Budget 2021: what’s in it for me?

Grahame Allen • May 19, 2021

As is tradition, the second Tuesday in May saw the Treasurer, Josh Frydenberg handed down the 2021-22 Federal Budget, his third. Overall, he noted that while the Australian economy has recovered from COVID-19 impacts in record time, the Budget deficit will still reach $161bn in 2020-21, and is projected to slowly decrease to $106.6bn in 2021-22 and $57bn in 2024-25. So, with the government continuing its spending spree in order to keep the economic engine going, individuals are set to benefit with the following, albeit delayed changes. LMITO and low income tax offsets The government will retain the low and middle income tax offset (LMITO) for the 2021-22 income year. It was previously legislated to only apply to the end of the 2020-21 income year which would've seen low-to-middle income earners lose between $255 to $1,080 in tax refunds. The amount of the LMITO remains the same as the 2020-21 income year, that is $255 for taxpayers with a taxable income of $37,000 or less. Those earning between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar. The low income tax offset (LITO) will also continue to apply in conjunction with the LMITO. The LITO was originally intended to replace the LMITO from 2022-23 but was subsequently brought forward in the 2020 Budget. The maximum amount of LITO is $700 for those earning up to $37,500. Those earning between $37,501 and $45,000 will have LITO withdrawn at a rate of 5 cents per dollar. Taxpayers earning between $45,001 and $66,667 will have LITO withdrawn at a rate of 1.5 cents per dollar. Those earning above $66.668 are not eligible for the LITO. $250 threshold to be removed for self-education expenses It was announced that the government will remove the exclusion of the first $250 of deductions for prescribed courses of education. Currently, if a taxpayer incurs self-education expenses in relation to a course provided by a university, college etc, for the purpose of gaining qualifications for use in carrying on of a profession, business or trade or in the course of any employment, the first $250 of the cost is not deductible. This measure is not expected to start until the first income year after the date of Assent of enabling legislation, meaning that unless legislation is introduced, passed and receives Assent before 30 June 2021, the measure will not start until 2023. Tax residency changes The government will replace the existing tests for tax residency with a primary test under which if a person who is physically present in Australia for 183 days or more in any income year will be an Australian tax resident. Those that do not meet the primary test will be subject to secondary tests that depend on a combination of physical presence and measurable, objective criteria. As with the self-education expenses, the government has committed to any firm dates for the legislation to come into effect. Other measures: childcare; personal tax rates As previously announced by the government, the Budget confirmed that it will make an additional $1.7bn investment in childcare, although changes will not commence until 1 July 2022 (the next financial year!). The Budget also confirmed that there will not be any changes to personal tax rates for the 2021-22 income year, which means the rates remain the same as the 2020-21 income year.

Old ATO debts: IGTO weighs in

By Grahame Allen • 19 Apr, 2024
In response to the ATO's recent actions on re-activating or off-setting old debts, the Commonwealth Ombudsman/ACT Ombudsman, and the Inspector-General of Taxation and Taxation Ombudsman (IGTO) have jointly issued new guidelines aimed at improving how Australians are notified about government debts. The publication outlines principles designed to ensure that the process of debt notification is handled with transparency, clarity and sensitivity towards impacted individuals. Mr Iain Anderson, serving as both Commonwealth Ombudsman and ACT Ombudsman, together with Ms. Karen Payne, Inspector-General of Taxation and Taxation Ombudsman, emphasized the importance of government agencies adopting a compassionate and principled approach when dealing with debt notification. "While the law may require agencies to take certain actions, it is crucial that these actions are taken in a manner that minimizes distress," they stated. The guidelines propose five key principles for the ATO and other government departments to consider when conducting programs: Transparency and Accountability - agencies should communicate clearly why the debt has arisen, fostering trust and confidence in the process. Clarity on the Debt's Origin - individuals should understand the source and nature of the debt, tailored to the recipient's circumstances. Clear Pathways for Review - information on how to request a review of the debt, apply for waivers, and arrange repayments should be readily accessible, ensuring individuals understand their rights and options. Accessible Support - contacts for further assistance must be provided, acknowledging that people may have additional questions or need personalized support. Commitment to Improvement - the process of debt recovery should be viewed as an opportunity to learn and enhance future practices based on oversight recommendations and past experiences. Also noted was the significance of reflecting on past interactions and the recommendations from oversight bodies to continually elevate how agencies engage with the community regarding sensitive matters such as debt recovery. Taxpayers who have an unresolved complaint or dispute with the ATO are able to lodge a dispute with the IGTO to receive independent assurance. IGTO will conduct an independent investigation of the actions and decisions that are subject of the dispute and can help taxpayers better understand the actions taken by the ATO and/or independently verify whether shortcomings exist in ATO’s action or decision which should be rectified, as well as identifying other options taxpayers may have to resolve their concerns. For example, in one case study, the IGTO assisted a taxpayer to verify whether the full amount of general interest charge had been remitted on their tax debts. In another, after a taxpayer’s original request for the Commissioner to exercise his discretion to advance their refund instead of offsetting against their tax debt due to imminent risk of homelessness was denied, the taxpayer lodged a dispute with the IGTO. Following urgent discussions between the IGTO and senior ATO officers, the ATO reversed their decision, and the taxpayer received his refund. The IGTO can also intervene in cases where the ATO has used family assistance payments to offset tax debts. According to another one of IGTO’s case studies, the ATO used a Centrelink Family Assistance (CFA) payment to offset a tax debt that a taxpayer had. At the time, the taxpayer was unemployed and supported two minors along with an ageing parent and relied on the payment. After IGTO intervention, the ATO agreed to refund the offset recognising it was not appropriate to pursue debt collection given the circumstances. Taxpayers interested in lodging a dispute with the IGTO should note that they must have first attempted to resolve the complaint directly with the ATO unless special circumstances exist. Those that remain unsatisfied with the ATO response should then lodge a formal complaint with the ATO for review. If taxpayers are still unsatisfied with the outcome of the ATO review, they can then lodge a dispute with the IGTO for an independent investigation either online or via post or phone.

