The ATO is reminding investors who purchased new shares in a qualifying ‘early stage innovation company’ (‘ESIC’) that they may be eligible for tax incentives.

These tax incentives provide eligible investors who purchase new shares in an ESIC with:

• a non-refundable carry forward tax offset equal to 20% of the amount paid for their eligible investments – this is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year; and
• modified capital gains tax (‘CGT’) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded – capital losses on shares held less than 10 years must be disregarded.

The maximum tax offset cap of $200,000 does not limit the shares that qualify for the modified CGT treatment.

Additional tax liabilities may arise when money or assets of a foreign trust are paid to a taxpayer or applied for their benefit, and they are a beneficiary of the foreign trust.  These can include:

• loans to them by the trustee directly or indirectly through another entity;
• amounts paid by the trustee to a third party on their behalf;
• amounts that are described as gifts from family members, but are sourced from the trust; and
• distributions paid to them or trust assets (such as shares) transferred to them by the trustee.

Taxpayers who receive money from a foreign trust  may need to ask further questions to determine whether the amount must be included in their assessable income, including:

• whether they are a beneficiary of the foreign trust;
• where the foreign trust obtained the money; and
• why the money was paid to them, e.g., is it a payment for services, a gift, a distribution or a loan.

Taxpayers need to consider what work-related expenses they will be looking to claim in the new financial year, and what records they will need to substantiate those deductions.

Records can be kept as a paper version, an electronic copy, or a ‘true and clear’ photo of an original record.

Working from home deductions

Taxpayers can use two different methods to calculate their working from home deductions, and they each have different requirements:

• With the fixed rate method, taxpayers will need a record of the actual number of hours they worked from home for the whole financial year, and at least one record for each of the additional running expenses they incurred that the rate includes (e.g., an electricity bill).
• To use the actual cost method, taxpayers must also keep records for any additional running expenses they incurred, and the depreciating assets they bought and used while working from home, and show how they apportioned work-related use for their expenses and depreciating assets.

Please contact our office if you need any assistance with your record keeping requirements, such as logbook requirements for car expenses.

GST classification errors can lead to significant under-reporting of GST for some taxpayers.

The ATO recently issued guidance for small to medium businesses on self-reviewing GST classification of food and health products.

The use of this guide is not mandatory, although the ATO encourages small to medium businesses to regularly self-review the GST classification of supplies, and adopt better practice processes and controls as listed in the accompanying checklist.

Small business food retailers with turnover of $2 million or less may use one of the ‘GST simplified accounting methods’ to account for GST instead.

The checklist provides practical, step-by-step guidance for entities to:

• self-review the GST classification of their supplies (products they import, purchase as stock or produce for sale); and
• assess the robustness of their business systems, processes and controls that directly impact their GST classification systems.

The Federal Court has recently overturned an Administrative Appeals Tribunal (‘AAT’) decision that a taxpayer was a resident of Australia for tax purposes (even though he was mostly living and working overseas during the relevant period).

The taxpayer was a mechanical engineer who became an Australian citizen in 1978.

He lived and worked in Dubai, United Arab Emirates, from September 2015 until 2020, and he spent less than two months in Australia for each of the 2017 to 2020 income years visiting his family.

The AAT nevertheless held that he was a tax resident of Australia for each of the 2016 to 2020 income years, as he “maintained an intention to return to Australia and an attitude that Australia remained his home.”

On appeal to the Federal Court, the taxpayer succeeded in having the AAT’s decision overturned.

The Federal Court held, in considering whether the taxpayer was a resident of Australia according to ‘ordinary concepts’, that the AAT applied the wrong test, confusing it with the ‘domicile test’.

Also, in relation to the ‘domicile test’, the Federal Court noted that the AAT further misunderstood how to establish that a person had a ‘permanent place of abode’ outside of Australia.

The Federal Court accordingly held that the taxpayer’s appeal be allowed, and the matter be remitted to the AAT for determination according to law (i.e., the AAT needs to reconsider the matter).

Rebates of up to $12,500 are available for eligible businesses which purchase (and install if required) eligible energy-efficient equipment. Eligible businesses must spend a minimum of $8,000 (GST exclusive) on the purchase and installation of the equipment.

The rebate is 50% of the purchase and installation costs (GST exclusive) of the eligible equipment. For example, if you spent $10,000 (GST inclusive) on eligible equipment, you can claim 50% of the GST exclusive amount ($9,090.90 ex GST) and would receive a rebate payment of $4,545.45.

