Posts Categorized: Tax

Are you a share trader or share investor?

It’s an important distinction as it can make a world of difference.

Both declare dividends as income (with a tax credit for any imputation/franking credits). However:-

A share investor is assessed on realised gains (i.e. when a share is sold). Only 50% of the gain is assessed if the share is held for more than 12 months. No deduction is available for realised losses; they can only be offset against capital gains.
A share trader is assessed on both realised and unrealised gains (and losses). The cost of shares bought are deducted as purchases, the sales treated as income and the value of shares at 30^th June is treated as closing stock (and therefore income).

So are you a share trader?

Well that depends on matter such as:-

The amount invested.
The frequency of trades.
The amount of trades.
Whether it is being carried on in a business like manner. In this regard, the ATO always places great weight on the existence of a business plan.
Time and money spent on research.
The sophistication of the operation including software programs.

It must also be said that the ATO take particular interest in taxpayers who change from one status to the other. Particularly so in years where there are large market movements.

Not sure where you sit?

The ATO has a useful short summary at – click here

We would your call to discuss your situation at greater length with you.

How can I claim car travel?

In order to claim car travel in your personal Tax Return:-

You (or your partner) must own the car.
You must have undertaken a trip for either your business or your employer.

You can claim under two methods:-

Log book, or
Cents per kilometre

Tip

You can use a log book kept for three months in the current year or in the last four years (provided the pattern of travel hasn’t changed significantly).

Tip

You must have a properly kept log book. You can do so by buying one in a stationers or you can access an electronic one form our firms app.

Tip

As old school as it may seem, it is best to keep a paper log book.

Throw it on the dash so you can see it when you get in the car (and get out).

I can’t tell you the number of times a client has told me they started an app log book but kept forgetting to record trips. End result? Either have to revert to a lower cents per km claim (see below) or endured the frustration of having to start a new log.

Tip

If you are wanting to claim under the log book method, you will need to keep other records other than the look book. Click here to see the required documents.

Tip

You can claim 88 cents per kilometre under the cents per kilometre method for up to 5,000 work/business strips. This means you can still claim 5,000 km where you travel say 5,500km. Some people choose to do so as it gives them a better claim than under a log book. All you need is a reliable estimate of all trips undertaken during the year.

Want to know what works best for you

Call us. We even have a salary sacrifice calculator so we work out the best way to package up a work car and legally minimise the Fringe Benefits Tax.

What is the depreciation limit?

What is the depreciation limit is a very good question as it has unclear for too long.

It was all clear after 30^th June 2023 that the instant asset write-off provisions for small businesses had ended. It was great whilst it lasted (but noting the flip side that the proceeds from selling car fully written off are now fully assessable).

The depreciation limit for 2023/24 was up in the air for far too long. Unfortunately the proposed amendment of a $30,000 limit was not passed. So the depreciation limit for 2023/24 is $20,000 – to read about tips and traps about the $20,000 limit, please refer to our earlier blog at – https://www.mrsaccountants.com.au/asset-depreciation-claims-for-2023-24/

So what is the depreciation limit for 2024/25?

$20,000.

Who can claim these depreciation rates?

These limits are available to businesses (whether operated via a company, trust or partnership or as a sole trader in one’s own name).

The $20,000 limit also applies to an opening pool

Small businesses who have elected to use the pooling depreciation system with its high depreciation rate can also claim the pool balance when it falls below $20,000. That is defined as being:-

The opening balance of the pool
Plus the taxable portion of acquired assets
Less the taxable portion of assets sold during the year.

So if your business bought an asset costing say $22,000 ex GST in 2023/24, then the opening balance of $18,700 can be written off in full in 2024/25 (assuming no other assets acquired or disposed of).

It is beyond the scope of this article to run through all the rules but please keep in mind that you can only claim depreciation from when an asset is installed and ready for use.

Please don’t hesitate to contact us if you have a query.

