Cryptocurrency

Crypto assets are a digital representation of value that you can transfer, store, or trade electronically.

Crypto assets are a subset of digital assets that use cryptography to protect digital data and distributed ledger technology to record transactions. They may run on their blockchain or use an existing platform such as Ethereum. A blockchain is a secure digital ledger used to store a record of crypto transactions.

Crypto generally operates independently of a central bank, authority, or government. However, crypto asset transactions usually are subject to the same tax rules as assets. There are no special tax rules for crypto assets. The tax treatment will depend on how you acquire, hold, and dispose of the purchase.

For tax purposes, crypto assets are not a form of money.

Taxation

You can acquire or dispose of a crypto asset on a crypto trading platform or directly from a digital or hardware wallet. You can exchange or swap crypto assets for other crypto assets, fiat currency or goods and services.

Using or transacting with crypto assets will determine how you treat them for tax purposes. The most common use of crypto assets is as an investment (investors acquire and hold crypto assets to make a financial profit from holding or disposing of them).

Generally, for investors:

• crypto assets are taxed as CGT assets, including for self-managed super funds (SMSFs) investing in crypto assets.
• rewards for staking crypto are ordinary income for tax purposes.

Businesses transacting in crypto assets may need to account for them as trading stock or ordinary income (that is, on the revenue account rather than as investment capital gains or losses). In these circumstances, the cost of acquiring crypto assets and the proceeds from disposing of them is ordinary income or a deductible expense, depending on the nature of the transaction.

In some circumstances, crypto assets are not kept mainly for investment but for personal use. Where specific conditions are met, crypto assets are not subject to CGT because they are considered personal use assets.

 Tax Calculation

As with other CGT assets, if your crypto assets are held as an investment, you may pay tax on your net capital gains for the year. This is:

• total capital gains.
• less any capital losses.
• less entitlement to any CGT discount on your capital gains.

Before you calculate CGT on your crypto assets, you will need to:

• check you have records for your crypto assets and crypto transactions.
• convert the value of the crypto assets into Australian dollars.

You need to keep details for each crypto asset as they are separate CGT assets. You can work out your CGT using the ATO’s online calculator and record-keeping tool.

This can be a complex area of the taxation law. For this reason, reach out to us if you are still determining your crypto tax position and the records you are required to keep.

Cashflow Forecasting

Cashflow forecasting is critical for small businesses.

What is it?

Cash flow forecasting is a method of predicting cash inflows and outflows to see how much money you’ll have in the future. It provides a window into your business’s financial health and can help plan spending.

A cash flow forecast is in contrast to a cash flow statement. A statement focuses on past cash flows; a forecast predicts the future. It’s essential that you understand your cash flow cycle, which boils down to whether you’ve got more money coming in than going out. If you have more cash going out, you must address it quickly.

Staying on top of your business cash flow helps you pay bills on time and helps ensure you can pay yourself. When costs are rising (as per the current climate), it becomes even more imperative that businesses get their cash flow management right, and cash flow forecasting is one way to do it.

Benefits

The benefits include:

• spotting cash shortages and giving you time to work on contingency plans, whether delaying spending, requesting extra credit from suppliers, or securing a business loan.
• assessing the affordability of your growth plans – for example, they can show if there will be enough money to buy new tools or hire a new employee.
• ensuring you have enough money to pay you, the business owner!
• identifying quickly if expenses are climbing or income is slumping.
• highlighting fixable cash flow problems such as slow-paying customers, impractical payment terms, seasonal cycles, or over-reliance on high-cost finance.

Key Components

The key components are –

• starting position (cash in the bank).
• expected cash in (hopefully mostly from sales but may also be from loans or sales of assets).
• expected cash out.
• net cash flow shows if cash reserves have grown or shrunk.
• closing balance.

How often?

