The tax changes small businesses need to know about in 2023

Australia’s tax system is notoriously complex. From asset write-offs to amnesties, we’ll take you through the tax laws affecting small businesses in 2023.

Australia’s tax laws are a bit like that one friend who constantly changes their mind. Just when you think you’ve got your plans sorted, they throw you a curveball. 

It’s no wonder, then, that Australia has one of the most complex tax systems in the world. From deducting sunglasses to your spouse’s income affecting your own tax bill, taxes can be quite the rollercoaster.

And while it may seem like the big corporates always get the upper hand, there are still plenty of benefits for small and medium-sized businesses to take advantage of, if you know where to look.

In this article, we’ll outline all the tax changes that businesses need to be up to speed with as FY23 ticks over to FY24. So grab a cuppa, put on your reading glasses, and let’s dive into the exciting world of taxes. (Yes, we just used ‘exciting’ and ‘taxes’ in the same sentence. You know you’re in for a wild ride).

Homer Simpson concentrating with tiny glasses

No take backs

At the peak of the COVID-19 crisis, the Australian Government introduced a range of concessions and initiatives to give businesses a boost during challenging times. 

These measures are gradually being done away with – including the Loss Carry Back Tax Offset program, which enabled eligible businesses to offset their tax losses against previously paid taxes.

In other words, if you made a taxable profit in a previous year, and you incurred a loss in subsequent years, you could get immediate relief in the form of a refund. 

The initiative won’t be extended beyond FY23, which means that from FY24, businesses will no longer be able to offset losses against previous years’ profits. This change may require businesses to reassess their tax strategies and consider alternative methods to manage their tax liabilities.

In practice, we have seen the ATO ramp up their reviews of this particular initiative in recent months – proving that they’ll never give away money too easily!

Eligibility for the instant write-off is narrowing

Small (well, actually, pretty much all) businesses have benefited from the Temporary Full Expensing policy, which is essentially an instant asset write-off scheme on steroids. 

Originally set at a $1,000 asset limit for small businesses when it was first introduced way back in 2011, the instant asset write-off scheme allows businesses to immediately claim a full tax deduction on purchases up to a certain value, rather than having to write off the cost over several years using standard depreciation schedules. 

The asset limit rose and fell over the years, eventually getting as high as $30,000 in 2019. Then, with the onset of COVID-19 in 2020, the limit was lifted to $150,000, and the turnover limit for eligible businesses went all the way up from $10 million to $500 million. 

Later in 2020, as it became clear the pandemic would have long-lasting economic effects, Temporary Full Expensing was introduced to stimulate investment and growth, allowing any business with an annual turnover under $5 billion to claim an immediate deduction on the full value of any eligible asset. 

This temporary measure was expanded to FY22, with small business groups arguing that it should be made permanent.  

But all good things must come to an end, and the Government has chosen not to expand Temporary Full Expensing into FY23.

But it’s not all bad news for small businesses. Those with an annual turnover of less than $10 million can still continue to enjoy the privilege of instantly deducting the full cost of eligible assets, as long as they fall under the new $20,000 threshold, until 30 June 2024. (This returns the asset write-off limit to the same level it was at in 2015.) 

For businesses seeking to capitalise on these provisions, ensure that your assets are either utilised or installed and ready for use before the impending deadline (30 June 2023 for Temporary Full Expensing; 30 June 2024 for the new $20,000 threshold).

Seize the opportunity, make strategic asset investments, and maximise the benefits before time runs out. 

There’s a reason why we reiterate this message every year – don’t buy something solely for the sake of a tax deduction. The big changes effective from 1 July 2023 should dictate whether or not you should expedite a particular purchase, but it shouldn’t be the sole determining factor in whether you make a big acquisition in the first place.

No more shortcut rate for working from home

The ATO has changed the way deductions are claimed for expenses incurred while working from home. The new rules eliminate the previously available shortcut method of claiming 80 cents per hour, and the fixed rate method of claiming 52 cents per hour. The shortcut rate was initially introduced as a COVID-19 concession; however, we contend that it wasn’t all that concessional for many employees working from home. But moving on…

The removal of the shortcut rate means that individuals will need to calculate deductions for working from home expenses based on actual costs incurred, or by using the revised fixed rate of 67 cents per hour, which applies from 1 July 2022. 

The revised fixed rate covers additional expenses incurred in relation to energy, internet usage, mobile and home phone usage, and stationery and computer consumables. But it doesn’t include depreciation deductions for assets used while working from home (such as computers and other electronic equipment), which can now be claimed separately. 

