Posts Categorized: Tax

Can I deduct the cost of a website?

Can I deduct the cost of a website?  This has always been a good question but an even better one now that the ATO have re-defined their position.

The ATO released TR2016/3 just before Christmas. A TR is a tax ruling which is binding on taxpayers and the ATO.  They are only issued for big ticket items. 

The ATO had previously issued a tax ruling in 2001 but withdrew it in 2009 due to the changing nature of websites.

So what is the ATO’s stance now?

No matter how basic, the costs to acquire or develop a website are deemed to be capital. This means they are progressively depreciated.  However, an immediate deduction can be claimed where the purpose and life of the web page is intended to be short – say like a short term sales campaign.

Initial website expenditure may also be deductible where it is paid for periodically under a licence fee model.

Domain name registration fees and website hosting costs are deductible when expended.

So what about maintaining a website?

Such costs would generally be deductible provided they aren’t in respect of significant modification. The ATO states that significant modification would not include:-

  • Persevering the website.
  • Doesn’t alter the functionality of the website.
  • Doesn’t improve the efficiency of the website.
  • Doesn’t extend the useful life of the website.

One common question is in respect of adding another on-line payment method. This would be considered to not being a significant modification and can therefore be deducted in full.

Social media posts are generally deductible due to their immediate short term nature.

We welcome any question you may have.

At MRS, we will spend today planning for your success tomorrow.

Beware of the $1,600,000 pension cap

Beware of the $1,600,000 pension cap. If you thought it was straight forward, then think again. 

It’s complex and the costs of getting it wrong are high as evidenced by:-

  • You have to monitor your position. You have to know the balance of your transfer balance cap (your amount in pension mode) against the general transfer balance limit (the allowable limit).
  • If you exceed your transfer balance cap at 30th June 2017, you will receive an excess notice which will require you to pay tax and withdraw sufficient monies to get beneath the general transfer balance limit. Doing nothing is not an option if you currently exceed or may exceed your transfer balance cap. Thankfully our SMSF clients will know where they are at with our real time SMSF reporting system and will be able to take prompt action. Those with public funds may know their balance as of the day before but will find it, to say the least, difficult to bring themselves sufficiently under their cap as redemptions can take weeks to process.
  • Many with their own super fund may well know the value of their super interests.  But what if the fund’s assets include  assets that aren’t valued daily such as properties?  One needs to have a very good understanding of the value of all fund assets.  And keep in mind that Melbourne property prices posted double digit growth for 2016.
  • You need to be aware that the very useful estate planning tool of reversionary pensions may no longer be such a wonderful solution. The reversionary pension will count against your transfer balance cap – although one has 12 months grace in pulling money out as a lump sum.
  • The growth in your pension assets doesn’t count against your transfer balance cap. Think carefully about what assets you keep / put into pension mode.
  • And here is a real nasty one. If you exceed your transfer balance cap, then you will be denied taking advantage of any further increases in the cap. So when it increases from $1,600,000 to $1,700,000,  to $1,800,000 and so on, you will be denied these increases if you have ever exceeded your transfer balance cap.

These are just some of the issues to be addressed well before July 2017.

Inaction can be the worst action.

With the removal of the accountant’s exemption as from June 2016, accountants can no longer provide any form of financial planning advice.  The only way for you to properly address your situation is to obtain financial planning advice and do so from a financial planner who understands these complex tax rules.

So what are the ins and outs of the $1,600,000 pension cap?

July is now not that far away and by then the amount of monies you can have pension mode will be limited to $1.6 million. So what are the ins and outs of the $1,600,000 pension cap?

The $1,600,000 will be indexed in $100,000 increments. It will also be recorded and tracked like a general ledger account with various transactions and events either adding to or reducing the balance.

Items that will count against the balance include:-

  • The balance of any pension account as at 30 June 2017.
  • Reversionary pensions commenced between 1 July 2016 and 30 June 2017 (and which will be subject to a separate blog).
  • Superannuation pensions started after 30 June 2017.
  • Reversionary pensions started after 30 June 2017.
  • Excess transfer balance earnings (a.k.a. the penalty for exceeding a pension cap).
  • Reversionary death benefits (and which will also be subject to a separate blog).
  • Defined benefit income streams (as rare as they are these days).

