As reported in The Age today, the ATO is on the war path over rental properties, particularly those in holiday locations. Their activity will be focused on properties generating low rent but comparatively high outgoings, repairs & improvements, travel claims and apportionment of private use.

If you are unsure what you can and can’t claim, you can refer to the ATO’s guidebook which can be found at:-

http://tinyurl.com/npm6hjy

Or, if you can’t be bothered reading it or can’t understand those 44 pages, ask us.

And if you are thinking of buying an investment property, we have a calculator which models out what your future income / net tax loss will be as well as growth in equity in the property over 10 years. We also have a guidebook that steps you through all the things you need to know and do.

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

The following is a listing of assorted tax saving opportunities.

• Buying items such as stationery, printer cartridges, stamps, etc by Tuesday 30^th June.  Those of you who entered the Simplified Tax System (STS) by 30^th June 2005 (and are therefore automatically assessed on a cash basis) may wish to pay any bills not due until July like your phone bill, rent, insurance etc.   Paying your accounting fees is also recommended!
• Superannuation is of course a major deduction provided it is paid by 30^th June.  Contributions into super are taxed at only 15% whereas your marginal tax rate may be much higher at 19%, 32.5%, 37% or 47% – as well as Medicare Levy at 2%.  As we have highlighted in previous correspondence, be careful with the 30^th falling on a Tuesday.  A June contribution that doesn’t clear until July will be not be deductible in 2014/15 and will count against next year’s contribution limit.  It is now too late to make payment by B-Pay.  And beware of making EFT payments after your bank’s night time cut off.
• Whilst there are minimum levels of super to be paid by employers on behalf of employees under SGC provisions, your own business conducted through a company or trust can claim a deduction up to $30,000 ($35,000 if you were 49 on 1^st July 2014 – i.e. those who now 50 or older).
• For those who are self employed, the same limits apply.
• STS taxpayers are now known as Small Business Taxpayers (SBTs).  SBTs also include taxpayers with an annual turnover under $2,000,000.  As we have previously highlighted, SBTs can claim a full deduction for any assets acquired costing less than $1,000 (meaning $1,100 including GST).  That limit is $20,000 (excluding GST) for assets bought after 12^th May.
• Furthermore, SBT taxpayers can claim half a year’s depreciation on acquired assets that cost more the above limits – even if the asset is purchased on the last day of the year.
• SBT taxpayers can also claim a full deduction for payments such as insurances, rent and the like which cost more than $1,000 even though the service period runs past 30^th June and into the next financial year.
• For those of you who receive this e-mail that are employees or rental property owners, you can claim a complete write off for assets costing less than $300.
• If a property is jointly owned, then you can claim the full cost of assets costing less than $600 (meaning you claim less than the $300 limit each).
• Investors can claim prepayments in full.  An investor with a property or share loan can claim a deduction for 12 months prepaid interest.  Please note that the ATO requires that for the prepayment to be claimed, one must benefit through a lower interest rate (for which you need to keep proof).
• For those who have already generated a large capital gain, consideration should be given to selling other investments that have an unrealised capital loss.  Those with no or minimal employer SGC support should consider making a deductible contribution into superannuation to offset the tax on the capital gain (but speak to us first).
• From 1^st July 2004, persons under 65 no longer need to be working or have ceased employment within the last two years in order to make a deductible super contribution.  Consequently, those with large incomes can greatly reduce their tax burden by putting monies into superannuation.  With super pensions paid to those older than 60 now being tax free, the tax savings are greater than ever before.
• Please note that those over 65 but under 75 can only contribute into super only after they have satisfied a work test.
• If you are about to sell an asset which will generate a capital gain, consideration should be given to selling it after 30^th June.  This will defer the payment of any capital gains tax liability until after 30^th June 2016.

We have considered these matters when undertaking your pre year end business reviews with our clients.  However, do not hesitate to contact us should you wish to clarify any matter.

We take this opportunity to remind all employers to attend our HR Myths and Secrets seminar.  There is much that most employers don’t know – sometimes at great cost when an employee or contractor makes a claim for unpaid entitlements (arguments which employers never win).  I strongly encourage all employers to attend so that they can ensure that they are compliant and not an accident waiting to happen.

The tax bill tax which included the provisions for small businesses to be able to claim a full tax deduction for assets costing less than $20,000 was passed by the Senate on Monday 15^th June.

So if your business does need a small asset, now is the perfect time to buy it.

But before doing so, please note 5 critical factors and considerations:-

1. Only buy an asset you need. So if a company buys and asset for $11,000, it will get back $1,000 of GST and will have a tax deduction of $10,000. It will pay $3,000 less company income tax. It will still be $7,000 out of pocket.
2. You need to elect or have previously elected to use the small business general pooling depreciation method. If not, the $20,000 provisions do not apply.
3. Your small business must own the asset. It either needs to pay for it or finance it by a loan, hire purchase or by way of a chattel mortgage contract. Leased assets do not qualify for the write-off as one does not own the asset until the final payment is made or the lease contract is paid out early.
4. If you trade-in an asset, it is the cost of the new asset that qualifies. So if your business buys a car for $30,000 and trades in an old car for $12,000, there is no entitlement as the cost of the new asset exceeds $20,000.
5. The $20,000 refers to the GST exclusive price. If however, a business is not registered for GST, it is the cost of the asset including GST.

