Victorian Stamp Duty for Industrial and Commercial Property changes

In the latest budget, the Victorian Government announced significant changes to the payment and application of Stamp Duty for Industrial and Commercial Properties as of 1 July 2024.

The Commercial and Industrial Property Tax Reform Act 2024 (Vic) (the Act) provides that commercial and industrial properties in Victoria will be subject to stamp duty for a final time when it is next sold or otherwise transacted after 1 July 2024. Ten years later from the time at which the transaction takes place, it will transition to the new annual Commercial and Industrial Property Tax (CIPT) imposed at the rate of 1% of the unimproved value of the land. The CIPT will be in addition to land tax.

Notably, properties that are not sold or transacted (a change of ownership of more than 50%) will remain outside the CIPT regime and CIPT will not be payable even after the 10 year transition period.

What properties does this apply to?
Only properties and land zoned Commercial or Industrial fall within this new reform. The State Revenue Office will rely on Council Rates for assessing whether a property is Commercial or Industrial.

Mixed-use properties will be assessed on a case by case basis and the Commissioner will make a determination as to whether the property is primarily used for Commercial or Industrial. If so, CIPT will be payable. If not, CIPT will not be payable. This is an all or nothing situation.

What triggers the introduction of CIPT?
A change of 50% or more ownership in a property will trigger the transition to CIPT. Minority investors may become subject to CIPT directly or indirectly if a majority interest in the property is changed (which may occur in a syndicate) on or after 1 July 2024.

Owners seeking to change ownership of their commercial or industrial property between trusts, SMSFs or corporations that transact after 1 July 2024 will also trigger the implementation of CIPT.

Do I still pay Stamp Duty?
Stamp Duty will still be payable on the first transaction for that particular property that occurs on or after 1 July 2024. Stamp Duty can be paid upfront (as would usually occur) or you can apply for a Government Funded Support Loan which incurs interest (rate still be determined but looking like approximately 7%pa) and repayments are to be paid annually over 10 years. If you sell within the 10 years the Loan is to be repaid in full and it is likely that break costs will be charged. The Loan does not fall to the next purchaser.

This first transaction triggers the property to enter the CIPT scheme and 10 years from that date CIPT will be payable. If, for example, 3 years after the first transaction, the property is then sold, this next transaction does not incur Stamp Duty but CIPT will be payable in 7 years time by whoever owns the property at that time.

What is the rate of CIPT?
The rate of CIPT is 1% of the unimproved value of the property (as assessed on your Council Rates Certificate). It is an annual tax and is to be paid in addition to regular land tax. For example, if the unimproved value of the property is $800,000 your CIPT will be $8,000 annually.

The owner of the property as of 31 December immediately preceding the tax year has the liability of the CIPT and this cannot be adjusted on the sale of the property.

Can I pass CIPT onto my Tenant?
In most instances, no you cannot pass CIPT onto your Tenant for payment as an outgoing. The Retail Leases Act 2003 prohibits the passing on of CIPT and Land Tax to a Tenant as an outgoing. If your Lease does not fall within the confines of the Retail Leases Act 2003 then, subject to the terms of your lease, you may be able to pass on payment of CIPT to the Tenant.

What if I leave my property as it is for the next 20 years?
If you do not change the ownership of your property over the next 20-30 years then you will not trigger CIPT and it will not be payable. Bear in mind that this is the case under the current legislative framework and there is no guarantee that this, or the rate of the CIPT, will not change in the future.

What should I do?
If you have no intention of changing the ownership structure of your property for the foreseeable future, then you do not need to do anything. If a change is on the cards, you should transact this change (sign a Contract or Transfer of Land) prior to 1 July 2024.

If you are looking at purchasing a Commercial or Industrial property, you should sign a Contract of Sale before 1 July 2024.

In summary:

  1. CIPT applies to changes in ownership of Commercial or Industrial properties with a Contract signed and settlement taking place after 1 July 2024;
  2. The first transaction after 1 July 2024 will incur Stamp Duty which can be paid in full or via a government funded transition loan;
  3. 10 years after the first transaction, CIPT will be payable by the then current owner at the rate of 1% of the unimproved value.
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Managing risk when growing your business

It’s a risky business being in business for yourself, so knowing how to identify and manage risk is an important part of running a thriving business.

