Chobani’s plain yogurt is exempt from GST, but their ‘flip’ range is taxable. A recent case before the Administrative Appeals Tribunal (AAT) highlights the fine line between GST-free and taxable foods.

In 2000, when the Goods & Services Tax (GST) was initially introduced, basic food was excluded to secure support for the new tax regime. Now, 23 years later, this exclusion has created a complex distinction between GST-free and taxable foods, which is continually tested and modified. Chobani Pty Ltd, the U.S. yogurt giant, recently challenged this distinction in a case before the AAT.

The case centred on Chobani’s Flip Strawberry Shortcake flavoured yogurt and whether it should be subject to GST. This product consists of a tub of strawberry-flavoured yogurt and a separate tub of baked cookie and white chocolate pieces. If the two components were sold separately, the baked cookie pieces would be taxable, and the yogurt would be GST-free.

Initially, Chobani considered the Flip yogurt range as GST-free, relying on a 2001 GST ruling that allowed a “composite supply” to be treated as GST-free if the other components did not exceed the lesser of $3 or 20% of the overall product. This allowed them to treat the Flip yogurt as GST-free.

In 2021, the Australian Taxation Office (ATO) informed Chobani that their position had changed, and the Flip yogurt should be considered a combination food and, therefore, taxable.

According to the GST system, “combination foods” where at least one food component is taxable are subject to GST. For instance, lunch packs containing tuna and crackers are considered combination foods because it is intended for the tuna and crackers to be eaten together. However, in a “mixed supply” scenario where each item is separate and not intended to be consumed together, the GST applies individually to each product, as seen in the case of a hamper.

The AAT ruled in favour of the Commissioner’s interpretation that the Flip product was a combination food and, therefore, subject to GST on the entire product.

The Chobani case has several implications. Firstly, the ATO has issued a new draft GST ruling on combination foods (GST 2023/D1), replacing previous guidance. This ruling outlines three principles for determining whether a combination food exists:

1. There must be at least one separately identifiable taxable food.
2. The separately identifiable taxable food must be sufficiently joined together with the overall product.
3. The separately identifiable taxable food must not be so integrated into the overall product, or be so insignificant within that product, that it has no effect on the essential character of that product.

Secondly, the GST status classification for at least one major product line on the ATO’s list will change. Notably, “dip” (packaged with biscuits, individually wrapped) was previously categorized as a mixed supply rather than a combination food.

In a previous case, Birds Eye (Simplot Australia) also failed to appeal the Federal Court’s decision that their frozen vegetable products combining omelettes, rice, or grains were not GST-free. The Court deemed them either prepared meals or a combination of foods and, therefore, taxable.

For food manufacturers, importers, and distributors, staying updated on the evolving GST landscape and using the correct classifications is crucial, as the rules and definitions are subject to change.

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.

The Australian Taxation Office (ATO) has recently issued a draft ruling on self-education expenses which clarifies what can and cannot be claimed as deductions. If you pursue education related to your current job, you can typically claim the associated costs as a tax deduction, as long as your employer hasn’t already covered these expenses. Importantly, there is no specified limit on the amount you can claim as a deduction. However, before you start considering claiming these expenses, there are some important considerations to keep in mind which this article will guide you through.

Connection to Current Job

One of the essential criteria for claiming self-education expenses is that the education must be directly connected to your current job. If you are pursuing education to obtain a new job or for something unrelated to your current income-earning activities, the expenses are not deductible. For instance, if a nurse’s aide pursues a university degree to become a registered nurse, the expenses related to this degree are not deductible because it lacks sufficient connection to their current role as a nurse’s aide.

If your employment ends while you are in the middle of a course, your expenses can only be deducted up to the point at which you stopped working. Anything incurred beyond that point is not deductible unless you secure a new job where the course remains relevant.

Specificity of Knowledge and Skills

When it comes to personal development or self-development courses, ATO requires a direct link between your current role and the knowledge or skills acquired from the course content. A key challenge in claiming deductions lies in the fact that the knowledge or skills gained are often too general. For example, if a manager attends a stress management course to cope with work-related stress due to a family situation, this course may not be deductible because it is not designed to maintain or increase the specific skills or knowledge required in his/her current position.

