Further Eligibility Age Change for Downsizer Contribution
In another recent legislative change, the eligibility age to make a downsizer contribution into superannuation has been reduced to 55 from 1 January 2023.
This further reduces the downsizer eligibility age, which changed from 65 t0 60 from 1 July 2022.
From 1 January 2023, eligible individuals aged 55 years or older can choose to make a downsizer contribution into their super fund of up to $300,000 ($600,000 per couple) from the proceeds of selling their home that has been held for at least 10 years and qualifies for at least a partial main residence exemption.
There are no changes to the remaining eligibility criteria.
Key dates for downsizer contributions:
Eligible individuals aged 55 years or older can make a downsizer contribution from 1 January 2023.
For an downsizer contributions made between 1 July 2022 and 31 December 2022, eligible individuals must be aged 60 years or older at the time of making their contribution.
Prior to 1 July 2022, the eligibility age was 65 years and over.
Other important information to consider for 55-59 year olds:
Individuals have 90 days from receiving the sale proceeds of their home to make any downsizer contribution. This means if any individual receives the proceeds of sale prior to 1 January 2023, so long as they are still making it within 90 days of receiving the proceeds.
Unlike most other contributions into superannuation, there is no upper age limit for being eligible to make a downsizer contribution. Even a 95 year old could make a downsizer contribution, and there is no need to satisfy the work test!
Transfer Balance Cap Indexation
An individual's transfer balance cap (TBC) determines the maximum amount they can commit to a retirement phase interest in their superannuation fund, such as an account-based pension, without it being subject to penal taxation.
When the TBC concept was introduced with effect from 1 July 2017, it was initially $1,600,000. It increased by $100,000 as of 1 July 2021 to $1,700,000. The TBC increases in $100,000 increments (or multiples of $100,000) in line with the Consumer Price Index (CPI).
As a result of a substantial increase in the CPI, the TBC is due to increase on 1 July 2023 by $200,000.
Accordingly, an increase in the TBC is seen as a good thing, as it potentially means an individual can have more of their superannuation interest supporting a tax-free pension.
Individuals who start their first retirement phase income stream (otherwise known as a pension) on or after 1 July 2023 will have a TBC of $1.9 million. From 1 July 2023 individuals will have a TBC of between $1.6 million and $1.9 million.
An individual who already had a transfer balance account and at any time met or exceeded their personal TBC will not be entitled to indexation, and their personal TBC will remain the same.
For example, an individual who started their first retirement phase income stream, an account-based pension, on 1 January 2022 with a value of $1,700,000 at the time of commencement, would have fully utilised their then TBC of $1,700,000. Such an individual, having already fully utilised their TBC, will not gain any benefit from the increase in the TBC due to indexation.
Where an individual has partially utilised their TBC before 1 July 2023, instead of benefiting from the full $200,000 increase in the TBC, they will have access to a proportional indexation of their TBC based on the unused cap percentage of their transfer balance account.
Significant Change to Claiming Working from Home Expenses
Before 1 July 2022, an individual taxpayer that incurred additional deductible expenses as a result of working from home had a choice of three methods to claim these expenses.
These choices were:
The shortcut method - which was available from 1 March 2020 to 30 June 2022
The fixed-rate method - which was available from 1 July 1998 to 30 June 2022
Actual expenses, that is calculating the actual expense incurred as a result of working from home.
From 1 July 2022, as a result of the Practical Compliance Guideline (PCG 2023/1) by the Australian Taxation Office (ATO), the shortcut method and the fixed-rate method have both been abolished.
A replacement method that can be used instead of the actual expenses method (which has not been abolished) is the revised fixed-rate method.
Under the revised fixed-rate method, a deduction can be claimed of 67 cents per hour for energy expenses (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables.
Other expenses associated with working from home, such as depreciation of home office furniture and a personally owned computer used for work purposes, will need to be calculated on an actual basis when using the revised fixed-rate method.
To claim a deduction under the new fixed-rate method, an individual needs to meet three criteria, which are:
The individual is working from home while carrying out their employment duties or carrying on their business on or after 1 July 2022.
They are incurring additional running expenses of the kind outlined in the above discussion as to what the 67 cents per hour amount reflects, as a result of working from home.