Can I deduct the cost of charging my electric vehicle?

This has become a common tax question. And the answer is it depends whether you can deduct the cost of charging your electric vehicle.

No claim is available if you claim work car expenses under the cents per kilometre method. That is because the per kilometre rate takes into account charging costs.

Electric charging costs can be claimed at the rate of 4.20 cents pkm where:-

Claiming car expenses under the log book method.
Motor vehicle expenses for vehicles that are not a car (such as a one-tonne ute).

To qualify to use this rate you must satisfy the following three conditions:-

The car or vehicle is a zero emissions vehicle. It is important to note that hybrid vehicles are not zero emission vehicles.
You must have incurred electricity costs at home.
You have kept relevant records.

There are 3 relevant records to keep:-

A valid log book.
Opening and closing odometer readings.
An electricity bill (with proof of obligation to pay if in a shared house).

What if I charge my vehicle out of home?

Thankfully the ATO have dropped their initial harsh stance of not allowing such claims.

To be able to claim such costs, the vehicle must have functionality that accurately reports the percentage of a vehicle’s total charge based on the charging location. One is then to adjust the home charging percentage adjusted accordingly.

If your electric vehicle doesn’t identify charging by location then one can only claim either:-

The home charge at 4.2 cents pkm or
Commercial charging charge costs.

But not both.

We hope this charges up your tax claim – but please contact us if you have any queries.

Correctly claiming your home office expenses

With the start of a new financial year it is timely to explore how to correctly claiming your home office expenses.

Can I claim home office expenses?

Yes you can if:-

You are undertaking genuine employment related activities, or
Home is your sole base of operations (which includes employees who are not provided with an office, or
You are carrying on a business from home.

What can home office expenses can I claim?

You can claiming running costs such as:-

Heat, light and power
Phone expenses
Internet
Consumables such as computer supplies and printing & stationery items

Those who run a business from home or it is their sole base of operations can also claim occupancy costs.

How can I quantify my claim?

There are two available methods:-

Fixed rate method
Actual expenses

How does the fixed rate method work?

Under this method, one claims 67 cents for every hour worked at home. Occasionally checking emails doesn’t is not sufficient to allow a claim.

To qualify to sue this method you must incur at least one of the following expenses:-

Electricity or gas for heating and/or cooling or to power equipment.
Internet
Mobile or home phone
Printing and stationery.

Receipts must be kept to evidence one or more of these costs have been incurred.

And additional to this claim is the depreciation of any home office work items.

TRAP Irrespective of how much you may genuinely use your mobile away from your home office, you will not be able to make a separate claim for using that mobile.

TIP You don’t need to have a set aside office only used for work purposes. You just need a dedicated area.

TIP Once can also claim for hours worked at a holiday home (provided above criteria satisfied).

What records do I need to keep under the cents per hour method?

In addition to the receipts above, as we have highlighted in past posts and Tax Return covering letters, you have been required since February 2023 to log every hour worked at home.

TIP As stated above, you can only claim hours you have logged. You can download a spreadsheet below that is set to track very hour worked at home.

TIP We recommend downloading the spreadsheet below and saving it in the middle of your desktop or laptop – that way you won’t forget to log the hours as you work them.

You can download the home office cents per hour method by clicking here – 2024-25-Home-Office-Expenses-hours-worked-log

What is included within an occupancy home office expenses claim?

One first measures and calculates the area that is used for work/business purposes.

The work/business area % is then applied to:-

Heat, light and power costs.
Rent paid
Mortgage interest
Council & water rates
Insurance

However, the area that is claimed under this method means that the Capital Gains tax Principal Residence is lost on the claimed area for the years claimed.

Please call us if you wish to discuss your claim in greater details.

Can you benefit from catch-up super contributions?

It’s that time of year when people are looking for tax deductions. The relatively new catch-up concessional contribution system may be ideal for some.

