Now that the 2023/24 financial year has ended, it’s time for Australians to file their tax returns. Tax time can often be a stressful time of the year, but Nexis is here to help make it easy for you. We have compiled all the key information you need to know ahead of lodging your return for the 2023/24 tax year.
The ATO’s main residence exemption tips
The main residence exemption must be considered when a taxpayer sells a property they have lived in. Below are some key tips from the Australian Taxation Office (ATO) to help.
- When renting out a property that was their main residence, taxpayers must consider whether they can utilise the 6-year absence rule when selling their property.
- Taxpayers can only have one property as their main residence at any one time. The only exception is the 6 months when they move from one home to another.
- If income has been earned from their home (whether by rental income or running a business from home) taxpayers should consider if a market valuation for Capital Gains Tax (CGT) purposes is required.
- Has the taxpayer’s residency status changed? If so, this may affect eligibility for the exemption.
If you are planning on or have recently sold your current or former main residence, reach out to talk to one of our tax experts today and find out how we can help you this tax time.
Notice of Medicare levy exemption data-matching program
The ATO will obtain Medicare Exemption Statement data from Services Australia for the 2024 to 2026 income years, including individuals’ full names, dates of birth, residential addresses, entitlement status, and approved entitlement details.
The goals of this program are to ensure individuals are correctly claiming an exemption from payment of the Medicare levy and Medicare levy surcharge.
If applicable to your tax return, please expect a delay in the processing and/or the lodgement of your return until the required forms are on hand. We recommend starting this process now with Services Australia to help reduce your waiting time.
Family trust elections and interposed entity elections – keeping distributions in the family!
The Family Trust Distribution Tax (FTDT) is a special 47% tax that can be payable by a trustee of a Family Trust. It applies when a trust has made a Family Trust Election (FTE), or an entity has made an Interposed Entity Election (IEE) and makes a distribution outside the ‘family group’ as defined by the specified individual in the election.
Where such an election has been made by a trustee or another entity, the original election must be retained in the approved form. FTEs and IEEs can be lodged with the ATO.
Where elections are involved, taxpayers should consider the following on an annual basis:
- If the election is needed and whether it can, and should be, revoked.
- Whether the specified individual remains the most suitable person and, if not, whether the specified individual can and should be varied.
- The timeframes to vary or revoke elections (noting these are limited and that, outside these periods, the elections and the specified individuals cannot be changed).
- Not to make a determination to distribute outside the ‘family group’ unless specifically required and the tax implications have been fully considered.
It is important to recognise who the members of the specified individual’s family group are when making annual trustee resolutions, as distributions outside the family group will result in an FTDT of 47%.
If you are unsure about whether your discretionary trust should make an FTE or an IEE, reach out to your Nexis tax advisor today.
The ATO may cancel inactive ABNs
The ATO regularly reviews and will sometimes cancel inactive Australian Business Numbers (ABNs). The ATO may review a taxpayer’s ABN if the taxpayer has not reported business activity in their tax return, or if there are no signs of business activity in other lodgements or third-party information.
If the ATO thinks a taxpayer is no longer using their ABN, they will be contacted by email, letter or SMS.
If the taxpayer is still running a business, the ATO will tell them what they need to do to keep their ABN. If they are no longer in business, no action is required and the ATO will cancel their ABN.
Taxpayers who think they are still entitled to an ABN that has been cancelled need to reapply for it. If they restart their business activities, they should be able to reapply for the same ABN, provided that their business structure is not changing.
Please note we will send these notifications to taxpayers if we receive them from the ATO.
If you have had your ABN cancelled and need to reapply, contact your Nexis business advisor today to discuss how we can help.
Taxpayers win case to apply CGT small business concessions
The Administrative Appeals Tribunal (AAT) recently held that a trust was entitled to apply the CGT small business concessions and, therefore, it could reduce a capital gain it made down to nil.
In March 2015, a family trust agreed to the sale of its shares in a company for $3,500,000. In June 2015, the trustees of the trust passed a resolution apportioning the trust’s income for that year between the four taxpayers (e.g. two brothers and their wives) and distributing the capital gain made on the sale equally between those four taxpayers.
The determination of the trust’s net income for distribution to the beneficiaries considered the 50% CGT discount and CGT small business concessions, relying on a valuation of the shares (and underlying business) being $3,500,000.
The ATO, however, deemed the shares sold by the trust to have been disposed of for a market value of $10,640,000, based on an updated valuation report. This also meant that the trust was not entitled to the CGT small business concessions, as this valuation meant that it did not satisfy the CGT Maximum Net Asset Value (MNAV).
The ATO relied on the ‘market value substitution’ rule to substitute the value of $10,640,000 in place of the sale price of the shares. This meant that each taxpayer’s share of the 2015 trust distribution was increased from $321,989 to $1,194,174.
Concerning the MNAV test, the AAT needed to determine whether the net value of the CGT assets of the trust and its connected entities, exceeded $6,000,000.
The AAT preferred the approach taken by the valuers for the taxpayers, partly because they had given “more attention and consideration to this particular business and the circumstances and location in which it operates.”
The AAT accordingly concluded the total net value of the CGT assets of the trust (and connected entities) was below $6,000,000, so the MNAV test was satisfied, and the taxpayers’ objections to the amended assessments should be allowed.
Take away
This AAT case highlights the critical need for taxpayers to obtain written tax advice and market valuations to ensure any review undertaken by the ATO can be met with facts and substantiation. Without these, taxpayers can face significant tax imposts even where there has been no ‘foul play’.
If you are looking to sell, restructure or buy a business we strongly recommend you reach out to a Nexis advisor to discuss and ensure efficient tax outcomes are obtained.
If you would like assistance with lodging your 2023/24 tax return, get in touch today.
