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The Fringe Benefits Tax year (FBT) ends on 31 March. We explore the problem areas likely to attract the ATO’s attention.

Electric vehicles causing sparks

In late 2022, the Government introduced a concession that enables employers to provide some electric vehicles to employees without incurring the 47% fringe benefits tax (FBT) on private use.
The exemption applies to the use of electric cars, hydrogen fuel cell electric cars or plug-in hybrid electric cars if:

If your business is planning on acquiring an electric vehicle, be aware that from 31 March 2025, the FBT exemption will no longer apply to plug-in hybrid electric vehicles unless the vehicle met the conditions for the exemption before this date and there is already a binding agreement to continue to use the vehicle privately after this date.

The problem areas

The exemption only applies to employees

For the FBT exemption to apply, the vehicle needs to be supplied by the employer to an employee (including under a salary sacrifice agreement). Partners of a partnership and sole traders are not employees and cannot access the exemption personally.

If LCT applies to the car it will never qualify for the FBT exemption.

For example, if the EV failed the eligibility criteria in 2022-23 when it was first purchased because it was above the luxury car limit of $84,916, the fact that it resold in 2023-24 for $50,000 does not make it eligible for the exemption on resale. Likewise, if the car was used by anyone (including a previous owner) before 1 July 2022 then it will probably never qualify for the FBT exemption.

Home charging stations are not included in the exemption.

The FBT exemption includes associated benefits such as registration, insurance, repairs or maintenance, but it does not include a charging station at the employee’s home. If the employer instals a home charging station at the employee’s home or pays for the cost, then this is a separate fringe benefit.

FBT might not apply but you do the paperwork as if it did.

While the FBT exemption on EVs applies to employers, the value of the fringe benefit is still taken into account when working out the reportable fringe benefits of the employee. That is, the value of the benefit is reported on the employee’s income statement. While you don’t pay income tax on reportable fringe benefits, it is used to determine your adjusted taxable income for a range of areas such as the Medicare levy surcharge, private health insurance rebate, employee share scheme reduction, and certain social security payments.

What about the cost of electricity?

The ATO’s short-cut method can potentially be applied to calculate reportable fringe benefit amounts and applies a rate of 4.20 cents per kilometre. If you are not using the short-cut method, you need to have a viable method of isolating and calculating the electricity consumption of the car.

The exemption does not apply if the employee directly purchases or leases the EV. If an employee purchases or leases the EV directly, and the employer reimburses them under a salary sacrifice arrangement, the FBT exemption does not apply because this is not a car fringe benefit. However, the exemption can potentially apply to novated lease arrangements if they are structured carefully.

Not all electric vehicles are cars.

To qualify for the exemption, the EV needs to be a car – electric bikes and scooters do not count, nor do vehicles designed to carry a load of 1 tonne or more or that carry 9 passengers or more.

Other FBT problem areas

Not registering.

If you have employees, it is unusual not to provide at least some fringe benefits. If your business is not registered for FBT but you have provided entertainment, salary sacrifice arrangements, forgiven debts, paid for or reimbursed private expenses, or have provided accommodation or living away from home allowances, it’s important that the FBT position is reviewed carefully. The ATO targets businesses that aren’t registered for FBT.

When employees travel.

There has been a renewed focus recently on whether employees are travelling in the course of performing their work (deductible and not subject to FBT) or travelling from home to their place of work (not deductible and subject to FBT). The Federal Court decision in the Bechtel Australia case is a good example. The case dealt with the travel of fly-in-fly-out workers between home and their worksite - involving flights, ferry and bus travel. The Court found that the employees were travelling before they commenced their shift and that the employer was liable for FBT in connection with the transport that was provided. The case highlights the need for employers to ensure that they are fully aware of the connection between work and travel.

From 1 July 2024, the amount you can contribute to super will increase. We show you how to take advantage of the change.

The amount you can contribute to superannuation will increase on 1 July 2024 from $27,500 to $30,000 for concessional super contributions and from $110,000 to $120,000 for non-concessional contributions.

