As we quickly approach the end of another financial year, it is a good time to stop and look at any upcoming changes and prepare for the new year ahead. I thought It was also a key time to touch on some of the main tax issues I am asked each year.
Superannuation
As you are likely aware by now, if you have employees their superannuation is only tax deductible once paid and received by the superannuation fund.
From 1 July 2024, the superannuation guarantee rate increases to 11.5%. If you use an online payroll options (such as Xero or MYOB) this will automatically be reflected, if you use other solutions you may need to update. You may wish to review your employment contracts to determine how this affects your staff. If your agreement or contract lists a superannuation exclusive salary, the additional super may result in a reduction to their take home pay. If however your agreement states a superannuation exclusive salary then you will need to increase the total package in line with these changes. You will obviously also need to ensure that all agreements are in line with minimum employment standards and the appropriate awards.
For the 2024 financial year the concessional contribution cap is $27,500 (increasing to $30,000 per person from 1 July 2024), this is the value of contributions you can make and claim a tax deduction for. If you exceed this cap, additional taxes may apply. If you total superannuation balance is less than $500,000 you may be able to ‘top up’ contributions where the limit has not been met in previous years. This information can be found in your ATO MyGov account.
If you make a personal superannuation contribution that you intend to claim a personal tax deduction in relation to, it is important that you lodge a notice of intent to claim form with your superannuation fund. This must be lodged, and acknowledgement received from your fund prior to lodgement of your income tax return.
Finally, it is possible to make ‘after tax’ superannuation contributions. For the 2024 year this is up to $110,000 per person, increasing to $120,000 per person from 1 July 2024.
Before making any decisions relating to superannuation and retirement planning, you should seek advice to ensure this is suitable for your circumstances.
Immediate Write off
Over recent years businesses have been able to claim a full tax deduction for any new assets purchased during the year. For the 2024 year, this threshold has been reduced to $20,000. This means that any assets that exceed $20,000 will need to be added to a small business pool and depreciated at 15% in the first year, and 30% each year thereafter.
There is proposed legislation to increase this cap to $30,000 from 1 July 2024, however this is yet to be legislated.
One specific rule applies to motor vehicles, that is a vehicle designed to carry a load of less than one tonne and less than 9 passengers. For a motor vehicle a depreciation cost limit applies of $68,108 in 2024 and $69,674 in 2025. If a vehicles cost exceeds this, the depreciation claim is limited to this value.
Motor Vehicles / Fringe Benefits Tax
A very common question we get asked is around the benefits of purchasing motor vehicles within a business. There are several issues to consider here.
Deductibility
If you are a sole trader or employee, you must consider the deductibility of your motor vehicle expenses. There are multiple possible methods of claiming motor vehicle expenses:
1. Cents per km – this is the most simple method, you are required to keep a diary of work kms travelled and you can then claim a tax deduction at the set ATO rate. For the 2024 financial year this is 85 cents per km, for the 2025 year this increases to 88 cents per km. A maximum of 5,000kms can be claimed.
2. Log book – the second method requires you to keep a logbook for a 12 week period that determines the business use percentage of the vehicle. Once in place, this logbook can be used for up to 5 years. There are a number of apps available that can assist with logbook preparation. You are then required to keep records of all your vehicle running costs (fuel, registration, insurance, repairs etc) and can claim the business use percentage of all expenses. If you are a sole trader registered for GST, you can also claim the GST on the business use percentage of any running costs.
3. EV home charging rate – a new rate has been released to calculate electricity usage for charging an electric vehicle. The ATO has issued the rate of 4.2 cents per kilometre, valid records of business use kms or a logbook as per items 1 or 2 above moust be kept
If you trade via an entity (eg Trust or Company), and the vehicle is registered in this entities name then all running costs of the vehicle are deductible and all GST is claimable. It is now however to consider the Fringe Benefits Tax Consequences of the vehicle.
Fringe Benefits Tax (FBT)
A number of vehicles can qualify for a FBT exemption, which means FBT does not apply.