Overseas Study Tours and Conferences

Expenses related to overseas study tours can be deductible if the primary purpose of the trip is connected to your income-earning activities, and it’s not purely recreational. Similarly, overseas conferences can be deductible if the primary purpose of the trip is work-related, even if there are some leisure activities involved. However, if you extend your stay beyond the conference for recreational purposes, you may need to apportion expenses accordingly.

Additionally, airfares incurred for self-education activities are deductible if you are not residing at the location of the self-education activity, as they are considered part of the cost of undertaking self-education.

Partial Deductions

Even if the entire course isn’t fully deductible, you may still claim a deduction for specific subjects or modules that are directly related to your employment or income-earning activities. In such cases, the course fees can be apportioned and this flexibility allows you to maximise your deductions.

By government support

When your course is designated as Commonwealth supported, you are not eligible to request a deduction for course fees. However, the deductibility of these course fees remains unaffected by the act of borrowing money to cover them. For instance, this applies to full-fee paying students who utilise a government FEE-HELP loan to meet their course fee obligations.

Scrutiny by the ATO

While there’s no specific limit on self-education expense claims, it’s important to note that the ATO may scrutinise large claims. To avoid any issues, be sure to maintain detailed records and demonstrate a clear connection between your self-education expenses and your current job or business activities.

In conclusion, understanding the rules and regulations of claiming self-education expenses on your tax return is essential for maximising your tax benefits. It’s important to ensure that your self-education is directly related to your current job, maintain meticulous records, and seek professional advice when necessary. By following these guidelines, you can maximise your eligible deductions while avoiding unwanted scrutiny from tax authorities.

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.

Electricity is rapidly becoming the energy source of choice, supplanting traditional fossil fuels and natural gas in various industries. To encourage businesses to embrace electrification, improve energy efficiency, and reduce reliance on fossil fuels, a new tax incentive has been introduced, known as the Small Business Energy Incentive.

This initiative is part of ongoing efforts to prompt small and medium-sized enterprises (SMEs) to adopt sustainable and energy-efficient practices. The program offers a substantial tax deduction to SMEs with an annual turnover of less than $50 million. Businesses can claim a extra 20% tax deduction on expenses up to $100,000 to enhance energy efficiency, but there’s a time limit. The legislation, currently awaiting parliamentary approval, mandates that these investments must be made between July 1, 2023, and June 30, 2024.

Here are the key details:

Investment Cap: SMEs can invest up to $100,000, with a maximum bonus tax deduction of $20,000 per business entity. This tax incentive doesn’t result in a cash refund but instead reduces taxable income or increases tax losses for the 2024 income year.

Eligibility Criteria: The program doesn’t provide a specific list of assets that qualify. Instead, it sets forth a series of eligibility criteria. Expenditure related to the asset must be eligible for a deduction under another provision of the tax law.

For new depreciating assets, they must be first used or installed for any purpose, including a taxable one, between July 1, 2023, and June 30, 2024. For upgrades to existing assets, the expenditure must be incurred within the same timeframe.

Additional conditions apply to new depreciating assets. They must use electricity and meet one of the following criteria: be more energy-efficient than reasonably comparable assets using fossil fuels, serve as a replacement for an existing asset with higher energy efficiency, exceed new, reasonably comparable assets on the market in energy efficiency, or be energy storage, time-shifting, or monitoring assets.

For upgrades to existing assets, the expenditure must meet at least one of these conditions: enable the asset to use only electricity or renewable energy, enhance the asset’s energy efficiency when using electricity or renewable energy, or facilitate the storage, time-shifting, or monitoring of electricity or renewable energy.

Exclusions: Not all assets or improvements are eligible for the bonus tax deduction. Assets or enhancements using fossil fuels, such as hybrid solutions, are excluded. Solar panels, motor vehicles, assets primarily designed for electricity generation, and financing costs, including interest and borrowing expenses, are also not eligible.

