As we come out of the last corner into the final straight, crossing the finish line on 30 June is immovable. You can’t ask anyone for more time to get your clients ready for year end. Now is the time to turn your minds to the array of considerations specific to the end of the 2022–23 financial year as well as the perennial issues that should not be overlooked.

Business clients

Ending of temporary full expensing measure

With the temporary full expensing measure ending on 30 June 2023, it is crucial that you and your clients get the timing right. To fully expense a depreciating asset under these sunsetting provisions, the business needs to first use or install the asset ready for use by the end of 30 June 2023. Merely signing a contract, paying a deposit or receiving an invoice will not be sufficient.

If the asset is not first used or installed ready for use until after 30 June 2023, the asset will be subject to the rules that apply for the 2023–24 income year:

• For small business taxpayers:
• If the asset costs less than $20,000 (GST-exclusive), it will be able to be fully written off under the yet-to-be-legislated increase in the instant asset write-off threshold to $20,000 (only for 12 months); or
• If the asset costs $20,000 or more, the asset will need to be allocated to a general use pool and depreciated according to the pooling rules;
• Larger business taxpayers (aggregated turnover of $10 million or more) will need to depreciate the asset in accordance with the normal depreciation rules, noting the ATO has an administrative approach of allowing low-cost assets to be fully deducted in the year in which they were acquired, but only up to $100 (GST-inclusive).

Consider the tax treatment of any depreciating assets that were sold during 2022–23 and which had previously been fully expensed. The proceeds received on sale are generally assessable.

Loss carry back

This COVID-19-era temporary measure also ends on 30 June 2023. Any corporate tax entity with an aggregated turnover of less than $5 billion that makes a tax loss in 2022–23 can choose to carry that loss back against taxed profits made from 2018–19 to 2021–22. The refundable income tax offset is available by lodging the 2023 income tax return.

Small (to medium) business boosts

Three boosts are on offer for businesses with an aggregated turnover of less than $50 million, covering eligible expenditure:

• Incurred on business expenses and depreciating assets that support the business’ digital adoption (technology investment boost);
• Incurred on external training courses provided to employees (skills and training boost); and
• On the cost of eligible depreciating assets that support electrification and efficient energy usage (energy incentive boost).

The first two boosts remain in a Bill before Parliament, while the energy incentive boost is yet to be introduced into Parliament. The concerning aspect of this is that the technology investment boost ends on 30 June 2023, and its status as (yet-to-be) enacted law may be confirmed only in the closing weeks of the incentive. The first and the third boosts are subject to a maximum cap of $20,000 (or $100,000 of eligible expenditure) per business. The second and third boosts will end on 30 June 2024.

The delay in legislating time-sensitive measures, designed to encourage businesses to invest in their operations and sustainability, creates uncertainty that undermines the intent of the measures.

Professional practice profits

The ATO’s guidance on its compliance approach to the allocation of profits or income from professional firms applies from 1 July 2022. Professional firms need to review their position and self-assess whether they satisfy the two gateways — whether there is a sound commercial rationale for the arrangement, and whether it exhibits ‘high-risk features’ — to ascertain their risk zone. The risk zone indicates the likelihood of the ATO reviewing the arrangement, not the likelihood of the arrangement falling foul of the law.

Division 7A and trust issues

The Commissioner’s revised position on unpaid present entitlements (UPEs) was finalised mid-last year and applies from 1 July 2022. Broadly, all UPEs will be considered to be the provision of financial accommodation (and therefore a Division 7A loan) where the corporate beneficiary:

• Consents to the trustee retaining an amount it can demand immediate payment of and continuing to use it for trust purposes; and
• Does not demand payment of the amount.

Sub-trusts arrangements previously endorsed by the Commissioner for managing UPEs may continue their legacy and can even be managed with a new complying loan arrangement on their maturity if the principal is not fully repaid by that time. However, new sub-trust arrangements consistent with those in the Commissioner’s withdrawn guidance are no longer effective for Division 7A purposes.

Historical UPEs (those arising before 16 December 2009) continue to be grandfathered, meaning the company does not provide financial accommodation to the trustee where it does not demand payment of these UPEs.

Remember to identify all new loans made during 2022–23, so these can be managed with a complying loan agreement or repaid in full before the company’s 2023 lodgment date. The annual payment for complying loans made in 2021–22 or earlier is due by 30 June 2023. If using a journal entry to offset a dividend payment against the obligation to make the minimum yearly repayment, the dividend must be properly declared by 30 June 2023 and all related documentation correctly prepared and filed.

Section 100A occupied the time and minds of many tax practitioners during the course of 2022, as they came to terms with the Commissioner’s draft, then final, guidance on trust reimbursement agreements. If you’ve not yet familiarised yourself with the ATO’s public advice and guidance, this should be a priority as the ATO will be using the risk assessment framework in PCG 2022/2 to determine how to allocate its compliance resources. Arrangements that are characterised as ‘high risk’ (red zone) or outside the green zone are more likely to attract the ATO’s attention.

