In a pre-Budget announcement, the Government has committed to a Small Business Energy Incentive Scheme that offers a bonus tax deduction of up to $20,000.

The Small Business Energy Incentive encourages small and medium businesses with an aggregated turnover of less than $50 million to invest in spending that supports “electrification” and more efficient use of energy.

Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction of $20,000 per business. Eligible assets or upgrades will need to be first used or installed ready for use between 1 July 2023 and 30 June 2024 to qualify for the bonus deduction.

If your business is contemplating upgrading to improve energy efficiency, it’s worth waiting to see the detail of the proposal. We’ll bring you more details of the scheme and how your business might benefit as soon as they are released.

Look out for our 2023-24 Budget update with the details important to you, your business, and your superannuation.

Access to home guarantee scheme expanded to friends and siblings

From 1 July 2023, access to the Government’s Home Guarantee Scheme will be expanded to joint applications from “friends, siblings, and other family members” and to those who have not owned a home for at least 10 years.

The eligibility criteria for access to the First Home Guarantee Scheme and Regional First Home Buyers Scheme will be expanded. From 1 July 2023, the schemes will no longer be limited to individuals and couples who are married or in de facto relationships, but will also include eligible friends, siblings, and other family members for joint applications. In addition, the requirement for the applicants to be Australian citizens at the time they enter the loan has been extended to include permanent residents.

The schemes guarantee part of a first home owner’s home loan enabling them to purchase a home with as little as 5% deposit without paying Lenders Mortgage Insurance. Guarantees are capped at 15% of the value of the property. Thirty five thousand places are available for the First Home Guarantee Scheme each financial year. From 1 October 2022 there will be ten thousand places available each financial year until 30 June 2025 for the Regional First Home Buyers Scheme.

Eligibility to the Family Home Guarantee will also be extended. From 1 July 2025, the scheme will no longer be restricted to single parents with at least one dependant natural or adopted child, but will also be available to borrowers who are single legal guardians of dependent children such as aunts, uncles and grandparents.

The Family Home Guarantee guarantees the home loan of an eligible single parent with at least one dependent child enabling them to purchase a home with as little as 2% deposit without paying Lenders Mortgage Insurance. The guarantee is capped at 15% of the value of the property. Five thousand places are available to the scheme each year to 30 June 2025.

Question of the month: Company loan to pay down the mortgage

A friend’s accountant suggested that they could reduce interest on non-deductible debt by using company cash to offset their personal mortgage, then transferring the cash back by 30 June. Is this an acceptable strategy?

This might initially sound like a brilliant strategy but what is really happening is that you are using company funds to derive a personal benefit. Doing this once might not attract attention, but doing this more than once might trigger a deemed unfranked dividend under Division 7A. Section 109R is designed for scenarios like this. If this occurs, the repayment you made will be ignored, meaning that a deemed dividend could be triggered in relation to the funds initially borrowed from the company unless a complying loan agreement is put in place, in which case minimum loan repayments would need to be made to prevent a deemed dividend from arising.

For example, let's assume you are a shareholder of the company (or an associate of a shareholder) and you borrow money from the company on 1 July 2022. This loan would generally fall within the scope of Division 7A, but a deemed dividend can be avoided if the loan is fully repaid by the earlier of the due date and actual lodgement date of the company's 2023 tax return. 

However, if you repay the loan but it appears that you intend to borrow a similar or larger amount from the company when making the repayment then the repayment can be ignored. The main exception to this is where the repayment is made in a way that is taxable to the individual (e.g., dividends or directors’ fees are set-off against the loan balance).

One of the most common situations where section 109R could apply is where funds are taken from the company bank account and placed into a director's home loan offset account. Even if the funds are transferred back to the company before the end of the year, there is a significant risk of section 109R applying if the pattern repeats. That is, the money will be treated as a dividend and taxed as assessable income.

Right to super to be enshrined in National Employment Standards

The Government has announced that it will enshrine a right to superannuation payments in the National Employment Standards (NES).

Currently, workers not covered by a modern award or an enterprise agreement containing a term requiring an employer to make superannuation contributions have to rely on the ATO to recover their lost superannuation entitlements.

By bringing the right to superannuation into the NES, workers will have the right to directly pursue superannuation owed to them. Employers may also face civil penalties if they do not comply with the entitlement.

Penalties of up to $82,500 per breach apply to companies that are found to have contravened the NES.

The ATO’s most recent estimate of unpaid superannuation indicates that workers lost $3.4 billion in unpaid super in 2019‑20.

ATO Rental Property Blitz

The Australian Taxation Office (ATO) has launched a full-on assault on rental property owners who incorrectly report income and expenses.

The ATO’s assessment, based on previous data matching programs, is that there is a tax gap of around $1 billion from incorrect reporting of rental property income and expenses. And, they would like that back now please.

As a result, banks and other financial institutions will be required to hand the ATO residential investment loan data on an estimated 1.7 million rental property owners for the period from 2021-22 through to 2025-26.

The data collected will include:

• identification details (names, addresses, phone numbers, dates of birth, etc.)
• account details (account numbers, BSB's, balances, commencement and end dates, etc.)
• transaction details (transaction date, transaction amount etc.)
• property details (addresses, etc.)

In addition to identifying whether landlords are declaring their residential investment property income at all, the data matching program is looking specifically at how rental property loan interest and borrowing expense deductions have been reported in the rental property schedules, and whether net capital gains have been declared for property used to generate income.

Banks are not the only source of data. In a complimentary program, the ATO is targeting rental property management software. Over the last decade, much of the financial management of residential rental property has moved online, facilitated by various platform providers. The ATO will require these rental property software providers to provide details of property owners including their bank details, income, expenses and the amount of those expenses, and details of their associated rental properties and agents. Data collection of the estimated 1.6 million individuals in this data program will cover the period from 2018-19 to 2022-23.

With that, let’s recap on the common problem areas:

Claiming interest and redrawing on the loan

The interest component of your investment property loan is generally deductible. However, if you redraw on your invest loan for personal purposes, interest on this portion of the loan will not be deductible. This means that interest expenses will need to be apportioned into deductible and non-deductible parts and repayments will often need to be apportioned too. If the redrawn funds are used to produce investment income, then the interest on this portion of the loan should be deductible.

Borrowing costs

You can claim a deduction for borrowing costs (typically over five years) such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legals on the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance. If the loan is repaid early or refinanced, the whole amount including mortgage discharge expenses and penalty interest can often be deductible.

Repairs or maintenance

Deductions claimed for repairs and maintenance is an area that the Tax Office always looks closely at so it’s important to understand the rules. An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can be claimed immediately, the deduction for capital works is generally spread over a number of years.

Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves a replacement or renewal of a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:

• Replacement of an entire asset (for example, a complete fence, a new hot water system, oven, replacing a shower curtain with a glass wall, etc.)
• Improvements and extensions.

Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible.

Note: The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.