Posts Categorized: Tax

Cash flow – state actual due date on invoice

Instead of stating terms such as 14 days on an invoice, we suggest stating the actual due date – such as Monday Nov 5.

We have found that other clients that have moved away from number of days to the actual due date have experienced earlier receipts from customers.

Savings from a company tax rate cut?

So Scott Morrison has said that they wish to accelerate the company tax rate cuts for small business.  So what are the savings from a  company tax rate?

Not much if you intend to pay out profits as dividends.

In fact you might be worse off.

For more, read our previous blog at:-

What do the company tax cuts mean to you?

 

 

SMSF – minimum balances

ASIC is considering mandating a minimum balance for a self managed super fund (SMSF) to be opened.

Certainly there is good reason for this given reports as to how many SMSFs have unviable balances.

What is most important though is that one receives financial planning advice as to the appropriateness of opening a SMSF.

Home office expenses

You can claim home office expenses if you:-

  • Run a business from your home, or
  • Undertake work duties from home.

Substantiating a claim to the ATO’s satisfaction is paramount.

A classic case of running a business from home is a doctor. To one side of the house will be a shingle, an entrance, reception, waiting rooms and doctors’ rooms.  It may be run from home but it looks like a business.  In such cases, a claim for occupancy expenses can be claimed.  A claim can also be made for running expenses as can someone who simply undertakes some of their work at home.

 

What home office expenses can be claimed for a place of business?

  • Running costs of heat light & power.
  • Occupancy costs – such as rent, or mortgage interest, rates as insurance.
  • Other costs such as phone costs, depreciation of fittings.

If not separately metered, some of these costs will need to be apportioned. Apportionment can be made on a percentage area basis or by tracking business usage.

Where home is a place or work, travel from the work place for work purposes is deductible (whereas travelling from home to work is private).

 

A word of warning though

If home is a place of business, then the home will lose part of its capital gains tax exemption. Tax will only be payable when the home is sold (but note that Capital Gains Tax does not apply to assets bought before 19th September 1985).

That said, the gain may not be that significant. If the work area was say 20% of the home area and only used that way for 5 years out of the 30 years the home was owned, then the taxable gain would only be 3.33% of the total gain (before any loss is offset or 50% Capital Gains Tax discount applied).

 

The ATO outlines some of the basis in the following e-mail.

We would welcome the opportunity to discuss your situation with you.

We will examine running expenses in a future blog.

Special disability trusts

Special disability trusts are a most effective way to provide for a family member who suffers from a severe disability. Special disability trusts provide for the accommodation and care of family member.  Such trusts receive substantial social security and tax relief.

Special disability trusts receive the following social security concessions:-

  • Up to $500,000 can be gifted into a special disability trust before gifts are counted under the asset gifting rules .
  • The first $669,750 within a special disability trust will not be assessed under the assets test.
  • The income of a special disability trust doesn’t count against the beneficiaries income test.
  • All reasonable medical and home care expenses can be paid by the trust.
  • A special disability trust can also pay up to $12,000 of discretionary expenses.

By transferring a parent’s assets into a special disability trust, a parent can improve their age pension entitlement.

A special disability trust can be established in two way:-

  • Via a will. However, it must be noted that there is a risk that the provisions of a will may not comply with future laws.
  • In one’s lifetime. However, this means that on-going costs are incurred from day one.

Does a special disability trust sound like a good option for your family’s situation?

You should only make that decision after receiving financial planning advice from a qualified financial planner.  You also need a referral to a qualified lawyer who specialises in this area (we can refer you).

You should also have Centrelink assess your child to ensure they qualify.

What is the company income tax rate for 2018?

What is the company income tax rate for 2018? Sounds like an easy question doesn’t it.  And so it should be?  It has however proved to be anything but – until now.

Thankfully, and at long last, the Senate has passed the legislation that determines which companies pay the 27.5% income tax rate after 30th June 2017.  Corporate businesses with turnover of less than $25,000,000 for the year ended 30th June 2018 (and $50,000,000 thereafter) will pay the 27.5% company income tax rate if they pass a new income test.  The planned further reductions in the company tax rate did not pass.

Confusion has reigned until now. For the 2017 year, the ATO defined a company as carry on a business where there was a view to making a profit.  It was justified on the basis of very old case law (none of which I ever recall studying at university).  More notably, it was completely contradictory to what was considered a business where operated within in a trust of partnership or by an individual.

Why did the ATO take this approach?

It meant that dividends could be franked at only 27.5% (despite having paid tax at 30% on those profits). It meant that individuals would either pay more tax or receive a lesser refund.  Some consider it to be theft.

So why did the government fix this?

The government was clearly annoyed that the ATO took the approach they did. They proposed legislation a year ago – which has taken until now for our parliamentarians to pass.

So which company businesses qualify for the 27.5% company income tax rate?

