Accru Tax Alert December 2024: Taxation developments

Take a look at our December 2024 snapshot of taxation developments that may affect your business, investments or superannuation. Please get in touch if you have questions or need assistance.

As digital payments become increasingly prevalent, the Federal Government has announced it’s taking significant steps to modernise the nation’s payment system while working to ensure that no one’s left behind. This involves maintaining the use of cash for essential transactions and phasing out cheques in a gradual manner. The government says it intends to consult extensively with stakeholders, including small businesses and people in regional communities, to develop a cash mandate that’s both practical and inclusive

Despite the rapid adoption of digital payment methods, cash remains an essential part of the Australian economy. Approximately 1.5 million Australians rely on cash for over 80% of their in-person transactions. The government’s plan to mandate cash acceptance for essential goods and services such as groceries and fuel ensures that these individuals can continue to participate fully in the economy.

The use of cheques has seen a dramatic decline, with a 90% reduction over the past decade. As digital payment options become more accessible and preferred, the government has set a timeline to phase out cheques entirely by 2029. Cheques will no longer be issued after June 2028 and will cease to be accepted by September 2029. The government expects banks to play a crucial role in supporting cheque users by facilitating a smooth transition to alternative payment methods. For individuals who prefer cash or still use cheques, these changes may seem worrying. However, the government says its approach is designed to ensure that everyone can continue to participate fully in the economy, regardless of their preferred payment method. By mandating cash acceptance for essential purchases and providing a long lead time for the phase-out of cheques, the government is taking steps to ensure a smooth transition.

The consultation process offers an opportunity for people and businesses to voice any concerns and help shape the future of Australia’s payments system. Whether you’re concerned about privacy and digital security, or simply prefer traditional payment methods, staying informed and engaged is crucial as these changes unfold.

If you’re one of the millions of Australians with a Higher Education Loan Program (HELP) debt, you might be wondering how the government’s proposed changes to HELP loans could affect you. These changes are subject to the passage of legislation, but are proposed to take effect by 1 June 2025.

One of the most significant aspects of the proposed changes is a one-off 20% reduction in all HELP debts. This reduction would be automatically applied by the ATO before the annual indexation on 1 June 2025. For example, if you have a HELP balance of $27,600, you could expect a reduction of approximately $5,520 in your debt.

From 1 July 2025, the minimum income threshold for making compulsory HELP repayments is proposed to increase from $54,435 to $67,000. This means you’ll only start repaying your HELP debt once your income exceeds $67,000. The new repayments will be calculated only on the income above this threshold, but the rates will be higher compared to the current system. Here are the proposed new marginal repayment rates:

Another crucial change is the proposed capping of the HELP indexation rate. Once the legislation is passed, the indexation rate will be the lower of either the consumer price index (CPI) or the wage price index (WPI). This adjustment will be backdated on all existing HELP, VET student loans, and other similar accounts from 1 June 2023. This means that if your HELP balance was indexed based on the CPI in 2023 and 2024, the ATO will adjust your account to reflect the lower indexation, potentially providing a refund if your balance falls below zero.

Navigating the Australian tax system can be challenging, especially when it comes to understanding the Medicare levy and the Medicare levy surcharge. Let’s break these down to help you understand who pays them and how private health insurance affects your tax return.

The Medicare levy is a compulsory charge that helps fund Australia’s public healthcare system. Almost all Australian taxpayers pay this levy, which is 2% of your taxable income. This levy is generally withheld from your pay by your employer throughout the year, so you may not notice it until tax time.

It’s important to note that having private health insurance doesn’t exempt you from paying the Medicare levy; it only affects your liability for the Medicare levy surcharge.

In certain cases, you might be eligible for a reduction or exemption from the Medicare levy. For instance, if you meet specific conditions such as being a low income earner, foreign resident or having a medical exemption, you may qualify for a reduced rate or full exemption.

The Medicare levy surcharge (MLS) is an additional charge designed to encourage higher-income earners to take out private hospital insurance, thereby reducing the strain on the public healthcare system. Unlike the Medicare levy, the MLS isn’t automatically withheld from your income, but is calculated when you lodge your tax return.

You may be liable for the MLS if your income exceeds the MLS threshold and you, your spouse or your dependent children don’t have an appropriate level of private patient hospital cover for the entire income year. The surcharge rates vary based on your income tier. Your income for MLS purposes includes several components beyond your taxable income, such as reportable fringe benefits, total net investment losses and reportable super contributions. If you have a spouse, their income is also considered in the calculation.

