Claiming work related deductions

Car expenses

  • When claiming work related motor vehicle deductions remember that you still need to be able to substantiate how you worked out the number of business kilometres you travelled using the cents per kilometre method.
  • In order to claim under the log book method – you must have a complete and valid log book.
  • Under the log book method, a log book will last for 5 years UNLESS you change the vehicle, your useage pattern changes, your employment changes. If any of these things change you MUST complete a new log book.
  • The motor vehicle expense deduction is not available to vehicles over 1 tonne – these expenses get claimed at D2 on the tax return (Travel Expenses).

Travel expenses

  • Remember that just because you receive an allowance from an employer does not automatically entitle you to a deduction. Travel allowance claims are only deductive where the tax payer sleeps away from home.
  • 1 tonne vehicles are not allowed to claim 100% of expenses – private useage must be taken into account
  • Parking expenses are not allowed to be claimed where an employee is traveling to and from work and parking at or near the workplace for more than 4 hours
  • Car washing expenses are not allowed where the vehicle is provided for the employee’s exclusive use

Uniform, Clothing & Laundry Expenses

  • Everyday clothing is not tax deductible, nor can a claim for laundry be made on these items.   This includes heavy duty conventional clothing such as drill shirts and trousers.
  • Only outdoor workers can claim sun protection clothing.
  • If your claim for Laundry expenses exceeds $150 you must have written evidence eg diary entries and receipts An estimate of $0.50 per mixed load or $1 for work clothes only loads can be used.
  • Conventional footwear including non slip are non deductible

If you are unsure as to the deductibility of your clothing and shoes consider the following tax rulings TR 97/12, TD 1999/62 and TR 98/5 or ask your accountant.

Self education expenses

There must be a nexus between the self education expense and the current income producing activity (Employment) otherwise these expenses can not be claimed.

Other work related expenses

  • Sunscreen and sunglasses – outdoor workers can claim these but you must adjust for private useage.
  • Home office – running costs can not be claimed on a floor percentage basis, you must use the ATO rate of $0.45 cents per hour only
  • Home Office – Occupancy costs – (Rent, mortgage interest, rates) you can not claim theses if the home is not a place of business – (A place of business would include signage and stationery nominating the address as a place of business and the area should not be readily suitable or adaptable for use as a private or domestic purpose such as a bedroom) Having a room set aside for doing admin work at the end of the day does not constitute a place of business.
  • Bank fees – you cannot claim these
  • All other expenses including computers, mobile phones, internet etc MUST be apportioned between private and business useage.
  • Vaccinations are not deductible
  • Subscriptions to staff associations or social clubs are not deductible

What are the requirements of your Tax Accountant?

  • Reasonable and direct questions need to be asked, we have also provided various checklists for you to use. (Available on our website)
  • It is not necessary for you to provide to us or have us view/sight all your receipts, we only need you to advise that you have adequate substantiation. REMEMBER, in the event of an audit you will be required to provide that substantiation to the ATO.
  • If we have suspicion that a client is making fraudulent claims we have the right to request to see the substantiating evidence, if the client refuses to provide the substantiation we can refuse to input the deduction and also terminate our services to the client.

What is written evidence?

The following can be used to substantiate your claims:

  • A document in English
  • Document from the supplier of the goods and services showing the name of the supplier, amount of the expense, nature of the goods and services, date incurred
  • Bank statements
  • credit card statements
  • BPAY reference numbers
  • email receipts
  • Invoices
  • Delivery notes
  • PAYG payment summary
  • Paper or electronic copies of documents
  • Warranty documents

Business Tax Tips

Business Tax Tips

Plant & Associates are a Queensland based accounting firm servicing clients predominantly in the Brisbane and Gold Coast areas. We are able to provide services no matter where our clients are located due to our technological infrastructure.

We specialize in providing accounting, business and tax services to small to medium enterprises, SMSF’s and Individuals.

Please call to discuss any of these points. We are offering an obligation free meeting to review your tax structure to identify any area of improvement.

Claim a tax deduction for $299 gift cards and alcohol

 

  • Gifts to clients for home consumption are tax deductible. Gifts to employees and directors are also tax free, provided they are provided infrequently and are less than $300 each.
  • Buy Wish gift cards, perfume or some bottles of wine and save 40% of the cost by claiming back the GST as well as a tax deduction!
  • Contrast this to taking your client or employee out to dinner, or giving them movie tickets. The ATO considers this “entertainment” and this is not tax deductible, nor is the GST claimable, regardless of who it’s for or the monetary amount.

    Pay your June Quarter Superannuation by 30 June

 

  • Superannuation isn’t payable until the 28th day after the end of the quarter. However, you also can’t claim a tax deduction until you have paid it.
  • The ATO says that a contribution isn’t made until the super fund receives the money, so make the June quarter contribution a few days before 30 June.

