FBT exemption on electric cars

The Government has introduced the Treasury Laws Amendment (Electric Car Discount) Bill 2022 into Parliament.

The Electric Car Discount Bill proposes to amend the Fringe Benefits Tax Assessment Act 1986 to exempt from fringe benefits tax (FBT) cars that are zero or low emission vehicles held by a provider and are used by or made available for private use of an employee.

The Bill applies to fringe benefits provided on or after 1 July 2022 for cars that:

  • are eligible zero or low emissions vehicles (battery electric vehicles, hydrogen fuel cell electric vehicles, and plug-in hybrid electric vehicles);
  • are first held and used on or after 1 July 2022; and
  • have a first retail price below the luxury car tax threshold for fuel efficient cars ($84,916 for 2022–23).

The Treasurer stated that the Bill will encourage greater take up of electric cars and contribute to reducing transport emissions in Australia. The Government will review the effectiveness of this Bill after 3 years and whether this FBT exemption should continue.

Tax time common errors

When the ATO notices a discrepancy or error in an income tax return, its preferred approach is to correct this before issuing a notice of assessment to avoid future compliance interaction, debt, interest or penalty.

Of the 4.5 million individual income tax returns lodged in July 2022, the ATO adjusted approximately 170,000 returns to correct simple omissions and errors. A further 12,000 returns had been held for manual review for claims to be verified with the taxpayer/tax agent.

Common discrepancies and errors relating to individual income tax returns lodged in July 2022 related to:

  • Government allowances and payments — approximately 39% of adjusted returns related to errors or omissions for government allowances and payments as of 31 July 2022. The ATO observed taxpayers lodging early in tax time before this information was pre-filled, and also taxpayers adjusting or removing pre-filled amounts they do not recognise or removing the amounts because they believe the income is non-taxable.
  • Employment income and withholding — approximately 13% of adjusted returns related to employment income and withholding errors or omissions as of 31 July 2022. The adjustments occur where taxpayers lodge before their employer finalises their income data, or before the information is pre-filled on the tax return. Taxpayers with more than one employer who receive multiple income statements and payment summaries may be most impacted by this, as many do not realise some of their income is missing.

ATO focus on rental properties

The ATO has advised rental property owners to take extra care when lodging their 2022 tax returns. Income and tax deductions from rental properties is one of the four key focus areas for the ATO this tax time.

The ATO Random Enquiry Program has found that nine out of 10 tax returns that reported rental income and deductions contain at least one error, even though most of those property owners were assisted by a registered tax agent.

In particular, the ATO advised that rental property owners should review their records before declaring income or claiming deductions. Registered tax agents should also ask extra questions of their clients, notwithstanding that it is the taxpayer who is responsible for the claims they make on a tax return, not their registered tax agent.

Advice from the ATO regarding rental property income and deductions include:  

  • Ensure that you include all rental income — this includes rent from short-term rental arrangements, renting part of a home and other rental-related income like insurance payouts and rental bond money retained. The ATO receives rental income data from a range of sources including sharing economy platforms, rental bond authorities, property management software providers, and state and territory revenue and land title authorities.
  • Ensure that you are entitled to claim the relevant expenses — some expenses such as rental management fees can be claimed straight away, whereas other expenses such as borrowing expenses and capital works need to be claimed over a number of years.
  • Consider if any capital gains tax (CGT) consequences apply when selling a rental property — ATO Assistant Commissioner, Tim Loh, explained that ‘If you’ve sold a rental property that was once your home, you may be entitled to partially claim the [CGT] main residence exemption. You will need to claim this exemption in your tax return when you lodge.’
  • Foreign resident withholding — Mr Loh also reminded vendors selling any property for $750,000 or more need to have a clearance certificate otherwise tax at the rate of 12.5% will be withheld, even if the vendor is not a foreign resident.
  • Follow good record keeping practices — records of rental income and expenses should be kept for five years from the date of tax return lodgements, or five years after the disposal of an asset, whichever is longer.

Simplified trading stock rules

The ATO has updated its web guidance on the simplified trading stock rules on 1 July 2022. The simplified trading stock rules remove the requirement for certain taxpayers to conduct a formal stocktake and account for changes in the value of trading stock, where eligibility requirements are met.

The trading stock rules apply where an entity either:

  • is a small business entity with an aggregated turnover of less than $10 million; or
  • has an aggregated turnover of $10 million or more but less than $50 million — for income years starting on or after 1 July 2021.

