The Australian Taxation Office (ATO) has recently issued a stern warning directed at trustees of self-managed superannuation funds (SMSFs), underscoring a significant issue with the practices surrounding asset valuations. According to the ATO, there is a noticeable pattern where over 16,500 SMSFs have reported unchanged asset values for three consecutive years. This trend is particularly concerning given that the assets in question often include major investments such as residential or commercial properties, which typically experience variable market conditions.

The Implications of Inaccurate Asset Valuations

The practice of consistently reporting static asset values can prompt increased scrutiny from the ATO. The accuracy of these valuations holds considerable importance, as they impact various facets of fund management and member benefits. These include member balance accuracy, contribution limits, and the ability to segregate assets for calculating exempt current pension income. Furthermore, precise valuations influence work test exemptions and eligibility for catch-up concessional contributions. Given these implications, the accuracy of asset valuations goes beyond mere regulatory compliance; it is a cornerstone of effective fund management and member equity.

The Oncoming Division 296 Superannuation Tax

The introduction of the Division 296 superannuation tax, which targets funds with balances exceeding $3 million, makes accurate asset valuation even more critical. This upcoming tax regime will affect taxation on fund earnings, potentially increasing tax liabilities for inaccurately valued funds. Trustees need to ensure their asset valuations reflect true market conditions to avoid falling into costly taxation pitfalls.

SMSF Valuation Requirements

The ATO mandates that SMSF assets be valued at their market value each financial year, and trustees must provide supporting evidence of these valuations to their fund auditor. Market value is determined based on what a reasonable buyer would be willing to pay a seller in an arm’s length transaction. More stringent requirements are set for collectibles and personal use assets, such as artwork and jewellery, where a qualified independent valuer’s input is necessary upon disposal and advisable every three years.

Specific Valuation Guidance

For real property, annual independent valuation isn’t a blanket requirement unless there are significant changes affecting the property’s value or the property is unique or hard to value. In such cases, documentation should include detailed property characteristics and relevant sales data. Commercial properties, particularly those leased to related parties, require careful documentation of net income yields and comparable market rents to support their valuations.

Valuing unlisted companies and trusts is inherently complex and should ideally reflect the underlying assets’ potential for income and growth, taking into account recent transaction prices for similar shares or units.

In situations lacking clear market data, trustees may need to rely on professional assessments or extrapolations from related market data to ensure valuations are as accurate as possible.

The Consequences of Non-compliance

Trustees who fail to meet these valuation standards risk facing not only tax inefficiencies but also potential penalties from the ATO. This underscores the critical nature of adhering to established valuation practices, ensuring that all SMSF trustees maintain the integrity and performance of their funds through compliant and strategic management practices.

In conclusion, the ATO’s warning is a timely reminder for SMSF trustees to revisit and possibly revamp their asset valuation practices. By ensuring valuations are accurate and reflective of the current market conditions, trustees can safeguard their funds against increased tax liabilities and ensure compliance with the evolving regulatory landscape.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

Pitt Martin Group qualifications include over fifteen years of professional experience in accounting industry, membership certification of the Australian Society of Certified Practising Accountants (CPA), Australian Taxation Registered Agents, certified External Examiner of the Law Societies of New South Wales, Victoria, and Western Australia Law Trust Accounts, membership certification of the Finance Brokers Association of Australia Limited (FBAA), Registered Agents of the Australian Securities and Investments Commission (ASIC), certified Advisor of accounting software such as XERO, QUICKBOOKS, MYOB, etc.

This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Zoe Ma @ Pitt Martin Tax

Zoe Ma

For many small business owners, their business isn’t just a source of income; it’s their biggest investment, often meant to support their retirement. But figuring out exactly how much your business is worth and what makes it more valuable than others can be pretty tricky.

When it comes time to sell your business, the first thing you need to know is what exactly you’re selling. Typically, it’s your physical assets like equipment and inventory, along with the goodwill your business has built up. Buyers usually aren’t interested in taking on your debts or your company structure, so most sales end up being just for the assets.

The value of your assets is usually pretty straightforward to figure out, except for goodwill. Goodwill is the value of the future profits your business is expected to make. It’s essentially how much a buyer is willing to pay based on the business’s potential to make money down the road.

When someone buying a business can predict future profits and cash flow, that’s a good sign. But startups are riskier because they might not make profits right away. It often takes them years to start making money. “Goodwill” is the extra money paid to reduce risk and the time it takes to build up the business.