Long gone are the days when contributions of more than $100,000 could be made into super.

And now that the deducible contribution limit is just $27,500 it just doesn’t leave much to fund for retirement after taking out 15% contribution tax and life insurance premiums. And this low limit becomes more of problem if one doesn’t use their limit in any year(s).

This low limit particularly hurts those who leave the workforce to bring up children. The same can also be said for those who have a couple of tough years financially. This is particularly true of many Victorian business owners during covid and beyond.

The catch up concessional system allows some to contribute more than the $27,500 limit for which a tax deduction can be claimed for the full amount.

To qualify to make a catch-up concessional contribution before 30^th June 2024 one must:-

Have less than $500,000 in super as at 30^th June 2023.
Not used all of one’s limit in any year from 2018/19 to 2022/23.
Must qualify to be able to make a contribution.

This year is particularly important as it is the first year an unused year will drop off. That is, if you didn’t have concessional contributions of $25,000 accepted by your super fund(s) in the 2018/19 year, that shortfall will be lost if not used by the end of this month.

Things to be wary or mindful of:-

Some super funds cease accepting contributions by Monday 24^th
The 30^th June falls on a Sunday. Those with their own self managed super fund need to avoid making a contribution (banking transfer) after cut off time on Friday 28^th June as it will be treated as a contribution in July. That is next financial year.
And that problem becomes doubly worse if you are not able to make a contribution in July 2024.
A contribution may not suit you from a tax perspective this year as your income may be too low.
Or perhaps it is a good year to trigger a capital gain.
Those with incomes over $250,000 need to be mindful of the extra 15% tax on contributions (and be mindful of how Section 293 income is defined).
A catch-up concessional contribution cannot be accessed one satisfies what is called a “condition of release” is satisfied (with the main one becoming retired).

So there are many factors to take into consideration.

Whether you should or shouldn’t make a catch up concessional contribution is best done by receiving personal financial planning advice. Such personal advice will address your current situation and future goals and needs. Please let us know if you would like a referral.

2024 super co-contribution

Under the super co-contribution scheme, the government will contribute $1 for every $2 of personal contributions made by an employed or self employed person.

The maximum government co-contribution is $500. So if you wish to target the full $500, you will need to contribute $1,000.

To be qualify, one must:-

Be employed with their employer paying the compulsory SGC or be a self employed person running a business.
Have 10% or more of one’s income coming from employment and/or a sole trader business.
Be less than 71 at the end of the financial year.
Have combined assessable income (that being income before deductions), Reportable Fringe Benefits (RFBA) and employer super contributions in excess of basic SGC amount (RESC) of less than $60,400.
Have paid a non-deductible contribution into superannuation from after tax money by 30^thJune 2024. This means the contribution must be made from a personal or joint bank account.
Not be a temporary visa holder.
Lodge a Tax Return for the year ending 30^thJune 2024.
The maximum co-contribution for a personal contribution of $1,000 is $500 if your combined assessable income is under $45,400. Thereafter it progressively reduces by 3.333 cents for every dollar in excess of $45,400. There is no entitlement if your combined assessable income exceeds $60,400.
Not have contributed more than your non-concessional cap.
Have a total super balance under the Transfer Balance Cap (between $1,800,000 and $1,900,000).

If you want to find out what you might be entitled to, click on the following link to the ATO’s calculator here

Other matters to note are:-

One’s own contribution and that made by the government will be preserved. That is, one will not be able to access it until one retires or satisfies another condition of release.
The ATO will deposit the co-contribution into one’s super account once they have reconciled one’s lodged 2024 Tax Return with the information provided by one’s super fund(s). Consequently, most co-contributions will not be credited until at least January 2025.
If your super is with a public or employer superannuation fund, you will need to ensure they accept such contributions. You also need to obtain the appropriate form.
You will need to make your contribution well before 28^th June (as 30^th June falls on a Sunday). For those with your own SMSF, your fund can only accept such a contribution if permitted by its trust deed. We will take no responsibility where a client does not consult with us beforehand.