Anything that impedes a company’s ability to achieve its financial goals is considered a risk, and there are many issues that have the potential to derail a successful business. Some of these can ruin a business, while others can cause serious damage that is difficult to recover from.

However, taking risks is an essential part of growing a business – it’s how you thrive and expand. The key to achieving the rewards that come with risk and avoiding the devastation that can occur, is identifying and actively managing your business risk.

Assessing your tolerance for risk

The first step is to think about what level of risk you are comfortable with. A range of factors influence your appetite for risk including your individual circumstances, financial resources, specific industry dynamics, economic conditions, and business goals.

It’s important to acknowledge the relationship between risk and reward. High-risk activities may provide the potential for significant returns when you are going for growth but are also associated with greater uncertainty and the potential for larger losses.

Not all risk is equal

Some types of risk are best managed through insurance while others can be managed through thoughtful decision making and risk mitigation.

Risk taking is often associated with innovation and entrepreneurship and there are countless examples of reckless business behaviour that paid off – and as many examples that did not pay off. To expand, evolve and stay relevant in a changing marketplace, businesses may need to take calculated risks. This can encompass the development of new services or targeting a different client base, employing staff, developing new products, the adoption of emerging technologies, or exploring new markets.

Taking calculated risks involves some planning – conducting research, gathering supporting data and considering possible outcomes before making a decision. Informed, calculated decisions have a greater chance of success and doing your homework is a great way to mitigate risk in business.

Managing business risk

There are many ways to manage business risk, depending on the type of risk. Threats come in many shapes and forms and can include strategic, compliance, operational, environmental, and reputational, but one of the most fundamental risks is that of the business no longer being financially viable. All the above can impact a businesses’ bottom line so when considering your strategies, it’s a good idea to identify the risks that could affect your business’s ability to meet its financial obligations.

Setting up and maintaining a cash reserve is critical for small businesses, particularly ones with narrow margins. Half of all small businesses hold a cash buffer of less than one month which may not be adequate.i A cash reserve is a great risk mitigation strategy as it can help you get back on your feet when faced with an adverse event.

Keep an eye on cashflow

Growing a business can put pressure on cashflow, and managing your cashflow is a powerful way of managing your business risk.

If you have not already done so, creating, and maintaining a cash flow forecast helps you anticipate and cash shortages. Monitoring your cash flow over time gives you visibility of your financial situation and an understanding of any seasonal ebbs and flows.

Some things you can do to manage your cashflow include being responsive with invoicing and chasing overdue payments. Negotiate payment terms that support your cashflow requirements and consider offering incentives for early payments or penalties for overdue invoices.

For many businesses, one of the leading causes of cash flow shortfalls is overstocking, which increases the amount of cash you have locked up in your stock. Effective inventory management and working with suppliers to reduce lead times can assist with cashflow.

We can help you develop solid cash flow management and provide expert advice to make growing your business less of a risky proposition.

i https://www.jpmorganchase.com/institute/research/small-business/report-cash-flows-balances-and-buffer-days

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Living your best life in retirement

If you’re nearing retirement age, it’s likely you’re wondering if you will have enough saved to give up work and take it easy, particularly as cost-of-living increases hit some of the basic expenses such as energy, insurance, food and health costs.

Fortunately, someone has already worked out what you might need.

The Association of Superannuation Funds in Australia (ASFA) updates its Retirement Standard every year, which provides a breakdown of expenses for two types of lifestyles: modest and comfortable.i

Based on our average life expectancy – for women it is just over 85 years and men 81 – if you are about to retire at say age 67, you will have between 14 and 18 years in retirement, on average and depending on your gender.ii

ASFA finds that a couple needs $46,944 a year to live a modest lifestyle and $72,148 to live a comfortable lifestyle. That’s equal to $902 a week and $1387 respectively. The figure is of course lower for a single person – $32,666 for a modest lifestyle ($628 a week) or $51,278 ($986) for a comfortable lifestyle.iii

What does that add up to? ASFA estimates that, for a modest lifestyle, a single person or a couple would need savings of $100,000 at retirement age, while for a modest lifestyle, a couple would need at least $690,000.iv

A modest lifestyle means being able to afford everyday expenses such as basic health insurance, communication, clothing and household goods but not going overboard. The difference between a modest and a comfortable lifestyle can be significant. For example, there is no room in a modest budget to update a kitchen or a bathroom; similarly overseas holidays are not an option.

