Welcome to the first Star & Associates General Update for 2023, bringing you all the most important news and updates across business, tax, super and accounting.
We are well and truly into the new year and a lot has happened already, so let’s explore the most relevant topics for business owners around Australia.
Star & Associates quoted in The Australian as “ATO cracks down on holiday home owners claiming excessive tax deductions”
The Australian Taxation Office (ATO) is cracking down on holiday home owners who claim deductions on their properties while still enjoying personal use of them. In some cases, hundreds of thousands of dollars are being claimed in deductions.
The ATO is warning holiday home owners that they will scrutinise rental income, deductions claimed, and the terms and conditions under which the properties are rented out.
“Taxpayers should be aware that the ATO is looking closely at claims relating to holiday homes to ensure they haven’t been overstated. Record-keeping is critical in supporting the validity of the usage,” said Luke Star, Managing Director, Star & Associates.
“Taxpayers should avoid being too cute with the limiting the availability of a property as the ATO could go as far as scrutinising whether your terms are too stringent, your personal usage is excessive, your method of advertising is obscure or you are refusing tenants without an adequate reason.”
Read the full article here
Be aware that ATO audits are on the rise for business owners
Backed by additional Federal Government funding, the ATO is focused heavily on business audits for 2023 and beyond. Even if you aren’t in the ATO’s immediate crosshairs, it’s important to be aware of what’s happening and recognise that there is the potential you will be audited – if not this financial year then perhaps in the near future.
For instance, the Next 5,000 private groups tax performance program is “funded by the Tax Avoidance Taskforce and seeks to give the community confidence that Australia’s largest privately owned and wealthy groups are paying the right amount of tax.”
Being proactive about this reality can help you stay on top of your obligations. For any additional support, we can refer you to an audit insurance partner.
ATO releases final guidelines on trust distribution issues for small business tax compliance
The Australian Taxation Office (ATO) has finalised its guidelines on how it will enforce anti-avoidance provisions related to distributions from trusts, which are commonly used to structure small business affairs.
The ATO’s s100A guidelines categorise trust distribution issues into four zones, ranging from low risk to high risk, based on the level of complexity and likelihood of trust arrangements being used to evade higher taxes.
CPA Australia has welcomed the guidelines and noted that they will help businesses make informed decisions.
However, the guidance also highlights the need for businesses to consult with both accountants and lawyers to ensure compliance and avoid any potential legal complexity.
Commercial property investment through self-managed super
This is a topic that we regularly speak about with clients, especially those approaching retirement age who want to set themselves up with an investment property or a broader property portfolio.
Investing in commercial property through a self-managed super fund (SMSF) offers several advantages, including the ability to own and occupy the property as a ‘business real property’ (meaning land and buildings used wholly and exclusively by your business) and receive rent payments directly from the business at market rates.
Owning the commercial property within the SMSF also provides asset protection, meaning the property is shielded from potential claims or liabilities that may arise from business operations.
Refinancing an SMSF loan can allow for reduced interest rates and longer product terms, although cash-out options are not allowed. It’s important to be aware of lenders’ strict requirements when refinancing.
Together with our financial planning partners, we can help you determine if commercial property investment through SMSF is right for you. Get in touch for more information.
Major WFH changes to deductions this financial year
With EOFY on the horizon, the ATO has announced a number of working-from-home (WFH) changes this year – so it’s critical you understand your obligations and what you can claim at tax time to avoid the ATO’s wrath.
Importantly, there have been changes to the ‘fixed rate’ method of claiming WFH tax deductions. The ‘actual cost’ method hasn’t changed, but if you use ‘fixed rate’ – which applies to energy bills, phone usage, internet, etc. – then under the refresh it will increase from 52 cents to 67 cents per hour for the 2022–23 income year onwards.
As the end of the financial year approaches, it’s crucial for business owners to understand their tax obligations and what they can claim when it comes to home-based business expenses.
ATO interest charges hit highest level in a decade
The ATO has raised both its general interest charge (GIC) rate and shortfall interest charge (SIC) rate for the sixth quarter in a row, lifting it by 0.4%.
The increase means both charges have hit their highest levels in more than a decade, since the December quarter of 2012 when the GIC annual rate was 10.62% and the SIC annual rate was 6.62%.
However, GIC applies to the original assessment of any tax shortfalls and associated SIC from their due date if the tax is unpaid. The due date in this instance is 21 days after the ATO issues the notice of the amended assessment.
“If it was not applied, taxpayers would use the ATO as a lender of last resort so the GIC should be high enough to discourage such behaviour,” says Tony Greco, IPA General Manager – Technical Policy.
Time to review your tax obligations
We now find ourselves past halfway through another financial year. It’s a timely opportunity for businesses to review their tax obligations and financials to ensure they’re well-placed for success in the year ahead.
Here’s a short checklist of the items you might consider reviewing:
- Update your cash flow forecast based on this financial year’s data to date. This will also allow you to make adjustments to inventory, systems and resources to ensure they align with your projected cash flow.
- Review your tax and super obligations, keeping in mind the Super Guarantee rate increased from 10% to 10.5% on 1 July 2022.
- Make sure your record-keeping is up to date. Thorough record-keeping processes will simplify reporting and tax obligations at the end of the year.
We’re here to assist with your financial needs throughout 2023, so reach out with your queries. You can also follow Star & Associates on LinkedIn for relevant news and updates.
New home for ATO Small Business Newsroom
The Small Business Newsroom has a new home on ato.gov.au, providing business owners with helpful advice and insights on a variety of topics. They cover tax, super and registry services, and you can subscribe to their e-newsletter for regular updates.
Visit the ATO Small Business Newsroom for more information.
Other news and advice from the industry
- Small business needs a short-cut to survival or exit: Small business owners need a faster, more efficient way to either exit the market or find ways to adapt and survive in the current economic climate. According to a recent report. policymakers need to provide more support and resources to help small businesses navigate challenges around access to finance, training, and advice.
- SMEs ‘must lift game on ESG’ as regulations bite big end of town: SMEs will be forced to reinvigorate their ESG practices and restrict their carbon footprints as large listed firms become subject to international regulations and domestic mandatory reporting.
- ATO’s 5 steps to go digital in 2023: A new year brings the possibility of doing things differently, and the ATO is moving towards digital options for tax, super and employer systems and obligations. Here’s their advice for how to go digital in 2023.
- 2023 crystal ball – 4 things that will happen, and 4 that won’t: In this article, CPA Australia has taken a deep-dive into the months ahead and come up with some predictions that just might – or might not – come true for business owners.
- Understanding annual reports: Guidance for understanding the statutory and regulatory requirements governing annual reports, directly from CPA Australia.
As always, feel free to get in touch for further insight and detail – we’re always happy to chat. You can also find regular news on our website and contact us on 1300 308 460 for all your tax planning, accounting and advisory needs.