Element Business & Accounting Solutions Blog

Until recently, a company that had experienced a significant change in ownership or control could only carry forward its earlier tax losses to a later income year if the company carried on the "same" business after the change. In practice the "same" business test can be notoriously difficult to meet.  However, a new alternative test that applies retrospectively from 1 July 2015 means that now companies only need to carry on a "similar" business.

What exactly does "similar" mean?

The legislation outlines several factors you must consider when assessing whether your business is "similar". This is a non-exhaustive list, and it requires a weighing-up of all relevant factors. The ATO unpacks the legislation as follows:

First, you must consider the following three things and compare them before and after the significant change in control of the company:

  1. the assets (including goodwill) used in the business;
  2. the activities and operations; and
  3. the "identity" of the business.

Then, where there have been some changes, you must identify to what extent these can be explained by natural development or commercialisation of the business that existed before the change in control. Natural development suggests a similar business is now carried on. But if those changes arose merely from a commercial decision, it's less likely the business is similar.

The ATO gives the example of a parcel courier company that expands its services to include food delivery. If this new activity commenced because the company undertook R&D to improve its bicycle design in order to improve efficiency, and as a result developed a new bicycle that it realised was suitable for transporting food, the service expansion results from development of the earlier business, so the similar business test is satisfied. In contrast, if the company commenced this activity because it noticed a growing demand for food delivery services and purchased a new type of bicycle to embark on that opportunity, that would weigh against the current business being similar. The ATO also emphasises that goodwill is an important asset to consider. For example, if a business adopts a new brand name and transforms from budget to "premium" products, it won't pass the similar business test as it hasn't used the goodwill of its former incarnation. This isn't the result of any natural development of the old business (but rather a commercial decision to present a new identity).

If you are an employee and you sometimes work from home, you may be able to claim deductions for some of the expenses you incur, provided you are not reimbursed by your employer. Here, we consider common types of expenses that employees may claim and how you must substantiate your deductions.

Running expenses

Running expenses such as heating, cooling and lighting costs are only deductible if you exclusively use these services while performing work at home. For example, the ATO says that you would not be able to claim deductions for these expenses if you work on your laptop while sitting next to your partner who is watching TV. However, if you perform work in a room when others are not present, or in a separate room dedicated to work activities, you may be able to claim some running expenses.

In practice the ATO accepts two methods for calculating your deduction:

  1. a simple rate of 52 cents per hour worked (effective from 1 July 2018), which covers all the running expenses you can claim, or
  2. you can claim the work-related proportion of actual expenses incurred by maintaining thorough records and evidence.  You can claim up to $50 in total for all work-related device usage charges (phone calls, text messages and internet) with basic documentation only. However, if you need to deduct more than $50, you must maintain detailed written evidence to substantiate the work-related proportion of your expenses.

Electronic devices

Deductions for electronic devices are calculated separately. If you purchase these items to help you earn income, you may be entitled to an immediate deduction for items costing $300 or less, or a deduction for decline in value for more expensive items.

Occupancy expenses

Occupancy expenses such as rent, mortgage interest, council and water rates, land taxes and insurance premiums are usually not deductible for employees who work from home. You can only claim the work-related proportion of your occupancy expenses in two very limited circumstances where:

  1. the space in the home is a place of business, and not suitable for domestic use; or
  2. no other work location is provided to an employee by an employer and the employee is required to dedicate part of their home to their employer's business as an office – you can claim the portion of these costs that relate to a clearly identified place of business.

It is important to note if you claim occupancy expenses, you don't qualify for the capital gains tax (CGT) main residence exemption for the part of your home that you use for work. If you use your home as a place of business there may be CGT implications when you sell it.

If you work from home as an employee, and intend to claim working from home related expenses, it is important to ensure that you are keeping adequate records and evidence to protect you in the event of an ATO audit.

September 2017 Quarterly Update

What's new for small businesses


Tax concession rules for small businesses have changed. The changes are effective from 1 July 2016: 

a) Expanded access to small business concessions 

More businesses are now eligible for most small business tax concessions. From 1 July 2016, a range of small business tax concessions became available to all businesses with turnover less than $10 million (the turnover threshold). Previously the turnover threshold was $2 million.

The $10 million turnover threshold applies to most concessions, except for:

- the small business income tax offset, which has a $5 million turnover threshold from 1 July 2016

- capital gains tax (CGT) concessions, which continue to have a $2 million turnover threshold.

The turnover threshold for fringe benefits tax (FBT) concessions increased to $10 million from 1 April 2017.

b) Increased small business income tax offset


You can claim the small business income tax offset if you are a small business sole trader, or have a share of net small business income from a partnership or trust.


From the 2016–17 income year, the small business income tax offset:


·         increased to 8%, with a limit of $1,000 each year

·         applies to small businesses with turnover less than $5 million.


The tax offset increases to 10% in 2024–25, to 13% in 2025–26 and to 16% from the 2026–27 income year. The amount of your offset is based on amounts shown in your tax return.


c)      Company tax rate cut for small businesses


For the 2016–17 income year, the company tax rate for small businesses decreased to 27.5%. Companies with turnover less than $10 million are eligible for this rate.


The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate. The reduced company tax rate of 27.5% will progressively apply to companies with turnover less than $50 million by the 2018–19 income year. From 2024–25, the rate will reduce each year until it is 25% by 2026–27.


Tax rate cuts – "not meant to apply to passive investment companies"


On 4 July 2017, the Minister for Revenue and Financial Services, Ms Kelly O'Dwyer MP, issued a statement on the tax rate cuts for small companies.


Minister O'Dwyer said, "Reports today that the ATO has broadened the interpretation of company tax cuts are premature … however, the policy decision made by the Government to cut the tax rate for small companies was not meant to apply to passive investment companies."