The rule of thumb for a comfortable retirement is an estimated 70 per cent of your current annual income.v (The reason you need less is that you no longer need to commute to work and you don’t need to buy work clothes.)

Building your nest egg

So how can you build up a sufficient nest egg to provide for a good life in retirement? There are three main sources: superannuation, pension and investments/savings. Superannuation has the key advantage that the money in your pension is tax free in retirement.

Your superannuation pension can be augmented with the government’s Aged Pension either from the moment you retire or later when your original nest egg diminishes.

Your income and assets will be taken into account if you apply for the Age Pension but even if you receive a pension from your super fund, you may still be eligible for a part Age Pension. You may also be eligible for rent assistance and a Health Care Card, which provides concessions on medicines.vi

Money keeps growing

It’s also important to remember that the amount you accumulate up to retirement will still be generating an income, whether its rentals from investment properties or merely the growth in the value of your share investments and the accumulation of money from any dividends paid.

You can also continue to add to your superannuation by, for instance, selling your family home and downsizing, as long as you have lived in the home for more than 10 years.

If you are single, $300,000 can go into your super when you downsize and $600,000 if you are a couple. This figure is independent of any other superannuation caps.vii

Planning for a good life in retirement often require just that – planning. If you would like to discuss how retirement will work for you, then give us a call.

i Retirement Standard – Association of Superannuation Funds of Australia
ii Life expectancy, 2020 – 2022 | Australian Bureau of Statistics (abs.gov.au)
iii https://www.superannuation.asn.au/media-release/retiree-budgets-continue-to-face-significant-cost-pressures
iv https://www.superannuation.asn.au/resources/retirement-standard/
v https://www.gesb.wa.gov.au/members/retirement/how-retirement-works/cost-of-living-in-retirement
vi Assets test for Age Pension – Age Pension – Services Australia
vii Downsizer super contributions | Australian Taxation Office (ato.gov.au)

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Federal Budget 2024-25: Tax Implications

Major tax cuts were the centrepiece of the Albanese government’s third Federal Budget, even though the changes have already been announced and legislated.

Small businesses can breathe a sigh of relief, with the popular $20,000 instant asset write-off hanging on for another year and a valuable bill rebate on the way to help with the burden of high energy bills.

Tax cuts for everyone

From 1 July 2024, all 13.6 million Australian taxpayers will receive a tax cut, with the average taxpayer’s tax bill being $1,888 (or $36 a week) lower.

Under the new rules, the lowest tax rate reduces from 19 per cent to 16 per cent, with the 32.5 per cent marginal tax rate reducing to 30 per cent for individuals earning between $45,001 and $135,000.

The current 37 per cent marginal tax rate will be retained for people earning between $135,001 and $190,000, while the existing 45 per cent rate now applies to income earners with taxable incomes exceeding $190,000.

Low-income earners (under $45,000 p.a.) are the biggest winners from the changes. A single taxpayer with a taxable income of $40,000 who pays $4,367 in tax in 2023 24, would have received no benefit from the original Stage 3 tax plan, but now receives a tax cut of $654.

Boost for tax compliance

On the revenue side, the Budget includes savings of $2.5 billion in tax receipt measures through a crackdown on the shadow economy, fraud, and tax avoidance.

Taxpayers can expect the ATO to continue its recent tougher stance, with technology upgrades to enable better identification and blocking of suspicious activities in real-time and a new compliance taskforce focussed on recovering lost revenue and stopping fraudulent refunds.

Foreign residents will pay an additional $600 million over the next three years due to strengthening of the capital gains tax rules applying to this group.

Law change for old tax debts

However, one controversial measure, labelled ‘robotax’ by the media, may be abandoned, according to the Budget papers.