The contribution caps are indexed to wages growth based on the prior year December quarter’s average weekly ordinary times earnings (AWOTE). Growth in wages was large enough to trigger the first increase in the contribution caps in 3 years.

Other areas impacted by indexation include:

For those with the disposable income to contribute, superannuation can be very attractive with a 15% tax rate on concessional super contributions and potentially tax-free withdrawals when you retire. For business owners who might have had an exceptional year or sold their business, it's an opportunity to get more into super. However, the timing of contributions will be important to maximise outcomes.

If you know you will have a capital gains tax liability in a particular year, you may be able to use ‘catch up’ contributions to make a larger than usual contribution and use the tax deduction to help offset your capital gain tax bill.

But, this strategy will only work if you meet the eligibility criteria to make catch up contributions and you lodge a Notice of intent to claim or vary a deduction for personal super contributions, with your super fund.

Using the bring forward rule

The bring forward rule enables you to bring forward up to 2 years’ worth of future non-concessional contributions into the year you make the contribution – this is assuming your total superannuation balance enables you to make the contribution and you are under age 75.

If you utilise the bring forward rule before 30 June, the maximum that can be contributed is $330,000. However, if you wait to trigger the bring forward until on or after 1 July, then the maximum that can be contributed under this rule is $360,000.

‘Catch up’ contributions

If your super balance is below $500,000 on the prior 30 June, and you want to quickly increase the amount you hold in super, you can utilise any unused concessional super contributions amounts from the last 5 years.

Let’s look at the example of Gary who has only been using $15,000 of his concessional super cap for the last few years. Gary’s super balance at 30 June 2023 was $300,000, so he is well within the limit to make catch up contributions.

Gary could access his $27,500 concessional cap for 2023-24 plus the unused $55,000 from the prior 5 financial years.

If Gary doesn’t access the unused amounts from 2018-19 by 30 June 2024, the $10,000 will no longer be available.

Transfer balance cap unchanged

The general rate for the transfer balance cap (TBC), that limits how much money you can transfer into a tax-free retirement account, will remain at $1.9 million for 2024-25. The TBC is indexed by the December consumer price index (CPI) each year.

Revised stage 3 tax cuts confirmed for 1 July

The revised stage 3 tax cuts have passed Parliament and will come into effect on 1 July 2024.

Before the new tax rates come into effect, check any salary sacrifice agreements to ensure that they will continue to produce the result you are after.

It’s not uncommon for business owners to pour their money into a business to get it up and running and to sustain it until it can survive on its own. A recent case highlights the dangers of taking money out of a company without carefully considering the tax implications.

A case before the Administrate Appeals Tribunal (AAT) was a loss for a taxpayer who blurred the lines between his private expenses and those of his company.

The taxpayer was a shareholder and director of a private company that operated a business. Over a number of years, he made withdrawals and paid personal private expenses out of the company bank account, but the amounts were not recognised as assessable income.

Following an audit, the ATO assessed the withdrawals and payments as either:

Division 7A contains rules aimed at situations where a private company provides benefits to shareholders or their associates in the form of a loan, payment or by forgiving a debt. If Division 7A is triggered, then the recipient of the benefit is taken to have received a deemed unfranked dividend for tax purposes.

The taxpayer tried to convince the AAT that the withdrawals were repayments of loans originally advanced by him to the company and therefore should not be assessable as ordinary income. Alternatively, he argued that the payments were a loan to him and there was no deemed dividend under Division 7A because the company did not have any "distributable surplus” (a technical concept which limits the deemed dividend under Division 7A).

The AAT found issues with the quality of the taxpayer’s evidence, concluding that he failed to prove that the ATO’s assessment was excessive. This was based on a number of factors, including:

While the taxpayer had tried to explain that some of his loans to the company were sourced originally from borrowings from his brother, the AAT considered this was implausible given the brother’s own tax return showed modest income.