If an entity satisfies the aggregated turnover test and the estimated value of its trading stock has changed by no more than $5,000 during the income year, the entity will be eligible to utilise the simplified trading stock rules.

Super guarantee case – contractor held to be an employee

The Federal Court’s judgment in JMC Pty Ltd v Commissioner of Taxation [2022] FCA 750 was released on 23 June 2022. The Court confirmed that the individual engaged by JMC Pty Ltd (JMC) to lecture and mark exams was an employee under both the ordinary meaning and the extended meaning of ‘employee’ in section 12(1) and section 12(3) of the Superannuation Guarantee (Administration) Act 1992 (SGAA). Accordingly, the Court upheld the assessments of superannuation guarantee (SG) charges issued by the Commissioner.

JMC provides higher education in the creative arts sector. JMC engaged Mr Nicholas Harrison (Mr Harrison), a qualified sound engineer, to lecture students and mark exams. Pursuant to the terms and conditions in a series of rolling contracts:

  • Mr Harrison was paid on an hourly basis for lecturing and marking exams.
  • Mr Harrison submitted invoices to JMC, detailing the particulars of his teaching services, supported by timesheets and signed lesson plans.
  • JMC’s managing academic officer had oversight and control over when, how, and where Mr Harrison provided his teaching services.
  • Although Mr Harrison had a right to delegate his teaching responsibilities, JMC had an unconditional right to decline the delegate, or the decision to delegate altogether. Further, Mr Harrison’s right to sub-contract was not unilateral and could be exercised only with JMC’s written consent. JMC therefore effectively had an unfettered discretion to refuse to give its consent.

Accordingly, JMC did not make any SG contributions for Mr Harrison as it did not consider him to be an employee for the purposes of the SGAA.

The Commissioner issued JMC with assessments for SG charges, JMC objected against the assessments, the ATO disallowed the objections and JMC appealed the Commissioner’s objection decision to the Federal Court. Wigney J dismissed JMC’s appeal, agreeing with the Commissioner that Mr Harrison was an employee under both the ordinary meaning of ‘employee’ in section 12(1) of the SGAA and the extended definition in section 12(3).

In reviewing the application of section 12(1), Wigney J determined that at common law this involved a multifactorial assessment, however the two recent High Court decisions in Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 (Personnel Contracting) and ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (Jamsek), emphasised the terms of the contract are decisive in making such an assessment.

Wigney J determined that the first and third elements of the extended definition (that there is a contract and the person works under that contract) were clearly satisfied, as a series of contracts existed for which Mr Harrison worked in accordance with. The second element (that the contract is wholly or principally for that person’s labour) was also satisfied as Mr Harrison was remunerated on an hourly basis rather than on the production of a result.

The Federal Court’s decision is of particular significance, as it is the first case to apply the High Court’s landmark decisions in Personnel Contracting and Jamsek. Wigney J has affirmed that where a relationship is comprehensively committed to a written contract, and providing the contract has not been challenged as a sham, or the terms of the contract have not been varied, waived or are subject to an estoppel, the parties’ contractual rights and obligations determine the character of the relationship, rather circumstances external to the contract.

Accessing superannuation due to financial hardship

The ATO has advised through web guidance published on 26 July 2022, that individuals experiencing severe financial hardship and wishing to access their superannuation to assist with general expenses must do so by requesting access from their superannuation funds. This service is not administered by the ATO.

To release benefits on the ground of severe financial hardship, superannuation funds must be satisfied that the individual making the request:

  • cannot meet reasonable and immediate family living expenses; and
  • has been receiving, and was in receipt of at the time of making the request, relevant government income support payments for a continuous period of 26 weeks.

If these two conditions are fulfilled, the superannuation fund may make a single lump sum of no more than $10,000 and no less than $1,000 (or a lesser amount if the member’s benefits are less than $1,000). Only one payment is permitted in any 12-month period.

Alternatively, there are no restrictions on the amount of lump sum accessible if the individual has reached their preservation age plus 39 weeks, and that the superannuation fund is satisfied that the member:

  • has been receiving relevant government income support payments for a cumulative period of 39 weeks since reaching their preservation age; and
  • was not gainfully employed on a full-time or part-time basis at the time of making the request to access superannuation due to severe financial hardship.