Author: lacey

The ATO has now released its suite of 2023 Tax Time stationery and an overview of key changes for the year of which practitioners and taxpayers need to be aware before completing their tax returns over the next few months.

Individuals

Tax return for individuals

Tax return for individuals (supplementary section)

Tax return instructions

Checklist — tax return 2023

Key changes for individuals

Self-education expenses

The $250 non-deductible self-education expense threshold has been removed from 1 July 2022. There is no longer a non-deductible category E for work-related self-education expenses in question D4.

Working from home expenses

The ATO’s fixed rate method for calculating additional expenses incurred while working from home has been revised from 1 July 2022. The rate for this year is 67 cents per work hour. The expenses covered and record keeping requirements have also been changed.

Taxpayers can also choose to use the actual costs method for calculating deductions. The temporary shortcut method is no longer available.

Low and middle income tax offset

The low and middle income tax offset ended on 30 June 2022.

The low income tax offset is still available for taxpayers with a taxable income of $66,667 or less.

Companies

Company tax return 2023

Company tax return instructions 2023

Key changes for companies

Changes to the tax return form

New items:

• Item 7 — Reconciliation to taxable income or loss
• Item 7J — Small business skills and training boost — this is not yet law (see below)
• Item 7L — Small business technology investment boost — this is not yet law (see below)
• Item 13 — Losses information
• 9 additional labels for loss carry back 2022–23

Items removed from the Calculation statement:

• M — R&D recoupment tax
• H1 — Credit on interest for early payments — amount of interest

Note: interest on early payments has been automated from 1 July 2021 and there is no longer a requirement for taxpayers to complete this item — for all entity types

Small business skills and training boost

This measure is not yet law.

Legislation currently before Parliament proposes to introduce a temporary skills and training boost for small businesses with an aggregated annual turnover of less than $50 million. Eligible businesses can claim a bonus deduction equal to 20 per cent of qualifying expenditure incurred for the provision of external training courses to employees by eligible registered training providers. It applies to eligible expenditure incurred between 7.30 pm (AEDT) on 29 March 2022 and 30 June 2024. A bonus deduction for expenditure incurred in 2022 will be claimable in 2023.

For certainty, affected taxpayers may choose to hold off lodging their 2023 tax return until the legislation has been enacted or the proposal is scrapped.

Alternatively, taxpayers may lodge their return before the measure is enacted — without claiming the bonus deduction — and subsequently amend the return to claim the bonus deduction if and when the boost becomes law.

Note: the small business skills and training boost is not restricted to companies.

Small business technology investment boost

This measure is not yet law.

Legislation currently before Parliament proposes to introduce a temporary technology investment boost for small businesses with an aggregated annual turnover of less than $50 million. Eligible businesses can claim a bonus deduction equal to 20 per cent of qualifying expenditure incurred for the purposes of their digital operations or digitising their operations. It applies to eligible expenditure of up to $100,000 per income year incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2023. A bonus deduction for expenditure incurred in 2022 will be claimable in 2023.

For certainty, affected taxpayers may choose to hold off lodging their 2023 tax return until the legislation has been enacted or the proposal is scrapped.

Alternatively, taxpayers may lodge their return before the measure is enacted — without claiming the bonus deduction — and subsequently amend the return to claim the bonus deduction if and when the boost becomes law.

Note: the technology investment boost is not restricted to companies.

Franked distributions funded by capital raising

This measure is not yet law.

Legislation currently before Parliament proposes to add distributions funded by capital raising to the list of distributions that are unfrankable, for distributions made on or after 15 September 2022.

Off-market share buy-back

This measure is not yet law.

Legislation currently before Parliament aligns the treatment for shareholders that participate in off-market share buy-backs undertaken by listed public companies with that currently applied to on-market share buy-backs. It also amends the law in respect of selective share cancellations for shareholders to ensure alignment of tax treatment across capital management activities for listed public companies.