The ATO had been calling in historical tax debts, some accrued more than a decade ago, saying it had no choice under current laws. But the government now intends to change the tax law to give the ATO discretion about whether to collect the individual, small business, and not-for-profit debts.

Instant asset write-off retained

The deadline for the $20,000 instant asset write-off will be extended to 30 June 2025, allowing small businesses with annual turnovers of less than $10 million to immediately deduct eligible assets.

In addition, $23.3 million will be spent boosting adoption of eInvoicing to help improve small business’ cash flow and productivity.

Relieving energy bill pressure

Direct relief for small business energy bills will come in the form of a $325 rebate, while there will also be new funding for reforms to help businesses find their best electricity contract.

Assistance for smaller entities

With trading conditions remaining difficult, small business will receive $641.4 million in new targeted support. This includes $10.8 million to extend both the NewAccess for Small Business Owners program providing free mental health support and the free phone-based Small Business Debt Helpline.

An additional $25.3 million will be provided to expand the Payment Times Reporting Regulator and help improve payment times.

Nuisance tariffs abolished

From 1 July 2024, 457 nuisance tariffs will be abolished by the government to cut business compliance costs.

New funding to expand the government’s Digital ID system is designed to lower the administration burden for small businesses storing identification data on their customers and employees.

Anti-money laundering crackdown

The Budget includes $168 million over four years to pay for reforms to Australia’s anti-money laundering and counter-terrorism financing regime. Tighter rules are expected to result in lawyers, accountants and real estate agents being required to undertake due diligence on their customers and report any suspicious activities. Information in this article has been sourced from the Budget Speech 2024-25 and Federal Budget Support documents.

It is important to note that the policies outlined in this article are yet to be passed as legislation and therefore may be subject to change.

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Finding grants to help your business

Many small business owners are feeling the pinch after the tough years of COVID and high inflation, but receiving a business grant could be the helping hand you need.

If you know where to look, some extra dollars from the federal or your state/territory government could make all the difference between merely getting by and a flourishing business.

What grants are available?

Grants for small businesses range from a few hundred dollars to around $10,000. Some also provide support with securing loans, business introductions, or mentoring services.

The best place to start searching for a business grant is GrantConnect, a free database listing all Australian Government grant opportunities currently open to applicants.

Another important resource is the business.gov.au Grants and Programs Finder tool, which can help you find grants, funding and support from Australian Government agencies.

The government’s Australian Small Business Advisory Services program delivers tailored advice on adopting digital tools to save time and money, and to help expand your business. Businesses with fewer than 20 full-time (or equivalent) employees, as well as sole traders are eligible.

Tech companies can check out the government’s Landing Pads program. This helps tech businesses expand into new markets by providing valuable market insights, expansion strategies, network introductions and venture capital contacts.

Each state and territory offers a range of grants to encourage local businesses. Grants vary between states, so check the online database listing the programs for your state/territory to see if any are suitable for your business.

The NSW Government for example, has a searchable Grants and Funding database highlighting financial incentives for businesses, such as payroll tax rebates for employing apprentices and trainees and the $1,000 SafeWork rebate.

In WA, the Grants Assistance and Programs Register includes both national and local grants, including the New Industries Fund: Innovation Booster Grant and regional Local Capability Fund.

For Victorian-based small businesses, check out the government’s Grants and Programs online database.

If you haven’t found a suitable grant or program, another potential source of information is Grants Hub. Although you need to register for access, you can try it out for 14 days for free.

Read the fine print

When ‘free’ money is up for grabs there is always fierce competition, so it’s important to put in a strong application.

The process will be different for each grant, making it essential to read all the information provided before getting started. Also, check that you meet the criteria, as applications will only be considered from businesses meeting the eligibility requirements.

It’s important to tailor your application to meet the grant requirements and check you prepare all the required documentation. This needs to be in the specified format.

Applying for a grant can be time-consuming, so start early and don’t leave it until the last minute to get your documentation together.

Where to start

There are private operators who offer to find business grants for a fee, but details of government grants are freely available on GrantConnect and Business.gov.au, or your state government’s website.