So, how should a contribution from a company owner to get a business up and running be treated? It really depends on the situation, but for small start-ups, the common avenues are:

In making a decision on which is the best approach, it is necessary to consider a range of factors, including commercial issues, the ease of withdrawing funds from the company later and regulatory requirements.

The way you put money into the company also impacts on the options that are available to subsequently withdraw funds from the company. However, the key issue to remember is that if you take funds out of a company then there will probably be some tax implications that need to be carefully managed.

Late last year, thousands of taxpayers and their agents were advised by the Australian Taxation Office (ATO) that they had an outstanding historical tax debt. The only problem was, many had no idea that the tax debt existed.

The ATO can only release a taxpayer from a tax debt in limited situations (e.g., where payment would result in serious hardship). However, sometimes the ATO will decide not to pursue a debt because it isn’t economical to do so. In these cases, the debt is placed “on hold”, but it isn’t extinguished and can be re-raised on the taxpayer’s account at a future time. For example, these debts are often offset against refunds that the taxpayer might be entitled to. However, during COVID, the

ATO stopped offsetting debts and these amounts were not deducted.

In 2023, the Australian National Audit Office advised the ATO that excluding debt from being offset was inconsistent with the law, regardless of when the debt arose. And by this stage, the ATO’s collectible debt had increased by 89% over the four years to 30 June 2023.

The response by the ATO was to contact thousands of taxpayers and their agents advising of historical debts that were “on hold” and advising that the debt would be offset against any future refunds. These historical debts were often across many years, some prior to 2017, and ranged from a few cents to thousands of dollars. For many, the notification from the ATO was the first inkling they had of the debt, because debts on hold are not shown in account balances as they have been made “inactive”. In other words, taxpayers were accruing debt but did not know as the debts were effectively invisible because they were noted as “inactive.”

In a recent statement, the ATO said: “The ATO has paused all action in relation to debts placed on hold prior to 2017 whilst we review and develop a pragmatic and sensible way forward that takes into account concerns raised by the community.

It was never our intention to cause frustration or concern. It’s important to us that taxpayers have trust in our tax system and our records.”

For any taxpayer with a debt on hold, it is important to remember that just because the ATO might not be actively pursuing recovery of the debt, this doesn’t mean that it has been extinguished.

Small business tax debt blows out

Out of the $50bn in collectible debt owing to the ATO, two thirds is owed by small business. As of July 2023, the ATO moved back to its “business as usual” debt collection practices. For entities with debts above $100,000 that have not entered into debt repayment terms with the ATO, the debt will be disclosed to credit reporting agencies.

If your business has an outstanding tax debt, it is important to engage with the ATO about this debt. Hoping the problem just goes away will normally make things worse.

The ATO estimates that incorrect reporting of rental property income and expenses is costing around $1 billion each year in forgone tax revenue. A big part of the problem is how taxpayers are claiming interest on their investment property loans.

We’ve seen an uptick in ATO activity focussing on refinanced or redrawn loans. This activity is a result of a major data matching program of residential property loan data from financial institutions from 2021-22 to 2025-26. This data is being matched to what taxpayers have claimed on their tax returns. Those with anomalies can expect contact from the ATO to explain the discrepancy.

If you have an investment property loan and redraw on the loan for a different purpose to the original borrowing, the loan account becomes a mixed purpose account. Interest accruing on mixed purpose accounts need to be apportioned between each of the different purposes the money was used for.

On the other hand, if the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible.

For example, if you have redrawn on the loan to pay for a private holiday, or pay down personal debt, then the interest relating to this portion of the loan balance is not deductible. Not only will the interest expenses need to be apportioned into deductible and non-deductible parts, but repayments will normally need to be apportioned too.

Withdrawals from an offset account are treated as savings rather than a new borrowing. If you have a loan account and an interest offset account is attached to this account that reduces the interest payable on the loan, withdrawing funds from the offset account will typically increase the amount of interest accruing on the loan, but won’t change the deductible percentage of the interest expenses. That is, when you withdraw funds from the offset account this is really a withdrawal of savings and won’t impact on the extent to which interest accruing on the loan account is deductible.

