The 2022-2023 tax return may look different to your previous returns, but there’s a reason – and it’s probably due to an expiry date. Here are our top reasons that your tax refund this year might not feel as bountiful as the previous year (and a few others to remember when lodging)

Work From Home Deductions Changed

The shortcut method made available during the COVID-19 pandemic and lockdowns is no longer available to claim your running expenses with (at the rate of 80 cents per hour worked). Instead, these expenses can be claimed using the revised fixed rate method (67 cents per hour) or the actual costs method.

LMITO Is No Longer Available

The lower-middle income tax offset expired on 30 June 2022, making the 2021-22 return the final year that it was applicable. You may notice that your tax return looks a little different this year as a result.

Temporary Full Expensing Ceases 30 June 2023

The deadline for the expanded Temporary Full-Expensing measure has not been extended by the Federal Budget 2023-24, meaning that it will cease on 1 July 2023, and the write-off will revert to $1,000 from that date.

Businesses will likely feel a cashflow impact, as they will now need to spread depreciation deductions for assets more than $20,000 out over a number of years rather than claim them back up front.

Small Business Instant Asset Write-Off Returns 

The instant asset write-off will return for the 2022-23 financial year (between 1 July 2023 to 30 June 2024). If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is available for each asset that costs less than $20,000.

If you have any concerns, questions or confusion around your tax returns this financial year, make sure to speak with your trusted tax adviser. We are in the business of helping – how can we start?

If you’ve made a major investment in the last financial year, any income made from it will need to be included on your tax return.

Any income earned from investments and asses must be declared in your tax return. This may include amounts from interest, dividends, rental income, managed investment trust credits, crypto assets and capital gains. Whether you receive it directly or via distributions for a partnership or a trust, this income needs to be declared.

If you, for example, hold the assets that earn the investment income jointly (with another person), it is assumed that the asset’s income is divided equally between you, unless it can be proven that the asset is held in unequal proportions.

Six items must be declared in your tax return as income this financial year, including the following:

Interest Income

Interest income includes:

• interest you earn from financial institution accounts and term deposits
• interest you earn from any other source, including penalty interest you receive on an investment
• interest you earn from children’s savings accounts if you
  • open or operate an account for a child and the funds in the account belong to you
  • spent or use the funds in the account
• interest we pay or credit to you – for example, interest on early payments, interest on overpayments and delayed refunds
• ife insurance bonuses (you may be entitled to a tax offset equal to 30% of any bonus amounts you include in your income)
• interest from foreign sources (you can claim a foreign income tax offset for any tax paid on this income).

Dividends

Dividend income may come from a:

• listed investment company,
• public trading trust,
• corporate unit trust, or a
• corporate limited partnership (in the form of a distribution).

Some dividends may have imputations or franking credits attached. The franked amount and the franking credit must be declared if you receive franking credits on your dividends. If a company pays or credits you with dividends that have been franked, you’ll generally claim a franking tax offset.

Rental Property Income

You must declare the full (gross) amount of any rent and rent-related payments you receive. This includes amounts you receive from overseas properties. You must work out and declare the monetary value if you receive goods and services instead of rent.

It’s best to consult with a tax adviser to avoid making mistakes involving rental property. This is usually a major red flag area for the ATO, so don’t hesitate to ask for help to avoid compliance issues or declaring for things you shouldn’t.

Managed Investment Trusts

You must show any income or credits you receive from any trust investment product in your tax return. This includes income or credits from a:

• cash management trust
• money market trust
• mortgage trust
• unit trust
• managed fund – such as a property trust, share trust, equity trust, growth trust, imputation trust or balanced trust.

Crypto Asset Income

You must declare rewards received for staking crypto assets (often in the form of additional tokens from holding the original tokens. The money value of the additional tokens needs to be calculated and then converted into Australian dollars at the time they were received. These are reported in ‘other income’ in the tax return.

If you receive crypto via airdrop, this is income when you receive them based on the money value of the already established tokens. Occasionally, some crypto projects ‘airdrop’ new tokens to existing holders to increase the supply. Whatever amount is received needs to be converted into Australian dollars and declared as other income.

Capital Gains

Any capital gains that are made when you sell or dispose of capital assets must be declared. This may include investment property, shares or crypto assets. The capital gain is the difference between:

• Your asset’s cost base (what you paid for it)
• Your capital proceeds (the amount you receive for it)

Report capital gains and capital losses in your tax return. You can offset any allowable capital losses against your capital gains to work out your net capital gain or loss. You pay tax on a net capital gain. If you have a net capital loss, you can retain the loss to offset capital gains in future years.

To avoid any issues with your tax return this financial year, especially involving investment-related income, start your tax journey with us today. We can help uncomplicate the process for you.

This year’s income tax return refund might not look as bountiful as it did in the previous year, as some of the offsets and rebates introduced during the pandemic will no longer be available to apply to your return. This includes the Lower-Middle Income Tax Offset.

The LMITO offset will not be available for your 2022-23 tax return, as it was confirmed late last year that the previous financial year would be the last time it would be applied to returns.

The LMITO acted as an offset, meaning it reduced the tax you pay (your tax payable) on your taxable income. Your taxable income is your total deduction minus any deductions you claim.  Offsets are not used to reduce your Medicare levy & Medicare levy surcharge (if there is any). The LMITO did not affect this part of your tax return.

What Does This Mean For My Next Tax Return? 

You may have noticed a slight boost to your tax returns in prior years due to your tax payable being lowered by LMITO. This will no longer be the case as the LMITO is no longer available, and compared to previous years with LMITO in effect, you may notice a greater difference in your tax refund.

However, the Low Income Tax Offset (LITO) may still be available (pending any further rulings or changes). The ATO will automatically apply this after you lodge your tax return this year. The amount of the low-income tax offset (LITO) you receive will depend on your taxable income.