The result is that no part of the purchase price in respect of an off-market share buy-back undertaken by a listed public company is taken to be a dividend. Furthermore, a distribution by a listed public company that is consideration for the cancellation of a membership interest in itself, as part of a selective reduction of capital, is unfrankable.

A company that undertakes an off-market buy-back or selective share cancellation after the measure takes effect may be required to debit the balance of its franking account.

The amendment applies to buy-backs undertaken by listed public companies that are first announced to the market after 7:30 pm, by legal time in the ACT, on 25 October 2022, and to selective cancellations undertaken by listed public companies that are first announced to the market on or after 16 February 2023.

For listed public companies, any amounts entered at Item J — Franked dividends paid or item K —  Unfranked dividends paid may be impacted by this bill when it is enacted.

Digital games tax offset

This measure is not yet law.

Legislation before Parliament proposes to introduce the Digital Games Tax Offset, which is a refundable tax offset for eligible expenditure incurred in developing digital games in Australia. The amount of the offset is 30 per cent of an eligible company’s total qualifying expenditure. The maximum amount of the offset that can be claimed is $20 million in an income year.

Trusts

Trust tax return 2023

Trust tax return instructions 2023

Attribution managed investment trust (AMIT) tax return 2023 — sample only (must be lodged electronically)

Attribution managed investment trust (AMIT) tax return instructions 2023

Key changes for trusts

Corporate Collective Investment Vehicles

The Corporate Collective Investment Vehicle Framework and Other Measures Act 2022 establishes the regulatory and tax frameworks for corporate collective investment vehicles (CCIVs).

The CCIV tax framework leverages the existing trust taxation framework and the existing attribution flow-through regime (that is, the Attribution managed investment trust (AMIT) regime), rather than by creating a new bespoke tax regime.

A CCIV sub-fund trust must lodge either an Attribution CCIV sub-trust tax return, a Trust tax return or a Company tax return — depending on the criteria which it satisfies.

Interest on early payments

Item 7 — Credit for interest on early payments — amount of interest will be removed from the trust tax return for the 2022–23 income year onwards.

Credit for interest on early payments — amount of interest was removed from the AMIT tax return for the 2022–23 financial year onwards.

Partnerships

Partnership tax return 2023

Partnership tax return instructions 2023

Key changes for partnerships

When the small business skills and training boost is enacted, complete item 5 — Expense reconciliation adjustments (expense subtractions) and item 52 Small business boosts — A Small business skills and training boost to claim the bonus deduction.

When the small business technology investment boost is enacted, complete item 5 — expense reconciliation adjustments (expense subtractions) and item 52 Small business boosts — B Small business technology investment boost to claim the bonus deduction.

Superannuation funds

Fund income tax return 2023

Fund income tax return instructions 2023

Key changes for superannuation funds

Interest on early payments

There is no requirement to complete Section D —  H1 — Credit for interest on early payments — amount of interest. It was removed from the Fund income tax return for the 2022–23 financial year onwards.

Closure of eligible rollover funds

Eligible rollover funds (ERFs) no longer exist from 31 January 2022. All ERFs should have closed by 31 January 2022 and ERFs were required to transfer remaining accounts to the ATO.

Downsizer contributions

From 1 January 2023, the age at which an eligible individual may choose to make a downsizer contribution to their superannuation fund is 55 years or older. This further reduces the downsizer eligibility age which changed from 65 to 60 from 1 July 2022. Prior to 1 July 2022, the eligibility age was 65 years and over.

Other 2023 stationery

For other relevant 2023 forms and schedules, refer to the ATO’s Forms and instructions page.

Tax time tools and training

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at 17 locations across Australia.

Join us online
Upcoming webinars >

Register for a workshop
Upcoming workshops by state >

Outsource your L&D

We can also present tax updates or specialty topics at your firm or through a private online session, with content tailored to your client base. Call our BDM Caitlin Bowditch at 0413 955 686 to have a chat about your specific needs and how we can assist.

Learn more about in-house training >

Our mission is to provide flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.