• Businesses can do cash flow forecasting for any timeframe and duration. As you might imagine, it gets harder to accurately predict incomings and outgoings the further into the future you go. But whatever range you choose, it’s a good idea to keep refreshing your forecast.
• If you run a 12-month forecast, for example, with a column for each month, you might refresh it at the end of each month. Drop the last month off, add another month to the future, and check all the forecasts in between to see if anything needs updating.
• Ways to increase profitability.
• For most businesses, the easiest way to improve profits isn’t landing the next big client. Instead, it’s improving the little things, such as:
• Increasing prices by 5% (or a small enough margin that doesn’t cause alarm).
• Collecting money owed to you faster.
• Checking that you’re not paying too much for overheads like power, the Internet and office supplies. These can be small amounts, but they add up over time. Now that you’ve been in business, you can probably look to renegotiate some of your earlier agreements.

CGT Discount

One of the most generous features of the capital gains tax (CGT) regime – which may apply to the disposal of assets such as property, shares, rights and options, foreign currency, goodwill in a business, units in a unit trust, certain personal use assets such as boats etc. – is the CGT general discount. It can reduce your CGT liability by up to 50% if applicable.

Eligible taxpayers include individuals, superannuation funds, and trusts (depending on the beneficiary’s eligibility). The most notable omission is companies – they do not qualify for the 50% discount. The discount’s unavailability should be considered when contemplating whether to hold CGT assets with a company structure.

Having established the structure’s eligibility, the entity must have held the asset for at least 12 months before the CGT event (i.e., the sale) to qualify for the discount. Interestingly, the ATO takes the view in Taxation Determination TD 2002/10 that the day of acquiring and selling the asset must be excluded from the 12-month holding period…thus, 12 months and two days! For example, if you acquired property on 1 October 2023, to be eligible for the 50% discount, the day of sale must be no earlier than 3 October 2024.

TIP – Retention

As noted, eligibility can be failed by days! For this reason, if you are nearing the 12-month holding period, you may wish to delay the asset’s sale to quality for the required 12-month period. By doing so, you can dramatically reduce your CGT liability.

As well as companies, non-residents are also now ineligible for the CGT discount.  Foreign and temporary resident individuals, including beneficiaries of trusts and partners in a partnership:

• are subject to CGT on taxable Australian property.
• aren’t entitled to the 50% capital gains tax (CGT) discount for assets acquired after 8 May 2012.

Taxable Australian property includes:

• Australian real property, such as a house, apartment, commercial building or land
• an indirect interest in Australian real property.
• a mining, quarrying or prospecting right in Australia.
• a CGT asset that you have used to carry on a business through a permanent establishment in Australia.
• an option or right over one of the above – for example, a contract to purchase property off the plan.

If the CGT asset was purchased after 8 May 2012, and you remain a foreign or temporary resident for the entirety of ownership, you aren’t entitled to any CGT discount when you sell the asset.

However, you may apply a discount to your capital gain on assets acquired on or before 8 May 2012. There are two methods; if both apply, you can choose which one to use:

• If you had a period of Australian residency after 8 May 2012, you may pro rata the discount for the number of days you were an Australian resident after 8 May 2012.
• If you were a foreign or temporary resident on 8 May 2012, you can use the market value method to calculate your discount instead of the pro rata method.

Please contact us to discuss your eligibility for the discount or any other strategies to reduce your CGT liability.

Deduction for superannuation contributions

Did you know you can make retirement provisions while improving your tax position? This can be achieved by creating a personal, after-tax contribution to your superannuation fund.

You’re eligible to claim a deduction for personal super contributions if:

1. You made the contributions to your fund that was not a:

1. • Commonwealth public sector super scheme in which you have a defined benefit interest.
   • constitutionally protected fund (CPF) or other untaxed fund that would not include your contribution in its assessable income.
   • super fund that notified us before the start of the income year that they elected to treat all member contributions to the super fund as non-deductible.
     • defined benefit interest within the fund as non-deductible.
2. You meet the age restrictions. If you are under 67, you meet the limits. If you are 67 to 74, you must meet the work test, meaning you must work 40 hours or more in a consecutive 30-day period in the financial year to make contributions.
3. You have given your fund a notice of intent to claim in the approved form.
4. Your fund has validated your notice of intent form and sent you an acknowledgement.

Example

Narrelle is a fulltime teacher. During 2022/23, she earned $85,000 before tax.

She makes a personal $15,000 contribution to an eligible superannuation fund during the income year and notifies it that she intends to claim a deduction.