So, what makes a business valuable, and why would someone want to buy it?

• Making consistent profits and showing potential for even more
• Offering a high return on investment, ideally over 30%
• Showing strong growth and having good prospects for more growth
• Having a recognizable brand name that adds value
• Being able to run without relying too heavily on the owner
• Having a solid base of loyal customers
• Having a sort of monopoly in your market, where you’re the only game in town
• Having a competitive edge that’s hard for others to copy
• Having good systems and processes in place to keep things running smoothly

While these factors play a big role, the actual price of a business can vary a lot. Sometimes, unique businesses or special circumstances can lead to higher prices. If your business does something really special, you might be able to get a price that’s higher than usual. But ultimately, it’s the market that decides what your business is worth. Even if you’re not thinking about selling your business right now, it’s still important to think about its value. Someday, you’ll probably want to sell, so it’s smart to do things that increase its value over time. And if you do decide to sell, think about who might want to buy it. You might find a buyer who’s willing to pay top dollar because your business would be a great addition to their plans for growth.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Yvonne Shao @ Pitt Martin Tax

Yvonne Shao

The Australian Taxation Office (ATO) is tightening its grip on professional services firms suspected of diverting profits to evade taxes.

Two recent cases brought before the Administrative Appeals Tribunal have underscored the ATO’s commitment to ensuring that businesses, including lawyers, accountants, architects, medical practices, and engineers, fulfill their tax obligations.

In both instances, the ATO invoked Part IVA of the income tax law, a powerful tool that allows the Tax Commissioner to dismantle schemes designed solely to secure tax benefits. Even if a structure is legally sound, if its primary aim is tax reduction, then Part IVA can be exercised by the Commissioner to nullify any tax advantages obtained through such arrangements. Moreover, offenders under Part IVA may face additional tax liabilities along with hefty administrative penalties of either 25% or 50% of the tax shortfall.

The core of these cases involved a solicitor who oversaw multiple practice trusts generating profits from marketing and facilitating tax planning schemes.

Despite the complexity of these case arrangements involving intricate steps, the core strategy involved the practice trusts channeling their business profits through a series of trusts to entities with existing tax losses or tax-exempt status to ensure that the business profits are being shielded from taxation. However, the actual funds tied to these trust distributions, minus a commission paid to these entities, were funneled back to the solicitor or related entities in the form of loans.

Professional services firms have long been under the ATO’s scrutiny for their profit distribution practices. In 2021, the ATO issued comprehensive guidance on profit allocation within professional firms, establishing risk ratings and gateway tests. These recent cases showed the ATO’s determination to address the matter through litigation, leveraging the Commissioner’s authority outlined in Part IVA.

Professional services firms must be informed of various avenues through which the ATO can challenge their profit distribution arrangement. Here are some scenarios:

1. Personal Services Income (PSI): If a trading entity derives PSI primarily from the skills and efforts of an individual, the ATO expects profits to be attributed to that individual for tax assessment.

2. Business Structure Income: For income derived from professional practice business structures, the ATO scrutinizes arrangements that fail to allocate a reasonable level of profit to individual practitioners.

3. Trust Distributions: For a trust making paper distributions to entities with losses to manipulate deductions, the ATO can refer to the integrity rules under section 100A of the tax law.

Professional services firms must heed these warnings and ensure compliance with tax laws to avoid potential legal and tax repercussions. The ATO’s recent actions signal a heightened focus on combating tax avoidance tactics, underscoring the importance of transparent and lawful business practices within the professional services sector.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Angela Abejo @ Pitt Martin Tax

Angela Abejo

In recent times, the Australian Taxation Office (ATO) has been sending shockwaves through the taxpayer community by alerting individuals and their tax agents to unpaid historical tax obligations. This unexpected notice confused many people who were previously unaware of the existence of these debts. In this article, we will focus on the latest developments in historical tax debt, the ATO’s approach, and the basic steps taxpayers take in managing their obligations.

Understanding the Situation

The ATO possesses the authority to waive debts only under specific circumstances, such as severe financial hardship. Occasionally, ATO may choose to place a debt “on hold” if it is not economical to do so. In such scenarios, the debt is temporarily suspended, not cancelled, meaning it could resurface in the taxpayer’s account later, potentially being deducted from future refunds. Notably, the ATO paused this practice of offsetting debts during the COVID period, leaving these amounts untouched.

However, in 2023, the Australian National Audit Office highlighted that excluding debts from offsetting contradicts the law, regardless of the debt’s age. Consequently, the ATO initiated contact with taxpayers regarding the historical debts placed on hold, catching many off guard.