Qualifying Investments: The legislation provides examples of qualifying investments, including electrifying heating and cooling systems, upgrading to more efficient appliances like refrigerators and induction cooktops, installing batteries and heat pumps, and replacing gas heaters with electric reverse cycle air conditioners. Additionally, replacing less energy-efficient equipment, like coffee machines, with more efficient models can qualify if supported by the manufacturer’s data. Investments in thermal storage solutions and solar thermal hot water systems can also qualify if they meet the criteria.

In summary, the Small Business Energy Incentive encourages SMEs to adopt electrification and improve energy efficiency while phasing out reliance on fossil fuels. With the potential for a tax deduction of up to $20,000 per business entity, it presents a substantial financial incentive. However, the opportunity is time-limited, with investments required between July 1, 2023, and June 30, 2024. To maximize the benefits, businesses should carefully assess their energy efficiency and electrification options, ensuring they align with the eligibility criteria. Embracing this program not only contributes to a greener future but also reduces tax liabilities, offering a win-win for both the environment and finances.

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 rise of OnlyFans, YouTubers, TikTokers, and other content platforms presents lucrative opportunities for content creators to monetize their audience. However, the tax authorities are now paying attention to this thriving industry.

In October 2022, OnlyFans CEO Ami Gan celebrated a significant milestone, announcing that the platform had disbursed $10 billion to content creators since its inception in 2016. While primarily recognized for adult content, OnlyFans aims to diversify its scope by offering subscription and reward models to a broader array of content creators, including chefs, personal trainers, and more. While there are numerous success stories of content creators, like Perth-based Lucy Banks, who disclosed earnings of $60,000 in a single month on Channel 7, the average monthly income hovers around USD $150-$180. Content creators may also receive various forms of “gifts” from their subscribers.

OnlyFans is not the only platform generating revenue for Australians; there are countless other stories of success. Google’s AdSense calculator estimates that finance channels with 50,000 monthly views can expect earnings of $15,012 ($9,390 for beauty and fitness channels). The message is clear: content creators across various niches are reaping rewards, and the Tax Office seeks to ensure that everyone comprehends their tax obligations.

Taxation of Content Creators

A recent update from the Australian Taxation Office (ATO) in April outlines the regulatory expectations for assessing tax on content creators:

Income Tax on Money, Gifts, and Goods

If you earn income as a content creator, it will likely be subject to taxation, unless your content creation is genuinely a hobby with no profit-making expectations (see below). For subscription-based platforms like OnlyFans, the profit-making intent is usually clear.

The ATO emphasizes that assessable income includes not only money but also appearance fees, goods, cryptocurrency, or gifts from fans. Non-monetary income, such as received goods, can be challenging to track and report. For example, if a company sends you an $800 handbag, you must declare its market value as income and pay tax on it. Receiving multiple items or substantial inducements could create tax challenges because you will need cashflow to cover that.

The ATO’s stance that all gifts and products should be reported as assessable income doesn’t account for complexities in practice. The situation may vary, particularly if you create content as a hobby without profit-making intentions.

Tax rules consider income earned “as soon as it is applied or dealt with in any way on your behalf or as you direct.” For OnlyFans content creators, this happens when their OnlyFans account is credited, not when the funds are transferred to a personal or business account. Hiding income in your platform account won’t exempt it from taxation. From 1 July 2023, a new reporting regime will require electronic distribution platforms to report transactions to the ATO, starting with ride-sharing and short-term accommodation platforms and extending to all other platforms, including OnlyFans, from 1 July 2024.

Do I Need to Register for GST?

In general, if you earn or expect to earn $75,000 or more per annum, you need to register for the Goods and Services Tax (GST). However, some exceptions apply, such as Uber and ride-sharing drivers who must have an Australian Business Number (ABN) and be registered for GST, regardless of earnings.

Even if a content creator is required to register for GST, not all income and goods received will trigger a GST liability. Special provisions in GST rules may make supplies to foreign resident customers GST-free. Claiming GST credits for expenses related to these activities is generally possible.

What Deductions Can I Claim?

Profit-making ventures allow content creators to claim deductions for expenses directly related to income generation. Items like video production equipment, microphones, and online stores may be deductible, although deductions might be spread over several income years. However, expenses like cosmetic surgery, gym memberships, everyday clothing, or hairdressing for appearance improvement are typically not deductible as they are considered private expenses. Content creators can refer to the ATO’s occupation-specific guides for a list of eligible deductions.