Always pay off non-tax deductible debt first and don’t mix Investment and Personal Debt

 

  • If you have a rental property loan, and you deposit your wage into it and draw the exact same amount out the next day, you have just decreased the tax deductible % of your loan. Don’t mix personal and tax deductible debt.
  • If you are considering renting out your home in future, consider the use of a mortgage offset account and interest only loan. This way you minimise the interest, but can still get a tax deduction for 100% of the interest on the original loan amount if you decide later to rent your current home and buy a new one.

    Are you paying too much Land Tax?

  • Each trust should own no more than one property to avoid land tax which is payable if the total unimproved value of property exceeds $350,000.
  • Assets should be held in separate trusts to maximise asset protection and minimise land tax. Ideally, each trust will have a separate corporate trustee.

    Leases, Chattel Mortgages and Hire Purchase Agreements are all different

 

  • You should ask for advice from your accountant every time you finance a new asset, as they all have different tax and GST treatments, and which one is best will depend on the particular type and use of asset you are buying.
  • Your accountant will need to see the finance documentation when preparing your tax return, without it your tax return may be incorrect.
  • Hire Purchase Agreements and Chattel Mortgages now have exactly the same tax treatment, but Hire Purchase Agreements are usually cheaper.

 

Are all your children listed on your Trust Tax Return?

 

  • Anyone under 18 can receive tax trust distributions of $416 per year tax free.
  • What about Mum and Dad who are retired? If self-funded and over 60, they are likely to be able to receive a large trust distribution at a low tax rate. If receiving the age pension, they may still be able to receive an amount tax free without affecting their pension.
  • Stay at home Mum’s and Dad’s can earn $5,475 per year without tax and without affecting their Family Tax Benefit Part B claim.

 

You may be liable for 9.5% Superannuation Guarantee, Work Cover and Payroll Tax for contractors even if they are on an ABN!

 

  • Consider changing the terms of the agreement so that contractors are remunerated for providing a “result” rather than being paid an hourly rate.
  • Alternatively, see if they would be willing to contract through a company or trust and thus absolve you of any liability for superannuation, work cover and payroll tax.

Tax Return preparation

  • Have you reviewed your asset schedule for assets you have disposed of? If not you may be missing out on claiming a tax deduction for the written down value.
  • Have you checked that no bad debts are included in your MYOB file?
  • Items less than $1000 can be claimed as an immediate tax deduction for a small business tax payer. For other businesses any individual item over $100 has to be depreciated. See your accountant for the rates for SBE, as different times have different limits.
  • Are you a business owner taking more than an $110,000 wage? You could be paying more tax than you need to.
  • Do you know what’s in your shareholder’s loan account?
  • Do you know what transactions have resulted in a GST adjustment and can you reconcile your balance sheet GST figures?

Have you considered which GST method is right for your cash flow?

  • If your clients pay you upfront, or if you’re a property developer and your clients don’t pay until the end of the job, you should be on an “Accruals” basis for GST.
  • If you always pay your debts on time, but your clients are late in paying you, you should be on a “Cash” basis for GST.

Are you managing your FBT?

  • Fringe Benefits Tax (FBT) is the most expensive tax. Roughly you pay $1 FBT tax for every $1 of expenditure. Make sure your accountant has advised you of the types of costs that are subject to FBT, and is adjusting for the ATO deemed private use of your cars as an employee contribution each year when preparing your tax return.
  • Mobile phones are 100% tax deductible if they are a majority work use.
  • Salary Sacrificed laptops are also tax deductible if the intention is to use them for a majority work use when purchased. Don’t depreciate business laptops, salary sacrifice them!
  • Going out to dinner whilst travelling overnight is tax deductible. At all other times, going out to dinner for a business meeting is not.

Free review of your Business Structure

If you would like a free no obligation meeting to review your existing structure, then please call (07) 5596 5758 or email admin@plantandassociates.com.au

www.plantandassociates.com.au  

No Overtime Meal allowance = No Overtime Meal Deduction

Article by National Tax & Accountants Association Ltd.

An employee construction project manager/supervisor was denied deductions for overtime meal expenses, as he was not paid an overtime meal allowance under an industrial agreement (award).

Facts

It was accepted that the taxpayer worked during the day on building sites, did additional paperwork at night and often worked weekends during the relevant income years.

As a result, additional amounts were negotiated and ‘rolled’ into his salary to cover the fact that he was expected to work additional hours, and also to cover any out-of-pocket expenses associated with such overtime.

However, the taxpayer’s salary was not paid under an award, which was imply used as a starting point in annual remuneration negotiations.

The taxpayer claimed a deduction for overtime meal allowances, contending that he had received an allowance under the relevant industry award to buy food and drink whilst working overtime.

