Individual Tax Tips | Nexia Australia

News
16 April 2017

19 DECEMBER 2018

Pay your super on time

To ensure employees receive the correct wages and entitlements, employers must keep proper records and provide pay slips to employees within 1 working day of paying the employees. Failure to do this may cause Fair Work Inspectors to impose fines on employers and issue them with infringement notices.

One example of information that has to be included in a pay slip is the amount of superannuation guarantee contributions paid - currently at a minimum rate of 9.5% of ordinary time earnings on behalf of all eligible workers earning $450 or more before tax in a calendar month. Employees include company directors who receive payments in their capacity as a director (and also contractors in certain circumstances).

Ordinary time earnings are generally what employees earn for their ordinary hours of work (e.g. salary, commissions, shift loadings and allowances, but does not include overtime payments).

Superannuation guarantee contributions are usually made quarterly via SuperStream (i.e. a system whereby contributions are made either through electronic funds transfer or BPAY) and the employer will qualify for a tax deduction for such payments if such payments are made to a complying superannuation fund. Note, the December quarter superannuation guarantee is payable on or before 28 January 2019.

The penalties for failing to pay superannuation guarantee contributions are quite severe (i.e. the superannuation guarantee shortfall amounts, interest on those shortfall amounts and an administration fee of $20 per employee per quarter). Further, the superannuation guarantee shortfall – that is the amount of unpaid superannuation contributions – is also not allowed as a tax deduction. A deduction is only allowable if the superannuation guarantee contributions are paid to a complying superannuation fund on time.

Please contact your Nexia advisor if you have any queries about your employer obligations so that we can ensure you do not fall foul of any payroll or superannuation rules.

12 DECEMBER 2018

Should you pay GST when visiting a doctor?

Generally, medical services delivered by a doctor (e.g. services for which a Medicare benefit is payable or other medical services necessary for the appropriate treatment of a patient) would be GST-free. A doctor would not charge GST on the supply of such medical services but can claim input tax credits on purchases necessary to make the supply.

However, some health services such as cosmetic procedures (e.g. the removal of a tattoo) where no Medicare benefit is payable, are not GST-free.

A medical report supplied by a doctor will only be GST-free where a Medicare benefit is payable for the medical report. Therefore, the cost of a medical report provided to a third party for purposes other than for the medical treatment of a patient (e.g. medical reports issued to insurance companies or solicitors acting in personal injury cases), will be subject to GST.

Nexia Australia has extensive experience with tax issues affecting people in the health industry. Please speak to your Nexia representative is you would like more information.

12 DECEMBER 2018

Increased data matching on shares

Because of an increase in data matching capabilities, the ATO will now be able to compare share data (about 500 million records in respect of 2.1 million individuals) obtained from ASIC, to information reported on tax returns.

The data will include details of the price, quantity and time of individual trades dating back to 2014 and will complement information the ATO already receives from brokers, share registries and exchanges.

Please ensure that you advise your Nexia representative of any shares bought or sold during any income year. The tax law requires that records of shareholdings must be retained for 5 years after the shares were sold. Your Nexia firm has systems to maintain capital gains tax and dividend information that can take the stress out of retaining such information.

5 DECEMBER 2018

Sequel to short term rentals of holiday homes

Last weeks top tax tips illustrated the difficulty in determining when a property will be genuinely available for rent (and therefore when rental property expenses will be deductible).

Continuing with this theme, we have explained some situations that most likely indicate that a property is not genuinely available for rent (and therefore rental property expenses will not be tax deductible).

Examples of where a rental property is not genuinely available for rent and therefore rental property expenses cannot be claimed include where the property is:

only advertised very sparingly (e.g. to limited groups of people, on restricted social media groups or outside holiday periods when it is unlikely that the property will be rented out);
in such a bad condition or so remote that it is unlikely that anyone would want to rent the property; or
widely advertised but subject to unreasonable stringent rental conditions (e.g. rental substantially above market value for similar properties in the same area).

Please speak to your Nexia adviser for more information on when you can deduct rental expenses on your properties.

5 DECEMBER 2018

Labor party tax proposals

Given the Federal Election is due to be held before May 2019, we have detailed below Labor’s most important tax policies in very broad terms.

Labor’s policies may not become law, even if a Labor Government is elected. Full details of the legislative impact of the policy are not yet available. Details are important in tax matters and usually policies do not contain enough detail to allow accurate conclusions. Below is a generalised overview of our understanding of those policies.

Please note, Nexia Australia is a politically neutral organisation and we have merely explained the potential tax effects of these proposals on taxpayers.

Policy: No more cash refunds of excess dividend imputation credits for individuals and superannuation funds from 1 July 2019
Potential effect on taxpayer:
- Imputation credits trapped if minimal taxable income
- Cash flow problems for retirees who live on cash refunds and are not exempt from these proposals

Policy: Change the operation of negative gearing
Potential effect on taxpayer:
- Under this proposal, negative gearing will only be available for purchasers of newly constructed housing
- Grandfather negative gearing treatment that applied to existing properties before the start date of the proposed changes
- The same rules are also proposed to apply to other CGT assets (e.g. share portfolios)

Policy: Reduce current 50% CGT discount to 25%
Potential effect on taxpayer:
- Grandfather the 50% CGT discount on investments made before the start date of the proposed changes

Policy: Tax discretionary trust distributions at 30% from 1 July 2019
Potential effect on taxpayer:
- Will prevent income splitting (i.e. the distribution of trust income to family members in lower tax brackets to effect a lower over-all tax burden)

Policy: Allow immediate 20% write-off for assets costing $20,000 or more
Potential effect on taxpayer:
- Qualify for 20% up-front deduction and remaining 80% balance depreciated as normal

Policy: Limit tax deduction available for managing tax affairs
Potential effect on taxpayer:
- Limit tax deduction to $3,000

Policy: Various superannuation proposals
Potential effect on taxpayer:
Some proposals include:
1. Reduce current $100,000 non-concessional cap to $75,000
2. Reduce current high income earner threshold of $250,000 to $200,000 (i.e. threshold where extra 15% contributions tax kicks in)
3. Prohibit SMSFs to borrow money through LRBAs

28 OCTOBER 2018

Short term rentals of holiday homes

Landlords can only claim expenses of a revenue nature (e.g. interest on the mortgage or repairs to the property) on rental properties that are used to produce assessable income. A short term rental property will be used to produce assessable income if the property is either tenanted (i.e. actually rented out) or active bona fide efforts are made to let the property.

Usually there is an apportionment of expenses incurred when dealing with holiday homes available for short term rental (i.e. apportion expenses in relation to the number of days that the property is actually let and the period the holiday home was available for commercial rental as opposed to the number of days the house is being used privately as a holiday home).

Determining whether bona fide efforts have been made to let the property can be a complicated task depending on the specific facts and circumstances of any situation. For example, mere word of mouth advertising or only advertising the rental property through one website may not necessarily constitute a bona fide attempt to rent out the property. The ATO also takes into consideration items such as booking restrictions or blocked out periods, price incentives and free offerings (e.g. Wi-Fi).

Broadly, a property will be considered genuinely available for rent if the landlord can prove that through their marketing of the property, they have made active and continued efforts to attract tenants. In today’s knowledge and sharing economy, determining what will constitute active and continued efforts to attract tenants, may lead to interesting interpretations.

We are currently involved with a case where our client rented out a holiday home through engaging a real estate agent. Even though the real estate agent advertised the property on their website, took walk ins and telephone bookings and emailed details of the property to subscribers of their website, there is a current ATO interpretation that the property is not genuinely available for rent because the marketing strategy is allegedly not specifically aimed at letting out that particular property, but aimed at marketing all properties on the real estate agent’s website.

The ATO has also argued that the real estate agent did not market the property widely to the general public by using the internet and that the internet was a passive form of advertising. These arguments by the ATO are bereft of commercial reality. Is the ATO unaware that revenue previously generated by newspaper advertising is now almost non-existent due to advertising on the internet?

Nexia Australia will take this matter further and will update you on any new developments.