When Is a Side Hustle Considered a Business?

Distinguishing between a side hustle and a business can be nuanced. Several factors, including transaction regularity, self-promotion, marketing activities, profit-making intent, the scale of activities, and business-like operations, help determine whether an endeavor is a business or a hobby. Hobby income is not assessable, and expenses are not deductible, while business income must be declared, with potential deductions for related expenses, subject to specific analysis.

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.

Australia’s superannuation system has come a long way, focusing on securing people’s finances in retirement. Recently proposed laws define the purpose of superannuation as ‘ to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.’ This isn’t just a fancy statement; it’s a fundamental idea that will shape how retirement savings work in Australia. In this article, we’ll explore why this idea is important and what factors will affect your needs for retirement.

1. Why the New Goal Matters

This new law about superannuation is a big deal because it makes sure the system stays true to its main job: helping people have enough money for retirement. This law sets the stage for future changes, focusing on:

• Fairness: The law says it’s important to make sure everyone gets a fair deal from superannuation. It means the government can make rules that think about things like how old people are and if they have less money. It’s about making things better for different groups, like women, Indigenous Australians, people who might struggle, and those with low incomes.

• Sustainability: The law also knows that as people get older, they’ll need more help. It wants to make sure we don’t rely too much on the Age Pension, so it doesn’t hurt the government’s money.

• Providing Income: Most importantly, the law says superannuation should be used to give people money to live on when they retire. It’s about making sure life stays comfortable after work.

2. Estimating What You’ll Need

When you’re getting closer to retirement, you’ll wonder, “How much superannuation should I have to retire comfortably?” The answer isn’t the same for everyone because it depends on a few things:

• What You Want: Think about how you want to live when you retire. Do you want to travel the world, or are you happy with a simpler life?

• When You Want to Retire: If you retire early, you’ll need more money because your retirement will be longer.

• Healthcare Costs: As you get older, you might need more help with your health. Make sure you have enough money for this.

• Debts and Bills: If you owe money, like a mortgage or loans, think about paying them off before retirement. It’ll mean you need less superannuation.

• Government Help: Sometimes, the government gives money to retired people, like the Age Pension. But you need to qualify for it, depending on how much money you have and how much you earn.

• Prices Going Up: Things get more expensive over time because of inflation. Your superannuation needs to keep up with these higher prices.

• How You Invest: What you do with your superannuation money and how you invest it can make a big difference.

Financial advisors usually suggest figuring out how much money you’ll get during retirement to know how much superannuation you’ll need. They look at all these things to help you.

Australia’s superannuation system is massive, with $3.5 trillion in savings. This shows that many people are working hard to make sure they have enough money for the future. But finding the right balance for your retirement goals can be tricky.

In the end, this new law helps make sure your savings stay safe and keep giving you money after retirement. However, how much money you need can be very different from what others need. To make sure you have a comfortable and financially secure retirement, it’s a good idea to talk to a financial advisor and do some careful planning. As Australia’s superannuation system keeps changing, it’ll continue to be important for everyone’s retirement plans, making sure things are fair and sustainable for everyone in their golden years.

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 heard by the Administrative Appeals Tribunal (AAT), the timing of employment income plays a significant role in determining an individual’s tax obligations, especially in the context of changing tax residency.

The individual in question was a non-resident taxpayer working in Kuwait and was entitled to a ‘milestone bonus’ as part of their employment. However, the employer was unable to pay this bonus while the taxpayer was working abroad. As the taxpayer later relocated to Australia and became a tax resident here, the bonus was eventually paid in instalments. This situation led to a dispute between the taxpayer and the Australian Taxation Office (ATO) when the Commissioner issued amended assessments to tax the bonus payments received.

The main focus of the dispute was the critical question of when the bonus should be deemed as “derived” for taxation purposes. If the bonus had been derived while the taxpayer was still a non-resident, it would not have been subject to taxation in Australia. Typically, non-residents are only taxed in Australia on income sourced within the country, and employment income is generally sourced where the work is performed, with some exceptions.