Under audit, the ATO disallowed these overtime meal claims, and imposed  a 25% administrative penalty on the tax shortfall for lack of reasonable care.

Decision

The AAT agreed with the ATO, finding the taxpayer had received no overtime meal allowance under the relevant industrial award.

This was on the basis that the taxpayer was paid the same amount each week, regardless of any overtime he actually worked, meaning the payment was not a ‘definite predetermined amount’ to cover an estimated expense (as an allowance should be).

Additionally, the overtime amounts were ‘rolled in’ to the calculation of the taxpayers fixed weekly wage.

As a result, the calculation of the ‘allowance’ out of the taxpayer’s gross salary was merely a construction, and not representative of a separately identifiable allowance for his overtime meal expenses.

As no deduction is claimable under the income tax law for overtime meal expenses unless an appropriate award overtime meal allowance is paid, the Tribunal swiftly dismissed the taxpayer’s appeal, and also affirmed the 25% administrative penalty.

Ref: Kael v FCT [2017] AATA 38

 

Plant and associates

www.plantandassociates.com.au

07 55965758

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.

Redraw and Offset Accounts – How they can save you money

Tax Minimisation and savings

Mortgage and Finance Broker Grant Robertson provides the following advice to Plant and Associates clients:

Offset accounts and redraw facilities work in similar ways; they both allow you to reduce the balance of your home loan, and therefore the interest charged, by applying extra money to your debt.

Redraw facilities allow you to deposit spare income into your home loan account, allowing you to redraw a sum equal to the extra repayment amounts in future.

In the meantime, the extra money paid will lower the amount of interest charged while still giving you access to your money.

However, there may be restrictions on how much money can be withdrawn and when.

“For redraw, it depends on whether the facility applies to a fixed-rate or variable loan,” Moses says. “Most institutions only allow redraw from a variable-rate loan, or fixed-rate loan but with limited access.”

It is important to find out how a loan’s redraw facility works before taking it on, as the fees and restriction attached might outweigh the benefits of interest savings.

Deciding between an offset account and a redraw facility on your home loan largely depends on how accessible you need your extra money to be.

Offset accounts are like savings accounts that function alongside your home loan. You earn interest on the money in the offset account and you often have a debit card attached for simple withdrawals.

“Let’s say that you are paying five per cent interest on your home loan and earning two per cent interest on your offset account,” explains Heritage Bank NSW State Manager Paul Moses.

“In a offset setup, the difference would be 3%, but would mean that the 2% interest that you earn is coming off the interest you are paying on your home loan.”

With 100 per cent offset accounts, you earn interest equal to the interest you are paying on your loan. Rather than earning savings account rates, you are earning home loan account interest rates on the money held within the offset account.

“Let’s say you have $10,000 in your 100 per cent offset account. Instead of paying interest on your $100,000 loan, you are only paying interest on $90,000,” Moses says. “That’s probably the best type to have, if you are looking at offset accounts.”

Offset accounts, like many savings accounts, often come with account fees, but the fee may be worth the interest savings and the added flexibility compared to redraw facilities.

“There are less restrictions attached to 100 per cent offset accounts, they’re very flexible. But really, it does just depends on each lender,” Moses says.

Finding a loan that matches your needs is a lot easier with an expert on your side. Speak to Grant Robertson 0466 977 170 or email: grant.robertson@astrafinacial.com.au to find a loan that matches your current needs and future plans.

Grant Robertson Mortgage and Finance Broker Dip. Finance and Mortgage Broking Management

Phone : 0466 977 170 Fax : 07 5525 3887 Address : PO Box 1186, Mudgeeraba, QLD 4213 Email: grant.robertson@astrafinancial.com.au

Rentals – What expenses can you legally claim – article by Sharon Plant, Property Accountants

 Advertising for tenants

This is a claimable expense if it is strictly advertising for tenants and your property is available for rent. These costs include: advertising with local real estate agencies, and posting advertisements in newspapers, local publications or online. Advertising for the sale of a property is a capital expense and can only be taken into consideration as part of the cost base of the property on disposal.

Bank charges

The bank charges on your loan account (usually in the form of monthly fees) are tax deductible as well as any bank charges on a separate bank account that you have specifically set up for your investment property.

Borrowing expenses

These are costs associated with the borrowing of money required to purchase the property and although not deductible upfront, they are deductible over the shorter of either the period of the loan or five years. These include mortgage insurance, title search fees, registration of mortgage, costs for preparing and filing mortgage documents, mortgage broker fees, valuation fees, stamp duty on mortgage and loan establishment fees.  There are claimed over a number of years – not all in the year incurred. Borrowing expenses are those costs that are directly related to taking out a loan for the property and include items such as establishment fees, title search fees, any costs incurred in relation to preparing and filing mortgage documents such as broker fees. Borrowing fees can sometimes also include valuation fees and lenders mortgage fees.

