What Changed on 1 July 2023
Employers & business
- Superannuation guarantee increases to 11% from 10.5%
- National and Award minimum wage increases take effect.
- The minimum salary that must be paid to a sponsored employee – the Temporary Skilled Migration Income Threshold – increased to $70,000 from $53,900.
- Work restrictions for student visa holders reintroduced to 48 hours per fortnight.
- For employers who pay a motor vehicle allowance based on ATO cents per kilometre rate, the rate for motor vehicle expenses for 2023-24 has increased to 85 cents.
- The cap on claims via the small claims court procedures for workers to recover unpaid work entitlements increases from $20,000 to $100,000.
- Energy Bill Relief Fund for small business kicks in – it will apply to your energy bills if you meet the criteria.
- Sharing economy reporting to the ATO commences for electronic distribution platforms.
Superannuation
- Indexation increases the general transfer balance cap to $1.9 million.
- Minimum pension amounts for super income streams return to default rates.
- SMSF transfer balance event reporting moves from annual to quarterly for all funds.
For you and your family
- The new 67 cent fixed rate method for working from home deductions – make sure you have a record of when you work from home. The ATO won’t accept a simple “I work from home every Wednesday” x 8 hours calculation.
- Access to the first home loan guarantee expands to “friends, siblings, and other family members.”
- The Medicare low income threshold has increased for 2022-23.
- The child care subsidy will increase from 10 July 2023 for families with household income under $530,000. See the Services Australia website for details.
- New parents able to claim up to 20 weeks paid parental leave.
- Access the age pension increased to 67 years of age.
Important: 1 July 2023 wage increases
For employers, incorrectly calculating wages is not portrayed as a mistake, it’s “wage theft.” Beyond the reputational issues of getting it wrong, the Fair Work Commission backs it up with fines of $9,390 per breach for a corporation. In 2021-22 alone, the Fair Work Ombudsman recovered $532 million in unpaid wages recovered for over 384,000 workers.
On 1 July 2023, award rates of pay and the National Minimum Wage increased by 5.75%.
It is critically important that all employers review their payroll systems and ensure they are applying the correct rates and Awards.
The National Minimum Wage applies to workers not covered by an Award or registered agreement. From 1 July 2023, the National Minimum wage has increased to $23.23 per hour ($882.80 per week for a full time employee working a standard 38 hours week).
For casuals, the minimum wage including the 25% casual loading is a minimum of $29.04 per hour.
For workers under an Award, adult minimum award wages increase by 5.75% applied from the first full pay period on or after 1 July 2023. Proportionate increases apply to junior workers, apprentice and supported wages.
In addition, the superannuation guarantee increased from 10.5% to 11% on 1 July 2023.
If the employment agreement with your workers states the employee is paid on a ‘total remuneration’ basis (base plus SG and any other allowances), then their take home pay might be reduced by 0.5%. That is, a greater percentage of their total remuneration will be directed to their superannuation fund. For employees paid a rate plus superannuation, then their take home pay will remain the same and the 0.5% increase will be added to their SG payments.
ATO announces changes to working from home deductions
The ATO has announced that taxpayers can choose one of two methods to claim working from home deductions: either the “actual cost” or “fixed rate” method. Only the fixed rate method is changing.
Revised fixed rate method
The revised fixed rate method applies from 1 July 2022 and can be used when taxpayers are working out deductions for their 2022–23 income tax returns.
Rate
- The cents per work hour has increased from 52 cents to 67 cents.
What’s covered by the rate
- The revised fixed rate of 67 cents per work hour covers energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. No additional deduction for any expenses covered by the rate can be claimed if you use this method.
What can be claimed separately
- The decline in value of assets used while working from home, such as computers and office furniture.
- The repairs and maintenance of these assets.
- The costs associated with cleaning a dedicated home office.
Home office
- The revised fixed rate method doesn’t require taxpayers to have a dedicated home office space to claim working from home expenses.
Record keeping
- Taxpayers need to keep a record of all the hours worked from home for the entire income year – the ATO won’t accept estimates, or a 4-week representative diary or similar document under this method from 1 March 2023.
- Records of hours worked from home can be in any form provided they are kept as they occur, for example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.
- Records must be kept for each expense taxpayers have incurred which is covered by the fixed rate per hour (for example, if taxpayers use their phone and electricity when working from home, they must keep one bill for each of these expenses).
Actual cost method
The actual cost method hasn’t changed. Taxpayers can claim the actual work-related portion of all running expenses.
This includes keeping detailed records for all the working from home expenses being claimed, including:
- all receipts, bills and other similar documents to show taxpayers have incurred the expenses, a record of the number of hours worked from home during the income year (either the actual hours or a diary or similar document kept for a representative 4-week period to show the usual pattern of working at home).
- a record of how taxpayers have calculated the work-related and private portion of their expenses (for example, a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset such as a laptop).
The ATO is reminding taxpayers that if they are claiming their actual working from home expenses, they can’t claim a deduction for expenses which have already been reimbursed by their employer.
ATO Rental Property Blitz
The ATO has launched a full-on assault on rental property owners who incorrectly report income and expenses.
The ATO’s assessment, based on previous data matching programs, is that there is a tax gap of around $1 billion from incorrect reporting of rental property income and expenses.
As a result, banks and other financial institutions will be required to hand the ATO residential investment loan data on an estimated 1.7 million rental property owners for the period from 2021-22 through to 2025-26.
The data collected will include:
- identification details (names, addresses, phone numbers, dates of birth, etc.)
- account details (account numbers, BSB’s, balances, commencement and end dates, etc.)
- transaction details (transaction date, transaction amount etc.)
- property details (addresses, etc.)
In addition to identifying whether landlords are declaring their residential investment property income at all, the data matching program is looking specifically at how rental property loan interest and borrowing expense deductions have been reported in the rental property schedules, and whether net capital gains have been declared for property used to generate income.
Banks are not the only source of data. In a complimentary program, the ATO is targeting rental property management software. Over the last decade, much of the financial management of residential rental property has moved online, facilitated by various platform providers. The ATO will require these rental property software providers to provide details of property owners including their bank details, income, expenses and the amount of those expenses, and details of their associated rental properties and agents. Data collection of the estimated 1.6 million individuals in this data program will cover the period from 2018-19 to 2022-23.
With that, let’s recap on the common problem areas:
Claiming interest and redrawing on the loan
The interest component of your investment property loan is generally deductible. However, if you redraw on your invest loan for personal purposes, interest on this portion of the loan will not be deductible. This means that interest expenses will need to be apportioned into deductible and non-deductible parts and repayments will often need to be apportioned too. If the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible.
Borrowing costs
You can claim a deduction for borrowing costs (typically over five years) such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legals on the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance. If the loan is repaid early or refinanced, the whole amount including mortgage discharge expenses and penalty interest can often be deductible.
Repairs or maintenance
Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves a replacement or renewal of a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:
- Replacement of an entire asset (for example, a complete fence, a new hot water system, oven, replacing a shower curtain with a glass wall, etc.)
- Improvements and extensions.
Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible.
The 120% technology and skills ‘boost’ deduction
Almost a year after the 2022-23 Federal Budget announcement, the 120% tax deduction for expenditure by small and medium businesses (SME) on technology, or skills and training for their staff, is finally law. But there are a few complexities in the timing – to utilise the technology investment boost, you had to have purchased the technology and when it comes to acquiring eligible assets, installed it ready for use by 30 June 2023; that was just seven days from the date the legislation passed Parliament. If you have any questions about the 120% skills and training, and technology costs deduction, contact our office for further information.
