Things you need to know for the new financial year
For Individuals
2023 tax season – what the ATO is looking for
These are the key areas the ATO is particularly focusing on:
- Work-related expenses
- Rental property income and deductions
- Capital gains from crypto, property, and shares
Also on the ATO’s radar this year, is income that you might not realise needs to be declared.
For example:
- Side hustles (other than genuine hobbies with no profit-making intention)
- Crowd funding
- Food delivery, Ride sharing, AirBNB etc
- Income from social media and other online activities
- Income received in cash (other than genuine gifts)
- Non-cash income and barter transactions
ATO Data Matching
Every year the amount of information the ATO has access to, increases. They now have access to information on residential rental properties from:
- Property managers
- Landlord insurance providers
- Financials institutions that provide loans for residential rental properties
- Sharing economy providers (AirBNB etc)
- Income protection policies
Therefore anyone with a rental property needs to be careful to include everything accurately – the ATO will know if you don’t!
Of particular concern, as the ATO believes this is often done incorrectly, is where the loan for a rental property is refinanced or funds drawn down. Any funds drawn from the loan for any purpose other than the property itself, means that the interest cannot be claimed in full. The apportionment calculations can get get complex very quickly, so it’s best to avoid if at all possible.
The end of LAMITO
LAMITO is the Low and Middle Income Tax Offset.
This was a temporary measure introduced by the government in the 2019 budget, and then extended during Covid. It resulted in extra tax refunds (or lower tax payable (of between $675 and $1,500 for individuals).
The government has not extended LAMITO, and so it ended on 30 June 2022.
You may notice therefore, that your refund may not be as large this year as in the last few years.
The Low Income Tax Offset – which is a separate offset of up to $700 – will continue.
Changes to work from home deductions
The rules for claiming work from home expenses have changed significantly.
If you work from home – either regularly or occasionally – I recommend reading this article.
Deductions for car expenses
For anyone claiming car expenses on a cents/kilometre basis, the rate for 2023 was $0.78/km. This is up from $0.72/km in 2022.
The rate for the 2024 financial year (1 July 2023 onwards) will be $0.85/km.
Electric vehicles using the logbook method can use 4.2c/km in lieu of fuel expenses – this only includes fully electric vehicles, not hybrids. As with the cents/kilometre method, you need to keep a record of how you have calculated the number of kilometres claimed.
Guides to deductions
The ATO has published some handy guides for various occupations, on what you can and can’t claim as a deduction.
They also have some guides for general deductions.
For Businesses
Technology Investment Boost
This was originally announced in the March 2022 budget – and was confirmed as law late June 2023.
The Technology Investment Boost allows small businesses with revenue less than $10 million to claim a deduction of 120% (ie, an extra 20%) for eligible expenses and depreciating assets for the purpose of their digital operations or digitising their operations.
The bonus deduction applies to eligible expenditure incurred between 7:30pm (AEST) on 29 March 2022 (budget night) and 30 June 2023. Eligible expenditure is capped at $100,000 per financial year.
Skills and Training Boost
Like the Technology Investment Boost, this was announced in the March 2022 budget and has recently become law.
This boost allows small businesses with revenue of less than $50 million, a deduction of 120% (again, an extra 20% bonus deduction) on eligible expenditure on external training provided to their employees.
The training must have been provided by an RTO (Registered Training Organisation) and must have been between 7:30pm (AEST) on 29 March 2022 and 30 June 2024 – ie it runs for a year longer than the Technology Investment Boost.
More information on both Boosts can be found here.
Super Guarantee (ie, super on wages)
Super guarantee will increase by 0.5% to 11% from 1 July 2023.
This applies to all payruns with a payment date of 1 July onwards.
Temporary Full Expenses / Instant Asset Write Off
For the last couple years, most businesses that have purchased business assets could claim 100% of the cost in full in the year that it was purchased and ready for use.
This finished on 30 June 2023.
