Taxable payments annual report (TPAR)

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You may need to lodge a Taxable payments annual report (TPAR) by 28 August each year if you are a:

Business providing:

 

building and construction services

cleaning services – for contractor payments from 1 July 2018 (first report due by 28 August 2019)

courier services – for contractor payments from 1 July 2018 (first report due by 28 August 2019)

road freight services – for contractor payments from 1 July 2019 (first report due by 28 August 2020

information technology (IT) services – for contractor payments from 1 July 2019(first report due by 28 August 2020)

security, investigation or surveillance services – for contractor payments from 1 July 2019 (first report due by 28 August 2020)

government entity.

 

The TPAR tells us about payments that are made to contractors for providing services. Some government entities also need to report the grants they have paid in a TPAR.

Contractors can include subcontractors, consultants and independent contractors. They can be operating as sole traders (individuals), companies, partnerships or trusts.

The details you need to report about each contractor are generally found on the invoice you should have received from them. This includes:

 

  • their Australian business number (ABN), if known
  • their name and address
  • gross amount you paid to them for the financial year (including any GST).

 

TAX TIPS FOR INVESTORS

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Many Australians invest in property, financial markets and other assets, both here and overseas. In 2016-17, almost 4 million individuals received dividend income of $23.4 billion while 2.1 million reported rental income totalling $44 billion. $20 billion in capital gains were reported by almost 700,000 individuals, while more than 900,000 reported capital losses of $27 billion.

Assessable foreign source income of almost $6 billion was reported by 730,000 individuals.

The ATO’s data matching and information exchange capabilities continue to evolve and now cover many capital transactions and investment revenue streams.

It is therefore more important than ever to report investment income including from overseas, maintain accurate records, correctly calculate capital gains or losses on disposal, and to ensure you comply with the various rules and concessions available to investors.

RENTAL PROPERTIES

The ATO has received a large boost in funding to close the $8.7 billion individuals tax gap. Part of its focus is to ensure taxpayers are returning all rental income as well as claiming only the rental property expenses to which they are entitled. Some of this additional funding will go to improving the checking of claims in real time, additional audits and prosecutions.

The ATO receives details from Airbnb and other providers which will be data matched against tax returns. From this year, the ATO will receive details of your deductions data from your tax agent or myTax, and a multi-property rental schedule for individuals may be available this year and will be mandatory in 2020.

The ATO’s most recent random checks of rental claims found 90 per cent contained an error and it plans to double the number of audits on rental deductions.

Owners of rental properties that are being rented out or are ready and available for rent can claim immediate deductions for a range of expenses, such as:

  • interest on investment loans
  • land tax
  • council and water rates
  • body corporate charges
  • insurance
  • repairs and maintenance
  • agent’s commission
  • gardening
  • pest control
  • leases (preparation, registration and stamp duty)
  • advertising for tenants.

Landlords may be entitled to claim annual deductions for the declining value of depreciable assets (such as stoves, carpets and hot-water systems), and capital works deductions spread over a number of years (for structural improvements, like re-modelling a bathroom).

Remember that landlords are no longer allowed travel deductions relating to inspecting, maintaining or collecting rent for a rental property.

Further, deductions for the depreciation of plant and equipment for residential real estate properties are limited to outlays actually incurred on new items by investors in residential real estate properties. For example, for properties acquired from 9 May 2017, landlords can no longer depreciate assets that were in the property at the time of purchase. However, should they purchase a new (not used or refurbished) asset, they can depreciate that asset.

Plant and equipment forming part of residential investment properties as of 9 May 2017 will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

Ensure that interest expense claims are correctly calculated, rental income is correctly apportioned between owners, claims for costs to repair damage and defects at time of purchase are depreciated and that holiday homes are genuinely available for rent.

You can contact us to clarify if your expenditure is repairs and maintenance and can be claimed immediately or improvements, which can be claimed over time.

RESIDENTIAL PROPERTY AND NON-RESIDENTS

The Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018proposed that the Australian home of a non-resident for tax purposes, including Australian expatriates, will no longer have access to the capital gains tax main residence exemption on disposal.

The Bill lapsed when the election was called and it is unclear whether it will be re-introduced.

HAVE YOU MADE ANY GAINS OR LOSSES FROM CRYPTOCURRENCIES?

The ATO is now matching transaction data obtained from digital exchanges, so it is more important than ever that you ensure cryptocurrency gains and losses are correctly reported.

If you either currently are or have been involved in acquiring or disposing of cryptocurrencies in the past, you need to be aware of the income tax consequences. These vary depending on the nature of your circumstances.

One example of cryptocurrency is Bitcoin. The ATO’s view is that Bitcoin is neither money nor Australian or foreign currency. Rather, it is property and is an asset for capital gains tax (CGT) purposes.

