Date posted: 02/06/2023 8 min read

Snakes & ladders

Pending changes will significantly influence end-of-year tax and accounting planning, while chartered accountants are being urged to factor in key business tax measures that are set to take effect from 1 July.

In Brief

  • Multinational companies, people with superannuation balances greater than A$3 million and small businesses that digitise or train staff are all potentially
  • While multinationals and some super holders may end up paying more tax, tax incentives are designed to encourage small businesses to get online and upskill their workers.
  • CAs should be using this time to model the implications of these changes and advise their clients accordingly.

By Cameron Cooper

Arange of taxation changes are on the cards for Australia and, as legislation is discussed and revised, chartered accountants will be keeping a close eye on the outcomes. While some changes may increase tax collection from some of our biggest taxpayers – multinationals – Chartered Accountants Australia and New Zealand is actively advocating against higher taxes for people with A$3 million+ superannuation balances: a move that seems unfair and punitive. However, it’s not all bad news – especially for small business. And it’s there that the advice from a CA could make the difference between a business leveraging new tax incentives or missing out.

Multinationals on notice

With the Australian Government seeking to deliver on its election commitment to implement a multinational tax integrity package, Treasury in March released Exposure Draft legislation outlining proposed changes to thin capitalisation rules. If passed, the changes will apply mainly to multinationals with high interest deductions for income years starting on or after 1 July 2023.

Michael Croker CA, tax leader, Australia at CA ANZ, says it is crucial for accountants to get clarity around the changes and “road-test” them to assess any impacts on clients. The hope is that there will be certainty around any new rules for the 1 July launch.

Michael CrokerPicture: Michael Croker CA

“For accountants advising these businesses, you’ll want to start modelling the impact of any changes that need to be made to their level of borrowing, so they can go and talk to their parent company or go and talk to their bank,” Croker says.

If the reforms are enacted, multinationals operating in Australia will see their ability to deduct interest payments curtailed in a move that Treasury says is designed to stop practices that “pose a significant risk to Australia’s domestic tax base” and strengthen Australia’s thin capitalisation rules in line with best-practice guidance from the Organisation for Economic Co-operation and Development (OECD).

Companies will be able to deduct interest payments up to 30% of their earnings before interest, taxes, depreciation and amortisation (EBITDA), replacing the existing asset-based test.

Croker says CAs will have to understand and respond to many components of the multinational tax integrity package, including a push to deny a deduction for royalties paid to an offshore party if those royalties end up in a low-tax jurisdiction.

“That sounds fairly simple in theory, but accountants and their clients will need to trace where that royalty payment ends up and be conscious of any levels of compliance the business needs to meet.”

Superannuation in the spotlight

Perhaps the most highly publicised tax reform on the radar is the government’s move to lift the tax rate on some superannuation accounts.

Currently, earnings on money invested in a super account are taxed at 15%, while under the proposed changes the amount will rise to 30% from July 2025 for balances more than A$3 million.

Although the slated changes will not take effect for two years, Tony Negline CA, superannuation and financial services leader at CA ANZ, says accountants should be starting to discuss any repercussions for affected clients and developing plans A, B and C for them. “The closer we get to the introduction of the changes, the more people will need to make some serious decisions,” he says.

Tony Negline CAPictured: Tony Negline CA

Negline notes that concerns have been raised about the decision to include unrealised gains in the calculation for the higher rate of tax on super balances, along with the treatment of unrealised capital losses and defined benefit pensions. This could lead to some super fund members weighing up where they hold their investments.

As a result, he expects some entities to engage in corporate restructuring, while others in defined benefit schemes – such as public servants, politicians, judges and military personnel – will have to “watch and wait” to assess the impact on their pre- and post-retirement income streams.

“They’ll be relying on CAs to help them through that process to understand how it will impact them, when and by how much,” Negline says.

Rethink on working-from-home deductions

Meanwhile, the Australian Taxation Office (ATO) is introducing changes to working-from-home deductions for the 2022–2023 financial year, with some taxpayers facing extra responsibilities from 1 March 2023.

To claim these deductions, taxpayers can choose one of two methods: the ‘actual cost’ method or the ‘fixed rate’ method. The latter method is subject to change, with the amount a person can claim for each hour they work increasing from 52c to 67c. While on the surface the rise seems appealing, Susan Franks, senior tax advocate at CA ANZ, points out that the new arrangement also covers more expenses. For example, previously under the 52c rule, home-based workers could claim separately for things such as mobile phones, computer devices, stationery and internet services.

Susan Franks, senior tax advocate at CA ANZ

“Those costs are now wrapped up and included in the 67c per hour calculation and you can’t claim them separately,” she says. “So, people might want to revisit their expenses and if they have the documentation to verify the actual costs of working from home, they may be entitled to a larger deduction.”