From 1 July 2023, the threshold for claiming the cost of new business assets in full reduced to $20,000. Anything costing more than that will need to be depreciated over time.
STP Finalisation
For anyone with employees who are not also owners of the business:
Single Touch Payroll (STP) is required to be finalised by 14 July 2023.
For anyone with only “closely held” employees – ie, you only employ yourself and no one else:
STP is required to be finalised by the date your own return is lodged.
Wages and PAYG Withholding now prefilling on activity statements
From July 2023, labels W1 (Gross Wages) and W2 (PAYG Withheld) will be pre-filled by the ATO using information reported through Single Touch Payroll (STP).
This should save businesses a bit of time in completing activity statements (BAS’s and IAS’s) and help with avoiding typo’s and errors.
Upcoming changes to how super is paid on wages – “Payday Super”
The government has recently announced that, from 1 July 2026, employers will be required to pay super on employee wages each payday. This is a significant change to the current requirement to pay quarterly.
The logistics on how exactly this is to be done have not yet been confirmed.
While it won’t begin for three years, employers need to be aware of this now and start factoring it into your future cashflow planning.
Please do get in touch if you would like to discuss any of these topics, or how they might affect you.
If you have ever worked from home – either regularly or every now and then – Please read this!
- Traditional fixed-rate method – 52c per hour covering electricity, cleaning, and depreciation on home office furniture and equipment. Internet, phone, and stationery could be claimed separately.
- Covid short-cut method – 80c per hour covering electricity, cleaning, depreciation on home office furniture and equipment, internet, and phone. Stationery could be claimed separately.
- Actual method – portion of actual costs, based on either usage or the size of your office depending on the type of expense.
The Revised Fixed-Rate Method
The new hourly rate is 67c per hour.
It covers internet, phone, electricity, stationery, and other work-related consumables.
Depreciation on home office furniture and equipment can be claimed separately.
You do not need to have a dedicated work area or office to use the new method.
If more than one person works from home, then each of you may choose to use different methods.
ie, one might prefer the Revised Fixed-Rate Method, and the other might prefer the Actual Method.
If at least one person in the household is using the Actual Method, then it is important to apportion any joint expenses (eg. electricity, internet etc) so that there is no double up in the deductions claimed.
If you use the Revised Fixed-Rate method, you cannot also claim separately for mobile phone and internet. This is different to what has been done in previous years.
You will only be able to claim the Revised Fixed-Rate Method for hours worked at home. Any phone usage outside the home is ignored and not claimable.
If you are living with your parents, and even if you are paying board to them, then you might not be able to use the Revised Fixed-Rate Method at all.
What happens if an invoice or bill is in someone else’s name – for example, if the electricity bill is in one spouse’s name only?
If you want to use the Revised Fixed-Rate Method, and one of the included expenses is not in your name, and someone else has paid the bill from their own bank account (ie, not a joint account), then:
You will need to keep evidence that you have contributed towards the payment of the expense. The person who actually paid the bill will need to provide you with a written receipt as evidence of your contribution towards the expense.
In this scenario, if you do not contribute towards the payment of the expense, then you cannot use the Revised Fixed-Rate Method.
Yes this applies even between spouses for joint household bills such as electricity and internet – and yes that makes no sense in the real world!
If the expense is paid from a joint bank account, and you contribute funds into that account, then at is counted as contributing to the expense and receipts aren’t necessary.
Record Keeping Requirements Have Changed!
Importantly, the new rules require more detailed record-keeping than in previous years. If you do not keep all of the required records then you may not be able to claim any deduction for home office expenses from the 2023 financial year onwards.
Records you must keep, to be eligible to use the Revised Fixed-Rate Method:
- Record of actual hours worked from home, and
- Proof of additional running expenses, and
- (where relevant) Evidence you have contributed towards bills that are not in your name
Record of actual hours worked from home – for the period 1 July 2022 to 28 February 2023:
You will need to keep a record of the estimated total number of hours worked during this period. A detailed logbook is not required, however you must be able to substantiate the number claimed.