Small business and industry associations sometimes offer grants, so it may also be worth checking the relevant one for your business.

An easy way to find additional funding opportunities can also be to talk to us, as we can help you with government tax programs, such as the small business tax write‑off.

If the grant application process seems too time-consuming, consider hiring someone to help. While a consultant can write your application, grants are awarded on merit and using one will not give you any special access or consideration.

If you need help with finding or applying for a business grant, call our office today.

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Navigating FBT and your obligations

Businesses looking to attract and retain staff often provide employee benefits, on top of salary, as a way to sweeten the deal.

Many of these benefits (but not all) can have potential tax consequences – known as fringe benefits tax (FBT) – so it is important to weigh up the effect on your business.

FBT is separate to income tax and is calculated on the value of the benefit provided to the employee. Employers must work out the amount of FBT they owe each year and lodge a return.

It is worth noting that the FBT year is not the same as the financial year. It runs from 1 April to 31 March.

What to report

Most fringe benefits must be reported to the ATO. Some examples of benefits include: the use of a company car outside of work; free parking; gym membership; payment of school fees; tickets or vouchers for concerts, meals or movies; and living accommodation.

Some benefits do not need to be reported and do not incur FBT.i These include a number of benefits provided to employees working in remote areas, such as living assistance.

Other fringe benefits that are exempt from tax include work-related items such as portable electronic devices, computer software, protective clothing and tools of trade.

If the taxable value of an employee’s fringe benefits for the FBT year (1 April to 31 March) is less than $2,000, no reporting is required.

In adding up the fringe benefits, the ATO says you will need to make sure you include the employee’s part of any benefits they share with other employees as well as the value of any benefits provided to the employee’s associates, such as their partner.

Doing the numbers

For each employee, you’ll need to calculate their ‘reportable fringe benefits amount’ (RFBA) by multiplying the total taxable value of the benefits provided by an ATO ‘gross-up rate’.

The Type 1 gross-up rate is used where a GST credit entitlement is applicable to the benefit. The Type 2 gross-up rate is used where there is no GST credit entitlement applicable to the benefit. (For the FBT year ending 31 March 2023, the Type 1 rate is 2.0802 and the Type 2 rate is 1.8868.)

This calculation grosses up the pre-tax income the employee would have had to earn to buy the benefits themselves.

FBT and salary sacrifice

Benefits provided to employees through salary sacrificing may also attract FBT.

Under a salary sacrificing arrangement, an employee agrees to forgo part of their salary in return for benefits of a similar value, such as more super or a car. As a result, the employee pays less income tax and the employer pays FBT on the benefits provided.

Extra super contributions made under a salary sacrificing arrangement are not subject to FBT and are treated differently. They are considered employer contributions and are taxed in the super fund.

Claiming deductions

Employers can claim income tax deductions for the FBT they are required to pay. You can also claim an income tax deduction and GST credits for the cost of providing the fringe benefits.

The ATO provides some suggestions for reducing FBT liability. For example, employers do not incur an FBT liability if you give an employee a benefit they would have been able to claim as an income tax deduction if they had paid for it. Your FBT liability can also be reduced if the employee contributes towards the cost.

Fringe benefits can be a valuable and strategic tool in your recruitment and retention toolbox. We can help you understand and comply with the reporting requirements and be clear about the impact of FBT on your business.

i Fringe benefits tax – a guide for employers | Legal database (ato.gov.au)

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Tax Alert March 2024

New controls for ATO Online and tax charges non-deductible

Following the use of stolen personal data to access ATO Online accounts, the federal government has tightened the access rules to online tax accounts as part of an increased focus on the vulnerability of small and medium businesses to cyber incidents.

ATO interest non-deductible

From 1 July 2025, taxpayers will no longer be able to claim tax deductions for ATO interest charges.i

Although not yet law, the government made the announcement in its 2023-24 Mid-Year Economic and Fiscal Outlook.

Since deductions for general interest charges (GIC) and shortfall interest charges (SIC) will not be permitted after July 2025, any GIC or SIC later remitted by the ATO need not be included in assessable income.