28 OCTOBER 2018

Ride sharing and the cash economy

Anyone providing ride-sourcing services should be aware that the ATO is currently using data matching – by comparing all payments made through a ride sourcing provider (e.g. Uber) to ride sourcing drivers (e.g. Uber drivers) – to check whether such drivers have declared payments as assessable income in their tax returns.

If you are deriving cash income from such sharing economy activities, please contact your Nexia adviser so that we can help you comply with your tax registration, reporting, lodgement and payment obligations as well as determine if the money earned should be subject to GST. Income derived through the sharing economy (e.g. Airbnb and Uber ride-sharing) must be declared in your income tax return.

Penalties and interest will be charged on the tax avoided. Penalties can be significantly reduced by making a voluntary disclosure to the ATO and in that event, the ATO is more amenable to arranging a debt repayment plan. The ATO is much less amenable to reducing penalties and arranging a payment plan if avoided tax is discovered during the course of an audit.

24 OCTOBER 2018

How should compensation received for inappropriate advice be taxed?

With the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry currently underway, many individuals may have received or may be about to receive compensation for inappropriate financial advice received from financial institutions (e.g. compensation for loss of investment, refund or reimbursement of fees or interest).

Such a compensation payment will be taxable in the hands of the recipient – and the amount of tax payable will depend on what the compensation was paid for and whether the investments were held on revenue or capital account.

For example, if compensation is received for the loss of an investment, the tax treatment of the compensation will depend on whether the individual taxpayer has disposed of the investment or not. Therefore, if the investment is

disposed of, the compensation will form part of additional capital proceeds; or
not disposed of, the compensation will reduce the cost base (or reduced cost base) of the investment.

Likewise, the tax treatment of a compensation payment received to refund or reimburse adviser fees will depend on whether the adviser fee was originally claimed as a tax deduction or included in the cost base of the investment. Accordingly, such compensation will either:

be included in assessable income if the individual taxpayer claimed a tax deduction for the adviser fee;
not be included in assessable income if the individual taxpayer did not claim a tax deduction for the adviser fee; or
reduce the cost base of the investment by the amount of compensation received if the adviser fee was originally Included in the cost base of the investment.

10 OCTOBER 2018

Do you need to lodge your individual tax return by 31 October?

If you haven't previously had a registered tax agent prepare your personal income tax return (and you don't have any prior year's tax returns outstanding) you have until 31 October 2018 to appoint a tax agent to attend to your 2018 return. If you don’t appoint a tax agent and fail to lodge your tax return by this date, you may be subject to a $210 penalty for each period of 28 days (or part thereof) that the return remains overdue.

One benefit of appointing a tax agent is that, if eligible, you would be able to access the tax agent's lodgement extension program (i.e. have extra time to lodge your return - especially useful if you have tax to pay for 2018!).

Please speak to your Nexia representative if you need help in lodging your tax return.

10 OCTOBER 2018

Are your insurance premiums deductible?

Insurance premiums paid by individuals that will trigger payouts to compensate for the loss of earning assessable income (e.g. income protection, sickness or accident insurance cover premiums) will be tax deductible (i.e. insurance against loss of income).

In contrast, insurance premiums (e.g. life insurance, trauma or critical care insurance premiums) paid for policies that compensate a policyholder for physical injury or impairment of earnings capacity will not be tax deductible (i.e. insurance against loss of capital).

When dealing with combined insurance policies that provide for benefits of both an income and capital nature (e.g. income protection cover with combined death and disability cover), only the portion of the premium that relates to the income component will be deductible.

Please speak to your Nexia advisor if you have any questions about the adequacy of your insurance as well as the tax treatment thereof. We would like to work in partnership with you to ensure your needs are met with the appropriate amount and type of risk insurance cover.

3 OCTOBER 2018

Evolution of tax fraud scams

Since our previous warning about tax scams, we understand there is a new scam doing the rounds where individuals are called by telephone and tricked into revealing their tax agent’s name. Subsequently, the individual is called by another scammer that claims to be from the tax agent’s practice (i.e. an attempt to lend legitimacy to the call).

If you receive any such suspicious phone calls, please do not provide any information. We would strongly suggest that you hang up immediately and contact us as soon as possible so that we can bring this to the attention of the ATO.

The ATO will never demand immediate payments, threaten individuals with arrest or request payment by unusual means (e.g. store gift cards or cryptocurrency) over the phone.

Please also be aware that your Nexia advisor can, at any time, ascertain what taxes are owed and the relevant payment date(s). If you are unsure about the amount of tax you owe, please check with your Nexia advisor before payment.

19 SEPTEMBER 2018

We can help you lodge your tax return

Broadly, individuals must lodge tax returns if they are Australian residents for tax purposes and they:

had taxable income of more than $18,200;
paid tax under the PAYG withholding or instalment system or had tax withheld from payments made to the individual;
had reportable fringe benefits amounts or employer superannuation contributions on their PAYG payment summary;
made a loss or claimed a loss from a previous year;
had exempt foreign employment income but some Australian income;
are entitled to the private health insurance rebate but did not claim the correct entitlement as a premium reduction; or
are a liable parent or recipient parent under a child support assessment unless their income was less than $24,535 and they received Australian Government pensions, allowances or payments for the whole of the income year.

Please contact us is you need assistance in lodging your tax returns so that our dedicated professionals can assist you.

12 SEPTEMBER 2018

Work-related expenses

Taxpayers that are over-claiming work-related expenses (e.g. vehicle, travel, clothing, working from home and self-education expenses) are on the ATO’s hitlist.

Although there is a myriad of issues involved when claiming work-related expenses, the main three rules are:

Only claim a deduction for money actually spent (and not reimbursed);
The work related expense must directly relate to the earning of income; and
An employee must have a record to prove the expense.

Applying these principles to the most common occupations claiming work related expenses:

Hospitality workers and retail workers will not be entitled to a deduction for home to work travel even if they have to work overtime;
Building and construction workers will not be entitled to a deduction for the cost of workwear and boots that are not part of an unique or distinctive uniform or are arguably not designed to provide sufficient protection from the risk of injury;
Flight attendants and retail workers will not be entitled to a deduction for grooming products (e.g. hairdressing and cosmetics) even if an allowance is paid;
Ordinary police will not be entitled to a deduction for the cost of fitness programs. However, police involved in special operations (i.e. requiring a level of fitness well above ordinary police standards) will be allowed a deduction for such fitness programs;
Teachers will not be entitled for a deduction for gifts or prizes bought for students; and
Truck drivers may claim for accommodation, meal and incidental expenses incurred while travelling away from home overnight for work. If overtime meal expenses claimed are less than a reasonable amount determined by the ATO each year (i.e. $30.60 per day for 2019 and $55.30 per day for 2018), substantiation (i.e. written records of the meal expense) is not required – however, if the tax deduction claimed is more than the reasonable amount, the whole claim must be substantiated (not just the excess over the ATO’s reasonable amount).

12 SEPTEMBER 2018

Watch out for fraudsters

During tax time, there is usually a sharp spike in the number of email and telephone scams doing the rounds (e.g. a fraudster, claiming to be from the ATO, may call you and request some personal information or demand payment of an outstanding tax debt).

There is currently a tax scam going around where individuals are called directly and a recording is then played threatening them that a warrant is out for their arrest (and police on the way) for outstanding tax debts. The hoax phone call further attempts to trick the individual to call a specific number to speak to an “alleged” tax agent to clear up the alleged problem.

If you receive any such suspicious phone calls, please do not provide any information. We would strongly suggest that you hang up immediately (if contacted by phone) and contact us as soon as possible so that we can bring this to the attention of the ATO. We have already been in contact with the ATO regarding this scam.

22 AUGUST 2018

What tax measures are there to assist drought-stricken farmers?

