Pay secrecy, job ads and flexible work amendments From 6 December 2023, employers can no longer employ an employee on a fixed-term contract that: is for 2 or more years (including extensions) may be extended more than once, or is a new contract: that is for the same or a substantially similar role as previous contracts with substantial continuity of the employment relationship between the end of the previous contract and the new contract, and either: the total period of the contracts is 2 or more years, the new contract can be renewed or extended, or a previous contract was extended. The changes were introduced as part of the Pay secrecy, job ads and flexible work amendments. See the Fair Work Ombudsman’s website for more details. How to contact us It's important to speak to a financial professional before taking any action. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

When trust distributions to a company are left unpaid What happens when a trust appoints income to a private company beneficiary but does not actually make the payment? The tax treatment of this unpaid amount was at the centre of a recent case before the Administrative Appeals Tribunal (AAT) that saw a taxpayer successfully challenge the ATO’s long-held position (Bendel and Commissioner of Taxation [2023] AATA 3074). For many years, the ATO’s position has been that if a trust appoints income to a private company beneficiary but does not actually make the payment, this unpaid amount can be treated as a loan. Under Division 7A of the tax rules, these loans can be taxed as unfranked dividends unless they are managed using a complying loan agreement with annual principal and interest repayments. This AAT decision challenges an important ATO position, with the tax outcomes being potentially significant for trust clients that currently owe (or may have owed in the past) unpaid trust entitlements to related private companies. But this is not the end of this story. On 26 October 2023, the Tax Commissioner lodged a notice of appeal to the Federal Court. There is no guarantee that the Federal Court will reach the same conclusion as the AAT. We will need to wait and see. As the case progresses, we will let you know about the impact. How to contact us It's important to speak to a financial professional before taking any action. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

Up to 10 years in prison for deliberate ‘wage theft’ Legislation currently being debated in Parliament will introduce a new criminal offence for intentional “wage theft”. If enacted, in addition to the criminal offence, a fine will apply. The fine is three times the underpayment and: For individuals - 5,000 penalty units (currently $1,565,000). For businesses - 25,000 penalty units (currently $7,825,000). The reforms are not intended to capture unintentional mistakes and a compliance ‘safe harbour’ will be introduced by the Fair Work Ombudsman for small businesses. In addition to addressing wage theft, the Bill also seeks to: Replace the definition of a ‘casual employee’ and create a pathway to permanent work. Change the test for ‘sham contracting’ from a test of ‘recklessness’ to ‘reasonableness.’ Bolster the powers of the Fair Work Commission including the ability to set minimum standards for ‘employee-like’ workers including those in the gig economy. Introduce a new offence of “industrial manslaughter” in the Work Health and Safety Act 2011. The Bill introducing the reforms has been referred to the Senate Education and Employment Legislation Committee. The Committee is scheduled to report back in February 2024. “Wage-theft” is illegal in Queensland, South Australia and Victoria under State laws. While the Federal Bill is not intended to interfere with State legislation, the impact of the interaction between the existing State legislation and the proposed Federal reforms is unclear. Over the last two years, the Fair Work Ombudsman has recovered over $1 billion in back payments, mostly from large corporates and universities. Court-ordered penalties of $6.4 million were paid by employers across this same time period. How to contact us It's important to speak to a financial professional before taking any action. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

Underpayment of the super guarantee Workers are owed over $3.6 billion in superannuation guarantee according to the latest Australian Taxation Office estimates – a figure the Government and the regulators are looking to dramatically change. Superficially, the statistics on employer superannuation guarantee (SG) compliance look pretty good with over 94%, or over $71 billion, collected without intervention from the regulators in 2020-21. The net gap in SG has also declined from a peak of 5.7% in 2015-16 to 5.1% in 2020-21. The COVID-19 stimulus measures helped drive up the voluntary contributions with the largest increase in 2019-20, which the Australian Taxation Office (ATO) says they “suspect reflects the link between payment of super contributions and pay as you go (PAYG) withholding by employers. PAYG withholding is linked to the ability to claim stimulus payments such as Cash Flow Boost.” Despite these gains, a little adds up to a lot and 5.1% equates to a $3.6 billion net gap in payments that should be in the superannuation funds of workers. Lurking within the amount