With the unwelcome challenges posed by the COVID-19 pandemic, and for some the recent floods, many in business have sustained serious losses. The ATO has issued some guidance which should be augmented by our professional advice.
Before you claim a tax loss, make sure you have correctly claimed expenses that you are entitled to. Overclaiming expenses can put your business in an incorrect tax loss situation.
It’s also important to remember to apportion your expenses correctly so that only the business portion of the expense is claimed, and not any personal component of the expense.
Keeping accurate and complete records will help you keep track of your tax losses. It can help you avoid incorrectly carrying back a tax loss or carrying forward tax losses to deduct in future years.
If your business makes a tax loss in the current year, you can generally carry forward that loss and claim a deduction for your business in a future year.
You may be able to offset current year losses if you’re a sole trader or an individual partner in a partnership and meet certain conditions.
If you’re an eligible corporate entity (company, corporate limited partnership, or public trading trust), you may be able to claim the loss carry back tax offset. You can check your eligibility for this tax offset using the ATO loss carry back offset tool.
The ATO has reminded us that keeping and maintaining good records is one of your key responsibilities as a trustee of a self-managed super fund (SMSF). It’s also a legal requirement.
When you keep good records, you’re not just complying with super laws, you’re making it easier for yourself to administer and manage your super.
Good record-keeping helps you when you’re getting ready to lodge your SMSF annual return and other SMSF reports. It also helps ensure your fund’s accounts and audits are completed in a timely manner.
Remember, even if you use a super or tax professional to administer your SMSF, each trustee is responsible for good record keeping. This means each trustee could be fined if the appointed auditor informs the ATO that you haven’t been keeping proper records.
If you’re unsure what kind of things you should be recording, you can:
- watch the ATO short video on record-keeping requirements
- take an approved education course to improve your understanding and knowledge of your obligations as an SMSF trustee.
In February the Australian Taxation Office (ATO) released its statistical overview of SMSFs for the 2019-20 financial year based on annual SMSF returns.
The ATO also released some data for the 2020-21 financial year on SMSF demographics and assets, as well as auditor contravention reports (ACRs).
The most common contraventions are
- related party loans and loans to members 21%
- in house assets 19%
- failure to keep assets separate 13%
These contraventions account for more than 50% of the contraventions reported to the ATO.
Other contraventions included:
- acquisition of assets from released parties
- sole purpose breaches
- operating standards
- administrative areas
Other contraventions involved trying to access the low tax rates (15%) of a SMSF by the use of acquisitions resulting in non-arm’s length income (N.A.L.I).
Financial stress along with the easy accessibility of funds in a SMSF appeal to be the main drives of these contraventions.
Since 1.7.2021, 75 trustees have been disqualified.
In December the ATO released Practical Compliance Guideline (PCG) 2021/4 which finalises its compliance approach towards the allocation of profits from professional firms to an individual professional practitioner (IPP).
The ATO has concerns with arrangements involving the provision of services where the IPP redirects income to an associated entity, with a resulting overall tax liability.
The final guideline does not materially differ from the draft guidelines. It does include some further examples along with, changes to the risk assessment factor scoring. There are also some other minor changes to clarify certain matters.
On 21.2.2022, the ATO released Draft Legislative Instrument LI 2022/D6. This will vary the due date for providing the Commissioner with copies of payment summaries in respect of employment termination (ETPs) and departing superannuation payments (DASP) to 14 August following the end of the financial year in which these payments are made. It is proposed this change will apply from 1.4.2022.
On 21.2.2022, the High Court refused the taxpayer’s application for special leave (with assist) to appeal from the Full Federal Court in the decision in Peter Greensill Family co Pty Ltd (Trustee) v FCT  FCAFC 99. The Full Court held that the trustee of a resident discretionary trust was assessable on capital gains arising from the sale of “non-taxable Australian property” (in form of shares) to which foreign residents were presently entitled.
