, however, separately claim the decline in value for any depreciating assets, like office furniture or technology.

You must have the right records.

For the fixed rate method, this includes a record of:

• The total number of hours worked from home (for the entire income year);
• The additional running expenses covered by the rate per hour that you incurred (for example, phone bill, electricity bill);
• Any depreciating assets (and how much of your use of that asset was work-related).

For the actual cost method, you will need a record of:

• Your hours worked from home (whether that be the total hours, or a continuous four-week period representing the usual pattern of work, if your hours are consistent throughout the income year);
• Your additional running expenses (for example, phone bills, electricity bills);
• How the deduction was calculated.

Understanding Division 7A – avoid common errors

There are multiple ways in which owners may access private company money, such as through salary and wages, dividends or complying Division 7A loans. Division 7A is an area where the ATO sees many errors, across both the basics and more complex aspects.

Broadly, under Division 7A, certain loans and payments by private companies to shareholders (and associates of those shareholders) are taken to be unfranked dividends. An unpaid present entitlement may also be taken to be an unfranked dividend. A loan will not be taken to be an unfranked dividend if it meets certain minimum rate and maximum term criteria.

The ATO has reminded taxpayers that they need to:

• Keep adequate records;
• Properly account for and report payments and use of company assets by shareholders and associates; and
• Comply with rules around Division 7A loans.

It’s essential that you understand Division 7A to:

• Make informed decisions when receiving private company money and using private company assets;
• Avoid unexpected and undesirable tax consequences.

Check your PAYG instalments

Now is a good time to check that your business’ PAYG instalments still reflect the expected end-of-year tax liability.

If your business’ circumstances have changed and you think you will pay too much (or too little) in instalments for the year, the instalments can be varied on the next activity statement (due on 28 April 2024 if you pay quarterly). Instalments can be varied multiple times throughout the year. The varied amount or rate will apply for the remaining instalments for the income year or until another variation is made.

If your varied instalments are less than 85% of your total tax payable, you may have to pay a general interest charge on the difference, in addition to paying the shortfall. Depending on the circumstances there may also be penalties.

If you are not sure, it is best to not vary your instalments. Any overpaid instalments will be refunded to you after you lodge your tax return.

If your business is affected by COVID-19 or a natural disaster, the ATO has said it will not apply penalties or charge interest to varied instalments if you have made your best attempt to estimate your end of year tax liability.

If an amount or rate is varied online, activity statements and instalment notices will be issued electronically and not in paper form. You will need to consider this when deciding how to lodge, revise and vary future activity statements and instalment amounts.

Can you claim the small business skills and training boost?

If you are paying for your employees’ external training, you could be eligible to claim the skills and training boost.

Businesses with an aggregated annual turnover of less than $50 million are potentially eligible for the small business skills and training boost. The boost provides an additional 20% bonus tax deduction for eligible expenditure incurred on training new and existing employees.

If eligible, you can claim a deduction on expenditure for external training courses delivered to your employees, either in person in Australia or online. The training must be provided by a registered external training provider.

The skills and training boost is available until 30 June 2024, so you still have time.

You cannot claim expenditure for training you undertake yourself as a business owner, such as where you are a sole trader, partner in a partnership or independent contractor.

For example, if you are a gardener operating as a sole trader, and you and your employee begin turf management training, you cannot claim the bonus deduction for the expenditure on training for yourself, but you can claim it for your employee’s training.

EV home charging rates

The ATO allows a cents-per-kilometre methodology for calculating electricity costs where an electric vehicle (EV) is charged at an employee’s home.

The employer can choose to use this methodology instead of determining the actual cost of the electricity. The choice is per vehicle and applies for the whole income or FBT year. However, it can change from year to year.

The methodology does not apply to plug-in hybrid vehicles, electric motorcycles or electric scooters.

Cents-per-kilometre

The ‘EV home charging rate’ is 4.2 cents per km. This rate is multiplied by the total number of relevant kilometres travelled by the EV in the income year or FBT year in question.