Record of actual hours worked from home – for the period 1 March 2023 onwards:
You will need to record the actual hours worked from home – logbook or timesheet-style.
Estimates are no longer sufficient. Only actual contemporaneous records will do.
This record must be kept for every day that you work from home. An estimate based on a logbook kept for only a period of time (such as is the case for vehicle deductions), will not be accepted by the ATO.
Proof of additional running expenses:
For each financial year, you will also need to keep:
At least one monthly or quarterly bill for each of – internet, phone, electricity.
Stationery and consumables – receipts for at least one item purchased
Depreciation on home office furniture and equipment
Depreciation isn’t included in the Revised Fixed-Rate Method, and so can be claimed separately.
To claim a deduction for this, you will need:
- Copies of al receipts or invoices – EFTPOS receipts are usually not sufficient, unless they include details of what was purchased
- If any equipment is not used 100% for work, then you will need to keep a logbook for a representative 4 week period, showing all personal and work-related use.
The Actual Method
Given the relatively low rate per hour of the Revised Fixed-Rate Method, you might prefer to keep your options open and be able to claim whichever of the two methods – Revised Fixed-Rate or Actual – gives you the best outcome. To do this, you will need to meet the record-keeping requirements of both.
This is what you will need to be able to use the Actual Method:
(Not all of these will be relevant to everyone)
Proof that you worked from home
You can either:
- Record the actual number of hours worked from home during the year (you might already have this as part of the requirements for the Revised Fixed-Rate Method)
- Keep a logbook for a representative 4 week period to show the usual pattern of working from home
- Use your electricity bill to calculate the average cost of electricity per hour (ie, the cost per unit of power multiplied by the average number of units used per hour)
- Multiply that by the number of hours worked from home.
To claim a portion of cleaning expenses, you first need to calculate the portion of your house that is your home office:
- Determine the size of your house in square metres
- Determine the size of your home office in square metres
- Divide the size of your office by the size of your house and multiply by 100, to get a percentage
- Multiply that percentage by the cost of cleaning
Also remember to include the use of streaming services such as Netflix and Spotify in your logbook as personal usage – subscription and data costs are not deductible just because you listen to them while working!
And lastly...
The definition of “working from home” means that that work undertaken at home must be substantive and directly related to income producing purposes. Minimal tasks such as checking emails or taking phone calls at home do not count.
You do not need to incur every expense that is covered by either method in order to use that method.
The new rules – and especially the record keeping requirements – are far more complex than in previous years. And you can be sure the ATO will be enforcing them.
Please do get in touch if you would like to discuss how these changes affect you.
The ATO’s Practical Compliance Guideline for the Revised Fixed-Rate Method is here.
The ATO has also published a detailed article of Work From Home deductions here.
Everyone has done this – you get a large bill and think to yourself, where am I going to find the money to pay this? And with the cost of everything currently going upwards at an alarming velocity, finding sufficient cash when bills are due can be tricky.
Don’t let the ATO cause you angst. Life is too short to be stressed about expenses, especially tax ones.
The TL;DR (Too Long; Didn’t Read) for busy people:
Instead of trying to find a large amount in one go, put aside small amounts often. The goal is that when the large bill arrives, you have already saved up enough to pay it.
This article talks specifically about tax bills, however you can apply similar principals to any large expense.
There are two ways to go about this:
- The, I don’t want to put too much effort into this, method; or
- Science
1. The, I don’t want to put too much effort into this, method
This is also known as trial and error, or educated guessing.
It goes something like this:
- Set up a new bank account in your business’ name, and call it some sort of savings account. Tax Savings, Stress-Reducing Savings, be creative. (As an accountant, I am of course not creative, so I’m quite sure you can do better than me).
It doesn’t need to specifically be a savings account, however you might prefer that it be an account that earns interest. As interest rates continue to rise, you may as well get some benefit out of the situation, however minor that may be. - If you are registered for GST, then each month move 25-30% of your income for the month into that account.