Other cryptocurrencies that have the same characteristics as Bitcoin will also be assets for CGT purposes and will be treated similarly for tax purposes. However, if you are considered to be trading cryptocurrency, the income will be ordinary income.

A person involved in cryptocurrency transactions needs to keep appropriate records for income tax purposes. If you have dealt with a foreign exchange or cryptocurrency, there may also be taxation consequences for your transactions in the foreign country.

CAPITAL GAINS TAX PLANNING

Careful planning should be undertaken in planning the timing of the disposal of appreciating assets which may trigger a capital gain. In this context, it is important to recognise that CGT is triggered when you enter into a contract for the sale of a CGT asset rather than on its settlement.

This is particularly important where the entry and settlement of the contract straddle year-end. In these circumstances, it may be preferable from a cash flow perspective to defer the sale of the CGT asset to the subsequent year where other relief may be available, such as a capital loss sold on another asset.

Care should also be taken to ensure that an eligible asset is retained for the 12-month holding period required under the CGT discount, and to recognise that the CGT discount is not available to the extent that any capital gain accrued after 8 May 2012 and you were a foreign resident or temporary resident at any time after that date.

Keep proper records for all of your investments and ensure that you keep them for at least five years after a capital gains tax event occurred.

DO YOU HAVE FOREIGN INVESTMENTS?

If you are an Australian resident with overseas assets, you need to include any capital gains or capital losses you make on those assets in your tax return and may have to include income you receive from overseas interests in your tax return. You can ‘receive income’ even if it is held overseas for you.

If you receive foreign income that is taxable in Australia and you paid foreign tax on that income, you may be entitled to an Australian foreign income tax offset.

Please be aware that the ATO has information exchange agreements with revenue authorities in many foreign jurisdictions, and therefore is likely to receive data on any of your overseas investments and income.

INVESTMENT PRODUCTS PROMOTED AS TAX EFFECTIVE

The end of the financial year often sees the promotion of investment products that may claim to be tax effective. If you are considering such an investment, seek independent advice before making a decision.

TAX TIPS FOR STUDENTS

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If you’re a student, lodging an income tax return may seem a bit daunting. Parents who may be helping to navigate these uncertain waters can also find it challenging.

GETTING YOUR REFUND

If your total taxable income for the year ended 30 June 2019 is below the tax-free threshold of $18,200 you may not need to lodge an income tax return.

However, if you have had tax withheld from your income during the year and are under the threshold, you must lodge a tax return to have these withholding amounts refunded to you.

Typical examples of situations where tax may have been withheld are pay as you go (PAYG) withholding amounts from your salary, withholding from bank interest income during the year where you have not provided your tax file number (TFN) to your bank, or distributions from a family trust where you have not previously provided your TFN to the trustee.

IDENTIFY ALL YOUR SOURCES OF ASSESSABLE INCOME

To determine whether or not you need to lodge a tax return, identify all sources of income derived during the year that is assessable for income tax purposes.

Such amounts include:

  • income from work as an employee or a contractor, including any tips or gratuities received
  • investment income, such as any bank interest or dividends on shares received
  • certain government payments received such as Youth Allowance, ABSTUDY, living allowance and Austudy
  • some non-government scholarships, grants and awards
  • distributions from a family trust or partnership

If you get paid cash in hand, you still need to declare the cash as income on your tax return. Check that your pay slip or income statement shows all your earnings and the amount of tax taken out, as well as super payments if you’re entitled.

REPORT INCOME AND EXPENSES FROM THE GIG ECONOMY AND ANY SIDE HUSTLES

If you drive people around, do odd jobs, give private tuition, rent out your possessions, run social media accounts or sell products, your income from such activity may be assessable and your expenses deductible. This can include barter and cryptocurrency payments as well.

The ATO is receiving data from a range of websites including Airtasker, Uber, Airbnb and eBay which is matched against tax returns. Make sure you keep records and report correctly.

For some activities such as online selling, you’ll need to first determine whether you are in business.

HAVE YOU MADE ANY GAINS OR LOSSES FROM CRYPTOCURRENCIES?

The ATO is now matching transaction data obtained from digital currency exchanges so it is more important than ever that you ensure cryptocurrency gains and losses are correctly reported.

If you either currently are or have been involved in acquiring or disposing of cryptocurrencies in the past, you need to be aware of the income tax consequences. These vary depending on the nature of your circumstances.

A person involved in cryptocurrency transactions needs to keep appropriate records for income tax purposes. If you have dealt with a foreign exchange or cryptocurrency, there may also be taxation consequences for your transactions in the foreign country.

If you are involved in cryptocurrencies, you should contact us for advice.