Please contact us if you have any questions.

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

Do you have any overseas trips planned?

If so, please take note of the following tips to make sure your trip doesn’t cost you more than it need to.

Some clients decide to cancel their private health insurance for the period they are overseas.  This might save some premium but it can cost much more with the imposition of the Medicare Levy Surcharge (which is charged proportionally on the number of days for which private health insurance is not held at rates from 1% to 1.5% depending one’s level of income).  This is subject to an income threshold of $90,000 for singles and $180,000 for couples (add $1,500 for every child after the first child).

Senior Health Concession Card holders also need to be aware that they will have their card cancelled when they are overseas for more than six weeks.  This happens automatically as the Passport Control pass on their data to Centrelink.

Or perhaps your kids are going off to explore the world for a year.  The trip could cost them less of they go at the right time.  If they left in July and returned in June, then they would have a year with no income and waste the tax free threshold of $18,200.  If they leave in January and return in December, they will be able to use two tax free thresholds and not leave the first tax bracket in either year.  If your child is earning $50,000, leaving in January rather July will save them almost $7,000.

You have to be careful as to what you think you have heard on Budget night.

You have to mindful of three things:-

1. They announcement are not law, they are only announcements.  It may be some time before the legislation passes, it may not ever pass or may be slightly or even substantially different.
2. No matter who is in power, the good news items always tend to have a delayed start date; whereas the bad news items start seemingly straight away.
3. Some of what is reported is not true or over simplified.  What seems to be an opportunity turns out not to be available or only relevant to certain groups.

At MRS, we will spend the next few days pouring through the detail before releasing our detailed analysis of the Budget and what it means to our clients.  That briefing appear will be filled with tips and traps and will be written in plain English.

Please let is know if you would like a copy e-mailed to you.

Travel expenses area tax auditor’s delight.  So what do you need to do?  The basics are:-

• One must keep written or scanned evidence of all expenses when away from home for more than one night.
• If one is travelling overseas or away for more than six nights within Australia, then a travel diary must be keep. Note the word must; it is not an optional requirement.  No diary, no claim.
• Travel diaries can be bought at most newsagents. The simplest things to say is fill in each column to each row, but it is worth noting that one must record:-  – the nature of the activity.  – the day and time that the business activity commenced.  – how long the business activity lasted.  – the name of the place where you engaged in the business activity.
• Collect as many business cards and brochures as you can. Photos are also great proof of what you did.

What if the trip is partly private and how might costs be split?  These are my views as the ATO provides surprising little clarity on this matter:-

• If one goes for a conference to say Europe, then such a long haul means that it is unreasonable to expect one to fly in the day before and then spend say four days sitting in a darkened room. Arriving say two days early does not in my view change the purpose of the trip.  Consequently, the cost of the whole flight remains fully deductible.
• In my view, if one stays on for a day and/or it coincides with a weekend, the trip remains fully deductible.
• The costs incurred on the work/conference days are deductible such as accommodation and food (but not excessive alcohol).
• Sight seeing trips are not deductible.
• What if one attends a week long conference but enjoys a week’s holiday beforehand or afterwards? Clearly the holiday is not deductible.  However, it also raises a question as to whether the whole air fare can be claimed.  Unless there is some compelling counter argument, the air fare would need to be apportioned on a proportional days basis.
• What if one’s partner comes along to the conference or business trip. One method is to only claim half of the accommodation costs.  Another method which I subscribe to is to find out the single rate and claim that – as that is what would have been incurred but not for the partner.  In some cases, it is the same rate.  Make sure you keep the evidence of the alternative room rate.

A common problem is obtaining receipts in some countries.  Thankfully, the ATO provides relief to this problem by allowing employers to pay their employees (which can includes the directors of a company) a daily travel allowance.  The ATO annually sets out daily rates that employers can pay employees to cover their daily travel costs of food, travel and other incidental expenses.  There are rates for Australia (which include accommodation) and overseas (which do not include accommodation costs as they must be fully substantiated).  Please ask us if you would like a copy of the current year rates.  There are differing rates for different areas with higher rates applying to higher costs centres and levels of salary.  Moreover, an employee is exempt from substantiation if they do not claim more than the allowance paid to them.

As it is an allowance, it must be treated as such in your payroll system, be reported within W1 on the next BAS and shown as an allowance on the end of year PAYG Payment Summary.  Please ask us if you would like help in setting this up correctly.

Please remember that as it is an allowance, this method can’t be used by those running a business in their own name or by partners in a partnership.

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