What is best for you depends on your circumstances and take into account a large number of considerations.

You should therefore seek financial planning advice to ensure such a contribution will work as intended and is in your best overall interests.

Tips and traps in the 2024 Federal Budget

So for the second year in a row we have a Federal Budget with few announcements and therein little of significance. That said, there are a number of matters not publicly discussed within the Budget which need to be considered.

The following examination of the 2024/25 Federal Budget is not a full analysis of all announcements within the Federal Budget. Rather this Tips & Traps edition is limited to exploring those matters of relevance to our clients. Please refer to the Budget paper we issued last Wednesday for all announcements.

INDIVIDUALS

Revised Stage 3 tax cuts
Further to their revised policy announced earlier in the year, the revised Stage 3 tax cuts will take effect from 1^st July 2024 with changes marked in yellow.

For employees, correspondingly less tax will be deducted from pay packets. And those paying PAYG Instalments will see those instalments reduced as from the September 2024 quarter activity statement.

$300 energy rebate

All households will receive a $300 reduction in their electricity bills. This will be passed on by electricity suppliers (who need to amend their systems) in the form of 4 quarterly $75 credits. The $300 is not income tested. Furthermore, as the grant is to be applied to every household – so those who own a holiday home will receive $600.

HELP indexation

As previously announced, with effect from 1^st June 2023, HELP debts will be indexed by the lower of CPI or Wage Price Index.

This will reduce last year’s indexation from 7.1% to 3.2% and reduce next month’s indexation from 4.7% to about 4%.

TIP With both these indices running now at high levels, those soon to clear their remaining HELP debt should consider paying it out before 1^st June 2024.

Centrelink deeming

The current deeming rate will be frozen for another 12 months.

BUSINESSES

$325 energy rebate

Similar to the household rebate, small businesses will receive $325 off the next year’s electricity bills. A qualifying small business will be one that:-

Has a turnover (gross income) of less than $10,000,000 (but it is unclear how an electricity company will know whether to apply the grant or not) and
Have annual electrical consumption under 40 MWh. It is unclear why small businesses with greater consumption (manufacturers and the like) won’t receive a benefit.

$20,000 asset write-off

The $20,000 asset write-off will be extended for another 12 months from 1^st July 2024 for small businesses with turnover under $10,000,000.

That said, the bill to extend the $20,000 write-off for this financial year ending 30^th June 2024 has yet to be passed. As annoying as that is, it must also be said there are two proposed amendments – to increase that limit to $30,000 for this 2023/24 year and be extended to businesses with annual group turnover under $50,000,000.

TIP The $20,000 is the ex GST amount.

TRAP An asset costing more than $20,000 is subject to depreciation under the Simplified Tax System – 15% in the year of acquisition followed by 30% of the remaining balance in following years.

TIP If you are thinking of buying a $40,000 asset you need for your business and the price is good, buy it before July – that way your business can claim 15% in this tax year (even though owned for a few weeks) and the 30% of the residual 85%. So your business is able to claim $16,200 of depreciation in the first 54 weeks of ownership – but only $6,000 if bought in the first week of July.

TIP The asset must be installed ready for use by 30^th June 2024.

TIP There is no grouping of like items – your business could claim the cost of 30 lap-tops costing $1,500 each.

TRAP The write-off threshold is set to return to $1,000 from 1^st July 2025 – but history has shown that both left and right wing governments love to extend it.

Retaining BAS refunds

The period in which the ATO can retain a BAS refund will be increased from 14 to 30 days. As unwelcome as that sounds, the reality is that it gives the ATO a better opportunity to detect fraud (and therefore protect the public purse).