CHECK YOUR SUPER

If you’re an employee and are paid more than $450 before tax in a calendar month or are under 18 and work more than 30 hours per week, your employer should be making contributions into your nominated superannuation fund.

You might also have a number of small-balance super accounts from working different jobs. Be aware that from 1 July 2019, inactive low-balance accounts will start to be consolidated, exit fees will be removed and insurance will be provided on an opt-in basis for members under 25 or with balances below $6000.

You can check with us if you’re entitled to super payments.

KNOW YOUR DEDUCTIONS

You are entitled to claim tax deductions for certain expenses that are directly related to the income you have received. For example, you can claim work-related deductions if you have the necessary receipts or credit card statements, they directly relate to the work you do, and you paid for the expense and were not reimbursed.

Typical work-related expenses that may be allowable include:

  • uniforms and protective clothing
  • employment-related mobile phone and internet costs
  • subscriptions and union fees
  • travel expenses between worksites or client locations, but not the commute to and from home.

If you use us, we can access your uploaded data.

You should consult your accountant to identify all eligible deductions.

CLAIM DONATIONS

If you made one or more donations of $2 or more to bucket collections conducted by an approved organisation for natural disaster victims, you can claim a tax deduction of up to $10 for the total of those contributions without a receipt.

CLAIM THE RIGHT TAX OFFSETS

If you receive Austudy, ABSTUDY living allowance, Newstart Allowance, youth allowance or other taxable Commonwealth government education or training payments, you are eligible for the beneficiary offset.

This offset ensures you do not have to pay tax on those payments. You may, however, have to pay tax on other income, such as wages or investment income.

In certain circumstances, the low-income tax offset will be available to reduce tax payable on such income provided your taxable income exceeds the tax-free threshold for the particular year.

Students should therefore consult their accountants  if any other tax offsets are available.

IDENTIFY ELIGIBLE SELF-EDUCATION EXPENSES

If your study is directly related to maintaining or improving your skills in your current occupation, or could increase your income from your current employment, you can claim self-education expenses.

Typical self-education expenses include:

  • course fees
  • textbooks
  • stationery
  • student union fees
  • the depreciation of assets such as computers, tablets and printers.

By contrast, if you are embarking on study for the first time or if the study is unrelated to your work then the expenses incurred are not deductible.

UNDERSTAND HELP DEBTS

Higher Education Loan Program (HELP) debt repayments are not tax deductible.

If you have a HELP debt, repayments commence once your salary exceeds $51,957 (this figure is for year ending 30 June 2019). The specific amount required to be repaid will depend on a range of factors, including your taxable income.

If you are working and you have filled out a tax file number declaration form indicating you have a HELP debt, your employer will withhold additional tax from your salary to assist you to cover your HELP debt. The ATO will automatically calculate what your HELP repayment is for the year once you lodge your tax return.

If you don’t notify your employer that you have a HELP debt through the TFN declaration, your employer will not withhold the additional tax and you may therefore find yourself facing an unexpectedly hefty tax bill.

If your income varies significantly over a year and you do not expect to exceed the threshold, you can ask your employer to stop withholding the additional tax for HELP purposes and that additional tax withheld may be refunded to you after you lodge your tax return.

People who are overseas with a HELP debt are required to make repayments based on their worldwide income.

ARE YOU A RESIDENT FOR TAX PURPOSES?

The tests used to work out residency status for tax purposes are not the same as residency tests used for other purposes, such as immigration.

If you’re an international student studying at an Australian education institution in Australia for a period of six months or more, you may be regarded as an Australian resident for tax purposes.

You will also be assessable on your worldwide income, not just the income from within Australia.

There are a number of rules to determine tax residency so you should always speak assistance about your specific circumstances.

CONSIDER THE SPECIAL RULES FOR THOSE UNDER 18

Certain types of income derived by minors under the age of 18 may be taxed at a higher rate than would apply to that same income if the taxpayer was aged 18 or over. The types of income that may be taxed differently include:

  • income received as a beneficiary from a trust
  • interest, dividends, rent and royalties.

Such income will be taxed at a rate of 66 per cent plus 2 per cent Medicare Levy for income that is greater than $416 and less than $1307, and at a rate of 45 per cent plus 2 per cent Medicare Levy on income that exceeds $1307.

Minors will not be able to typically claim the low-income tax offset to reduce their tax liability on such income.

Ordinary marginal tax rates will apply to other income derived by a minor aged under 18, such as:

  • employment or business income
  • taxable government payments such as Youth Allowance
  • income from a deceased estate
  • income from property transferred to a minor as a result of a person’s death or a family breakdown
  • net capital gains on a disposal of investments.

FIND A GOOD TAX AGENT

Student life can be financially challenging and those promises of large refunds can sound attractive. But be careful – the tax rules can be complicated, and those deductions need to be legitimate if you want to avoid paying extra tax, penalties and interest.

