Despite previous assurances, and after much speculation, the Government has announced tweaks to the ‘Stage 3’ tax cuts that will apply from 1 July 2024.

More particularly, the Government proposes to:

• reduce the 19% tax rate to 16%;
• reduce the 32.5% tax rate to 30% for incomes between $45,000 and a new $135,000 threshold;
• increase the threshold at which the 37% tax rate applies from $120,000 to $135,000;
• increase the threshold at which the 45% tax rate applies from $180,000 to $190,000; and
• The Medicare levy low-income thresholds for the 2024 income year will also be increased.

The AAT recently held that the sale of land by a taxpayer was subject to GST, as it was a supply made in the course of an enterprise being carried on by the taxpayer.

The taxpayer purchased a single parcel of land in 2013 for $1.6 million, and he subsequently took steps for the land to be subdivided and rezoned.  He then sold the land in 2021 for $4.25 million before the subdivision was completed.

The ATO advised the taxpayer that the sale of the land was subject to GST as a taxable supply under the GST Act.

The taxpayer objected to the GST assessment on the following grounds:

•       the sale of the property was not made by him in the course of his enterprise; and
•       as the property was the taxpayer’s residential premises, it was an input taxed supply, so no GST should apply anyway.

However, the AAT agreed with the ATO that the sale of the property was subject to GST as a supply made in the course of the taxpayer’s enterprise.

The AAT first noted that the sale of the property was not an input taxed supply of residential premises because the buildings on the property were uninhabitable, and so the property did not meet the definition of ‘residential premises’ in the GST Act.

The AAT also held that the taxpayer’s development works were in “the form of a business”, even if he was not in the business of being a property developer.  Relevant factors included the scale of the operations that the taxpayer was involved in (including rezoning and subdividing the property), as well as the amount of capital invested by him in the purchase of the property and development works.

The taxpayer’s “series of activities” throughout his ownership of the property therefore amounted to the carrying on of an enterprise, and the taxpayer was liable to pay GST on the sale of the property.

The Administrative Appeals Tribunal (‘AAT’) recently held that a taxpayer should not be allowed deductions for various work-related expenses, largely because the substantiation requirements had not been satisfied.

The taxpayer, a real estate salesperson, claimed tax deductions for the 2018 to 2020 income years, during which time he derived income from his employment with a real estate company.

However, the ATO disallowed the taxpayer’s claims for various work-related expenses, including car expenses, and gifts and donations.

The AAT agreed with the ATO, and held that the expenses claimed were not deductible and that the taxpayer had failed to substantiate his claims.

The taxpayer had claimed deductions for car expenses using the logbook method, but the AAT noted that the car was owned by a company and was not leased to the taxpayer.  Therefore, the car was not ‘held’ by the taxpayer, as required by the logbook method.  The taxpayer’s logbook also lacked “sufficient specificity” for this method.

While the taxpayer produced credit card statements and telephone tax invoices (in relation to credit card interest and telephone expenses), it was not clear from these documents whether the costs claimed related to work expenses.

The taxpayer sought to rely on bank transaction statements in relation to other expenses, but they were considered to be insufficient, as it was unclear from these statements what the relevant expense was, how the expense was incurred in earning the taxpayer’s assessable income, and any apportionment between business and personal use.

There were also no receipts or tax invoices for any of the claimed donations.

The ATO recently issued a ruling which explains when an individual is an ’employee’ of an entity for pay as you go (‘PAYG’) withholding purposes.

A useful approach for establishing whether or not a worker is an employee of an engaging entity is to consider whether the worker is working in the business of the engaging entity, based on the construction of the terms of the relevant contract. Importantly, the fact that a worker may be conducting their own business, including having an ABN, is not determinative.

Editor: If you need help with this important issue, please contact our office.

The ATO has proposed for individual taxpayers that use the cents per kilometre method when calculating tax deductions for their work-related car expenses, that the rate per kilometre for the income year starting 1 July 2022 (the 2023 income year) will be 75 cents per kilometre.

This is an increase from the 72 cents rate applicable for both the 2021 and 2022 income years.

A reminder that the ability to claim a deduction under the cents per kilometre method is subject to a cap of 5,000 business kilometres annually.

Individual taxpayers will claim deductions for work-related car expenses (where eligible) under one of two alternative methods: the log-book method or the cents per kilometre method.

Many taxpayers find that they are not able to use the log-book method as they have not maintained a valid 12-week logbook in the last five years.

Low and Middle Income Tax Offset

A measure that will no doubt be beneficial for individual taxpayers is the increase in the Low and Middle Income Tax Offset (‘LMITO’) for the 2022 income year by $420.  The LMITO is a tax offset which reduces an individual taxpayer’s tax liability.

