September 2024 Tax Newsletter

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

What’s new

Individual

Income tax rates

Tax cuts for every taxpayer came into effect on 1 July 2024. To remind you, the new personal income tax rates are set out in the table below.

Income tax thresholds/amounts

Various income tax thresholds and amounts changed on 1 July 2024. Some of the more common ones are listed below.

* ATI = adjustable taxable income

GDP adjustment for 2024–25

The GST and PAYG instalment amounts are usually adjusted every year by the ‘GDP adjustment factor’.

For the 2024–25 income year, the GDP adjustment factor is 6%. This is unchanged from 2023–24.

Medicare levy surcharge and private health insurance

The income thresholds for Medicare levy surcharge and private health insurance tax offset purposes are set out in the table below.

* The family income threshold is increased by $1,500 for each dependent child after the first child.

The Medicare levy surcharge is 1% for Tier 1 taxpayers, 1.25% for Tier 2 taxpayers and 1.5% for Tier 3 taxpayers.

The private health insurance tax offset percentage is highest for Tier 1 taxpayers and lowest for Tier 3 taxpayers. The percentage also varies depending on the ages of the persons covered by the relevant health insurance policy. There are 3 age brackets — under 65 years, 65 to 69 years and 70 years and above.

HELP and other student debts

Do you have a study or training debt – e.g. a Higher Education Loan Program (HELP) debt (previously called a HECS debt)? The repayment thresholds and rates for the 2024–25 income year are set out in the table below.

Note that the repayment thresholds and rates also apply to VET Student Loan (VSL), Student Financial Supplement Scheme (SFSS), Student Start-up Loan (SSL), ABSTUDY Student Start-up Loan (ABSTUDY SSL) and Trade Support Loan (TSL) debts.

The repayment rate is based on what is called ‘HELP repayment income’. This is effectively the sum of your taxable income, net exempt foreign employment income, reportable fringe benefits, reportable superannuation contributions and total net investment losses.

Super and ETP thresholds

Relevant superannuation and ETP (employment termination payment) thresholds for the 2024–25 financial year are listed below.

Note:

• To deduct a personal superannuation contribution, an individual aged 67–75 years must be ‘gainfully employed’ for at least 40 hours in any 30-day period in the income year.
• Remember that if you accessed your superannuation early in response to the COVID-19 pandemic, you can choose to re-contribute those amounts by 30 June 2030 without them being counted towards your non-concessional contributions cap. The choice must be made in the approved form and given to your superannuation fund before you make the re-contribution.

Pensions and annuities – minimum drawdown amounts

The minimum drawdown amounts for 2024–25 are set out in the table below.

If you receive more than the minimum drawdown amount, you can recontribute these amounts if you are eligible to make superannuation contributions (subject to other rules or limits such as contributions caps).

Business

Tax changes from 1 July 2024

A number of income tax measures relevant to businesses apply from 1 July 2024, including:

• Extension of the $20,000 instant asset write-off threshold for small businesses for a further 12 months to 30 June 2024;
• Increase in the minimum level of employer support under the superannuation guarantee scheme from 11% to 11.5%;
• Extension of the third party reporting system to the operators of electronic distribution platforms (EDPs) that facilitate supplies from one entity to another entity (other than short-term accommodation transactions and taxi and ride-sourcing services – the system already applies to those services);
• Introduction of minimum training expenditure requirements to qualify for the location tax offset in relation to films;
• Extension of the producer tax offset to certain drama series;
• In Victoria, increase in the payroll tax threshold to $900,000, while employers and groups with total annual taxable Australian wages between $3 million and $5 million are eligible for a reduced deduction;
• In Victoria, changes to transfer duty in relation to commercial or industrial land and reduction in the rate of duty on certain insurance policies.

It’s tax time again!

Home office

If you operate your business from a home office, you can deduct the expenses of running that office. A home office is a room in your home that is used exclusively (or almost exclusively) for business activities.