You should watch out for agents who offer a very low fixed fee, promise large refunds, spend very little time with you or don’t ask for receipts. A good tax agent will ask you about your employment and any investments, and check that you’ve got the right records to back up your claims.

Finding a good tax agent is a great way to begin to understand your tax obligations. Some agents offer special rates for students, so don’t forget to ask.

DAWOOD LATIF CPA,

Principal/Managing Director- Leopard Accounting Pty Ltd

Member Of CPA Australia

Registered Tax Agent

Registered Australian Securities & Investment Commission(ASIC) Agent

TAX TIPS FOR SMALL BUSINESS

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The ATO continues its focus on small businessindicated. The ATO has received additional funding through the Black Economy Taskforce and its enhanced enforcement covers lodgment, employee entitlements, mobile strike teams, tax system integrity and the use of data and technology. The new Tax Integrity Centre and whistleblower protections will allow the community to report suspected or known black economy, tax evasion and illegal phoenix activities to a Black Economy Hotline.

Small businesses need to ensure their bookkeeping and lodgments are correct and up-to-date. You should obtain professional tax advice, especially in areas where more complex tax issues arise. This includes structures, capital gains tax, personal services income, trust declarations and distributions, and private company loans.

PRE-1 JULY 2019 TO-DO LIST

  • Make trust resolutions
  • Document the streaming of trust capital gains and franked dividends
  • Review private company loans
  • Consider deferring certain income, and bringing forward certain deductible expenses
  • Write-off bad debts
  • Pay employee bonuses and employee superannuation entitlements

RECORD-KEEPING TIPS

  • Record cash income and expenses
  • Account for personal drawings
  • Record goods for your own use
  • Separate private expenses from business expenses
  • Keep valid tax invoices for creditable acquisitions when registered for the goods and services tax (GST)
  • Keep adequate stock records
  • Keep adequate records to substantiate motor vehicle claims

BE UP-FRONT AND HONEST WITH YOUR AGENT AND THE ATO

Getting the basics right has never been more important – good record keeping, substantiation, correct account codes, properly accounting for private use and declaring all cash transactions are essential to assure yourself, your tax agent and the ATO that your tax affairs are in order.

The ATO is getting smarter with its data, and taxpayers are increasingly being contacted regarding their income and expense claims. With a focus on discrepancies in returns when compared against data or business benchmarks, and increased resources to deal with the cash economy, the onus is on business owners to correctly report their income, claim their expenses and have the appropriate records.

Your tax agent is required to take reasonable care when preparing your return, which means they may ask you detailed questions about your cashflow, business performance, personal use of assets and records.

If you’ve made errors or need to correct your business records, speak with us we can work with you and the ATO to get things right.

MAXIMISE DEPRECIATION DEDUCTIONS

A key feature for small business in the 2019-20 Federal Budget on 2 April 2019 was the announcement that a small business entity (SBE) may potentially qualify for an asset write-off one under one of three varying caps during the year ended 30 June 2019.

A medium sized business entity (MSBE) will also be able to claim the instant asset write-off in respect of a depreciating asset that is both first acquired for a cost of less than $30,000 on or after 7.30pm on 2 April 2019 which is used or installed ready for use by 30 June 2020.

The write-off amount will depend on the date the asset is first used or installed ready for use for a taxable purpose. For businesses registered for GST, the threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis.

Entity type   Data acquired Time depreciating asset first used or installed ready for use for a taxable purpose  Asset cost threshold 
Small business entity From 7.30pm 12 May 2015 1 July 2018 – 28 January 2019 $20,000
Small business entity From 7.30pm 12 May 2015 29 January 2019 – 7.30pm 2 April 2019 $25,000
Small business entity From 7.30pm 12 May 2015 7.30pm 2 April 2019 – 30 June 2020 $30,000

Where the cost of the asset is not available for the instant asset write-off deduction, it will be allocated to the general small business pool and depreciated at a rate of 15 per cent regardless of the date of acquisition during the 2019 year, provided the asset starts to be used or is installed ready for use during the year ended 30 June 2019.

For assets included in the pool at the start of the 2019 year, the opening pool balance will be depreciated at the rate of 30 per cent. Where a balancing adjustment occurs during the year, the asset’s termination value must be deducted from the pool.

However, where the closing balance of the SBE’s general small business pool is less than $30,000 as at 30 June 2019, the SBE will be entitled to a full deduction for the amount of the pool’s closing balance.

MAKE SURE YOU PAY THE CORRECT COMPANY TAX RATE AND APPLY THE CORRECT RATE FOR IMPUTATION

Most companies with an aggregated annual turnover of less than $50 million will pay tax at 27.5 per cent in 2018-19. However, some companies with a turnover below $50 million will continue to pay tax at 30 per cent, especially companies that earn nearly all their income from passive investments such as rental income or interest income.