If you have a home loan that was used to acquire your private home and you have funds sitting in an offset account, withdrawing those funds to pay the deposit on a rental property won’t enable you to claim any of the interest accruing on the home loan. However, if you redraw funds from the home loan to acquire a rental property then interest accruing on this portion of the loan should be deductible. The tax treatment always depends on how the arrangement is structured.

Think you might have a problem? Contact us and we can investigate the issue before the ATO contact you.

Chobani plain yoghurt is GST-free but Chobani’s ‘flip’ range is taxable? A recent case before the AAT demonstrates how fine the dividing line is between GST-free and taxable foods.

Back in 2000 when the Goods & Services Tax (GST) was first introduced, basic food was excluded to secure the support of the Democrats for the new tax regime. Twenty three years later, the result of this exclusion is an unwieldy dividing line between GST-free and taxable foods that is consistently tested and altered. It is this dividing line that US yoghurt giant Chobani Pty Ltd recently tested in a case before the Administrative Appeals Tribunal (AAT).

At the centre of the case was Chobani’s Flip Strawberry Shortcake flavoured yoghurt and whether the product, composed of a tub of strawberry flavoured yoghurt with a separate tub of baked cookie and white chocolate pieces, is subject to GST. If the two components were sold in isolation, the baked cookie pieces would be taxable and the yoghurt GST-free.

Chobani had originally treated the flip yoghurt range as GST-free, relying on a 2001 GST ruling that allowed “a supply that appears to have more than one part but is essentially a supply of one thing” to be a composite supply. A product that is a composite supply could be treated as GST-free if the other components did not exceed the lesser of $3 or 20% of the overall product. In Chobani’s case, this meant that they could treat the flip yoghurt as GST-free.

Then in 2021, the ATO advised Chobani that its position had changed and it intended to treat the flip yoghurt as a combination food and therefore taxable.

Under the GST system, ‘combination foods’ where at least one of the food components is taxable, are subject to GST. Lunch packs of tuna and crackers, for example, are a combination food and therefore GST applies to the whole product because it is intended that the tuna and crackers are eaten together. But, where the food is a ‘mixed supply’, where each item is separate from the other and not intended to be consumed together, the GST will apply (or not) to each individual product. An example would be a hamper.

In the Chobani case, the AAT found in favour of the Commissioner’s interpretation that the flip product was a combination food and therefore subject to GST on the whole product.

The outcome of the Chobani test case has a number of implications. The first is that the ATO has issued a new draft GST ruling on combination foods (GST 2023/D1) replacing the previous guidance. The guidance states that three principles apply when determining whether there is a supply of a combination food:

The second implication is that at least one classification on the ATO’s GST status of major product lines list will change. Weirdly, dip (with biscuits, wrapped individually and packaged together), was listed as a mixed supply, not a combination food.

In a previous case, Birds Eye (Simplot Australia) was also unsuccessful in its appeal to the Federal Court that their frozen vegetable products that combined omelette, rice or grains were GST-free. The Court determined that the foods were either prepared meals or a combination of foods and therefore taxable.

For food manufacturers, importers and distributors, it is important to keep up to date with the changing GST landscape and ensure that you are utilising the correct classifications - it’s a moving feast!

Workers are owed over $3.6 billion in superannuation guarantee according to the latest Australian Taxation Office estimates – a figure the Government and the regulators are looking to dramatically change.

Superficially, the statistics on employer superannuation guarantee (SG) compliance look pretty good with over 94%, or over $71 billion, collected without intervention from the regulators in 2020-21.

The net gap in SG has also declined from a peak of 5.7% in 2015-16 to 5.1% in 2020-21. The COVID-19 stimulus measures helped drive up the voluntary contributions with the largest increase in 2019-20, which the Australian Taxation Office (ATO) says they “suspect reflects the link between payment of super contributions and pay as you go (PAYG) withholding by employers. PAYG withholding is linked to the ability to claim stimulus payments such as Cash Flow Boost.”