Expenses you can claim a deduction for include:

• Occupancy expenses — these include rent, mortgage interest, water rates, land taxes and house insurance premiums. Occupancy expenses are usually calculated by apportioning the expenses between the home office and the rest of the property on a floor area basis;
• Running expenses — these are the increased costs from using your home for your business, including electricity or gas charges for heating, cooling and lighting, cleaning costs, and depreciation and the cost of repairs of deprecating assets such as furniture, furnishings and equipment; and
• Work related phone and internet expenses, including depreciation of the handset – an apportionment will be required if the phone or computer is not used exclusively for work.

Running expenses

If you work from home but don’t have a home office as such, you can still claim deductions for additional expenses incurred while working from home, called ‘running expenses’. To simplify matters, for 2023–24, the ATO allows a rate of 67 cents for each hour worked from home.

Running expenses for these purposes are energy expenses, internet expenses, mobile and home phone expenses and stationery and computer consumables expenses (separate deductions can be claimed for any other running expenses and depreciation of office equipment and furniture).

You must keep a record of the actual hours spent working from home. Records also need to be retained to demonstrate you incurred the relevant expenditure.

Of course, you can still make a claim based on your actual running expenses if it produces a larger deduction. But remember that those expenses will need to be apportioned between work and private use.

Company tax rate

The standard company tax rate is 30%.

The tax rate for the 2023–24 income year for companies whose aggregated annual turnover is less than $50 million (called ‘base rate entities’) is 25%. This rate is unchanged for the 2024–25 and later income years.

If more than 80% of a company’s assessable income is ‘base rate entity passive income’ (e.g. dividends, rent, interest, royalties and net capital gains), the company will be taxed at the standard 30% rate.

Small business tax offset

If you are a sole trader, an individual who is a partner in a business partnership or an individual who is a beneficiary of a trust that carries on a business, you may qualify for the small business tax offset if the business’ aggregated turnover is less than $5 million (not the general $10 million small business turnover threshold that applies to many other small business measures). The offset is not available to an individual acting as a trustee.

The offset for the 2023–24 income year (and 2024–25) is equal to 16% of the income tax payable on the sole trader’s or other individual’s taxable income that qualifies as their net small business income. The offset is capped at $1,000.

From the ATO

Individual

Let’s talk record keeping

The ATO is encouraging taxpayers to consider what work-related expenses they will be looking to claim for the 2024–25 income year, and what records they will need to substantiate those deductions.

Keeping good records can reduce the cost of managing your tax affairs and ensure you can claim all expenses that you are entitled to.

Generally, you won’t know at the start of the financial year exactly what you can claim come tax time, but you can set yourself up for success by checking what work-related expenses you can claim, what records you will need to prove them, and making a plan to store those records for when you’ll need them.

Records can be kept as a paper version, an electronic copy or a true and clear photo of an original record. You can use any electronic device or app to keep your electronic records. However, the ATO recommends backing up your electronic records regularly.

The ATO has also published information on its website busting some common myths concerning records, deductions and work-related expenses.

Bank statements

In most cases, a bank or credit card statement on its own won’t be enough evidence to support a work-related expense claim. You will need written evidence (usually a receipt) that shows the supplier, the cost, the date of purchase, the date the document or receipt was produced, and the nature of the goods or services being claimed.

Claiming more than $300 of work-related expenses

If your total claim for work-related expenses is more than $300, you must have written evidence to support all those claims.

If your total claim for deductible work expenses is $300 or less, you can claim a deduction without written evidence (such as a receipt), but you must be able to show that you spent the money and how you calculated the amount being claimed.

No automatic deductions

While some deduction types don’t require receipts (such as laundry expenses), some kind of record may still be necessary. For any work-related expense claim, you need to meet the three golden rules:

• You must have spent the money yourself and were not reimbursed.
• The expense must directly relate to earning your income.
• You must have a record to prove it (usually a receipt).

If the expense was incurred for both work and private purposes, you claim a deduction only for the work-related portion.

