If your home is your principal place of business and you run your business from home, and a room is exclusively used for business activities.
You can claim deductions if you carry out income-producing work at home and incur expenses in using your home for that purpose.
The following can be claimed as a deduction.
Your home office will not be a place of business if your employer has an office in the city or town where you live even if your work requires you to work outside normal business hours.
You may not be able to claim occupancy expenses as a deduction if your income includes personal services income (PSI).
According to ATO, you can ignore the capital gain or loss you make upon selling a main residence or home which is under the main residence exemption. But if your home is your principal place of business you will not get the full main residence exemption although you may probably be entitled to a partial exemption.
You need to take into account these factors to work out the capital gain that is not exempt. First is the proportion of the floor area of your home that is set aside to produce income. Then the period you use it for this purpose. Third is whether you’re eligible for the ‘absence’ rule and lastly, whether it was first used to produce income after 20 August 1996.
ATO said that if after 20 August 1996, you first used your home as your place of business, the period before you first used your home to produce income is not taken into account in working out the amount of any capital gain or capital loss. Rather, you use the market value of your home at the time you first used it to produce income.
To avoid paying more capital gains tax, it’s a good idea to get a valuation of your home at the time you first use it as your place of business.
Also known as the unincorporated small business tax discount, the income tax offset for small business can reduce the tax you pay by upto $1,000 each year.
ATO will work out the offset based on the amounts shown on the income tax return. The amounts are the following:
ATO will calculate the offset based on the amounts included on the tax return upon lodgement. The offset amount will be shown on the Notice of Assessment.
The Small business income tax offset calculator is available for those who are completing their tax return using myTAx and needs help in working out the income amounts.
The calculator works out income amounts to be used to work out the tax offset, and tells where to include them on the tax return. The ATO will work out the tax offset when they process the tax return.
Another way is lodging the tax return through tax practitioners. However, ATO has recently released an update online stating that they have identified some common errors committed by tax practitioners when reporting client income to claim the small business income tax offset.
Practitioners may follow these tips according to ATO in claiming the offset.
According to ATO, practitioners should also reduce the amounts at these items by any related deductions.
ATO use the labels to calculate the offset and they are not counted toward the client’s taxable income. A distribution from a partnership, or share of net income from a trust at the relevant item – 13N, 13L, 13O or 13U must also be included.
Small businesses may find that they qualify for a variety of tax benefits this year. The following are just some of the tax tips that can help small businesses.
1) Seek independent advice on investment products that are being promoted as tax-effective
The end of the financial year often sees the promotion of numerous investment products that claim to be tax-effective. If you are considering such an investment, seek independent advice from a financial planner or tax agent before making a decision. At best, some of these products may overestimate the tax and financial benefits. At worst, some of these products may be an illegal scheme.
2) Pay any outstanding superannuation entitlements
The Government has announced a 12-month amnesty from 24 May 2018 for employers to pay any outstanding Superannuation Guarantee (SG) contributions for periods prior to 1 April 2018. Employers who voluntarily disclose and pay previously undeclared SG shortfalls during the Amnesty and before an SG audit will not be liable for the administration penalties and will be able to claim a tax deduction for payments made during the 12-month period. This announcement is subject to approval by the Parliament.
3) Write-off bad debts
You can only obtain an income tax deduction for bad debts when certain conditions are met. A deduction will only be available if the debt still exists at the time it is written off. The debt must also be effectively unrecoverable and written off in the accounts as bad in the year the deduction is claimed and the bad debt must have been previously brought to account as assessable income. There are also additional requirements to be met where the creditor is either a company or trust.
4) Maximise depreciation deductions
Small businesses with an aggregated annual turnover under $10 million are eligible for an immediate tax deduction for individual assets that were purchased by 30 June 2018 and cost under $20,000. Such assets must be installed ready for use by 30 June 2018 and must be used by the business to produce an income. For GST registered businesses, the $20,000 threshold is calculated on a GST-exclusive basis, but for businesses not registered for GST, the threshold is calculated on a GST-inclusive basis. It has been proposed that this measure will be extended until 30 June 2019.
