Year-end tax issues for business

14 June 2023

Upfront deductions for asset purchases end 30 June 2023 for many businesses

In recent years various concessions have allowed full upfront tax deductions for the cost of assets that previously were depreciated over several years. This includes the Temporary Full Expensing concession applying to assets with unlimited cost for businesses with turnover up to $5 billion. Most of these concessions end on 30 June 2023.

An exception is proposed for businesses with aggregated turnover under $10 million. This would allow upfront deductions for assets costing less than $20,000 used or installed ready for use by 30 June 2024.

Extra 20% deduction for costs of digital adoption ends 30 June 2023

It is proposed to allow businesses with aggregated turnover under $50 million to deduct an additional 20% of certain expenditure on digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services up to an annual maximum deduction of $20,000. It applies to expenditure incurred from 7:30pm (AEDT) on 29 March 2022 until 30 June 2023. The proposed legislation is currently before Parliament.

Final year of loss carry back

The temporary loss carry back rules were introduced to help lessen the economic impact of the pandemic. They allow eligible entities the choice to carry back certain tax losses to earlier years to obtain a refundable tax offset. This is an alternative to carrying forward losses.

The loss carry back is limited to corporate tax entities that:

  • have aggregated turnover of less than $5 billion in the year of the loss;
  • incur a tax loss in the 2019-20, 2020-21, 2021-22 or 2022-23 years (and the entity is a corporate tax entity for the whole year);
  • have an income tax liability in a relevant previous year (2018-19 to 2021-22); and
  • have lodged an income tax return for the current year and each of the 5 years immediately preceding it, unless there was no requirement to lodge a return.

Capital losses cannot be carried back and consolidated groups cannot access the loss carry back in relation to losses brought into the group by a joining entity. There are detailed provisions dealing with the amount of the refundable tax offset and integrity/anti-avoidance.

Electric car concession

A Fringe Benefits Tax (FBT) exemption has been introduced for cars that are zero or low emissions vehicles and made available by employers to current employees for their private use. The concession significantly reduces the after-tax cost of providing such vehicles relative to other comparably priced vehicles.

The concession only applies to vehicles that are ‘cars’ for FBT purposes does not cover other types of electric vehicles. The value of the car at the first retail sale must be below the Luxury Car Tax threshold for fuel efficient cars ($89,332 for 2023-24; $84,916 for 2022-23). It applies to fringe benefits provided on or after 1 July 2022 on eligible vehicles that are first held and used on or after 1 July 2022.

Digital Games Offset

It is proposed to allow a 30% refundable tax offset for eligible companies that spend a minimum of $500,000 on qualifying Australian development expenditure to support the development of digital games. The following conditions are required to be met:

  • a certificate has been issued by the Arts Minister following the completion of a new digital game, the porting of a digital game to a new platform, or for ongoing development of one or more existing digital games during a year;
  • the company claims the offset in its income tax return for the year; and
  • the company lodges a notice with the Commissioner if it is required to do so.

Games will be ineligible if they have gambling elements or cannot obtain a classification rating.

The amount of the offset is capped at $20 million per company or group of companies, per year even if the company applied for multiple certificates in the year.

The offset will apply to qualifying Australian development expenditure incurred in relation to eligible game development from 1 July 2022 by Australian resident companies or foreign resident companies with a permanent establishment in Australia.

The proposed legislation is currently before Parliament.

Private Group Structures

There have been developments in the tax treatment of dealings between private companies and their shareholders including loans and trust arrangements. Changes include:

  • modifications to application of Division 7A including in relation to trust entitlements, unpaid present entitlements and sub-trust arrangements; and
  • developments in the application of section 100A regarding trust stripping and reimbursement arrangements.

We recommend that:

  • positions adopted in previous years be comprehensively reviewed and updated as required; and
  • year-end actions be carefully addressed by the required deadlines including:
    • documenting loans with complying agreements;
    • attending to minimum yearly repayments (noting the impact of significant recent interest rate increases);
    • correctly implementing any associated dividend distributions; and
    • trust distribution resolutions required before 30 June.

Not properly addressing these matters could trigger costly impacts including deemed fully taxable dividends, unexpected taxable amounts, trustee taxation at high rates, penalties, and interest.

ATO enforcement to intensify

The Australian Taxation Office (ATO) has received a funding boost of over $760 million for enforcement activity. This is forecast to increase tax collected by more than $9.1 billion, representing an 1,190% return on investment for the Government! The ATO has a strong record delivering on such forecasts. Business should prepare for greater scrutiny. The increased funding includes:

  • $588.8 million for increased GST compliance, which is estimated to collect an extra $3.8 billion for the four financial years from July 1, 2023; and
  • $82.1 million to facilitate engagement with taxpayers who have high-value debts over $100,000 and aged debts older than two years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10 million, or privately owned groups or individuals controlling over $5 million of net wealth.

This article was written by David Pratley, Partner

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