High-income tax cuts to stay
The federal Labor Party is set to go to the next election vowing to leave untouched the stage-three income tax cuts if it forms government, heading off a Coalition campaign to portray it as high taxing and anti-aspirational .
Following several days of conversations , Labor’s hierarchy has decided against trying to either unwind or amend the cuts if elected.
The decision is yet to be ratified by the caucus but sources said it was a safe bet it would remain unchanged.
The tax cuts have already been legislated to begin on July 1, 2024, and will cost an estimated $137 billion between then and the end of the decade. They will abolish the 37 per cent tax rate and apply a 30 per cent rate to all income between $45,000 and $200,000.
Labor supported the legislation for the tax cuts after the last election but, it argued, only because they were tied to the stage-two tax cuts for low- and middle-income earners which began on July 1 last year.
It always reserved the right to take a different position to the next election, depending on the state of the economy.
With debt headed towards $1 trillion and the budget deficit above $100 billion , Labor mulled revoking the cuts altogether but gave more serious consideration to capping them so the 30 per cent rate would apply to incomes up to $180,000, instead of $200,000.
It calculated the latter option would save $80 billion, which could be used variously to pay down debt and deficit and fund potential Labor election promises, such as a higher JobSeeker welfare payment.
Leader Anthony Albanese had always insisted Labor would not make a final decision on its position until closer to the election, but it was decided in May to make the decision during the parliamentary winter break and get it off the agenda.
Had Labor sought to amend the cuts, it would have faced a campaign by the Morrison government that it was for higher taxes and anti-aspirational , which were similar themes run against Labor at the 2019 election. Labor went to the last election with a number of policies aimed at curbing tax breaks, such as negative gearing and cash refunds for excess franking credits. It also went to the election opposing the stage-three tax cuts.
In May this year, after Labor refused to state its position, Prime Minister Scott Morrison gave notice of a similar campaign at the next election. ‘‘ If Labor wants to put taxes up, they need to tell you how many jobs it’s going to cost and how much it’s going to slow growth,’’ he said.
‘‘ They’re the ones who have to make the argument for change. We did at the last election, won an election and implemented it. It’s now law.
‘‘ If they want to put up taxes in the middle of a recovery from the worst recession since the Great Depression, they can make that case. This is the worst possible time.’’
There was strong support among Labor’s right faction to leave the tax cuts alone, more so given they were already legislated and factored into the budget bottom line. Unravelling them had the added potential of a messy Senate battle after the election.
The decision to leave the cuts unchanged will rob the government of a key attack line come the election, while emboldening the Greens, who oppose the cuts altogether.
The intergenerational report released in late June by Treasury found that even with the stage-three tax cuts factored in, personal income taxes would grow faster than other sources of revenue over the medium term, placing an increasingly larger burden on a smaller portion of workers.
Treasury projected the Coalition’s self-imposed tax-to-GDP ratio of 23.9 per cent would be reached in 2035-36 which, because of the impact of the pandemic, was four years later than forecast in the 2015 IGR.
This suggests that the stage-three income tax cuts could be the last for a long while.
AFR – Tuesday, 13 Jul 2021 – Page 1
Packhorse’s $1.5b fund secures first seed asset
Packhorse Pastoral Company, which is backed by Canberra Rich Lister Terry Snow, has closed its first capital raising and acquired its seed asset, a Queensland cattle station, as it embarks on a plan to muster a $1.5 billion cattle and carbon fund over the next five years.
The $62.5 million raising helped Packhorse lock in its first acquisition, the 8360-hectare Stuart’s Creek near Roma, in a $30 million deal, bought from private owners. The deal also puts it on the way to its initial target in its first year of operations of $300 million in agricultural assets, with about 30 per cent of that total comprising debt.
‘‘ It’s in an ideal area. It’s got the right rainfall, it’s got the right soils, it’s got good logistics, close to the Roma sale-yards and 450 kilometres from Brisbane ,’’ Packhorse chairman Tim Samway told The Australian Financial Review.
‘‘ It’s been conservatively grassed and well-managed for 75 years by one family . So it’s a turnkey. It’s got good infrastructure . The opportunity for us is the pasture improvement.
‘‘ That is how we think you get the returns. You buy privately, you aggregate for scale, you improve the pastures, you change the grazing methods, you increase the carrying capacity.’’