Unveiling Hidden Debts

Numerous taxpayers accumulated debt unknowingly, as these obligations remained labelled as “inactive” within the ATO’s systems. Although the ATO has assured that action on debts placed on hold before 2017 has been suspended while they reevaluate their approach, it’s vital to understand that this does not nullify the debt. The burden of unpaid tax obligations can have significant implications for individuals and businesses alike, making it imperative to address these issues promptly and effectively.

Impact on Small Businesses

Small businesses, which constitute two-thirds of the $50 billion collectible debt owed to the ATO, are particularly affected by these developments. With the ATO resuming its standard debt collection practices as of July 2023, including reporting debts exceeding $100,000 to credit bureaus, small business owners must remain vigilant. Proactive engagement with the ATO is crucial for businesses with outstanding tax debts to mitigate the risk of further escalation.

Managing Tax Obligations

For taxpayers struggling with unpaid historical tax debts, a strategic approach is needed to address the issue. Firstly, individuals and businesses should carefully assess their tax records to identify any outstanding debts. Seeking professional advice from a tax professional or accountant can provide valuable insight into the complexities of tax law and the ATO’s procedures. In addition, discussing payment plans or hardship clauses directly with the ATO can help reduce the burden of outstanding tax debts.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Zoe Ma @ Pitt Martin Tax

Zoe Ma

Entrepreneurs often invest their personal finances into launching and sustaining their businesses until they become self-sufficient. However, a recent case underscores the importance of understanding the tax consequences associated with withdrawing funds from a company for personal use.

A recent case brought before the Administrate Appeals Tribunal (AAT) serves as a cautionary tale for those who blur the lines between personal and business expenses within their company.

The individual in question, a shareholder and director of a private company, had been making withdrawals and covering personal expenses directly from the company’s bank account over several years. These transactions were not initially treated as taxable income.

Upon audit, the Australian Taxation Office (ATO) assessed these withdrawals and payments in one of two ways:

• As ordinary income for the taxpayer.
• As deemed dividends under Division 7A of the tax code.

Division 7A is designed to address situations where private companies provide benefits to shareholders or their associates in the form of loans, payments, or forgiven debts. If triggered, Division 7A treats the recipient as having received a deemed unfranked dividend for tax purposes.

The taxpayer attempted to argue before the AAT that the withdrawals were repayments of loans he had extended to the company originally, and thus should not be considered ordinary income. Alternatively, he contended that the payments constituted a loan to him, and there was no deemed dividend under Division 7A because the company lacked a “distributable surplus.”

However, the AAT found flaws in the evidence presented by the taxpayer, concluding that he had failed to substantiate his claims. Among the factors considered were the inconsistencies in his financial records and his inability to explain the source of the original loans, particularly during years when he declared tax losses.

Although the taxpayer asserted that some of the loans to the company originated from borrowings from his brother, the AAT deemed this explanation implausible given the brother’s modest income as reflected in his tax returns.

So, how should contributions from an owner to launch a business be treated? It largely depends on the circumstances. For small startups, common approaches include structuring contributions as loans to the company or issuing shares with the amounts paid treated as share capital.

The decision on the best approach hinges on various factors, including commercial considerations, the ease of withdrawing funds from the company later on, and compliance with regulatory requirements.

The manner in which funds are injected into the company also influences the available options for withdrawing them later. However, it’s crucial to remember that withdrawing funds from a company will likely have tax implications that require careful management.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Yvonne Shao @ Pitt Martin Tax

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.

In a recent case before the Administrative Appeals Tribunal, the intricacies of tax law and property transactions came to the forefront as a taxpayer successfully argued for a significant deduction on the sale of her apartment. The decision, which favored the taxpayer, sheds light on the complexities surrounding profit-making ventures and the tax implications associated with them.

Case Overview

The key of the case revolved around a taxpayer who claimed a substantial loss of $265,935 on the sale of her apartment in her tax return. The taxpayer contended that despite living in the apartment as her primary residence, her primary intention was profit-oriented, thus justifying the loss as deductible.

Taxpayer’s Argument

The taxpayer insisted that the purchase and subsequent sale of the apartment constituted a short-term profit-making venture. Despite using the apartment as her private residence, the taxpayer maintained that her overarching intention was to generate profit from the transaction.