New fraud controls

Tighter controls for taxpayers’ ATO online accounts will make it more difficult for criminals to commit identity fraud using stolen personal information such as bank and ATO statements and tax file numbers.

The changes mean taxpayers who use their myGovID to log into the ATO will need to use myGovID for all future logins, leaving criminals unable to access the account without it.

The government is urging Australians to upgrade to myGovID when interacting with government agencies online and has released its new Cyber Security Strategy to support small and medium businesses vulnerable to cyber incidents.

Holiday home claims

The ATO is continuing its crackdown on tax deductions for holiday homes by encouraging tax professionals to check how clients are using their property and if they are correctly apportioning deductions in line with the time period the property is producing income.ii

Some holiday homeowners are not reducing deduction claims if they are reserving their property during peak periods or are placing unreasonable conditions restricting the likelihood the property will be rented.

We have been requested to check the number of days the property is blocked out for the owners, how and where the property is being advertised, whether family or friends used the property, and if any parts of the property are off-limits to tenants.

Checking R&D claims

Working in conjunction with the Department of Industry, Science and Resources, the ATO will be undertaking random reviews of companies taking advantage of the government’s R&D tax incentive.

The reviews will be assessing the eligibility of company’s R&D tax incentive activities and expenditure, with companies selected for review being contacted directly.

If common errors are identified during the review process, the ATO will share them with all program participants.

Tough times may mean a payment plan

With some small businesses facing difficult trading conditions, the ATO is reminding taxpayers in financial distress they may be eligible to set up a payment plan if they are unable to pay their tax bill in full and on time.

Eligible taxpayers who have a tax bill of up to $200,000, may be able to set up their own payment plan using the ATO online or self-help phone services.

Payment plan eligibility requires the business to be viable and able to make an up‑front payment with completion within the shortest possible timeframe to minimise accruing GIC (currently 11.15 per cent).

Medicare safety net thresholds increase

Thresholds for the Medicare safety nets rose from 1 January 2024, resulting in an increase taxpayers need to spend on out-of-hospital medical expenses before qualifying for a higher rebate.

The increase is in line with indexation based on inflation and rose to $560.40 on the original Medicare safety net for concessional and non-concessional individuals and families.

The extended Medicare safety net increased to $811.80 for concessional individuals and families and $2,544.30 for non-concessional.

Translated cybersecurity guides available

The government’s Australian Cyber Security Centre has released five popular cyber security guides in more than 20 languages to help business owners from non-English speaking backgrounds to improve their cyber security knowledge.

The five free guides include a small business cyber security guide, personal and top tips for cyber security, easy steps to securing devices and accounts, and a seniors guide to securely using the internet.

i https://www.ato.gov.au/about-ato/new-legislation/in-detail/businesses/deny-deductions-for-ato-interest-charges
ii https://www.legacy.ato.gov.au/Tax-professionals/Newsroom/Income-tax/Do-your-clients-have-a-holiday-home-/

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Understanding the new $3m super tax

The much-debated tax on superannuation balances over $3 million is inching closer and those who may be affected should ensure they have considered the implications.

Although it is not yet law, the Division 296 tax should be taken into account when it comes to investment strategy and planning, particularly in relation to any end-of-financial-year contributions into super.

Tax for higher account balances

The new tax follows a Federal Government announcement it intended to reduce the tax concessions provided to super fund members with account balances exceeding $3 million.

Once the legislation passes through Parliament and receives Royal Assent, Division 296 will take effect from 1 July 2025. Division 296 legislation imposes an additional 15 per cent tax (on top of the existing 15 per cent) on investment earnings of a super account where your total super balance exceeds $3 million at the end of the financial year.i

The extra 15 per cent is only applied to the amount that exceeds $3 million.

Given the complexity of the new rules, it is important to seek professional advice so you can make informed decisions.

How the new rules work

A crucial part of the new legislation is the Adjusted Total Super Balance (ATSB), which determines whether you sit above or below the $3 million threshold.

When assessing your ATSB, the ATO will consider the market value of assets regardless of whether or not this value has been realised, creating a significant impact if your super fund holds property or speculative assets. The legislation also introduces a new formula for calculating your ATSB for Division 296 purposes.