Currently, there is a drought affecting many of Australia’s farmers. We have set out below some of the main tax concessions / measures that may be available for those affected:

Farm management deposits (FMDs)

A farmer that invests in farm management deposits (FMDs) can only qualify for an upfront deduction up to $800,000 if such a FMD investment is held for longer than a year. However, farmers affected by severe drought conditions will still qualify for this upfront deduction even if they withdraw this deposit within the first 12 months. A further benefit is that such FMD funds can be used as an offset account (to set off against interest on other farming loans). Note however that if such funds in the FMDs are used to offset interest payable on non-primary production loans, an administrative penalty of 200% of the amount by which the interest has been reduced, will apply. However, the Commissioner has a discretion to remit this penalty.
Accelerated depreciation arrangements & instant asset write-off

Ordinarily, farmers can depreciate the cost of fodder storage assets (e.g. silos and hay sheds used to store grains) over 3 years. However, pursuant to new measures announced recently, the cost of such fodder storage assets installed ready for use from 19 August 2018 will be immediately deductible. Furthermore, farmers with a turnover of less than $10 million will qualify for the instant asset write-off on assets costing less than $20,000.
Income tax averaging

Farmers may also be able to even out their high and low income years and therefore control the amount of tax payable over a maximum of five years to ensure they do not pay more tax over time than taxpayers on comparable, but steady incomes.

If you are involved in farming and wish to make an early withdrawal from your FMD funds or are interested in exploring possible ways that these incentives may be of value to you, please contact us. Our team at Nexia Australia has considerable farming experience and we are looking forward to assist you further with all your farming business needs.

22 AUGUST 2018

Proposed luxury car tax (LCT) changes on re-imported cars refurbished overseas

For the current 2019 income tax year, cars with a GST inclusive value of more than $75,526 (for fuel efficient cars) or $66,331 (for other cars) will attract luxury car tax (LCT) at a rate of 33% on the amount above the luxury car threshold on the initial taxable supply or taxable importation of the luxury car.

Currently, cars that have been refurbished (e.g. serviced, repaired or altered) in Australia – and the refurbishment has pushed the GST inclusive value of the car above the luxury car threshold – will not be subject to LCT, provided there was no change of ownership of the car. However, cars exported from Australia to be refurbished overseas (where the refurbishment pushes the GST inclusive value of the car above the luxury car threshold), will be subject to LCT when such cars are eventually re-imported to Australia.

There is currently a proposal to abolish LCT from 1 January 2019 on such cars exported and refurbished overseas and re-imported to Australia as luxury cars, provided there was no change in ownership of the car from the time just before the car was exported to the time when the luxury car was re-imported.

We will keep you informed of any new developments in this area. In the meantime, we would be happy to assist you with any other LCT queries you may have.

8 AUGUST 2018

Main residence CGT exemption: Parents living in a separate unit on your property

Generally, an individual taxpayer selling a home that was used as the individual’s main residence, will not pay any capital gains tax on the profit from such a sale.

However, if there are two accommodation units on a single property – for example where the individual taxpayer lives in one unit and the taxpayer’s sick and elderly parents live in the second unit - the sale of the property containing the two units will only qualify for a full main residence exemption if the units are used together as a single place of residence of abode.

The two units may possibly qualify as a single place of residence if the lives of the taxpayer and parents have been integrated sufficiently (usually indicated by a high level of involvement in caring for elderly sick parents and if units are connected and close to each other).

Because a taxpayer’s specific facts and circumstances may affect whether more than one unit of accommodation can qualify as a single place of residence (i.e. there is no simple “checklist or tick the box” answer to such a question), we would recommend that you speak to your Nexia advisor so that we can assist in determining whether such a transaction would qualify for the main residence exemption.

4 JULY 2018

Have you sold shares recently?

If a taxpayer who is not a share trader sells shares that were held as an investment, chances are such a taxpayer would either have made a capital gain or loss on the sale (equal to the difference between the cost of the shares and the amount received on their disposal).

If the shares were held for longer than 12 months, 50% of the capital gain made will be included in the taxpayer’s assessable income in their income tax return. Companies are not entitled to the 50% general CGT discount on the sale of any CGT asset.

Other concessions in the CGT law are:

scrip for scrip rollover relief when receiving shares instead of cash in a company takeover or merger situation;
special concessions on the disposal of assets or shares used in a business (e.g. small business CGT concessions).

If a capital loss is made on the sale of shares (i.e. the acquisition cost exceeds the sale price), such a loss can only be used to reduce capital gains (and not other income such as salary, investment income or business income). Red flags that attract the ATO’s attention are when capital losses have been artificially created to offset capital gains or where capital losses have been reclassified as revenue losses.

The ATO can usually identify errors in income tax returns and the CGT schedules through various data matching programs.

Record keeping (e.g. of purchase and sale prices and brokerage fees) is also very important to substantiate the amounts declared in your tax return.

2 MAY 2018

Issues to consider when buying and selling property

Nexia recently hosted an Australia-wide property roadshow where various tax developments that may affect taxpayers buying, selling or simply owning property were discussed.

Because property ownership is such an important issue, we want to remind our clients of some recent changes to:

The tax treatment associated with residential investment properties (e.g. travel deduction and depreciation changes – please see our recent Tax Update for more information);
Withholding obligations on purchasers of property
- 10% GST withholding on the sale of new residential premises (see recent top tax tips here); and
- 12.5% CGT withholding on the sale of any property for $750,000 or more unless the vendor has an ATO clearance certificate evidencing the vendor’s Australian tax residency;
Superannuation measures impacting home ownership (e.g. superannuation saver scheme and superannuation downsize incentive); and
Stamp duty and land tax issues (different in each State or Territory)

There is also a proposal to abolish the main residence exemption for taxpayers who are no longer Australian tax residents (please see our recent Tax Update for more information). Furthermore, foreign investors need permission from the Foreign Investment Review Board (FIRB) before purchasing residential properties (excluding some new dwellings) or agricultural land in Australia.

Because there are a myriad of complex tax issues and red tape affecting property transactions and ownership, we would recommend that you work closely with your Nexia representative to assist you in addressing the various issues (e.g. increased compliance obligations for purchasers of property under the GST and CGT withholding regimes) and risks involved in property transactions.

4 APRIL 2018

What are legitimate holiday home tax deductions?

A taxpayer that owns and rents a holiday home can claim tax deductions against rental income for expenses such as interest on loans, borrowing expenses, repairs, rates, land tax, depreciation and capital works spending in respect of the time the holiday home is actually rented out or genuinely available for rent.

For the period the holiday home is not rented out or not genuinely available for rent, such a taxpayer will not be allowed to claim a tax deduction (i.e. deductions must be reduced to reflect that non-income producing period). A holiday home will not be genuinely available for rent even if the holiday home is advertised for rent if unreasonable conditions are placed on prospective tenants or rental rates are set above market rates.

Also, if the holiday home is rented out to family or friends at a rate lower than market value (e.g. mates’ rates), the deductions will be limited to the actual (lower) amount of rent received in that period.

When the holiday house is sold, capital gains tax will be payable if the sale proceeds exceed the costs associated with the property’s acquisition and sale, plus any improvement costs not previously claimed as a tax deduction.

7 MARCH 2018

The three rules for claiming work-related expenses

Taxpayers who are over-claiming work-related expenses (e.g. vehicle, travel, internet and mobile phone and self-education) are on the ATO’s hitlist.

Although a myriad of issues are involved when claiming work-related expenses, the main three rules are:

Only claim a deduction for money actually spent (and not reimbursed);
The work related expense must directly relate to the earning of income; and
An employee must have a record to prove the expense.

For example, a claim for work-related expenses would not be allowed if deductions are claimed for private expenses (e.g. travel from home to work and not required to transport bulky equipment), reimbursed expenses (e.g. an employee is reimbursed for the cost of meals, accommodation and travel) or if no records are kept.