Packhorse brings together some big names. The cornerstone investment from Mr Snow, whose Capital Airport Group owns Canberra Airport, has galvanised the platform’s start up, sparking interest from other investors. About 40 high net worth and family office investors have come on board for the first raising. Packhorse aims to conduct raisings, asset-by-asset , with a $160 million pipeline of potential acquisitions stretching from Coonamble in NSW to Taroom in Queensland.
Mr Samway is well known in the funds management world as the chairman of Hyperion Asset Management, an Australian and global equities fund manager with more than $10 billion in funds under management. Also on board as Packhorse’s managing director is agribusiness veteran Geoff Murrell, who previously managed Macquarie’s beef and sheep giant Paraway Pastoral’s northern Australian properties.
Central to the Packhorse strategy is the principle of regenerative agriculture – increasing biodiversity, enriching soils, improving carbon capture. It is a thematic with growing adherence in the sector, espoused by major players such as Tiverton Agriculture.
Stuart’s Creek will allow Packhorse to put those principles into practice, transforming the property into a rotational grazing model and introducing further grass and legume species – Rhodes, digit, gatton panic, desmanthus and others – to improve biodiversity.
Those improvements enable the return of carbon to the soil, providing the potential for the property to one day generate carbon credits.
‘‘ By making these changes we think we can double the carrying capacity. You can understand what that does to the revenue and to the valuation of the property,’’ Mr Samway said.
‘‘ What it does is it improves the soils and increases the ability to sequester carbon. Carbon sequestration is about coverage. It is about getting green matter across very inch of the land.’’
The carbon play is in effect an add-on benefit , although potentially a very material one. Packhorse is not banking on carbon offsets to make its returns stack up from its portfolio. At current prices – Australian carbon offsets have reached $20 a tonne for the first time since the carbon price was revoked in mid-2014 – carbon credits would generate 0.5 per cent to 1 per cent on Stuart’s Creek’s internal rate of return.
But there are expectations that carbon prices will surge in the lead up to the 2030 emissions reduction target. Prices for offsets in Australia lag well behind those in the European Union, where they have surged by more than 75 per cent this year. On a rough estimate , a carbon price of about $100 a tonne could deliver a 4 per cent internal rate of return on its own for grazing properties, according to Mr Samway.
While not betting on those outcomes , Packhorse will be well-prepared , taking baseline measures for soil carbon, followed by regular assays as pastures are improved.
‘‘ The reality is this is about running properties better, increasing their carrying capacity, increasing the biodiversity of the plant matter so we get superior cattle and people pay more for those cattle and to have them raised,’’ Mr Samway said.
The other major component to the Packhorse strategy is its focus on the land, rather than holding cattle itself. It is primarily an agistment model, where Packhorse will limit its ownership of livestock.
‘‘ This is a very focused strategy,’’ Mr Samway said. ’’ No feedlots, no abattoirs, no branded beef. We are a cattle motel.
‘‘ We’ll own some stock along the way but in the long term, we are basically supplying grass in a high-quality cattle motel for other’s people’s cattle.
‘‘ A lot of businesses are exposed to the livestock. We think by taking that exposure out, you get to prioritise the land. What we want to do is prioritise the soil and the grass. When you don’t own the cattle, you don’t have that problem.’’
AFR – Monday, 12 Jul 2021 – Page 34
China rides on our sheep’s back as farmers anticipate bumper season
Despite trade embargoes and a diplomatic deep freeze, there is an Australian export which is being warmly welcomed in the Chinese market. And it is not iron ore, which is booming anyway.
It is the product which iron ore replaced as the source of much of Australia’s prosperity – wool.
China this year lifted its quota on duty-free Australian wool imports by 5 per cent from 36,000 tonnes to 38,000 tonnes and it accounts for close to 90 per cent of Australia wool exports, up from 70 per cent about a decade ago.
The next largest export market for Australian wool is Italy, which accounts for about 3 per cent of exports.
Wool and sheepskin exports lifted 8 per cent, or $47 million, over the March quarter, hitting $633 million, according to the Australian Bureau of Statistics.
Australia is also China’s largest source of imported wool, with a 74 per cent market share, ahead of South Africa (8 per cent), according to the Department of Foreign Affairs and Trade.
New Australian Wool Innovation chairman Jock Laurie sees similarities between the natural fibre and iron ore exports to China.