To qualify for the lower tax rate in 2018-19:

  • a company must have an aggregated turnover of less than $50 million, where aggregated turnover is the sum of the company’s ordinary income and the ordinary income of any connected affiliate or entity
  • no more than 80 per cent of their assessable income is base rate entity passive income (replacing the requirement to be carrying on a business).

The full company tax rate of 30 per cent applies to all companies that are not eligible for the lower company tax rate.

As a corollary to the base rate passive entity income rules in determining the tax rate of a company, there have also been changes to the dividend imputation rules that apply to the franking of dividends by a company.

The company tax rate for franking distributions needs to assume that the aggregated turnover, assessable income, and base rate entity passive income is the same as 2017-18.

Where the company did not exist in the previous year, its corporate tax rate for imputation purposes will be deemed to be at the lower corporate tax rate of 27.5 per cent for that initial year.

These differential rates create a number of complexities for companies, especially companies holding investments, as well as for the owners of companies. Your CPA accountant  is best placed to assist you with these issues.

SMALL BUSINESS INCOME TAX OFFSET

You will be entitled to the small business income tax offset for the year ended 30 June 2019 if you carry on business and your aggregated turnover for the 2019 year is less than $5 million. The offset rate is 8 per cent of the income tax payable on the portion of an individual’s taxable income that is their ‘total net small business income’.

The ATO will work out the offset based on the net small business income earned as a sole trader and share of net small business income from a partnership or trust, as reported in the income tax return.

SMALL BUSINESS CGT CONCESSIONS

There are significant tax savings potentially available where an eligible active asset used in a business is sold for a profit and the taxpayer can satisfy either the $6 million maximum net asset value test immediately before the CGT event or the $2 million CGT small business entity test for the 2019 year.

Additional conditions must now be met when a taxpayer disposes of an active asset being a share in a company or an interest in a trust on or after 8 February 2018.

Given the complexity of the small business CGT concessions, taxpayers should consult their CPA Australia-registered tax agent such as us for advice.

MAKE TRUST RESOLUTIONS BY 30 JUNE

As always, trustees of discretionary trusts are required to make and document resolutions on how trust income should be distributed to beneficiaries for the 2018-19 financial year by 30 June.

If a valid resolution is not executed by 30 June, any default beneficiaries under the deed will become presently entitled to trust income and subject to tax (even where they do not receive any cash distribution), or the trustee will be assessed at the highest marginal tax rate on any taxable income derived but not distributed by the trust.

A trustee must be able to show how an effective resolution was made through minutes, file notes or an exchange of correspondence documented before year end. However, the trust’s accounts do not need to be prepared by 30 June.

As a corporate trustee may need time to notify its directors that a meeting must be convened to pass and record a resolution, such a notice should be sent out well before the 30 June deadline.

DOCUMENT THE STREAMING OF TRUST CAPITAL GAINS AND FRANKED DIVIDENDS TO BENEFICIARIES

Broadly, trustees of discretionary trusts can stream capital gains and franked dividends to different beneficiaries if the trust deed allows the trustee to make a beneficiary “specifically entitled” to those amounts. The trustee must document this resolution before 30 June and the beneficiary receives or is entitled to receive an amount equal to the net financial benefit of that gain or dividend.

These streaming rules are complex, and taxpayers should consult their CPA Australia-registered tax agent for advice.

CLAIM DEDUCTIONS FOR PROFESSIONAL ADVICE WHEN STARTING A BUSINESS

Professional expenses associated with starting a new business, such as legal and accounting fees, are deductible in the financial year those expenses are incurred rather than deductible over a five-year period as was the case previously.

If you established a business during the year, you should speak to your CPA Australia-registered tax agent about claiming professional advice fees as an expense.

CONSIDER TAX IMPACTS FROM ANY RESTRUCTURING

Small businesses can change the legal structure of their business without incurring any income tax liability when active assets are transferred by one entity to another.

This rollover applies to active assets that are CGT assets, trading stock, revenue assets and depreciating assets used, or held ready for use, in the course of carrying on a business.

However, caution must be exercised – business restructuring is complex, so you should first speak to your CPA Australia-registered tax agent.

REVIEW YOUR PRIVATE COMPANY LOANS

The income tax laws can potentially treat the following as an unfranked deemed dividend for a taxpayer unless an exemption applies:

  • a payment or a loan by a private company to a shareholder or an associate (like a family member)
  • the forgiveness of a shareholder’s or associate’s debt
  • the use of a company asset by a shareholder or their associate
  • the transfer of a company asset to a shareholder or their associate.