The outcome of this determination had significant impacts on the taxpayer’s tax liability. It relies on a fundamental tax principle – tax residency.

The Significance of Tax Residency

In the realm of international taxation, a person’s tax residency status can significantly affect their tax obligations, encompassing not only income earned within the country but also worldwide income. In Australia, tax residency is determined by a complex set of rules, including the primary “resides” test, the “183-day” test, and various secondary tests. The ATO provides guidance and guidelines to assist taxpayers in understanding these residency tests and how they apply in different scenarios. Accurate determination of tax residency is essential for individuals and businesses engaged in cross-border activities, as it can influence the allocation of taxing rights between Australia and other countries.

In the case discussed, the taxpayer transitioned from being a non-resident to becoming a tax resident in Australia. This shift in tax residency was a critical moment, as it changed the jurisdiction that had the right to tax his global income.

In most countries, including Australia, tax residents are generally subject to taxation on their worldwide income. Non-residents, on the other hand, are typically only taxed on income that is sourced within the country’s borders. This concept is known as the “source rule” and is a fundamental principle of international taxation.

Timing Matters: Employment Income and the Source Rule

Australian tax law, like that of many other countries, considers employment income to be “derived” when it is received by the taxpayer. In simpler terms, income is typically recognized for tax purposes when it is physically received, not when it is earned or entitled. This principle has been reinforced by Australian tax case law.

In the case under consideration, the taxpayer received the bonus payments from his former employer after becoming a tax resident of Australia. This seemingly minor detail triggered a significant tax consequence. Since the bonus was received while he was a tax resident in Australia, it fell under the purview of Australian taxation.

The Impact of Timing on Tax Liabilities

The outcome of this case serves as a reminder of how the timing of income recognition can significantly impact an individual’s or business’s tax liabilities, especially in the context of changing tax residency. Had the taxpayer received his bonus when it was originally due in Kuwait, he would have been entirely exempted from Australian taxation. Kuwait does not impose income tax on its residents.

This case underscores the need for individuals and businesses engaged in international activities to carefully consider the timing of income recognition in different jurisdictions. It emphasises the importance of understanding tax residency rules and their implications, as well as the specific rules governing the taxation of various types of income, such as employment income, dividends, and capital gains.

In conclusion, the interplay between timing, tax residency, and the source rule in international taxation is a complex puzzle. The case before the AAT serves as a compelling illustration of how seemingly minor details can lead to significant tax consequences. It highlights the necessity of seeking professional advice and conducting thorough tax planning when navigating the complex landscape of international taxation to optimise tax outcomes and remain compliant with the tax laws of multiple jurisdictions.

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.

Many Australians have noticed a significant reduction in their expected tax refunds for financial year 2023, prompting questions about what’s behind this change. This article will tell you why.

The Impact of the Missing Tax Offset

One of the key factors contributing to smaller tax refunds for many Australians is the discontinuation of a time-limited low and middle-income tax offset (LMITO). This offset was introduced as a response to the economic challenges posed by the COVID-19 pandemic. Over the years, it had provided substantial tax relief to individuals, making tax time a bit brighter. However, as it came to an end, its absence cast a shadow over tax returns, resulting in smaller refunds for those who had come to rely on it.

The low and middle-income tax offset delivered up to $1,080 from 2018-19 to 2020-21, and an even more generous $1,500 in 2021-22 for individuals earning up to $126,000. For many, this was a significant boost to their annual finances. Its discontinuation has left a noticeable dent in the pockets of taxpayers who had grown accustomed to these additional funds.

Australia’s Tax System: Complex but Balanced

To comprehend the full scope of these changes, we must first understand Australia’s tax system. Australia leans heavily on personal and corporate income tax to fund its government services. In fact, personal income tax, which includes capital gains tax, constitutes a substantial 40% of the country’s total revenue, a figure significantly higher than the OECD average of 24%.