If China wants big volumes of wool, Australia is the logical, trusted and only real option. And like iron ore, Chinese mills and manufacturers add massive value to the raw commodity.
China is also by far the biggest buyer of both commodities. Those trading relationships survived COVID-19 , although wool suffered for a period, and is now going strong despite the frosty relationship between Beijing and Canberra.
Wool prices have started the new financial year slightly softer but are up about 65 per cent since bottoming out last September – and that is good news for Mr Laurie and his family, who will shear about 10,000 sheep this year.
The tough-talking former National Farmers’ Federation president has been farming for decades and has never seen it so good, barely 18 months on from one of the worst droughts in the country’s history. ‘‘ I’ve been involved in the game all my life and the run we are having at the moment is as good as I’ve seen,’’ he said.
‘‘ It is a combination of commodity prices – certainly at record levels from a meat industry point of view and from a wool industry point of view recovering after COVID – and interest rates being really low.’’
Mr Laurie said China had a big wool processing industry that made more than 50 per cent of its sales on the domestic market.
‘‘ The wool industry has very strong relationships there and has done for a long time,’’ he said. ‘‘ It is great to see that progressing well under current circumstances.’’
The Lauries spread the commodity risk on their farms at Walcha, Bendemeer and Gunnedah in NSW, raising sheep and cattle, and growing grain.
The cattle price continues to go from strength to strength, as meat processors and farmers looking to restock post drought compete for limited numbers.
The eastern young cattle indicator (EYCI) reached a record of 951.5¢ a kilogram this week, up from 752.25¢ a year ago and from 492¢ in July 2019.
Mr Laurie said red-hot cattle prices were starting to work in favour of sheep. ‘‘ The drought had a tremendous impact on sheep numbers, but we are starting to see a strong rebuild now,’’ he said.
‘‘ A lot of people are taking the opportunity to get into sheep, be it sheep meat or wool, sheep of any sort.
‘‘ The cattle market is red hot. You are talking large amounts of money, if you want to start buying cattle. People can see value in sheep.’’
Mr Laurie said all farmers had to make decisions on the best use of their acreage and this year Australia is on track to produce a massive winter grain crop with prices at solid levels.
Victorian farmer and Grain Growers Limited chairman Brett Hosking said crops across most of Australia were in good shape mid-way through winter.
‘‘ There is potential for a big crop, particularly if Victoria and parts of South Australia get a good finish ,’’ he said.
‘‘ Northern NSW is looking good, a fair bit of NSW where there is no mouse damage is looking good. Southern Queensland and Western Australia are looking good.’’
Mr Hosking said some mixed farmers had swung back towards livestock on the back of strong prices, but crops covered plenty of ground that was used for sheep and cattle before the drought.
He would normally grow out some steers for sale but stayed out of the cattle market this year and focused on his main game of grain and sheep.
‘‘ They say the best cure for good prices is good prices,’’ he said of the cattle market.
In WA, farmer-controlled CBH Group has started its annual harvest recruitment drive a month earlier than normal after a wet winter across the state’s vast wheat belt that promises to deliver a bumper harvest.
The giant grain handler and exporter is looking to hire 1800 seasonal workers but could struggle to hit that target in a state with a hardline border closure policy and already in the grip of a labour shortage affecting both mining and agriculture.
A shortage of truck, train and machinery drivers continues to hamper CBH’s ability to get grain to its port fast enough to keep up with demand from overseas customers.
Exports suffered another blow this week when WA authorities refused to let a bulk carrier berth at the Kwinana Grain Terminal after a crew member was transferred ashore with COVID-19 .
The MV Emerald Indah turned back to Indonesia without the 50,000 tonnes of wheat it was chartered to carry out of Kwinana.
Copyright © 2021 The Australian Financial Review
What follows are the just-announced stimulus measures from the NSW Government as well as a few others that have been around for a little bit that you might not be aware of. This support is now statewide and will, importantly, ensure regional NSW is looked after as well.
CASH BOOSTER (BUSINESS)
This is a fortnightly payment for NSW businesses that have experienced a 30% or more reduction in turnover as a result of the current lockdown. How this reduction in turnover will be calculated hasn’t been announced, but I’m guessing it’ll be similar to the method described below for the COVID-19 support grant for small business.
