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On February 9, 2022 the High Court handed down decisions, which have impacted the ATO’s advice and guidance in relation to classifying workers.

The Practical Compliance Guideline PCG 2023/2, initially presented as a draft under PCG 2022/D5, outlines the Australian Taxation Office’s (ATO) strategy for ensuring compliance among businesses involved in worker engagement and the distinction between employee and independent contractor classifications. This guideline sets out how the ATO allocates compliance resources, considering the associated risk related to worker classification.

This guideline will note how to determine whether a worker is an employee or an independent contractor. This is essential to guarantee that both the business and the worker can fulfill their obligations regarding tax, superannuation, ABN registration, and reporting.

The classification of a worker is established by the totality of the contractual arrangement between the involved parties, which includes any implied or verbal terms. The characterisation of their relationship relies on whether a worker is actively contributing to the engaging entity’s business, as opposed to operating an independent business of their own.

The guideline outlines the ATO’s risk framework concerning worker classification arrangements, which is derived from the actions taken by the involved parties when entering the arrangement. Parties have the option to conduct a self-assessment using this risk framework, providing them with an understanding of the likelihood of the ATO utilising compliance resources to examine their arrangement.

When the arrangement unmistakably falls under either employment or independent contracting, the parties may choose not to depend on the guideline. Instead, they can choose to self-assess based on their confidence in applying the correct classification.

The risk framework comprises of four zones: (A) very low risk, (b) low risk, (c) medium risk, and (d) high risk. In addition, the guideline specifies seven criteria that must be met for an arrangement to be categorised into one of these risk zones. The criteria relate to the parties’ arrangement, intention and understanding between the parties.

If there is a change in the operation of an arrangement between a worker and an engaging entity, a re-evaluation of their risk rating may be necessary. The guideline becomes applicable starting from December 6, 2023.

For more information about these measure click here.

The 2023-24 Budget has been released by the Federal Government, presenting economic forecasts and highlighting key priorities such as providing relief for cost of living and promoting economic growth. 

The Treasurer has announced a set of measures aimed at alleviating the cost of living, which includes a package worth up to $3 billion for energy bill relief. This relief is anticipated to reduce the power bills by up to $500 for approximately five million households. Additionally, $1.3 billion has been allocated for home energy upgrades. These initiatives have been carefully designed to provide relief without contributing to inflationary pressures.  

In economic terms, the forecast predicts a Budget surplus of $4.2 billion for the year 2022-23. However, there is an anticipated underlying cash deficit of $13.9 billion for 2023-24 (and a project deficit of $35.1 billion for 2024-25). 

The expected economic growth for Australia is to slow down from 3.25% in 2022-23 to 1.5% in 2023-24, but it is expected to recover and reach 2.25% in 2024-25. 

Although inflation is currently high at 6% for the current year, it is expected to decrease to 3.25% in 2023-24 and subsequently return to the Reserve Bank of Australia’s target range of 2-3% in 2024-25. The Treasurer stated it is still higher than the preferred level for the Government. 

Here are some key highlights from this year’s Budget. 

Personal taxation Measures 

• Stage 3 tax cuts – No changes to personal tax rates have been announced by the Government. As previously legislated, the Stage 3 personal income tax cuts will commence as of July 1, 2024. With these changes, the tax rate for the $45,000 to $200,000 tax bracket will be reduced from 32.5% to 30%. The 37% tax bracket will also be abolished on July 1, 2024. 
• Medicare levy thresholds – For income years commencing from 2022/23 and onwards, the Medicare levy thresholds have been raised across all categories.  

• Medicare levy exemption – From July 1, 2024, low-income taxpayers who meet the eligibility criteria for the current lump sum payment in arrears tax offset will have eligible lump sum payments exempted from the Medicare levy. This modification aims to provide relief for eligible individuals and ensure they are not subject to the Medicare levy on such payments.  

Small Business Measures 

• Small business instant asset write-off threshold – Commencing July 1, 2023, to June 30, 2024, small businesses with an aggregated annual turnover of less than $10 million will benefit from a temporary threshold increase. The threshold will temporarily be increased to $20,000 for assets that are initially used or installed and ready for the use during this period. Assets valued at $20,000 or above can still be added to the small business simplified depreciation pool and depreciated at a rate of 15% in the first income year, followed by 30% each income year thereafter.  
• Small business energy incentive – From July 1, 2023, to June 30, 2024, businesses with an annual turnover below $50 million will have the opportunity to receive an additional 20% deduction on expenditures aimed at promoting electrification and enhancing energy efficiency. To be eligible for this deduction, assets or upgrades must be put into service or installed ready for use within the specified timeframe.  
• Small business lodgement penalty amnesty – Small businesses with a turnover less than $10 million, will be granted an amnesty that will waive penalties for failure to lodge outstanding tax statements that were initially due between July 1, 2023, to December 31, 2023, businesses will have the opportunity to lodge these outstanding tax statements without incurring any penalties.  

• A lodgement penalty amnesty will be provided to small businesses with an aggregate turnover of less than $10 million. This amnesty aims to waive failure-to-lodge penalties for outstanding tax statements that were originally due between December 1, 2019, and February 29, 2022, and are lodged in the period from June 1, 2023 to December 31, 2023. 
• PAYG & GST Instalment uplift factor – The Gross Domestic Product uplift factor will be adjusted to 6% instalments related to the 2023-24 income year (instead of 12% as would otherwise apply under the statutory formula). This change will be effective for instalments that become due after the measure is officially legislated.  