 It should be noted that any insurance premiums providing for loan payment on your death, as well as interest charges, are not considered borrowing expenses. Additionally, if the total borrowing expenses are less than $100 then the costs are fully deductible in the year in which they are incurred. Similarly, if the loan is repaid in less than five years, the remaining balance of these expenses are fully deductible in the income year in which the loan is finalised.

Council rates

Council rates are imposed on land owners to help fund the cost of community infrastructure and services to the local municipality. Councils generally offer a one-off annual payment or a payment plan of quarterly instalments, and all payments are tax deductible.

Gardening and lawn mowing

This is deductible and includes dump fees, mower expenses, tree lopping, replacement garden tools, fertilisers, sprays and replacement plants.

Insurance

Insurance can be purchased to protect your investment properties. Insurance cover is tax deductible and can protect you against circumstances including loss of rent, rent default, theft by a tenant, building damage and public liability claims. Mortgage insurance is not immediately claimable but is amortised/ depreciated over time as part of borrowing expenses.

Interest expenses

Interest charges on a loan are tax deductible. Principal or capital repayments are not tax deductible. Only the interest component directly related to your property is tax deductible. If you are paying principal and interest on your loan then you will need to calculate the interest component for the year. Locate the bank loan statements for each investment property to ascertain the interest paid for the income year.

Land tax

Land tax is tax deductible. Land tax is a tax levied on the owners of land and it is based on the value of land. Once you’ve completed a land tax registration form, you will be sent an assessment notice showing the land tax payable on the land you own. You will be liable for land tax if you own, or part-own: vacant land, a holiday home, an investment property, a company title unit, or a retail, commercial or industrial unit.

Legal expenses

Legal expenses are generally incurred during the sale or purchase of an investment property. The legal costs for buying and selling a property are not tax deductible and are included in the capital gains tax calculation.

Tax deductible legal expenses include the costs of evicting a non-paying tenant and the costs of terminating a lease.

Pest control

If you pay for your investment property to be sprayed or fumigated by a professional pest controller, then you will generally be entitled to a tax deduction.

Property agent fees or commissions

A property agent charges fees for maintaining your investment property on your behalf. The property agent lists their monthly charges in the property agent’s summary.

The charges for the year-end financial statement, tenant reference-check fees, leasing fees and monthly rental statement fees are all tax deductible. You will receive the net rental income after the property agent deducts their monthly fee.

Repairs and maintenance

A repair is generally tax deductible. Renovations, improvements, replacements and extensions are treated differently to repairs and maintenance. Renovations, improvements, replacements and extensions are generally deductible over more than one year.

‘Repairing’ is restoring the item to the condition it was in before it deteriorated, without changing its essential character. If you ‘replace’ an item with similar parts/ materials then it is also a repair even though you repaired the entire item. If the item is ‘repaired’ with improved parts/materials, which will improve the function of the item or extend its life then it would be considered as an improvement and need to be included as a new asset.

 

Initial repair rule:

Repairs undertaken within 12 months of the purchase will not be allowed as a deduction.

These non-allowable deduction details should be kept as they will increase the cost base of the property on disposal and will be needed for capital gains calculations. (Law Shipping Co v IRC (1923) and W Thomas & Co Pty Ltd v FCT)

 Repairs at the end of the tenancy

Any painting or cleaning or other repairs to return the property to the condition it was in before it was rented will be allowable.

 This is allowable even if the property is reverted to private use as long as the expense is incurred in the year of income.

 

Stationery

Keep a record of all your stationery and postage expenses for the year. Don’t dispose of your records. This is an often-overlooked tax deduction by investment property owners.

Tax-related expenses

The cost of obtaining tax advice from a registered tax agent is tax deductible. Tax preparation fees and accounting charges are also tax deductible.

Telephone expenses

Telephone calls directly related to the running of your investment property are tax deductible.

Travel undertaken to inspect the property or to collect the rent

Investment-related travel and car expenses include airfares, car hire, taxis and accommodation. These expenses are tax deductible if you incur these costs while collecting the rent, inspecting the property, or travelling for some other reason related to your investment property.

 

In order to claim car expenses, you will need to record your vehicle’s engine size as well as the number of kilometres you travelled while maintaining your investment property each year.

Water charges

Water rates are tax deductible if you, not your tenant, pay the water bill.

While the previous expenses are the most common deductibles on investment properties, there may be other deductions that you are entitled to specifically relating to your investment property.

 

What cannot be claimed

Not all fees and costs that are associated with an investment property are able to be claimed as a tax deduction. You are not able to claim a tax deduction for any expenses that are:

  • related to the acquisition and disposal costs of the property
  • not incurred by you, the property owner, for example, any water or electricity charges that are incurred by your tenants
  • not related to the rental and income generation of the property, such as if you personally use your holiday home

 

Costs such as the purchase cost, conveyancing costs, stamp duty on the property transfer and advertising for sale, which are related to the acquisition or disposal of the property, are not able to be claimed as a deduction. However, in relation to capital gains tax you may be able to add these costs to the property’s cost base, or reduced cost base.