Despite these gains, a little adds up to a lot and 5.1% equates to a $3.6 billion net gap in payments that should be in the superannuation funds of workers. Lurking within the amount owed is $1.8 billion of payments from hidden wages. That is, off-the-books cash payments, undisclosed wages, and non-payment of super where employees are misclassified as contractors.

In addition, the ATO notes that as at 28 February 2022, $1.1 billion of SG charge debt was subject to insolvency, which is unlikely to ever be recovered. Quarterly reporting enables debt to escalate before the ATO has a chance to identify and act on an emerging problem.

Employers should not assume that the Government will tackle SG underpayments the same way they have in the past with compliance programs. Instead, technology and legislative change will do the work for them.

Single touch payroll matched to super fund data

Single touch payroll (STP), the reporting mechanism employers must use to report payments to workers, provides a comprehensive, granular level of near-real time data to the regulators on income paid to employees. The ATO is now matching STP data to the information reported to them by superannuation funds to identify late payments, and under or incorrect reporting.

Late payment of quarterly superannuation guarantee is emerging as an area of concern with some employers missing payment deadlines, either because of cashflow difficulties (i.e., SG payments not put aside during the quarter), or technical issues where the timing of contributions is incorrect. Super guarantee needs to be received by the employee’s fund before the due date. Unless you are using the ATO’s superannuation clearing house, payments are unlikely to be received by the employee’s fund if the quarterly payment is made on the due date. The super guarantee laws do not have a tolerance for a ‘little bit’ late. Contributions are either on time, or they are not.

When SG is paid late

If an employer fails to meet the quarterly SG contribution deadline, they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement within a month of the late payment. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of:

Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount.

And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings (OTE). An employee’s salary and wages may be higher than their OTE, particularly if you have workers who are paid overtime.

It's important that employers that have made late SG payments lodge a superannuation guarantee statement quickly as interest accrues until the statement is lodged. The ATO can also apply penalties for late lodgment of a statement, or failing to provide a statement during an audit, of up to 200% of the SG charge. And, where an SG charge amount remains outstanding, a company director may become personally liable for a penalty equal to the unpaid amount.

The danger of misclassifying contractors

Many business owners assume that if they hire independent contractors, they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates slightly differently and, in some cases, genuine contractors can be treated as if they were employees. There are significant penalties faced by employers that get it wrong.

A genuine independent contractor who is providing personal services will typically be:

‘Payday’ super from 1 July 2026

The Government intends to introduce laws that will require employers to pay SG at the same, or similar time, as they pay employee salary and wages. The logic is that by increasing the frequency of SG contributions, employees will be around 1.5% better off by retirement, and there will be less opportunity for an SG liability to build up where the employer misses a deadline.

Originally announced in the 2023-24 Federal Budget, Treasury has released a consultation paper to start the process of making payday super a reality. Subject to the passage of the legislation, the reforms are scheduled to take effect from 1 July 2026.

What is proposed?

The consultation paper canvasses two options for the timing of SG payments: on the day salary and wages are paid; or a ‘due date’ model that requires contributions to be received by the employee’s superannuation fund within a certain number of days following ‘payday’. A ‘payday’ captures every payment to an employee with an OTE component.

The SGC would also be updated with interest accruing on late payments from ‘payday’.

Currently, 62.6% of employers make SG payments quarterly, 32.7% monthly, and 3.8% fortnightly or weekly.

We’ll bring you more on ‘payday’ super as details are released. For now, there is nothing you need to do.

The proposed objective of superannuation released in recently released draft legislation is: ‘to preserve savings to deliver income for a dignified retirement, alongside government support, in an equitable and sustainable way.’

The significance of legislating the objective of super is that any future legislated changes to the superannuation system must be in line with this objective. It’s a fairly broad definition. For example, “equitable” seeks to address the distributional impact of superannuation policy. That is, latitude for the Government to target tax concessions to address differences in demographic factors and structural inequities including intergenerational inequity and outcomes for different groups including women, First Nations Australians, vulnerable members and low-income earners.