Items that will reduce one’s balance include:-

  • Amounts converted back into accumulation mode.
  • Structured settlement contributions (being personal injury payments).
  • Losses due to fraud.
  • Transactions voided under the Bankruptcy Act.
  • Family Law superannuation splits.
  • Pensions that fail to comply with the standards (with the most typical occurance being a pension that ceases as the minimum pension has not been made).

It is important to note that the pension payment will not be reduced by:-

  • Pension payments.
  • Investment losses – although the government’s 364 page Explanatory Memorandum contemplates the impact of another 2008/2009 financial meltdown. Paragraph 3.103 states at the government will review the impact of the transfer balance in the event of a microeconomic shock that substantially affects retirement incomes. It is only a stated intention to review – it doesn’t say they will do anything and doesn’t say how big a shock it has to be.

The superannuation changes are complex (as evidenced by a 364 page explanatory memorandum) and require many to properly review their affair and to do so well before July.

In this blog, we have simply outlined the technicalities of the new pension cap. In future blogs we will explore various aspects of this in more detail as well as addressing some of the other more significant super changes. 

At MRS, we will spend today planning for your success tomorrow.

The new $1,600,000 pension cap

The new super rules first announced in this year’s Budget and passed by the Senate last month will include a new limit as to how much money one holds within pension mode. As from June 2017, there will be a $1,600,000 pension cap (which will be indexed in $100,000 lots). 

The threshold will be calculated as the accumulated amounts one has commuted into pension mode less any commutations. Pension payments do not reduce your limit.

If Fred was to move part of his super accumulation balance into pension mode in June 2016 and do so with $1,600,000, he will not be able to move any further monies into pension mode until the threshold is indexed to $1,700,000. If that $1,600,000 grows to $3,200,000, he is entitled to keep that within pension mode.  That’s great.  On the flip side though, if it falls to $800,000, then that will be doubly unfortunate as Fred will not be able to top up.

Those in pension mode are going to have to think very seriously about what assets they put into pension mode and when they do so.

There is also another issue here in that if Fred only put $800,000 into pension mode in June 2017 and thereby only use half of his threshold, he can then only top up with $50,000 when the threshold increases to $1,700,000. It’s a strange system and careful planning is required.

At MRS, we will spend today planning for your success tomorrow.

Christmas and tax

Entertaining and providing gifts at Christmas time to staff, customers and suppliers is a cost of doing business. However, there are some important FBT, GST and income tax considerations and outcomes.

Under-pinning the implications are the following key points:-

Christmas parties, entertainment and gifts are all treated under entertainment tax rules.

  • FBT applies to benefits given to employees. 
  • There are no FBT implications on entertainment and gifts given to customers, clients and suppliers. 
  • There are three methods under which an employer can quantify the taxable components of any entertainment expenditure – in fact there are 38 permutations depending on who is entertained where, how and with whom.  We will largely address the actual method which the vast majority of clients use and which delivers more favourable outcomes.  It is beyond the scope of this briefing to address 12 week log method and we will only touch upon the 50/50 method where relevant. 
  • Christmas comes but once a year and to the best of my knowledge and experience does so on 25th December.  Nevertheless, the ATO treats Christmas parties and gifts as being what are called minor, infrequent and irregular benefits. 
  • Such minor benefits are FBT exempt where they cost less than $300 (including GST) provided the actual method is used to quantify entertainment.