 DON’T FORGET TO CLAIM DEPRECIATION

 Around tax time, there are even more ways to help you pay off your investment – and one of those is by getting a property depreciation schedule that you can claim on tax.

 What is property depreciation?

It’s a dollar amount that the ATO legitimately allows a Tax Payer to claim on items that decline in value as they age.

 There are two types of allowances available under the Income Tax Assessment Act 1997: depreciation on plant and equipment (such as blinds, carpets and air conditioners) and depreciation on building allowance, which refers to construction costs of the building itself, such as concrete and brickwork.

 How does a depreciation schedule help me?

A depreciation schedule will help you pay less tax now.  But remember if you claim the depreciation on a year by year basis when/if you sell the property, the cost base and thus the Capital gain/loss is adjusted by the depreciation claimed.  (For instance if you buy a property for $450,000 and depreciate $50,000 of assets before selling for $500,000 your gain is $100,000 not $50,000.  Speak to your accountant about capital gain/loss as there are many other factors besides the purchase cost and sale price that make up the cost base.

 Is my property too old to claim property depreciation?

The most common misconception is that only new property can be depreciated and this is simply not true. If your residential property was built after July 1985 you’ll be able to claim both building allowance and plant and equipment. If construction on your property commenced prior to this date, you can only claim depreciation on plant and equipment but it may still be worthwhile. A Quantity Surveyor can advise you.

 I bought my property three years ago. Can I still make a claim?

Yes you can. Your accountant can amend your previous tax returns up to two years back. However it is important to note that your accountant may determine the tax savings after taking into account their fee for the amendment of the tax return may not be worthwhile.  Don’t worry as you do not lose the deduction, as discussed above it will count at the time of sale.

 My property is renovated. Can I still claim?

Yes. The Australian Tax Office (ATO) will need to know how much you spent on renovations. If the previous owner completed the renovations you’re still entitled to claim depreciation. Where the cost of renovation is unknown, a quantity surveyor has been identified by the ATO as appropriately qualified to make that estimation.  NOTE: that if you did the renovation yourself, you can not claim for your time.

 Shouldn’t my accountant prepare this report?

If your residential property was built after 1985 your accountant isn’t allowed to estimate the construction costs. The ATO has identified quantity surveyors as properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown. Real estate agents, property managers and valuers aren’t allowed to make this estimate.  Your report should be prepared only by a Qualified Quantity  Surveyor.  Be careful as recent legislation was passed stating that individuals or companies preparing tax depreciation schedules also have to be registered Tax Agents.  It is important to get a Qualified Quantity Surveyor to complete the report as a compromise on your tax depreciation schedule will not withstand an ATO audit.

 A site inspection of your property is necessary to satisfy ATO requirements and also ensures that all depreciable items are noted and photographed. This guarantees you won’t miss out on any deductions and the documentation can then be used as evidence in the event of an audit.

 The best time to get a quantity surveyor to inspect your property is immediately after settlement and hopefully just before the tenant has moved in. But if that’s just not possible, quantity surveyors can liaise directly with the tenant or property manager in order to cause minimal disruption.

 Property Investment Strategies – excerpts from article by Bill Zheng in the “Your Investment Property” Magazine

Posted in Investments, Property, Tax Minimisation Tagged with: ,

6 Ways To Legitimatly Reduce Your Tax Bill

1. Franked dividends

One of the great benefits of investing in stocks listed on the Australian market is the franking credit system – providing shareholders with a tax credit for corporate tax paid on company profits.

Take the example of a retired couple over 55 who jointly own a $1 million share portfolio, producing a fully franked yield of 5%. The grossed-up dividend (which takes into account the value of the franking credits) is 7.14%. This means that in the first year, the portfolio would produce combined cash dividends of $50,000 plus $21,428 in franking credits.

As the couple in this case study has no other taxable income (their superannuation pensions are not included in their taxable income), they will receive a cash refund totaling about $14,000 for excess franking credits. (Excess franking credits occur when franking credits exceed the amount of tax payable.)

2. Franked dividends in super

What if the same $1 million portfolio were held in, say, a self-managed super fund whose assets support the payment of superannuation pensions to each spouse? The key to this tax position is that superannuation assets backing the payment of a pension are not taxable. If the fund – for the sake of simplicity in this example – held no other assets apart from the $1 million, fully franked portfolio, it would receive a cash refund of all $21,428 for excess franking credits.