This payment is available to businesses that turnover more than $75,000 and less than $50 million. The payment will be equal to 40% of your payroll expense with a minimum weekly payment of $1,500 to a maximum of $10,000. One of the key requirements is that you cannot reduce your headcount compared to what you have on the books today.
Expressions of interest open on Wednesday 14th July via Services NSW with money to flow shortly thereafter.
If you have a micro-business which is defined as one turning over more than $30,000 and less than $75,000 and can demonstrate a turnover reduction of 30% or more then you might be eligible for a $1,500 a fortnight payment.
Expressions of interest open on Wednesday 14th July via Services NSW with money to flow shortly thereafter.
COVID-19 DISASTER PAYMENT (INDIVIDUALS)
This is currently available through Services Australia as a single lump sum payment made to individuals who have been affected by a lockdown (e.g. lost income, can’t go to work) and is available after day 7 of any lockdown event. Payments are $325 or $500 depending on how much work you’ve lost.
Now this is looking to change with the amount being paid increasing to $375 for anyone who has lost 8-20 hours of work a week or $600 for anyone who has lost 20+ hours per week and rather than being a one-off payment it will now be paid weekly for as long as the lockdown continues.
There are requirements you’ll need to meet to get this payment, but note the ‘liquid assets’ test has been removed. Check the link above at Services Australia for details.
You’ll be able to register with Services Australia from Friday 16th July.
NSW PAYROLL TAX EXEMPTION
Looks like there will be across the board payroll tax deferrals for the next three months and for any business that has had a significant fall in revenue they will have their payroll tax liabilities for the September 2021 quarter waived completely.
More information is available via Revenue NSW website.
COVID-19 SUPPORT GRANT (SMALL BUSINESS)
This grant is aimed at supporting businesses that have experienced a downturn in revenue as a direct result of the June/July 2021 lockdowns in NSW.
Three different grant amounts will be available for small businesses depending on the decline in turnover experienced during the restriction:
• $15,000 for a 70 per cent decline,
• $7,500 for a 50 per cent decline and
• $5,000 for a 30 per cent decline
The grants will be divided into two streams:
Businesses will be able to apply for the grants through Service NSW from 19 July and will need to show a decline in turnover across a minimum two-week period after the commencement of major restrictions on June 26.
PANDEMIC LEAVE DISASTER PAYMENT
If you’ve been told to self-isolate or quarantine by NSW Health because you’ve got COVID-19 or have been exposed in some way and have lost income as a direct result of this then you could be eligible for a $1,500 (per fortnight) payment. Visit the Services Australia website for more information.
SMALL BUSINESS FEES AND CHARGES REBATE
If your payroll bill is under $1.2 million then you may be eligible for up to $1,500 in rebates on state government fees and charges. Maybe get your rego refunded? This is also available to businesses without any payroll (i.e. sole traders with no employees).
MUSICKEEPER and CREWKEEPER
Earlier this year the Australian Government provided further funding to the good folk over at Support Act to enable them to broaden their support of the Australian music industry and this includes two support payments.
We note these payments have been around since late March, but it was just brought to my attention that plenty of industry people weren’t aware of them so we thought we should spread the word.
These two new grants offer cash payments to music industry workers suffering financially as a result of the COVID restrictions in place across the country. The payments are designed to step in and help after the Jobkeeper and Jobseeker taps were turned offer earlier this year.The grants are $2,000 for individuals and $2,700 for families with dependent kids.
You can apply using the form here.
AND MORE …
• No evictions for small businesses or residential tenants for 60 days;
• A capped grant of up to $1,500 for residential landlords who are not liable to pay land tax who reduce rent for tenants;
• Land tax relief equal to the value of rent reductions provided by commercial, retail and residential landlords to financially distressed tenants ie – those landlords who give rent reductions will get a credit against their land tax obligations. You’ll need to check in with Revenue NSW for more information;
• A support package for the accommodation sector worth $26 million;
If any of these measures require a letter from your accountant to vouch for a reduction in turnover please get in touch with what you need and we’ll do what we can to help.
Over the past couple of months PrincipleFocus has completed tax planning for many of our clients – a process of determining an approximate net income position and then helping our clients with strategies to optimise their tax position and develop a plan to achieve this outcome. This can include a mixture of utilising the Primary Production tax provisions (including FMD’s, deferral of profit from forced sales, PP Averaging), considering timing of income and expenditure, superannuation contributions and structuring with different entities and family members.