Requesting a lodgment deferral using the new function

The ATO’s new lodgment deferral function is now available in Online services for agents — under the ‘Reports and forms’ menu. The ATO has been working with registered agents and professional associations to co-design the new function and conducted beta testing with a select group of tax and BAS agents over the past month.

There is no longer a need to download and complete different spreadsheets. Now, client information is pre-populated. Agents will receive a response within 48 hours for requests that meet agent-assessed guidelines.

To be ready to use the new function, the ATO advises agents to:

• check staff submitting lodgment deferral requests have standard myGovID identity strength
• have access to client registration add/update permission in Online services for agents.

To request a lodgment deferral using the function in Online services:

• select Reports and forms then Forms
• select the Lodgment deferral form
• enter the required information, select the Declaration box and then Submit.

Up to 40 deferrals can be requested at a time.

The agent will receive a receipt ID when they submit their request and can view the status of any requests submitted in the previous 90 days.

Processing times are as follows:

• agent assessed or new or re-engaged client deferrals — processed within 48 hours
• all other requests — escalated for manual assessment as an ATO assessed deferral and may take up to 28 days to finalise.

The outcome of the request will be notified through Practice mail.

If the request is approved, the deferred due date will show in Online services for agents and on the agent’s PLS client report.

If the request is declined or varied, a reason will be provided.

References

See the ATO’s Online services for agents user guide for detailed instructions.

See the ATO’s promotional video featuring Assistant Commissioner, Kath Anderson.

A quick refresher of lodgment deferrals

A lodgment deferral extends the due date for lodgment of a document. It provides additional time to lodge without incurring a failure to lodge on time penalty.

A lodgment deferral may be requested for the following obligations:

A lodgment deferral cannot be requested for an activity statement before the ATO has generated it and made it available online.

It is not necessary to apply for a deferral if:

• the lodgment or payment due date falls on a weekend or public holiday — the lodgment or payment can be made on the next business day
• the due date is 15 May for tax returns — there is already an extension of time to lodge and pay to 5 June (but the agent cannot request a deferral from the 5 June concessional due date because it is not a due date under the lodgment program)
• the agent is affected by a general or geographical issues (e.g. a natural disaster or system outage) and the ATO has advised that they do not need to make their own deferral request.

The ATO considers lodgment deferral requests in accordance with PS LA 2011/15 Lodgment obligations, due dates and deferrals.

The ATO may decline a deferral request if:

• the client has a record of late lodgments, including poor compliance with deferred due dates
• the ATO has started lodgment compliance action with the client
• the agent is not listed on the ATO’s systems as the authorised agent to act of the client’s behalf.

The agent can ask the ATO to review a deferral decision within 21 days from the date on the communication varying or declining the request.

The ATO monitors lodgment performance and use of deferrals. It may contact agents who are high user of deferrals to understand the reasons for their requests.

Further resources and training

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at 17 locations across Australia.

Join us online
Upcoming webinars >

Register for a workshop
Upcoming workshops by state >

Personalised training options

We can also present these Updates at your firm or through a private online session, with content tailored to your client base. Call our BDM Caitlin Bowditch at 0413 955 686 to have a chat about your specific needs and how we can assist.

Learn more about in-house training >

Our mission is to provide flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.

The Treasury’s Tax Expenditures and Insights Statement (TEIS) for 2022–23, released at the end of February 2023, provides estimates of the revenue forgone from tax expenditures, along with distributional analysis on large tax expenditures and commonly utilised features of the tax system. 

In particular, the TEIS reports information about revenue forgone (i.e. revenue that the Government does not collect) through tax measures such as: 

• Concessional rates that reduce the rate of tax that applies to certain groups or types of incomes 
• Exemptions that exclude certain groups from paying tax on income they receive 
• Allowances, credits or rebates that either deduct amounts of income from the tax base or refund a portion of taxes already paid 
• Tax deferrals that postpone paying of taxes until a later date.  

What is a tax expenditure? 