Building cyber resilience for small business

I remain sceptical about the millions spent within Canberra on committees and reviews staffed by bureaucrats without any real input sought from industry bodies and small businesses. But it is pleasing to see 3 announcements in respect of cyber protection:-

Cyber wardens to provide free on-line training.
The introduction of a Small Business Cyber Resilience Service to both help small businesses build their cyber resilience and moreover provide support in response to a cyber incident.
The introduction of an online Cyber Health Check so small businesses can self assess their situation and exposure.

TIP Upcoming government support should not let you decide to deal with this later. And in particular, seriously consider adding cyber insurance cover to your existing business policy(ies).

TIP The best policy is not the cheapest; the best policy is the one that will cover you for what you need when you need it.

Unpaid super entitlements on liquidation

Currently employee’s pay and leave entitlements are protected under a federal scheme. That scheme however doesn’t extend to unpaid superannuation. From 1^st July 2024, directors of companies which have entered liquidation can be pursued for unpaid super.

ATO will cease chasing old tax debts

Out of the blue, the ATO started chasing old tax debts they had previously written off; debts that had long since been forgotten and did not show in either Tax Agent Portal or Taxpayer Portal. Tax debts that had been “put on hold” before 1^st January 2017 can no longer have a tax refund offset against those debts.

RECENT CHANGES NOT ANNOUNCED OR
NOT SUBJECT TO ANNOUNCEMENTS WITHIN THE BUDGET

Increase in super contribution limits

On-going indexation will see contribution limits increase from 1^st July 2024:-

Concessional (deductible) – will increase from $27,500 to $30,000.
Non-concessional (non-deductible) – will increase from $110,000 to $120,000.

No increase in Transfer Balance Cap (TBC)

Indexation of the TBC (the maximum starting amount of any new super pensions) will not see an increase until 1^st July 2025. However, at that time, the $1,900,000 threshold could well be indexed to $2,100,000.

TIP Those considering starting a super pension will need to receive financial planning advice to determine whether it is best to start a pension now, after June 2025 or sometime in between.

Pay day super payments

Quarterly super payments will soon be a thing of the past. From 1^st July 2026, super is to be paid to be paid on pay day.

TIP All employers paying weekly should seriously switch to fortnightly pay runs.

Increase in SG % rate

From 1^st July 2024, the SG contribution rate will increase from 11.0% to 11.5%.

TIP Employers using common accounting software programs such as Xero, QuickBooks Online and MYOB on line versions need not do anything – those software programs will update the required SG %.

$3,000,000 super balance tax

The bill to introduce Division 296 which taxes the unrealised gains assets for super interests in excess of $3,000,000 is being considered by a Senate Committee and appears to be following party lines.

It is novel, unprecedented and in my mind an alarming development to tax the rise in value of assets that haven’t been sold.

But of more concern is that the $3,000,000 threshold will not be indexed. This means that my daughter who has only recently started work will almost certainly breach the $3,000,000 threshold in her working life just based of employer SG contributions alone. And she is nowhere near what a tradie earns; most tradies will breach the unindexed threshold way before age 65.

Some odd Budget facts

Here are some numbers of interest within the Budget

Net foreign liabilities as a % Gross Domestic Product 32.3%
Australia’s population 26.8 million
Resources as a % of total exports 62.5%

CLOSING WORDS

There is comparatively less change to address as we enter the most important time of the year – pre year end tax planning. We have a terrific and robust process to ensure you maximise your opportunities, have clarity of your future tax payments and attend to matters that require rectification.

This process will kick off at the end of the month. We will be amending our pre year end tax planning checklist in response to the above budgetary matters and from what we learn at tax seminars in the weeks ahead.

Please ensure your accounting records are up to date so we can quickly and reliably predict your position and thereby enable us to identify opportunities and matters that require rectification.

We look forward to maximising your tax situation with you in the lead up to 30^th June.