Other practical issues to consider when claiming work-relates expenses include:

When claiming work-related expenses relating to a vehicle, travel, internet, self-education or a mobile phone, taxpayers should ensure that the amount claimed for these expenses is reasonable and verifiable because the ATO is using real-time data to compare deductions claimed by taxpayers in similar occupations and income brackets to identify higher-than-expected or unusual claims;
When claiming deductions up to $300 (allowable without a receipt), taxpayers must still be able to substantiate the deductions claimed (if ever queried by the ATO);
When claiming deductions for work uniforms, taxpayers should ensure that they only claim for uniforms that are unique and distinctive (e.g. those uniforms with the employer’s logo and specific to the taxpayer’s occupation) and not clothing for everyday use (e.g. plain suits worn by office workers).

17 JANUARY 2017

Data matching of visa holders

The ATO intends to data match information obtained from the Department of Immigration and Border Protection over the next 3 years to identify whether visa holders to Australia have complied with taxation and superannuation obligations. Such information will also be used to:

Identify potential risks faced by visa holders, visa sponsors and migration agent populations (e.g. potential fraudulent schemes);
Implement administrative strategies to assist such parties to correctly report and pay their taxes;
Support compliance activities under Australia’s foreign investment rules; and
Ensure compliance with registration, lodgement, correct reporting and payment of taxation and superannuation obligations.

The ATO also uses immigration records – especially information stated by people leaving and entering Australia - to determine their tax residency status or the reason for a trip. For example, this can be relevant if a trip is declared to be for holiday purposes but stated in a tax return to be for business with associated tax deductions being claimed.

Our Nexia Tax Divisions are pleased to assist with any enquiries on international tax, how visa holders should be taxed and deductions allowable for overseas travel.

17 JANUARY 2017

Work-related expense claims: Substantiate if exceed reasonable limit

The ATO is focusing on tax deductions claimed by employees (i.e. includes company directors but not labour hire workers) for work related travel expenses (i.e. accommodation, meal and incidental expenses) incurred while travelling away from home overnight for work.

If tax deductions claimed are less than a reasonable amount determined by the ATO each year (i.e. $55.30 per day for 2018 and $97.40 per day for 2017), substantiation (i.e. written records of the expense) is not required – however, if the tax deduction claimed is more than the reasonable amount, the whole claim must be substantiated (not just the excess over the ATO’s reasonable amount).

Recently, there have been three Court cases where truck drivers (who incidentally used the same tax agent!) were unsuccessful with their claims for work-related travel expenses because the amount claimed exceeded the reasonable amount allowed by the Commissioner and the truck drivers did not keep receipts for their expenses.

13 DECEMBER 2017

No more travel expense deductions to inspect residential rental property

From 1 July 2017, individuals, discretionary trusts and SMSFs will no longer be able to claim a tax deduction for travel expenses (e.g. motor vehicle expenses, taxi or car hire costs, airfares or public transport costs or meals or accommodation related to the aforementioned travel) incurred to inspect residential rental properties.Such disallowed travel deductions will also not be included in the cost base or reduced cost base of the rental property when calculating whether any assessable capital gain has been made on the disposal of the property.

However, taxpayers will still be able to claim travel expenses to inspect commercial premises and residential premises used to carry on a business.Property management expenses paid to real estate agents (which may involve real estate agents incurring travel expenses to inspect the residential rental property) will still be deductible.

29 NOVEMBER 2017

Healthcare practitioners operating from healthcare centres

Many healthcare practitioners (e.g. doctors, dentists, radiologist or pharmacists) do work for independent 3^rd party healthcare operators that provide consulting rooms and administrative services to such healthcare practitioners to enable them to provide healthcare services to patients.In return, the medical centre pays the healthcare practitioners a lumpsum for working a minimum amount of hours at these medical centres.There is no partnership or employment agreement between such medical centres and the healthcare practitioners.

According to the ATO, such lumpsum payments will be assessable ordinary income for the healthcare practitioners because such payments will either be for an inducement to enter a service agreement or will be the payments of profits or gains from isolated transactions.These lumpsums will not be taxed on capital account.

If you are a healthcare professional, please speak to our Nexia team who will be able to assist you with your consulting arrangement.

29 NOVEMBER 2017

We can help you lodge your tax return

Broadly, individuals must lodge tax returns if they are Australian residents for tax purposes and have taxable income of more than $18,200.

Individuals with income below $18,200 must lodge tax returns if they:

Paid tax under the PAYG withholding or instalment system or had tax withheld from payments made to the individual;
Had reportable fringe benefits amounts or employer superannuation contributions on their PAYG payment summary;
Made a loss or claimed a loss from a previous year;
Had exempt foreign employment income but some Australian income;
Are entitled to the private health insurance rebate but did not claim the correct entitlement as a premium reduction; or
Were a liable or recipient parent under a child support assessment for the whole year and their income was less than $24,154.

Please contact us is you need assistance in lodging your tax returns so that our dedicated professionals can assist you.

22 NOVEMBER 2017

Some further tips for property investors

In a previous top tax tips we mentioned that some landlords are mistakenly claiming a tax deduction twice for the same rental deduction. In this top tax tips we will provide taxpayers with some additional pointers that will help such rental property owners avoid common tax mistakes:

Because tax on the capital gains may be payable when a landlord sells a property, accurate records should be kept over the ownership period and 5 years after selling the property – those records should comprise copies of the original purchase and sale contracts, details of improvements to the property, legal, real estate and valuers’ costs and other holding costs;
To claim a tax deduction for rental expenses, the landlord should ensure the property is genuinely available for rent;
Tax deductions are allowed for ongoing repair costs to the rental property that were incurred while the property was rented out in the year these expenses were incurred. However, initial repairs for damage that existed when the property was purchased (i.e. before being rented out) are not immediately deductible (and may rather be included in the cost base of the property to be depreciated at 2.5% per year for 40 years);
Improvements (e.g. replacing a tin roof with a tile roof) to rental properties are not immediately deductible – such building costs can be claimed at a rate of 2.5% per year for 40 years from the date of completion; and
Borrowing expenses (e.g. loan establishment fees, title search fees and costs of preparing and filing mortgage documents) that are $100 or less can be claimed in full in the year these expenses were incurred. If the borrowing expenses are greater than $100, they are tax deductible over the term of the loan or over five years whichever is the lesser period.

15 NOVEMBER 2017

Don’t claim a tax deduction twice for the same rental deductions

Taxpayers can claim a tax deduction for expenses incurred on rental properties for the period the properties were rented out (or available for rent). Examples of such tax deductible expenses include borrowing expenses, interest expenses, insurance expenses, body corporate fees and charges, council rates, land tax, repairs and maintenance, advertising for tenants and property agent fees and commissions.

The ATO has warned that some taxpayers mistakenly claim a tax deduction twice for the same rental expense by incorrectly filling in the expense amount twice under different labels on the tax return (e.g. label for interest deductions and label for other deductions).

Please speak to your Nexia adviser if you have an investment property and need assistance in completing your tax return – particularly in light of the proposed changes to claiming depreciation deductions and travel expenses relating to residential rental properties.

8 NOVEMBER 2017

When can the ATO automatically adjust PAYG instalments?

The PAYG instalment system (i.e. the system for making regular payments towards the expected annual income tax liability of a taxpayer) only applies to businesses or individuals earning business and/or investment income above a certain amount.

The ATO calculates the PAYG instalment rate based on the information reported on the latest tax return and if this calculated rate results in too much tax being paid, the business or individual will receive a refund of any overpayment once their tax return is assessed. Conversely, if insufficient PAYG instalments have been paid, a tax liability for the difference will arise.

From 1 July 2017, the ATO will automatically adjust a PAYG instalment rate to a more reasonable rate if the instalment rate calculated (based on the information contained in the latest tax return) is too high, for example where the latest tax return:

was amended to include excess superannuation contributions;
reported income at the wrong label on a tax return;
reported a HECS/HELP debt; or
included employee share scheme income.

25 OCTOBER 2017

Tax consequences when selling your home

Generally, an individual taxpayer selling a home that was used as the individual’s main residence, will not pay any tax on the capital gain on the sale. Conversely, if the individual were to sell a holiday house or hobby farm that was never wholly used as their main residence, the capital gain on such a sale will be subject to tax.