 

The Christmas party

Where entertainment is calculated under the actual expenditure method:-

  • If a Christmas party is held on-site on a work day, the whole cost for each employee will be an exempt fringe benefit.  So too will the spouse’s cost provided the cost per spouse is less than $300.  No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend.  Taxi travel to or from the workplace (not both ways) will be exempt from FBT and not tax deductible. 
  • If a Christmas party is held off the work premises, then the whole cost will be exempt from FBT provided the party costs less than $300 per person (employees and their spouses).  No income tax deduction can be claimed for the cost of the party including that in respect of any family members that may attend. 
  • If an external Christmas party costs more than $300 per person then the total cost is subject to FBT. 
  • The cost of any entertainment provided during the party (whether that be at the work premises or outside) will be exempt if it costs less than $300 per head – for example DJ, musicians, clown and comedian. 
  • The cost of entertaining clients, customers and suppliers is not subject to FBT and is not tax deductible. 
  • If any exemption is exceeded then FBT is payable.  Consequently, an FBT Tax Return must be lodged and FBT paid.  Please keep this in mind when completing the 2015/16 FBT Questionnaire in early April 2016. 

Where entertainment is calculated under the 50/50 method:-

  • 50% of the cost will be subject to FBT and this portion will be tax deductible.  The other 50% will not be subject to FBT and will not be tax deductible.  An FBT Tax Return must be lodged and FBT paid. 
  • Only taxi travel from home to the venue will be FBT exempt and not deductible for tax.

 

Gifts

The following gifts are exempt from FBT and are tax deductible:-

  • Hampers, bottles of wine, gift vouchers, a pen set costing less than $300 (inclusive of GST).

The following gifts are subject to FBT and are not tax deductible:-

  • Tickets to a sporting event or theatre, holiday, accommodation, etc.

 

GST

  • The GST component of any tax deductible portion can be claimed back.
  • The GST component that relates to the non tax deductible portion can’t be claimed.

 

Please do not hesitate to call us should you have any queries.  

 

At MRS, we will spend today planning for your success tomorrow.

 

New concessional contribution limit

The super changes first announced in this year’s Budget were passed by the Senate on Wednesday 23rd November. With that we will now have a much lower concessional (deductible) contribution limit from July next year.

The limit for the current 2016/17 financial year is $35,000 per annum for those aged 49 or older on 30th June 2016; $30,000 for those younger.  The limit for everyone will fall to $25,000 as from the 2017/18 year.  And with the non-concessional limit then also falling to $100,000 (subject to transitional and bring forward rules), many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire.  Long gone are the days when one could rectify years of no planning for retirement by making concessional contributions of around $100,000 over a few years.  Retirement planning need to now start at an earlier age.

Thankfully one of the positive changes ignore by the press is one that allows those that have been out of the work force for an extended period to make catch up on contributions in excess of the annual limit. They 10% employment income test will also be removed.  It’s not all bad news.

At MRS, we will spend today planning for your success tomorrow.

New non-concessional contribution limits

The super changes first announced in this year’s Budget were passed by the Senate on Wednesday. With that we now have a much lower new non-concessional contribution limit; that being the after tax contributions one can make into their super fund which are not taxed when received by a super fund – that is those monies that go into a super fund tax free and which come out tax free.

The current limit is $180,000 per annum but that will fall to $100,000 from July 2017. And with the concessional limit then also falling to $25,000, many people will have to re-calculate how they are going to accumulate sufficient capital upon which they can retire.

The bring forward rule will remain. That rule allows those under 65 to make three year’s worth of non-concessional contributions in one year whether that be from an inheritance, windfall or proceeds from an asset sale.  In the future, this means that no more than $300,000 can be contributed in any one year.  The limit to 30th June 2017 remains at $540,000 but is subject to what has already been described by some as an unusual and complicated transitional rule.  Whilst the limit may remain at $540,000 for this financial year, it will be less for those who under contributed in 2015/16 or do so in 2016/17.  Make sure you understand what your limit is before making any non-concessional contributions before 30th June 2017.

At MRS, we will spend today planning for your success tomorrow.

New super rules now law

Those largely unpleasant superannuation changes announced in this year’s Budget are now law.  The Senate passed them yesterday.