5) Consider if your legal structure is best for your business
Small businesses are able to change their legal structure without incurring any tax liability when active assets are transferred from 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. Business restructuring, however, can be complex, so you should seek advice from your accountant before proceeding
6) Make sure you pay the correct company tax rate
Most companies with an aggregated annual turnover under $25 million will pay tax at a rate of 27.5% in 2017-18. However, some companies with a turnover under $25 million will continue to pay tax at 30% if they earn the income from passive investments such as interest or rental income. It should be noted that companies that pay 27.5% tax can only frank dividends up to that rate. As the law currently stands, to qualify for the lower tax rate in 2017-18, a company must be “carrying on a business” and have a turnover of under $25 million. However, there is a proposal before Parliament to replace the ”carrying on a business” test with a test that will mean that companies below the $25 million threshold must earn no more than 80% of that turnover from passive income such as interest, rent and net capital gains to qualify for the lower company tax rate company. This proposed change may lead to different tax outcomes from the current law for certain companies.
7) Make trust resolutions by 30 June
As always, trustees of discretionary trusts are required to document resolutions on how trust income should be distributed to beneficiaries before 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 end of year. However, the trust’s accounts do not need to be prepared before 30 June.
The government has announced a range of reforms to crack down on illegal phoenix activity. The Phoenix Taskforce will comprise over 20 State, Territory and Federal government agencies, including the Australian Taxation Office (ATO), Department of Employment, Australian Securities & Investments Commission (ASIC), and the Fair Work Ombudsman. Sophisticated data matching tools have been developed to identify, manage and monitor suspected illegal phoenix operators.
Illegal phoenix activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts. Illegal phoenix activity poses substantial risks to employee entitlements, revenue, and to the integrity of the corporate system. It imposes an unfair burden on honest Australians and businesses and is estimated to cost the Australian economy over $3 billion a year.
The reforms include the proposed introduction of a Director Identification Number (DIN) and a range of other measures to deter and penalise phoenix activity. It is proposed that the DIN will allow authorities to track the activities of individual directors through various government databases and map their relationships with other directors and companies.
The government will also look at how to identify high-risk individuals, who in turn will be subject to early intervention tools and new preventative measures.
Source: Australian Taxation Office
Contact Solve Business Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.
The Australian government has revealed enhancements to the WET (Wine Equalisation Tax) rebate to assist wine-making, grape growing and tourism associated with regional Australia. These reforms come after extensive discussions with the wine industry. The WET rebate was originally intended to support small wine producers in rural and regional Australia. However, the wine industry claims the rebate has contributed to excessive wine grape production resulting in low-value wine and urgently needs reform.
– eligible producers must own a minimum of 85% of grapes at the crusher used in making the wine and also maintain ownership throughout the entire wine-making process;
– the rebate is limited to packaged, branded wine in containers less than 5 litres and must be branded with the registered trademark for retail domestic sale;
– the rebate claim must be linked better to WET paid.
The WET rebate cap to be reduced to $350,000 from $500,000 with effective from 1 July 2018 (a year later) and a is a higher cap than what was previously announced in 2016 Budget. To encourage more wine tourism, up to a further $100,000 per year will be available to wine producers who exceed the rebate cap using a new Wine Tourism & Cellar Door grant.
The changes to the WET rebate are estimated to raise $300m in revenue over the next four years. The changes will apply equally to producers of cider, perry, sake and mead. The changes will also apply to New Zealand wine producers who claim the rebate under trade agreements.
Contact Solve Business Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.
The Australian Taxation Office (ATO) has outlined the behaviours of privately-owned groups that attract its attention in relation to a wide range of tax issues, including Capital Gains Tax (CGT), private company profit extraction (including Division 7A), consolidation, and Fringe Benefits Tax (FBT). The ATO will focus on a number of tax aspects of entities within this sector such as exaggerated capital losses, incorrect use of carried forward tax losses and a failure to have complying Div 7A loans in place.