Case Timeline

The timeline of events provided critical context to the case:

• July 2015: The taxpayer entered into an ‘off-the-plan’ contract to purchase the apartment.
• December 2016: Completion of the apartment was delayed until June 2020.
• May 2018: The taxpayer sold her family home and purchased another apartment with the intention to make a profit.
• April 2020: The contract to sell the apartment was entered during the COVID lockdown.
• July 2020: The sale of the apartment occurred, and the purchase of the off-the-plan apartment was settled.

ATO’s Position

The Australian Taxation Office (ATO) disagreed with the taxpayer’s claim, contending that a profit-oriented venture typically wouldn’t involve residing in the property and would likely wait for a more favorable market.

Tribunal’s Decision

Contrary to the ATO’s position, the Tribunal sided with the taxpayer. The Tribunal emphasized a low threshold for proving profit-making intentions and deemed living in the property as secondary to such intentions.

Implications

The implications of this decision extend beyond the specific case, potentially impacting how property transactions are taxed in Australia:

• Tax Treatment: If deemed commercial, profits from property transactions may be taxed as ordinary income rather than under Capital Gains Tax (CGT) provisions.
• CGT Exemptions: The decision challenges the assumption that living in a property automatically qualifies it for CGT exemptions, highlighting the importance of intention in property transactions.

Lessons Learned

This case underscores several important lessons for property owners and investors:

• Unexpected Tax Consequences: Property owners, including those engaged in flipping properties, may face unexpected tax consequences on gains without access to CGT concessions.
• Complexity of Tax Treatment: Determining the appropriate tax treatment for property transactions can be complex and often requires professional advice to navigate effectively.

Pending Decision

As of now, the ATO has not confirmed whether it will appeal the decision, leaving the full implications of the case uncertain for the time being.

In conclusion, this case serves as a reminder of the nuanced nature of tax law, particularly concerning property transactions. It underscores the importance of understanding the intentions behind such transactions and seeking professional guidance to navigate the complexities of tax implications effectively. 

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Zoe Ma @ Pitt Martin Tax

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.

Originally set to commence on July 1, 2024, the Stage 3 of the personal income tax cuts will undergo a significant overhaul as proposed by the Federal Government.

Following widespread speculation, the Prime Minister has confirmed the Government’s intent to revise the scheduled Stage 3 tax cuts set to begin on July 1, 2024. In contrast to the current plan, the proposed redesign aims to extend the benefits of the tax cuts to individuals earning below $150,000 in taxable income. If implemented, an additional 2.9 million Australian taxpayers are expected to see an increase in their take-home pay starting from July 1.

This departure from the original vision of Stage 3, part of a 5-year plan to restructure the personal income tax system, reflects a response to the sharp rise in living costs, altering the prevailing sentiment within the community. As stated by the Prime Minister, the focus now lies on addressing immediate concerns rather than long-term structural changes.

The redesign is anticipated to generate an estimated $28 billion in additional Government revenues from personal income tax by 2034-35, primarily due to bracket creep.

So, what’s changing?

The revised tax cuts will reallocate resources to benefit lower-income households that have been disproportionately affected by rising living costs.

Under the proposed redesign, resident taxpayers with taxable income below $146,486 will experience larger tax cuts compared to the existing Stage 3 plan. For instance:

• A taxpayer with a taxable income of $40,000 will receive a tax cut of $654, as opposed to no tax cut under the current Stage 3 plan (though they may have benefited from Stage 1 and Stage 2 tax cuts).
• A taxpayer with a taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan.

However, those earning $200,000 will see their expected benefit from the Stage 3 plan nearly halved, from $9,075 to $4,529. While there’s still a benefit compared to current tax rates, it’s not as significant.

Additionally, low-income earners will receive relief through a 7.1% increase in the Medicare Levy low-income threshold, indexed to inflation. This adjustment means individuals won’t begin paying the Medicare Levy until their income reaches $26,000, and they won’t pay the full 2% levy until their income reaches $32,500 for singles.

While the proposed redesign aims to maintain revenue neutrality compared to the existing budgeted Stage 3 plan, it is estimated to incur approximately $1 billion more in costs over the next four years before the effects of bracket creep mitigate the gains.

It’s not a done deal yet!

The implementation of the redesigned Stage 3 tax cuts is contingent upon the enactment of amending legislation by July 1, 2024. This necessitates securing support from independent or minor parties in Parliament, which convenes from February 6, 2024.

How did we get here?