“Sustainable” encapsulates the changing needs of an ageing population including reducing the reliance on the Age Pension. The draft also alludes to the viability of the cost of tax concessions used to incentivise Australians to save for retirement.

“Deliver income” appears to reinforce the concept that superannuation savings “should be drawn down to provide individuals with a source of income during their retirement.”

More than 15 million Australians now have a superannuation account. Australia’s superannuation pool has grown from around $148 billion in 1992 to $3.5 trillion in 2023, and will continue to grow. Total superannuation balances as a proportion of GDP are projected to almost double from 116% in 2022–23 to around 218% of GDP by 2062-63.

The consultation also recognises the value of the superannuation system as a source of capital, “which can support investment in capacity-building areas of the economy where there is alignment between the best financial interests of members and national economic priorities.”

What will the Australian community look like in 40 years? We look at the key takeaways from the Intergenerational Report.

The 2023 Intergenerational Report (IGR) is a crystal ball insight into what we can expect Australian society to look like in 40 years and the needs of the community as we grow and evolve. It doesn’t map out our path to flying cars and Jetsons style robotic domestic help (unfortunately) but it does forecast structural trends that will give many of us a level of anxiety about what we need to be doing now to successfully navigate the future.

The report links the continued growth and prosperity of Australia to five significant areas of influence:

We’re ageing

Thanks for the reminder. The number of people aged 65 and over will more than double and the number aged 85 and over will more than triple. We’re expected to live longer with the life expectancy of men increasing from 81.3 to 87 years and from 85.2 to 89.5 for women by 2062-63. And that’s a problem for the younger generation.

Who bears the burden of an ageing population?

Australia’s low birth rate, limited migration and increased longevity all have an impact. The old age percentage - the number of people aged 65 and over for every 100 people of traditional working age (15 to 64) in the population - will increase from 26.6% to 38.2%.

From a tax perspective, Australia’s reliance on personal tax means workers will bear an increasing proportion of the tax burden under current fiscal policy. In a recent interview, former Treasury boss Ken Henry labelled it an “intergenerational tragedy” with personal tax growing from 11.7% of GDP to 13.5% based on current policy. The report says that “only 12% of Australians aged 70 and over pay income tax and this age group now makes up 12.2% of the total population. This age group is expected to increase to 18.1% of the total population in 2062-63.” Wholesale tax reform will be required to prevent the growing tax burden on individuals dragging on the economy. With economic growth expected to slow to 2.2% from 3.1% over the next 40 years, the solution will not magically arise from corporate Australia. If it was not for our high rate of inflation you would think an increase to the GST was imminent.

Services and who pays

Demographic ageing alone is estimated to account for around 40% of the increase in Government spending over the next 40 years.
The outcome of an ageing population, as you would expect, is increased demand for care and support services that will push the Federal Budget back to a point where deficits are the norm if the current policies remain in place.

From a consumer perspective, it also means that the trend towards user-pays will only increase. As individuals, we need to ensure that we have the means to fund our old age because Government resources will be limited by increasing demand and this demand is funded by a deteriorating percentage of workers contributing to tax revenue.

It's also likely that we will need to look at how we generate income. For some that might mean working longer, for others it is value adding - creating, buying and selling assets in some form, whether that is business, innovation, or through more traditional assets such as property or financial products.

Superannuation the size of a nation

Australia currently has the fourth largest pool of retirement assets in the world, with total superannuation balances projected to grow from 116% of GDP in 2022-23 to around 218% by 2062-63. Our superannuation system will be what underwrites retirement for most Australians. At present, around 70% of people over aged pension age receive some form of Government income support. Over time, and as our superannuation system matures, this percentage is expected to decline sharply as a percentage of GDP with Government support supplementing rather than providing for retirement (the first generation of workers with superannuation guarantee throughout their working life hit retirement age around 2058).

However, the IGR points out that, “the cost of superannuation concessions will increase, driven by earnings on the larger superannuation balances held by Australians.” The proposed tax on future earnings on super balances above $3m may not be the last.

