Archive for 'Tax'
The Australian Tax Office (ATO) is urging employers with 20 or more employees to prepare for the introduction of Single Touch Payroll.
Single Touch Payroll will be introduced from 1 July 2018, requiring employers to report their employee’s tax and super information to the ATO through Single Touch Payroll approved software.
Employers will report each time they pay their employees, i.e., weekly, fortnightly or monthly. The information that will be reported includes withholding amounts, superannuation liability information or ordinary times earnings (OTE) and salary, wages, allowances and deductions.
Single Touch Payroll will provide greater transparency and connect businesses to the ATO through their existing software.
Employers must prepare by organising the following:
- A headcount of employees on 1 April 2018 to determine if there is 20 or more. If your numbers drop down to 19 or less, you will still continue to report through Single Touch Payroll unless you apply for and are granted an exemption.
- Talk to your software provider about how and when your product will be ready.
- Those without a software provider will need to find a provider that offers Single Touch Payroll.
- Update your payroll software when it’s ready.
- Start using Single Touch Payroll.
Employers with 19 or less employees have until 1 July 2019 to prepare, however they can start reporting as soon as their software is updated.
Property investors can access a wide range of tax deductions and items subject to depreciation for their rental property yet many miss out on unknown tax breaks, foregoing an average of $20,000 a year on a $1 million house.
Here are four ways to maximise your tax deductions while complying with the tax office:
Use a quantity surveyor
Registered quantity surveyors can establish the value of purchased items and building construction costs by preparing depreciation schedules to maximise an investor’s claim.
Items as diverse as kitchen equipment, bathroom fittings, outdoor furniture, air conditioning and swimming pools are all legitimate claims. A quantity surveyor will ensure valuations of the items in the building are at market value, avoiding the need to explain any valuations that are higher than expected to the ATO.
The cost of using a quantity surveyor is also tax deductible.
It is common for investors to bundle a mix of properties under one single loan, i.e. the family home and a rental property may be funded by the same mortgage and expenses apportioned accordingly. However, having separate loans can increase deductions as the non-deductible debt can be paid down or even better linked to an offset account, with the deductible loan having full interest paid and claimed.
An immediate write-off applies to items worth less than $300 and can be claimed in the current income year. Items such as garden gnomes, kitchen cutlery and ironing boards, irons are easily forgotten and all can be written off in the first year.
Construction costs can generally be depreciated at 2.5 per cent each year over 40 years for residential properties built after July 1985. This entitlement passes from one owner to the next whenever the property is sold. A quantity surveyor can provide an estimate if information is not available.
Many high value household items are now deducted using the “diminishing value method”, which means the most depreciation happens in the first few years. For example, ducted heating worth $4941 would have a first-year deduction of $493, rising to $2022 over the first five years.
Adding items such as solar lights, garbage bins, garden sheds, intercom systems and closed-circuit television systems to a low-value pool can open up ways to depreciate items at a higher rate, therefore, increasing immediate returns.
The Australian Taxation Office is continuing to pay close attention to claims made as ‘work-related expenses’ throughout 2018.
Making incorrect claims of work-related deductions can land you in hot water with the ATO, and thus it is important you can justify these claims. In order to claim correctly, you must be able to show that:
- You spent the money yourself and were not reimbursed.
- The expense was directly related to earning your income, and
- You have appropriate records and documentation to prove it.
If you are making a claim for an expense that you use for both business and privately, you may only claim the portion of the expense that was related to business.
While we like to think of business ventures as a platform to make money, there are also many expenses that will be incurred through running one.
Luckily, there are many tax deductions a business owner can claim when it comes to the expenses their business incurs, in particular their legal expenses. Understanding what these tax deductible expenses are and how to apply for these deductions appropriately can see you save a considerable amount of money, which can be transformed into profit.
Specific expenses incurred will or won’t be deductible depending on whether the expenditure is capital, domestic or private in nature. The following expenses are not deductible under regular legal expense deductions, due to being either capital or private in nature. Deductions can be claimed under a separate provision. These include:
- Preparations of income tax return
- Obtaining professional tax advice
- Borrowing expenses
- Mortgage discharge expenses
- Preparation of leases
The circumstances in which legal fees incurred can be easily deducted for tax purposes, provided the correct procedure is followed and appropriate criteria is met, include the following:
- Defending wrongful dismissal action, defending defamation action brought against a company board and defending unauthorised use of trademark.
- Pursuing claims for workers’ compensation.
- When negotiating current employment contracts with existing employees.
- Recovering misappropriated business funds.
- Arbitration when settling disputes.
- Recovering wages of an employee due to a dishonoured cheque.
- Evicting a rent-defaulting tenant.
- Opposing certain neighbourhood developments.
Tax deductions on the above listed legal expenses are a guide, and will be determined on a case by case basis, depending on the specific circumstances relating to each case.
There are also a number of situations in which legal expenses are commonly incurred and are not tax deductible, including the following:
- When negotiating employment contracts with new employees.
- Defending charges of various natures, including and not limited to driving charges, sexual harassment charges, racial vilification or discrimination charges.
- Negotiates concerning redundancy payouts or fees incurred through seeking to increase the amount of any redundancy payout.
- Evicting tenant/s whose term had expired.
The ATO sets out clear guidelines of the appropriate documentation needed in order to claim deductions from legal expenses. Generally, documentation needed includes:
- Completed relevant private ruling form or completed relevant objection form.
- Reasons and circumstances concerning legal expenses incurred.
- Documentation detailing the circumstances of the legal expenses, such as court documents.
- Explanation of how the expenses are relevant to gaining or producing of assessable income.