While this may paint Australia as one of the highest taxing nations in the OECD for personal income tax, it’s crucial to consider the flip side. Australia also boasts a robust system of means-tested benefits that help alleviate the tax burden for many individuals. When factoring in these benefits, the discrepancy between Australia and other countries becomes clearer. The take-home pay of the average single worker is 77% of their gross wage in Australia, compared to the OECD average of 75.4%. For families, the Australian take-home pay average is 84.1%, nearly on par with the OECD average of 85.9%.

Progressive Taxation and the Road Ahead

Australia’s tax system is known for its progressive nature, meaning that the more you earn, the greater your share of the tax burden. The top 11.6% of Australian income earners shoulder a substantial 55.3% of the tax revenue from personal income tax. To address some of the challenges posed by this system, the government has enacted a series of legislated income tax cuts, with the final round set to commence on July 1, 2024. The goal is to reduce the nation’s reliance on personal income tax and shift toward other forms of taxation.

Considering a Second Job: A Financial Balancing Act

Turning our attention to second jobs, it’s clear that many Australians are exploring additional income streams, driven by various motivations. However, it’s crucial to navigate this terrain with a keen understanding of your overall financial position. When contemplating a second job, factors like your expected earnings, the expenses involved in generating that income, and the tax implications must be carefully considered.

For those venturing into the gig economy, where roles often entail independent contractor status, managing tax affairs becomes your responsibility. For instance, Uber drivers are required to hold an Australian Business Number (ABN) and register for GST. This introduces compliance costs, as you must remit a portion of your fees to the Tax Office quarterly, while also ensuring you have the necessary funds to cover GST and income tax obligations. On the bright side, you can claim expenses related to your second job, potentially offsetting some of your tax liabilities.

In this context, it’s essential to ensure that your tax-free threshold applies to your highest-paying job from a PAYG withholding perspective, optimizing your tax situation.

In Conclusion

The size of your tax refund, the decision to take on a second job, and your overall financial standing in the face of Australia’s tax system all depend on a multitude of factors. Australia’s progressive income tax system adds complexity, making it vital for individuals to assess their unique circumstances and obligations. By understanding these dynamics, we can make informed tax planning that align with your goals and aspirations while navigating the ever-changing tax landscape Down Under.

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.

Transitioning a family business to the next generation is not just a theoretical legacy; it’s a practical endeavour that goes beyond wealthy clans. This process involves passing on the business operations, ownership, and planning strategies to ensure the smooth transformation from a business-centred family to one focused on investments. The key to successful generational succession lies in proactive communication, well in advance, rather than waiting for pivotal events or retirement triggers to formalize the transition.

Generational succession encompasses several crucial aspects: the transfer of business responsibilities, the shift in ownership, strategic planning, and the evolution from a family-run enterprise to an investment-oriented unit. It’s not merely about being a family running a business; it’s about fostering a mindset of business sustainability.

In Australia, a survey by PwC’s Family Business reports that while one-third of family businesses anticipate the next generation becoming major shareholders within five years, only a mere 25% have established a strong, well-documented, and openly shared succession plan. The methods to execute the transfer can vary widely, but the focus generally revolves around transferring equity either over a period or at a specific juncture, often involving some type of payment considerations. Alternatively, part of this equity transition might eventually become a part of the estate.

However, this transition process is not without its challenges. Here are six important areas that require careful attention:

1. Next Generation’s Capability and Enthusiasm: Before progressing, it’s vital to gauge whether the upcoming family members possess the skills and willingness required for a successful transition. This transition may be driven by goals like preserving the family legacy or providing a stable business platform for the next cohort. These goals rely on the next generation’s readiness and skills. Effective communication of expectations is imperative.

2. Moving Capital Smoothly: Exit-generation’s capital needs must be considered. High capital needs pressure both business and equity stakeholders. Often, younger generations lack sufficient capital to buy out seniors. This may necessitate continued investment by vendors or increased business debt, both needing sustainability assessment.

3. Structured Compensation Planning: Transition should elevate remuneration’s formality. Informal approach like handling owner remuneration based on personal needs rather than role responsibilities can lead to overcompensation or underpayment. Under generational succession, there’s a need for a more formal compensation framework that aligns pay with roles, ensuring equitable compensation and clarity in performance incentives.