The legislation outlines how deemed earnings will be apportioned and taxed, based on the amount of your account balance over the $3 million threshold.

Negative earnings in a year where your balance is greater than $3 million may be carried forward to a future financial year to reduce Division 296 liabilities. If you are liable for Division 296 tax, you can choose to pay the liability personally or request payment from your super fund.

Strategic rethink may be needed

For many fund members, superannuation remains an attractive investment strategy due to its favourable tax treatment.ii

But those with higher account balances need to understand the potential effect of the Division 296 tax. For example, given the new rules, you may need to consider whether high-growth assets should automatically be held inside super.

Holding long-term investments that may be more difficult to liquidate, such as property, within super may be less attractive in some cases, because the new rules create the potential to be taxed on a gain that is never realised. This could occur where the value of an asset increases during a financial year but drops in value by the time it is actually sold.

For some, holding commercial property assets (such as your business premises) within your SMSF may be less attractive.

It will also be important to balance asset protection against tax effectiveness. For some people, the asset protection provided by the super system may outweigh the tax benefits of other investment vehicles, such as a family trust.

Division 296 will require more frequent and detailed asset valuations, so you will need to balance this administrative burden with the tax benefits of super.

Estate planning implications

Your estate planning will also need to be revisited once Division 296 is law.

The tax rules for super death benefits are complex and should be carefully reviewed to ensure you don’t leave an unnecessary tax bill for your beneficiaries.

If you still have many years to go before retirement and hold high-growth assets in your fund, you will need to closely monitor your super balance.

If you want to learn more about how Division 296 tax could affect your super savings, contact our office today.

i https://treasury.gov.au/sites/default/files/2023-09/c2023-443986-em.pdf
ii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/understanding-concessional-and-non-concessional-contributions

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SMSFs: What happens if you exceed your super caps

The rules around making some types of super contributions have been relaxed in recent years, so it’s worth exploring the different opportunities available to you before making a large contribution.i

What are contribution caps?

Given the tax-effective environment of Australia’s super system, there are annual limits on how much you can contribute each financial year.

The two main types of contributions are concessional (before-tax) and non-concessional (after-tax) contributions.

Concessional contributions include employer Super Guarantee contributions, salary sacrifice and personal tax-deductible contributions, with the general contributions cap for 2023-24 being $27,500. In some situations, you may be permitted to contribute more if you have unused cap amounts from previous financial years.

If you’re a SMSF member, you may be able to make a concessional contribution in one financial year and have it count towards your concessional cap in the following financial year.

Non-concessional contributions cap

If you use after-tax money to make a super contribution, this is classes as a non-concessional contribution and there is no tax payable when the contribution is paid into your super account.

The general non-concessional contributions cap in 2023-24 is $110,000 provided you meet all the eligibility criteria, such as your Total Super Balance being below your personal limit. Your personal cap may be different.

If you’re age 55 or older, the once-only downsizer contribution cap is $300,000 per person ($600,000 for a couple). These contributions from the sale of your main residence don’t count towards your annual non-concessional cap.

Exceeding your contribution caps

There are different rules for super contributions that exceed the annual caps, depending on the type of contribution.

If you go over the annual concessional cap, your contribution is counted as personal assessable income and taxed at your marginal tax rate, with a 15 per cent tax offset to reflect the tax already paid by your super fund. Your increased assessable income may also affect any Medicare levy, Centrelink benefits and child support obligations.

The excess contributions can be withdrawn from your super fund, but if you choose not to withdraw them, the excess is counted towards your non-concessional contributions cap.

If you don’t or can’t elect to release excess contributions, you could end up paying up to 94 per cent in tax.ii

Exceed your non-concessional cap

Contributions exceeding your annual non-concessional (after-tax) cap are taxed at 45 per cent plus the 2 per cent Medicare levy. This is in addition to the tax already paid on this money.

Before the ATO applies this tax, you are given the opportunity to withdraw the excess non-concessional contributions, plus a notional amount to reflect the investment earnings.

You pay tax on the notional earnings just like personal income, less a 15 per cent offset.