You cannot claim a deduction if your employer pays for the expense or reimburses you for it. If the ATO thinks your employer may reimburse you for an expense, they may check with the employer.

Non-work related expenses

There are a few expenses you can claim as a deduction even though they do not relate to your work. These include:

• Gifts and donations;
• Expenses related to earning income from investments;
• Personal superannuation contributions;
• Income protection insurance; and
• The cost of managing your tax affairs.

When you claim a deduction, you need to keep records that show you incurred the expense.

Your tax residency

If you are coming to Australia or going overseas, you may need to work out your residency for tax purposes.

The rules for tax purposes are not the same as the rules used by the Department of Home Affairs. This means you:

• Can be an Australian resident for tax purposes without being an Australian citizen or permanent resident; or
• May have a visa to enter Australia but are not an Australian resident for tax purposes.

The four tests to determine an individual’s residency are:

• The resides test;
• The domicile test;
• The 183-day test;
• The Commonwealth superannuation test

Only one test needs to be satisfied for an individual to be an Australian tax resident.

Resides test

The primary test of tax residency is called the resides test (or the ordinary concepts test). If you reside in Australia, you are an Australian resident for tax purposes and you do not need to apply any of the other residency tests.

It is not always obvious if someone satisfies this test. For example, there have been cases where a person lives and works overseas but their connection to Australia is still strong enough to make them a resident for tax purposes. That could be the case if the individual regularly visits Australia (e.g. to see their family), owns property here and maintains a bank account here (although each case turns on its own particular facts and circumstances).

Some of the factors that can be used to determine residency under the resides test include:

• Physical presence;
• Intention and purpose;
• Family ties;
• Business or employment ties;
• Maintenance and location of assets;
• Social and living arrangements.

Working holiday makers are unlikely to satisfy this test.

Domicile test

You are an Australian resident if your domicile is in Australia unless the ATO is satisfied that your permanent place of abode is outside Australia.

A domicile is a place that is your permanent home by law. For example, it may be a domicile by origin (where you were born) or by choice (where you have changed your home with the intent of making it permanent).

183-day test

This test is commonly applied to individuals arriving in Australia. You will be a resident under this test if you are actually present in Australia for more than half the income year, whether continuously or with breaks, unless it is established that your usual place of abode is outside Australia and you have no intention of taking up residence here.

Commonwealth superannuation test

This is the simplest test. If you are a member of the Commonwealth Superannuation Scheme (CSS) or Public Sector Superannuation (PSS) scheme (but not the Public Sector Superannuation accumulation plan (PSSap)), you (and your spouse and children aged under 16 years) are a resident of Australia regardless of any other factors.

Business

Does your business pay contractors to provide certain services?

If your business provides any of the following services and you pay contractors to provide them on your behalf, you may need to lodge a Taxable payment annual report (TPAR):

• Building and construction;
• Cleaning;
• Courier and road freight;
• Information technology (IT);
• Security, investigation and surveillance.

TPARs for 2023–24 were due by 28 August 2024.

On your TPAR, you need to record the:

• Contractor’s name, address and ABN; and
• The total amount you paid them for the previous financial year – including any GST and cash payments.

You can find these details on your contractors’ invoices. It’s the same information you use to claim income tax deductions through your tax return, and GST credits through your BAS.

You can lodge the TPAR is through SBR-enabled software or Online services for business. Your tax adviser can also lodge on your behalf.

Penalties may apply if you did not lodge your TPAR by 28 August 2024.

Superannuation guarantee charge

If your business does not make the required super guarantee (SG) contributions for its employees your business is liable to pay the SG charge (SGC). The SGC equals the total of the individual SG shortfalls for the quarter, plus a nominal interest component (10%) and an administration component ($20 per employee, per quarter).

Your business has to self-assess its liability for the SGC each quarter and lodge an SG statement with the ATO. The due dates for each quarter are set out in the table below.

Published 13 September, 2024