For properties that are subject to the capital gains tax regime, accurate records must be kept of the purchase and sale of the property, of any improvement costs and the dates that the property was used as your main residence or for income producing purposes such as deriving rent. The ATO is not amenable to accepting estimates or guesses of such information.

Please see our Taxation Update on how the main residence exemption will be apportioned if a home is also rented out.

If you would like to know more about how tax can affect your unique property transactions, please contact us.

4 OCTOBER 2017

Data matching to ensure payment of overseas HELP & TSL debts

As mentioned in one of our recent Top Tax Tips, non-residents may have to make repayments (i.e. first payment may have to be made on 31 October 2017) of Higher Education Loan Programme (HELP) or Trade Support Loans (TSL) if their worldwide income exceeds the repayment threshold (i.e. $54,869 for the 2017 income tax year).

The ATO intends to data match individuals that currently live overseas and have outstanding HELP or TSL debts by comparing information (“movement data”) obtained from the Department of Immigration and Border Protection (DIBP) to the data the ATO has on such “student loan” debtors.

If you or your children currently have outstanding HELP or TSL debts and are either living overseas or intend to go overseas, we would recommend that you talk to your Nexia advisor about the outstanding student loans.

13 SEPTEMBER 2017

Tax treatment of Industry assistance payments to taxi licence holders

In most State and Territories, taxi drivers could only operate their business if they had bought a taxi licence plate (often at a significant cost). However, with the advent of various new ride-sourcing ventures (e.g. Uber), many local governments are paying taxi licence holders industry assistance payments (usually only a fraction of the amount of the original cost of the plate) so that the taxi licence holders can compete in the sharing economy.

Unfortunately for the taxi drivers, a receipt of such an assistance payment will be taxed as ordinary income at their marginal tax rates. The ATO’s view is that such a receipt will not be capital, and therefore not taxed under the CGT regime, because the payments are not made in exchange for taxi licence holders giving up or selling their taxi licence plate or ending their taxi driving business.

13 SEPTEMBER 2017

Tips for taxpayers operating in the sharing economy

The sharing economy (i.e. whereby users and providers are connected to each other through a facilitator – e.g. Uber and Airbnb) have become more common.

Like any business, taxpayers who provide services for a fee through the sharing economy must keep good records to record income and expenses and consider whether they should register for GST (note, ride-sourcing enterprises must register for GST).

For example, taxpayers who rent out part of their homes will need to apportion the amount of expenses they can claim (e.g. electricity, mortgage interest, internet expenses, rates and body corporate fees) based on the floor area used for business as opposed to private use – however, a full deduction will be available for any Airbnb commissions or administration fees.Such taxpayers will also not be entitled to the full main residence exemption when they eventually sell their home.

Taxpayers who receive rental income by renting out their properties through Airbnb will not be liable for GST on the rent they charge and also cannot claim any GST credits for associated expenses because the renting out of non-new property will be an input taxed supply – however, different GST consequences may apply when a taxpayer rents out commercial residential premises as part of their enterprise.

If you are operating in the sharing economy, please contact us so that we can assist you to ensure you get the best tax outcome for your circumstances.

13 SEPTEMBER 2017

Can you claim for a non-compulsory uniform you wear to work?

An employee can only claim a tax deduction for expenses on non-compulsory uniforms (i.e. uniforms clearly identifiable as corporate wardrobe) if such expenses were incurred in earning assessable income and such uniforms are registered on a special register.

Before implementing a uniform program, please contact us to ensure that the compulsory and non-compulsory uniform rules administered by the ATO are satisfied. The Courts have also determined whether the cost of protective clothing is tax deductible. Please contact us if you need any assistance.

6 SEPTEMBER 2017

Pensioner concession card to be reinstated from 9 October 2017

The pensioner concession card scheme (i.e. a scheme allowing pensioners to access various state and territory-based discounts and concessions such as cheaper medicine, bulk-billed doctor visits, help with hearing services, discounted energy bills and discounted public transport fares) will be reinstated from 9 October 2017.

The reinstatement of the pensioner concession card is good news for pensioner recipients that had their access to such discounts cancelled on 1 January 2017 because of prior changes made to the assets test (i.e. when the asset test limit dropped from $793,750 to $542,500 for singles and from about $1.1 million to $816,000 for couples).

Unfortunately, only the concession card will be reinstated – affected pensioners will not win back the reductions in their pensions.

6 SEPTEMBER 2017

Be careful when claiming car expenses up to the receipt-free threshold

Taxpayers can use the cents per kilometre method, to calculate their work-related motor vehicle expense deductions if they travel less than 5,000 business kilometres a year.

Although there is no need to lodge written records with the ATO to claim the deduction in a tax return, we would recommend that a travel diary be kept to evidence the amount of business kilometres travelled (i.e. to be able to show that the amount of business travel was actually done in case of an ATO audit).

Also, double-dipping of travel expenses is not allowed – so taxpayers cannot claim expenses that have already been salary sacrificed (e.g. through a novated car lease).

30 AUGUST 2017

Overseas individuals must repay their HELP and TSL debts

The Government provides financial assistance [i.e. Higher Education Loan Programme (HELP) or Trade Support Loan (TSL)] to individuals to undertake higher education, trade apprenticeships and other training programs.

The 2017 income tax year is the first year where non-residents will have to make repayments (i.e. first payment may have to be made on 31 October 2017) of such HELP and TSL debts if their worldwide income exceeds the repayment threshold (that is $54,869 for the 2017 income tax year). Before 2017, foreign source income was not included in calculating the threshold so non-resident individuals only deriving foreign source income did not need to repay their HELP and TSL debts.

If you or your children currently have outstanding HELP or TSL debts and are either living overseas or intend to go overseas, please talk to your Nexia adviser to ensure they comply with these new measures.

2 AUGUST 2017

Travel expense claims of truck drivers severely limited

The ATO has nearly halved the amount of travel expenses a truck driver can claim as tax deductions without having to produce a receipt.

For this current 2018 income tax year, employee truck drivers who receive a travel allowance can only claim $55.30 per day in travel expenses (but not for accommodation) without having to produce a receipt. [For the 2017 income tax year, the comparative amount was $97.40].

Practically, such a reduction means that a truck driver who claimed $70 per day for such travel expenses in 2017 could claim this whole amount without having to produce a receipt. However, if a truck driver were to claim $70 for such travel expenses in 2018, the taxpayer would only be allowed to claim $70 per day if the truck driver can substantiate the whole amount (i.e. the whole $70 – not just the excess over $55.30).

26 JULY 2017

When can laundry expenses be claimed as a tax deduction?

As reported in last week’s top tax tips, the ATO is continuing to scrutinise work-related expense claims.

In particular, a claim for clothing and laundry expenses would not succeed if:

The claim is for an ineligible piece of clothing (e.g. such deductions are only allowable for workers required to wear a work uniform – no deduction would be available for ordinary non-descript business suits that do not bear a company logo);
The expense is claimed without being able to prove that the money was actually spent (e.g. many people claim a blanket deduction of $150 for clothing, laundry and dry-cleaning without being able to produce receipts to prove - in the case of an ATO audit - that this money was actually incurred);
The taxpayer cannot explain on which basis the claim was made (e.g. there are no details or supporting evidence on how these laundry costs were calculated).

19 JULY 2017

Blowtorch on deductions in respect of residential investment properties from 1 July 2017

Treasury recently released draft legislation to give effect to the Government’s announcement to limit certain tax deductions currently available to residential property investors.

In broad terms, if these draft legislation proposals become law, then from 1 July 2017:

Travel expenditure incurred by individuals to inspect and maintain residential investment/rental properties will no longer be tax deductible; and
Depreciation deductions will be limited to outlays actually incurred in respect of plant and equipment installed in residential investment/rental properties purchased after 9 May 2017.

