Dodgy Tax Claims

Dodgy Tax Claims – Work Related Expenses and Rental Expenses

ATO Targets Work-related Expenses and Rental Expenses

The tax office have confirmed that they will continue to monitor work-related and rental expenses claimed in 2016 income tax returns. In particular, they will be focusing on work-related car, travel, mobile phone and internet expenses as well as repairs and maintenance for rental properties.

The tax office advise there are 3 key rules for claiming work-related expenses:
– You have spent the money yourself
– It must be related to your current job; and
– Your must a record to prove it.

The tax office is receiving more data from third parties than ever before, including banks, employers, health insurers, state and federal agencies and overseas treaty partners. In some cases, the deductions claimed by tax payers have been disallowed because their information did not match with information provided by these third parties. Some examples include:

– An employee claimed car expenses for their home to work travel on the basis that they transport bulky tools, however the tax office contacted the employer who confirmed that these items can be securely stored at the place of employment.
– An employee claiming travel expenses for an overseas holiday as work-related, however his employer confirmed that he was on annual leave and the trip did not relate to his work.
– A taxpayer claiming expenses for attending an overseas conference, however immigration records indicated that he was in Australia at the time of the conference.
– A taxpayer claiming car expenses based on the log book method, however toll road records did not correspond with the log book and further enquiries indicated that he was out of the country on the dates listed in the log book.

If claiming repairs and maintenance for a rental property, you must ensure that they were genuinely incurred while the property was available for rent and that they were to repair damage caused by the tenants.

If a claim is found to be incorrect, the expense will be disallowed and penalties may be imposed on the taxpayer.

We will also be providing an additional report to employee taxpayers this year. This report will advise if your work-related expense claims are outside the average for your occupation and income level. The tax office will be conducting reviews and may contact any clients whose deductions exceed the average. You should ensure that you are able to substantiate all expenses claimed in the event that this information is requested by the tax office. You are responsible for this proof even when you use a registered tax agent.

If you have any concerns regarding what you can claim in your tax return, please do not hesitate to contact our office.

The ATO have published an Article on Exposing dodgy deductions, to read the full article click here. Below is some case studies from the article:

Case Studies

Case study one

A railway guard claimed $3,700 in work-related car expenses for travel between his home and workplace. He indicated that this expense related to carrying bulky tools – including large instruction manuals and safety equipment. The employer advised the equipment could be securely stored on their premises. The taxpayer’s car expense claims were disallowed because the equipment could be stored at work and carrying them was his personal choice, not a requirement of his employer.

Case study two

A wine expert, working at a high end restaurant, took annual leave and went to Europe for a holiday. He claimed thousands of dollars in airfares, car expenses, accommodation, and various tour expenses, based on the fact that he’d visited some wineries. He also claimed over $9,000 for cases of wine. All his deductions were disallowed when the employer confirmed the claims were private in nature and not related to earning his income.

Case study three

A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When we checked, we found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty.

Case study four

A taxpayer claimed deductions for car expenses using the logbook method. We found they had recorded kilometres in their log book on days where there was no record of the car travelling on the toll roads, and further enquiries identified that the taxpayer was out of the country. Their claims were disallowed.

Case study five

A taxpayer claimed self-education expenses for the cost of leasing a residential property, which was not his main residence. The taxpayer claimed he had to incur the expense of renting the property as he ‘required peace and quiet for uninterrupted study which he could not have in his own home’. This was not deductible.

In addition to the rental expenses, the cost of a storage facility was claimed where ‘the taxpayer needed to store his books and study materials’. They claimed they needed this because of the huge amount of books and study material associated with his course and had no space in his private or rented residence where these could be housed. This was not deductible.

The cost of renting the property was around $57,000, with additional expense of $7,500 for the storage facility. The actual cost of the study program he attended that year was only $1200.

Funding your retirement

 Whether you still have a while to go until you retire, are considering retiring now, or you are retired; you may find the following articles interesting.

 Centrelink deemed income

Biggest mistake most people make, is underestimating how much money they will need to retire comfortably and not putting enough away.  The pension from Centrelink certainly won’t be sufficient if you plan to buy birthday and Christmas presents as well as eat and pay the general cost of living. You can certainly forget about travelling and other holiday plans. 

When considering your eligibility for a pension, did you know that Centrelink consider both your assets and your income in determining how much pension you will qualify for. In some circumstances they may also deem you have earned an income even if you haven’t.

 Take for instance Bob. He retires with some investments in a trust account.  Centrelink will deem him an income on top of the trust profits, therefore reducing his pension to almost nothing.  However, if Bob transfers the investments into his personal name instead of the trust account, Centrelink will ignore any income from the investment and just deem a percentage of income. Although Bob will need to declare his income in his own personal tax return, there are however, various tax offsets available once you reach pension age and in most cases they are sufficient to cover the tax you would have had to pay on your taxable income for the year. 