Companies that receive less than 80% of its revenue from passive sources. Passive sources include:-

  • Interest
  • Rents
  • Capital gains
  • Dividends from companies where less than 10% of the issued shares are held.
  • Trust distributions and profit shares – their character depends on the nature of the income as earned by the trust or partnership.

Franking rate

The same test will also apply to determining the franking rate. That said, one refers to the income derived in the prior year to determine the current year franking rate.  Yes, it is possible to be paying 30% tax yet only be able to frank dividends at 27.5% in any one year.

We would welcome any question you may have.

 

Taxable Payments Annual Report

28th August is the end date for lodging the ATO’s Taxable Payments Annual Report.  This form requires those businesses within the building and construction industry to report all payments to contractors within the building and construction industry.

Building and constructions includes more services than one might think as evidenced by the following link – http://tinyurl.com/y7hrnfxm

You need a good accounting system to simplify the reporting of Taxable Payments Annual Report as you need to report the following for each contractor:-

  • Name
  • ABN
  • Address
  • Gross payment including GST as well as the total GST amount. It is important to note that for those who run an accrual accounting system, reporting is based not off the date of the contractor invoices, but they year in which they are paid.

If you are struggling with this reporting requirement, we would be happy to help you or refer you to a good book-keeper.

Ways you can lodge the Taxable Payments Annual Report

  • The main software providers enable the Taxable Payments Annual Report to be lodged from the software.
  • You can also lodge by paper.
  • You may also wish to view the following YouTube clip from the ATO on how to lodge the Taxable Payments Annual Report through the Taxpayer Portal.

https://www.youtube.com/watch?v=SRhFsB-k1Uc

So what to the ATO do with all this data?

They crossmatch all payments reported to each business within the building construction industry to their reported income.  The ATO had a field day some years ago with a pilot program of plasterers within the Hunter Valley.  Obviously it is paying dividends if the ATO still requires this reporting – so much so that it has now been expanded to other industries from July 2018.

2018 Company Tax rate

At last we know what the 2018 Company Tax rate will be for small and medium size businesses!  So whilst the House of Reps was in uproar today, at least the Senate did something.

What a joke it is that only now do we know with certainty what tax rate applies from 1st July 2017.

Finally we can finalise Tax Returns with certainty!

If you would like to read more about this, please refer to our August edition of Tips & Traps.

 

Pay-roll Tax and the danger of grouping provisions

It is now time for Victorian employers to lodge their annual Pay-roll Tax declaration. One of the dangers of Pay-roll Tax is not complying with grouping provisions.

The grouping provisions assess a number of employers against the remuneration threshold (now $650,000). Remuneration in excess of that threshold is subject to Pay-roll Tax at 4.85%.

Employers can be assessed as a group where:-

  • There is common ownership and control, or
  • Where an employer performs duties for another business.

The latter one is commonly misunderstood. Having a larger business answer the phone of a smaller business (with unrelated owners) for 30 minutes over lunchtime can be enough to treat a business as grouped.  So it could be that a small business with remuneration of only $100,000 has to pay Pay-roll Tax of $4,850 for the sake of 2 ½ hours a week of phone minding.  A phone answering machine or service would seem to make more sense!

If you would like to know more about grouping, you can go to:-

https://www.sro.vic.gov.au/grouping

You can also watch the Victorian State Revenue Office’s video on grouping at:-

https://www.sro.vic.gov.au/videos/payroll-tax-grouping-provisions-webinar

With we welcome any question you may have in respect of this or any other employment related matter.

Last minute tax saving tips

 

 

 

 

 

Are you a business owner who wants to legally minimise your tax? Or perhaps you’re an individual who wishes to legally minimise your tax?  Our June edition of Tips and Traps (being our monthly newsletter) explored last-minute tax saving tips.

If you would like a copy that newsletter setting out those tax savings tips then please email admin@mrsaccountants.com.au

We have a thorough tax planning process to ensure clients avoid pitfalls and take advantage of any opportunity that is legally available. Our process is to:-

  • Review year-to-date numbers to the end of May.
  • Understand what may have happened or will happen during June.
  • Run through our seven page tax planning checklist.
  • Identify all opportunities.
  • Identify pitfalls that may require corrective action either now or shortly after year-end.
  • Set out our recommendations in a clear and concise report. That report also addresses the timing the future payments or refunds.
  • Discuss those recommendations with you in either a face to face or Skype meeting.

The end result to you is that you:-

  • Are left in the best position.
  • Have our advice presented to you in an understandable report (backed up with a discussion).
  • Know the timing of your future tax payments – and are not left with any shocks when the Tax Returns are finalised.

Today, our process and tax savings tips have saved our clients over $400,000.  This doesn’t take into account the value of other advice given throughout the year.

If you feel that your accountant is just filling in your Tax Returns and not looking after your long-term interests, then call Alex Stewart on 03 9899 7511. Our initial meeting is free of cost of obligation so you have nothing to lose (and maybe a lot to gain).