We wait for updated guidance following the Full Federal Court appeal in Commissioner of Taxation v Guardian AIT Pty Ltd ATF Australian Investment Trust [2023] FCAFC 3 and the pending appeal from the decision in BBlood Enterprises Pty Ltd v Commissioner of Taxation [2022] FCA 1112. In the meantime, the unlimited period of review that applies to section 100A means trustees must retain sufficient records to explain transactions that have happened. Likely to be the most challenging aspect for practitioners and trustees is the scope of the exemption for ‘ordinary family or commercial dealing’. Guidance exists on the term exists, but further judicial interpretation is needed to lessen uncertainty.

Finally, on trust distributions, the importance of reading the deed and ensuring all distributions are made in compliance with the deed to valid beneficiaries cannot be understated. The ATO has released a checklist to assist trustees in getting their resolutions right.

Individuals

The ATO has clearly indicated across its various media channels that, this Tax Time, it will be focusing on the accuracy of claims for work-related expenses, rental properties and capital gains tax liabilities.

The following checklist may assist:

• The rate per kilometre for claiming car expenses is 78 cents per kilometre for 2022–23. The ATO’s draft administrative approach for electric vehicles in PCG 2023/D1 indicates 4.2 cents per km will be allowed for these vehicle using the logbook method and for FBT purposes for 2022–23. You cannot claim both 78 cents per kilometre plus another 4.2 cents per kilometre.
• Refresh your understanding of the limited circumstances in which claims for conventional clothing are allowable, such as occupation-specific clothing, protective clothing, compulsory work uniforms and registered non-compulsory work uniforms (plus the cleaning of such clothing).
• The $250 non-deductible threshold for self-education expenses was removed from 1 July 2022.
• The fixed rate method (52 cents per hour) and the temporary shortcut method (80 cents per hour) for working from home (WFH) expenses both ended on 30 June 2022. From 1 July 2022, the ATO’s administrative approach in PCG 2023/1 indicates that the ATO will not apply compliance resources if taxpayers claim WFH expenses at the rate of 67 cents per hour. From 1 March 2023 to 30 June 2023 (and later income years), taxpayers must keep a record of the total number of actual hours WFH, while from 1 July 2022 to 28 February 2023 only, the ATO will allow taxpayers to keep a representative record of the total number of hours WFH.
• The ATO’s Occupation and industry specific guides are a useful reminder to your clients about what they can and cannot claim.
• Ensure clients declare all rental income received, and do not declare net rent (instead of gross rent) then claim expenses (such as property management fees) again against the net rent.
• Ensure that interest expenses are correctly apportioned where the property is used for private use, the property is not genuinely available for rent or there is mixed use of borrowed funds.
• Correctly apportion borrowing expenses over the five-year period (but not on a straight line basis), or the term of loan if less.
• Correctly characterise building expenditure as a deductible repair, a non-deductible initial repair or capital works.
• The limitation on travel expenses and second-hand depreciable assets relating to residential rental properties applies from 1 July 2017.
• Ensure all capital gains on cryptocurrency, shares and properties (as well as other CGT assets) are correctly calculated and reported. Record keeping is essential to this.

Superannuation

Making contributions

To ensure individuals do not exceed their concessional contributions cap of $27,500, checks should be made with superannuation funds and employers to determine what contributions have already been made during 2022–23. This includes identifying any contributions made under salary sacrifice arrangements.

If further contributions are intended to be made by 30 June 2023 to maximum the concessional contributions cap (including any carry forward limits that are available), allow sufficient time for processing and receipt of payment. This is particularly important when using external payroll services and commercial clearing houses to ensure that the contribution is received by the fund by the end of 30 June and not merely paid (and still sitting within the banking system such that the fund does not receive the payment until July).

While employers have until 28 July to satisfy their superannuation guarantee obligations, payments need to be made (i.e. received by the fund) by the end of 30 June if the employer seeks a deduction for the payments for 2022–23 (instead of 2023–24).

Changes to the work test from 1 July 2022 have removed the need for individuals aged 67–74 years to pass the work test when making non-concessional contributions and salary sacrifice contributions, but the work test still applies when making personal deductible contributions.

Transfer balance cap and income streams

The increase in the transfer balance cap (TBC) to $1.9 million from 1 July 2023 will ensure more earnings on superannuation balances in retirement phase are tax-free, but the cap remains $1.7 million for 2022–23. Calculating the proportionate indexation of an individual’s personal TPB will become even more complex as the general TBC continues to increase.

Ensure income stream recipients make their minimum annual payments. The required percentage was halved again for 2022–23 (as it was in 2019–20, 2020–21 and 2021–22 due to the pandemic) but it returns to normal levels from 1 July 2023. Failure to make the minimum payment:

• Causes the income stream to cease for tax purposes;
• Treats the fund as not having paid an income stream from the start of the income year and any payments made as lump sum payments; and
• Prevents the fund from treating any income as exempt current pension income, so the fund loses its tax exemption on the earnings for that year.

Incentive schemes

Changes to the First Home Super Saver Scheme from 1 July 2022 increased the maximum releasable amount of voluntary concessional and non-concessional contributions to $50,000 (from $30,000). Changes to the downsizer contributions measure, also from 1 July 2022, reduced the eligibility age from 65 years to 60 years.

Robyn Jacobson is the senior advocate at The Tax Institute.