– economic or tax performance that is not comparable to businesses that are similar
– low transparency relating to your tax affairs
– unusual, one-off or large transactions, including shifting or transfer of wealth
– historical aggressive tax planning
– tax outcomes that are inconsistent with the tax law intent
– taking controversial interpretations or choosing non-complicance of tax law
– if your after-tax income does not support your personal lifestyle
– treatment of private assets as business assets
– accessing business assets for private tax-free use
– poor risk-management and governance systems
The ATO will focus on capital losses, particularly where those losses appear to be exaggerated, fabricated or misclassified to ultimately reduce taxable income. In particular, large capital losses attract the attention of the ATO, so it is important to be able to substantiate the capital loss reported. The ATO will also focus on CGT reporting and payment obligations resulting from a disposal of a capital asset. They are particularly concerned where the amount of net capital gain reported is less than what it should be based on their estimates using external data matching sources.
The ATO will focus on arrangements designed to extract profits from private companies while avoiding tax on the amounts being distributed. This may include the application of Division 7A deemed dividend rules or the potential application of anti-avoidance rules. In particular, the following behaviours and characteristics may attract the ATO’s attention:
– amounts are not repaid after being taken from a company
– no complying loan agreement has been put in place
– yearly minimum repayments not made on a loan
– the company income tax return does not declare interest income
– a company asset for private use
– attempts to avoid application of Division 7A to transactions between a private company and a shareholder or their associate
Consolidation allows wholly-owned corporate groups to operate as a single entity for income tax purposes.
– available fraction rules
– cost-setting rules
– consolidation exits
– consolidation membership rules
– FBT motor vehicle rules, particularly where an employer-provided motor vehicle is used or available for use for the private travel of employees
– FBT employee contribution rules, particularly where employee contributions that have been paid by an employee to an employer are declared in both the FBT return and the employer’s income tax return.
– FBT employer rebate rules, particularly focusing on the eligibility of the employer to claim a FBT rebate
– FBT living-away-from-home allowance rules, particularly focusing on employers applying the new tax laws correctly.
Source: Australian Taxation Office
The Australian Taxation Office (ATO) has identified that businesses in the supermarket, car retailing, bakery and computer system design industries are often lacking or need more help to meet their tax and super obligations.
The ATO is currently running an education campaign for business owners in these industries to help them better understand their responsibilities, particularly focusing on
2) pay as you go (PAYG) withholding
3) fringe benefits tax (FBT).
Despite the importance of super, some employers are still not getting their super obligations right. Super guarantee payments must be made to complying funds or retirement savings accounts by the quarterly due dates, which are 28 days after the end of each quarter. The ATO wants to remind employers that they must comply with the following:
– pay the correct super contributions for their employees and eligible contractors
– comply with SuperStream
– offer employees a choice of super fund
– provide the employee Tax File Number (TFN) to their super funds within 14 days of receiving a TFN declaration form
– meet the quarterly due dates for super payments
– keep up-to-date records of all super payments.
Under the PAYG withholding rules, employers have an obligation to collect tax from payments made to employees and some businesses so they can meet their end-of-year tax liabilities. Employers need to lodge their activity statements and tax returns on time to avoid a penalty for failing to lodge on time and show the ATO that you’re aware of your obligations.
FBT is a tax that employers pay on certain benefits they provide to their employees and their associates. The benefit may be in addition to, or part of, their salary or wages package. Each FBT year runs from 1 April to 31 March and employers must register, pay and report their liability by lodging an FBT return before the due date to avoid interest and penalties.
From July 2016, the ATO will be undertaking audits of employers who continue not to meet their obligations.
The Australian Taxation Office (ATO) has advised that it will be collecting seller data from eBay Australia and eBay New Zealand Pty Ltd to ensure that taxpayers are correctly meeting their tax obligations. The data matching will include information relating to registrants that sold goods and services of $10,000 and over during the 2014-15 financial year, including the name, contact information, address, and the value and number of transactions that were processed for each online selling account. The data-matching program will enable the ATO to address the compliance behaviour of businesses and individuals that sell goods and services using the online-selling website who may not be correctly meeting their taxation obligations, particularly those businesses and individuals with undeclared income and incorrect lodgement and GST reporting.