4. Managing Authority Transition: Passing on operational control and decision-making authority is often a delicate matter. Setting expectations and agreements ahead of time about the transition of control is crucial. Unclear management structures can create confusion or a void in decision-making. Disagreements can arise when the incoming generation desires autonomy in decision-making, while the outgoing generation seeks to retain influence based on experience. Clarifying the transition of control in advance can minimise tension.

5. Setting Transition Expectations and Timeline: Generational succession is a process, requiring managed expectations to avoid derailment due to frustration. An extended transition phase can be beneficial, particularly if the older generation intends to scale down their involvement gradually. This phased approach aids not only in managing change but also in facilitating income and capital withdrawals.

6. Formalizing Management Structure: Maintaining clear distinctions between the roles of the board, shareholders, and management becomes even more crucial during generational succession. The formality of these structures is important, with clearly defined roles and expectations. Some families use a family constitution to outline rules, while others seek external advisory groups to ensure independent expertise contributes to decisions.

In conclusion, the success of generational succession lies in careful planning, transparent communication, financial prudence, and structured management. This complex process, involving evaluating capabilities, managing finances, handling operational shifts, and maintaining structured governance, ensures that the transition not only sustains the business but also upholds the family’s unity and values. The ultimate objective is not just passing on a legacy but facilitating the growth of a resilient business with a shared sense of purpose. We are here to assist you in skilfully navigating the process of effectively handling generational shifts. Feel free to discuss with us how we can support you in creating a well-structured pathway for a successful transition.

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.

You possess a piece of land that is ideal for a subdivision. All the necessary arrangements have been sorted out with the Council, builders, and the bank. However, a crucial aspect has been overlooked: the tax implications.

Many small-scale developers often assume that they will face minimal tax risk. Nevertheless, this assumption isn’t always accurate, as the tax treatment of a subdivision project can significantly influence cashflow and the project’s financial feasibility.

Recent guidance from the Australian Taxation Office (ATO) delves into the tax consequences of small-scale subdivision projects. Let’s explore some key points:

Tax Treatment of Subdivision: When subdividing land, the tax treatment, even for a small subdivision, can rapidly become intricate. Taxation depends on the specific circumstances. One should not presume that just because the development is small, any eventual sale profit will automatically be considered as a capital gain, qualifying for Capital Gains Tax (CGT) concessions.

Generally speaking, if you personally own a property that has been used for private purposes over an extended period and you divide and sell the newly created lots, capital gains tax may apply to any profit obtained. The gain is calculated from the moment you acquired the land, though you’ll need to divide the property’s initial cost among the subdivided lots. If you’re subdividing a property that includes your primary residence, the main residence exemption typically won’t apply if you sell a subdivided block separately from the main block, even if the land was solely used for residential purposes related to your home.

If a property is initially co-owned but then subdivided, distributing the lots among the owners, this usually triggers immediate tax consequences, even before selling to an unrelated party. Such arrangements, known as ‘Partitioning’, can be challenging to manage from a tax standpoint.

Property Development: What if you decide to develop the land? It’s quite common for individuals to subdivide and develop their property by constructing a house or duplex, followed by selling the new structure.

When someone develops a property with the intention of selling the finished product for a short-term profit, there’s a possibility that it will be treated as income rather than falling under capital gains tax rules. This may limit access to CGT concessions, such as the 50% CGT discount, and often result in GST obligations. This applies even to isolated property developments.

Illustrative Case: Let’s consider an example involving Conrad. He acquired his home in July 2001 for $300,000. By July 2020, he explored subdividing his property, constructing a new house, and selling it. A valuation revealed that the original house and land were now worth $360,000 (60%), while the subdivided lot was valued at $240,000 (40%). Conrad obtained a $400,000 loan for the development and sold the property for $1,210,000 (GST inclusive) in July 2021.