Your 2021 EOFY Reminders & Action Items
Reportable Fringe Benefits
Where you have provided fringe benefits to your employees in excess of $2,000, you need to report the FBT grossed-up amount. This is referred to as a `Reportable Fringe Benefit Amount’ (RFBA) amount it needs to be updated for each employee as part of your Single Touch Payroll finalisation procedure for 2021. Please call should you have any queries regarding fringe benefits you may have paid to your employees.
Businesses that buy and sell stock generally need to do a stocktake at the end of each financial year as the increase or decrease in the value of stock is included when calculating the taxable income of your business. If your business has an aggregated turnover below $10 million, you can use the simplified trading stock rules. Under these rules, you can choose not to conduct a stocktake for tax purposes if the difference in value between the opening value of your trading stock and a reasonable estimate of the closing value of trading stock at the end of the income year is less than $5,000. You will need to record how you determined the value of trading stock on hand.
A simple list of stock categories or lines as well as number on hand and the value of the stock should be recorded at 30 June 2021 for your financial and taxation records.
Livestock on hand – Numbers of all categories of livestock on hand as at 30 June 2021 will be needed to prepare year end livestock accounts. Ensure that you note down numbers of head for reconciliation / completion of your livestock trading accounts for the 2021 financial year – it’s often harder to get this information right as you get further away from 30 June and the numbers change.
Grain on hand – The value of grain on hand at the end of the financial year should be recorded for your business. A simple listing of the tonnages on hand this week will make this process easier than having to work back or estimate at a later date.
Here’s a few other reminders about ways to reduce your tax for 2021
• Write-off bad debts in your computer system before 30 June 2021
• Write-off any trading stock that is damaged or obsolete
• Review your Asset Register and scrap any obsolete plant and equipment
EOFY is also a good time to consider whether or not there are strategic opportunities for your business and to set some goals for the future. This could include some of the big picture items such as succession and estate planning, purchase of another property, evaluating your mix of enterprises or considering property improvements.
Despite a bumper harvest, record commodity prices and rising rural land values , annual returns generated from prime farmland fell for the fourth consecutive quarter in the three months to March as the strongly performing cropping and grazing sector was offset by weak returns from permanent farmland.
Over the first quarter of 2021, total annual returns fell to 8.5 per cent from 11.7 per cent in the December 2020 quarter and 14.5 per cent a year ago, according to the Australian Farmland Index. Income returns fell to 5.2 per cent from 7.3 per cent while capital growth moderated to 3.2 per cent from 4.1 per cent in the December quarter.
Compiled by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV), the index tracks the performance of a $1.06 billion portfolio of 39 farming properties owned by agricultural investors and managers including Gunn Agri Partners, Aware Super and Rural Funds Management.
The index showed a sharp divergence between the strong returns generated from cropping and grazing farmland, which have benefited from soaring commodity prices and bumper harvests, and the weaker returns from permanent plantings like nuts, grapes and citrus. Over the 12 months to March 31, cropping and grazing farmland delivered 25.3 per cent – above the index’s average since inception of 19 per cent, though down from the record near-30 per cent return generated across the 2020 calendar year.
Amid fierce competition for large livestock and crop aggregations, annual capital values rose more than 15 per cent, while income returns were just under 9 per cent.
Such strong conditions are expected to fuel competition for the 31,975-hectare Kaiuroo Aggregation in the beef-producing Mackenzie River district of Central Queensland, which has been listed for sale by global asset manager The Rohatyn Group. Price expectations are understood to be in excess of $55 million, excluding livestock .
Situated 221km west of Rockhampton , the aggregation supports breeding and fattening operations and benefits from high-quality homegrown grain, forage and cotton crops. It includes 1650ha of organic certified cropping area, of which 917ha is irrigated.
Elders real estate general manager Tom Russo, who is marketing Kaiuroo alongside colleagues Andrew Williams and Virgil Kenny, said quality agricultural holdings of scale remained highly sought after while supply remained constrained, albeit with some increase in new listing volumes entering the market.
‘‘ The Kaiuroo Aggregation enjoys both quality and diversification , and is well established for resilient returns throughout the cycles,’’ Mr Russo said.
While prime horticultural assets continue to be sought after – as seen by the $50 million sale last month of McWilliam’s Wines – total annual returns from permanent farmland fell to just 3.1 per cent in the March quarter, down from 4.8 per cent in the December quarter and well below the 13 per cent return recorded a year ago.
