King & Whittle July 2024 Newsletter

With the shortest day behind us, the longer days ahead will give us a chance to enjoy the outdoors, even if there’s still a need to rug up.

Technology stocks have driven Australian shares, and global markets, to new highs in the last 12 months. The S&P/ASX 200 finished the financial year 7.8% higher, slightly less than the previous year. Technology stocks gained 28% during the year.

In the US, the S&P 500 index rose 14% in the first six months of 2024 in one of the strongest performances since the dotcom bubble of the 1990s. Tech stocks were behind much of the gain, in particular AI chipmaker Nvidia, which overtook Microsoft and Apple as the world’s most valuable public company last month.

An interest rate cut is widely expected in September in the US but in Australia, many commentators predict another rate increase before the end of the year to help tame inflation. The RBA left interest rates unchanged at 4.35% at its June meeting but news that annual CPI was up by 4.0% in May compared with 3.6% in April will give the Bank cause for concern.

The Australian dollar ended the financial year almost where it began at just under US67 cents, after 12 months of volatility with highs of almost US69 cents and lows under US63 cents.

King & Whittle are very excited to offer Audit Shield to our clients.
Audit activity can affect all taxpayers regardless of whether you are an individual, business or have a Self Managed Superannuation Fund. The cost of being properly represented can be quite considerable depending on the circumstances. Even a simple inquiry can require hours of work.
Please see the article on Audit Shield for further information and if you would like to know more about our Audit Shield service, please contact us.

With much pride, King & Whittle would also like to acknowledge Paul Dimech on his 24th Work Anniversary. Paul was appointed Director in 2016.
Paul is such a talented tax and business advisor and a great mentor to many. His expertise, entrepreneurial spirit and lateral thinking is an inspiration to us all.
We are honoured to have his passion and leadership at King & Whittle. Congratulations Paul!

Market movements and review video - July 2024

Stay up to date with what's happened in markets and the Australian economy over the past month.

Despite some signs of a weakening economy with stalling growth and a softening labour market, persistently high inflation is acting as a roadblock to the RBA’s possible rate cuts.

Markets have now priced in a risk that the RBA could hike rates as soon as the next meeting in August.

Australian shares finished the month close to where they started, with investor sentiment influenced by news of higher inflation and fears of another interest rate hike.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.

View Video

Tax and super changes for the new financial year

The tax cuts introduced from July 1 and other changes may mean it’s time for a review of your current tax, super and investment strategies to make sure you’re maximising the benefits.

Under the changes, the previous 19 per cent tax rate reduces to 16 per cent, while the 32.5 per cent rate drops to 30 per cent. The income threshold at which the existing 37 per cent tax applies increases from the current $120,000 to $135,000.ⁱ

In addition, the income threshold at which the 45 per cent tax rate applies increases from $180,000 to $190,000.

More income but salary packaging impact

With additional disposable income now available, it might be a good time, depending on your circumstances, to consider contributing more to your super or paying down non-deductible debt such as your mortgage.

If you have a salary packaging arrangement currently in place, it’s worth noting the reduction in the lowest tax rate from 19 per cent to 16 per cent may affect the value of these types of strategies for some taxpayers.

For example, someone packaging $15,000 of debt repayments in 2023-24 saved around $5,000 with the 37 per cent tax rate, but under the new, lower 2024-25 tax rate of 30 per cent, this tax saving is significantly reduced.

Medicare Levy threshold uplift

Some taxpayers will also see changes due to the May 2024 Federal Budget increase to the low-income threshold for the Medicare Levy.

The lift in the existing income thresholds is designed to ensure low-income taxpayers continue to be exempt from the Medicare Levy or pay a reduced levy rate.

For the 2024-25 year, the income threshold exempts people earning $26,000 or less from paying the Medicare levy. After that, the levy increases gradually, with the full 2 per cent levy paid by anyone earning more than $32,500.ⁱⁱ

Tax cuts impact businesses

Employers will also feel the impact of the new income tax rates and need to ensure they are withholding the right amount of pay as you go (PAYG) withholding tax from each employee’s pay, starting from 1 July 2024.