 The deemed income rules also apply if you have some money in superannuation and you have reached the preservation age. Even if you elect not to drawdown a pension from your super fund, Centrelink will deem you to have received a % as income.

 There are ways around this and it is important to see an accountant and financial planner to ensure that your affairs are set up to your advantage.  In addition, there are Centrelink staff who will come and talk at your event to show you how to get the most pension from Centrelink.

Transition to Retirement

Are you are 55 years or older and working but are considering retirement soon?  You can effectively sacrifice a large portion of your salary into your super fund, thus reducing the tax you pay, then drawing down a tax free pension from your super fund that tops up your disposable income.

 Consider Jane age 55, earning $50,000 in gross income. She pays tax of $8850 plus 1.5% medicare levy leaving net $41150. If she puts $20,000 into her super fund, she will reduce her gross income to $30,000.  She will only pay $3600 tax leaving $26400 net income. She then takes a pension of $14,750 so that she still has net income of $41150.  Jane’s super fund pays tax at 15% on the $20,000 contribution ($3000) meaning total tax paid is $6600. This is a total saving of $2250.

 There are many different strategies available to save you tax and put more money into your retirement. Act now and speak to your accountant or financial adviser.

 Centrelink can assist:

Your local Centrelink office usually has an adviser available to sit down with you and assess your eligibility for a full pension. They can advise you on what you are entitled to depending on your current financial position, your assets and liabilities. Contact your nearest office for an appointment with one of their appointed advisers.

*Please note Centrelink cannot give financial advice and cannot guide you on what investments you should acquire.

Posted in Centrelink, Income, Retirement

Debunking the Myths about Insurance – article provided by Paul Pavlic / Ian Bostock

Myth 1.

I have enough insurance inside my super

 Unlikely. Remember that the minimum level of cover provided through your super fund is set with all members in mind. It is therefore unlikely to be exactly the level of cover you and your family needs and may not be enough to cover all or even just some of your debts, loans and mortgages. (Four our clients in Qsuper – once you leave your industry employment your insurance ceases, in addition your insurance is set to automatically decline with age.

 Myth 2.

I don’t need insurance, the Government will look after me if I get sick or injured

 This would be nice but it’s not really the case. Centrelink will pay a maximum disability pension of $695.30 per fortnight for singles and $524.10 (each) for couples (1). Would this cover your current lifestyle, loan payments and mortgage?

 Myth 3.

Workers’ compensation will cover me

 Not usually. Workers’ compensation only covers accidents or injuries that occur during working hours or for an illness that are the direct result of your employment. The majority of accidents and illnesses occur outside of the workplace. So if you want to protect your lifestyle and your family it’s unwise to rely on workers’ compensation alone.

 Myth 4.

 Life insurance is not affordable

 For most Australians insurance is very affordable. For example, a 35 year old male, non-smoker applying for $500,000 Life Insurance cover, the monthly premium would be approximately $30. A 25 year old female, non-smoker applying for $500,000 of Life Insurance cover the monthly premium would be approximately $25.

 Myth 5.

 Life Insurance Companies do not pay claims

 Insurers do pay claims. In fact life insurance companies pay out almost $10 million every working day in claims to clients (2). This figure would be even higher if Australians had adequate levels of cover.

 Myth 6.

Many people have to pay higher premiums or cannot get life insurance at all.

 Insurers are in the business of giving people access to insurance at an affordable price. If they failed to do this, they wouldn’t have a business. Data from the Investment and Financial Services Association (IFSA) indicates that around 93% of applicants pay standard premiums for their life insurance (3).

People who have a higher risk of developing chronic illness or who work in high risk occupations are usually required to pay an extra premium to cover this risk, but this only applies to a few people (the remaining 7% of applicants). And only a very small number are not able to be covered at all.

 Myth 7.

Most people have enough insurance

 Unfortunately, this is not the case. In fact, research shows that 60% of families with dependent children do not have enough insurance to cover the household expenses for a year if the family bread winner were to die (4). We also know that, on average, those that have death cover through their super policy have less than half the level of cover they need (5).

Ironically, most  Australians insure their homes and cars but less than a third insure their most valuable asset, their income. This causes unnecessary hardship for numerous Australians and their families.


A common myth – Insurance is too expensive

 A number of people think insurance is too expensive – until they need it. The premiums that these people paid were obviously worth every cent for both them and their family. The following are real claims from Zurich’s portfolio

Age

Sex

Occupation

Cause

Total Benefit Paid

Gross Premiums Paid**

32

M

Dentist

Eye injury – left eye

$209,427

$314.49

34

M

Carpenter

Amputation of left hand

$99,711

$3,690.55

35

F

Occupational Therapist Consultant

Post viral fatigue

$41,221

$1,142.45

38

F

Solicitor

Insomnia/Anxiety

$174,496

$7,609.57

45

M

Sales Representative

Major Depressive Illness

$38,721

$2,402.90

Source: Zurich Life Risk Brochure – A small cost for a large benefit

Do you know if you are currently paying for stepped or level premiums on your insurance policy in super?