Minister O'Dwyer said the ATO has issued a draft ruling and will in due course provide other guidance.


d)      Instant asset write-off extension


Australia's 3.2 million small businesses can continue to purchase equipment up to $20,000 and write it off. The period in which small business entities can access the instant asset write-off has been extended by 12 months to 30 June 2018. It was originally intended to end on 30 June 2017.


The increased small business threshold from $2 million to $10 million means more businesses are now eligible to buy equipment (new or second hand) up to $20,000 and write it off immediately. Multiple claims can be made under the program. 




i)       Simpler BAS


From 1 July 2017, small businesses now have less GST information to report on their business activity statement (BAS). This will be the default GST reporting method for small businesses with a GST turnover of less than $10 million. 


The ATO automatically transitioned eligible small business' GST reporting methods to Simpler BAS from 1 July 2017.


ii)     GST on low value imported goods


The Government has passed the Treasury Laws Amendment (GST Low Value Goods) Act 2017 which will extend GST to low value imports of physical goods imported by consumers from 1 July 2018. 


Treasurer's press release on GST low value goods


The Treasurer, the Hon Scott Morrison MP, released a statement following the passage of the Treasury Laws Amendment (GST Low Value Goods) Act 2017 by the Parliament on 21 June 2017. 


The Treasurer said, "Turnbull Government laws will level the playing field for Australian businesses by applying the GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018." 


Using a vendor collection model, the law will require overseas suppliers and online marketplaces such as Amazon and eBay with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia. 



iii)    Buy services or digital products from overseas?


From 1 July 2017, GST will apply to imported services and digital products. 


Australian GST-registered business can avoid GST on these purchases from a non-resident supplier if they provide their ABN to the non-resident supplier and state that they are registered for GST. 


iv)    GST input tax credits disallowed – tax invoices not enough


Re GH1 Pty Ltd (in liq) and FCT [2017] AATA 1063 (5 July 2017) a property development company was not entitled to input tax credits in relation to bulk earthwork services supplied to it by another land development company. The evidence showed that purported tax invoices did not evidence any actual supplies made to the taxpayer.


The Administrative Appeals Tribunal noted that the taxpayer bore a two-fold onus: to prove, on the balance of probabilities, that the assessment was excessive and what the correct assessment ought to be. In this case, the taxpayer had failed to discharge that burden.


The Tribunal observed that the mere existence of a "tax invoice" is not, by itself, sufficient to establish that a "taxable supply" (under s 9-5 of the GST Act) and corresponding "creditable acquisition" (under s 11-5 of the GST Act), had, in fact, occurred.


v)      GST – removing the double taxation of digital currency


On 9 May 2017, the Government announced that from 1 July 2017 it will align the GST treatment of digital currency (such as Bitcoin) with money


Digital currency is currently treated as intangible property for GST purposes. Consequently, consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST. 


This measure will ensure purchases of digital currency are no longer subject to the GST. 


No changes to the income tax treatment of digital currency are proposed.  


Tax incentives for early stage investors


From 1 July 2016, investors who purchase new shares in a qualifying early stage innovation company (ESIC) may be eligible for tax incentives. 


The tax incentives provide eligible investors who purchase new shares in an ESIC with a:


·         non-refundable carry forward tax offset equal to 20% of the amount paid for their qualifying investments. This is capped at a maximum tax offset amount of $200,000 for the investor and their affiliates combined in each income year

·         modified capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded. Capital losses on shares held less than ten years must be disregarded.


Changes for employers of working holiday makers


On 1 January 2017, the tax rate for working holiday makers on 417 or 462 visas changed. If you employ working holiday makers on 417 or 462 visas, you will need to register with the ATO. 


Employers who do not register with the ATO will have to withhold tax at the foreign resident tax rate of 32.5% from the first dollar earned. Penalties may apply for failing to register. 



Key super rates and thresholds


For the 2017-18 income year, the:


·         concessional contribution cap is $25,000

·         non-concessional contribution cap is $100,000 (conditions apply)

·         CGT cap amount is $1,445,000

·         Div 293 tax threshold amount is $250,000

·         low rate cap amount is $200,000

·         ETP cap for life benefit termination payments is $200,000

·         ETP cap for death benefit termination payments is $200,00.


The full list of rates and thresholds can be found on the ATO website.

Streamlined reporting with Single Touch Payroll


Employers with 20 or more employees will need to report through Single Touch Payroll from 1 July 2018.


More information can be found on the ATO website.


Changes to tax withholding amounts


The way tax is calculated on salary and wages has changed.


From 1 July 2017, the:


·         temporary budget repair levy has been removed

·         Medicare levy low-income threshold increased.


Finding a positive cash flow investment property became a little harder post Budget night. As part of the Government's agenda to make affordable housing more accessible, investment property depreciation deductions have been significantly restricted.  Historically property investors have been allowed to write off the depreciating value of the equipment and plant inside a rental property against their taxable income. It was irrelevant if the property was new, second hand or if the plant and equipment was purchased by a previous owner. This type of on-paper deduction offered substantial tax benefits as it didn't necessarily require any cash outflow by the investor.

The new measures, which were introduced into Parliament on 7 September 2017, read as follows:

"From 1st July, 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential real estate properties. Plant and equipment items are usually mechanical fixtures or those which can be easily removed from the property such as dishwashers and ceiling fans."

Essentially this means only brand-new assets you personally purchase for the rental property may be depreciated. There is no longer an ability to deduct depreciation for assets a previous owner purchased. Grandfathering provisions are available to taxpayers who held investment properties prior to the budget changes.

For more information or to discuss how this may affect your personal circumstances please contact the Element Team.