ATO small business initiatives

Small businesses are also in line for tax breaks which, at the time of writing, are yet to pass parliament.

The government is pursuing two significant legislative actions. The first measure is an incentive allowing small businesses to claim 120% of the cost of training their employees up until 30 June 2024. Franks fully supports the initiative for those that seek relevant training from recognised training providers.

“It’s not just for any training,” she says. “You can’t send your people off to do yoga. It’s got to be a vocational education and training (VET) course or a university course.”

Franks notes, too, that the offer is open to chartered accounting firms and could assist them in the 2023–2024 financial year. “Firms looking to take on graduates can put them in our CA course and claim 120% of the cost of educating their accountants, which is fantastic.”

The second measure is designed to further support the digitisation of small businesses following the unprecedented take-up of new technologies during COVID-19. Research from Microsoft and AlphaBeta shows that almost nine in 10 Australian firms adopted new technologies to improve their business continuity during the pandemic.

Subject to the passing of Exposure Draft legislation, Franks says an extension of tax breaks will allow eligible businesses – those with aggregated annual turnover of less than A$50 million – to deduct A$120 for every A$100 they spend on services that support their digital capability, including online sales platforms, websites, cloud-based services and computers.

“There’s a big push to digitalise small businesses, so this is an incentive to help them to get onboard.”

What's in the ATO's sight?

Asset values

The valuation of assets is increasingly on the radar for the Australian Taxation Office (ATO), according to CA ANZ’s Tony Negline CA. There may be benefits for investors in adopting a more conservative valuation with assets such as real estate, allowing them to make contributions and get more money into a pension, for example. However, the ATO is monitoring the situation and has recently updated its valuation guidelines. “Accountants need to make sure they’re across all of that before they start getting their funds audited,” Negline says.

Private groups

CA ANZ’s Michael Croker CA says an ATO crackdown on some of Australia’s largest private groups continues. Among the areas of concern has been the use of family trusts to make bogus distributions to beneficiaries, including adult children who may be on lower marginal tax rates. “The tax office will keep drilling down further and further into that segment of taxpayers,” Croker says.

SMSF auditor compliance

Compliance issues involving self-managed superannuation fund (SMSF) auditors are also being monitored. “This is about our members making sure they know their professional obligations,” Negline says. “They have a requirement to submit an annual return to ASIC [Australian Securities and Investments Commission] to keep their SMSF auditor ticket and if they don’t submit that they risk losing that ticket.”

Debt collection

The tax office’s leniency on small business debt collections during COVID-19 is over. “The ATO will be using its various data analytics and information-gathering tools to more quickly jump on those small businesses that are failing to comply with their basic obligations to remit the PAYG [pay as you go] withholding tax that’s withheld from pay packets and
any superannuation guarantee obligations,” Croker says.

CA ANZ on the case

In recent months, CA ANZ has been making submissions on a number of key financial and taxation issues, including the following:

Joint submission on crypto sector token mapping consultation

CA ANZ broadly supports the Australian Government’s crypto token mapping exercise to align token activities to financial services, as part of efforts to establish a framework for the licensing and regulation of crypto service providers. However, it has called for any changes to include mapping the tax outcomes to token activities.

“Where tax outcomes differ from the financial services outcomes under current tax laws, the issues and relevant provisions should be clearly identified so that any necessary reforms can then be progressed,” CA ANZ states.

Submission on strengthening the ABN system

CA ANZ is seeking safeguards around proposals to cancel ABNs if tax returns are outstanding, or if details are not updated annually. While it backs moves to ensure Australian businesses are complying with their tax and superannuation obligations, it believes the provisions need modification.

The CA ANZ submission calls for red tape to be reduced by legislating to allow the Australian Taxation Office and Australian Charities and Not-for-profits Commission (ACNC) “to transmit the specified annual confirmation details from existing forms that need to be lodged with those organisations to the ABN registrar, so that there is no need for an additional form”.

It also wants safeguards to be inserted into the legislation requiring that the ABN holder be advised in writing at least 28 days before a possible cancellation.

From CA Library

What's next for the $3 million threshold?

'What’s Next for the $3 Million Threshold?' is a podcast by Miranda Brownlee and Aaron Dunn that features interviews with experts from CA ANZ and the SMSF Association to highlight some of the grey areas and potential policy positions with the proposed tax increase on superannuation funds with more than A$3 million.

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Australian master tax guide 2023

'Australian Master Tax Guide 2023' offers explanations of Australia’s income tax law to assist preparation of 2023–2024 returns.

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Submission on Strengthening the ABN system

CA ANZ has lodged a submission about the proposal to cancel ABNs if tax returns are outstanding or details are not updated annually

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