This means that the maximum amount of the LMITO for the 2022 income year will now be $1,500 (up from $1,080 for the 2021 income year).

However, the LMITO will not be extended to the 2023 income year.

Reduction in Fuel Excise

Fuel excise on petrol and diesel will be reduced by 50% (a reduction of 22.1 cents per litre) from 30 March 2022 to 28 September 2022.

This temporary reduction in the fuel excise is to soften the impact of increased petrol and diesel prices that have been triggered by Russia’s invasion of Ukraine.

Tax deductions for work-related COVID-19 tests

Last month’s edition of Practice Update discussed a proposal for COVID-19 tests, to be both:

•    tax-deductible; and
•    exempt from FBT;

broadly where they are purchased for work-related purposes.

This proposed legislative change is now law with effect from 1 July 2021.

The ATO has issued a reminder to businesses that paying regular attention to their record-keeping and reporting tasks will help them better manage their cash flow and allow them to plan for the future.

The best way to make sure a business has enough cash available to meet its tax and other obligations is to do a cash flow budget or projection.  This information will help the business to:

• see its likely cash position at any time;
• identify any fluctuations that may lead to potential cash shortages;
• plan for tax payments;
• plan for any major expenses; and
• provide lenders with information.

Accounting for income and expenses can help keep a business running smoothly — by giving it an overview of when it can expect money to come in and when it may go out, and highlighting where the business may need to direct its money.

The ATO provides resources about record keeping for business, and there is also information on business.gov.au regarding how to create a budget, and how to improve a business’s financial position.

Scamwatch is warning that scams cost Australian consumers, businesses and the economy hundreds of millions of dollars each year and cause serious emotional harm to victims and their families.

Cryptocurrency scams are the most ‘popular’ type of investment scams, representing over 50% of losses.  Often the initial investment amount is low (between $250 and $500), but the scammers pressure the person to invest more over time before claiming the money is gone or ceasing communication and blocking access to the funds.

All age groups are losing money to investment scams, but the over-65s have lost the most, with $24 million lost this year.

Some simple steps individuals can take to protect themselves (and their businesses) are:

• Never give any personal information to someone who has contacted you.
• Hang up and verify the identity of the person contacting you by calling the relevant organisation directly — find them through an independent source such as a phone book, past bill or online search.
• Do not click on hyperlinks in text/social media messages or emails, even if it appears to come from a trusted source.
• Go directly to a website through a browser (e.g., to reach the MyGov website, type ‘my.gov.au’ into the browser).
• Search for reviews before purchasing from unfamiliar online traders.
• Be wary of sellers requesting unusual payment methods.
• Verify any request to change bank details by contacting the supplier directly.
• Consider a multi-factor approval process for transactions over a certain dollar amount.
• Never provide a stranger remote access to your computer, even if they claim to be from a telco company such as Telstra.

Editor: Feel free to contact our office if you need any help at all with this or anything else.

The ATO knows that many taxpayers are facing lasting impacts left in the wake of natural disasters, so if they find their records have been lost or destroyed, whether in cyclones, floods or bushfires, the ATO can help.  According to ATO Assistant Commissioner Tim Loh:

“If you have a myGov account linked to the ATO, you’ll be able to view some of your records, including income tax returns, income statements and previous notices of assessments.  If you lodge through a registered tax agent, they can also access these documents on your behalf.”

Government agencies, private health funds, financial institutions and businesses provide information to the ATO which is available to tax agents and automatically included in returns by the end of July.

If taxpayers have lost receipts due to a natural disaster, the ATO can accept reasonable claims without evidence, so long as it’s not reasonably possible to access the original documents (although the taxpayer may be required to tell the ATO how they calculated the claim).

The ATO has received increasing reports of a new take on the ‘fake tax debt’ scam, whereby scammers are now impersonating registered tax agents to lend legitimacy to their phone call.

The fraudsters do this by coercing the victim into revealing their agent’s name and then initiating a three-way phone conversation between the scammer, the victim, and another scammer impersonating the victim’s registered tax agent or someone from the agent’s practice.

As the phone conversations with the scammers appeared legitimate and the victims trusted the advice of the scammer ‘tax agent’, victims have been falling for this new approach.

In a recent example, a victim withdrew thousands of dollars in cash and deposited it into a Bitcoin ATM, fearing that police had a warrant out for their arrest.

The ATO is reminding taxpayers that they will never:

• demand immediate payments;
• threaten them with arrest; or
• request payment by unusual means, such as iTunes vouchers, store gift cards or Bitcoin cryptocurrency.

Taxpayers are advised that if they are suspicious about a phone call from someone claiming to be the ATO, then they should disconnect and call the ATO or their tax agent to confirm the status of their tax affairs and verify the call.