Initially introduced in the 2018-19 Federal Budget, the personal income tax plan aimed to tackle the issue of ‘bracket creep’—where tax rates fail to keep pace with wage growth, leading to increased taxes over time. The three-point plan sought to simplify tax thresholds and rates, reduce the tax burden on many individuals, and align Australia’s tax system with some neighboring countries (e.g., New Zealand’s top marginal tax rate of 39% applying to incomes above $180,000).

The plan introduced incremental changes starting from July 1, 2018, and July 1, 2020, with Stage 3 slated to take effect from July 1, 2024.

What’s next?

For tax planning purposes, those with taxable incomes of $150,000 or more will find fewer planning opportunities with the redesigned Stage 3 tax cuts. Nevertheless, any alteration in tax rates presents an opportunity to review and adjust to ensure you’re maximizing available opportunities and not paying more than necessary.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Robert Liu @ Pitt Martin Tax

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.

Approaching 2024, a mix of both hope and uncertainty defines the landscape, with economic factors, upcoming tax changes, and changing work dynamics taking centre stage. This article explores the key factors that will shape the year ahead, breaking down the complex interactions that affect businesses, individuals, and policymakers.

• Economic Outlook:

In setting the stage for 2024, RBA Governor Michelle Bullock expresses cautious optimism about inflation while recognizing ongoing uncertainty. Locally, there’s persistent inflation alongside slower growth and a tight job market, especially for highly skilled workers. Despite signs of resilience, the Australian economy faces external risks related to the Chinese economy and global conflicts. The Reserve Bank of Australia (RBA) leaves room for potential interest rate increases, emphasizing the delicate economic balance.

• Labor Market Dynamics:

The job market remains crucial, with a steady 3.7% unemployment rate and wages reaching a 14-year high, growing by 1.3% in the September 2023 quarter. Challenges persist in finding highly skilled workers, causing employers to hesitate in meeting higher salary expectations. This has broader implications for productivity and competitiveness, affecting the overall economic landscape.

• Tax Changes and Fiscal Policies:

Australia is gearing up for a significant shift in its tax system starting July 1, 2024, with the introduction of stage 3 tax cuts. These cuts aim to simplify personal income tax brackets, consolidating them into a single 30% rate for those earning between $45,001 and $200,000. The actual impact hinges on decisions made in the upcoming May Federal Budget, adding an element of suspense to the financial roadmap.

At the same time, the superannuation guarantee rate is set to increase to 11.5%, reflecting a commitment to retirement savings. Small and medium businesses, particularly those with group turnover below $50 million, will experience changes as certain concessions are scheduled to end or revert to conventional levels. Several incentive programs, such as the Skills and Training Boost and Small Business Energy Incentive, are nearing conclusion, with legislative processes still pending.

• Labor Rights and Workplace Dynamics:

2024 brings heightened attention to labour rights and workplace rules. A noteworthy development in 2023 was the 5.75% increase in the minimum wage, reaching $23.23 per hour from July 1, 2023. New rules limit some fixed-term employment contracts to a 2-year term without renewal options, reshaping contractual dynamics.

A landmark case clarified worker classification, leading the Australian Taxation Office (ATO) to issue new guidelines PCG2023/2 for accurate contractor assessment. This highlights the importance for businesses to correctly classify contractors to reduce legal risks. Additionally, 2024 introduces greater flexibility for unpaid parental leave, aligning with changing workforce needs and societal shifts towards recognizing the importance of work-life balance.

Entering 2024, the economic, tax, and labour landscapes are undergoing changes. Successfully navigating this complexity requires a deep understanding of how these factors interact. Economic indicators provide insights into the nation’s financial health, tax reforms shape the fiscal environment, and labour dynamics influence workforce vibrancy. The year ahead presents challenges, opportunities, and a continuous evolution demanding adaptability from businesses, individuals, and policymakers alike.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Yvonne Shao @ Pitt Martin Tax

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.

The Australian Taxation Office (ATO) has raised concerns over the widespread misreporting of income and expenses related to rental properties, estimating an annual loss of approximately $1 billion in tax revenue. A significant contributor to this issue lies in the questionable practices surrounding the claiming of interest on investment property loans.

Recent heightened ATO scrutiny is particularly directed at refinanced or redrawn loans, stemming from an extensive data matching initiative covering residential property loan data from financial institutions spanning 2021-22 to 2025-26. This data is meticulously cross-referenced with taxpayers’ reported information, and individuals with inconsistencies may anticipate communication from the ATO seeking clarification.

