Pre-Budget Announcement: $20,000 Small Business Energy Incentive

In a pre-Budget announcement, the Government has committed to a Small Business Energy Incentive Scheme that offers a bonus tax deduction of up to $20,000.

The Small Business Energy Incentive encourages small and medium businesses with an aggregated turnover of less than $50 million to invest in spending that supports “electrification” and more efficient use of energy.

Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction of $20,000 per business. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus deduction.

If your business is contemplating upgrading to improve energy efficiency, it is worth waiting to see the detail of the proposal. We will bring you more details of the scheme and how your business might benefit as soon as they are released.

Proposal for employers to pay superannuation on same day as ‘payday’

The Government has recently announced that it intends to amend superannuation laws to require employers to pay superannuation contributions on ‘payday’, at the same time salary and wages are paid.

The proposed changes are announced to start from 1 July 2026.

The Government states that by switching to making superannuation payments on ‘payday’, for example, a 25-year-old median income earner currently receiving their super quarterly and wages fortnightly could be around $6,000 or 1.5% better off at retirement.

We will continue to monitor further announcements on this proposal.

Residential investment property loan data-matching program

The ATO has advised that it will acquire residential investment property loan data from authorised financial institutions for the 2021-22 through to 2025-26 financial years, including:

• client identification details (names, addresses, phone numbers, dates of birth, etc);
• account details (account numbers, BSBs, balances, commencement and end dates, etc);
• transaction details (transaction date, transaction amount, etc); and
• property details (addresses, etc).

The ATO estimates that records relating to approximately 1.7 million individuals will be obtained each financial year.

The principal uses of the data include “education and online services” and “data analytics and insights”, as well as to help the ATO “identify relevant cases for administrative action, including compliance activities”.

The ATO has a dedicated webpage (click here) dealing with its data-matching protocols, and there are currently 24 in total.  It states on this webpage that: “Matching external data with our own helps us to ensure that people and businesses comply with their tax and super obligations. It also helps us to detect fraud against the Commonwealth.”

Banks are not the only source of data, as the ATO is targeting rental property management software. Over the last decade, much of the financial management of residential rental property has moved online, facilitated by various platform providers. The ATO will require these rental property software providers to provide details of property owners including their bank details, income, expenses and the amount of those expenses, and details of their associated rental properties and agents. Data collection of the estimated 1.6 million individuals in this data program will cover the period from 2018-19 to 2022-23.

What are the perceived common problem areas?

• Claiming interest and redrawing on the loan - The interest component of your investment property loan is generally deductible.  However, if you redraw on your invest loan for personal purposes, interest on this portion of the loan will not be deductible.
• Borrowing costs - You can claim a deduction for borrowing costs (typically over five years) such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legals on the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance.
• Repairs or maintenance - While repairs and maintenance can be claimed immediately, the deduction for capital works is generally spread over a number of years. Repairs must relate directly to the wear and tear resulting from the property being rented out.

Electric vehicle home charging rates: cents per km

The ATO recently released draft guidelines setting out a methodology for calculating the cost of electricity when an electric vehicle (EV) is charged at an employee's or individual's home.

The draft guidelines may be relied on by employers and individuals who satisfy the required criteria for FBT and income tax purposes respectively, as set out in the draft guidelines.

The employer or individual can choose if they want to use the methodology outlined in the draft guidelines, or if they would like to determine the cost of the electricity by determining its actual cost. 

The choice is per vehicle and applies for the whole income or FBT year. However, it can be changed by the employer or individual from year to year.

Cents-per-kilometre rate

The rate for the FBT tax year or income year commencing on or after 1 April 2022 is 4.2 cents per km (the EV home charging rate), which is multiplied by the total number of relevant kilometres travelled by the electric vehicle in the relevant income year or FBT year.

However, if electric vehicle charging costs are incurred at a commercial charging station, a choice has to be made:

• The EV home charging rate can be used, but only if the commercial charging station cost is disregarded.
• If the commercial charging station cost is used, the EV home charging methodology cannot be applied.

Further, all necessary records (such as receipts) must be kept to substantiate the claim, as per normal record-keeping rules.

Record keeping

If a taxpayer wishes to rely on the EV home charging rate to calculate their electricity charging expenses, they will need to keep a record of the distance travelled by the car (i.e., generally odometer records) in either the applicable FBT year to 31 March or the income year to 30 June.

Also, if an employer chooses to apply the draft guidelines and the EV home charging rate for FBT purposes, a valid logbook must be maintained if the operating cost method is used.

If an individual chooses to apply the draft guidelines and the EV home charging rate for income tax purposes, to satisfy the record-keeping requirements, they must have:

• a valid logbook to use the logbook method of calculating work-related car expenses (and it is recommended that a logbook is maintained to demonstrate work-related use of vehicles, regardless); and
• one electricity bill for the residential premises in the applicable income year to show that electricity costs have been incurred.

Application

It should be noted that the draft guidelines can only be relied on in relation to zero emissions vehicles. 

The draft guidelines cannot be relied on, and the EV home charging rate cannot be used, if, for example, the vehicle is a plug-in hybrid which has an internal combustion engine.

Once finalised, the draft guidelines will apply from:

• 1 April 2022 for FBT purposes; or
• 1 July 2022 for income tax purposes.

Taxpayers not carrying on an agistment business

The Administrative Appeals Tribunal (AAT) has held that two taxpayers were not carrying on a business of providing services to a company (which they owned) and consequently were not entitled to various deductions.

The taxpayers had claimed those deductions on the basis that they were carrying on a business of providing agistment and full care animal husbandry and veterinary services to their company.

The AAT concluded that, on balance, the agistment arrangements did not constitute a ‘business’. 

The AAT noted in this regard that there was a degree of systematic, business-like behaviour. However, the AAT was of the view that the absence of a profit-making purpose, the uncommercial nature of the transactions and similar considerations nevertheless led to the conclusion that a business was not being carried on.

Know the rules for accessing superannuation

The ATO has reminded self-managed superannuation fund (SMSF) trustees that their SMSF must be operated for the sole purpose of providing retirement benefits for its members. This means SMSF trustees can’t use funds from their SMSF to pay for personal or business expenses. This is known as 'illegal early access' of superannuation, and severe penalties apply.

The ATO also reminds SMSF trustees that there are rules regarding what they can invest in when dealing with a related party.

The ATO has recently released a factsheet (click here) to help SMSF trustees understand the rules on accessing their superannuation, and make sure they (and their business, if any) comply with the rules surrounding SMSFs.