To avoid the MLS, you need an appropriate level of private patient hospital cover. For singles, this means a policy with an excess of $750 or less, and couples or families need a policy with an excess of $1,500 or less. Your policy must cover you, your spouse and all dependants for the full income year to avoid the surcharge.

Keep in mind that extras-only cover (such as for dental or optical) and travel insurance don’t qualify as private patient hospital cover for MLS purposes.

As the end-of-year season approaches, it’s a great time to celebrate with your employees and show appreciation for their hard work throughout the year. However, it’s essential to understand the potential tax implications, particularly concerning fringe benefits tax (FBT), when planning holiday entertainment or gifts for employees.

FBT is a tax employers pay on certain benefits provided to their employees or employees’ associates (like family members). When planning a festive gathering, such as a Christmas party, it’s crucial to determine if your event might attract FBT. Here are some key points to consider:

When it comes to calculating FBT on entertainment-related benefits, you have a few options:

Facing a tax bill is a common challenge for many Australian businesses, and the ATO has recently shifted to a more active approach to debt recovery. However, this doesn’t mean they’re out to get you. The ATO’s primary goal is to work with businesses to manage and clear tax debts effectively.

You or your tax agent can review your income tax assessment notices or use the ATO’s online services to check your current tax debt. You can also contact the ATO directly by phoning 13 28 66 (the business enquiries line).

If you find yourself unable to settle your tax debt in full by the due date, don’t panic. The ATO offers several repayment options, including:

Remember, entering into a payment plan means committing to paying future tax obligations on time.

When proposing a payment plan, it’s essential to accurately assess your capacity to pay. The ATO will require specific information depending on your business structure. This may include income sources, expenses, and cash flow information for the past three months.

It’s important to note that the general interest charge (GIC) applies to unpaid tax debts. This rate is currently 11.38% per annum. The government has also recently announced plans to make GIC non-tax-deductible, which would increase the effective cost of unpaid tax debts.

The key to managing your tax debt successfully is proactive communication. If you’re experiencing difficulties, don’t wait for the ATO to contact you. Reach out to the ATO directly, or to your registered tax agent, as soon as possible. By engaging early and honestly, you can avoid more serious potential consequences like director penalty notices, garnishee notices or having your tax debt disclosed to credit reporting bureaus.

As retirement approaches, couples often discover a significant imbalance in their superannuation accounts. This disparity can become crucial when planning for retirement, and addressing it proactively can be beneficial for various retirement strategies.

Your individual total super balance as of 30 June each year impacts your ability to implement various super strategies in the following financial year. Key strategies where your total superannuation balance (TSB) is a condition of eligibility include:

When planning for retirement, the Age Pension is a consideration for many. The asset test only includes superannuation for individuals of pension age. If there’s a significant age difference between spouses, directing more super to the younger spouse could potentially maximise Age Pension entitlement at retirement.

Spouse contribution splitting allows you to transfer up to 85% of your annual concessional contributions to your spouse’s super account.

Key points:

Check if your fund offers spouse contribution splitting, as it’s not mandatory for all funds.

Apply for contribution splitting after the end of the financial year in which the contribution was made. If you roll over or withdraw your entire super balance before the financial year’s end, you can apply to split the contributions within that same year.

Spouse contribution splitting can help couples equalise their superannuation balances and optimise retirement outcomes. Consider your unique circumstances and seek professional advice to ensure this approach aligns with your long-term financial goals.

If you’re thinking of making a permanent move between New Zealand and Australia, what do you do about your superannuation fund or KiwiSaver scheme? Under the Trans-Tasman Retirement Savings Portability Scheme, retirement savings can be transferred between Australia and New Zealand.

It’s important to note that the scheme is voluntary – for individuals, Australian superannuation funds, and KiwiSaver scheme providers. Check with your Australian super fund or your New Zealand KiwiSaver scheme provider to confirm that they participate. Only APRA-regulated complying super funds and NZ KiwiSaver scheme providers can participate in the transfers, and not all super funds will accept KiwiSaver transfers.

Please get in touch with your Accru Harris Orchard advisor if you would like to know more about how these superannuation and tax developments affect you. We also offer a range of taxation services to help you meet tax requirements.

Clients should not act solely on the basis of the material contained in Client Alert. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. Client Alert is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.