For those with investment property loans engaging in redraws for purposes differing from the original borrowing, the loan account transforms into a mixed-purpose account. It becomes imperative to apportion the interest accruing on such accounts among the various purposes for which the funds were utilized.

Conversely, if the redrawn funds are invested to generate income, the interest on this specific portion of the loan remains tax-deductible. As an illustration, if funds are redrawn to cover personal expenses like a vacation or to settle personal debts, the interest linked to this part of the loan balance becomes non-deductible. This not only necessitates the apportionment of interest expenses into deductible and non-deductible components but also typically requires a proportional allocation of repayments.

It is crucial to note that withdrawals from an offset account are treated as savings rather than fresh borrowings. In cases where a loan account is paired with an interest offset account reducing the loan’s payable interest, withdrawing funds from the offset account may elevate the accruing interest on the loan. However, this does not alter the deductible percentage of interest expenses. In essence, withdrawing funds from the offset account constitutes a savings withdrawal, maintaining the existing deductible status of interest accruing on the loan.

If a home loan, initially used for a private residence, has funds in an offset account, withdrawing those funds to finance a rental property deposit does not grant eligibility to claim interest on the home loan. However, if funds are redrawn from the home loan explicitly for acquiring a rental property, the interest accruing on this portion of the loan becomes tax-deductible. It is crucial to emphasize that the tax implications always hinge on the specific structuring of the arrangement.

In conclusion, property investors are urged to proactively engage with the nuances of investment loan reporting. Staying informed about the regulations governing redrawn loans and offset accounts not only ensure their tax compliance so mitigate the risk of unnecessary investigation by ATO, but also fosters a transparent and compliant financial environment.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Zoe Ma @ Pitt Martin Tax

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.

The Australian Taxation Office (ATO) reveals a concerning statistic: workers are owed an estimated $3.6 billion in superannuation guarantee (SG). Despite an impressive 94% compliance rate in SG payments without regulatory intervention in the fiscal year 2020-21, a 5.1% net gap persists, contributing to the staggering $3.6 billion deficit. This gap encompasses various factors, including $1.8 billion from concealed wages, such as off-the-books cash payments and misclassified contractors. Furthermore, $1.1 billion of SG charge debt faces insolvency as of February 2022, leaving it unlikely to be recovered.

To tackle this issue, the ATO is leveraging technology, specifically the Single Touch Payroll (STP) system, harmonized with super fund data. This technological integration allows the ATO to pinpoint late payments and incorrect reporting swiftly. The rise in late payment of quarterly SG contributions is a growing concern, often attributed to cash flow difficulties or technical glitches. The ATO emphasizes the necessity for SG contributions to reach the employee’s fund before the due date, highlighting the importance of timely payments.

Employers failing to meet the quarterly SG contribution deadline are subjected to the Superannuation Guarantee Charge (SGC). This charge comprises the SG amount owed, 10% interest per annum, and an administration fee. Unlike normal SG contributions, SGC amounts are non-deductible. Employers should make late SG payments to promptly lodge a superannuation guarantee statement to avoid accumulating additional interest and potential penalties.

There are risks associated with misclassifying workers, that even genuine contractors may still be subject to PAYG withholding, SG, payroll tax, and workers’ compensation obligations. The penalties for employers who misclassify workers can be substantial, underlining the necessity for accurate classification to avoid legal repercussions.

In response to these challenges, the government is planning to implement laws mandating that employers pay SG concurrently with employee salary and wages, starting from July 1, 2026. This proposed reform aims to increase the frequency of SG contributions, benefiting employees and mitigating the accumulation of SG liabilities when employers miss deadlines. Two timing options for SG payments are under consideration: on the day salary and wages are paid or a ‘due date’ model.

The consultation paper on payday super proposes updating the SGC with interest accruing from ‘payday.’ Currently, the majority of employers make SG payments quarterly. These reforms are contingent on the passage of legislation and are slated to take effect in 2026. The employers, for the time being, there is no immediate action required concerning payday super.

In light of the significant SG gap and the various challenges contributing to it, the ATO’s use of technology, coupled with future legislative reforms, aims to address these issues head-on. Employers are urged to stay informed about the evolving landscape of SG regulations and to proactively ensure compliance, not only to avoid penalties but also to contribute to the financial well-being of Australian workers. The payday super initiative, if implemented, promises to be a pivotal step towards achieving more timely and consistent superannuation contributions, fostering a more secure retirement for the nation’s workforce.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Yvonne Shao @ Pitt Martin Tax

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.