Employers should check their payroll software is using the correct, new withholding rates. An easy way to do this is to use the ATO’s online Tax Withheld Calculator.

SG rate changes for employees

From 1 July 2024, the Super Guarantee (SG) that employers are required to pay into their employees’ personal super accounts increased from 11 per cent to 11.5 per cent of ordinary times earnings. The SG will rise again on 1 July 2025 to reach its final level of 12 per cent.ⁱⁱⁱ

The quarterly maximum super contributions base (MSCB) also rose to $65,070 (up from $62,270) from 1 July. Employers are not required to provide SG contributions for any salary amount paid to an employee above the quarterly MSCB limit.

Super contribution caps rise

From 1 July, there were increases in the annual caps on super contributions before extra tax becomes payable on the contribution amount.

The concessional (before-tax) contributions cap increased to $30,000 (up from $27,500 in 2023-24), while the annual non-concessional (after-tax) contributions cap rose to $120,000 (up from $110,000 in 2023-24).^iv

The increase in the non-concessional contributions cap means the limit for bring forward contributions now sits at $360,000 over three years (up from $330,000 over three years in 2023-24). The cap on your total super balance remains at $1.9 million, as does the general transfer balance cap.

For 2024-25, the CGT cap amount (or lifetime limit) for eligible business owners wanting to make tax advantaged contributions into their super account is $1,780,000 (up from $1,705,000 in 2023-24).^v

If you need help navigating the updated tax and super rules in place for the new financial year, call our office today.

i https://taxcuts.gov.au/
ii https://www.abc.net.au/news/2024-01-25/low-income-earners-extra-tax-relief/103387054
iii https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/super-guarantee
iv 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
v https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/contributions-caps#ato-CGTcapamount

Steer clear of these red flags on your return

The Australian Taxation Office has provided a heads-up about the areas it will be focussing on when reviewing tax returns this year.

The ATO says there are three common errors made by taxpayers:

• Incorrectly claiming work-related expenses

• Inflating claims for rental properties

• Failing to include all income

ATO Assistant Commissioner Rob Thomson says while the mistakes are often genuine, sometimes they are deliberate. “The ATO is focussed on supporting taxpayers to get their lodgement right the first time,” he says.

The ATO has also warned that its more lenient pandemic-era approach is over, and that debt collection and unpaid superannuation guarantee charges will be actively pursued.ⁱ

Check work-related expense claims

More than eight million people claimed work-related expenses last financial year, but the ATO says taxpayers are still claiming expenses they did not pay for themselves, or for which they have already been reimbursed.

If you claim expenses with no connection to your work, or those covered by a work allowance, your return is likely to face extra scrutiny. It’s also essential to have a record (usually a receipt) to prove the expense.

For those working from home, the ATO has made some changes to the fixed rate of calculating a working from home deduction to broaden what is included, increase the rate, and change the type of records you need to keep.

You now need comprehensive records to substantiate your claim including proof of the actual number of hours worked from home in a calendar, diary, or spreadsheet. You’ll also need proof of the extra running costs you have incurred such as a copy of your electricity or internet bill.ⁱⁱ

The ATO says that copying and pasting your working from home claim from last year may be tempting, but it will likely mean you’ll receive a ‘please explain’.

Another way to attract the ATO’s attention is to suddenly claim a large expense you haven’t claimed in previous years, or to claim a deduction unlike those made by other taxpayers in the same industry.

Take care with rental property deductions

Rental property owners are also coming under the ATO’s watchful eye after data showing that some 90 per cent of rental property owners make mistakes on their tax returns, most often by inflating expenses.

The ATO says that claims for repairs and maintenance are often incorrect. While general repairs and maintenance expenses can be claimed as immediate deductions, capital expenses (such as initial repairs on a newly purchased property or improvements) must be deducted over time as capital works.

