Key Changes and What They Mean for You
As we progress through the financial year, it’s crucial to stay updated on the latest tax changes that could impact both individuals and businesses. In this July summary, we’ll cover essential updates from the Australian Government and the Australian Taxation Office (ATO), shedding light on the new measures that aim to enhance tax integrity, particularly for foreign residents, and changes affecting small and medium enterprises (SMEs), among others.
Tightening Capital Gains Tax for Foreign Residents
The Australian Government has recently proposed changes to the foreign resident capital gains tax (CGT) withholding regime. Under the current rules, a 12.5% withholding tax applies to the sale of Australian property valued at $750,000 or more if the seller is a foreign resident or does not have a clearance certificate from the ATO.
The proposed changes, however, are set to increase this withholding rate to 15% and remove the $750,000 threshold altogether. This means that any property sale, regardless of its value, could be subject to this withholding if the vendor is a foreign resident. These changes aim to strengthen the integrity of Australia’s tax system by ensuring foreign residents contribute their fair share.
Strengthening the CGT Regime Further
Following announcements in the 2024-25 Federal Budget, the Government is also looking to broaden the types of assets on which foreign residents are subject to CGT. This would include assets with a close economic connection to Australian land and resources, such as telecommunications or energy infrastructure, and intangible assets like water rights.
Additionally, the proposed changes include a new requirement for foreign residents selling shares or other interests exceeding $20 million to notify the ATO before the transaction. These measures, intended to apply from 1 July 2025, reflect the Government’s commitment to ensuring that foreign residents are appropriately taxed on gains from Australian assets.
SMEs Given More Time to Amend Tax Returns
Good news for small and medium-sized businesses: Treasury has proposed extending the amendment period for tax returns from two to four years. This change, announced in the 2023-24 Federal Budget, recognises the need for SMEs to have more time to review and amend their tax assessments, reducing the pressure to get everything right within a shorter timeframe.
It’s important to note, however, that this extension only applies to self-amendments initiated by the business. The ATO will still have the right to amend assessments based on the business’s application, but not for other items not included in the request.
Home Office Deductions: A Refresher
With more Australians working from home, understanding how to claim home office deductions is more important than ever. The ATO has reiterated that individuals can claim these expenses using either the actual method or the revised fixed rate method of 67 cents per hour.
To qualify for the revised fixed rate method, taxpayers must ensure they keep detailed records of the hours worked from home. The ATO also clarified that employees generally cannot claim occupancy expenses like rent or mortgage interest unless their home is considered a ‘place of business.’
Superannuation Changes from 1 July 2024
Several key changes to superannuation have come into effect as of 1 July 2024. The Superannuation Guarantee (SG) rate has increased to 11.5%, and the concessional contributions cap has been raised from $27,500 to $30,000 per year. These changes are designed to help Australians grow their retirement savings more effectively.
Data-Matching Program Targets eBay and Amazon Sellers
In its ongoing efforts to ensure tax compliance, the ATO has implemented a data-matching program targeting online sellers on platforms like eBay and Amazon. Sellers who have annual trading activity of $12,000 or more in any of the 2019 to 2026 income years will have their details reported to the ATO. This initiative is expected to uncover a significant number of taxpayers who may not be fully complying with their tax obligations.
Non-Resident Trust Distributions and Australian Taxation
When Australian residents receive distributions from non-resident trusts, Section 99B of the ITAA 1936 generally requires these distributions to be taxed in Australia. However, exceptions exist, particularly for distributions from the trust’s corpus, unless they involve income or gains that would have been taxable if earned by an Australian resident.
The ATO’s recent rulings clarify that Section 99B does not apply to capital gains from pre-CGT assets sold by a foreign trust, although the CGT discount is unavailable to hypothetical taxpayers. Additionally, the ATO provides high-level guidance on how Section 99B applies in various scenarios, including loans, forgiven debts, and distributions from deceased estates.
Importantly, the ATO has indicated that it will not focus compliance resources on certain scenarios, such as distributions from foreign deceased estates meeting specific criteria.
Interaction Between NALI and CGT Rules for Superannuation Funds
The ATO has finalised guidance on how Non-Arm’s Length Income (NALI) rules interact with Capital Gains Tax (CGT) provisions for superannuation funds. A capital gain may be classified as NALI if it arises from non-arm’s length dealings or if non-arm’s length expenditure is incurred. NALI income is taxed at penalty rates, and this applies even when the fund makes both arm’s length and non-arm’s length gains in the same year. However, if capital losses reduce the fund’s net capital gain to nil, no NALI will be attributed.
Taxpayer Unsuccessful in Claiming Deposits as Gifts and Loans
In the case of Rusanov v Commissioner of Taxation [2024] FCA 777, the Federal Court upheld the ATO’s decision to treat significant deposits into a taxpayer’s bank account as assessable income rather than non-assessable gifts or loans. The taxpayer argued that the deposits were gifts from their father or loans from a friend, but both the AAT and Federal Court found the evidence insufficient. Key issues included the lack of contemporaneous records, absence of loan agreements, and selective evidence provided by the taxpayer. The ruling highlights the high burden of proof on taxpayers in default assessments and the potential application of Division 7A and Section 99B when receiving funds from overseas entities.
Introduction of Global and Domestic Minimum Tax Bill 2024
The Australian Parliament has introduced the Taxation (Multinational-Global and Domestic Minimum Tax) Bill 2024, which proposes a 15% global minimum tax and domestic minimum tax rate. These rates will apply to large multinational corporations with annual global revenues of EUR750 million or more. Key provisions of the Bill are set to take effect for fiscal years starting on or after 1 January 2024.
Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024
The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 has received Royal Assent, introducing significant changes across several areas:
- Quality of Advice Review: Implements recommendations from the Quality of Advice review, including amendments to the SIS Act. Clarifies the legal basis for superannuation trustees to pay advice fees from members’ superannuation accounts and ensures that certain personal advice fees are tax-deductible for the fund.
- Location and Producer Tax Offset: Impacts the film industry by increasing the location tax offset from 16.5% to 30% and raising the minimum qualifying Australian production expenditure thresholds. Introduces new conditions related to training and the use of Australian post-production services. Adds a new threshold category to the producer tax offset for drama series with a minimum spend of $35 million.
- Mining and Petroleum Tax Amendments: Clarifies the definition of “exploration for petroleum” under the Petroleum Resource Rent Tax Act, changes the depreciation rules for mining, quarrying, or prospecting rights, and specifies conditions for income tax adjustments when new rights are issued over areas covered by existing rights.