If your taxable income is

• $37,500 or less, you will get the maximum offset of $700.
• between $37,501 & $45,000, you will get $700 minus 5 cents for every $1 above $37,500
• between $45,001 and $66,667, you will get $325 minus 1.5 cents for every $1 above $45,000

Consulting with a tax agent or professional like us can significantly assist with your tax returns and their preparation for the coming year, particularly regarding any offsets or deductions you may be eligible for. Why not start a conversation with us today?

As a taxpayer, you may have encountered the term pay-as-you-go (PAYG).

PAYG is generally a good thing, but there can be confusion between PAYG withholding and PAYG instalments, particularly if you’re an individual who is eligible for both. Both are amounts by which your tax bill can be offset at the end of the financial year.

So there’s no need to worry – the ATO is not stealing your money. Here’s how to distinguish between the two types of PAYG you may have encountered as a taxpayer.

PAYG Withholding

As an employer, you have a role in helping your payees meet their end-of-year tax liabilities. You do this by collecting pay-as-you-go (PAYG) withholding amounts from payments you make to:

• your employees
• other workers, such as contractors that you have voluntary agreements with
• businesses that don’t quote their Australian business number (ABN).

This is to assist in minimising the impact of your employee’s tax bill at the end of the financial year. If you’re an employee, there’s no need to worry about this amount – it is what is used to work out how much tax you may owe or be owed by the Australian Taxation Office at the end of the year.

Payments other than income from employment may also need tax withheld, including:

• investment income to someone who does not provide their TFN
• dividends, interest and royalties paid to non-residents of Australia
• payments to certain foreign residents for activities related to gaming, entertainment and sports, and construction
• payments to Australian residents working overseas
• super income streams and annuities
• payments made to beneficiaries of closely held trusts.

PAYG Instalments

Pay-as-you-go (PAYG) instalments are regular tax prepayments on your business and investment income.

They’re a way to offset your tax bill by paying regular instalments at the end of the financial year. This way, you should not have a large tax bill when you lodge your tax returns.

If your financial situation has changed, your expected tax may also change. This means your current PAYG instalments may add up to more or less than your tax at the end of the year.

When Do You Have To Pay PAYG Instalments? 

If you are an individual (including a sole trader) or trust, you will automatically enter the PAYG instalments system if you have all of the following:

• instalment income from your latest tax return of $4,000 or more
• tax payable on your latest notice of assessment of $1,000 or more, and
• an estimated (notional) tax of $500 or more.

A company or super fund will automatically enter the PAYG instalments system if any of the following apply:

• it has instalment income from its latest tax return of $2 million or more
• it has an estimated (notional) tax of $500 or more, or
• it is the head company of a consolidated group.

PAYG Varying Instalments

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. Variations must be made on or before the payment due date (28 days after the end of each quarter, generally).

You do not have to vary your PAYG instalments at all. It will not change how much income tax you pay for the year.

After you lodge your tax return, if your instalments were:

• too high, the excess is refunded to you
• too low, you pay the shortfall.

Your varied amount will apply for all your remaining instalments unless you make another variation before the end of the income year.

You might need to vary your PAYG instalments if any disasters over the past financial year have impacted you.

If you cannot pay your instalment amount, you should still lodge your instalment notice and discuss a payment arrangement with the ATO. You may wish to obtain advice from a tax agent on whether you should vary your instalments.

It’s getting closer to the time of year when your tax return may be on your mind. You may have even started looking into what is required to lodge your income tax return to get ahead on the task.

Making sure that your details are correct and that any information regarding your earned income from the year is lodged is the responsibility of you as a taxpayer and of your tax agent.

If, during the lodgement of your tax return, you fail to meet and comply with the tax obligations expected of you as a taxpayer, the Australian Taxation Office has severe penalties that they can enforce.

Taxation laws within Australia authorise the ATO the ability to impose administrative penalties on taxpayers for failing to comply with their obligations.

As an example, taxpayers may be liable to penalties for making false or misleading statements, failing to lodge tax returns or taking a tax position that is not reasonably arguable. False or misleading statements have different consequences if the statement given results in a shortfall amount or not.

In both cases, the penalty will not be imposed if the taxpayer took reasonable care in making the statement (though they may still be subject to another penalty provision) or the statement of the taxpayer is in accordance with the ATO’s advice, published statements or general administrative practices in relation to tax law.

The penalty base rate for statements that resulted in a shortfall amount is calculated as a percentage of the tax shortfall, or in the case of no shortfall amount, as a multiple of a penalty unit. This percentage is determined by the behaviour that led to the shortfall amount or as a multiple of a penalty unit, which are as follows:

• Failure to take reasonable care – 25% of the shortfall amount or 20 penalty units
  • Reasonable care is not taken if the taxpayer failed to do what a reasonable person in the same situation would have done.
• Recklessness – 50% of the shortfall amount or 40 penalty units
  • Recklessness is determined as disregarding or showing indifference to a real risk of a shortfall amount arising that a reasonable person would have been aware of.
• Intentional Disregard – 75% of the shortfall amount or 60 penalty units
  • Intentionally disregarding the law occurs if there is full awareness of a clear tax obligation, and the obligation is disregarded with the intention of bringing about certain results (underpaying tax or over-claiming an entitlement).

If a statement fails to be lodged at the appropriate time, you may be liable for a penalty of 75% of the tax-related liability if:

• A document that is necessary to establish tax-related liability fails to be lodged
• In the absence of that document, the ATO determines the tax-related liability.

To ensure that the statements, returns and lodgements are done this coming tax season correctly, and avoid the risk of potential penalties, speak with a trusted tax professional.