The most common exemption is to enter into a written loan agreement requiring minimum interest and principal repayments over a specified loan term, which may be seven or 25 years depending on whether or not the loan is secured.

There are various things a private company can do before its 2018-19 income tax return needs to be lodged to minimise the risk of a shareholder or an associate deriving a deemed dividend.

Depending on the circumstances, these strategies may include repaying a loan, declaring a dividend or entering a complying loan agreement before the return needs to be lodged.

The rules around private company loans are complex and changing, therefore you should consult your CPA Australia-registered tax agent on this.

PREVENT DEEMED DIVIDENDS IN RESPECT OF UNPAID TRUST DISTRIBUTIONS

An unpaid distribution owed by a trust to a related private company beneficiary that arises on or after 1 July 2016 will be treated as a loan by the company, if the trustee and the company are controlled by the same family group. In these circumstances, the associated trust may be taken to have derived a deemed dividend for the unpaid trust distribution in 2018-19.

However, a deemed dividend may be prevented if the unpaid distribution is paid out, or a complying loan agreement is entered into before the company’s 2018-19 income tax return needs to be lodged.

Alternatively, a deemed dividend will not arise if the amount is held in an eligible sub-trust arrangement for the sole benefit of the private company, and other conditions are satisfied.

Trustees and beneficiaries should consult their accountant on the full implications of these very complex rules if applicable.

INCREASED ACCESS TO COMPANY LOSSES

The ‘same business test’ for losses has been supplemented with the ‘similar business test’ for losses made in income years starting on or after 1 July 2015. The new test will expand access to past year losses when companies enter into new transactions or business activities.

The similar business test allows a company (and certain trusts) to access losses following a change in ownership where its business, while not the same, is similar, having regard to a number of considerations.

The ‘same business test’ and the ‘similar business test’ will be collectively known as the ‘business continuity test’.

The rules around losses can be complex and taxpayers should consult their accountant for advice.

WRITE-OFF BAD DEBTS

Businesses can only obtain income tax deductions for bad debts when various conditions are met.

A deduction will only be available if the debt still exists at the time it is written off. Thus, if the debt is forgiven or compromised before it is written off as bad in the accounts, no deduction will be available.

The debt must also be effectively unrecoverable and written off in the accounts as bad in the year the deduction is claimed. The bad debt must have been previously brought to account as assessable income or lent in the ordinary course of carrying on a money-lending business.

Certain additional requirements must be met where the creditor is either a company or trust.

CHECK IF THE PERSONAL SERVICES INCOME RULES APPLY

Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. You can receive PSI even if you’re not a sole trader. If you’re producing PSI through a company, partnership or trust and the PSI rules apply, the income will be treated as your individual income for tax purposes.

If the PSI rules apply, they affect how you report your PSI to the ATO and the deductions you can claim.

PAYING EMPLOYEE BONUSES

If you pay staff bonuses and you want to bring expenses into the 2018-19 year, ensure they are quantified and documented in a properly authorised resolution – for example, board minutes – prior to year-end to enable a deduction to be incurred for employee bonuses where such amounts are not paid or credited until the subsequent year.

PAY ANY OUTSTANDING SUPERANNUATION ENTITLEMENTS

Ensure superannuation guarantee payments for employees are up-to-date, and report and rectify any missed payments to the ATO.

From 1 April 2019, there are new powers and offence penalties related to the payment of superannuation guarantee obligations.

Employers can also claim deductions for superannuation contributions made on behalf of their employees in the financial year they are made.

PREPARE FOR SINGLE TOUCH PAYROLL

Single touch payroll (STP) reporting has been extended to all employers from 1 July 2019. A number of options are available depending on the number of employees you have, whether they are closely held and whether you report via your tax or BAS agent.

Check with your payroll software provider to find out if your software is STP compliant.

If you don’t currently use payroll software, you should consult your accountant.

SEEK INDEPENDENT ADVICE ON INVESTMENT PRODUCTS PROMOTED AS BEING TAX EFFECTIVE

The end of the financial year often sees the promotion of investment products that may claim to be tax effective.

If you are considering such an investment, seek independent professional advice before making a decision.

TAX TIPS FOR EMPLOYEES

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Do you know the tax deductions and offsets for which you might be eligible this financial year?

Just remember that for an expense to qualify:

  • you must have spent the money yourself
  • it must be directly related to earning your income
  • it must not have been reimbursed
  • you must have the relevant records to prove it.

The ATO has been given additional funding to close the $8.7 billion individuals tax gap and part of its focus is on employee claims. The ATO will also receive the details of your work-related deductions data from your tax return, whether lodged through an agent or by yourself.