Annual capital values contracted by 1.2 per cent while annualised income returns were 4.3 per cent.
Index founder and farming funds veteran Frank Delahunty said the contrasting fortunes of cropping farmland versus permanent farmland reflected the ‘‘ cyclical nature’ ’ of agriculture.
A few years ago, Mr Delahunty said, permanent farmland was the outperformer.
Commenting on the latest index performance, Rural Funds Management chief operating officer Tim Sheridan said agriculture had performed relatively well despite the disruption of the pandemic, the higher Australian dollar and the trade issues with China.
‘‘ This is reflected in the ongoing uplift in annualised farmland values, as the demand for agricultural property remains high,’’ Mr Sheridan said.
Copyright © 2021 The Australian Financial Review
AFR – Monday, 21 Jun 2021 – Page 31
You’re running a business, so you know the legal requirements around producing accounts and submitting tax returns. But do you truly know WHY you’ve engaged an accountant? And do you understand the value that a good accountant and business adviser can add to your company?
As a business owner, managing director or CEO, there are three main areas of the accounting proposition that you’re probably most interested in:
How does a management accountant differ from a financial accountant?
To make a success of your business, and to get the best value from your accountant, you need an adviser who can deliver in all of these three areas. But not all accountants are the same. As we’ll see, it’s important to understand the difference between a financial accountant and a management accountant
At the most basic level, these are the key differences:
How does a management accountant deliver more value?
Looking to the future is a far more productive way of managing your finances than just counting what’s in the bank. A management accountant will empower you to understand your business, and will give you the tools and the knowledge to make good, well-considered decisions.
This additional help can be invaluable. With an experienced management accountant working alongside you, your financial thinking can be completely revolutionised.
For example, you will:
Talk to us about the benefits of management accounting for your business
If you’re ambitious and keen to grow, switching to the benefits of management accounting could have a huge impact on your future destiny.
A financial accountant looks backwards, while a management accountant looks forwards. And it’s this key difference in focus, ability and oversight that makes partnering with a firm of management accountants so rewarding.
Get in touch to talk about switching to management accounting.
Our latest TaxWise Business newsletter is now available. Topics include;
• Incentives to help businesses recover
• Business tax time errors
• How PAYG instalments work
• Simplified trading stock rules
• Electronic invoicing
• FBT rates and thresholds
• Year-end tax tips
• Online services for sole traders
• The black economy
• myGov email scam
and more…. Download your copy now
|Recent changes to super are coming into effect, which will impact your business and employees.|
|Super Guarantee Contributions |
From 1 July 2021, the amount of Superannuation Guarantee Contributions (SGC) that employers have to pay on their employees’ wages is increasing from 9.5% to 10%. As an employer, you will need to ensure that your payroll systems are updated from 1 July.
Superannuation Contributions Cap increases
From 1 July 2021, the annual concessional contributions cap will increase from $25,000 to $27,500. This includes SGC, salary sacrifice, and personal contributions made by employees before tax. See the ATO website for more information about concessional contributions. The non-concessional contributions cap will also increase from $100,000 to $110,000. See the ATO website for more information about non-concessional contributions.
Your Future, Your Super compliance
The Your Future, Your Super Bill is yet to be passed into law, however is proposed to become effective at 1 July 2021. It is designed to benefit super fund members and will affect employers’ compliance requirements in the following ways: you will be required to identify whether a new employee has a stapled fund through the ATO, you must make super contributions to the new employee’s stapled fund; or if you can’t identify a stapled super fund through the ATO, you must make contributions to your default fund (only once this is confirmed by the ATO).
What this might look like for you
Super changes in the 2021-22 Budget, effective 1 July 2022
A number of changes to super were included in the federal government’s 2021-22 Budget and intended to be in place for 1 July 2022. Some key changes include to:
If you have income from investment properties, now is the time to start gathering your records and reviewing your expenses for the 2021 financial year.
Income to Declare
All income earned from each property must be declared. If you have multiple properties, keep the records for each property separate to make the tax return more efficient.
You will need statements or recipient created tax invoices from agents or management platforms and documents for all other payments received.
Deductible expenses for property are different for residential and commercial properties. Not all expenses related to owning a property are allowed as deductions, so it’s important to check what you can claim.