For Conrad’s situation:

• Conrad’s total economic gain was $580,000.
• This gain stemmed from sale proceeds ($1,100,000, excluding GST) minus development expenses ($400,000) and the initial cost of the subdivided lot ($120,000 which is 40% of the acquisition cost $300,000).
• The increase in value of the subdivided lot from acquisition (July 2001) to the start of profit-making activities (July 2020) qualifies as a capital gain.
• The capital gain for the subdivided lot ($240,000 in July 2020 minus $120,000 initial cost proportion of acquisition) is $120,000.
• With the 50% CGT discount (as Conrad held the subdivided lot for more than 12 months), the discounted capital gain is $60,000.
• The increase in value of the subdivided lot from the start of profit-making activities to the sale is treated as ordinary income.
• The net profit ($460,000) considers sale proceeds ($1,100,000) minus development expenses ($400,000), and the lot’s value ($240,000).

Unless Conrad is engaged in a business, he can’t deduct development expenses as they’re incurred; instead, they impact the net profit upon sale. If Conrad opted not to sell after development, it would complicate income tax and GST treatment.

GST Considerations: For individuals subdividing land held for private use, GST registration might not be necessary, depending on circumstances. However, engaging in a property development business or a business-like one-off project could require GST registration.

In Conrad’s case, since the projected sale price exceeded the $75,000 GST threshold, he likely needs to register for GST. This entails:

• A ‘default’ GST liability of $110,000 on the sale price (unless the GST margin scheme applies).
• Notifying the purchaser of the amount to withhold and remit to the ATO.
• Eligibility to claim $40,000 credits for GST within development expenses, adhering to regular GST rules.
• Reporting these transactions through business activity statements.

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.

The 120% technology and skills ‘boost’ deduction is a tax incentive introduced in the 2022-23 Federal Budget for small and medium-sized businesses (SMEs) in Australia. The boost allows eligible SMEs to claim a 120% tax deduction for certain types of expenses related to technology, skills, and training for their staff.

In the last article, we discussed the eligibility requirement and details of the $20k technology investment boost. This article will be focused on the Skills and Training Boost, which breaks down into the following key points:

The Skills and Training Boost

The Skills and Training Boost provides a 120% tax deduction for external training courses offered to employees. The goal of this boost is to help SMEs grow their workforce by upskilling employees and improving their efficiency.

Who qualifies for the Skills and Training Boost?

Only employees of the business are eligible for the boost. Sole traders, partners in a partnership, independent contractors, and non-employees do not qualify. Additionally, associates, for example, spouses or partners, or trustees of a trust, are also not eligible.

Rules for the Skills and Training Boost:

• Registration for the training course must have occurred from 7:30 pm (AEST) on 29 March 2022 until 30 June 2024.
• The training must be deductible to the business under ordinary rules, meaning it must be related to how the business earns its income.
• The training must be delivered by a registered training provider, and the provider must charge the business (either directly or indirectly) for the training.
• The training must be for employees of the business and must be delivered in-person in Australia or online.
• The training provider cannot be the business itself or an associate of the business.

What can be included in the Training Expenditure?

Training expenditure includes the costs of the training itself, as well as incidental costs such as books or equipment necessary for the training course. However, these incidental costs are eligible for deduction only if the training provider charges the business for these expenses.

How is the bonus deduction calculated?

The bonus deduction is calculated as 20% of the amount of expenditure the business could typically deduct. For example, if a business spends $10,000 on eligible training, the bonus deduction would be 20% of $10,000, which equals $2,000. This bonus deduction is not received in cash but is used to reduce the business’s taxable income.

What organizations can provide training for the boost?

Not all training courses provided by companies will qualify for the boost. Only courses charged by registered training providers within their registration will be eligible. Typically, these are vocational training courses that lead to a trade or contribute to a qualification, rather than professional development courses.

Qualifying training providers are registered by organizations such as:

• Tertiary Education Quality and Standards Agency (TEQSA)
• Australian Skills Quality Authority (ASQA)
• Victorian Registration and Qualifications Authority
• Training Accreditation Council of Western Australia

It’s worth noting that while not all courses may be delivered by registered training organizations, there are still plenty of eligible options available, particularly short courses offered by universities or flexible courses designed for upskilling rather than degree qualifications.

Conclusion

If your business is eligible and has made eligible expenses, it’s essential to keep track of the documentation and ensure compliance with the rules to maximise the deductions. Consulting with a tax professional or accountant can also be beneficial in navigating the complexities of these deductions.

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.