 Most clients will not be able to answer this question without seeking the assistance of a qualified adviser. Stepped premiums are deceptively cheaper now, however, rapidly increase in price over the long term. If your client’s objective is to hold cover until age 65 and they are in their 20’s, 30’s or 40s it may be more cost effective to implement level premiums.

 Do you know if your insurance cover inside of super is unitised and decreasing with age?

 Most clients will not be able to answer this question without seeking the assistance of a qualified adviser. Many industry super funds sing the praises of the ‘cheap’ insurance premiums to their members but fail to let members know that their insurance covers are decreasing with age.

 Does all of your insurance gradually expire on your way to age 65 and is that suitable to your personal circumstances?

 Most people prefer to know the levels of insurance cover they have rather than playing a guessing game if they ever need to make a claim.

 Will you have enough insurance cover if you need it?

 The majority of super funds issue default cover that is age based, unitised and decreasing with age. Your client may think they have enough Life, TPD & Income Protection Insurance cover inside of super, however, years down the track when an event happens they are often disappointed that the cover has been declining without their awareness.

 By making an appointment with a financial adviser, the client can obtain information how to obtain fixed levels of insurance cover that will not decrease with age, rather the client can choose to have the cover increase with inflation.

 Are you aware that our financial adviser can assist you to arrange for your insurance premiums for Life, TPD and Income Protection to be paid from your superannuation account if cash flow is an issue for you at this point in time?

 Most clients do not know that this is an option to overcome cash flow issues.

 Do you know what Trauma insurance cover is?

 Basically 80% of the population will die from a trauma event – the most common trauma events are – Heart attack, Stroke and Cancer. Yet only 3% of the population are covered for Trauma events.

Did you know that you can insure your children between the ages of 2-16 for Trauma events?

Most people say that their family is important to them, however, many clients are not aware they can insure their children for trauma events.

 What would you do if you lost your income due to sickness or serious injury and could not meet your mortgage repayments?

 Most clients do not have sufficient cash reserves or a plan B if they lose their income.

 It is always a good idea to run these scenarios by your licensed adviser as they may be able to apply for special terms on the following conditions.

  • Family health history (eg cancer, heart conditions)
  • Currently taking Prescription Medication
  • Are you Pregnant. Unfortunately, due the nature of this medical condition you are unable to apply for insurance until your baby is born.
  • Trail bike riding/hazardous sports
  • Mental health medication
  • Body Mass Index over 35
  • Time off work for depression
  • Currently on an insurance claim or law suit
  • Self Employed with ABN need 12months financials and Income Tax Return
  • Smokers generally pay double for insurance premiums
  • I am Bankrupt
  • I am a full-time international student
Posted in Income, Insurance, Investments

Residency vs Non Residency by Claire Chapman

RESIDENCY VS NON-RESIDENCY FOR TAX PURPOSES

There is a common misunderstanding that residency for tax purposes is the same as residency for immigration purposes. It is possible for a person to be an Australian resident for tax purposes whilst being a non-resident for immigration purposes.

Generally, if you reside in Australia, you will be considered an Australia resident for tax purposes. As there is no definition of the word ‘reside’ in the tax legislation, the tax office relies on the ordinary definition of the term ‘reside’. The Shorter Oxford Dictionary defines ‘reside’ as:

“…to dwell permanently, or for a considerable time, to have one’s settled or usual abode, to live, in or at a particular place…’[1]

Some of the matters that the tax office will take into account when determining if a person is a resident for tax purposes or not are as follows:

Individuals Coming to Australia

  • Intention or purpose of presence
  • Family and business/employment ties
  • Maintenance and location of assets
  • Social and living arrangements

In particular, if an inbound individual has been in Australia for more than half the tax year (183 days), they will generally be declared as an Australian resident.

Individuals Leaving Australia

  • Intended and actual length of stay overseas
  • Any intention either to return to Australia at some definite point in time or to travel to another country
  • Existence of an established home overseas
  • Abandonment of any residence or place of abode in Australia (while overseas)
  • Duration and continuity of the individual’s presence in the overseas country
  • Family and financial ties with Australia.

The weight to be given to each factor will vary with the individual circumstances of each case and no single factor is conclusive.

The intention of a particular individual to either become or cease to be an Australian resident is particularly important. As a result, the tax office is now placing more emphasis on this intention as indicated on the person’s Australian immigration incoming or outgoing passenger cards.

It is important to determine the correct residency status as Australian residents are taxed in Australia on their world-wide income, whereas non-residents are only taxed on their Australian-sourced income. Non-residents are also taxed at higher rates than residents. Residency status must be determined each year.


[1] TR 98/17, para. 13
Posted in Accountant, Foreign asset, Income, Property, Tax