The ATO advised that it will collect data to identify individuals that are engaged in providing ride-sourcing services between the 2013-14 to 2015-16 financial years. Details of payments made to ride-sourcing providers from the identified accounts held by the ride-sourcing facilitators with various financial institutions will be requested for the years relevant.
Furthermore, the ATO has stated that it will be collecting data relating to credit and debit card payments to merchants for the periods from 1 July 2014 to 30 June 2015. The data requested will include information that enables the ATO to match merchant accounts to a taxpayer, including name, address and contact information as well as information on the number and value of transactions processed for each merchant account. This acquired data will be electronically matched with certain sections of ATO data holdings to identify possible non-compliance with taxation law. Records relating to approximately 900,000 merchant accounts are expected to be received. The number of affected individuals linked to those accounts is expected to be approximately 90,000.
The ATO has issued a notice advising that it will obtain details for the period 20 September 1985 to 30 June 2016 from various share registry services. The type of data the ATO will collect will comprise of contact details, purchase and sale details, and quantities of shares bought and disposed of.
It is projected that more than 95 million records will be obtained, including the records for approximately 1.2 million taxpayers. The records will be electronically matched against ATO records to identify non-compliance with registration, lodgment, reporting and payment obligations under taxation laws.
The ATO says the program aims to identify income tax returns that may not include accurate information relating to the disposal of shares and securities, especially in relation to CGT. Also, it has been announced that the Department of Human Services will be undertaking a new data-matching program in which data from all current recipients of the Commonwealth Seniors Health Card will be matched with data from the income tax returns lodged with the ATO in the last three financial years.
The data-matching will commence in July 2014. The program will assist the Department to assess a recipient’s ongoing eligibility for the Commonwealth Seniors Health Card. It is intended that this data-matching activity will continue on an annual basis. In addition to this, the ATO has announced that it will request and collect data relating to electronic payments made to businesses through specialised payment systems for the period from 1 July 2013 to 30 June 2014 from various entities including banks (BPAY data), PayPal, and other online payment facilities.
The ATO says the data will be matched with certain sections of ATO data holdings, including other third-party data holdings. It is expected that records relating to over 25,000 individuals will be matched. Among other things, the program aims to “provide a more level playing field for businesses that do the right thing by identifying, for corrective actions, those that may not be meeting their obligations”. The program also aims to assist the ATO in identifying liquidated or de-registered businesses that are continuing to trade.
The Commissioner has announced that the ATO will obtain details of entities receiving taxable payments from various local government Councils and Shire authorities throughout New South Wales, Victoria, Queensland, Western Australia, South Australia, Tasmania, and the Northern Territory.
The data-matching program covers the 2011 to 2014 financial years. The data will be matched electronically with ATO data holdings to identify non-compliance with payment and lodgement obligations under Australian taxation law. Records relating to 20,000 to 40,000 individuals are expected to be matched. In addition to this, the ATO will request and collect data relating to credit and debit card sales of entities for the periods from 1 July 2012 to 30 June 2014 from various financial institutions.
The acquired data will be electronically matched with ATO data holdings to identify non-compliance with registration, reporting, lodgement and payment obligations under taxation law. It is expected that records relating to approximately 900,000 merchants will be matched.
The Department of Human Services has advised that it has requested and collected from eBay Inc the name, address, and date of birth of sellers with significant sales. The details collected will be electronically matched with specific Department data holdings to identify social welfare recipients who may not have disclosed income and assets to the Department.
Records of more than 5,000 individuals will be matched. The Department also advised that details from the Australian Business Register will be matched to identify non-compliance with income or other reporting obligations.
This appears to be an extension of the ATO’s already extensive data-matching programs aimed at those who are not reporting all their income.
Data matching is an expanding program used by the ATO to identify those who are not reporting all their income. The ATO has advised that for the 2011-12 financial year it has obtained data that identifies credit and debit card sales that were made by Australian businesses from the following banks: Australia and New Zealand Banking Group Limited; National Australia Bank Limited; Westpac Banking Corporation; St George Bank; Commonwealth Bank of Australia; Bendigo and Adelaide Bank Limited; American Express Australia Limited; and Diners Club Australia.
