You may have heard a lot of buzz in the news regarding electric cars. What was once a car for the elite is now a far more common sight on the streets. Electric cars are becoming hot commodities, with one-third of electric vehicle sales in Australia occurring within New South Wales alone.

There have been numerous tax questions regarding the purchase of electric vehicles, which the government has discussed since their election in May.

Draft legislation (Treasury Laws Amendment (Electric Car Discount) Bill 2022) was released last month by the Federal Government to follow through with their election commitment to allow certain electric cars to be Fringe Benefits Tax (FBT) exempt.

In very broad terms, a business that acquires an electric car (with the car being used for private purposes/parked at private residences) will subject the employer to FBT. This can be a significant tax cost on top of already large expenditures.

If your business has been considering an electric vehicle as the new company car, this may have caused you to balk. But, an electric car is an attractive perk to offer employees as a fringe benefit.

The new draft release presents a new key tax planning consideration for employers (and employees) to save tax.

The exemption outlined in the draft release will be available for eligible electric cars with a retail price below the luxury car tax threshold for fuel-efficient cars ($84,916 for 2022 23) first made available for use on or after 1 July 2022. If you provide a car to your employees, it would be highly irregular for you to be worse off (even if you bought a car last year) to purchase/trade-in for a new car to take advantage of this proposed FBT exemption.

It also states that:

• If an employer provides a model valued at about $50,000 through this arrangement, the estimated FBT exemption should save the employer up to $9,000 a year per car.
• Individuals/employees using a salary sacrifice arrangement to pay for the same model would save up to $4,700 a year. A salary sacrifice arrangement involves the individual employee reducing their gross income to pay for the car, which effectively can reduce their personal tax bill.
• If eligible, businesses may claim a full tax deduction for the electric cars up to $64,741 for the 2022-23 year under the “temporary full expensing provisions.” At this stage, the temporary full-expensing provisions end on 30 June 2023.

Whilst the legislation is not yet passed as law, this is an opportune time for employers to consider whether they will update their internal policies and processes to allow salary sacrificing for electric cars to be a more attractive employer and/or change the priority to acquire electric cars for their business to save on FBT.

If you are looking for tax planning assistance to minimise your business’s FBT liability or for how an electric vehicle could benefit your business (and maximise its tax effectiveness), you should consult with a professional tax adviser (such as us).

Individuals upskilling and educating themselves during these down times may be eligible to claim a deduction for their self-education expenses. The deductions apply to self-education activities that are directly related to an individual’s work as an employee.

In the case that individuals are looking to claim self-education expenses based on a course’s relation to their work, the relation must mean:

• Maintaining or improving the specific skills or knowledge the individual requires in their current work activities;
• Resulting in, or likely to result in, an increase in the individual’s income from their current work activities.

There are many types of expenses you can claim as part of your self-education deduction, including:

• General course expenses (e.g. tuition fees, stationary, textbook, student union fees)
• Depreciating assets (e.g. computer, desk)
• Repair costs to assets used for self-education purposes
• Car assets (claimed using the cents per kilometre method)

Work-related self-education expenses cannot be claimed as part of a deduction. These expenses include travel expenses, child care costs related to attendance of courses and capital costs of items (e.g. computers, desk) acquired for self-education purposes.

Keep in mind that self-education courses which enable individuals to get new employment are not eligible for deduction claims. Some expenses also need to be apportioned between private purposes and use for self-education such as travel costs and depreciating assets. You will need to estimate your apportions and provide information on such expenses to be eligible to claim.

For more information on what you claim as self-education expenses, visit the ATO website or consult with a financial advisor.

The Federal Budget has reintroduced the $20,000 Instant Asset Write Off to benefit small businesses amidst the myriad of measures announced by the government. 

The instant asset write-off will return for the 2023-24 financial year (1 July 2023 to 30 June 2024). If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is available for each asset that costs less than $20,000.

Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.

Instant asset write-off can be used for:

• multiple assets if the cost of each individual asset is less than the relevant threshold
• new and second-hand assets.

If you are a small business, you must apply the simplified depreciation rules to claim the instant asset write-off. It cannot be used for assets that are excluded from those rules.

The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed, ready for use.

Eligibility to use instant asset write-off on an asset generally depends on the following:

• your aggregated turnover (the total ordinary income of your business and that of any associated businesses)
• the date you purchased the asset
• when it was first used or installed ready for use
• the cost of the asset being less than the threshold.

You are not eligible to use instant asset write-off on an asset if your aggregated turnover is $500 million or more.

The instant asset write-off does not apply for assets you start to hold and first use (or have installed ready for use) for a taxable purpose from 7:30pm (AEDT) on 6 October 2020 to 30 June 2023. You must immediately deduct the business portion of the asset’s cost under temporary full expensing. If temporary full expensing applies to the asset, you do not apply instant asset write-off.

The Temporary Full Expensing Measure Ceases 30 June 2023

Temporary full expensing was introduced to support businesses and encourage investment, as eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.

The deadline for the expanded Temporary Full-Expensing measure has not been extended by the Federal Budget 2023-24, meaning that it will cease on 1 July 2023, and the write-off will revert to $1,000 from that date.

If you attempt to use the Temporary Full-Expensing measure after 1 July 2023 for an asset over $20,000, you cannot claim anything in the 2023-24 tax return using it.

Businesses will likely feel a cashflow impact, as they will now need to spread depreciation deductions for assets more than $20,000 out over a number of years rather than claim them back up front.

Looking towards the future and want to ensure you’re doing the right thing regarding your tax? Come start a conversation with us so we can assist you with your tax planning needs.

The Low and Middle Income Tax Offset has been extended for another 12 months, meaning that taxpayers whose wage earnings situate them within a certain income bracket will again be able to receive a little extra cash back into their pockets again this year.

Tax offsets are also known as rebates and directly reduce the amount of tax payable on your taxable income. Sometimes, this can lead to the payable amount lowering to zero, but these rebates cannot be used on their own to get a refund.

You are only able to receive this amount after you have filed your tax return at the end of the financial year and in a lump sum amount that is in accordance with which wage bracket you are in and the amount you will receive.

You don’t need to complete anything in your tax return for your low or low and middle-income tax offset to be worked out for you. Instead, the amount of tax offset you will receive is worked out for you once your tax return is lodged.

If you earn under $37,000 this financial year, you will receive an offset of $225. For those who earn between $37,001 and $48,000, you will receive $255, with an additional 7.5 cents to every dollar above $37,000 up to a max of $1,080.

Those who earn between $48,000 and $90,000 a year are set to get the best deal, with up to $1,080 on the cards.

If you have any tax-related questions that the Federal Budget announcements have brought to your attention, speak with us for assistance.