Stage 3 tax cuts and you

After much speculation, the Government has announced that they will amend the legislated Stage 3 tax cuts scheduled to commence on 1 July 2024. This will mean that more Australian taxpayers will receive a personal income tax cut and take home more in their pay packet from 1 July, but for some, the impact will be less favourable than it would have been prior to the redesign.

What will change?

The revised tax cuts redistribute the reforms to benefit lower income households that have been disproportionately impacted by cost of living pressures.

So under the proposed redesign, all resident taxpayers with taxable income under $146,486, who would actually have an income tax liability, will receive a larger tax cut compared with the existing Stage 3 plan. For example:

An individual with taxable income of $40,000 will receive a tax cut of $654, in contrast to receiving no tax cut under the current Stage 3 plan (but they are likely to have benefited from the tax cuts at Stage 1 and Stage 2).
And an individual with taxable income of $100,000 would receive a tax cut of $2,179, which is $804 more than under the current Stage 3 plan.

However, an individual earning $200,000 will have the benefit of the Stage 3 plan slashed to around half of what was expected from $9,075 to $4,529. There is still a benefit compared with current tax rates, just not as much.

There is additional relief for low-income earners with the Medicare Levy low-income thresholds expected to increase by 7.1% in line with inflation. It is expected that an individual will not start paying the 2% Medicare Levy until their income reaches $32,500 (up from $26,000).

While the proposed redesign is intended to be broadly revenue neutral compared with the existing budgeted Stage 3 plan, it will cost around $1bn more over the next four years before bracket creep starts to diminish the gains.

How did we get here?

Tax cuts delivered in 3 stages were first announced in the 2018-19 Federal Budget. The personal income tax plan was designed to address the very real issue of ‘bracket creep’ – tax rates not keeping pace with growth in wages and increasing the tax paid by individuals over time.

The three stage plan sought to restructure the personal income tax rates by simplifying the tax thresholds and rates, reducing the tax burden on many individuals and bringing Australia into line with some of our neighbours (i.e., New Zealand’s top marginal tax rate is 39% applying to incomes above $180,000).

Stage 1 tax cuts took effect from 1st July 2018.

Stage 2 tax cuts took effect from 1st July 2020.

Stage 3 as legislated were due to to take effect from 1 July 2024 – but will now change as per the following table.

The current, legislated and re-designed Stage 3 rates for Australian tax residents are:-

Tax rate	2023-24	2024-25 legislated	2024-25 proposed
0%	$0 – $18,200	$0 – $18,200	$0 – $18,200
16%			$18,201 – $45,000
19%	$18,201 – $45,000	$18,201 – $45,000
30%		$45,001 – $200,000	$45,001 – $135,000
32.5%	$45,001 – $120,000
37%	$120,001 – $180,000		$135,001 – $190,000
45%	>$180,000	>$200,000	>$190,000

Any concerns?

If you have any concerns about the impact of the proposed changes please just give us a call.

SG deadline reminder for Dec 23 qtr

I trust you had an enjoyable festive season – but it is now time to focus on time critical obligations. So here is a quick SG deadline reminder.

With the 28^th falling on the weekend and the Australia Day public holiday on the 26^th, Thursday 27^th January is the end date for satisfying your Super Guarantee (SG) super obligations for the December 2023 quarter.

Please make sure you do not confuse this obligation with the December quarter BAS. The December quarter BAS automatically has a one month extension to 28^th February . There are no extensions for reporting and payment of SG super.

Please note that super clearing houses can take up to 8 days to pass the money through to the super fund. It therefore means that processing and payment to the clearing should be made as soon as possible.

And please make sure you have been calculating super at 11%% since it increased on 1^st July 2023.

Please refer to our previous quarterly reminder as to what forms of remuneration are subject to and not subject to Superannuation Guarantee.

SG super should never be paid late as late payments attract substantial interest and penalties. Furthermore, SG (and BAS) liabilities that remain unreported and unpaid after 3 months automatically can become personal debts of directors.

We welcome any questions you might have.