They keep and retain relevant records in respect of the time they spend working from home and for additional running expenses (covered by the rate per hour) they are incurring.
There are strict record keeping requirements associated with this new method.
For the year ending 30 June 2023, a taxpayer using this new method will need to keep a record which is representative of the total number of hours worked from home during the period 1 July 2022 to 28 February 2023.
The taxpayer will also need to keep a record of the total number of actual hours they worked from home for the period 1 March 2023 to 30 June 2023. The records of the actual hours worked from home could be maintained by timesheets, rosters, time-tracking apps, logs of time spent accessing employer systems or online business systems, or a diary kept contemporaneously.
For the year ending 30 June 2024 and later income years, a taxpayer using this method must also keep a record of actual hours worked from home for the entire year.
Under both the shortcut method and the previous fixed-rate method, there was no need for detailed record keeping of the actual hours worked from home for the entire year. Estimates were acceptable. This is a significant change and increases the record keeping burden on taxpayers.
Another significant change, which results in an increase in record keeping obligations under the revised fixed-rate method, is that in relation to running costs (such as energy costs, phone and internet costs), a taxpayer needs to maintain at least one monthly or quarterly bill. This is because the ATO now requires proof that the individual has incurred the running costs represented by the 67 cents per hour deduction.
Non-Deductible Threshold Removed for Self-Education Purposes
Self-education expenses are generally tax-deductible for individuals if there's sufficient connection with your income-producing activities. However, until new legislation was recently passed, the amount you could deduct was limited by s82A of the Income Tax Assessment Act 1936 so that only the amount spent over a $250 threshold was deductible.
This threshold was an artefact from when the self education deduction measure was first introduced more than 40 years ago, alongside a long-repealed concessional tax rebate of $250. The original intention of the deduction limit was to ensure that taxpayers didn't receive both the rebate and a tax deduction for the same set of expenses.
With the non-deductible threshold removed, you will only need to ensure the following applies when you claim a self-education deduction:
You incurred the expense in gaining or producing your assessable income.
The expense isn't private, domestic or capital in nature.
The deduction isn't prevented by another provision of the tax law (eg such as some childcare and travel expenses that would previously been useable to reduce the $250 threshold).
The changes applies for tax assessments for the 2022-2023 income year and onwards.
Electric Vehicle FBT Exemption Legislation is Now Law
Legislation to make certain electric vehicles exempt from Fringe Benefits Tax (FBT) has now been enacted into law.
Certain zero or low emission vehicles, provided as a car benefit on or after 1 July 2022, can be exempt from FBT.
For this exemption to apply, various criteria needs to be satisfied.
The car needs to have been both held and used for the first time by the employer on or after 1 July 2022 and it cannot have been subject to the luxury car tax when it was purchased.
For the 2023 income year, to qualify for this exemption, the car needs to cost less than the luxury car tax threshold for fuel efficient vehicles of $84,916.
A vehicle is a zero or low emissions vehicle if it meets both of these conditions:
It is either a battery electric vehicle, hydrogen fuel cell electric vehicle or plug-in hybrid electric vehicle.
It is designed to carry a load of less than 1 tonne and fewer than 9 people, including the driver.
Motorcycles and scooters are not cars for FBT purposes and do not qualify for the exemption, even if they are electric.
Please note that in relation to plug-in hybrid electric vehicles, there is a specific limitation on the FBT exemption. From 1 April 2025, a plug-in hybrid electric vehicle will not be considered a zero or low emissions vehicle under FBT law.
There are special provisions allowing the exemption to continue when a plug-in vehicle was provided as an exempt benefit under an agreement entered into before 1 April 2025 that continues after this date.
Although the private use of an eligible electric car is exempt from FBT, an employer still needs to include the notional value of the benefit when working out whether an employee has a reportable fringe benefits amount (RFBA). An employee has an RFBA if the total taxable value of the certain fringe benefits provided to them (or their associate) is more than $2,000 in an FBT year. The RFBA must be reported through Single Touch Payroll or on the employee's payment summary.
The amount of an RFBA reported for an employee is not added to an employee's taxable income for determining income tax and Medicare Levy liabilities. However, it is added to an employee's taxable income for calculating the Medicare Levy Surcharge liability, and is included in income tests for family assistance, child support assessments, and some other government benefits and obligations.