Archive for 'Tax'
The ATO has recently replaced the Taxation Ruling (TR) 93/7W on whether penalty interest is deductible to the new TR 2019/2. This new ruling highlights the circumstances in which penalty interest is deductible and the situations where it is not.
“Penalty interest” refers to an amount charged by a lender to a borrower under a loan agreement if instalments are not paid. The payable amount is then calculated by reference to a number of months of interest that would have been received.
TR 2019/2 says that penalty interest is generally deductible under section 8-1 where:
- The borrowings are incurred when gaining or producing your assessable income; or
- It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
Penalty interest that is incurred to discharge a mortgage is also deductible under section 25-30, to the extent that borrowed funds were used to produce assessable income. The ATO makes a note that unlike the general deduction provisions, there’s no influence from the expense being capital or revenue in nature.
You cannot deduct a loss or outgoing under section 8-1(2) to the extent that:
- It is of capital or capital in nature.
- It is of a private or domestic nature.
- It is incurred in relation to gaining or producing your exempt income; or
- A provision of the Act prevents you from deducting it.
Although the 2018-19 financial year is coming to an end, there are still a number of tactics you may be able to employ to ensure that you get the most out of your tax return.
Bring forward expenses:
It is a common recommendation at tax time for small business owners to claim all of the appropriate deductions that are available. These can include rent, utilities, repairs for the business, or work-related travel. You may also consider bringing forward as many expenses as possible to before 1 July, such as pre-paying rent or repair expenses. This can allow you to claim the necessary deductions in your 2018-19 tax return.
Take advantage of the instant-asset write off:
More business owners can take advantage of the instant-asset write off this financial year, as it has now been extended to include businesses with a turnover from $10 million to less than $50 million. These businesses can claim a deduction of up to $30,000 for assets purchased or installed and ready for use from 2 April 2019 until 30 June 2020. This could be particularly helpful for individuals who rely on tools, cars or other assets.
Keep strong records:
As a good recommendation to keep in mind for the end of each financial year, keeping up-to-date records can make tax time a little easier next year. It’s never too late to start getting your records in order, so consider keeping all of your documents together once you have filed your 2018-19 tax return. As an added benefit, a well-detailed set of records is the easiest way to resolve any issues that you may face with the ATO.
The ATO will start processing 2018-19 tax returns on 5 July 2019 and are expected to start paying refunds from 16 July 2019, with the majority of electronically-lodged current year tax returns completed within 12 business days of receipt. There a few changes to tax returns that individuals should take note of going into this end of financial year.
Private health insurance statements:
From 1 July 2019, health insurers are no longer required to send private health insurance statements, it is now optional to send this information. Private health insurance information will be available in the pre-fill report, expected by mid-August. If it is not populated by then, taxpayers may need to request a statement from their health insurer.
Low and middle-income tax offset:
Taxpayers may be eligible for an income tax offset if they are an Australian resident for income tax purposes or their taxable income is in the appropriate income range. It is not compulsory to claim this offset, the ATO will work it out when their tax return is lodged.
Employers reporting through Single Touch Payroll are not required to provide a payment summary to their employees as income statements will replace them. Employees can access their income statements through ATO online services at any time. Employees will receive a notification through myGov when their income statement is ‘Tax ready’, so they can complete their tax return.
The ATO has made recent changes to the application process for an Australian Business Number (ABN). The changes have been made as a measure to protect the process’ integrity and identify those who are attempting to misuse it.
An ABN is a unique 11 digit number that identifies your business to the government and the wider community. The recent changes focus on:
- Ensuring that those who are entitled to an ABN are the only ones who will receive one.
- Identifying people going through the application process multiple times.
- Confirming entitlement and helping people to understand their obligations.
You are only entitled to an ABN when carrying on or starting an enterprise in Australia. An enterprise includes activities done in the form of a business, including operating a charity, renting or leasing property, or acting as the trustee of a superannuation fund. It is compulsory for businesses with a GST turnover of $75,000 or more to have an ABN and be registered for GST.
There is no single test to determine cases where you are carrying on a business. However, features of a functioning business include:
- An intention to make a profit from the activity that is demonstrated by a business plan (unlike a hobby).
- The activity is a significant commercial activity that is a reasonable size and scale, involving the sale of goods or services.
- The activity is organised, systemic and is carried on in a business-like manner with records kept.
The ATO’s changes better define who is eligible for an ABN, helping business owners to understand their obligations in cases where there may be doubt. Consider consulting your professional advisor if further help is required.
The ATO has identified particular areas relating to business expenses that are commonly entered incorrectly in tax returns. Owners should take the time to carefully review tax returns to ensure all information is correct.
Individuals who use a motor vehicle entirely for their business can claim a deduction for the whole amount. However, if they use the vehicle for a mix of business and private use, they will need to divide the expense amount and only claim the business portion.