Narrell’s superannuation fund acknowledges that she will claim a $15,000 deduction and taxes the contribution at 15% ($2,250).

Narrelle is eligible to claim a deduction for $15,000 and does this in her 2022/23 income tax return.  This deduction will increase her tax refund by $5,175, an overall tax saving of $2,925.

Please feel free to contact us if you have any questions about this strategy or the taxation of superannuation more generally.

Gifts and Donations

With statistics indicating that Australia is one of the most philanthropic nations in the world (per capita), did you know that – if the rules are followed – you can claim a deduction for donations you make?

Deductible Gift Recipient (DGR)

You can only claim a tax deduction for a gift or donation to an organisation with the status of a deductible gift recipient (DGR). A DGR is an organisation or fund that registers to receive tax-deductible gifts or donations.

Not all charities are DGRs. For example, crowdfunding campaigns are a popular way to raise money for charitable causes. However, many of these crowdfunding websites are not run by DGRs. Donations to these campaigns and platforms aren’t deductible.

You can check the DGR status of an organisation at ABN Look-up: Deductible gift recipients.

No Benefits

The second condition is that you must not receive any material benefit from your donation. You voluntarily transfer money or property without obtaining or expecting any material benefit or advantage in return. A material use is something that has a monetary value.

Example

Robbie is an office worker. Each year, his workplace gets involved in the Daffodil Day appeal to raise money and awareness for the Cancer Council. Robbie buys a teddy bear toy on Daffodil Day for $30.

Robbie can’t claim a deduction for the cost of the toy as he has received a material benefit in return for his contribution to the Cancer Council.

Money or property

The donation must be in the form of money or property. This can include financial assets such as shares.

Conditions

Your donation must comply with any relevant gift conditions – for example, for some DGRs, the income tax law adds conditions affecting the types of deductible gifts they can receive.

Records

Most DGRs will issue you a receipt for your donation, but they’re optional, too. You can still claim a deduction using other records, such as bank statements if you don’t have a ticket.

If a DGR issues a receipt for a deductible gift, the ticket must state:

• the name of the fund, authority or institution to which the donation has been made.
• the DGR’s Australian business number (ABN) (some DGRs listed by name in the law may not have an ABN).
• that it is for a gift.

TIP

If you and your spouse (and children) make donations throughout the year, you can pool the amounts and have the highest-income earner donate. This will maximise your deduction.

eInvoicing

eInvoicing is the digital exchange of standardised invoice information between suppliers’ and buyers’ software through the secure Peppol network. eInvoicing is more efficient, accurate and safe and is different from sending and receiving invoices as PDFs and emails.

Functionality of eInvoicing:

• suppliers don’t need to print, post or email paper-based or PDF invoices.
• buyers don’t need to manually enter or scan invoices into their software.
• businesses can connect once and immediately transact with everyone on the same network, no matter what eInvoicing-enabled software they use.

Australia has adopted the Peppol framework as the expected standard and network for eInvoicing. The government nominated the ATO as Australia’s Peppol Authority based on its experience with similar digital initiatives such as Single Touch Payroll.

Benefits of eInvoicing:

1. Money: eInvoicing reduces manual data entry and enables process automation. It can save you time and let you focus on running your business. eInvoicing will also help reduce your administration costs. Paper and PDF invoices cost between $27 and $30 to process. eInvoicing can reduce this to less than $10 an invoice.
2. Reliable and secure: According to the Australian Competition and Consumer Commission, payment redirection and false billing scams were some of the most common scams reported. More than $227 million was lost to these scams in 2021. eInvoicing can help make your business more secure.
3. Reduce payment times: eInvoicing can improve your cash flow with faster processing and quicker payments. Australian Government agencies are paying eInvoices in 5 days, where both the supplier and buyer use Peppol eInvoicing. For more information, see the Australian Government Supplier Pay On-Time or Pay Interest Policy External Link.

State governments are also encouraging eInvoicing. The NSW Government mandated eInvoicing for all government agencies from 1 January 2022. Other states are working on their approach.

Talk to us if you would like to adopt eInvoicing.