The amount of depreciation claim allowable will depend on when the plant and equipment was acquired, so:

for plant and equipment acquired before or on 9 May 2017, the current owner will still be able to claim a deduction for depreciation on plant and equipment, provided such depreciation deductions were claimed in all prior income years in which the owner held the asset (this is so irrespective of whether a previous owner had claimed depreciation deductions on the plant and equipment); and
for plant and equipment acquired after 9 May 2017, owners will still be able to claim a deduction over the effective life of the asset. However, subsequent owners of the property will be unable to claim deductions for plant and equipment purchased by the previous owner of that property.

Because these proposals are not yet law and may change before they are enacted, we will keep you updated on any new developments in this area.

19 JULY 2017

Know which work related expenses to claim

Taxpayers that are over-claiming work-related expenses are on the ATO’s hitlist.

Although there are a myriad of issues involved when claiming work-related expenses, the main three rules are:

Only claim a deduction for money actually spent (and not reimbursed);
The work related expense must directly relate to the earning of income; and
An employee must have a record to prove the expense.

12 JULY 2017

Departing Australia superannuation payments (DASP) and backpackers

As mentioned in previous Top Tax Tips, from 1 January 2017, the Government will tax working holiday visa holders / backpackers at a flat rate of 15% on earnings up to $37,000 with ordinary marginal rates of tax applying after $37,000.

Furthermore, from 1 July 2017, a backpacker who leaves Australia after the working holiday and who seeks payment of the superannuation contributions made on their behalf whilst a backpackers will be taxed at 65% on the contribution (giving rise to an effective tax rate of 55.25% - because contributions into the fund will be taxed at 15%).

For example, superannuation guarantee contributions of $1,000 made to a superannuation fund would be subject to contributions tax of 15% leaving $850 [$1,000 - ($1,000 x 15%)]. The $850 would then be subject to the 65% tax resulting in tax being payable of $552.50 ($850 x 65%). On the $1,000, the tax payable would be $702.50 ($150 + $552.50) – an effective rate of tax of 70.25% and a great win for the Government revenue!

The return of superannuation contributions to exiting backpackers made before 1 July 2017 will be taxed at 38% on the taxed element and 47% on the untaxed element in addition to being subject to the initial 15% contributions tax.

The curious anomaly is that the income tax rate has been reduced to encourage backpackers to work in Australia but the tax rate on their superannuation contributions is a disincentive to so.

5 JULY 2017

Seller beware – you may need a clearance certificate when selling property

From 1 July 2017, all purchasers of certain types of Australian property must withhold 12.5% (was 10% in the 2017 income year) of the purchase price, unless the transaction is excluded from this obligation.

Transactions will not be subject to the 12.5% withholding obligation if:

the purchase price of the property is less than $750,000 (was $2 million in the 2017 income year); or
the parties undertake certain actions before settlement date (e.g. a resident seller obtains a clearance certificate).

The lowering of the exemption threshold from $2 million to $750,000 coupled with Australia’s expensive housing market practically means that most resident sellers (selling a property for $750,000 or more) must apply for a clearance certificate before they sell their property. We can obtain a clearance certificate so that the 12.5% withholding obligation will not apply to sellers.

Note, the 2017 threshold ($2 million) and withholding rate (10%) will apply for any contracts that were entered into before 1 July 2017 (even if settlement occurs after 1 July 2017).

28 JUNE 2017

Remember the following when claiming work-related expenses

When claiming work-related expenses, taxpayers should ensure that they have a good understanding of what deductions they can claim as well as the amount of deduction allowable:

When claiming work-related expenses relating to a vehicle, travel, internet, self-education or a mobile phone, taxpayers should ensure that the amount claimed for these expenses are reasonable and verifiable because the ATO is using real-time data to compare deductions claimed by taxpayers in similar occupations and income brackets to identify higher-than-expected or unusual claims;
When claiming deductions up to $300 (allowable without a receipt), taxpayers must still be able to substantiate the deductions claimed (if ever queried by the ATO);
When claiming deductions for work uniforms, taxpayers should ensure that they only claim for uniforms that are unique and distinctive (e.g. those uniforms with the employer’s logo and specific to the taxpayer’s occupation) and not clothing for everyday use (e.g. plain suits worn by office workers).

14 JUNE 2017

Holiday homes – know when you can claim a tax deduction

If you own and rent a holiday home, you can claim tax deductions against rental income for expenses such as interest on loans, borrowing expenses, repairs, rates, land tax, depreciation and capital works spending in respect of the time the holiday home is actually rented out or genuinely available for rent.

For the period the holiday home is not rented out or not genuinely available for rent, you will not be allowed to claim a tax deduction (i.e. deductions must be reduced to reflect that non-income producing period). Also, if your holiday home is rented out to family or friends at a rate lower than market value (e.g. mates’ rates), your deductions will be limited to the actual (lower) amount of rent received in that period.

18 APR 2017

Pay your tax debts on time

From 1 July 2017, the ATO intends to disclose details of taxpayers with outstanding tax debts to credit reporting agencies – such a disclosure may adversely affect a taxpayer’s credit rating.

Although the ATO does not currently disclose such information to credit reporting agencies we would strongly encourage any business with current outstanding tax debts to engage with a Nexia representative to ensure outstanding tax debts are paid in a timely manner. We can assist a business in establishing a payment plan with the ATO to avoid or minimise penalties and late interest charges on outstanding tax debts, or alternatively your Nexia representative can arrange solutions to refinance and restructure your debts, in order to manage your cashflow.

Deduction for travelling cost to complete a tax return

The cost of travelling to have a tax return prepared by a tax agent will be fully deductible. However, if the trip is combined with another purpose (e.g. combining a trip to have both a tax return prepared as well as a holiday), the cost of the trip (e.g. taxi fares, meals, accommodation and travel insurance) must be reasonably apportioned. A deduction will only be allowable for that part of the expense that relate to managing a taxpayer’s tax affairs.

22 MAR 2017

Health care practitioners and lump sum payments

The ATO is focusing on the correct tax treatment of lump sum payments received by healthcare practitioners (e.g. doctors, dentists, physical therapists, radiologists or pharmacists) from third party healthcare centre operators.

Basically such third party healthcare centre operators provide fully equipped consulting rooms, administrative services, clerical staff and facilities necessary for healthcare practitioners so that they can provide healthcare services to patients. There is no partnership or employment arrangement between these operators and the practitioners – however, the practitioners are paid a lump sum as consideration for working for the operators for an agreed minimum period of time and minimum weekly working hours.

According to the ATO, such lump sum receipts would be ordinary income (as opposed to capital gains).

Please contact your Nexia advisor if you are a healthcare practitioner who has been providing healthcare services to such a healthcare centre so that we can ensure your receipts are treated correctly for tax purposes.

15 MAR 2017

ATO Warning: Watch out for scams

The ATO is warning against emails purporting to be from the ATO whereby scammers ask for your personal details or offer you a tax refund if you were to click on a link that would take you to a fake ATO website.

If you receive any such suspicious emails claiming to be from the ATO, please do not provide them with any information or open any attachment. Please exercise extreme vigilance and contact us as soon as possible so that we can bring this to the attention of the ATO.

1 MAR 2017

Why have a Will?

A will is one of the most critical documents that any person will complete in their lifetime. A will should never be regarded as a document set in stone. Changes in circumstances such as health, marriage, divorce, a new child or grandchild or the acquisition of valuable assets such as property may be reasons to have a new will prepared.

Lawyers who specialise in the preparation of wills often recommend that a new will should be prepared by each adult person every 5 to 10 years to take into account the changes in circumstances referred to in the previous paragraph.

A fundamental function of a will is to declare who will inherit a person’s assets upon death. Some people deliberately do not prepare a will because they cannot decide who should have their assets and accordingly, they allow the beneficiaries to argue for their share of the “cake”. Aside from the inevitable disruption to, or dissolution of family relationships built up over decades, the lawyers may be the ultimate “big winners” with little assets of the estate to distribute to beneficiaries after payment of legal fees.

Anyone who has been associated with the death of a person who has died without a will usually describe the process of going to Court to have an executor appointed – a person who may have no knowledge of the history of the family – is harrowing and may take months of legal argument. Meanwhile, the deceased’s assets are frozen or cannot be satisfactorily dealt with.