There are some expenses which need to be claimed over a longer period such as several years or decades. These can include borrowing expenses, capital expenditure, depreciation, initial repairs and capital works.
Some expenses cannot be claimed for. These include stamp duty, loans and repayments, some legal expenses and some insurance premiums.
Get Help to Simplify Your Property Records
Tax matters for property investors can be complex. The ATO keeps a close eye on tax returns that involve property investment, as it’s easy to make mistakes. There are other matters to consider such as the period of rental availability, private use of the property, capital gains tax, legal contracts and positive or negative gearing.
This budget seems to be ‘more of the same’ from our government, nothing massively surprising here, nothing game-changing however there were a couple of hidden gems for individuals, specifically around superannuation.
Here we’ll take a look at the proposals that are likely to be most important to our clients. Given that these are just announcements at this stage there isn’t heaps of detail available, but as it comes to hand we’ll share what’s relevant with you all.
It’s worth noting the “stage 3” tax cuts proposed a few years back are already in legislation and are set to come in from 1 July 2024. As a reminder, these cuts will benefit anyone earning over $45,000 with most benefit going to high-income earners.
Retaining the Low and Middle Income Tax Offset (‘LMITO’) for the 2022 income year
The low and middle income tax offset to stay another year meaning it now finishes up at 30 June 2022. This is a refundable tax offset available to low and middle income earners who’ll receive the benefit when lodging their 2021 and 2022 tax returns.
The LMITO is proposed to apply as follows for the 2022 income year.
Full expensing of assets
This temporary measure has been extended out another year taking it to 30 June 2022. Depreciating assets purchased by any business (turnover less than $5bn) are eligible for an immediate and full deduction.
Note here that building costs and fit-outs aren’t included because they aren’t considered depreciating assets. Also note that the car limit still applies so you can only get a deduction for cars costing up to the limit of $59,136.
Loss Carry-back rules
This temporary measure has also been extended out another year to include the 2023 financial year meaning the years eligible are 2020, 2021, 2022 and 2023.
What is this about? It means that if you make a loss in one of those eligible years (2020-2023) you can “carry it back” to an earlier year where you made a profit with the earliest available year being 2019 and get a refund for the tax paid back in that profitable year.
Practically speaking- If you had a good year in 2019 and a bad year in 2021 (for example) you can get some of that 2019 tax refunded.
AAT stepping in for the little guy
The Small Business Tax Division (SBTD) of the Administrative Appeals Tribunal (AAT) are now able to step in and help defend small businesses from over-zealous debt collectors at the ATO stopping them from issuing garnishee notices and the like. If you’re a small business (turnover under $10m) with debt disputes with the ATO you can go to these guys and ask them to investigate on your behalf and whilst said investigation is going on the ATO aren’t allowed to harass you for the money.
Currently there is a “no super required if you earn under $450 a month” exemption from the superannuation guarantee rules, the proposed changes do away with this threshold. This is great news for people who don’t work enough currently to get contributions made on their behalf.
The amount of super an employer must pay for employees increases to 10% from 9.5%, from 1 July 2021. There was talk this may be deferred, but it appears to have been confirmed to be going ahead. This brings to light the importance of whether your salary packages are inclusive of super or plus super.
Under the current rules someone who is over 65 who sells their family home can make a contribution of up to $300,000 to superannuation. This age limit is being reduced to age 60. This change will expand on the opportunity for many people nearing retirement to get an extra boost into their superannuation to help self-fund their own retirement.
The works test has also been removed for super contributions for people aged 67-74. What this means is any individual aged up to 74 years can make contributions to super but only salary sacrificed or non-concessional.
What’s in the Budget for rural and regional Australians
A major infrastructure spend includes funding for roads and rural telecommunications. Treasurer Josh Frydenberg shovelled $200 million into a national soil strategy and promised at least $630 million to improve aged care in rural and remote communities, in a largely positive budget for regional and rural Australians.
He also committed $370 million to bolstering the nation’s biosecurity — but farmers and exporters hoping for assistance to recruit overseas workers or expand into foreign markets will be disappointed.
The federal government hopes that by extending tax incentives, and spending big on soil management and biosecurity, Australian farmers will recover from years of drought and the industry will be worth $100 billion by 2030.
When it comes to regional health, along with the much-needed shot in the arm for aged care, rural GPs have picked up increased funding.