On 24.2.2022, the ATO released PS LA 2022/1 Administrative penalties for electronic sales suppression tools. This provides guidance to ATO staff on the application and remission of the administrative penalties for producing, supplying, possessing, and incorrectly keeping records using an electronic sales suppression tool (ESST). ESSTs are hardware or software tools designed and used to manipulate sales records, understate income, and assist in avoiding tax obligations.
As we are dealing with the black economy here, this is clearly a path you should not be going down.
Really the only time a full remission of penalties may be possible is if you unknowingly possess the software. For instance, you may have purchased a business without knowing the POS software contained an EEST that was not used. As well as severe penalties there is the strong possibility of legal action.
PS LA 2022/1 contains six worked examples to provide guidance to ATO staff. Once again do not go down this path.
As part of the 2021–22 federal Budget, the Australian Government announced it will reduce the eligibility age for downsizer contributions from 65 to 60 years old. This measure has now become law, with the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 received royal assent on 22 February 2022.
What does this mean?
This means from 1 July 2022, eligible individuals aged 60 years or older can choose to make a downsizer contribution into their superannuation of up to $300,000 per person ($600,000 per couple) from the proceeds of selling their home. There are no changes to the remaining eligibility criteria.
For contributions made prior to 1 July 2022, eligible individuals must still be aged 65 years or older at the time of making their contribution.
What is the purpose of downsizer contributions?
The downsizer measure began on 1 July 2018, increasing the flexibility of older Australians to contribute to their super. This allows eligible individuals to contribute up to $300,000 from the proceeds of the sale of their home, without it impacting their contributions caps.
The Administration Appeals Tribunal has ruled that various payments and shares issued in lieu of the director’s fees, were derived by the director personally as ordinary income and not by the relevant companies he controlled. The Commissioner’s position was that the payments to the companies were made at the taxpayer’s director meaning it was his income. The AAT, in affirming the amended assessments issued for the 2011 to 2014 income years, cited the lack of any written agreements, board minutes or other contemporaneous documentary evidence to indicate that the payments were income of the company as claimed.
The takeout here is that if your chosen company is able to comply with the Personal Income Rules (PSI), there should be written agreements and contracts in place before the income is derived. Having a personal entitlement to income, then deciding it would be a “good idea” if it were derived by a company will not work
You’ll receive a quarterly goods and services tax (GST) or pay as you go (PAYG) instalment notice, instead of a business activity statement (BAS), if you:
- report and pay your GST or PAYG instalments quarterly
- pay using the instalment amount advised by the ATO (option 1)
- have no other reporting requirements.
Your instalment notice will have a:
- GST instalment amount displayed at G21 (if relevant)
- PAYG instalment amount at T7.
Paying your instalment amount
You need to pay the total GST and PAYG instalment amount by the due date on the notice.
If you receive your notice by post, you don’t need to send the notice to us with your payment. Keep the instalment notice for your records.
Receiving your PAYG and GST instalment notice electronically
The ATO no longer send paper instalment notices for activity statements lodged electronically through:
- myGov accounts linked to the ATO
- Online services for business
- Online services for agents
- the practitioner lodgement service (PLS)
- Standard Business Reporting (SBR)-enabled software.
You or your registered tax or BAS agent can access the instalment amount online three to four days after the activity statement generate date. If you don’t use an agent and the ATO has your email address, we’ll send you an email or SMS 21 days before the payment is due. Log in to online services to check your contact details.
If you don’t use the ATO online services or a registered agent to lodge your activity statements, you will continue to receive your instalment notice by post.
If you are ready to make the change to electronic lodgement, you can create an online account.
Varying your instalment amount
It is important to keep an eye on your MyGov account because if you want to vary your instalment you must do so before the due date for payment. If you think that paying the instalment amount on your notice will result in you paying more (or less) than your expected tax for the income year, you can vary your instalment amount.
If you don’t want to vary, you can pay for the quarter. Then you’ll:
- make a payment or receive a refund of GST when you lodge your Annual GST return
- pay income tax or receive a refund when you lodge your tax return.
PAYG instalments allow you to make regular prepayments throughout the year towards the expected tax on your business and investment income.