owed is $1.8 billion of payments from hidden wages. That is, off-the-books cash payments, undisclosed wages, and non-payment of super where employees are misclassified as contractors. In addition, the ATO notes that as at 28 February 2022, $1.1 billion of SG charge debt was subject to insolvency, which is unlikely to ever be recovered. Quarterly reporting enables debt to escalate before the ATO has a chance to identify and act on an emerging problem. Employers should not assume that the Government will tackle SG underpayments the same way they have in the past with compliance programs. Instead, technology and legislative change will do the work for them. Single touch payroll matched to super fund data Single touch payroll (STP), the reporting mechanism employers must use to report payments to workers, provides a comprehensive, granular level of near-real time data to the regulators on income paid to employees. The ATO is now matching STP data to the information reported to them by superannuation funds to identify late payments, and under or incorrect reporting. Late payment of quarterly superannuation guarantee is emerging as an area of concern with some employers missing payment deadlines, either because of cashflow difficulties (i.e., SG payments not put aside during the quarter), or technical issues where the timing of contributions is incorrect. Super guarantee needs to be received by the employee’s fund before the due date. Unless you are using the ATO’s superannuation clearing house, payments are unlikely to be received by the employee’s fund if the quarterly payment is made on the due date. The super guarantee laws do not have a tolerance for a ‘little bit’ late. Contributions are either on time, or they are not. When SG is paid late If an employer fails to meet the quarterly SG contribution deadline, they need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement within a month of the late payment. The SGC applies even if you pay the outstanding SG soon after the deadline. The SGC is particularly painful for employers because it is comprised of: The employee’s superannuation guarantee shortfall amount – i.e., the SG owing. 10% interest p.a. on the SG owing for the quarter – calculated from the first day of the quarter until the 28th day after the SG was due, or the date the SG statement is lodged, whichever is later; and An administration fee of $20 for each employee with a shortfall per quarter. Unlike normal SG contributions, SGC amounts are not deductible, even if you pay the outstanding amount. And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee’s salary or wages rather than their ordinary time earnings (OTE). An employee’s salary and wages may be higher than their OTE, particularly if you have workers who are paid overtime. It's important that employers who have made late SG payments lodge a superannuation guarantee statement quickly as interest accrues until the statement is lodged. The ATO can also apply penalties for late lodgment of a statement, or failing to provide a statement during an audit, of up to 200% of the SG charge. And, where an SG charge amount remains outstanding, a company director may become personally liable for a penalty equal to the unpaid amount. The danger of misclassifying contractors Many business owners assume that if they hire independent contractors, they will not be responsible for PAYG withholding, superannuation guarantee, payroll tax and workers compensation obligations. However, each set of rules operates slightly differently and, in some cases, genuine contractors can be treated as if they were employees. There are significant penalties faced by employers that get it wrong. A genuine independent contractor who is providing personal services will typically be: Autonomous rather than subservient in their decision-making; Financially self-reliant rather than economically dependent on your business; and Chasing profit (that is, a return on risk) rather than simply accepting a payment for the time, skill and effort provided. ‘Payday’ super from 1 July 2026 The Government intends to introduce laws that will require employers to pay SG at the same, or similar time, as they pay employee salary and wages. The logic is that by increasing the frequency of SG contributions, employees will be around 1.5% better off by retirement, and there will be less opportunity for an SG liability to build up where the employer misses a deadline. Originally announced in the 2023-24 Federal Budget, Treasury has released a consultation paper to start the process of making payday super a reality. Subject to the passage of the legislation, the reforms are scheduled to take effect from 1 July 2026. What is proposed? The consultation paper canvasses two options for the timing of SG payments: on the day salary and wages are paid; or a ‘due date’ model that requires contributions to be received by the employee’s superannuation fund within a certain number of days following ‘payday’. A ‘payday’ captures every payment to an employee with an OTE component. The SGC would also be updated with interest accruing on late payments from ‘payday’. Currently, 62.6% of employers make SG payments quarterly, 32.7% monthly, and 3.8% fortnightly or weekly. We’ll bring you more on ‘payday’ super as details are released. For now, there is nothing you need to do.

Property investors who choose to utilise their property for short-term stays (or leave it vacant) are firmly in the sights of the regulators. The Victorian Government’s recent Housing Statement announced Australia’s first short-stay property tax. The additional tax, which is scheduled to come into effect from 1 January 2025, is expected to generate $70 million-plus annually. The Short Stay Levy will be set at 7.5% of the short stay accommodation platforms’ revenue – so, a few days in Melbourne at $850 will cost an extra $63.75 taking the stay to $913.75. According to the statement, there are more than 36,000 short-stay accommodation places - with almost half of these in regional Victoria. More than 29,000 of those places are entire homes. Airbnb’s ANZ Country Manager Susan Wheeldon however says that “short-term rentals in Victoria make up less than one percent of total housing stock. Acute housing issues existed long before the founding of Airbnb, and targeting these properties is not a long-term solution.” Property investors are now braced for an onslaught of similar taxes at either the local Government or State level. For Victorian investment property owners this comes after a temporary land tax surcharge from the 2024 land tax year and for those keeping a property vacant, an increase to the absentee owner surcharge rate from 2% to 4% including a reduction in the tax-free threshold from $300,000 to $50,000 (for non-trust absentee owners). Some local Government taxes on Airbnb-style accommodation will be removed once the new tax comes into effect. Some Councils already impose a surcharge on short-stay accommodation. Brisbane City Council for example imposed a 50% rate surcharge on properties listed for short-term rental for more than 60 days a year in their 2022-23 Budget, only to increase it to 65% in 2023-24. What happens overseas? Bed taxes in some form are not uncommon internationally but it is unusual to isolate one form of tourist accommodation from another as the Victorian Government has chosen to do. Also unusual is the 7.5% rate – many local taxes on short-stay accommodation are in the 5% range (despite California’s Transient Occupancy Tax of up to 15% depending on the region you are staying). Globally, the idea of taxing vacant and short-term accommodation is also not new. In British Columbia, the Underused Housing Tax - a 1% tax on the ownership of vacant or underused housing introduced from 1 January 2022 - has been credited with increasing the rental stock by up to 20,000 properties. Taking the alternative route to freeing up rental stock, New York introduced new rules in September 2023 that severely restrict Airbnb-style accommodation options. Hosts need to register with the city if they offer accommodation for less than 30 consecutive days (unless their building is exempt as a hotel or accommodation establishment). Under the new rules, the host must permanently reside in the property - entire properties will no longer be available - and, only two guests are allowed. The platforms are responsible for monitoring and enforcing compliance with the new rules. New York is not alone in curbing the rise of short-term rentals. Amsterdam, Paris and San Francisco limit the number of days in a year an entire residence can be listed – between 30 and 90 days. Closer to home in Byron Bay, the Byron Bay Council will limit “non-hosted holiday letting to 60 days per year for most of the Shire” from 23 September 2024. But do restrictions on Airbnb create rental stock? According to Professor Nicole Gurran, from the University of Sydney’s School of Architecture, Design and Planning, if Australia is serious about controlling short-term rentals to solve Australia’s long-term rental crisis, then more needs to be done. “In comparison to much of the international regulation of the short-term rental market, Australia is very “light touch”. The overarching aim is to encourage the tourism economy. While this might have been appropriate five years ago when the rental market was in better shape, and long-term housing demand focused on inner city areas, the current crisis demands a new approach. Regulations must be tailored to the conditions of local housing markets, rather than the one-size-fits-all approach that exists today,” Professor Gurran says. In a 2017 study, Professor Gurran and Professor Peter Phibbs found that Airbnb absorbed 7% of stock in one Sydney municipality. So, where is all this going? Governments are unlikely not to take advantage of the opportunity to share in what has become a lucrative short-term rental market. What that looks like will really depend on the States and Territories. Beyond revenue, further regulation is likely to ensure that private gain from short-term rentals is not at the expense of supply of long-term accommodation.

What can you claim? The Australian Taxation Office has released a new draft ruling on self-education expenses. We revisit the deductibility of self-education expenses and what you can and can’t claim. If you undertake study that is connected to your work you can normally claim your costs of that study as a tax deduction - assuming your employer has not already picked up your expenses. There is also no limit to the value of the deduction you can claim. While this all sounds great and very encouraging there are still issues to consider before claiming your Harvard graduate degree, accommodation, and flights as a self-education expense. Clients are often surprised by what cannot be claimed. Self-education expenses are not deductible if you are undertaking the education to obtain a new job or something not connected to how you earn your income now. Take the example of a nurse’s aide who attendees university to qualify as a registered nurse. The university degree and the expenses associated with degree are not deductible as the nursing degree is not sufficiently connected to their current role as a nurse’s aide. The ATO has recently released a new draft ruling on self-education expenses. While the ruling does not introduce new rules, it does reinforce what the ATO will accept…and what they won’t. Personal development courses While not always the case, one of the key challenges in claiming deductions for self-development or personal development courses is that the knowledge or skills gained are often too general. Take the example of a manager who is having difficulty coping with work because of a stressful family situation. She pays for and attends a 4-week stress management course. In that case, the stress management course is not deductible because the course was not designed to maintain or increase the skills or specific knowledge required in her current position. When your employment ends part the way through your course If your employment (or your income-earning activity) ends part the way through completing a course, your expenses are only deductible up to the point that you stopped work. Anything from that point forward is not deductible (that is until you obtain a new role and assuming the course remains relevant). Overseas trips with some work thrown in Overseas study tours are deductible in limited circumstances. If you are travelling overseas, you need to prove that the dominant purpose of the trip is related to how you earn your income. Factors that help demonstrate this include the time devoted to the advancement of your work-related knowledge, the trip not being merely recreational, and that the trip was requested by or supported by your employer. The ATO are strict on this. Take the example of a senior lecturer in history at a University. He takes a trip to China with his wife while on leave over the Christmas break to update his knowledge on his area of academic interest. While his job does not require him to undertake research, he incorporated some of the 600 photos he took and some of the learnings from the tour into the courses he teaches. Despite having a relationship to work, the trip is not deductible as, while relevant in some ways to his field of activity, it is incidental to the overall private and recreational nature of the trip. Overseas conference with some recreation thrown in We’ve all had them. Conferences where you spend a few days in sessions and then a day (or more) of touring or golf. When the dominant purpose of the trip is related directly to your work, then the ATO are more accommodating. If the leisure time, for example an afternoon tour organised by the conference, is incidental to the conference itself, then you can claim the full conference expenses. Where you are extending your stay beyond the conference dates and this isn’t considered incidental, then you apportion the expenses and only claim the portion related to the conference. Let’s say you attend a conference for four days, then spend another four days on holiday. Assuming the conference is directly related to your work, you can claim your expenses related to the conference (assuming they were not picked up by your employer), and half of your airfare (as it’s a 50/50 split on how you spent your time between the conference and recreation). Not fully deductible? Part of the course might qualify If a particular course is not entirely deductible, a deduction may still be available for some of the course fees where there are particular subjects or modules in that course that are sufficiently related to your employment or income-earning activities. In these cases, the course fees would be apportioned. Take the example of a civil engineer who is completing her MBA. While the MBA itself may not have a sufficient connection to her engineering role to be fully deductible, her expenses related to the project management subject she took as part of the degree could qualify. Interaction with government assistance If your course is a Commonwealth supported place, you cannot claim the course fees. But, the deductibility of course fees are not impacted merely because you borrow money to pay for those fees, for example a full-fee paying student using a government FEE-HELP loan to pay for course fees. A warning on large claims There is no limit on the amount you can claim as a self-education expense but the ATO is more likely to target large self-education expenses. For anyone who has completed post-graduate study you know that these expenses can ratchet up very quickly, particularly when you add in any other expenses such as books or travel. It’s important to ensure that there is a clear connection between your current job or business activity and the self-education expenses before you claim them. Airfares incurred to participate in self-education, provided you are not living at the location of the self-education activity, are deductible. Airfares are part of the cost of undertaking the self-education activities. How to contact us It's important to speak to a financial professional before taking any action on tax deductions. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000 Read more tax planning topics here » Access our free tax factsheets here »

"You can't stop the waves, but you can learn to surf" — Jo Kabat-Zinn The 2023-24 NSW State Budget has a strong focus on tightening tax compliance, as well as changes to a number of exemptions and duties. It does not explicitly mention specific measures targeted at small businesses however it does mention some broader economic and infrastructure initiatives that could indirectly benefit small businesses. The State Budget also includes an expansion to the First Home Buyers Assistance Scheme to support FHBs with a stamp duty exemption for purchases up to $800,000 and a concession for purchases between $800,000 and $1 million. Five out of every six first home buyers will pay no stamp duty, or a concessional rate, after the Government expanded stamp duty exemptions and concessions from 1 July. 31 October deadline for tax returns Collins Hume clients have an extended lodgement program to lodge tax returns with the vast majority having until 15 May to lodge. This allows us to spread the workload out over 11 months of the year. The reminder everyone is seeing in the news at the moment is just for those members of the public who don’t use an accountant or tax agent. Climate credentials renewed Props to the Collins Hume team for all the effort and conscientiousness that allowed us to be formally re-recognised as a sustainable business by 1% for the Planet and Climate Neutral for another year! We're thrilled that by coming to work every day, we can add value to our clients’ businesses and lifestyles, whilst doing our bit to make the planet a healthier and happier place. Let us know which other topics we covered in our latest Strategist newsletter are of particular interest or concern to you:

Collins Hume takes strides against childhood cancer in 24-Hour Ox Charity Run This past weekend, Collins Hume CEO Christopher Atkinson, together with his BFT Ballina gym teammates, harnessed their endurance racing skills to smash the Ox Charity Run, a 24-hour nonstop 100-kilometre charity run aimed at raising funds and awareness for Diffuse Intrinsic Pontine Glioma (DIPG), the deadliest form of childhood brain cancer. This initiative was particularly close to the heart of our region, with racers undertaking this challenging endeavour in memory of 9-year-old Frankie from Lennox Head, who lost her battle with DIPG. The race, which took place over the whole weekend, garnered amazing community support and was sold out. The Lennox Head caravan park/surf club area served as the event hub with attendees enjoying a lively atmosphere with DJs, food and plenty of positive vibes as participants ran, jogged, and walked to fundraise for DIPG. Chris, along with team members Steph and Lilly from BFT Ballina and Matty Wiggins from Rhythm Home Loans, formed the BFT Ballina team. Despite the anticipated challenges from midnight to 6am, Chris was enthusiastic about raising as much as possible for this very worthy cause. Another noteworthy team, BFT Ballina/McGrath Northern River, featured James Aubusson, Ryan McPharlane, Kirby and Bill Johnstone, who ran alongside Ballina BFT were just as committed to raising awareness and funds for DIPG. In the weekend washout, the charity run achieved a significant milestone by surpassing the $75,000 fundraising goal and is now into six figures. If you’d like to help, please tip in and top-up donations: Community members enthusiastically encouraged the festivities Lennox Head. Their incredible support not only uplifted the spirits of the runners but also generated much-needed positive energy. Special mention to Chris’ family for setting up their position and making a day of it with camp chairs and prosecco! In a world flooded with negative news, Collins Hume is proud to be part of initiatives like the Ox Charity Run that highlight the power of community, resilience and the enduring spirit of giving. For more information and updates or to help out with a donation, please visit https://rundipg-org.grassrootz.com/the-ox-2023-lennox-head Collins Hume's Legacy Like many, we want to leave a positive and long-lasting legacy — one that’s about contribution as opposed to consumption. At Collins Hume, it’s important to us that we witness first-hand the positive difference we make. We want to make a ‘living legacy that will be timeless. Every day, we feel deeply privileged to live, work and play in one of the most beautiful and prosperous regions in Australia and the world. We want to add to that beauty and prosperity locally and worldwide and our giving plays a part in making sure of that. Read more at https://www.collinshume.com/legacy. This year Collins Hume also successfully obtained recertification for both our "1% for the Planet" and "Climate Neutral" certifications. This reaffirms our commitment to the environment, our planet and our stance as a for-purpose business. As we move forward, it's great to see our collective efforts making a positive difference. Our dedication not only strengthens our business as one of the most purposeful accounting firms in Australia but also aligns with our core values. For more details, visit 1% for the Planet and Climate Neutral. Read more about Chris Atkinson in our flipbook.

That's a Wrap Folks! And what a grand final it was! Congrats to all the Panthers fans out there 😎 and commiserations to all the Broncos faithful 😪 Thank you to everyone for taking part this year — there certainly were some great tussles throughout with some well-timed joker rounds playing a big part. Well done to Mr BHG coming away with the overall win ($300), 7 points clear of GeePee in second place ($100), with bjk84 nipping at GeePee's heels to take third, a very close 1 point behind! You'll each have an email in your inbox from us to arrange transfer of prize money. Thanks again and hope to see you again for the 2024 season!

Treasury super update Treasury has released draft legislation to enact the Government’s plan to increase the tax rate on earnings on superannuation balances above $3m from 15% to 30% from 1 July 2025. This is the final step before the legislation is introduced into Parliament and a step closer to reality. The draft legislation appears largely unchanged from the Government’s original announcement. The proposed calculation aims to capture growth in total super balance (TSB) over the financial year allowing for contributions (including insurance proceeds) and withdrawals. This method captures both realised and unrealised gains, enabling negative earnings to be carried forward and offset against future years. The ATO will perform the calculation for the tax on earnings. TSBs in excess of $3 million will be tested for the first time on 30 June 2026 with the first notice of assessment expected to be issued to those impacted in the 2026-27 financial year. From a planning perspective, for those with superannuation balances close to or above $3m, it will be important to explore the implications to your personal situation – there is no one-size-fits-all strategy here and what is best for you will depend on your circumstances. Superannuation, even with the increased tax, remains a tax-efficient vehicle. How to contact us It's important to speak to a financial professional before taking any action on superannuation strategies. Contact Collins Hume Accountants & Business Advisers in Ballina or Byron Bay on 02 6686 3000.

Marisa Worling B Bus (Accounting) Xero Certified Adviser, CPA Following a career that has allowed her to serve the middle market as a business services accountant AND perfect her expertise as a SMSF specialist, Northern Rivers local Marisa Worling is a welcome addition to the Collins Hume team. Having worked as an accountant for a Big 4 outfit right through to mid-sized and local accounting firms here and over the border, self-confessed numbers person Marisa loves helping individuals and business owners make sense of their super funds. And the more complex the structure, the better! Marisa has slotted into her new role at Collins Hume following the departure of long-time SMSF Accountant, Chris Priester. She is currently knocking the firm’s CLASS super software system into shape, preparing super fund accounts and doing the subsequent tax returns. She also plays a key role in liaising with Financial Planners and SMSF auditors. “I like keeping the super funds processed and all updated to give each client a clear picture of a point in time with respect to the value and growth in the fund.” “Whilst it’s great to concentrate on one area well to specialise and help business owners and individuals, it’s just as important to have a good connection with auditors and Financial Planning alike,” says Marisa. Marisa’s dedication is not just reserved for office hours. She is a passionate trail runner on a mission. A few years ago Marisa competed in the Blue Mountains 50km Trail event but had to pull up short with leg pain at the 28km mark. She found out that she had Stage 4 Melanoma which had spread to her skull. After intensive surgery and treatment, including a titanium plate and rod, she plans to finish what she started! You can find her pounding the hinterland trails most weekends preparing for the big race. As a result, Marisa is a passionate fundraiser for Mission Melanoma, Jay Allen The Melanoma Man and the Australian Skin Cancer Foundation. She recently raised over $1,000 and has even walked a leg with Jay in Sydney! You can also find Marisa volunteering at Ballina Lighthouse & Lismore Surf Club and performing in the role of Director of Finance for the Surf Life Saving Far North Coast Branch. Now following the pandemic and a move to Collins Hume in 2022, Marisa loves the variety of people on the team and getting to work with the Partners on a varied range of clients. “I enjoy helping business owners plan for their futures and spot opportunities that present themselves in the financials. The people at Collins Hume, both the team and clients, make my work very interesting.” Copyright 2022. Collins Hume Accountants & Business Advisers. Ballina & Byron Bay NSW

Electricity is the new black. Gas and other fossil fuels are out. A new, limited incentive nudges business towards energy efficiency. We show you how to maximise the deduction! The small business energy incentive is the latest measure providing a bonus tax deduction to nudge the investment behaviour of small and medium businesses, this time towards more efficient energy use and electrification. Fossil fuels are out, gas is out, electricity is the name of the game. Legislation before Parliament will see SMEs with an aggregated turnover of less than $50 million able to claim a bonus 20% tax deduction on up to $100,000 of their costs to improve energy efficiency in the business. But, the tax deduction is time limited. Assuming the legislation passes Parliament, you only have until 30 June 2024 to invest in new, or upgrade existing assets. How much? Your business can invest up to $100,000 in total, with a maximum bonus tax deduction of $20,000 per business entity. The energy incentive is not provided as a cash refund, it either reduces your taxable income or increases the tax loss for the 2024 income year. What qualifies? The energy incentive applies to both new assets and expenditure on upgrading existing assets. There is no specific list of assets that can qualify. Instead, the rules provide a series of eligibility criteria that need to be satisfied. First, the expenditure incurred in relation to the asset must qualify for a deduction under another provision of the tax law. If your business is acquiring a new depreciating asset, it must be first used or installed for any purpose, and a taxable purpose, between 1 July 2023 and 30 June 2024. If you are improving an existing asset, the expenditure must be incurred between 1 July 2023 and 30 June 2024. If your business is acquiring a new depreciating asset the following additional conditions need to be satisfied: The asset must use electricity; and There is a new reasonably comparable asset that uses a fossil fuel available in the market; or It is more energy efficient than the asset it is replacing; or If it is not a replacement, it is more energy efficient than a new reasonably comparable asset available in the market; or It is an energy storage, time-shifting or monitoring asset, or an asset that improves the energy efficiency of another asset. If you are improving an existing asset the expenditure needs to satisfy at least one of the following conditions: It enables the asset to only use electricity, or energy that is generated from a renewable source, instead of a fossil fuel; It enables the asset to be more energy efficient, provided that asset only uses electricity, or energy generated from a renewable source; or It facilitates the storage, time-shifting or usage monitoring of electricity, or energy generated from a renewable source. What doesn’t qualify? Certain kinds of assets and improvements are not eligible for the bonus deduction, including where the asset or improvement uses a fossil fuel. So, hybrids are out. Solar panels and motor vehicles are also excluded. In addition, the following assets are specifically excluded from the rules: Assets, and expenditure on assets, that can use a fossil fuel; Assets, and expenditure on assets, which have the sole or predominant purpose of generating electricity (such as solar photovoltaic panels); Capital works (such as buildings and structural improvements); Motor vehicles (including hybrid and electric vehicles) and expenditure on motor vehicles; Assets and expenditure on an asset where expenditure on the asset is allocated to a software development pool; and Financing costs, including interest, payments in the nature of interest and expenses of borrowing. What does qualify? The legislation contains a few examples of what would qualify: Electrifying heating and cooling systems Upgrading to more efficient fridges and induction cooktops (for example replacing gas cooktops) Installing batteries and heat pumps Installing an electric reverse cycle air conditioner instead of a gas heater Replacing a coffee machine with a more energy-efficient coffee machine if the manufacturer’s electricity consumption information supports this – keep the documentation! Thermal storage that can store heat or cold from a renewable source Solar thermal hot water system (assuming it meets the other criteria). The legislation to implement the energy incentive is before Parliament. We’ll keep you updated on its progress. If you intend to make a major outlay to take advantage of the bonus deduction, talk to us first just to make sure it qualifies.