- If you are not registered for GST, then each month move 20-25% of your income for the month into that account.
- This last step is very important – do not use the money in this savings account for anything other than paying the ATO.
If, at the end of the year you find you have money leftover – ie, you have saved too much – then take yourself and a special friend out to a nice dinner and then in the following year reduce the percentage you put aside by a bit (or not, as you choose).
If however you find that you have not saved enough, then in the following year increase the percentage you put aside by a bit.
That is the trial and error part. Repeat this process every year and within a few years you should get to a percentage that more or less covers your tax bills.
2. Science
This method takes a bit more work, but is more accurate without the need for tedious trial and error. It does instead involve potentially tedious mathematics as it requires actual calculations of tax payable. You can, if you like, build in an extra amount for a nice dinner at the end of the year with your special friend.
This method works best (ie is easiest) when your business is run through a company, due to the flat company tax rate. However it can still be done, albeit with more of the aforementioned tedious maths, for sole traders, trusts and partnerships.
It is what I myself do and of course I have a spreadsheet for it. Let me know if you’d like to see a sample of my spreadsheet as I am always up for a good spreadsheet discussion.
For a company, it goes like this:
- In the first week of each month, make sure all of your transactions for the previous month have been entered into your accounting software and categorised correctly (that part is very important), and the bank accounts have all been reconciled.
- Run a Profit and Loss Report, and also an Activity Statement or GST or BAS Report – both year to date.
- Your accountant or bookkeeper will be able to help you with steps (a) and (b) if you are unsure how to go about it.
- Calculate 25% (if your company runs a business) or 30% (for investment companies) of net profit year to date. Ask your accountant if you are unsure which rate to use.
- Use the Activity Statement Report to determine net GST year to date.
- Add the two amounts from steps (d) and (e) together.
- Check the current balance of your savings account.
- Put enough funds into the savings account such that the balance of that account equals (roughly) the amount you calculated at step (f). Round it up to a nice number if you prefer to deal in whole dollars.
You might find that, due to the tedious maths involved in tax calculations for individuals, trusts and partnerships, that the second method is not worth bothering with for those structures. And that’s okay. The first method will do just as well.
However if you would like to attempt it, here is how it can be done:
For a sole trader, the calculation of tax payable at step (d) is not as straightforward, as individuals are taxed on marginal rates not a flat fixed rate as companies are.
Tax rates for individual taxpayers are here. Use these at step (d) instead of 25% / 30%.
https://www.ato.gov.au/rates/individual-income-tax-rates/
For partnerships, at step (d) divide the net profit year to date between the number of partners (or calculate each partners’ share if partners do not get equal shares). Then use the individual tax rates to calculate each partners’ tax payable.
Trusts can be a little (and in some cases a lot) more tricky, because trusts themselves do not generally pay tax and the tax calculation at the individual level depends on how much each beneficiary will receive as distribution. The, err on the side of caution and potentially put too much aside approach, would be to base the tax payable calculation on an assumption of one beneficiary receiving the entire net profit of the trust. Otherwise, your accountant may be able to help determine an estimated distribution for each beneficiary that will suffice for these purposes.
In all three cases, remember to take into account any other income that individual taxpayers may have that will affect their tax payable.
Remember this is all an estimate, it does not have to be 100% accurate. The only consequence to getting the calculations wrong, is that you have too much or not enough money set aside for your tax bills. But you will have at least most of it. Pat yourself on the back, you are now stress free.
Has this helped? Let me know if you have tried either of these methods and how they have (or haven’t) worked for you. And if you have another method that works for you, I’d love to hear about it!
Black Cat Accounting Pty Ltd provides efficient accounting services to all businesses, in all sizes, and across all industries.
However, we have a particular focus on startups, and helping new business owners navigate the complexities of starting their own venture. Trust us, we know what a wild ride it can be!