Under superannuation law, a person can take a transition-to-retirement pension from age 55, and their super assets supporting the pension immediately gain this tax-free treatment. And if the members receiving the pension are over 60, the pension payments are tax-free in their hands.

3. Income-splitting

One of the simplest ways to reduce tax is to hold nonsuperannuation investments jointly or in the name of a lower-earning spouse. Another way to split income to reduce tax is to setup a discretionary trust to distribute income and capital gains to adult family members with low tax rates.

Be warned, individuals under 18 are no longer be eligible for the low-income tax offset on their so-called unearned income (such as dividends, interest and rent). This means that unearned income paid to children – perhaps through family trusts – is subject to the full penalty rates applying to minors.

4. Salary-sacrificed super

This is the last tax year before the standard cap for concessional contributions by members over 50 is halved from $50,000 to the indexed $25,000 cap that already applies to other fund members. (Members over 50 with low super savings will not have their concessional caps halved.)

Concessional contributions comprise superannuation guarantee and salary-sacrificed contributions as well as personally- eductible contributions by the selfemployed and eligible investors. The immediate tax benefits of maximising salary-sacrificed and personallydeductible are that the amounts within the annual contribution caps are taxed at 15% upon entering the concessionally-taxed super system – instead of marginal tax rates.

5. Transition-to-retirement pensions

The strategy of taking a transition-to-retirement pension while simultaneously making salary sacrificed contributions  otentially can produce excellent tax breaks that should not be ignored.

The strategy has four main tax advantages. Salary-sacrificed contributions are taxed at 15%, not marginal tax rates; the taxable portion of the pension is taxed at marginal rates with a rebate of up to 15% to age 60; and the pension is tax-free from age 60. And most importantly for members with larger balances is that super fund assets backing the pension payments are tax-exempt.

Further, amounts taken as a transition-toretirement pension – a set minimum must be taken each year – can be recontributed to super as nonconcessional contributions, which have an annual contribution cap of $150,000. The making of non-concessional contributions will help minimise tax on any of your super death benefits eventually paid to non-dependants including financially independent adult children. And, of course, large contributions will replenish or boost super balances.

6. Small business CGT concessions

These concessions together with the standard discount CGT discount for assets held at least 12 months means that owners of eligible small businesses can potentially greatly reduce or wipe-out capital gains tax upon the sale of their enterprises – even if there have been multi-milliondollar gains.

Astute business owners keep a close watch on whether their businesses remain eligible for the small business CGT concessions and gain a full understanding of how the various concessions operate. It is possible to adopt a series of strategies so a business remains eligible for the concessions as long as possible.

Posted in Tax, Tax Minimisation

Spend Money to Save Money – CGT Concessions

Believe it or not, there are times when taking an overseas holiday, upgrading your family home, buying a holiday home or perhaps swapping your Holden for a top-of-the-range BMW may actually save you money. Perhaps you could consider saving even more by helping your children pay the deposit on their first homes. Or what about becoming more financially secure by making an extra-large super contribution?

The spending of money to save money may seem ridiculous. But some Small to Medium Enterprise (SME) owners who are planning to sell their businesses may find themselves in the fortunate position of being able indulge themselves and their families in order to become eligible for the highly valuable small business CGT concessions. Access to the concessions potentially can drastically cut or even wipeout multi-million dollar CGT bills that would otherwise be payable on the sale.

As SME owners should understand, various small business CGT concessions are available to businesses with either an annual net turnover of less than $2 million or a maximum net asset value of $6 million. Eligible business owners are entitled to CGT exemptions, discounts or rollover relief on the sale of “active” business assets. These tax breaks are in addition to the 50% general CGT discount for individuals, trusts and super funds.

Here are 10 strategies that may help business owners fall within the asset test for the small business CGT concessions:

1. Understand what assets are included in the asset test

Know what assets are counted for the threshold and then – if possible and practical – adjust your spending accordingly. The net market value of the business assets, personal bank accounts, personal investments – together with those of affiliates – are included in the test.

2. Understand what assets are excluded from the asset test

These are your main residence, superannuation and assets “solely for personal use and enjoyment” (such as holiday homes, luxury boats and exotic cars). A key consideration is how the assets are used.

3. As your business grows, closely monitor how asset values measure against the threshold

This is crucial even if you have no intention of selling at this stage.

4. Consider restructuring your business

A restructure, such as changing from a trust to a company, could trigger CGT liabilities which, depending on the circumstances, could be significantly reduced or eliminated through the general CGT discount and the small business CGT concessions. The restructure should still make good commercial sense, and not solely motivated by tax cuts.

5. Upgrade your family home

Buying a more costly home could possibly help to fall within the $6 million asset threshold. In addition to homes not being included in the asset test, their future capital gains are exempt from CGT.

6. Make extra-large super contributions

By making the contributions, the value of assets counted for the small business CGT concessions is reduced, and business owners are maintaining their personal wealth, and future earnings within the super fund which are concessionally taxed.