Vehicles eligible for exemption are as follows:
- Single cab ute
- Dual cab ute, that is designed to either:
o Carry a loan of 1 tonne or more
o Carry more than 8 passengers (including the driver)
- A panel van or goods van
- A modified vehicle (eg a hearse)
- A taxi
- A 4wd that is designed to either:
o Carry a loan of 1 tonne or more
o Carry more than 8 passengers (including the driver)
In addition, the private use of the vehicle must be limited to the following:
- Travel between home and work
- Travel that is incidental to travel in the course of employment
- Non-work related use that is minor, infrequent and irregular)
There is an additional exemption available for certain electric vehicles:
From 1 July 2022 – 31 March 2025, the following vehicles are also exempt from FBT:
- Cars that are a zero or low emissions vehicle, that is:
o A battery electric vehicle;
o Hydrogen fuel cell electric vehicle
o Plug-in hybrid electric vehicle
From 1 April 2025 the purchase of new plug-in hybrid vehicles will not be exempt for FBT. In addition, the vehicle must be below the Luxury Car Tax threshold for fuel efficient vehicles at the time it is first sold in a retail sale and any subsequent sales.
Where a vehicle is not exempt for FBT we have the option of either lodging an FBT return and paying the relevant FBT liability (calculated at the top marginal rate of 47%) or calculating an employee contribution. An employee contribution records income against the Directors loan or beneficiary accounts to reduce the personal use of the vehicle to nil.
Subcontractors
Many businesses utilise subcontractors, it is important to understand the key risks of this arrangement. The ATO can deem subcontractors as employees, they will do this by reviewing the nature of the relationship. Where the relationship has the key factors of an employment relationship, they will be deemed to be employees rather than subcontractors. Some of the key considerations are:
- Are they paid for a result, or an hourly or daily rate?
- Do they provide their own equipment?
- Who is responsible for rectification if damage or an error occurs?
- Do they subcontract to multiple businesses, or just the one?
- Do they have the right to delegate?
- Do they control when and how the work is performed?
It is important to consider and document your contractor relationship. If a contractor is deemed to be an employee, the risk is born by the employing business. This means additional costs such as superannuation, workers compensation, payroll tax etc could be payable on top of the rate already paid to the subcontractor.
In addition, where a contractor is employed for a labour only contract then regardless of the classification superannuation is payable by the employer.
Taxable Payments Annual Report (TPAR)
Where your business makes payments to contractors, you may be required to lodge a TPAR.
If your business is in one of the following industries:
- Building and construction
- Cleaning
- Courier and road freight
- Information technology
- Security, investigation or surveillance
Your TPAR is due by 28 August 2024, and must include the name, ABN and amount paid to any subcontractors or consultants.
Single Touch Payroll (STP)
If your business employs staff, you are required to meet the STP requirements. On top of regular STP reporting, you are required to prepare a STP finalisation by 14 July 2024. This confirms your STP data and reports the final data to the ATO so employees can proceed with completion of their tax returns.
When completing your STP finalisation, we would normally cross check the following:
- That all wage payments have been correctly coded
- That the clearing account (wages payable or similar) balances to nil at 30 June 2024
- That the totals reported on your STP finalisation agree to your profit and loss statement
- That the totals reported on your STP finalisation agree to your payroll reporting software
- That any additional amounts such as RESC and RFBT are included
- That all amounts agree to your lodged BAS’ for the year.
It is important that this finalisation is completed correctly, it can be costly if employees complete their income tax returns based on the incorrect data.
There are so many more issues we could cover, please be in touch for a no obligation meeting to discuss your business and how we can help it to move forward being a compliant and successful business.
You can easily see my real-time availability and schedule time with me at https://calendly.com/laurenh-3
Since 1989 Hillier’s Advisors have been delivering financial services to individuals, businesses and business owners across Newcastle and the wider Hunter Region. A major focus for the Hillier’s Advisors team and the work we do is providing the right financial advice when our clients need it, not just when they ask for it.