You can expect the management of superannuation to be a priority for Government to ensure that retirement savings are maximised to reduce the reliance on Government support, and to ensure that this enormous pool is leveraged for the gain of not only members, but the nation.

Growth of services

Like most advanced economies, global competition has shifted Australia’s industrial base from the production of goods to services. Ninety percent of jobs are now in services.
With an ageing population, demand for health and care services is expected to soar. People aged 65 or older currently account for around 40% of total Australian health expenditure, despite being about 16% of the population. The IGR estimates that the workforce required to support this sector will need to be twice the size of what it is now to meet demand by 2049-50.
The Government’s biggest spending pressures will be health, aged care, the NDIS, defence and interest payments on government debt. Of these, the NDIS is the fastest growing at 7% per year.

The role of technology

The speed of technological change is difficult to predict, and the IGR doesn’t attempt to make predictions. But what we do know is that technology has had a transformational impact on labour productivity (the value of output of goods and services produced per hour of work). Over the last 30 years, labour productivity has accounted for around 70% of the growth in Australia’s real gross national income. But, tempering this is a slowing of labour productivity growth since the mid-2000s.
We know technological disruption is coming and the debate about the role of artificial intelligence is only just beginning. We also know that unless technology is accessible, our future will be one polarised by those who have and have not benefited from technological change.

Climate change transformation

There are two key aspects to climate change; the cost of rising temperatures, and the opportunity created by the shift to renewable energy.

Temperatures are anticipated to increase by 1.5 degrees before 2100, potentially before 2040.

From 1960 to 2018, climate disasters reduced annual labour productivity in the year they occurred by about 0.5% in advanced economies. However, for severe climate disasters labour productivity is estimated to be around 7% lower after three years. With rising temperatures, floods, bushfires and other extreme weather events are expected to increase in frequency and severity. The impact of climate change spelt out in the report is sobering with disruptions and changing patterns impacting agriculture, tourism, recreation and industries that rely on labour intensive outdoor work.

On the positive side, Australia could benefit from new “green” industries, such as hydrogen and other clean energy exports, critical minerals and green metals. It is also likely to drive new, innovative ideas as businesses invest in and develop low emissions technologies, providing a source of future productivity growth in a more sustainable economy. Australia’s potential to generate renewable energy more cheaply than many countries could also reduce costs for both new and traditional sectors, relative to the costs faced by other countries.

Geopolitical risks

Australia relies on open international markets. Trade disputes and military conflicts pose an external threat to Australia’s economy and well being. While the IGR cannot predict the nature of geopolitical events, it notes the importance of investing in national security, presumably this includes cybersecurity, ensuring access to international markets, and deepening regional partnerships to reduce supply chain vulnerabilities.

What a difference timing makes. A recent case before the Administrative Appeals Tribunal (AAT) is a reminder about the tax impact of the timing of employment income.

In this case, the taxpayer was a non-resident working in Kuwait. As part of his work, he was entitled to a ‘milestone bonus’ but, the employer was not in a position to pay the bonus at the time.

When the job ended, the taxpayer moved to Australia and became a resident. Once in Australia, the former employer honoured the performance bonus and paid it as a series of instalments.

The dispute between the ATO and the taxpayer started when the Commissioner issued amended assessments taxing the bonus payments received.

The dispute focused on when the bonus was derived. Had the bonus been derived while the taxpayer was still a non-resident then it would not have been taxed in Australia. This is because non-residents are normally only taxed in Australia on Australian sourced income. Employment income is typically sourced in the place where the work is performed (although there can be exceptions to this).

Australian tax case law says that employment income is normally derived on receipt. In the taxpayer’s case, this was when he received the payments from his former employer, not when he became entitled to the bonus. Because the taxpayer received the bonus when he was a tax resident of Australia, the bonus was subject to tax.

The difference for the taxpayer was quite dramatic. Had he been paid the bonus when it was due, he would have paid no tax as Kuwait does not impose income tax.

Please call us if you are concerned about tax residency or managing overseas income.

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