Withdrawing excess contributions

Like most things to do with tax and super, the process for withdrawing excess contributions is fiddly.

If you have an excess concessional contribution, the ATO sends you a determination letter with details of what you need to do, plus an income tax notice of assessment.

You have 60 days to decide whether to have the excess concessional contribution refunded by the super fund and tax deducted by the ATO, or to pay the tax personally and leave the contribution in your account.

Refunding excess non-concessional contributions

For excess non-concessional contributions, the ATO assumes you wish to have your excess contributions and notional earnings refunded in order to avoid paying 47 per cent on them.

The default process is the ATO automatically issues a release authority to your fund and directs it to deduct the additional tax owing and return the leftover amount to you.

If you wish to nominate a specific fund from which the refund should be paid, or leave the excess in your account and pay the tax personally, you must make an election within 60 days of the initial notice.

Call us today to assess how the super contribution caps may affect you.

i https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/restrictions-on-voluntary-contributions
ii https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/growing-and-keeping-track-of-your-super/caps-limits-and-tax-on-super-contributions/concessional-contributions-cap

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Tax changes – what it will mean to me

Prime Minister Anthony Albanese has announced proposed changes to address ongoing cost of living pressures with all 13.6 million Australian taxpayers receiving a tax cut from 1 July 2024, compared to the tax they paid in 2023-24.

Now is the time to assess what it means to your hip pocket and what implications it may have for end of financial year planning as a result of the new rules, due from 1 July 2024.

The Federal Government has recently announced changes to the third stage of a series of tax reforms introduced by the previous Coalition government almost six years ago which were designed to deliver tax cuts to most, simplify the tax system and protect middle income earners from tax bracket creep.

The proposed changes

The new rules will see the current lowest tax rate reduced from 19 per cent to 16 per cent and the 32.5 per cent marginal tax rate reduced to 30 per cent for individuals earning between $45,001 and $135,000.

The current 37 per cent marginal tax rate will be retained for those earning between $135,001 and $190,000, while the existing 45 per cent rate will now apply to income earners with taxable incomes exceeding $190,000.

In addition, the low-income threshold for Medicare levy purposes will be increased for the current financial year (2023-24).

A single taxpayer with a taxable income of $190,000 paid $59,967 tax in 2023-24. Under the revised rules, they will now pay $55,438 tax, a tax cut of $4,529. While still a reduction in tax paid, this compares with the $7,575 tax cut received if the original Stage 3 tax cuts had proceeded.

On the other hand, low-income earners will receive a bigger tax cut under the revised rules.

A single taxpayer with a taxable income of $40,000 who paid $4,367 in tax in 2023‑24, would have received no benefit from the original Stage 3 tax plan, but will now receive a tax cut of $654 under the revised rules.

Implications for investment strategies

For high-income earners, the key take-away from the government’s new changes to the tax rules is you will now receive a lower amount of after-tax income than you may have been expecting from 1 July 2024.

This reduction makes it sensible to revisit any investment strategies you had planned to take advantage from your larger tax cut to ensure they still stack up.

For example, the smaller tax cut for some may impact the effectiveness of property investment.

Investment strategies such as negative gearing into property or shares, however, may become more attractive. Particularly for investors close to the new tax thresholds and looking for opportunities to avoid moving onto a higher tax rate.

Timing expenditure and contributions

Investors considering repairs or maintenance for an existing investment property should revisit when these activities are undertaken. Depending on your circumstances, this expenditure may be more suitable in the current financial year given the difference in tax rates starting 1 July 2024.

Selling an asset liable for CGT also needs to be reviewed to determine the most appropriate financial year for the best tax outcome. 

Other investment strategies that may need to be revisited include those involving making contributions into your super account.

If you are considering bringing forward tax-deductible personal super contributions, making carry-forward concessional contributions, or salary sacrificing additional amounts before 30 June, you should seek advice to ensure the timing of your strategy still makes sense.

If you would like help with reviewing your investment strategies or superannuation contributions in light of the new rules, contact us today.

i https://treasury.gov.au/sites/default/files/2024-01/tax-cuts-government-fact-sheet.pdf

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