Posts Categorized: Tax

LRBA’s to go?

Labour says so according to the Shadow Treasurer Chris Bowen.

Missing from the statement is how this and all the other proposed changes to super are going to further limit one’s ability to provide for one’s own retirement.

It flies in the face off all initiatives made between 1983 and 2006 – by Labour and the Coalition alike.

Loans by companies – welcome relief in sight

Accountants call loans by companies to the shareholders and trusts as Division 7A loans. It requires corrective action to avoid being penalised.

It’s an area of tax law that clients just don’t understand. It is so incomprehensible that some four years ago the Board Of Taxation recommended a simplification of the rules. This welcome idea was backed up and supported by a statement within the 2016 Federal Budget.

Only trouble was that Treasury released a position paper in October 2018 that is a complete 180 in the other direction with:-

Suddenly retrospectively penalising positions that were previously OK.
Greater penalties.
More complex rules.

And it’s all supposed to start from July 1 2019!

I have read this morning that the assistant Treasurer has stated that he and the ATO (of all people) are in line. He also said that he and Treasury are not in line with each other.

Thankfully sanity has returned. Pity though that it has taken over four months as Treasury has created great concern and panic. Hopefully they will now go back and do what they were asked to do and formulate a simplified set of rules.

What is left to explain is how it ever came to be that Treasury took off hard 180 degrees in the opposite direction….

And why the picture of the owl? Well they are supposed to be quite intelligent and able to turn their head back to normal after turning it 180. Over to you Treasury…

Instant asset write-off gets even better!

Small businesses receive a number of valuable tax concessions. And now the instant asset write-off gets even better!

It has been announced that the $20,000 limit will increase to $25,000. But please note that this is not yet law.

And there is more good news!

This concession which was due to expire at the end of June will be extended to 30^th June 2020.

What you need to do about the instant asset write-off:-

If your intended purchase costs more than $20,000 (excluding GST) then wait until the new limit has become law – so come back to our web page.
That said, don’t leave it to the last day of June. Often the discounting on common items is reduced the closer one gets to the end of June.
Refer to our other blogs which set out some of the tips and traps to be mindful of. Type asset into the search bar to find past blogs. Or better yet, ask us.

Single Touch Payroll exemptions

Single Touch Payroll has now been legislated to apply to all employers from July 2019. So from 1^st July, 2019, all employers must notify the Tax Office of every employees gross pay, tax and super at the time of payment.

Some exemptions and deferrals have been granted.

However, you shouldn’t need them. The main accounting software products offer Single Touch Payroll solutions. Furthermore, there is much preparatory work for which you will need to change and or improve your processes. It is not something bets left to deal with later.

Keep an eye out for future educational and preparatory steps.

Objecting against a Land Tax assessment

Objecting against a Land Tax assessments with the State Revenue Office issuing their 2019 assessments has become a hot topic of discussion. Many have fallen off their chair (and some unable to get back up) after reading that their 2019bill would increase by 40% or more.

What is Land Tax?

Land Tax is a state tax levied on land value. One’s principal residence (home) and farms are exempt, otherwise the land value is taxed under a progressive tax scale. The first $250,000 is tax free (although that threshold is only $25,000 for trusts). A higher rate applies to vacant holdings.

It is assessed against the registered hold of the land at 31^st December. So notices are now being issued for the 2019 year based on who held the land at 31^st December 2018. Adjustments are made upon settlement to apportion part of the bill to the new owner.

How is the land value calculated?

The State Revenue Office uses local council valuations of the land value. The State Revenue Office adopts new values every two years.

Why such big jumps in values?

Local council assessments of land values have largely jumped across the board. This can have a disproportionate effect as holding values pass through a progressive rates of 0.5%, 0.8%, 1.3% and even 2.25%.

Can you object?

Yes you can.

How do you object against a Land Tax assessment?

You must do so within 60 days of receiving the assessment. You do so by using a prescribed objection form.

Even if you object, you must still pay the assessed tax by the due date. If you objection is successful you will be refunded the excess portion of the assessment with interest.

What do you need to object?

You need a reasonable basis. To begin with, we suggest speaking to your real estate agent (that said, we would expect though that the State Revenue Office would not accept a real estate agent’s valuation). If the value appears to be excessive, we contend that you will require a valuation from a property valuer.

Implications for commercial and residential property owners

If you are a commercial landlord, you can continue to pass the Land Tax outgoing on to your tenant. If you are the tenant, your outgoings are going to go up.

If you are a residential property owner, you will not be able to on charge the Land Tax to your tenant. It may well be that a lot of large blocks come on to the market or are sub divided.

We welcome the opportunity to discuss your situation and options with you
and to assist you with preparing an objection.

Australian now living overseas – beware!