A tax expenditure arises where the tax treatment of a class of taxpayer or an activity differs from the standard tax treatment (tax benchmark) that would otherwise apply. Tax expenditures can include tax exemptions, some deductions, rebates and offsets, concessional or higher tax rates applying to a specific class of taxpayers, and deferrals of tax liability.  

How are tax expenditures estimated? 

The estimates are provided on a ‘revenue forgone’ basis. Revenue forgone estimates measure the difference in revenue between the existing treatment and benchmark tax treatment, assuming taxpayer behaviour is the same and the existing tax treatment is removed entirely. A positive tax expenditure reduces tax payable relative to the benchmark. A negative tax expenditure increases tax payable relative to the benchmark.  

Revenue forgone estimates are not estimates of the revenue impact if the tax expenditure was to be removed. In practice, taxpayers would alter their behaviour in response to the change of a policy.   

Tax expenditures 2022–23 

The TIES lists the 52 largest tax expenditures and deductions, ranked by revenue forgone (there are 301 tax expenditures in total). The 10 largest ones are as follows:

Other notable expenditures include:

Negative tax expenditures include:

• customs duty (-$2,070m)
• luxury car tax (-$1,120m)
• Medicare levy surcharge (-$840m)
• tax on funded superannuation lump sums (-$590m).

Distribution analysis

The TEIS also presents distributional analysis for large expenditures and some aspects of the personal income tax system, where reliable data is available. This informational enables comparison of the groups which utilise these futures, including by income, gender, age and industry.

A selection of the distributional analysis has been reproduced below (all tables, charts and data are sourced from the TEIS report).

Chart 2.1 Estimated number of individuals aged 15 and over by individual private income, split by whether receiving any transfer payments* and whether paying any tax (2022‑23)

* Recipients of transfer payments here include individuals eligible for income support payments, Family Tax Benefit and the Commonwealth Seniors Health Card, but do not include other payments such as Child Care Subsidy or Paid Parental Leave.

Tax expenditures and aspects of the tax system relating to individuals are based on tax data for around 15 million personal tax filers in 2019–20 (the most recent year where the ATO’s comprehensive Taxation Statistics is available). The total tax filer population is benchmarked to meet Treasury’s estimate for 2019‑20, which incorporates late lodgers.

CGT discount for individuals and trusts

Over 1 million individual tax filers realised a capital gain in 2019–20; of those, over half also benefited from the CGT for individuals and trusts. Nearly 91 per cent of the total benefit was received by tax filers with above median taxable income, and 75 per cent by the top 10 per cent of tax filers.

The substantial share of the benefit that flows to the top decile is due to relatively more individuals receiving capital gains income, higher average capital gains, and a higher marginal tax rate increasing the benefit of the discount.

Chart 2.2 Share of benefit and recipients by taxable income decile, 2019–20

Concessional taxation of superannuation contributions

In 2019–20, 91 per cent of the benefit went to people with above median income, and 30 per cent of the benefit went to people in the top income decile. There are fewer recipients in lower income brackets because government payments, for which compulsory superannuation contributions are not required, are the main source of income for a large proportion of individuals in these deciles. The share of the benefit for people in the lowest deciles is negative because on average they face a personal income tax rate that is lower than 15 per cent. Men received an average benefit of $1,950 compared to $1,390 for women.

Chart 2.4 Share of benefit and recipients by taxable income decile, 2019–20

Concessional taxation of superannuation earnings

People with above median income receive 82 per cent of the benefit from the concessional taxation of superannuation earnings, with those in the top income decile receiving 39 per cent of the benefit. Men received an average benefit of $1,100 compared to $750 for women. 46 per cent of the benefit of earnings concessions goes to people aged 60 or older.

Chart 2.6 Share of benefit and recipients by taxable income decile, 2019–20

Rental deductions

It is estimated that around 2.4 million people claimed $51.3 billion of rental deductions in 2019–20. This would result in a total tax reduction of $18.6 billion. Almost half of people with rental deductions (1.3 million) had a rental loss, which added up to total rental losses of $10.2 billion. These rental losses provided a tax benefit of around $3.6 billion in 2019–20.