An immediate general repair deduction might be the replacement cost for a damaged carpet or broken window. But replacing an old kitchen with a new and improved one is considered a capital improvement.ⁱⁱⁱ

Include all income when lodging

Taxpayers who don’t include all of the income they receive in their returns are also under the microscope.

Failing to declare income (including rental income and any from online platforms like Airbnb, Uber or AirTasker) can result in significant penalties, with the ATO’s data-matching program making it easier to get caught.^iv

The ATO is also warning taxpayers against rushing to lodge returns in early July because their interest information may not be available. Many taxpayers are forgetting to include interest from banks, dividend income and payments from government agencies and private health insurers when completing their returns.

Taxpayers are being urged to wait until the end of July before lodging to ensure their income information is pre-filled, making the return process smoother. According to the ATO, lodging in early July doubles the chances of having your tax return flagged as incorrect.

Checking your employer has marked your income statement as ‘tax ready’ and that your myTax information is pre-filled will avoid later amendments and unnecessary delays. Failing to lodge your return on time can also trigger an ATO audit, as can making mistakes in your return.

If you need help with preparation of your income tax return this financial year, contact our office today.

i https://www.ato.gov.au/media-centre/addressing-collectable-tax-debt-tax-institute-s-tax-summit-2023
ii https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/working-from-home-expenses/fixed-rate-method-67-cents
iii https://www.ato.gov.au/media-centre/get-your-rental-right-this-tax-time
iv https://www.ato.gov.au/about-ato/commitments-and-reporting/in-detail/privacy-and-information-gathering/how-we-use-data-matching

Ready, Set, Goals - Is it time for a mid-year check-in?

Making time throughout the year to review and reassess the goals you set at the beginning of the year is just as important as setting the goals themselves. Now is the perfect time to reflect on what you’ve achieved to date and determine whether you’re still on track to achieving some or all of them or whether you might need to readjust the goal posts a little.

You may have set business goals that focus on sales, improving your business cash flow, new product development or streamlining business processes but whatever it may be, you need to ensure each goal is reviewed regularly to help keep you on track for success.

The path to success can change

With the Olympics taking centre stage in July, there are plenty of lessons we can learn and highlighting why reassessing and resetting goals is important. Professional athletes train hard to achieve glory in their respective sports, but as part of their ongoing training, they will also need to factor in what will happen if they sustain an injury, become unwell or their performance plateaus.

The same can be applied to setting professional or personal goals – you cannot always predict what happens on a day-to-day basis. Some things will be completely out of your control – as an example, what would happen if there was a data security breach to your business or you needed to take time off to attend to a family emergency? Situations like this could potentially derail your entire day/week/month which means less time spent working towards achieving your goals.

It's important to keep in mind that circumstances can change in a heartbeat, so it’s crucial that you factor this in and don’t be too hard on yourself, if you’re not exactly where you expected to be at this time of year.

Reflecting and resetting goals

Using the SMART goal strategy (Specific, Measurable, Achievable, Relevant, Time-bound) can help you to define your goals and stay focussed. This method is used by many businesses to help keep projects on track.

If you don’t want to use the SMART strategy, another practical way to help you achieve your goals is by:

1. Assessing whether your goals are achievable - are you setting unattainable goals? Be realistic about what you are trying to achieve. Think about each of the goals you set at the beginning of the year and why you set them.
2. Accounting for setbacks – as mentioned previously, life can throw unexpected curveballs, so it’s important to factor this in or have a contingency plan in place.
3. Choose the right framework - while using the SMART method is popular, it may not be the best tool for your business. There are other goal-setting tools available so do your research to find out what works best for you.
4. Incorporating ‘Stretch’ targets – stretch goals, KPIs (Key Performance Indicators) or targets are designed specifically to be more challenging. While they may take people out of their comfort zone, they can help to boost results.
5. Take time out - this generally means having a good work/life balance but the same can be applied in the workplace. Team building activities are a good way to reduce stress in the workplace, increase job satisfaction, and incorporate better collaboration within the workplace.
6. Refocus your goals - once you have reassessed your objectives and goals you can refocus on each of your priorities. Break down each objective so you can focus on achieving smaller goals to begin with – this will seem less daunting and more than likely set you up for success.