- Details concerning actions taken to recover costs from the other party.
- Details of payments made as a result of the legal issue.
The Australian Tax Office is honing in on small businesses failing to comply with guidelines regarding appropriate record keeping.
Findings from the ATO’s Protecting Honest Business campaign indicated that one of the leading factors for small business failure is their poor record keeping practices. Small business owners are required to disclose particular information, and keep records of the following:
- Income tax records
- Income and sales records
- Expense or purchase records
- Year-end records
- Bank records
- Goods and services tax records
- Employees and contractors records
- Fuel tax records
By law, all Australian businesses must keep these records for a period of five years. These records must be in writing, either on paper or electronically. Dedicating time each week, fortnight or month to compile all the above-listed information will prevent you incurring fines and possibly losing your business.
The Australian Taxation Office is urging all businesses and individuals to take care in relation to avoiding the risk of fraud.
With a focus on criminals lodging fraudulent returns in order to obtain unwarranted refunds through accessing banking information that is not their own, the ATO recommends businesses and individuals practice the following:
Discussions with staff and clients
Keep your employees and your clients about safe behaviours to protect them from being vulnerable to criminals, such as not clicking on downloads, hyperlinks or opening attachments in unsolicited emails.
Protection on devices
Ensuring the devices you use for confidential information such as transferring funds and purchasing goods and services are all up to date with protective software, such as malware detectors and firewalls. Also, ensure autofill forms are not saved or used.
Proof of identity
Before taking on new clients, ensure they provide numerous pieces of proof of identity. You should also question discrepancies before lodging their tax returns.
Ensure all employees have access to only what they need in order to perform their role within the company. When employees cease employment, cancel their AUSkeys.
This year, the Australian Taxation Office has placed a greater focus on property developers and are particularly watching company directors with a history of GST obligations avoidance.
As of May 2017, the Government announced new requirements on those purchasing newly constructed residential properties or new subdivisions to remit the GST directly to the ATO as part of the settlement process. The ATO has placed a strong emphasis on making sure this occurs legitimately, ensuring property developers do not get away with failing to meet their GST obligations.
These proposed requirements were addressed in consultation in November 2017 and are to be implemented as of 1 July 2018. The impending changes will mean that developers no longer have a three-month period to remit GST; hence they no longer have time to be dishonest and avoid GST evasion through phoenixing.
For contracts already entered into, there will be a two-year transitional period, allowing developers involved in these contracts a grace period to adjust to the extensive reforms. Contracts entered into prior to 1 July 2018 will not be affected by these reforms, provided they are settled prior to 1 July 2020.
The Government has announced a reform of the Deductible Gift Recipient (DGR) status to strengthen governance arrangements, reduce administrative complexity and ensure trust and confidence in the sector.
The reforms are as follows:
- From 1 July 2019, non-government DGR’s must be registered as a charity with the Australian Charities and Non-for-profits Commission. Non-government DGR’s that are not already registered will automatically be registered as of 1 July 2019 and will have a 12 month transitional period to assist with compliance.
- The four DGR registers currently administered by other government departments will be integrated into the ACNC’s charity register, and duplicative reporting requirements will be abolished. DGR endorsement assessments for the registers will be undertaken by the ATO. Eligibility for the register of cultural organisations will be extended to include organisations that promote Indigenous languages.
- External Conduct Standards will be enforced by ACNC to strengthen the oversight of overseas activities.
- There will be additional funding to support additional reviews of charity and DGR eligibility based on risk.
With the FBT year-end just around the corner, it is a good time to review your FBT compliance to avoid raising attention from the Australian Tax Office (ATO).
The ATO is currently targeting the following rules for FBT:
Situations where an employer-provided motor vehicle is used or available for private travel for staff. This is a fringe benefit and must be declared on the FBT return (if lodgment is required). However, there are some circumstances where this is exempt; be sure to check before lodgement.
The ATO focus on employee contributions that have been paid by an employee to an employer and are declared on both the FBT return and employer’s income tax return to ensure they are correctly reported.
A taxpayer must be a rebatable employer to claim a FBT rebate, the ATO will check the taxpayer’s eligibility as some employers incorrectly claim for this rebate.
Living-away-from-home (LAFHA) allowance
Common errors with the LAFHA allowance include claiming reductions for ineligible employees, failing to obtain declarations from employees, claiming a reduction in the taxable value of the LAFHA benefit for exempt accommodation and food in invalid circumstances and failing to substantiate expenses relating to accommodation and food or drink.
Employers who provide fringe benefits must lodge a FBT return unless the taxable value of all benefits has been reduced to nil.
Car parking valuation
Common errors include market valuations that are significantly less than the fees charged for parking within a one km radius of the premises on which the car is parked, the use of rates paid where the parking facility is not readily identifiable as a commercial parking station, rates charged for monthly parking on properties purchased for future development that do not have any car park infrastructure, and insufficient evidence to support the rates used as the lowest fee charged for all day parking by a commercial parking station.
It is quite common for small businesses to provide their staff with car parking benefits, however, many business owners may not take into account the effect parking has for fringe benefits tax (FBT) purposes.
Fortunately, if you are a small business, car parking benefits are exempt if you meet all of the following conditions:
– the parking is not provided in a commercial car park
– you are not a government body, a listed public company, or a subsidiary of a listed public company
– either your gross total income for the last income year before the relevant fringe benefits tax (FBT) year was less than $10 million, or you were a small business for the last income year before the relevant FBT year.
Where an employer reimburses an employee’s car parking fees, i.e., if they park at a commercial car park, this will subject the employer to FBT.