Only 1 rebate is available for each eligible business. However, a rebate application can consist of multiple, eligible energy-efficient equipment items, provided the total rebate amount does not exceed $12,500.

To be eligible, businesses must:

• have an Australian business number (ABN)
• be registered for goods and services tax (GST)
• not be a company within the meaning of the Corporations Act 2001
• have headquarters in QLD and be operating from premises in QLD
• employ at least 2, but no more than 199 full-time (or equivalent) employees (including the business owner).

You must demonstrate that the eligible equipment will lead to savings on the energy use and bills of your business, as well as contribute to the Queensland Government’s carbon reduction targets. There is no minimum savings amount – all improvements in energy efficiency help.

Use the energy rebate and savings calculator to show your savings – you will need to keep a copy of the estimated savings results. You can also use the calculator to see which energy-efficient equipment may provide you with the greatest savings before you purchase your equipment.

To find out more, go to: https://www.business.qld.gov.au/running-business/energy-business/energy-efficiency-rebate

Check you’re using the latest fuel tax credit rates before you claim.

Fuel tax credit rates:

• changed on 1 July for heavy vehicles travelling on public roads, due to the increase in the road user charge
• changed again on 5 August due to the fuel excise indexation.

Different rates apply based on when you acquire fuel. Make sure you use the correct rates when you claim fuel tax credits on your business activity statement (BAS).

Here are some tips to help you get it right:

Tip 1: If you don’t already claim fuel tax credits, check if you’re eligible to claim. You need to register for GST and fuel tax credits. You can only claim for eligible fuels you acquired, manufactured or imported and used in your business.

Tip 2: By lodging with us, could give you extra time to lodge and pay.

Tip 3: Keep records to support your claim.

Tip 4: Use the fuel tax credit calculator to work out:

• the amount to report on your BAS, based on the date you acquired the fuel and fuel type
• any changes or corrections for a previous BAS.

SMSFs cannot acquire an asset from a ‘related party’ (such as a member or their spouse or relative)  unless it is acquired at market value and is:

•       a listed security (e.g., shares, units or bonds listed on an approved stock exchange);
•       ‘business real property’ (broadly, land and buildings used wholly and exclusively in a business);
•       an asset specifically excluded from being an in-house asset; and/or
•       an ‘in-house asset’ as defined, provided the market value of the SMSF’s in-house assets does not exceed 5% of the total market value of the SMSF’s assets.

If the asset is acquired at less than market value, the difference between the market value and the amount actually paid is not considered to be a contribution.  Instead, income generated by the asset will be considered ‘non-arm’s length income’ and will be taxed at the highest marginal rate.

The ATO is advising taxpayers that having records to substantiate claims is essential to prove deductions can be claimed, having regard to the following in particular:

• A bank or credit card statement on its own will generally not be enough evidence to support a work-related expense claim.  Taxpayers instead need detailed written evidence such as a receipt.
• If a taxpayer’s total claim for deductible work expenses is $300 or less, they can claim a deduction without written evidence, but they must still be able to show that they spent the money and how they calculated the amount being claimed.
• While some deduction types do not require receipts (e.g., laundry expenses), some kind of record may still be necessary.  Taxpayers may also need a record that shows their private and work-related use (e.g., a diary), and how the amount claimed as a deduction was calculated.

Taxpayers who have work done on their rental property should consider the following factors in determining claims for expenses.

Repairs and general maintenance are expenses for work done to remedy or prevent defects, damage or deterioration from using the property to earn income.  These expenses can be claimed in the year the expense occurred.

Initial repairs include any work done to fix defects, damage or deterioration existing at the time of purchase.  These are capital repair expenses and cannot be claimed as a deduction.

Capital works are structural improvements, alterations and extensions to the property, claimed at 2.5% over 40 years (with some exceptions).  Deductions for capital works can only be claimed after the work has been completed.

Improvements or renovations that are structural are also capital works.  Work going beyond remedying defects, damage or deterioration which improves the function of the property are improvements.

Repairs to an ‘entirety’ are also capital and cannot be claimed as repairs.  Repairs to an entirety generally involve the replacement or reconstruction of something separately identifiable as a capital item (for example, a depreciating asset).

Depreciating assets must be claimed over time (as ‘capital allowances’) according to their ‘effective life’.