Business expenses must be kept separate from an individual’s private expenses, such as personal rent, fines, travel, food and renovations of a private residence. Those who operate their small business as a company or trust need to be aware that paying private expenses from these accounts may have other tax implications such as fringe benefits tax and shareholder loans.
In the event a business is upgrading its accounting software, remember to check that business and private expense codes are correct. The business expenses must be claimed at the GST exclusive rate if they are registered for GST, not the GST inclusive rate.
Small businesses should note that falsely or incorrectly claiming expenses is not something the ATO takes lightly. Penalties can apply based on the extent of the misinformation.
Tax incentives may be available to investors that are considering putting their money into qualifying start-up businesses. Eligible businesses are defined by the ATO as early-stage innovation companies (ESICs).
The two key tax incentives for eligible early-stage investors, also known as ‘angel investors’, who purchase new shares in an ESIC are:
- Non-refundable carry forward tax offset that is equal to 20% of the amount paid for their qualifying investments. This offset is capped at a maximum amount of $200,000 for the investor and their affiliates combined in each income year.
- Modified capital gains tax (CGT) treatment, where capital gains on qualifying shares that have been continuously held for at least one year may be disregarded. Capital losses on shares that have been held for less than ten years must be disregarded.
Note that the maximum tax offset of $200,000 does not limit the shares that qualify for the modified CGT treatment.
The early-stage investor tax incentives are available to both Australian resident and non-resident investors. To qualify for the tax incentives, investors must have purchased the shares in a company that meets the requirements of an ESIC immediately after the shares are issued. They must be issued on or after 1 July 2016.
The ATO has released an Impersonation Scam Report for the month of February 2019. Highlighted are the various ways in which scammers have attempted to contact people, posing as the ATO.
The most common method of contact was by phone calls or messages, accounting for 97% of reported scams over the month. Reports of 9,342 phone scams were officially recorded, decreasing significantly from 13,800 reports in January 2019. Emails accounted for 2% of scamming methods. The remaining 1% reported was scam by text message.
According to the ATO, the amount collected by scammers was approximately $256,635, over $240,000 less than January 2019. Payments to these scams by bank transfers significantly increased in February, accounting for 47% overall.
Although trends are down in the last month, the ATO is working to create better public awareness of these scams. The ATO has launched a new scam warning video across their various social media platforms, including Facebook, Twitter and LinkedIn.
In an ongoing effort to address the misuse and abuse of the tax and regulatory systems, the ATO has implemented a new tool to monitor what constitutes reasonable personal living expenses.
Information is requested by the tax office to identify unreported cash income when looking at household expenditure. An individual will be required to provide this information to work out if they need to make adjustments to their business and record-keeping practices as well as help the ATO identify if they should be selected for an audit.
In the event of an audit or when making an assessment in the course of examining an individual’s tax affairs, the ATO will employ a set of guidelines presented in the form of questionnaire worksheets. These worksheets will require taxpayers to provide certain details about the living expenses of their household.
Discrepancies in tax returns that have been discovered by individuals completing a personal living expenses worksheet can be adjusted through voluntary disclosure. Taxpayers that voluntarily inform the ATO of mistakes before an audit may be eligible for reduced penalties.
The ATO has increased fuel tax credit rates from 4 February 2019. As fuel tax credit rates are updated regularly, it is important to check the rates each time you lodge a business activity statement (BAS).
Fuel tax credits provide businesses with a credit for the price of fuel used in machinery, plants, equipment, heavy vehicles, or light vehicles travelling on private roads. The amount of credit will depend on when the fuel is acquired, what fuel is used and the activity it is used for.
The changes in fuel tax rates are indexed twice a year, in February and August in line with the consumer price index (CPI). The current rates apply from 1 July 2018 to 30 June 2019.
If you claim less than $10,000 in fuel tax credits each year, you can use a simplified method to make claims to the ATO. For further information on claiming fuel tax credits and specific rates, you should consult your registered tax agent.
Lodging a business activity statement (BAS) is something all business owners will be familiar with, however, mistakes can still be made. You must ensure that you have reported carefully and correctly to avoid incurring a penalty. In the event an error has been made in the reporting of your activity statements, here is what you will need to know to rectify the misreporting.
If you have made a mistake or left something out on a previous activity statement, in most cases you are able to correct the errors on your next statement or lodge a revised statement.
An error or mistake relates to an amount that was incorrect at the time of lodgement and can be fixed by revising the original BAS or making the relevant changes on your next BAS. Examples of a mistake include:
- Clerical or transposition errors.
- Reporting a taxable sale/purchase as GST free, or reporting a GST free sale/purchase as taxable.
An adjustment relates to a report that was correct at the time of lodgement but a situation has since occurred that changes the amount of reported GST. Examples of when to make an adjustment are:
- If the price of a purchase changes.
- If the goods are returned and the sale has been cancelled.
To avoid penalties, all mistakes must be corrected within four years. You can do this through myGov, on the Business Portal of the ATO, from your business software if it is enabled for Standard Business Reporting (SBR), or by contacting the ATO.