Australians now living overseas – beware! Legislation has been put before Parliament that will mean that an Australian living overseas who sells their former Australian family home will pay tax on the entire gain!

This will equate to tax in the hundreds of thousands of dollars!

Even though some of the backlog of legislation before the Senate was passed last week, the bill covering this has yet to be passed. I believe Parliament ceases sitting this week. One could expect that political games will continue and it may be some time before this is passed (if it is indeed it is ever passed).

Separate tax laws apply to non-residents. Non residency is not determined by your passport or visa therein. It is determined by tax law. Generally speaking, someone living outside Australia for more than two years is presumed to have become a non-resident of Australia for income tax purposes. Many other factors are taken into account which are beyond the scope of this blog.

This became more important following the 2012 Federal Budget when non-residents ceased to be entitled to claim the 50% capital gains tax discount.

The proposed law to take effect from July 2019 will fully tax the capital gain on a former family home located in Australia. It will not matter how long the property was used as a home (remembering that one’s home is exempt from capital gains tax). That seems most unfair as per the following example.

Bob & Sally bought a family home in 2005 for $500,000. They live in it for 12 years until moving to take up a 2 year position in London. They enjoy it so much they decide to stay and buy a home in London. To do so, they have to sell their former Melbourne home. They sell it for $1,200,000 in 2020. Under existing law, they would pay no tax as their home was initially their principal residence and the gain thereafter is also disregarded under a six-year absence rule. Under the proposed new law, they would pay tax on the full gain of $700,000. Furthermore, there is no tax free threshold for non-residents so they would pay tax from the first dollar at 32.5% and thereafter at progressively higher marginal tax rates. We are talking tax in the hundreds of thousands of dollars.

In order not to pay tax, Bob and Sally would have to either:-

Sell it before July 2019.
Sell it upon their return to Australia (which may not be possible if they need to release equity to finance the new London home).

The legislation is yet to be passed by the Senate. It is not law. In my view this is not acceptable particularly with July not being that far away. All we can continue to do is monitor the situation and continue to raise it with clients as we meet with them.

In the meantime, we welcome any question you have.

We also encourage of you to think of any family, neighbour or friend who may be affected by this.

And don’t start me on the other tax changes stuck in Parliament!

Who will get your super?

Who will get your super? Unfortunately, that is a question that many fail to address.

Having a will does not resolve this issue. A will dictates what happens to your personal assets. As super is held in trust, your will cannot dictate where your super will go.

In order to set out to whom you would like your super to go, you need to make what is called a death benefit nomination. There are three kinds of death benefit nominations. Each type has its merits and disadvantages. The best one for you depends on your position and what you would like to happen.

What is best for you is often complex, particularly when there are self managed super funds and trusts (where the issue of on-going control is important). Furthermore the tax considerations can be a major factor in determining the best way to leave what assets to what people. This is all best discussed with a financial planner and skilled estate planning lawyer. Please ask us for a referral.

Travel expenses – how to make the best claim

Travel expenses area tax auditor’s delight. So what do you need to do to claim everything you are entitled to claim? 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).
Sightseeing 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. The ATO allows 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.

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.

For further information on reasonable travel allowances, please search on our past blogs.

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.

How do I get a Tax File Number?

You can apply for a Tax File Number by:-

Completing an online form and then booking an appointment at Australia Post. The appointment must be held within 30 days of completing the form. You must take the completed form and proof of identity documents with you to that meeting.
Department of Human Services customers can apply in person.
You can also order an application form and mail it to the ATO.

Our clients have tended to prefer the Australia Post option. A Tax File Number (TFN) should issue within 28 days. You can access the Australia Post TFN application form here – https://identityservice.auspost.com.au/ato/landing

You can apply at any age for a TFN.

Common reasons for young people to apply are:-

Required for part time work.
To be able to register for a university course (and the HELP system).
Notifying bank of your own TFN rather than your parents’. Banks will withhold tax at 47% where interest is more than $120 and a child is over 16. The limit is $420 where a child is under 16.

In reality, it’s never too early to apply for a TFN.

A TFN is a most sensitive personal identifier. Extreme care should be taken to protect it. If you believe your TFN has been stolen, you should report the ATO’s Client Identity Support Centre on 1800 467 033 (open between 8.00am and 6.00pm, Monday to Friday).

You may also wish to watch the ATO’s YouTube video on applying for a Tax File Number.

What GST to charge on food and drinks?

We often get asked by our food and hospitality clients what GST to charge on food and drinks.

Sounds easy but its frequently not.

Thankfully the ATO have created a search tool which you can find at:-

ATO GTS food and drink search tool

We help a number of clients within food and hospitality and would welcome the opportunity to uncover the ways in which we can help you. We can also show you our real time reporting food and hospitality dashboard (which is full on financial and non-financial KPI’s).