In 2019–20, 79 per cent of the tax reduction went to people with above median income, and 35 per cent of the reduction went to people in the top taxable income decile. The share of the benefit for those in the lowest taxable income decile is driven by both the number of tax filers and their relatively large average deductions. These tax filers tend to have higher incomes before deductions but their claims for expenses associated with maintaining their rental property substantially reduce their taxable income, pushing them into lower deciles. The share of the total tax reduction is highest for those in age cohorts between 30 and 59 years old.

Chart 2.29 Share of total tax reduction and claimants by taxable income decile, 2019–20

Work-related expenses

In 2019–20, 86 per cent of the total tax reduction went to people with above median taxable income, and 26 per cent of the total tax reduction went to people in the top taxable income decile. The number of people claiming work‑related expense deductions and the share of the total tax reduction rises with income. Around 71 per cent of those aged between 25 and 59 years old claimed work‑related expense deductions in 2019–20, with the largest share of the total tax reduction received by those 30 to 39 years old.

Chart 2.31 Share of total tax reduction and claimants by taxable income decile, 2019–20

Trust distributions to individuals

Around 1.5 million individuals reported receiving a total of almost $52 billion in net trust income in 2019–20. This was just over 10 per cent of those lodging a tax return. Around 75 per cent of individuals reporting income from trusts have taxable incomes, which includes their income from trusts and other sources, of less than $120,000.

Chart 2.35 Trust distributions by taxable income decile, 2019–20

As income from trusts is ultimately taxed in the hands of the recipients, the distributions are subject to the marginal tax rates of the individual receiving the income. Examining income from trusts by average tax rates (ATRs) of recipients provides insights on how much tax is paid on trust income.

In 2019–20, around 80 per cent of income from trusts was subject to an ATR (including Medicare levy) of at least 20 per cent with almost 55 per cent subject to tax of greater than 30 per cent. There were a small number of individuals who receive significant income from trusts who have average tax rates of greater than 45 per cent.

Around 20 per cent of individuals receiving income from trusts were not subject to any tax as these individuals were under the effective tax‑free threshold.

Men received a larger share of total trust income because they received an average trust distribution of $34,980 in 2019–20, while women received an average of $32,290.

Chart 2.37 Share of trust distributions by age, 2019–20

Franking credits received by individuals

In 2019‑20, around $67 billion of franking credits were distributed by Australian companies. Around $17.2 billion of these were claimed by 3.1 million residents on their individual tax returns that year, with the remainder flowing to other local entities including other companies, superannuation funds and charities, or overseas. Of the $17.2 billion, around $10.1 billion was received directly, with the remainder coming indirectly via one or more partnerships or trusts.

Those aged 50 and over received nearly three‑quarters (72 per cent) of the credits received by individuals, with the cohort aged 75 and over accounting for the largest number of individual credit recipients (395,000), highest average amount received ($7,357), as well as the largest share of credits received in aggregate.

Chart 2.38 Franking credits received by taxable income decile, 2019–20

Further resources

Join us at the beginning of each month as we review the current tax landscape. Our monthly Online Tax Updates and Public Sessions are excellent and cost effective options to stay on top of your CPD requirements. We present these monthly online, and also offer face-to-face Public Sessions at 17 locations across Australia.

Join us online
April Tax Update >

Join us at an upcoming workshop
Melbourne Tax Workshop > 13 April
Perth Tax Workshop > 13 April
Werribee Tax Workshop > 15 April
Newcastle Tax Workshop > 19 April

View all upcoming workshops >

Personalised training options

We can also present these Updates at your firm or through a private online session, with content tailored to your client base. Call our BDM Caitlin Bowditch at 0413 955 686 to have a chat about your specific needs and how we can assist.

Learn more about in-house training >

Our mission is to provide flexible, practical and modern tax training across Australia – you can view all of our services by clicking here.