Amongst all the politic game playing and doom and gloom reporting, there were actually some good news in the Budget.

Whilst the Company Tax rate cut took all the headlines, more medium sized businesses will now be able to avail themselves of the tax concessions previously restricted to small businesses.

What accountants call Division 7A (which is incomprehensible to the typical business owner) will be reviewed.  Division 7A requires repayments of loans made by companies to shareholders and their associates (which includes trusts) and which can require significant tax to be paid.  Whilst the statements were brief and vague, it is clear they are going to reduce the compliance burden and related costs.

The further restrictions to super certainly took front stage.  However, there were some very valuable announcements that many will be able to benefit from as well as some just plain common sense changes.

If you would like an informed analysis of how you may benefit from the Budget, please e-mail Alex and ask for a copy of our briefing paper.

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

Capital gains tax and the family home – it was one of the few tax free options left.  It is also the most common large concession. 

Sounds simple doesn’t it, but in Part 1 we will explore some useful tips and traps:-

1. One’s own home is exempt from capital gains tax provided is not used for income producing activities – such as running a business. If say 29% of the family home is used to run a business, then the exemption will not be available on 29% of the property for the proportional time it was used to run the business.
2. A property will always be exempt if it was acquired before the introduction of capital gains tax in September 1985. Beware though if you have inherited a half interest since then from a deceased spouse. You may still be in the same home, but the inherited share is a post capital gains tax acquisition (and will be taxable if used for income producing activities).
3. So if you are looking to buy another home, you may wish to keep the old one – as any further capital gain will remain tax free.
4. One can only have one principle residence at one time.
5. However, if spouses both own a property that could be treated as a principal residence, then they can elect to choose one property or apportion the exemption between the two properties.
6. The capital gains tax exemption is available to individuals, the trustee of a disability trust and the beneficiary of a trust who is absolutely entitled to the residence.

This is not an exhaustive list; just simply some of the more useful tips and traps. If you would like to know more, please make contact us to discuss further.

Keep an eye out for part 2.

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

Whilst it has many useful features and benefits, there are issues with a myGov account which you need to mindful of.

A myGov account enables:-

• You to access a range of government services using a single username and password.
• A single inwards message box for all government departments including Centrelink and the ATO.
• A gateway to update you details.

But whilst this all sounds modern and efficient, there have been teething problems such as someone else logging in on the same device would see the previous users details; thankfully that cookie based problem has been fixed.

The biggest problem that does remain though is that if you open a myGov account, all future correspondence will sent directly to you. We will not receive it.  This problem is compounded if you don’t check your in box regularly.

The professional accounting bodies have been screaming for this ridiculous situation to be rectified.  For reasons that are clear to no-one, the ATO have not seen it fit to rectify this.

We have though been able to find a work around in that you can unlink the ATO from your in box. To avoid any adverse outcome, like not paying a tax payment, we strongly recommend that you do so and do so at your earliest possible opportunity.

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

A child under 16 need not have a Tax File Number provided they quote their date of birth where the interest is under $420. The threshold for a child older than 16 is only $120.  A child is treated as being 16 until the end of the year in which they turn 16.

The unfortunate reality though is that banks often record the parents’ Tax File Number which can result in ATO data matching audit issues. This is just one of an ever increasing number of reasons as to why a child should apply for a Tax File Number.

A common question is what is interest income of a child? Interest from pocket money and Christmas and birthday presents is their interest.  Interest from what is basically the parent’s money is not.  There are many shades of grey, so perhaps this is best explained by the following example from the ATO:-

Wayne opens an account for his son by depositing $5,000. Wayne is signatory to the account because Jack is two years old. Wayne makes regular deposits and withdrawals to pay Jack’s pre-school expenses.  Interest earned from that account is considered to be Wayne’s.

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

Our 2015 Federal Budget briefing paper highlighted important changes in the way individuals can now claim car expenses.

Up until the 2014/15 year, one could use one of the four following methods to claim the work use of their car:-

1. Log book method,
2. Cents per kilometre method,
3. 12% of cost method, and
4. 33.3% default log book method.

The latter two could be used where one travelled more than 5,000 work related kilometres. The 12% of cost method was ideal where a client hadn’t kept the necessary receipts.  The 1/3^rd method was what I used to call a “go forward three spaces” method.  It was a gift to clients who travelled more than 5,000kms for work but had a log book that revealed less than 1/3^rd work travel.

These last two methods are no longer available as from 1^st July 2015. 

So you either have a car log book and keep all receipts or you claim under the cents per kilometre method.

The cents pkm method will be OK for some but not for others. You don’t have to have a log book to justify your claim under the cents pkm method but one needs to be able to make a reliable estimate.  This will be easy for say a receptionist who goes to the post office every day and the bank every second day.  It is not however a suitable method for say an accountant who irregularly drives to clients situated all over Melbourne.  In this case, the accountant would have to record every trip for the year and do so every year.

The real problem though for many that haven’t kept a log within the last five years is that the maximum claim under the cents pkm method is only $3,300. There used to be one of three rates depending on the size of car.  Now there is only one – 66 cents pkm.  It’s not a lot for a big and/or expensive car.

So if you use your car for work a lot and haven’t kept a log book within the last five years or your pattern of travel has changed by more than 10% since you last kept one, then you better start keeping one now. 

To ensure you don’t miss out on a much larger tax claim, you need to have a log book that runs for 12 weeks – say three months really. If you don’t start keeping one now, then you need to start one dare I say it by April Fools’ Day.

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