7. Help your children pay the deposit on their first homes

This spending is not caught within the small business CGT asset test and – like upgrading your family home or making big super contributions – is likely to be beneficial for family wealth.

8. Buy a holiday home

Again, this personal-enjoyment asset does not count towards the asset test, and its value may increase over the long-term.

9. Buy a luxury yacht and/or car

Although these assets are not caught within the test if used only for your personal enjoyment, their value will almost inevitably decrease. Whether their purchase is a smart move may well depend largely on the amount of tax is saved, if any, by reducing the value of assets included in the small business CGT asset test.

10. Go on a long overseas holiday

Certainly, spending a large amount on an overseas holiday will reduce the worth of your assets.

It is important to seek financial advice before taking any of the suggestion up.

Posted in Tax Minimisation

30 Tax planning strategies

DEFERRING INCOME

  1. Cash or Accruals – Determine whether you should use “Cash” or “Accruals” tax accounting.  On the cash basis, taxable income is the net of amounts that are actually received less amounts actually paid at year end.  The proceeds of pre – 30 June sales which have not yet been received, are excluded from income for the current year.
  2. Unearned income – Make sure that you exclude any income that you may have received but not yet earned. Defer the income until the next year.
  3. Defer Billing – If your cashflow can stand it, think about deferring your invoicing until after 30 June.  A one month delay in billing will mean you pay tax on the income a whole year later.  Mind you, your customers might want you to bill pre-June so that they can claim the deduction.  And a few days delay in billing will usually mean that you get paid a whole month later.
  4. Interest – For most taxpayers interest is only assessable when actually received.  If you are lucky enough to have a few term deposits, arrange to have them mature after 30 June rather than just before.

BUSINESSES DEDUCTIONS

  1. Bad debts – Trade Debtors should be reviewed prior to 30 June to identify and write off any bad ones.
  2. Scrap assets – Review your asset ledger and write off all assets that have been scrapped or which have outlived their useful economic lives.
  3. Low Value Pool – Assets which have been written down to where their value is quite low can be pooled together and depreciated at a higher rate.
  4. Low value assets – Assets costing $300 or less can be written off immediately under certain conditions.
  5. Obsolete Stock – Obsolete trading stock with no value can be written off and a tax deduction claimed this year.
  6. Slow moving Stock – Slow moving stock can be written down to net realisable value.
  7. Stock Valuation – Stock can be written down from cost to a lower replacement value; not a common adjustment but one that is more relevant these days with the stronger Australian dollar making imports cheaper.
  8. Maintenance – The work car is due for a service or some new tyres, why not get it done pre-June rather than just after?  For the sake of paying a few days earlier you accelerate the effect of the tax deduction by a whole year earlier.
  9. Superannuation – Employees’ superannuation contributions should be actually paid before 30 June to obtain a deduction, and to avoid the Superannuation Guarantee Charge.
  10. Personal Superannuation – You can claim a deduction for personal superannuation contributions if your salaries and wages income is less that 10% of your total income.
  11. Self Education deductions – If you receive a Youth Allowance, you are allowed a deduction for certain self-education expenses.

CAPITAL GAINS TAX

  1. Small Business Concessions – You should consider the availability of other small business CGT concessions which have the effect of reducing or deferring a capital gain arising from the disposal of a business asset.
  2. CGT Discount – The CGT discount is not available when you sell an asset that you have held for less than 12 months. Consider deferring the disposal of these assets until the 12 months threshold has past.
  3. Roll gain into Superannuation – In some circumstances you can avoid paying tax on capital gains if you use some or all of the funds to make a personal superannuation contribution.
  4. Roll gain into another asset – CGT law allows you to roll over a capital gain into a replacement asset, effectively deferring the tax on the gain.

COMPANIES

  1. Tax Losses – Check to see if your company has any tax losses carry forward from prior years.  These will be able to be offset against this year’s income.  You’ll need to make sure that the company passes either the Continuity of Ownership or the Same Business tests.
  2. Loans treated as dividends – Companies are allowed to make loans or payments to their shareholders or associates (or even forgive debts).  There are onerous tax consequences however unless the loans are put on a legitimate footing with proper loan agreements with interest being charged, principal repayments made and, in some case, genuine security taken.  Alternatively, the loan can be repaid by the earlier of the due date for lodgement of the company’s return for the year or the actual lodgement date.  It’s important to get some good tax advice or suffer the tax consequences.
  3. Tax Consolidation – If you’ve got a few companies that make up your group, you may want to consider consolidating them for tax purposes before the end of the year.  The resultant single tax entity allows you to offset profits and losses from the different entities.
  4. Personal Services – The company tax rate on income is currently 30%.  Individual tax rates can be much higher.  If you provide services through a company where those services are virtually all from your personal exertion, you could well l find that the income will be considered to be all yours and not the company’s.  There are a couple of hoops to jump through to make sure that the income is treated as income of the company.  You need to look at these well before the end of the tax year to give you time to comply.