Business Taxation Measures  

• Build to-rent properties – For eligible new build-to-rent projects, these changes will take effect where construction begins after 7:30pm (AEST) on May 9, 2023. The rate of the capital (depreciation) will be increased to 4% per year. Additionally, the final withholding tax rate on eligible fund payments from managed investment trust (MIT) investments will be reduced from 30% to 15%. 
• FBT rules for electric vehicles – The Government has announced that as of April 1, 2025, plug-in hybrid electric vehicles will no longer be eligible for the Fringe Benefits Tax (FBT) exemption applicable to electric cars. 

• Part IVA Extension – From July 1, 2024, the Government will broaden the application of the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). These changes will address potential tax avoidance strategies relevant to foreign residents. 

Superannuation Measures 

• Non-arm’s length income (NALI) – From July 1, 2023 there will be a change in the way non-arm’s length expenses (NALE) are taxed. The new change states that NALE taxed at 45%, known as NALI will limited to twice the amount of general expenses. This is reduction from the previous multiple of five. This change applies to Self-Managed Superannuation Funds (SMSFs) and small APRA fund. 
• Super account balances above $3 million – Despite pushback from the industry the government has reaffirmed its plan to implement an additional 15% tax on superannuation balances exceeding $3 million starting as of July 1, 2025. This includes defined benefit schemes. No specific information about the changes has been provided, indicating the proposed adjustments will likely be implemented as previously announced. As a result, unrealised gains are anticipated to be subjected to the extra 15% tax.  
• Payday super – Starting from July 1, 2026, employers will have the obligation to pay their employees’ super guarantee concurrently with their salary and wages.  

• Regarding pension drawdowns, the Budget did not introduce any additional extension to the temporary reduction of the minimum annual payment amounts for superannuation pensions and annuities. The previous measure that implemented a 50% reduction in these minimum amounts is not extended beyond the 2023-24 financial year. 

For more information about these measures click here. 

Fair Work Australia has advised that as of May 1, 2023, there are new rules regarding shutdowns in many awards.  

A business shutdown refers to the temporary closure, during festive periods such as Christmas and New Year. For additional information please refer to the Direction to take annual leave during shutdown.

Under the new regulations, the following conditions apply: 

• Employees have the authority to mandate that employees use their paid annual leave during the temporary shutdown. 

• Employers are obligated to provide written notice of the temporary shutdown period to all employees who are effected, allowing a minimum of 28 days’ notice. 
• The requirement for employees to take annual leave must be reasonable.  
• The notice period can be shortened if an agreement is reached between the employer and the majority of impacted employees 
• If an employee lacks sufficient annual paid leave to cover the entire shutdown period, alternative arrangements can be through an agreement with the employer. These options include: 

• Using accrued time off; 

• Taking annual leave in advance, or; 
• Opting for leave without pay 

During the shutdown period, if any public holidays coincide with the employee’s regular working days, the will receive compensation for those holidays. 

Who the changes apply to: 

These revised regulations are applicable to employers who fall under the scope of the affected awards. 

The Fair Work Australia website contains the updated details regarding the guidelines for taking annual leave during a shutdown. This information encompasses various industries and awards, such as: 

• Building and construction 
• Hair and beauty  
• Hospitality (e.g. fast food and restaurants  
• Real estate  

Access your industry via the Direction to take annual leave during shutdown webpage. 

Which awards are changing? 

The following list of award are changing: 

Use the 3-step Find my award tool to figure out what you are covered by. If you already know your award, you can access a copy directly from the List of awards page.  

For more information about these measures click here.

The IFPA have announced that the government will keep Super contribution caps unchanged for the 2023/24 financial year.

Since the average weekly ordinary time earnings (AWOTE) figure for the December 2022 quarter was unable to meet the required threshold for indexing, the concessional cap will remain unchanged at $27,500 in 2023/23. As a result, the non-concessional contributions (NCC) cap for 2023/24 will also remain unchanged at $110,000, which is four times the concessional cap.

With the general transfer balance cap set to increase to $1.9 million on 1 July, 2023, this means the NCC bring forward the thresholds for 2023/24 are as follows:

For more information about this measure click here.

There have been some new working from home deduction changes for 2022/23 and so the following is a summary of those changes. 

The pandemic has changed the way we work, with many people in Australia and around the world now working remotely from home. This has led to changes in tax deductions for expenses incurred while working from home. 

The proposed changes to the working from home fixed rate method has now been finalised and the ATO’s Practical Compliance Guide 2023/1 is now available. 

From the 2022/23 income year, the methods available to assist in calculating the work from home deductions include a revised fixed rate method and an actual cost method. 

The revised fixed rate method is an alternative method for calculating home office expenses. The revised fix rate method has been updated to make calculating expenses easier and avoid any time-consuming apportionment calculations. Therefore, creating better contemporary arrangements when working from home. 

Under this method, taxpayers can now claim an increased fixed rate of 67 cents per hour for home office expenses, regardless of the actual amount spent. The fixed rate calculates the claim for expenses such as electricity and gas. Individuals will no longer need to have a dedicated workspace, such as a home office, that is used exclusively for work purposes during the tax year.  

To claim the fixed rate method you must keep records of the hours worked from home, such as timesheets or diary entries. 

This also includes the evidence of all paid expenses you have incurred that are covered by the fixed rate method (such as phone or electricity bills). You must also have record of all the equipment you had bought in order to work from home, such as technology and/or furniture, which must also require the supplier, cost and date acquired.  

Taxpayers still have the option to use the actual cost method of claiming other work-related expenses as opposed to using the revised fixed rate method.   

For more information about these measures click here.