The Government has started the year by announcing a change to the Stage 3 tax cuts. Further, the ATO have finalised its guidance on employees and contractors; and the AAT have considered a case relating to the classification of related-party transactions.
LEGISLATION UPDATE
Outstanding legislation
Parliament is to resume sitting on 6 February. The key tax bills waiting to be passed include:
– Treasury Laws Amendment (Support for Small Business & Charities & Other Measures) Bill 2023: Increases instant-asset write-off threshold from $1,000 to $20,000 for the 2024 income year; provides SME businesses with a 20% bonus tax deduction for the 2024 income year relating to electrification and more efficient energy use; and amends the NALE rules for superannuation funds.
– Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023: Requires Australian public companies to disclose subsidiary information in their annual financial reports; and amends the thin capitalisation rules to limit the amount of debt deductions.
– Treasury Laws Amendment (Tax Accountability and Fairness) Bill 2023: Expands the operation of the promoter penalty provisions; and enables the sharing of certain protected information.
Stage 3 tax cuts changes
The Government announced it will amend the legislation for the Stage 3 tax cuts to re-instate the 37% tax rate for middle income earners and lower the tax rate for low income earners from 19% to 16%. The new 45% tax rate threshold will now increase to $190,000 rather than $200,000. These rates come into effect from 1 July 2024.
The tax saving for those on the highest marginal tax rate reduces from $9,055 to $4,529. The tax cut for taxpayers with taxable income of $150,000 remains similar at $3,279, whilst taxpayers on lower taxable incomes will generally receive an increased tax saving.
Proposed tax changes in the 2023-24 Mid-Year Economic and Fiscal Outlook
The Government flagged the following proposed tax-related reforms:
– No deduction for ATO interest charges, specifically the general interest charge and shortfall interest charge, incurred in income years starting on or after 1 July 2025.
– Non-resident CGT withholding tax rate will be increased from 12.5% to 15% and the withholding threshold reduced from $750,000 to $0. The changes will apply to real property disposals with contracts entered into from 1 January 2025.
– The value of a penalty unit will increase from $313 to $330 andwill apply to offences committed after the start date once the legislation is finalised. The penalty unit amount will then be indexed every three years in line with the CPI.
– The LCT legislation will be amended from 1 July 2025 to tighten the definition of a fuel efficient vehicle by reducing the maximum fuel consumption from 7l/100km to 3.5l/100 km.
RULINGS, COMPLIANCE GUIDELINES & TAXPAYER ALERTS
TR 2023/4—Employee ordinary meaning
The ATO has finalised its guidance on whether a worker is an employee under its ordinary meaning, for the purposes of the PAYG withholding rules. TR 2023/4 further clarifies situations such as:
– When the Commissioner will need to review evidence outside a written contract to establish the legal rights and obligations between parties; and
– When clauses of a contract are operative terms that represent more than mere labels reflecting the parties’ opinion of the nature of their relationship.
PCG 2023/5—Worker Classification
Together with TR 2023/4, the ATO has finalised guidance outlining its compliance approach to various
arrangements involving workers and their ‘engaging entities’. It can be relied upon by either party to the arrangement and covers both federal tax and superannuation obligations administered by the ATO.
The guidance sets out various risk zones and the criteria by which an arrangement will fall within each zone. We would recommend that, where there is any uncertainty as to whether workers are ‘employees’, businesses should consider these guidelines and what steps they can take to reduce their risk profile.
TD 2023/D4—Financial advice fees
The ATO issued new guidance on the deductions for financial advice fees paid by individuals who are not carrying on a business, replacing TD 95/60. The ATO has maintained its view that certain financial advice fees are not deductible, including fees incurred for financial advice on a proposed investment prior to the acquisition of the asset; and in relation to an individual’s household budgeting. The guidance also outlines when financial advice fees are deductible, apportionment, and evidentiary requirements.
TD 2023/D4 will apply retrospectively.
TR 2024/D1—Royalties: Software and IP rights
The ATO has released a new draft ruling outlining its views on when amounts paid from Australia under a software arrangement are subject to royalty withholding tax. The new draft ruling is in response to submissions received in relation to the previous draft ruling TR 2021/D4, which was issued in June 2021.
CASE LAW UPDATE
WYVW v FC of T – Classification of Related-Party Transactions
In WYVW’s case, the taxpayer and her husband were controllers of a family group, primarily for conducting a financial advisory business. In the relevant years the taxpayer received a number of bank deposits from group companies and trusts. These were categorised at year end by the tax agent and recorded as various journal entries, including trust distributions, loans and offsets, gifts to trusts, director fees, management fees and unit subscriptions. The Commissioner issued amended assessments on the basis of fraud and evasion, imposed penalties and shortfall interest charges.
The AAT held that due to gaps in information and various inconsistencies the taxpayer had not established that the amended assessments were excessive. However, there was no fraud or evasion.
Key points: The case highlighted the importance of documentation for loans between entities in privately controlled family groups. The taxpayer had no contemporaneous records to evidence loans and the Commissioner relied on the principle that interest free loans made to beneficiaries with no expectation of repayment are more probably described as distributions. Whilst the AAT acknowledged that formal loan agreements may not be necessary in a family group, there should be contemporaneous recognition, other than journal entries. Further, the mere description of a loan arrangement may lack credibility where there is a lack of commercial reality about the transaction.
CONTACT US
For further information on any of these updates, or for general assistance, please get in touch.
The information contained in this bulletin is intended to provide general information only and is not intended to serve as tax advice. Specific advice should always be sought regarding a taxpayers’ particular circumstances. Please contact MC Tax Advisors if you would like assistance with the issues identified in this bulletin.