TRUSTS

  1. Distribute all income – You need to make sure that you effectively distribute all income each year otherwise undistributed income may be taxed at 46.5%.
  2. What constitutes trust income – A recent High Court case has challenged the historic advantages of using a trust to reduce the rate of tax that you pay.  Nothing has been outlawed; the rules for some have just changed a little.  It all swings on the wording of your trust deed as the deed dictates how trust income is defined and whether capital gains are treated as normal income or not.
  3. How income is assessed – When some accounting expenses are not tax deductible, the net income of the trust for tax purposes exceeds its accounting income. Recent tax law resolved that the distribution of the taxable income must align proportionately with the distributions made for the accounting income.  This can create a problem if you want to limit the income of some beneficiaries to a set dollar amount eg: children under 18.  It pays to leave a little leeway in your accounting distributions to allow for potential rejection of some tax claims.
  4. Unpaid present entitlements – If a trust has an unpaid present entitlement to a corporate beneficiary, complex tax issues arise.  If you can, you should pay the entitlements back before you lodge the trust’s income tax return.

SUPERANNUATION

  1. Co-Contribution – Let’s start with the easy money.  Low-income earners should think about making a personal superannuation contribution so that they qualify for the government’s superannuation co-contribution payment.
  2. Re-contributions – Currently, strategies exist that allow you to draw a pension from your fund and re-contribute amounts to the funds, reducing tax significantly, while maintaining your same net cash.  Don’t leave it to the last minute to set this up though.
  3. Contribution caps – Make sure that you don’t contribute more than the annual concessional contribution cap or risk being subject to an excess contributions tax of 46.5%. Taxpayers are often brought undone by forgetting salary sacrificed superannuation while also contributing to an industry fund.
Posted in Tax Minimisation

Year End Tax Planning

OPTIONS FOR EMPLOYEES AND INVESTORS

  • Defer receipt of income – wages, bonus, director’s fees, commissions, rent, interest and dividends.
  • Defer capital gains on property, shares etc
  • Accelerate Deductions – for work related expenses and investment linked expenses (e.g. prepay interest)
  • Bring forward and realize any potential capital losses but only if there are capital gains to be offset
  • Superannuation co-contribution – paying up to $1000 into your superannuation fund if you are entitled to the government co-contribution
  • Medicare Levy Surcharge is payable if you do not have hospital cover in your private health insurance and your income (or combined income for couples) is over the current year thresholds.

 

OPTIONS FOR BUSINESSES

  • For businesses with current turnover not exceeding $2 million, can opt to be taxed on a cash basis instead of accrual basis (no debtors or creditors including in account), can also use pooled and one single rate of depreciation for all assets and may not need to conduct stock takes.
  • As at 01 July 2015 the following Small Business Entity changes have been made.
    • Write off depreciating assets costing less than $1,000 in the income year in which start to use the asset or have it installed ready for use for a taxable purpose.
    • Depreciating assets costing greater than $1,000, one small business pool will exist where assets will be depreciated at 15% in the year of allocation and 30% in subsequent years regardless of effective life.
  • Tax planning strategies may depend to some extent on your business structure which can be
    • Sole Trader
    • Partnership
    • Company
    • Unit trust
    • Family Discretionary Trust
  • In general terms, you can still follow many of the basic planning options set out above for employees and investors, i.e.
    • Defer income where possible
    • Defer capital gains
    • Accelerate deductions
    • Bring forward capital losses but only to offset capital gains
  • Pay all employees superannuation including your own, into the fund on or before 30 June
  • Directors fees and bonuses are only a tax deduction to the company if they are paid by 30 June or are authorized by an appropriate action before 30 June (e.g. a directors minute)
  • Bad debts must be written off in the books on or before 30 June to claim tax deduction
  • Writing off or writing down obsolete stock must also be done by 30 June in order to gain the benefit of the reduced stock value and resulting tax benefit
  • Prepayments can be a tax deduction provided there is some commercial benefit in the arrangement but must not relate to expenditures beyond the coming 12 months
  • Loans by companies to their shareholders or associates should be repaid by 30 June if the company is showing a profit in the current year or in the accumulated profits of prior years or a formal loan agreement with interest and set repayments should be entered into (Division 7A loan )
  • If capital gains cannot be deferred then you should consider whether any of the small business active asset and or retirement concessions apply
    • The small business 15 year asset exemption
    • The small business 50% active asset reduction
    • The small business retirement exemption
    • The small business asset rollover
  • Setting up a self managed superannuation fund
Posted in Tax Minimisation