The ATO said the data will be matched against taxpayer records to identify those taxpayers who deliberately under-report or omit income. The ATO’s goal is to make it harder for people in business who deliberately try to hide income and evade tax obligations.
The ATO is making it harder for business people who deliberately use cash to hide their income and evade their tax obligations. Data matching is an expanding program used by the ATO to identify those who are not reporting all their income.
The latest target includes;
The ATO also revealed that this program will continue into the 2012-13 year. Records relating to approximately 75,000 individuals and entities who have received contract payments from the employers or businesses will be matched against the income reported on income tax returns.
The ATO will monitor information received regarding coffee shops that purchase 15 kilograms or more of coffee per week from their suppliers, as well as individuals and businesses holding a hardware store trade account with annual purchases of $10,000 or more. Data on purchases and reported income will be cross-checked by ATO to make sure that all business income is being reported.
From 1 July 2009 to 30 June 2010 the ATO will obtain data from state and territory motor vehicle registering bodies which will then be matched against taxpayer records.
This is to identify those participating in the cash economy by not declaring income to deliberately avoid their tax obligations.
Data will be obtained for all motor vehicles where the transfer and/or market value is $10,000 or greater. The ATO will use this information to help in addressing potential non-compliance in the following areas – income tax – GST – FBT & superannuation.
Contact Solve Business Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.
The end of financial year is upon us, which imposes quite a few business responsibilities. Wrapping up the accounts for end of Financial Year can be a messy task, with lots of reports to generate and deadlines to be met. With this in mind, it’s important to not forget about your employees.
PAYG payment summaries are to be issued to employees before 14th July and to be lodged with ATO before 14th August. All records must be kept for a minimum period of 7 years to support declarations. ATO forms to lodge are:
• PAYG payment summary statement- (form ID) NAT 3447-02.2014
• PAYG payment summary – individual non-business form- (form ID) NAT 0046-02.2014 (one form required for each individual employee)
Throughout employment, ensure your employees’ details are up to date and correct for accurate information sharing with ATO. Details needed:
• First and Surname (and any name changes)
• Tax File Number (TFN)
• Current Residential Address
• Date of Birth (DOB)
Employers are to report their employee’s gross earnings and tax withheld. Also any FBT and RESC payments.
FBT (Fringe Benefits Tax) – Any amounts in excess of $2000 are to be reported. Fringe benefits include:
• Provision of work vehicle that the employee also uses for private purposes
• Loans provided to employee at zero or low interest rates
• Supplementary income for unrelated employment costs of goods like health insurance
• Recreational or entertainment costs
RESC (any superannuation contribution that does not fall under the compulsory super guarantee). This can include:
• Salary Sacrifice
• Additional amounts (eg bonuses) that are paid directly into employee’s superannuation account
• Other agreements that are over the compulsory superannuation guarantee rate of 9.5%
It’s important that payroll information is accurate and it can be helpful to have a bookkeeper or payroll administrator to assist you with the regular processing. It is a crucial aspect to ensure accurate reports for end of financial year.
It was announced in 2015–2016 Budget that the Government will give a FBT exemption from 1 Apr 2016 for small business with annual aggregated turnover that is less than $2 million which provide staff/employees with over one work-related, qualifying portable electronic device, even if the devices have similar functions.
Currently, FBT exemptions can only apply to multiple work-related portable electronic devices only when the devices perform different functions.
Removing the tax exemption restriction that is provided only for one work-related portable electronic device of each type, will remove any confusion where there functional overlap between products, like a laptop and a tablet.
This measure is now law and applies to all electronic portable devices provided to staff/employees of small business from 1 Apr 2016. If multiple portable electronic devices that are used primarily for work purposes were provided to staff/employees before 1 Apr 2016 and the devices functions are substantially identical then an exemption is available for one device only.
Employers can purchase the portable electronic devices at anytime, but cannot provide them to staff/employees until 1 Apr 2016 or they are liable for the FBT.
Contact Solve Accountants located on the Gold Coast, Qld Australia if you need help with your business tax.