CLAIM WORK-RELATED DEDUCTIONS

Claiming all work-related deduction entitlements may save considerable income tax. Typical work-related expenses include employment-related mobile phone, internet usage, computer repairs, union fees and professional subscriptions that the employee paid themselves and for which they were not reimbursed.

Be aware that the ATO has received a large boost in funding that enables a stronger focus on ensuring taxpayers claim only the work-related expenses to which they are entitled.

Some of this additional funding will go to improving the checking of claims in real time, additional audits and prosecutions.

CLAIM HOME OFFICE EXPENSES

When you are an employee who regularly works from home and part of your home has been set aside primarily or exclusively for the purpose of work, a home office deduction may be allowable. Typical home office costs include heating, cooling, lighting and office equipment depreciation.

To claim the deduction, you must have kept a diary of the hours you worked at home for at least four weeks.

CLAIM SELF-EDUCATION EXPENSES

Self-education expenses can be claimed provided the study is directly related to either maintaining or improving current occupational skills or is likely to increase income from your current employment. If you obtain new qualifications in a different field through study, the expenses incurred are not tax deductible.

Typical self-education expenses include course fees, textbooks, stationery, student union fees and the depreciation of assets such as computers, tablets and printers.

CLAIM DEPRECIATION

Immediate deductions can be claimed for assets that cost under $300 to the extent the asset is used to generate income. Such assets may include tools for tradespeople, calculators, briefcases, computer equipment and technical books purchased by an employee, or minor items of plant purchased by a landlord.

Assets costing $300 or more that are used for an income producing purpose can be written off over a period of time as a tax deduction.

The amount of the deduction is generally determined by the asset’s value, its effective life and the extent to which you use it for income-producing purposes.

MAXIMISE MOTOR VEHICLE DEDUCTIONS

If you use your motor vehicle for work-related travel, there are two choices of how you can claim.

The allowable rate for such claims changes annually.

You can contact us to clarify what constitutes work-related travel and which of the  methods can be applied to maximise your tax position.

CLAIM DONATIONS

Make sure to add in any donations where the receipt shows your donation is tax deductible.

If you made donations to an approved organisation through workplace-giving, you still need to record the total amount of your donations at this item.

Your payment summary, or other written statement from your employer showing the donated amount, is sufficient evidence to support your claim. You do not need to have a receipt.

REPORT INCOME AND EXPENSES FROM THE GIG ECONOMY AND ANY SIDE HUSTLES

If you drive people around, do odd jobs, rent out your possessions, run social media accounts or sell products, your income from such activity may be assessable and your expenses deductible. This can include barter  and cryptocurrency payments as well.

The ATO is receiving data from a range of websites including AirTasker, Uber, AirBnB and eBay which is matched against tax returns. Make sure you keep records and report correctly.

For some activities such as online selling, you’ll need to first determine whether you are in business.

CONSIDER SALARY SACRIFICE ARRANGEMENTS

You may wish to review your remuneration arrangements with your employer and forego future gross salary in return for receiving exempt or concessionally taxed fringe benefits and/or making additional superannuation contributions under a valid salary sacrifice arrangement.

You should consult a licensed CPA financial planner to consider the merits of exploring these options.

SUPERANNUATION CONTRIBUTION LIMITS

Watch your superannuation contribution limits. You may wish to consider maximising your concessional or non-concessional contributions before the end of the financial year, but keep in mind the contribution caps were reduced from 1 July 2017.

The concessional contribution cap for the 2018-19 financial year is $25,000. Concessional contributions include any contributions made by your employer, salary sacrificed amounts and personal contributions claimed as a tax deduction by self-employed or substantially self-employed persons.

If you’re making extra contributions to your super, and breach the concessional cap, the excess contributions over the cap will be taxed at your marginal tax rate, although you can have the excess contribution refunded from your super fund.

High-income earners are also reminded that the contributions tax on concessional contributions is effectively doubled from the normal 15 per cent rate to 30 per cent if their combined income plus concessional contributions exceeds $250,000.

Importantly, don’t leave it until 30 June to make your contributions as your super fund may not receive the contribution in time and it will count towards next year’s contribution caps, which could result in excess contributions and an unexpected tax bill.

CLAIM A TAX DEDUCTION FOR YOUR SUPERANNUATION CONTRIBUTIONS

Claiming a tax deduction for personal superannuation contributions is no longer restricted to the self-employed. The rules changed on 1 July 2017 and anyone under the age of 75 will be able to claim contributions made from their after-tax income to a complying superannuation fund as fully tax deductible in the 2018-19 tax year.

Any contributions you claim a deduction on will count towards your concessional contribution cap. Such a deduction cannot increase or create a tax loss to be carried forward.

If you’re aged 65 or over, you will have to satisfy the work test to contribute and if you’re under 18 at 30 June you can only claim the deduction if you earned income as an employee or business owner. Other eligibility criteria apply.