Where EV charging costs are also incurred at commercial charging stations and the home charging percentage can be accurately determined, the total number of relevant kilometres must be adjusted. If the home charging percentage cannot be accurately determined, you can choose to use either the EV home charging rate and disregard the commercial charging station cost, or the commercial charging station cost and not apply the EV home charging methodology.

Record keeping and transitional approach for 2022–23 and 2023–24

If you are an employer and you choose to apply the EV home charging rate for FBT purposes, a valid logbook must be maintained if the operating cost method is used.

To satisfy the record keeping requirements for income tax purposes:

• A valid logbook is needed to use the logbook method of calculating work-related car expenses. For other vehicles, the ATO recommends a logbook to demonstrate work-related use of the vehicle; and
• One electricity bill for the residential premises in the income year is needed (to show that electricity costs have been incurred).

However, if you have not maintained odometer records as at the start of the 2022–23 or 2023–24 FBT or income year, the ATO will allow a reasonable estimate to be used based on service records, logbooks or other available information.

FBT issues

FBT return time

The fringe benefits tax (FBT) year runs from 1 April to 31 March. You should be preparing to lodge an FBT return for the FBT year ended 31 March 2024 if:

• Your business is liable to pay FBT on fringe benefits provided to employees; and/or
• Your business has paid FBT instalments through its activity statements (e.g. a BAS).

The FBT return is normally due on 25 May, but as that falls on a Saturday this year, the return is instead due on Monday 27 May.

You must lodge all activity statements for the FBT year ended 31 March 2024, including the March quarter, before lodging the FBT return. The FBT return will not be processed until all the activity statements are lodged.

If you use a registered tax agent to prepare and lodge the FBT return, then the due date for lodgment is 25 June 2024. That is also the due date for the balancing payment for FBT for employers using tax agents who lodge FBT returns electronically.

If you are lodging your business’ FBT return through a tax agent for the first time, contact them before 21 May 2024. The agent needs to add your business to their FBT client list by this date so that your business will be eligible for the extended June lodgment and payment date.

The ATO states that most electronic lodgments are processed within 14 days and most paper lodgments are processed within 50 business days. If you are due a refund, it will be processed within 28 days.

If your business is registered for FBT but you do not need to lodge a return, you should send the ATO a Fringe benefits tax – notice of non-lodgment (NAT 3094). This will prevent the ATO from seeking a return from you at a later date. Send the notice by the time the FBT return would normally be due.

Extension of time

If you need an extension of time to lodge the FBT return, you can contact the ATO on 13 28 66. But if you use a tax agent to lodge the return, contact them.

If you are having difficulty paying on time, contact the ATO before the due date to discuss your circumstances.

Paying FBT

When you lodge the annual FBT return, you offset the instalments paid during the year against the actual FBT liability. If the instalments are less than the FBT liability, you pay the shortfall. If the instalments are more than the FBT liability, the ATO will refund the excess.

If you have to pay FBT of $3,000 or more for the year, you must pay quarterly FBT instalments in the next year.

What’s new in FBT?

Changes to employee declarations

The make and model of the car are no longer required for the following employee declarations:

• Remote area holiday transport;
• Overseas employment holiday transport;
• Relocation transport;
• Employment interview or selection test;
• Work-related medical examinations, medical screenings, preventative health care or counselling or migrant language training.

Changes to FBT record keeping

From 1 April 2024 (i.e. the FBT year ending 31 March 2025), employers have a choice in certain situations to use existing records in place of statutory evidentiary documents, such as travel diaries or employee declarations. This will apply only if the ATO has made a determination by legislative instrument that applies to the employer that specifies the kind of alternative documents or records.

So far, the new arrangements will apply in relation to:

• Travel diaries;
• Otherwise deductible benefits;
• The private use of vehicles other than cars;
• Car travel to certain work-related activities;
• Car travel to an employment interview or selection test;
• Living-away-from-home — maintaining an Australian home;
• Fly-in fly-out employees;
• Overseas employment holiday transport;
• Remote area holiday transport;
• Relocation transport; and
• Temporary accommodation relating to relocation.

Published 7 May, 2024