What does success look like?

Success is more than the end result, it's also about the journey you took to get there. You may be in the exact same position in three months but sometimes it takes baby steps to achieve goals. Everyone's path is different, so be flexible and make the necessary adjustments along the way to help set your business up for long-term success.

Audit Shield

Whilst we make all efforts to prepare your financial accounts and tax returns as accurately as possible, as we are sure you do for the ones you prepare yourselves, neither of us can control the Australian Taxation Office (ATO) or other government revenue authorities from randomly instigating audit activity on you or your business.

When an audit hits, it is often a result of a specific crackdown through a variety of data matching or other artificial intelligence sources. These methodologies have proven to work very well and there are no signs to show that the ATO or other government revenue authorities will ease up on these.

The Audit Shield Chart as provided shows 1 July 2023 - 31 December 2023 Audit Shield service claims across Australia as compiled by Accountancy Insurance*

Australian taxpayers, in the form of businesses, individuals and Self Managed Superannuation Funds, are constantly finding themselves at the mercy of the Australian Taxation Office (ATO) or other government revenue authorities in relation to audits, inquiries, investigations or reviews.

Below are a few examples of Audit Shield clients who filed honest declarations, however, were still sought after by the ATO. Luckily they participated in the Audit Shield service and avoided the costly ramifications.

Retailer: GST Audit - No Additional Tax Payable

“Help when we needed it”

A Melbourne retailer who was experiencing difficult trading conditions received a Goods and Services Tax audit. The financial cost of dealing with the ATO would have been a burden on the client. The outcome   for the client was that the audit was dealt with at no cost to the business.

END RESULT : Fees of $6,800 were fully covered by Audit Shield.

Business Group: Tax Audit - Capital Gains Transaction

“We have seen an increase in data matching"

A group of businesses derived a capital gain. The ATO commenced lengthy audit action and support was able to be provided under Audit Shield for not only the firm’s assistance but also for legal assistance  that was necessary for dealing with the ATO enquiry. The positive outcome for the client was that a robust and measured defence of the ATO claims could be made using the cover available.

END RESULT : Fees of $25,000+ were fully covered by Audit Shield.

Business Group: Employer Obligations Audit

“We are thankful we opted into the service”

A client was selected due to a data matching flag where the ATO believed the employees had claimed more PAYG withholding than the employer had reported. Although the discrepancy was cleared, the client was found to have not paid the correct amount of superannuation and was assessed for $4,083 in Superannuation Guarantee Charge.

END RESULT : Fees of $7,374 were fully covered by Audit Shield.

Individual Taxpayer: Tax Audit Review - client 100% Correct

“Audit Shield gave me peace of mind”

An individual living in country Victoria was data matched by the ATO and certain work related and rental property deductions were questioned. The clients firm provided professional assistance and all the ATO questions were resolved. The positive outcome for the client was that they were fully supported by us, the audit assistance professional fee was covered, and the ATO cleared the client.

END RESULT : Fees of $3,450 were fully covered by Audit Shield.

SMSF : Tax Audit Review - No Cost for professional Assistance

“Increased ATO audit activity”

The ATO undertook a selective audit of  a  SMSF.  This  audit  focused  on the activities of the Trustee. The positive outcome for the client was that the total professional cost of  dealing  with  the  investigation  questions and liaison with the ATO was covered.

END RESULT : Fees of $6,300 were fully covered by Audit Shield.

Would you like to know more?

Should you have any queries regarding our Audit Shield service offer, please contact our team.