Get ready for FBT time

By Grahame Allen • 12 Apr, 2024
The end of the FBT year is upon us once again. Employers that have provided their employees with fringe benefits any time during the 2024 FBT year – 1 April 2023 to 31 March 2024 – will need to lodge an FBT return and pay any liability by 28 May 2024. With the landscape of FBT evolving every year due to legislative amendments and administrative updates, employers need to be mindful of the changes applying for the current FBT year. While the electric vehicle exemption came into effect on 1 July 2022, many employers have only recently started ramping up the purchase or leasing of electric vehicles due to a combination of waiting for previous leases to expire and a temporary shortage of electric vehicles. As a refresher, employers are now exempt from paying FBT on benefits related to eligible electric vehicles under the condition that the vehicles are zero or low emissions, first held and used after 1 July 2022, never subjected to luxury car tax, and utilised by current employees or their associates. It should be noted that car expenses associated with providing eligible electric vehicles are also exempt, which includes registration, insurance, repairs and maintenance and fuel (including the cost of electricity to charge electric cars). Other expenses that are not exempt may be reduced by the otherwise deductible rule if the expenditure would have been deductible to the employee had they incurred it themselves. To provide certainty for employers, the ATO recently issued Practical Compliance Guideline PCG 2024/2, offering guidance on calculating electricity costs for charging electric vehicles at an employee’s home. This guideline provides a methodology for employers and individuals to calculate electricity costs, either by using the outlined approach or by determining the actual cost, facilitating the inclusion of these costs in FBT and income tax calculations. In addition, employers that provide cars to their employees should also be aware of the recent updates to the car parking fringe benefits to reflect the latest Taxation Ruling, TR 2021/2, offering clarity on modern car parking arrangements and compliance requirements. In another change for the 2024 FBT year, the ATO has simplified employee declarations in relation to some fringe benefits to ease the administrative burden for both employees and employers. The new declarations remove the requirement for employees to declare the make and model of cars for specific transport-related benefits, including remote area holiday transport and overseas employment holiday transport, among others. Similar to previous FBT years, employers that lodge FBT returns electronically through tax practitioners will have access to a deferred due and payment date of 25 June. This only applies to electronic lodgments and any paper returns lodged through tax practitioners will still have 25 May as the due and payment date. For employers that have registered for FBT but do not need to lodge a return for the 2024 FBT year, a notice of non-lodgment should be submitted to the ATO by the time the FBT return would normally be due (ie by either 25 May or 25 June) to prevent the ATO from seeking a return at a later date. The regulatory environment surrounding FBT continues to evolve; for example, recently the ATO registered instruments to allow employers the option to utilise existing records instead of statutory evidentiary documents for certain benefits from 1 April 2024 (ie the 2025 FBT year). Therefore it is crucial to stay up-to-date and well-informed to navigate the complexities of FBT compliance.

ATO’s use of small business benchmarks

By Grahame Allen • 05 Apr, 2024
Recently, the ATO updated its small business benchmarks to encompass the 2021-22 income year. While the ATO promotes these benchmarks as an aid for small businesses to enable them to compare expenses and turnover with other similar small businesses in the same industry, it is important to note that these benchmarks are also used by the ATO to identify businesses that may be avoiding their tax obligations. According to the ATO, it uses small business benchmarks along with other risk indicators to select businesses for further compliance activities. The first step consists of comparing information reported in business tax returns lodged with the key performance benchmarks for the industry. The industry that your business is in depends on the industry codes selected, as well as the description of the main business activity on the tax return and the business trading name. The benchmarks themselves are divided into 9 broad categories of accommodation and food; building and construction trade services; education, training, recreation and support services; health care and personal services; manufacturing; professional, scientific and technical services; retail trade; transport, postal and warehousing; and other services. These categories split into additional subcategories; for example, bakeries, chicken shops, coffee shops, kebab shops and pubs all have their own separate subcategory under accommodation and food. There are 5 tax return benchmark ratios calculated by the ATO and all are expressed as a percentage of turnover (excluding GST). These consist of total expense/turnover, cost of sales/turnover, labour/turnover, rent expenses/turnover, and motor vehicle expenses/turnover. To calculate the turnover, the ATO generally uses the amount reported at the “Other sales of goods and services” label on the tax return or if that figure is not present, the figure from the “total business income” label. Small businesses can use the Business performance check tool on the ATO app to work out their own personal ratios and then compare them to the benchmarks, or manually calculate the various ratios and compare to the benchmarks. For businesses with ratios inside the benchmark ranges for their industry, the ATO notes that nothing else needs to be done. However, businesses with ratios outside of benchmarks are encouraged to look to see if there are any factors that can be improved. Generally, businesses reporting ratios above the benchmarks indicate that expenses are high relative to sales which may point to a range of factors ranging from the benign (eg higher wastage, lower volume of sales, or lower mark-up), to concerning (eg sales not recorded properly, failure of internal cash controls, etc). Businesses reporting ratios below the benchmarks commonly have fewer issues of concern as they have lower expenses relative to sales which may indicate some expenses not being recorded, having a higher mark-up or just being more efficient. Not all benchmark ratios will apply to every business. It is up to the individuals in control to work out which benchmarks are applicable and check that the business is within the appropriate range, as well as investigate instances where it is not. The ATO reminds small businesses that benchmarks are never used in isolation in instances where further action of investigations are initiated, instead a wide range of other supporting factors are also considered.
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