Tax & the family home
Your main residence is the home you live in. In general, CGT applies to the sale of your home unless you have an exemption, partial exemption, or you are able to offset the tax against a capital loss.
For CGT purposes, your home normally qualifies as your main residence from the point you move in and start living there. However, if you move in as soon as practicable after the settlement date of the contract, that home is considered your main residence from the time you acquired it.
If your home is also set aside as a dedicated place of business (i.e., you do not have another office or workshop), then you might only be able to claim a partial main residence exemption. This is because income-producing assets are excluded from the main residence exemption.
Before you start renting out a portion of your home, it is a good idea to have it valued. If you would have qualified for the main residence exemption just before it was rented out, there are some rules that can apply in most cases and for CGT purposes, you are taken to have re-acquired your home for its market value at that time. So, if your home has increased in value over and above its cost base, this should reduce any gain when you eventually sell.
Your pdf copy: Tax and family home
Tax Time Targets
With tax season almost upon us the Australian Taxation Office (ATO) has revealed its four areas of focus this tax season.
Record keeping
101 of working with the ATO is that you can’t claim it if you can’t prove it. If you are audited, the ATO will disallow deductions for unsubstantiated or unreasonable expenses. Ensure you have records of expenses for any deductions claimed, including a record of how that expense relates to the way you earn your income.
Work-related expenses
To claim a deduction, you need to have incurred the expense yourself and not been reimbursed by your employer or business, and the expense needs to be directly related to your work. COVID-19 tests are deductible from 1 July 2021 if the purpose was to determine whether you may attend or remain at work.
Rental property income and deductions
For landlords, the focus is on ensuring that all income received, whether long-term, short-term, rental bonds, back payments, or insurance pay-outs, are recognised in your tax return. If your rental property is outside of Australia, and you are an Australian resident for tax purposes, you must recognise the rental income you received in your tax return, unless you are classified as a temporary resident for tax purposes.
Capital gains from crypto, property or other assets
If you dispose of an asset – property, shares, crypto or NFTs, collectables (costing $500 or more) – you will need to calculate the capital gain or loss and record this in your tax return. Capital gains tax (CGT) does not apply to personal use assets such as a boat if you bought it for less than $10,000.
Your pdf copy: Tax time targets
Low and Middle-Income Tax Offset
The low and middle income tax offset (LMITO) has increased by $420 for the 2021–22 financial year (also known as the $420 cost of living tax offset). This has increased the base amount to $675 and the maximum tax offset amount to $1,500. The offset applies to people with a taxable income less than $126,000, who are Australian residents for tax purposes.
The offset amount, and the amount of any refund will differ for everyone depending on their individual circumstances. Those who are eligible don’t have to do anything different to claim the offset. It will be calculated for them when they lodge their tax return.
It’s important to remember it is not a cash refund or a tax bonus. The offset reduces the amount of tax you need to pay which can reduce your tax to zero. If there is any offset remaining, you will not receive that amount as a cash refund.
The ATO provides clarity on the tax consequences of trust disclaimers
The ATO has released a Decision Impact Statement following the matter of FCT v Carter [2022) HCA 10 (‘Carter’s case’), in which the High Court provided clarity on the tax consequences of situations involving legally valid trust disclaimers.
The High Court’s decision in Carter’s case settled a practical question as to how trust income is to be taxed when relevant trust entitlements are validly disclaimed by a beneficiary sometime after year end. Importantly, the Court’s decision does not adversely impact people who are beneficiaries of a trust and wish to retain their trust entitlements.
The decision upheld the ATO’s view that beneficiaries who had validly disclaimed their rights to trust entitlements after the end of the financial year were nevertheless liable to be taxed on them.
Providing employees with vaccine incentives or pets can lead to FBT obligations
The ATO is urging employers that have provided their employees with fringe benefits to consider their fringe benefits tax (FBT) obligations – including registering, reporting, lodging and paying FBT. The ATO expects many employers to have an FBT obligation for the first time due to benefits provided during COVID-19. A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages.
FBT returns for the 2022 FBT year were due by 23 May 2022 for employers lodging their own returns or those lodging by paper. Employers lodging through a registered tax professional had until 27 June 2022 to lodge. Employers that are registered for FBT but don’t need to lodge an FBT return for the year, will need to advise the ATO via a notice of non-lodgment form.
Your pdf copy: ATO provides clarity
In your 20s, 30s or 40s? The super rules that apply to you
The rules at different ages govern how much and when you can contribute to super, when you can get your hands on your savings and how much tax you will pay. These rules are designed to ensure super is used to its intended purpose – to provide retirement income – in exchange for the generous tax benefits on offer.
The super system is designed to help you save money for your retirement over your entire working life. It holds money contributed by you and your employer and will help supplement your income during your retirement years.
Once you are aged 18, your employer must pay SG contributions (10.5% in 2022-*23) on your behalf into your super account. The SG contribution rate is currently legislated to rise incrementally to 12% in July 2025.
Your pdf copy: In your 20s, 30s or 40s The super rules that apply to you
Salary sacrifice and super: How does it work?
Setting up a salary-sacrifice arrangement can be a great way to save extra for your retirement and potentially improve your financial position. The main benefits are:
Less tax on contributions
As salary sacrifice contributions come from your pre-tax salary, you only pay 15% tax on them when they enter the super system (if you earn less than $250,000) or 30% (if you earn over this amount).
Lower tax on investment earnings
Your super fund pays a maximum of 15% on investment earnings compared with your marginal tax rate outside the super system (up to 47% with the Medicare levy in 2022-23).
Reduced taxable income
By putting more of your salary into your super account, you reduce the amount of income on which your income tax is calculated. This could mean you and up paying less tax.
Salary sacrificing into your super account can be a great way to build your retirement savings and lower your tax bill. As an employee, you have a choice between using a salary-sacrifice arrangement to top-up your super or making a personal super contribution and claiming a tax deduction in your annual income tax return.
Your pdf copy: Salary sacrifice and super
Downsizer super contributions
If you are 60 years old or over, you may be able to contribute up to $300,000 from the proceeds of the sale of your family home into your superannuation fund, provided you have owned the property for at least ten years.
You must make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement.
A downsizer contribution doesn’t count towards any of the contribution caps. However, downsizer contributions will count towards your transfer balance cap. This cap applies when you move your super savings into retirement phase and will be considered for determining eligibility for the age pension.
You may wish to seek independent financial advice in relation to the age pension asset tests.
Your pdf copy: Downsizer super contributions
ATO Refocus on Debt Collection
The ATO has not pursued many business tax debts during the pandemic and allowed tax refunds to flow through even if the business had a tax debt.
That position has now changed and the ATO has resumed debt collection and offsetting tax debts against refunds. If you have a tax debt that has been on-hold, expect the ATO to offset any refunds against this debt, and take steps to actively pursue the payment of the debt.
Small business account for around two thirds of the total debt owed to the ATO. If you have a tax debt, it is important that you engage with the ATO to work out how this debt will be paid.
If you need assistance communicating with the ATO about debt or other matters, please contact us.
Ready, set, lodge!
The majority of taxpayers can now lodge their tax return as more than 80 million pieces of information are available in pre-fill.
Assistant Commissioner Tim Loh explained “Much of the information we collect from employers, banks, private health insurers, share registries and other institutions, is now ready to go in your tax return. If you also have all the information you need to manually include, then you have the green light to lodge.
Four out of five people receive a refund with most refunds issued in less than two weeks. This process can’t be sped up, even if you or your agent calls us.”