Soil is a big focus of the government’s agriculture spend, with almost $200 million committed over four years to implement the National Soil Strategy.
The strategy includes a two-year pilot to provide rebates for farmers who share the results of soil testing. The pilot is also expected to purchase privately-held soil data.
A further $59.6 million has been committed to trial low-emissions feed supplements for livestock, and a National Soil Carbon Innovation Challenge is expected to help lower emissions through soil management.
An additional $32 million will go to the federal government’s Agriculture Stewardship program to promote on-farm biodiversity.
This includes funding to develop a trading platform to link buyers and sellers of biodiversity services and an enhancing remnant vegetation pilot, that could see farmers paid to leave native vegetation on farms.
A solid $630 million over five years will be spent to arrest the decline in aged-care services for rural, remote, Aboriginal and Torres Strait Islander people.
The funding includes $370 million over four years for aged-care providers to improve buildings and expand into under-serviced areas. Crucially, $35 million over four years has been allocated to help rural and remote providers to access a locum workforce, recruit permanent staff and incentivise the retention of permanent staff.
There is also $13 million to establish regional offices for aged-care support, as recommended by the Royal Commission into Aged Care.
The budget includes $2.3 billion of funding for mental health care and suicide prevention.
There is no new funding in this year’s budget to assist overseas workers to come to Australia, and help with labour shortages on farms, however the budget commits $25.2 million over four years to “attract people to modern agriculture job opportunities”, including seed funding for an industry-led pilot to attract school leavers to work in agriculture.
There is also an allocation of $4.6 million over four years to help agricultural businesses plan for workers, and $1.6 million over two years to amend the Take Up a Job program which helps people to relocate for employment.
Under the changes, employees will only need to work a minimum of 40 hours over two weeks to receive $2,000 in relocation assistance. The program will also be opened up to 17-year-olds for the first time.
The National Farmers’ Federation estimates the cost of disruption to international trade, including sanctions imposed by China, will cost the industry close to $40 billion over the next decade. $15 million will be spent over four years to promote Australia’s trade interests, including the appointment of a new agriculture envoy.
The budget notes that “while the ongoing trade restrictions from China have had significant impacts on specific firms and regions, many goods targeted by the restrictions have so far been successfully re-directed to other export markets, with limited impacts on Australia’s overall economic recovery”.
Farm Household Allowance
More than 5,000 farmers who have received the Farm Household Allowance will have business debts waived, in line with a recommendation from the 2018 FHA review, at a cost of almost $15 million to the government.
We understand that these debts were accrued when farmers receiving the allowance underestimated their earnings.
Roads and phones
The budget commits $85 million for the Regional Connectivity Program to deliver more broadband and mobile services to more than 80 locations and more than $15 billion over 10 years for road, rail and community infrastructure projects across Australia.
Prior to the release of the federal budget, the government had already announced $370 million to protect Australia from pests and disease, $600 million for a new resilience agency promised after the Royal Commission into the 2019-20 bushfires, and $65 million for rural and remote GPs.
Common Tax Deductions for Small Business
There are many expenses common to most small businesses, and there are other expenses that are specific to the nature of the goods or services the business provides. Are you claiming all the tax deductions that you are entitled to?
Expenses must relate to the running of the business and providing the goods or services that your business offers.
Some common expenses that are not deductible are fines and penalties, provisions for employee leave, donations to entities not registered as deductible gift recipients and entertainment.
There may be some expenses you want to query with us such as private usage of business vehicles, prepaid expenses, bad debts, loss of stock and borrowing expenses.
What’s on the ATO Radar?
Instant Asset Write Off
This year the instant asset write-off threshold has increased to $150,000 up from $30,000. The new threshold is in place until 30 June, so talk to us if you’d like advice about whether it’s a good time for your business to buy new assets and claim an immediate deduction.
Keep Your Records
Remember you need a valid tax invoice for any expenses over $82.50 (including GST) to prove the business expense.
Maximise Your Business Deductions
We can check your business’s eligibility for concessions, offsets, incentives and rebates and make sure your business is calculating taxable income correctly, so you don’t pay more tax than you need to!
With so many businesses affected by COVID-19, it’s important to get the allowable tax deductions right for your business and get in early for your tax return. This way you get more time to plan for payment, or if you are due a refund you will get it quickly.