Unlike the old fixed rate method, you no longer need to have a dedicated home office to be able to use the revised rate. On the other hand, the record-keeping requirements have gotten more onerous – whereas an estimate or four-week representative diary could previously be used, individuals now need to keep actual records of all hours worked from home for the entire income year to be able to claim the revised fixed rate. 

For businesses, it’s important to communicate these changes to employees to ensure compliance with the updated rules. 

A technology investment boost could be on the way for small businesses, but don’t count on it

In March 2022, as part of the 2022-23 Budget, the Morrison Government announced the Technology Investment Boost for small businesses, which would allow businesses with an annual turnover of less than $50 million, to deduct an additional 20 per cent of the expenditure incurred for their digital operations. 

But while the Albanese Government has said it intends to push forward with the Technology Investment Boost, as well as its sister scheme, the Skills and Training Boost, the legislation underpinning these tax breaks hasn’t been passed yet, and you won’t be able to claim the boosts until the law has been enacted. 

Were the legislation to pass, even something as simple as getting a Xero subscription could result in an extra deduction. It’s a free kick for small businesses – but only if the legislation ends up passing. 

On that note however, the legislation might be backdated (in fact, it seems to be showing as a line item in the company tax return – so that’s a telling sign!) As such, good detailed records will go a long way to identifying these extra deductions.

Small business, big energy

Another measure announced by the Government that hasn’t been passed into law yet is the Small Business Energy Incentive. 

Under this Small Business Energy Incentive, businesses with a turnover of less than $50 million would be able to claim an additional 20 per cent deduction on investments made towards more energy-efficient practices. 

Specific details and eligibility criteria are yet to be finalised – but if it becomes law, this incentive presents an opportunity for businesses to claim deductions when investing in things like electrifying their heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

In an attempt to address rising electricity prices, the Australian Government is also partnering with state and territory governments to provide an Energy Bill Relief Fund. Small businesses will be eligible to receive bill relief of up to $650, depending which state or territory they’re in. 

The days of plug-in hybrid electric vehicles qualifying for the FBT exemption are numbered

Cars are one of the most popular fringe benefits employers can offer employees, either under a salary sacrifice arrangement or through the personal use of a company car. 

From 1 July 2022, employers haven’t had to pay Fringe Benefits Tax (FBT) on certain zero or low emissions vehicles, as long as the first time the vehicle was both held and used was after that date. 

But businesses should be aware of a significant change to the initiative that’s on the horizon – from 1 April 2025, plug-in hybrid electric vehicles will no longer be considered zero or low emissions vehicles for the purposes of FBT law. 

The only way you’ll still be able to apply the exemption after that date is if you have a financially binding commitment in place before then to continue providing private use of the vehicle. Any optional extension of the agreement after 1 April 2025 won’t be considered binding. 

So, for instance, if you have a lease for a plug-in hybrid that starts now and runs to 30 June 2026, the exemption will apply until then – but if you then choose to extend the lease until 2028, the exemption won’t apply to that extension.

Single Touch Payroll (STP) has been expanded

Single Touch Payroll (STP) is an ATO initiative intended to streamline the reporting of employee pay, tax withheld and superannuation. One notable recent change impacting businesses is the implementation of STP Phase 2, which requires them to disclose more information to the ATO than in previous years. 

The adjustments needed to accommodate the changes should not significantly impact most businesses, but it’s important to review and adapt your administrative processes accordingly to accommodate the updated reporting requirements. Keep in mind, too, that payroll info is usually required to be finalised via STP within two weeks of June 30.

Come back, all is forgiven

Haven’t paid your taxes in a while? Here’s your chance to get right with the ATO. A Lodgment Penalty Amnesty will be applied to wayward small businesses (with annual turnover of less than $10 million) to help them get back on track. 

The amnesty means that if you have outstanding tax statements that were due between 1 December 2019 and 29 February 2022, you won’t be hit with a penalty for lodging them from 1 June 2023 to 31 December 2023. 

Beyond tax

As mentioned earlier, while small business owners should be aware of the extra perks and opportunities available to them, it’s important to approach tax planning and decision making holistically, and consider factors beyond tax benefits. 

Sure, there are always opportunities to optimise your tax position – but you should never make decisions based solely on the tax benefits. 

For instance, small businesses can claim a large upfront deduction by pre-paying their rent up to a year in advance. That’s great – but then you may have nerfed your cash flow for a year to get a temporary tax advantage, and limited your ability to invest in other business needs throughout the year. Striking a balance between tax optimisation and business sustainability is key.

When you’re dealing with complicated tax matters, it’s always a good idea to get help from tax experts who know their stuff. They’ll offer personalised advice and help you make smart money decisions that fit your business goals and set you up for long-term success.

If you have any questions, reach out to us here at SBO Tax.

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