A will can also be a very tax effective document that can ensure that assets are transferred to beneficiaries without the imposition of capital gains tax. The income of a deceased person’s assets can be earned by minor children without being subject to penalty rates of tax.

Second and third marriages add complexity to the formulation of a will. Detailed consideration will be necessary to avoid the will being contested at a later time. One way of avoiding this occurring is to explain the terms of the will to affected family members. Consideration might be given to having a witness such as a lawyer or accountant being present when the will is explained; this may be useful in the event of a will contest.

Having your accountant jointly assist in the development of your will with your lawyer invariably results in a comprehensive document being prepared. After all, your accountant will have a detailed understanding of your financial affairs, business and investment structures.

Some people are often worried about the cost of having a will prepared. Your Local Nexia contact will always be happy to refer you to one or more competent lawyers who will meet your estate planning needs. A “high-powered” lawyer will not be necessary if your personal and business affairs are straightforward.

15 FEB 2017

When is the best time to make a voluntary repayment of your tax debt?

Although the voluntary repayment bonus (i.e. broadly a 5% bonus on voluntary HELP repayments) no longer applies from 1 January 2017, taxpayers with outstanding tax debts may still consider making such repayments to ensure the balance is paid off earlier (and thereby avoiding further interest charges and potential penalties on any outstanding tax debt).

Please come and talk to us so that we can assist you with making such a payment on time (usually the best time would be before you lodge your tax return).

21 DEC 2016

Manage your tax debts to avoid an adverse credit rating

From 1 July 2017, the ATO intends to disclose to credit rating agencies tax debt information of businesses with tax debts of more than $10,000 that have been overdue for at least 90 days. Such a disclosure may lead to a potential adverse effect on the credit rating of such businesses.

Although the ATO does not currently disclose such information to credit rating agencies and the proposal is not yet law, we would strongly encourage any business with current outstanding tax debts to engage with a Nexia representative to ensure outstanding tax debts are paid in a timely manner. We can assist a business in establishing a payment plan with the ATO to avoid or minimise penalties and late interest charges on outstanding tax debts, or alternatively your Nexia representative can arrange solutions to refinance and restructure your debts, in order to manage your cashflow.

Declare money earned through the sharing economy

The ATO will use data matching – by comparing all payments made through a ride sourcing provider (e.g. Uber) to ride sourcing drivers (e.g. Uber drivers) – to check whether such drivers have declared such payments on their tax returns.

You may have also heard that the ATO will commence a foray into the cash economy. While the collection of avoided income tax is on the agenda, the ATO will also be looking to collect unpaid GST. Penalties and interest will be charged on the tax avoided. Penalties can be significantly reduced by making a voluntary disclosure to the ATO and in that event, the ATO is more amenable to arranging a debt repayment plan. The ATO is definitely less amenable if avoided tax is discovered during the course of an audit.

If you are deriving cash income from sharing economy activities, please contact us so that we can help you comply with your tax registration, reporting, lodgement and payment obligations as well as determine if the money earned should be subject to GST.

14 DEC 2016

Overseas travel for work: What records need to be kept?

In today’s interconnected world, people travel between different countries to perform their work. Is the cost of such travel tax deductible and what are the tax law requirements for substantiating such expenditure?

If an employee receives a travel allowance (i.e. an allowance paid by the person’s employer to cover outgoings relating to travel, accommodation, food, drink or other incidental expenses) and the amount claimed for food, drink or other incidental expenses does not exceed certain reasonable limits determined by the ATO each year, no written records/substantiation of such expenses are required. Substantiation is not necessary for overseas travel if the employee is away from his/her ordinary residence for 5 or less nights in a row.

People who are not employees must retain detailed records of their expenses whilst travelling for business.

If a person is away from their ordinary residence for 6 or more nights in a row, a travel diary must record the time, place and the length of each business activity during their business trip.

Note that regardless of the length of time the employee is overseas, costs of overseas accommodation must be substantiated.

Note also that an employer who pays for an employee’s overseas trip may be subject to fringe benefits tax if the employee cannot verify that the trip was for business purposes. Record keeping is therefore critical.

Be aware that the ATO is focussing on employees claiming tax deductions for work-related travel expenses (see Employee Travel expenses: Tricks & Traps). Further, the substantiation rules are more onerous on non-employees (business owners) travelling for business. If you are unsure about the substantiation rules in the tax law, please contact us.

7 DEC 2016

Act before 31 December 2016 to qualify for a 5% bonus on HELP payments

Currently, individuals can qualify for a 5% bonus if, before 31 December 2016, they make a voluntary higher education loan program (HELP) repayment:

of $500 or more (provided the HELP balance is $500 or more); or
to repay the debt in full (provided the HELP balance is less than $500)

Please note that from 1 January 2017 the voluntary repayment bonus scheme will no longer apply – this is a valuable once-off concession.

Please contact us to advise of your dependants’ or your HELP debt and how to benefit from the 5% discount.

Backpacker tax finally set at 15% from 1 January 2017

From 1 January 2017, the Government will tax working holiday visa holders / backpackers at a flat rate of 15% on earnings up to $37,000 with ordinary marginal rates of tax applying after $37,000. Furthermore, if a backpacker leaves Australia after the working holiday, any superannuation contributions made on behalf of the backpacker will be taxed at 65% (giving rise to an effective tax rate of 70.25% - because contributions into the fund is first taxed at 15%)

With the new system that applies from the New Year, our understanding is that businesses intending to employ backpackers will have to register with the ATO (to ensure a 15% withholding rate) – if such businesses fail to register by the due date, such businesses will be liable to an administrative penalty.

Keep reading Top Tax Tips for more information on the Backpacker tax or contact your Nexia representative.

23 NOV 2016

Are your trust arrangements in order?

The ATO is currently reviewing arrangements where contrived steps are taken to engineer a reduction in the trust income of a trust to generate significant tax benefits.

Under such arrangements, trust income may be re-defined - either by changing the definition of trust income in the Trust Deed or allowing the trustee to exercise a discretion to define trust income - to cause distributions of what otherwise would be taxable trust income to beneficiaries, to be not taxable. That income may be retained in the trust or re-characterised as a capital (tax-free) distribution.

Although you may not have been involved in such schemes, we are obliged to alert you in case you are ever contacted to enter into such schemes. Expect the ATO to be very vigilant in detecting these schemes to avoid tax.

Can you claim for a non-compulsory uniform you wear to work?

Currently, an employee can only claim a tax deduction for expenses on non-compulsory uniforms (i.e. uniforms clearly identifiable as corporate wardrobe) if such expenses were incurred in earning assessable income and such uniforms are registered on a special register.

Because substantial red tape and administrative burdens are involved in registering such clothing on the special register (i.e. the non-compulsory uniforms must meet detailed design requirements), there is currently a review underway to determine whether maintaining the register is the best basis for allowing a tax deduction for non-compulsory uniforms. We will keep you informed of developments.

16 NOV 2016

Travel expenses to inspect your investment property

The primary condition for claiming a tax deduction for expenses incurred in travelling to a rental property is that the main purpose of the trip(s) is to inspect and maintain the property.

Therefore, if the trip is mainly for private purposes (e.g. to have a holiday at the rental property) – and the inspecting and maintenance is only incidental or negligible compared to the holiday purpose - the travelling expenses would not be tax deductible.

However if the holiday stay included a significant amount of time devoted to the inspecting and maintenance of the rental property, some proportion of the travel expenses might be tax deductible.

Your Nexia contact can assist in determining a reasonable basis for claiming a tax deduction for travel expenses that should be acceptable to the ATO.

2 NOV 2016

Work-related expenses – tricks and traps

The ATO is continuing its scrutiny of work expenses claims (see Employee Travel expenses: Tricks & Traps) and vows to make extensive use of data matching to identify employee taxpayers claiming higher than expected tax deductions (when compared to employees in similar occupations or employees earning the same amount of salary).