By paying regular instalments throughout the year, you should not have a large tax bill when you lodge your tax return.
You can vary your PAYG instalments if you think your current payments will result in you paying too much or too little tax for the income year. You must make variations on or before the payment due date. Your varied amount will apply for all your remaining instalments unless you make another variation before the end of the income year.
If you continue to be affected by COVID-19, the ATO will not apply penalties or charge interest to varied instalments relating to the 2021-22 income year. This applies if you have taken reasonable care to estimate your end of year tax liability.
You must make variations on or before the payment due date. Your varied amount or rate will apply for the remaining instalments for the income year, or until you make another variation.
The ATO recognises that many businesses in local government areas in Queensland and New South Wales have been affected by the floods. The ATO aims to support the community’s recovery efforts during this difficult time by providing administrative support to help taxpayers.
The ATO encourages taxpayers to review their PAYG instalments regularly, so the amount you prepay is closer to your expected tax for the year.
If your small business is having financial difficulties and can’t pay tax or super on time, support is available. The ATO may be able to set up an affordable payment plan or offer interest-free periods for eligible overdue activity statement amounts.
If you have an outstanding debt, are able to meet the requirements of a payment plan, or require additional assistance, contact them for further help. The ATO may ask for evidence that your business is experiencing financial difficulty to support your claim, such as:
- bank notices (for example, and overdraft call)
- an eviction notice
- a disconnection notice
- a repossession notice
- a notice of impending legal action
- staff pay records
- contract payment schedules
- legal documents
They take many factors into account when assessing a claim. Sometimes the ATO may change their requirements depending on your circumstances.
Even if you can’t pay on time, it’s important to keep lodgements up to date. This will give you a clear idea of your tax position and the ATP can tailor help, such as advice, payment plans, or deferrals, to your situation.
On 3.3.2022 the ATO issued draft Legislative Instrument LI 2022/D8TD which applies to eligible taxpayers who elect to use the cents per kilometre method to calculate income tax deductions for their work-related car expenses. The Commissioner has determined that the rate is 75 cents per Kilometre. It will apply to the income year commencing 1.7.2022 and remains applicable to subsequent income years until such time as it should be varied.
Determining how your FBT obligations relating to work cars may be impacted by the COVID-19 pandemic, and how to calculate your FBT liability.
Your fringe benefits tax (FBT) obligations may be affected if your employees have been garaging work cars at their homes due to the impacts of COVID-19.
- Where a car isn’t being driven at all or is only being driven for maintenance purposes, the ATO accepts that you aren’t holding the car for the purposes of providing fringe benefits. If you elect to use the operating cost method and maintain appropriate records, you may not have an FBT liability for a car.
- Certain kinds of cars may also be exempt from FBT even where they are garaged at employee homes.
- If an exemption doesn’t apply and a work car is garaged at your employee’s home, it will be deemed to be available for private use and you may have an FBT liability.
- You can take into account the impact of COVID-19 on the business use of a car if it is being driven during the period it is garaged at home. This will require you to maintain a logbook (or to have kept a logbook in any of the previous four years) which will enable you to calculate your FBT liability.
- Your logbook-keeping requirements will depend on whether you are already maintaining an existing logbook for the year.
- For any car fringe benefits calculated using the operating cost method, you may adjust your business use estimates to reflect changes in your employees’ driving patterns due to COVID-19.
Garaging a car at an employee’s home
Generally, a car fringe benefit will arise where you make a car you own or lease available for the private use of an employee. Where your employee is garaging a work car at home, you may be providing them with a car fringe benefit.
For FBT purposes, a car is a motor vehicle (except a motorcycle or similar vehicle) designed to carry a load of less than one tonne and fewer than nine passengers.
If an exemption does not apply, you need to determine the taxable value of the car fringe benefit. It’s calculated using either the:
- statutory formula method – the taxable value is a set formula based on the car’s cost price
- operating cost method – the taxable value is based on the operating costs of the car, reduced by any business use.
Exemption for certain car benefits
In some cases, the use of a car is exempt from FBT. An employee’s private use of a taxi, panel van, or utility vehicle designed to carry less than one tonne is exempt from FBT if its private use is limited to:
- travel between home and work
- incidental travel in the course of performing employment-related travel, and/or
- non-work-related use that is minor, infrequent, and irregular (such as occasional use of the vehicle to remove domestic rubbish).
If a home-garaged car is not being driven
Where a car has not been driven at all during the period it has been garaged at home or has only been driven briefly for the purpose of maintaining the car, the ATO will accept that you don’t hold the car for the purpose of providing fringe benefits to your employee.
In these situations, provided you elect to use the operating cost method, there will be a nil taxable value for the car and no FBT liability. You need to elect to use the operating cost method in writing before you lodge your FBT return for the year. You should maintain odometer records to show that, during the period the car is garaged, it has not been driven, or has only been driven briefly for the purposes of maintaining the car.
If you don’t elect to use the operating cost method or don’t have odometer records, the statutory formula method applies, and you will have an FBT liability for the year. This is because the car is garaged at the employee’s home and is taken to be available for private use.
If a home-garaged car is being driven
If an employee is driving a car for business purposes, and you elect to use the operating cost method, you may be able to reduce the taxable value of the car fringe benefit to take into account this business use. This may include reducing the taxable value to nil if the car is only being used for business travel. You will only be able to reduce the taxable value if you have logbook records and odometer records for the period in question. If you have not previously maintained a logbook for the car, the logbook will need to be for at least:
- 12 continuous weeks, or
- until the car stops being garaged at home if this is less than 12 weeks.
Logbook requirements for car fringe benefits
Your logbook requirements will vary depending on whether:
- you already use the operating cost method and have an existing logbook in place, or
- it’s your first time electing to use the operating cost method or it’s a logbook year for you.
Generally, if you have used a logbook for the car before, it will be a logbook year if you have not kept a logbook for the car in the previous four years.
If COVID-19 has impacted driving patterns and you have an existing logbook
You may have an existing logbook in place if you’re already using the operating cost method. You can still rely on this logbook, despite changes in driving patterns due to COVID-19. You must keep odometer records for the year, and these will show how much the car has been driven during the year, including any lockdown period.
You need to make a reasonable estimate of the percentage of business use of the car, taking into account logbooks, odometer records and any changes in the pattern of business use throughout the year, including changes due to COVID-19.
Where your driving patterns and business-use percentage are impacted by COVID-19, you can choose to keep a new logbook provided that the period is representative of your usage throughout the year. This is so, even if it is not a logbook year. This may provide a more accurate base to estimate the business use of the car.
Example 1 – FBT year ended 31 March 2020 – new logbook not kept
An employer uses the operating cost method to value their car fringe benefits. They kept a logbook in the FBT year ended 31 March 2018.
For the FBT year ended 31 March 2020, the employer has no requirement to keep a new logbook.
The employees’ driving patterns were not impacted significantly by COVID-19 across the 2020 FBT year, with any impact occurring in March 2020, so the employer decides not to keep a new logbook. They use the existing logbook, odometer records, employee fuel card records, plus client records to estimate the business use percentage for the year.
Example 2 – FBT year ended 31 March 2021 – new logbook kept
An employer uses the operating cost method to value their car fringe benefits and kept a logbook in the FBT year ended 31 March 2018.
For the FBT year ended 31 March 2021, there is no requirement for the employer to keep a logbook. However, employee driving patterns have been significantly impacted by COVID-19, and so the employer chooses to keep a new logbook as it provides a more accurate base to estimate the business use of the car. Odometer records of the total kilometres travelled during the logbook period and during the FBT year are also kept.
If it is your first time using the operating cost method, or it is a logbook year for the car
Where it’s your first time using the operating cost method or it is a logbook year, you must:
- keep a logbook recording details of business journeys undertaken in the car for a continuous period of at least 12 weeks (the logbook period must also be recorded in the logbook)
- keep odometer records of the total kilometres travelled in the logbook period, the total kilometres travelled during the year, and
- estimate the number of kilometres travelled on business journeys during the FBT year.
For this estimate, you must consider all relevant matters including logbook and odometer records, any other records, and any variations in the pattern of business use throughout the year.
If the car was not driven for a period due to COVID-19 impacts, it is recommended that you also keep odometer records to show this.
If COVID-19 impacted driving patterns during the period, you were maintaining a logbook
You may have been in the middle of maintaining a logbook for a 12-week period at the time the COVID-19 pandemic impacted driving patterns. You may be concerned that the resulting logbook does not reflect the business use of the car for the 2020 FBT year.
If you are making a reasonable estimate of the business use, you can adjust the use indicated from the logbook to account for the change in driving patterns from COVID-19 impacts.
However, you must ensure that the logbook still records a period of at least 12 weeks – if the logbook does not reflect a 12-week period you cannot apply it to reduce the taxable value to take business use into account.
Example 3 – FBT year ended 31 March 2020 – logbook impacted by COVID-19
An employer uses the operating cost method to value their car fringe benefits, and the 2020 FBT year is a logbook year. They begin maintaining a logbook on 2 February 2020, meaning the logbook must run for at least a 12-week continuous period to 26 April 2020.
However, from early April, in response to the COVID-19 pandemic, the employees’ car usage changes significantly, and there are few or no business journeys for the final four weeks of the logbook period.
When estimating the business use for the 2020 FBT year, the employer may adjust their estimate to reflect the business journeys recorded in the period of the logbook before COVID-19 impacted driving patterns, to ensure it is a reasonable estimate of the business use across the FBT year.
Reportable fringe benefits
If the value of certain fringe benefits you provide to an individual employee exceeds $2,000 in an FBT year (1 April to 31 March), you must report the grossed-up taxable value of those benefits on their payment summary or through Single Touch Payroll for the corresponding income year (1 July to 30 June). These are called ‘reportable fringe benefits’.
However, where an employee uses a pooled or shared car that results in a taxable fringe benefit, the use of this car is not included for payment summary or Single Touch Payroll purposes.
Having a valid car logbook is beneficial for both maximising deductions in a personal tax return for work-related travel costs using your own car and minimising the taxable value of a car fringe benefit for FBT purposes when the car is provided by an employer.
The ATO record keeping requirements are strict and often do not pass scrutiny in the event of an audit.
With the FBT year ending on 31.3.2022, it is timely to consider these requirements.
A separate logbook must be kept for each vehicle for a continuous 12-week period and must document:
- When the logbook period begins and ends.
- The car’s odometer readings at the start and end of the logbook period.
- The total number of kilometres the car travelled during the logbook period.
- The number of kilometres travelled for each journey.
- The odometer readings at the start and end of each subsequent income year your logbook is valid for.
- The business-use percentage for the logbook period based on the business use of the vehicle.
- The make, model, engine capacity and registration number of the car.
The 12-week period may overlap two income/FBT years provided it includes part of the year. In general, a logbook will be valid for five years assuming business use is consistent, and patterns of usage do not change throughout this period.
What needs to be recorded in a logbook?
For each trip, the following must be recorded:
- The date the trip began and ended
- Odometer readings at the start and end of each trip
- Kilometres travelled during the journey
- The purpose of the trip
These entries must be made as soon as possible after the trip. Simply stating ‘business trip’ may not be adequate as the ATO may request more detailed information in relation to the journey to establish whether the purpose of the trip was for business or private purposes. It is advisable to include further details (e.g., name of client, supplier etc.).
If the 12-week period is not representative of the whole year, you may have to adjust your business percentage (i.e., upward, or downward). If your pattern has changed substantially during the year, the logbook may no longer be valid, and you may need to keep a new logbook.
Is travel from home to work business-related?
It should be noted that except in limited circumstances, a trip that starts or ends at your home is generally considered private in nature. Some examples in which a journey that starts or ends at home that may become business-related includes:
- Home is your place of business (this does not include a home office).
- Carrying essential bulky tools and equipment that cannot be stored at your worksite.
- Travelling to or from an alternative place of work.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.