To claim the deduction, you will first need to lodge a notice to claim or vary a deduction for personal contributions form with your superannuation fund by the earlier of the day you lodge your tax return or the end of the following income year.

CONSIDER THE SUPERANNUATION CO-CONTRIBUTION

An individual likely to earn less than $52,697 in the 2018-19 tax year should consider making after-tax contributions to their superannuation to qualify for the superannuation co-contribution if their circumstances permit.

The Government will match after-tax contributions fifty cents for each dollar contributed up to a maximum of $500 for a person earning up to $37,697 The maximum then gradually reduces for every dollar of total income over $37,697 reducing to nil at $52,697.

CHECK OUT THE SUPER CHANGES COMING IN FROM 1 JULY 2019

From 1 July 2019, there are changes to superannuation.

No super fund will be able to charge more than 3 per cent on balances below $6000 and exit fees will also be removed if you choose to move your money into a new fund.

Insurance will be provided on an opt-in basis for members with balances below $6000 or who are under 25 or who have not touched their account for 16 months. If this applies to you, you’ll need to contact your fund by Sunday 30 June if you wish to keep insurance.

CONSOLIDATE YOUR SUPER

For most employees, it makes a lot of sense to have your entire super in one place. You’ll reduce the amount of fees you’re paying, only receive one lot of paperwork and only have to keep track of one fund.

Consider consolidating the super funds you do have into one fund. Compare your funds to work out which best suits your needs. Important things to look at are fees and charges, the investment options available and life insurance cover.

In particular, if you have insurance cover in a fund check you can transfer or replace it in the new fund so you don’t end up losing the benefit altogether. You can look at past investment performance as well, but remember it is no guarantee of how the fund will perform in the future.

Once you’ve chosen the fund you want to keep, contact them and they can help transfer the money from your other super funds.

Superannuation providers excluding SMSFs and small APRA funds will report and pay inactive low-balance accounts to the ATO by 31 October 2019.

From November, the ATO will proactively consolidate these unclaimed super monies into eligible active super accounts, if an individual hasn’t requested a direct payment or for it to be rolled over to a fund of their choice. You will be notified by the ATO if this has been done.

If you’ve moved around or changed jobs occasionally, your old super fund may have lost track of you and you may miss out on some of your super when you need it.

FIRST HOME SUPER SAVER SCHEME

The First Home Super Saver (FHSS) Scheme allows you to save money faster for your first home with the concessional tax treatment of super. You can make additional voluntary salary sacrificed superannuation contributions up to $15,000 per year (and $30,000 in total) into your complying superannuation fund which can be withdrawn to help finance a first home deposit.

Compulsory superannuation employer contributions and contributions in respect of defined benefit funds are not eligible for the FHSS scheme. Various other eligibility conditions must be satisfied.

The FHSS scheme is primarily aimed at low to middle income earners – speak to us.

MAXIMISE TAX OFFSETS

Tax offsets directly reduce your tax payable and can add up to a sizeable amount. Eligibility for tax offsets generally depends on your income, family circumstances and conditions for particular offsets.

Taxpayers should check their eligibility for tax offsets which include, among others, the low- and middle-income tax offset, senior Australians and pensioners offset and the offset for superannuation contributions on behalf of a low-income spouse.

BEWARE OF BIG PROMISES AND VERY LOW FEES

Like most things in life, you tend to get what you pay for and tax is no different. You should be careful about who you ask to prepare your return to ensure that your tax affairs are reported correctly and that you are able to prove your claims if the ATO ask any questions. If your refund is too good to be true, then you – or your agent – have probably broken the law.

Firstly, check that your tax agent is registered with the Tax Practitioners Board. It’s also recommended that they’re a member of a professional accounting organisation such as CPA Australia so that you know they are abiding by professional and ethical standards.

Every tax agent is legally obliged to take reasonable care. This means checking your tax history, ensuring you have documentation such as receipts, and asking questions about your income, expenses and assets. They should provide a tailored service and only include information that you have provided to them.

Things you should watch out for include agents who:

  • offer a very low fixed fee
  • promise large refunds
  • charge a percentage of your refund as a fee
  • spend very little time with you or on your tax return
  • don’t ask for receipts
  • don’t ask questions or enter information that you can’t substantiate
  • ask you to sign blank or incomplete returns, or blank voluntary disclosure forms.

Make sure that you check the tax return in detail before signing. All of your assessable income should have been reported and your deductions correctly recorded. Ensure that you can back up every dollar of the claims.

Remember that ultimately, it’s your responsibility as to what gets lodged and you are the one who has to pay the extra tax plus penalties and interest if anything is wrong on your tax return.

Dawood Latif CPA

https://leopardaccounting.com.au/