Posts Categorized: Tax

Super work test

If you watched the analysts on TV after the budget or read the press thereafter, you would understandably think that there was only bad news in the 2016 Federal Budget. Not so.  One welcome announcement will be that the super work test is to be removed as form July 2017.

So from July 2017, anyone aged between 65 and 75 will automatically be able to make a contribution into super. Currently, those aged between 65 and 75 can only make a contribution into super after they have satisfied a work test of having worked 40 hours in a 30 day period.

This will be a very welcome change for those wishing to still make deductible (concessional) contributions to reduce their tax. It is also a way for those who fail the life time non-concessional cap of being able to get money into super.

Keep an eye out for future blogs on other ways you might benefit from the 2016 Federal Budget.

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

Capital gains tax and the family home

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.

Issues with a myGov account

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.

Kid’s bank accounts & Tax File Numbers

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.

 

 

 

Don’t miss out on your car claim

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 1/3rd 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 1/3rd work travel.

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

 

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.

Which PAYG Instalment method is best for you?

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.

With respect to PAYG Instalments, we usually prefer that clients use the instalment amount method.  In the majority of cases, it will not result in an over-payment that can so often arise under the instalment rate method.

In some cases though, the % rate method may enable one to pay a lesser amount.  If the instalment income is nil or negligible in the first couple of quarters or much less than the year before, then no or little tax will be paid.  A significant payment will only be required at such time as income is received.

It is critical with PAYG Instalments (and indeed GST Instalments) that any downwards or indeed upwards variation be made cautiously.  If a variation results in the instalments paid being 15% less than the actual liability then the ATO will issue a fine.

Please do not hesitate to call us should you wish to discuss your own situation.

 

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

Deadlines for Sep 15 quarter

For those of you who are employers, Wednesday 28th October is the end date for satisfying your SGC super obligation for the September quarter.  Late payments will attract substantial interest and penalties.  Consequently, SGC super should never be paid late.  In the past, payments made even a day late had to be paid directly to the ATO.  Now payments up to a month late can still be made to employees’ super funds.  Payments made more than one month in arrears must be paid to the ATO.  BAS’s and SGC liabilities that remain unreported and unpaid after 3 months automatically become personal debts of directors.

As per earlier reminders, the SGC rate increased from 9.25% to 9.50% as from 1st July 2014.  Please ensure that your system is calculating the SGC at this slightly higher new rate as we have found some clients have still been using the previous rate.

For those who lodge a quarterly BAS, your September quarter BAS is due for lodgement by Wednesday 28th October.  However, you will have to Wednesday 11th November if you are a registered user of the Tax Office’s Taxpayer Portal.  As per our June 2014 edition of Tips & Traps, we encourage you to register for the ATO Taxpayer Portal if you have not done so already; particularly as no further paper activity statements will be issued when an activity statement has been lodged electronically after 30th June 2014.

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

The 10 benefits of cloud accounting

One seemingly today can’t spend five minutes without hearing about cloud services and, in particular, cloud accounting packages.

However, we believe that there are now compelling reasons as to why most businesses should upgrade to a cloud-based solution if they have not done so already (please note the use of the words solution rather than version and most but not all clients).

Here are our top 10 benefits of using cloud accounting:-

  1. You can access your numbers anytime from anywhere and do so easily. So can we.  So can your bookkeeper.  So can someone else in another store.  So can anyone else that you need or wish to give access to.  Access can be granted with differing rights to access certain areas and perform various functions (such as access payroll records and generate a profit and loss).
  2. You can issue invoices from anywhere at anytime, even from a tablet or mobile.  No more waiting until you get back to the office.  You might even be able to speed up your cash flow by taking payments on the go.
  3. The three big players in this space, Xero, MYOB and Reckon Hosted (QuickBooks), all include the option to automatically upload bank transactions.  You don’t have to, but it does save time.  The first time a payee name appears in a data feed, you assign an account to it – so, for example, the first time Maggs Reid Stewart appears, you link our name to accounting fees.  Thereafter, Maggs Reid Stewart is automatically posted to accounting fees unless you otherwise edit the transaction.  As you can imagine, data entry progressively takes less and less time and it is for this reason that there are a lot of good bookkeepers out there scratching for work.  The fees for these bank transaction data feeds are now very reasonable.  So the benefit to you is that you either pay your bookkeeper less or spend less time yourself bent over the keyboard.
  4. With automatic bank feeds, it becomes much easier to keep your numbers up-to-date.  Remember that old saying – what you can measure you can manage (and by extension, what you can manage you can control and what you can control gets done).  You will have the power to know what is happening in your business at all times.  The days of business owners being in the dark as to their true situation until a Tax Return is prepared some time after 30th June should, finally, be a thing of the past.
  5. As multiple people can access the same file, gone will be the common problem of the client, the bookkeeper and the accountant all wanting to work on the file at the same time yet only one having the current file at any one time.  No more re-entering invoices, no more incorrect restores, no more avoidable time wasting, no more wasted and costly time in delivering or collecting a back-up of a desktop file and other such annoying problems.
  6. It is sometimes months after year end before we finalise a client’s financials (we only have two arms so we can’t finalise them all in July).  Cloud accounting packages allow us to access a client file at all times.  The closer we are to the time of each transaction, the greater value we can be to our clients.
  7. You don’t have to load upgrades to the software – it is done for you.
  8. No more version control problems between a client and their accountant.
  9. We have for some years used programs such as LogMeIn to access clients’ computers remotely whether that be to obtain reports, fix problems, etc.  Those remote access programs are comparatively cumbersome.  With cloud based programs, we can just login once you have set us up as a user.  We can then answer your queries far more quickly and efficiently.
  10. When up and running and used properly, cloud accounting should reduce accounting fees and, more importantly, enable us to provide a better service.

Is cloud accounting the way to go for your business.  And if so, which program will better suit your needs?  Call us fro a free initial meeting to discuss your business and its needs.

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

Pay tax and earn frequent flyer points

In our September edition of Tips & Traps (*) we explored the ability to maximise your frequent flyer points from using a credit card (wisely).

Another way to maximise your points is to pay your business or personal tax debts by credit card. Whilst the ATO do charge credit card payment fees, they are the same that they are charged by the various card providers. As such, the rates charged are very low.

You can pay by credit card by:-

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

 

(*)        Tips and Traps is a free quarterly newsletter issued to our business clients full of, as the name suggests, tips and traps. Please call Alex Stewart if you would like to be added to the mailing list.