As we explained to out clients in a seminar on Tuesday night, wile some of the changes are quite positive, many them will have substantial impacts upon how people can accumulate wealth for retirement.  Indeed, with a new concessional (deductible) cap of only $25,000 from July 2017, it will become difficult for many to fund their retirement through super as their parents did.  If it wasn’t already true enough, many people will be forced to address their retirement planning at a much earlier stage in life.

Ignorance and inaction rarely pay off and doing nothing will cost some a great deal.  It is critical you understand what you need to do under the adverse changes and what you can do to make the most of the positive changes.

Which PAYG instalment method to use

Which PAYG instalment method to use is a question that comes up at the start of every financial year – or rather with the September activity statement.

PAYG Instalments are income tax payments paid during the year by companies, super funds and individuals.  In respect of individuals, it is levied on income not taxed upon receipt with common examples being interest, dividends and trust distributions.  It is not assessed on wages or capital gains.

One can pay PAYG instalments under one of two methods – by paying a fixed dollar amount as advised by the ATO or applying a percentage advised by the ATO against the income of that quarter. So what are the relative advantages and disadvantages of each method?

Under the fixed dollar method:-

  • You know what you are up for.
  • If the current year (in this case 2016/17) is much better than 2015/16, then any shortfall will not be payable until the Tax Return for 2017 is lodged – this could be as late as May 2018.
  • It’s a simple method as it doesn’t require any calculations.
  • If the amount is too high then it can be very downwards – but I would not do so on the September activity statement when the year is far from known.
  • Should it be that the PAYG Instalments already paid are too high then a variation can be made and any overpayment refunded.
  • This is a better method to use if you wish to avoid complex and costly calculations of your gross income years (which is required under the percentage method).
  • As it is a simple method, no extension to lodge is granted where there is only a PAYG instalment payable; the extensions to lodge through the Taxpayer or Tax Agent Portal are not available.

Under the percentage method:-

  • The ATO determines the percentage by dividing the prior year’s tax bill into the prior year’s tax liability. It is a rough method but one which usually approximates the appropriate tax.
  • One will pay more if the income in 2016/17 is greater than 2015/16. People who prefer to pay the appropriate (or should I say approximate) amount of tax each quarter as they go prefer this method.
  • It is a good method to use if one’s income is likely to be less than the year before as one will pay less tax. Under the fixed dollar method, one would be forced to vary the amount which could be problematical (see below).
  • As the percentage method requires a calculation of gross income, an extension to lodge is available to those who lodged through the Taxpayer or Tax Agent Portal

Two other important points to note are:-

  1. You are entitled to vary an amount or instalment downwards – but do so carefully as the ATO has the right to issue a fine for gross underestimations.
  2. It may be that your September activity statement offers only the fixed dollar or percentage method. If you do wish to change method, a request to the ATO can be made to reissue the activity statement with both methods being offered.

We would welcome the opportunity discuss which is the best method for you.

At MRS, we will spend today planning for your success tomorrow.

 

ATO’s small business benchmarks

The ATO’s small business benchmarks have recently been updated for the 2014 financial year. They cover over 100 industries and in particular the sort of cash industries the ATO love to audit.

The ATO use this as one of their main tools for identifying businesses to audit and actively select anyone well outside their norms. Please refer to the June 2012, 2013 and 2014 edition of Tips and Traps to see how the ATO has assessed substantial income tax and GST shortfalls as well as hefty interest charges and penalties.  They are eye watering amounts.

Their data is split into three groups based off turnover. They also have some regional and metropolitan ratios.

If the ATO has a small business benchmark for your business then we will discuss it with you in your annual general meeting. If you like to learn more though in the meantime you can go to:-

Before closing I must though express a personal view on benchmarks. They can be a great tool but must be used with care as:-

  • You may not be comparing apples with apples. Even if the right industry has been selected there can be natural differences between say a newly established business and one establish some time ago.
  • There is great danger in comparing oneself to a norm. It is not the average you should be comparing yourself to but the upper quartile.

I also wish to add that we are trialling some non-ATO industry benchmark software of which you will hear more later.

At MRS, we will spend today planning for your success tomorrow.