January 2024: Understanding Key Tax Updates

Taxpayers need to get their GST right at the settlement

The ATO’s key tax updates remind taxpayers that if their income-making activities include selling property and they make $75,000 or more in a year from selling property, even if it is from a ‘one-off profit-making property transaction’, they may need to register for GST.

Once they have registered, ‘GST at settlement’ may apply when they sell new residential premises or potential residential land.

It is important to remember that not all property sales are liable to GST, and not all vendors need to register for GST.

If GST does apply at settlement to the sale of property, the vendor needs to notify the purchaser before settlement occurs that it applies, state the amount the purchaser needs to withhold, and when to withhold that amount.

The purchaser then must withhold the GST amount from the contract price, and pay that amount to the ATO when settlement occurs.

Taxpayers should remember to report their property sales at label G1, and GST on those sales at label 1A, on their Business activity statement (‘BAS’) in the period that settlement occurs.

They will then receive a credit for the GST amount paid by the purchaser in their GST property credits account.  The GST credit for the sale will move into their BAS account and be offset against any GST they owe after their BAS has been lodged.  Taxpayers can refer to ‘GST at settlement’ on the ATO’s website for further assistance in this regard.

Changes to Deductible Gift Recipient (DGR)

The law underpinning the DGR registers reform measure comes into effect from 1 January 2024. This means that from 2 January, the NFP team in Paramatta will assess DGR eligibility for all DGR categories including:

  • cultural organisations
  • environmental organisations
  • harm prevention charities
  • developing country relief funds or organisations.

The new law contains transitional provisions to ensure organisations already endorsed as DGRs under one of the 4 unique DGR categories remain endorsed if they continue to meet eligibility criteria.
The transitional provisions also apply to those organisations that have lodged an application with one of the 4 government departments and haven’t been notified of an outcome of their request by 31 December 2023. These applications will transfer to the ATO for finalisation in early 2024.

Public fund obligations

The transitional provisions do not treat your public fund as your gift fund under the new law.

You may need to make some changes to your public fund arrangements, so you comply with the new law. You may choose to replace your public fund with a gift fund or make changes to your public fund rules.

You will need to remove requirements that are not compatible with the new law, such as requiring receipts to be in the name of your organisation rather than in the name of the public fund.

You may also choose to change your public fund rules to remove requirements for a majority of responsible persons on the management committee of the public fund or replace your public fund with a gift fund that does not have this requirement.

If you do make changes to your governing document, you must comply with the terms of your governing document which specify how changes or amendments to your governing document are made.

If you are a registered charity, you continue to have additional obligations to the Australian Charities and Not-for-profits Commission (ACNC). You must notify the ACNC about changes to your governing document. Refer to ongoing obligations to the ACNCExternal Link.

Gift fund

You need to meet the gift fund requirements, you may either:

  • use your existing public fund (which may require amendments to its rules, so it complies with the gift fund requirements)
  • establish a separate gift fund.

If you establish a gift fund, it may either:

  • be part of the governing document of your organisation
  • have its own rules or constitution.

A separate ABN is not needed for the gift fund. For more information about gift funds, refer to gift fund requirements.

Winding up provisions

Changes to your governing document may be required, if the winding up provisions of the public fund reference transferring any surplus assets to a fund, authority or institution that is on the register of environmental organisations or register of harm prevention charities.

Income tax cuts and the end of some concessions

From 1 July 2024, the stage 3 tax cuts that radically simplify the personal income tax brackets come into effect. The tax cuts collapse the 32.5% and 37% tax brackets into a single 30% rate for those earning between $45,001 and $200,000 – this is assuming the May Federal Budget does not postpone or scrap them!

The superannuation guarantee rate will rise again on 1 July 2024 to 11.5%.

For small and medium businesses with group turnover of less than $50m, a series of concessions are set to end or reduce back to conventional levels:

  • The Skills and Training Boost ends on 30 June 2024. The boost provides a bonus deduction equal to 20% of eligible expenditure for external training provided to your workers for costs incurred between 29 March 2022 and 30 June 2024.
  • The Small Business Energy Incentive is scheduled to end on 30 June 2024, although legislation to introduce this concession still hasn’t passed through Parliament. The incentive is intended to provide an additional 20% deduction on the cost of eligible depreciating assets that support electrification and more efficient use of energy.

The instant asset write-off for businesses with group turnover of less than $10m is due to reduce back to $1,000 from 1 July 2024. The cost threshold is meant to be $20,000 for the 2024 financial year, but legislation relating to this measure hasn’t passed through Parliament yet.

New rules for fixed-term contracts

Starting from 6 December 2023, there are new regulations surrounding fixed-term contracts that every employer in Australia should be aware of. Fixed-term contracts are employment agreements that have a predetermined end date, such as contracts based on specific time periods or seasons.

One key change is that employers must now provide employees entering into new fixed-term contracts with a Fixed Term Contract Information Statement (FTCIS). This statement offers essential details about fixed-term employment, clarifying the circumstances under which fixed-term contracts are permitted. It’s crucial for both employers and employees to ensure compliance with this requirement.

Additionally, there are restrictions on the use of fixed-term contracts, although some exceptions apply. These limitations do not extend to casual employees. These changes aim to enhance transparency and fairness in employment agreements, benefiting both employers and employees.

Limitations on Fixed-Term Contracts

There are specific rules governing the use of fixed-term contracts, commonly referred to as limitations. These regulations come into effect for fixed-term contracts established on or after 6 December 2023, unless certain exceptions apply.

Protections for employees

Employers can’t take certain actions to purposely avoid these rules.
These are called the anti-avoidance protections. These protections include:

  • ending employment or not re-employing the employee for a period of time
  • not re-engaging the employee and employing someone else to do the same or substantially similar work instead, or
  • changing the type of work or tasks that an employee does or changing the employment relationship.

If an employer does any of these things, it may also be adverse action. Find out more about adverse action at Protections at work.

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Tax on super balances above $3m hits Parliament

Legislation enabling an extra 15% tax on earnings on super balances above $3m is before Parliament.

While not a concern for the average worker, if enacted, those with significant property or other illiquid assets in their superannuation fund are most at risk, for example farmers and business operators who own their business property in their self managed superannuation fund (SMSF).

The issue is how the tax is calculated. The tax captures the growth in the balance of a member’s superannuation over the financial year (allowing for contributions and withdrawals). It captures both:

  • Realised gains from the sale of assets, and
  • Unrealised gains triggered by an increase in the value of superannuation assets. For example, if the value of a property increases.

If the member’s total super balance has decreased – the loss can be offset against future years.

The ATO will calculate the tax each year. Members with balances in excess of $3 million will be tested for the first time on 30 June 2026, with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year.

If you are likely to be impacted by the impending new tax, it is important to speak to your financial adviser. While keeping assets within superannuation will remain the best option for many from a tax and planning perspective, it’s important to ensure that you’re in the best possible position.

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