Tax Time With Mark Wellings

This quarter brings a suite of changes, from new compliance requirements and amendments to existing legislation to innovative tax strategies designed to maximise financial efficiency. For businesses, navigating these changes is particularly critical as they can directly impact profitability, compliance costs, and strategic planning.

We’ll delve into new tax concessions for small businesses, changes in GST reporting, and the latest rulings from the Australian Taxation Office (ATO) that could affect your business operations. Stay tuned to ensure your business remains compliant, optimises its tax position, and takes advantage of all available incentives in this dynamic economic environment.

If you would like a downloadable copy of Tax Time, click below.

Latest Australian Tax Developments

Payroll Tax and the medical services industry – Bulk billing support to ease cost-of-living pressure

As per the NSW 2024-25 State Budget, medical centres paying wages to GPs will receive payroll tax relief if they meet certain criteria. Starting 4 September 2023, there’s a 12-month pause on payroll tax audits for medical practices with GPs, without interest or penalties on unpaid payroll tax. Additionally, a new payroll tax rebate for contractor GPs will be introduced for clinics with bulk-billing rates above 80% in metropolitan Sydney and above 70% in the rest of the state.

Single Touch Payroll (STP) Phase 2

Effective from 1 January 2024, Phase 2 expands reporting requirements to include more detailed employee information, such as income types and termination details. Businesses need to update their payroll systems to comply with these new standards.

The ATO announces its priorities for Tax Time 2024

The ATO has announced it will be taking a close look at 3 common areas taxpayers are making in returns lodged this financial year. These include incorrectly claiming work-related expenses, inflating deduction claims for rental properties and failing to include all income when lodging a return. Work-from-home expenses will need comprehensive substantiation and rental landlords will need to carefully check their repairs and maintenance deductions.

Changes in reporting requirements for not-for-profits

If your not-for-profit has an active Australian business number (ABN), you need to lodge a NFP self-review return to access income tax exemption. Lodgements are required to be made from the 2023–24 income year onward and the ATO has now extended the deadline for NFP’s to lodge mandatory self-review forms to 31 March 2025.

Incentives to increase the supply of housing Build to Rent Projects

Whilst these measures are not yet law, On 28 April 2023, the Australian Government announced it would provide incentives to increase the supply of housing, by increasing the capital works tax deduction depreciation rate for eligible new build-to-rent projects from 2.5% to 4% per year, applying to projects starting after 9 May 2023, thus shortening the depreciation period from 40 to 25 years.

SMSF – The Fight for Amendments to Division 296 Continues

The Superannuation Imposition Bill 2023 and Treasury Laws Amendment Bill 2023, colloquially known as the legislation to introduce the Division 296 tax, remain before the House of Representatives in federal parliament. Despite criticisms, the Government is seeking to finalise Division 296 with minimal change, so people have 12 months to prepare for the new tax on July 1, 2025. This is still evolving and our internal superannuation experts will keep you abreast as this progresses.

2024 Financial Year Observations

As the 2024 financial year ended, observations across our diverse client network have echoed a common chorus, it is evident that small businesses are experiencing a dynamic shift in their profit and loss trends. This year has brought a blend of evolving economic conditions, regulatory changes, and technological advancements that are reshaping how businesses manage their finances. Observing these trends reveals a landscape where innovation and adaptability are crucial, and understanding these shifts is key to optimising financial outcomes and leveraging available opportunities.

With that in mind, here are some notable trends we have identified:

Profit and Loss Trends:

1. Revenue Growth and Diversification
   Revenue across all sectors showed strong increases. This was driven by diversification efforts such as expanding into new markets, developing new products, and enhancing online sales channels. The growth of e-commerce significantly boosted sales for businesses with robust online platforms.
2. Changes in Gross Profit Margins
   Some businesses experienced pressure on gross profit margins due to rising input costs, supply chain disruptions, and increased competition. To mitigate this, they implemented price adjustments and cost control measures and adjusted their product mix to focus on higher-margin items and services.
3. Cost Management and Operational Efficiency
   Labour Costs and Workforce Changes: Wage inflation continued across the board due to increased demand for skilled labour and adjustments to attract talent. The shift to hybrid and remote work models impacted labour costs, with some businesses saving on office expenses while others faced higher remote work technology and stipend costs. 
   Operational Efficiency: Businesses generally maintained operational efficiency. Prioritising streamlining processes, adopting automation, and renegotiating supplier contract and investment in digital transformation technologies have all led promised long-term savings and improved efficiency.
4. Increased Focus on Marketing and Customer Acquisition
   Businesses increased spending on marketing and customer acquisition, particularly in digital advertising, social media, and content marketing. They emphasised measuring ROI to ensure effective resource allocation and maximise customer acquisition.

Balance Sheet Trends:

1. Changes in Working Capital
   There’s a trend towards more stringent management of accounts receivable and payable, with businesses focusing on improving cash flow and reducing debtor days. Additionally, businesses are optimising inventory levels to balance supply chain disruptions and changing consumer demand. The fluctuations of these key working capital drivers (Cash, Debtors, Stock and Creditors) are ultimately affecting the ideal balance of a business’s liquid cash position.
2. Increased Focus on Cash Reserves
   Due to the varying mixes of their liquid cash position, many businesses are maintaining higher cash reserves as a buffer against economic uncertainties and potential disruptions and are placing an emphasis on liquidity management to ensure sufficient funds are available for operational needs and unexpected challenges.
3. Shifts in Liabilities and Debt Management
   Some businesses have increased borrowing to fund growth initiatives and manage cash flow, leading to higher levels of long-term debt on the balance sheet whilst actively refinancing debt to take advantage of favourable interest rates and manage debt profiles more efficiently.
4. Capital Investments
   With the end of the temporary full expensing measures, small businesses have slowed spending on major capital purchases, however there is a noticeable rise in capital expenditures related to technology upgrades and infrastructure improvements, reflecting businesses’ focus on digital transformation.

These updates reflect the current financial year’s significant changes in tax and accounting regulations as well as common trends affecting all businesses. Staying abreast of these developments is essential for businesses to ensure compliance, optimise tax positions, and leverage available opportunities. Please reach out to our expert team for further guidance and advice.

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