Although there are a myriad of issues involved when claiming work-related expenses, the main three rules are:

Only claim a deduction for money actually spent (and not reimbursed);
The work related expense must directly relate to the earning of income; and
An employee must have a record to prove the expense.

16 OCT 2016

Tax implications if you rent out a room in your house

As mentioned in an earlier Top Tax Tips, the ATO is still focusing on money earned through the sharing economy (e.g. by providing ride-sharing services through Uber or by providing accommodation through Airbnb).

In particular, if you have earned money through renting out a room in a house that you have been using as your main residence, such income should be declared in your tax return and you will only be allowed to deduct the expenses that relate to the part of the house rented out. Furthermore, if you were to sell your main residence, you may have a potential capital gains tax liability (because the main residence was also used to generate income).

Please contact us if you are contemplating any such transactions which may affect your ability to claim the main residence CGT exemption on the sale of your property. The loss of this valuable exemption may well outweigh any benefit of renting a room in your main residence.

Please note that the ATO is not interested in taxing board-only arrangements entered into with family members because these are considered domestic arrangements. In such situations you also cannot claim income tax deductions for associated expenses (e.g. interest on your home loan).

19 OCT 2016

Employee travel expenses – tricks & traps

If tax deductions claimed are less than a reasonable amount determined by the ATO each year, substantiation (i.e. written records of the expense) is not required – however, if the amount claimed is more than the reasonable amount, the whole claim must be substantiated (not just the excess over the ATO’s reasonable amount).

However, travel allowances paid up to the reasonable allowances amount will not be subject to PAYG withholding (for the employer) and will not have to be shown on a payment summary (for the employee). In such a case the employee does not need to include the amount of the allowance in his/her assessable income and may not claim a deduction for the expense in his/her tax return.

Conversely, if the amount of travel allowances exceed the ATO’s reasonable travel amount, the excess above the reasonable allowances amount will be subject to PAYG withholding (for the employer) – however, the whole amount (i.e. not just the excess over the ATO’s reasonable amount) must be shown on a payment summary (for the employee).

When the allowance is included on the payment summary, but a smaller amount is incurred (i.e. because the employee may only claim a deduction for the actual expenses), the employee will pay tax on the difference.

OCT 2016

Holiday homes – know when you can claim a tax deduction

If you own and rent a holiday home, you can claim tax deductions against rental income for expenses such as interest on loans, borrowing expenses, depreciation and capital works spending for the time the holiday home is actually rented out or genuinely available for rent.

For the period the holiday home is not rented out or not genuinely available for rent, you will not be allowed to claim a deduction (i.e. there will have to be an apportionment of expenses if the holiday home was used for such a dual purpose). Also, if your holiday home is rented out to family or friends at a rate lower than market value, your deductions will be limited to the actual (lower) amount of rent received in that period.

12 OCT 2016

What happens to your long service leave if you switch jobs?

Generally, if you have worked with your employer for more than 7 years, you should be entitled to long service leave. Ordinarily when an employee ceases employment with an employer, such long service leave will be paid out and will be assessable income of the employee.

However, an example where such accrued long service leave can be transferred to a new employer without a tax effect on the employee is when a business is purchased. In that event, the employee’s accrued long service leave is transferred by the former (vendor) employer and assumed as a liability by the new (purchaser) employer. In this case, no amount is paid to the employees in respect of their accrued long service leave and accordingly no assessable income arises for them.

The tax law allows a tax deduction for any amount paid by the vendor employer, or for any negative amount adjusted to the sale price of the business in respect of the transferred accrued long service leave.

Note that the law usually does not allow an employee to elect to have their accrued long service transferred to a new employer following their termination of employment without any tax effect.

5 OCT 2016

Backpacker tax now proposed to be 19% - working holiday and not a tax holiday

From 1 January 2017, the Government proposes to tax working holiday visa holders / backpackers (i.e. Subclass 147 and 462 visas) at a flat rate of 19% on earnings up to $37,000 with ordinary marginal rates of tax applying after that.

This means backpackers will no longer be able to qualify as tax residents of Australia – regardless of the time spent in Australia. Consequently they would no longer be able to access the $18,200 tax-free threshold (i.e. they will be taxable on the first dollar of income earned).

Businesses intending to employ backpackers must register with the ATO (to ensure a 19% withholding rate) – failing to register may result in penalties payable.

21 SEP 2016

Assistance for trustees of deceased estates

Death benefit employment termination payments (ETP) and/or superannuation lump sums paid to a taxpayer’s deceased estate will generally not be taxable to dependants of the deceased. A dependant is the spouse, de facto spouse, former spouse or an under 18 year old child of the deceased. However, a person may also be regarded as a dependant if the person had an interdependency relationship with the deceased or if the person was financially dependent on the deceased.

Therefore, if you are a trustee of a deceased estate, please seek our advice to ensure the estate’s tax returns are correctly completed in order that death benefits are not taxed.

24 AUG 2016

Don’t claim dodgy work-related expenses

The ATO has issued a warning to taxpayers not to deliberately claim incorrect work-related expenses deductions (e.g. claiming car expenses with false log book entries or claiming deductions for self-education expenses for conferences that were never attended).

Work related expenses are only deductible if the expense relate directly to your occupation, you incurred the expense yourself (net of reimbursements) and the expense was not private or domestic in nature.

Because the ATO’s data matching capabilities can easily identify unreasonable deductions on income tax returns, good records must be retained to substantiate your claims.

Top Tax Tips

Tags (field_tags)

Login

Pay your super on time

Should you pay GST when visiting a doctor?

Increased data matching on shares

Labor party tax proposals

Short term rentals of holiday homes

How should compensation received for inappropriate advice be taxed?

Do you need to lodge your individual tax return by 31 October?

Are your insurance premiums deductible?

Evolution of tax fraud scams

We can help you lodge your tax return

Watch out for fraudsters

What tax measures are there to assist drought-stricken farmers?

Proposed luxury car tax (LCT) changes on re-imported cars refurbished overseas

Main residence CGT exemption: Parents living in a separate unit on your property

Have you sold shares recently?

Issues to consider when buying and selling property

What are legitimate holiday home tax deductions?

The three rules for claiming work-related expenses

Data matching of visa holders

Work-related expense claims: Substantiate if exceed reasonable limit

No more travel expense deductions to inspect residential rental property

Healthcare practitioners operating from healthcare centres

We can help you lodge your tax return

Some further tips for property investors

Don’t claim a tax deduction twice for the same rental deductions

When can the ATO automatically adjust PAYG instalments?

Tax consequences when selling your home

Data matching to ensure payment of overseas HELP & TSL debts

Tax treatment of Industry assistance payments to taxi licence holders

Tips for taxpayers operating in the sharing economy

Can you claim for a non-compulsory uniform you wear to work?

Pensioner concession card to be reinstated from 9 October 2017

Be careful when claiming car expenses up to the receipt-free threshold

Travel expense claims of truck drivers severely limited

When can laundry expenses be claimed as a tax deduction?

Departing Australia superannuation payments (DASP) and backpackers

Seller beware – you may need a clearance certificate when selling property

Remember the following when claiming work-related expenses

Holiday homes – know when you can claim a tax deduction

Pay your tax debts on time

Deduction for travelling cost to complete a tax return

Health care practitioners and lump sum payments

ATO Warning: Watch out for scams

Why have a Will?

When is the best time to make a voluntary repayment of your tax debt?

Backpacker tax finally set at 15% from 1 January 2017

Are your trust arrangements in order?

Can you claim for a non-compulsory uniform you wear to work?

Travel expenses to inspect your investment property

Work-related expenses – tricks and traps

Tax implications if you rent out a room in your house

Employee travel expenses – tricks & traps

Holiday homes – know when you can claim a tax deduction

What happens to your long service leave if you switch jobs?

Backpacker tax now proposed to be 19% - working holiday and not a tax holiday

Assistance for trustees of deceased estates

Don’t claim dodgy work-related expenses

Top Tax Tips

Talk to a Specialist

What we do

Top Tax Tips

Select service:

Select location:

Select position:

Select industry:

Search

Select content: