In 2021 Tax Tips

Expert Advice: Key Changes In Taxation Law

Taxation law is always changing, and it can be difficult to keep up with all the changes. In this blog post, we will provide an overview of some of the key changes that have taken place in recent years. We will also provide advice on ensuring that you are compliant with the latest tax laws.

If you’re like most people, your head is spinning after hearing all the changes to the tax code. Especially if you’re self-employed. Well, don’t worry! 

We’ve got a team of experts who can help make sense of it all and guide you through what changes may impact you personally. We’ll outline some key changes that may affect you in this post, so read on for more information!

Are you someone who is affected by tax law changes? If so, it’s important to stay up-to-date on what’s new. In this blog post, we’ll give you a quick overview of some key changes that have taken place recently. So whether you’re a business owner or an individual taxpayer, be sure to read on!

As we all know, the world of taxation is complicated. The laws are always changing, and it can be difficult to keep up with everything. However, this year, you need to be aware of a few key changes in the taxation law. In this blog post, we will outline these changes and provide some expert advice on how you can best prepare for them.

If you’re like most small business owners, you’re probably wondering what the key changes in the new tax law mean for your bottom line. In this blog post, we’ll break down some of the most important changes and offer expert advice on best navigating them. So please sit back, relax, and let us help you make sense of it all!

Are you preparing your tax return and wondering what changes have been made in the law this year? You’re not alone. Every year, tax laws change, and it can be hard to keep up with what is required of you. 

This year, there are several key changes that you need to be aware of. So before you file, make sure you read this blog post to summarise the main changes. By understanding the new rules, you can avoid costly mistakes and ensure that your tax return is prepared correctly.

To help people understand the recent changes in taxation law, we have consulted with an expert in the field. 

This post will outline some of the key changes that may affect you and your finances. As always, please consult an accountant or tax specialist to ensure that you make the best choices for your situation. 

Are you confused about the recent changes in taxation law? You’re not alone. Many people struggle to understand what the new laws mean for them and their businesses. In this blog post, we’ll provide some expert advice on navigating these changes. 

We’ll also offer some tips on how to plan for next year’s tax season. So whether you’re a business owner or just someone who wants to stay up-to-date on the latest tax news, read on for our helpful tips!

This blog post is for taxpayers looking to stay up-to-date on the latest changes in taxation law. The information provided will help you understand what has changed and how it may impact you. As always, if you have any specific questions, please consult with your accountant or tax specialist.

Almost everyone will experience a change in their federal taxation law this year. The main thing to keep in mind is to plan and understand how these changes could impact you come tax time. Here are some key things experts recommend keeping in mind when preparing for the new year. 

Thank you for reading!

What Is The Purpose Of Taxes?

Before we think about the purpose and expected effects of tax reform, what is the purpose of taxes?

Taxes are like plumbing. They are not an end in themselves. Rather, they are a means to fund government, resourcing joint, or public, action for the common good—rather than individualised, private or market action. So it is precisely because of social and political organisation for the common good that we have taxation.

Writing 250 years ago, Adam Smith asked why do we have taxes at all? Adam Smith is well-known as the father of economics. However, it is less well known that he argued that the government should be funded by taxation. 

He said only taxes could provide ‘That sure, steady, and permanent revenue which can alone give security and dignity to the government … for a great nation’. Thus, taxes are needed for:

Defraying the necessary expense of any great and civilised state … this expense must, the greater part of it, be defrayed by taxes of one kind or another; the people contributing a part of their private revenue to make up a public revenue to the sovereign or Commonwealth.

Indeed, Adam Smith defined political economy itself as being concerned with private and public revenue or wealth:

Political œconomy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or Commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.

Adam Smith had a vision for funding the government ahead of his time. He also articulated a concept of ‘public goods’ that need to be funded with taxation in this context. The concept can probably be traced further back, certainly the general conception of taxing to fund the benefit of the government. 

However, Adam Smith observed that there are public goods ‘in the highest degree advantageous to a great society’ but which would not pay for any individual to invest enough and which should be provided for all. 

For example, he included education for children in this category: the government should pay for children’s education for the common good. This was inextricably linked to his vision of a market economy, which would be viable in the longer term.

Tax and Legitimate Government

After 250 years, we are still operating within that paradigm of the ‘tax state’, but the legitimacy of government through democratic institutions rather than inheritance or divine right has become embedded. 

Political economic ideas about tax and politics (developed in Britain, Europe and the US) circulated widely, including Australia, and took hold early. For example, the statement of the Eureka Stockade Rebellion in 1854 in Victoria, which was put to the mining inspectors about the licence fees they had to pay, said in its first paragraph:

That it is the inalienable right of every citizen to have a voice in making the laws he is called upon to obey—that taxation without representation is tyranny.[4]

In Australia, it is a fundamental principle that the Parliament has supremacy in deciding taxation’s object, shape, and weight. For example, the High Court ruled on the progressivity of the federal land tax in Osborne v Cth. The Court held that it is not for the Court to decide the validity of a tax based on how oppressive or steep the tax is. Barton J said:

Assuming that the taxation which it imposes is drastic, as it is alleged to be, still, it is not the function of the Court to say that drastic taxation on landed interests will prevent residents from owning large areas or prevent landholders from residing out of Australia, or prevent absentees from holding land within the Commonwealth. … 

Even assuming that such designs existed, they would not alter the construction of an Act or make it less an exercise of the taxing power. They may be the motive or even the ultimate object. We have not to do with either of these things. 

Conceding, for example, that in some cases, a heavy tax may when administered operate, by the pressure of its severity, to destroy an industry which a State alone has the power to control, or to force holders of large landed estates to sell them, or to remain in this country when they would rather live elsewhere, these are questions of the policy or wisdom of the tax and belong to the people, directly or through their representatives, and not to the Court. 

And this is true even if the tax is so heavy and carefully adjusted as to appear intended to produce the results foreboded. Questions of the abuse of power are for the people and Parliament.

It’s important to remember when we’re thinking about trying to reform the tax system that it is part of a broader system of democratic government. If politics seems to get in the way, we forget that politics is part of the point. Politics is actually why we have taxes.

It is also important to remember that the Constitution grants the Commonwealth Parliament power to levy any kind of tax. Through the grants and other powers in the Constitution, the Parliament can shape tax policy for the national good. 

At the same time, our federal structure is embedded in the Constitution. Therefore, we need to ensure that state and territory governments are fully democratic, funded and accountable to their residents and taxpayers. 

The importance of this has been highlighted recently by Cheryl Saunders and Michael Crommelin; federation and tax reform should strengthen our federal democracy.

What Are The Recent Tax Changes?

invoice bill paid payment financial account concept

According to Mr O’Grady, the acting assistant commissioner of individuals and intermediaries at the Australian Taxation Office, all tax law is determined by the Treasury Department. The ATO administers the law as sent down by the Parliament.

“Largely, it’s a process within the Treasury, within the government, to look at the system and make recommendations, suggest law changes. So our role is to provide advice on how we may administer a proposed new law, but we don’t actually make or recommend those laws,” he explained further.

Moving forward, one of the big changes in taxation would be reforms on the capital gains tax.

For one, there would be the change in “main residence exemption for foreign residents”, which will essentially affect the exemptions that homeowners may claim and the CGT that they have to pay, Mr O’Grady said.

“Under the tax system, your residency status is different to your citizenship and so forth. So, investors need to consider here if you’re here in Australia with your home, and then you decide to move overseas for some time. Then, you sell that home; you’ll no longer be able to claim their main residence exemption in the future,” according to him.

“At the moment, the main residence exemption for most homes means that you don’t have to pay CGT on your place of residence. However, the laws change so that when you’ve moved overseas permanently, meaning you’re no longer a resident for tax, you’ll now pay capital gains on that property,” according to him.

For those considering moving overseas permanently, Mr O’Grady said that most will have until 30 June to sell their properties and still be able to avail of the exemption.

Low and Middle-Income Tax Offset 

The Low and Middle-Income Tax Offset (LMITO) is a tax offset automatically applied if your income is between $37,001 and $126,000. 

Depending on your taxable income and how much tax you’ve paid, you will receive between $255 and $1,080 as a tax offset. The full offset is $1,080 per annum for singles and up to $2,160 for dual-income couples.  

The Federal government has locked in the benefits of the LMITO through the changes to the income tax thresholds and the low-income tax offset from 1 July 2022. 

The top threshold of the 19 per cent tax bracket from $37,000 to $45,000 and the maximum amount of the low-income tax offset from $445 to $700 will be increased. 

Low-Income Tax Offset 

The $700 Low Income Tax Offset (LITO) is combined with the tax-free threshold of $18,200 and the LMITO. This allows Australians to earn up to $22,801 for the 2020-21 financial year before income tax will need to be paid or the Medicare Levy applied. 

Australians who earn less than $66,667 will be eligible to receive some of the LITO. For example, if your earnings are $37,500 or less, you’ll receive the full LITO of $700. This tax offset will automatically apply when you lodge your income tax return

It’s important to note that the LITO is a non-refundable tax offset, meaning it is used to lower your income tax rate on the tax you owe. It cannot be received as a tax refund or used to pay your Medicare Levy. 

Tax Offsets work differently than tax deductions. Both will reduce the personal income tax you are obligated to pay. However, tax deductions are work expenses that are subtracted from your gross earnings before tax is paid. In contrast, tax offsets are deducted from your tax liability after taxed have been calculated. 

Personal Income Tax Thresholds 

The 2020-21 Federal Budget brought forward all components of stage 2 of the 2018 and 2019 tax changes to the 2020-21 financial year, originally intended to come into effect in 2022-23.  

From 1 July 2020 

  • the top threshold of the 32.5 per cent tax bracket increased from $90,000 to $120,000 
  • the top threshold of the 19 per cent tax bracket increased from $37,000 to $45,000 

The stage 3 permanent tax cuts will commence in 2024-25, and the tax rate will be 30 per cent for taxable income $45,001 up to a taxable income of $200,000, removing the 32.5 and 37 per cent marginal tax rates entirely. However, incomes over $200,000 will retain the 45 per cent tax rate. 

Other tax rates apply for foreign residents, holidaymakers and children. 

The enhanced Personal Income Tax Plan will be completed in 2024-25, resulting in a simpler tax system with only three tax rates. Individual Australians who earn between $45,000 and $200,000 will incur a marginal tax rate of 30 per cent. 

Other Key Changes

woman working calculator with tax coins

Apart from the changes in capital gains tax, Mr O’Grady also reminded investors of the change in depreciation, which was mandated in 2017 but still largely overlooked by homeowners.

Based on the new rule, those who have bought secondhand properties may not claim the depreciation on the equipment included in the sale, such as water heaters or dishwashers. Instead, they will just form a part of the cost base for CGT.

Mr O’Grady also highlighted the changes around travel expenses, which have also been put in place almost three years ago.

“You can no longer claim travel to your rental property, whether to inspect it or collect rent. So that’s no longer a deductible expense,” he explained.

Moving forward, in July, a key change in taxation for vacant land is expected to be rolled out, according to Mr O’Grady.

Once the change is mandated, owners of a parcel of land with intentions to build an investment property can no longer claim the expenses on the said land.

The ATO professional said that the change would not apply to people in a primary production setting.

Mr O’Grady advised investors to get in touch with their accountants to craft a strategy that will help them navigate the change in taxation law moving forward, ultimately allowing them to maximise their earning potential for the long term.

Tax FAQs

1. Can I claim fees paid to my tax agent?

Fees paid to a registered tax agent for preparing your return, amendments, and generally handling your tax matters are all deductible. 

You can also claim travel to your registered tax agent (you are limited per income tax return to 5,000km in total across the entire return if claiming the c/km method). Registered tax agents are the only people legally able to receive payment to prepare tax returns.

2. What is a credit score?

In a nutshell, your credit score is a number that helps banks and lending institutions determine how reliable you’re likely to be at paying off future debts. Your score will fall on a scale of 1-1000 (or sometimes 1-1200, depending on the credit agency you use to measure the score). 

The higher the score, the better, as it opens up more possibilities for lenders, banks, insurance companies and service providers to give you a better deal. A low score can lead to companies being reluctant to do business with you or charge you higher rates.

You can check your credit score in less than a minute simply by signing up to MoneyHub. Once you have your score, you can see which category you fit into and whether you need to do some work to improve your score.

3. Does everyone have a credit history?

Essentially anyone who has taken out a loan or line of credit or held a credit card in their name will have a credit history. You must be at least 18 years old to apply for a financial product, though if you are under the age of about 20, you may not have had enough time to build up a credit history.

4. I was shocked to find I have a low credit score. How did it happen?

First of all, don’t panic. A low credit score can happen for several reasons.

If you believe the score to be incorrect:

  • First, check with the credit agency that created the score to check they have the correct information for you.
  • Next, check with your bank to make sure they are also using the correct data and that you’ve not been the victim of financial fraud
  • If these are all in order and your credit score is still low, then it is likely due to one or more of the following reasons:

                 -Not paying bills on time or not paying at all

                 -Missing on loan repayments

                 -Making too many applications for credit

                 -Defaulting a loan

                 -Having your home foreclosed

                 -Any court judgment on financial payments

5. What can I do to get my credit score higher?

The good news is that there are quite a few things you can do to improve your credit score, including:

  • Ensuring your credit file is accurate and up to date
  • Paying all bills and loans on time
  • Showing lenders you’re good with loans and repayments by managing a small loan or credit card.
  • Holding on to any unused credit cards
  • Not applying for too many credit cards

6. Which financial products require a good credit score?

A higher credit score improves your chances of getting approved for a range of financial products, including a home loan, personal loan, line of credit or credit card. But that’s not all. It also makes you more likely to be offered a more favourable term.

The higher your score, the more desirable you will be to a range of lending institutions, meaning there’s a better chance you will be able to get the best possible deal.

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