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.
Reportable Tax position (RTP) schedule is a schedule of the company income tax return which requires large companies to disclose their most contestable and material tax positions.
The RTP disclosure requirement has been significantly broadened for income years ending on or after 30 June 2018. It includes companies in public and international economic groups with a turnover greater than AUD 250 million and they are notified by the Australian Taxation Office (ATO). These companies are required to lodge an RTP schedule. RTP regime is expected to cover approximately 1,100 taxpayers.
ATO have enabled RTP schedule lodgement through the tax agent and business portals. Printing and signing of RTP schedule is not needed when lodge through the portal and a receipt is provided once RTP schedule is lodge.
A webinar on RTP schedule was also prepared by ATO. It provides a concise explanation on how to complete and lodge it. You may click here to access it.
Contact Solve Accountants located on the Gold Coast, Qld Australia if you need help with your RTP disclosure requirements
Source: Australian Taxation Office
A trial was conducted by the ATO in 2013 & 2017 in using external collection agencies for lodgement obligations but the focus at that time was for self-preparers. Apparently, the pilot did not have adverse impact on the ATO’s reputation, no complaints received and had helped to increase in clients engaging the assistance of intermediaries with lodgement.
The pilot demonstrated that using external collection agencies is viable, efficient and an effective option to complement ATO strategies.
ATO is looking to expand to clients who use the services of registered agents in meeting their lodgement obligations such as BAS. ATO intend to encourage clients to visit and consult their agents to help them keep their lodgement obligations up to date. The target is for the late lodgers who have few outstanding lodgements with the aim to stop clients from being behind on the deadlines.
The project will leverage off an existing process wherein a debt has a place in relation to external collection agencies. Any feedback or irritants that are raised from existing process are taken into consideration by the ATO. The ATO considers members views and opinions to ensure that the ATO takes into account members recommendations. Also, a consultation with the Tax Practitioner Stewardship Group was held as they provide valuable feedback.
The ATO outlined to members a draft infographic detailing the process that they will follow should a client have an overdue lodgement. The ATO intends to get feedback from members on the content of how this process is presented. The ATO is working with ATO corporate communications team to have this infographic made available at the ATO website, ato.gov.au. This makes ATO’s lodgement action infographic available to tax practitioners that allows them to have a targeted conversation with their clients and so they can use it internally within their practice to help them understand the lodgement process.
The tax practitioners will be contacted by ATO through an email or letter to advise their client has outstanding lodgements. Their client will be referred to an external collection agency for further compliance action should they fail to lodge outstanding obligations. The ATO is expecting the client to contact their tax practitioner who will in turn work with the ATO and facilitate lodgements which will stop any further compliance action from being necessary.
An indicative timeline could be added to the infographic as a tool to use in discussions with their clients as suggested by the members. Tax practitioners could then advise their clients in 30 days or 60 days the next action that will be taken by the ATO in relation to outstanding lodgements.
Source: Australian Taxation Office
ATO uses SMS and emails for important information and promotional purposes. Recently, the ATO announced that from 5-23 November 2018, they will contact all clients who are entitled for refund but have incorrect bank details provided on the filed tax returns. An email list of clients will be sent to tax agents the ATO has contacted and no further action is needed to take for the agents.
The SMS text message informs clients that due to incorrect bank details, their refund could not be processed and they are advised to contact the ATO to provide correct bank account details. This comes after a new tax scam was discovered by ATO where a fraudster impersonates a tax agent.
Clients who contact the ATO within seven days to provide their correct bank details will be refunded electronically while a refund check will be issued to those who will fail to reply. Clients can call 13 28 61 to correct their details.
The ATO has advised tax practitioners to contact their clients to inform them that the ATO would never threaten clients with arrests, jail nor demand immediate payments. ATO would never advise unusual payment methods such as iTunes vouchers, Bitcoin cryptocurrency, store gift cards or direct credit to a bank account with a BSB that isn’t either 092-009 or 093-003. Lastly, it will never send an SMS advising taxpayers to click a certain link and provide login, personal and financial information or to download a file or open an attachment.
Around 2.3 million scams as of August this year have been reported which makes it as the core issues among taxpayers and small business clients. While ATO contacts taxpayers by phone, email and SMS regularly, there might be a chance that it could be a scammer on the other end. Phone scams are the most common however, scammers constantly change their tactics. Thus, ATO reminds taxpayers and small businesses to stay alert and beware of unsolicited emails and SMS.
During the tax season this year, a high alert was issued following a scam on fake myGov email advising a tax payer a refund but instead, the intention is to steal financial and personal information.
The ATO reminds taxpayers to report the incident if they feel that it’s a scammer as this will help the ATO to get an accurate picture of what is happening with the current scams, which will ultimately help to protect the Australian Community.
Taxpayers may call 1800 008 540 to report a scam or to check if the call, email or SMS was legitimate.
Prior to 1 July 2017 an individual could (under certain conditions), claim a deduction for personal super contributions. One of those conditions is the “10% test” – less than 10% of their income was scoured from wages or salary.
This meant that predominately only self-employed taxpayers were eligible to claim a deduction for any personal super contributions they made.
From 1 July 2017, the 10% test has been removed. This means most working people under 75 years of age can now claim a tax deduction for their personal super contributions.
1) You made the contribution to a complying super fund or a retirement savings account:
Any super contribution to a Commonwealth public sector superannuation scheme in which you have a defined benefit, will not be eligible.
2) You meet the age restrictions:
If you are aged 75 years or older, you can only claim a deduction for contributions you made before the 28th day of the month following the month in which you turned 75. If you are under 18 years old at the end of the income year in which you made the contribution, you can only claim a deduction for your personal super contributions if you also earned income as an employee or a business operator during the year. If you are aged 65 to 74 you need satisfy a work test in the financial year in which the contribution is made. To satisfy the work test you must work at least 40 hours during a consecutive 30-day period during the financial year.
3) You have given your fund a Notice of intent to claim or vary a deduction for personal contributions form:
Eligible taxpayers will need to notify their fund in writing of the amount they intend to claim as a deduction and their fund must then provide a written acknowledgement of their notice of intent to claim a deduction. This all needs to be done prior to the lodgement of the tax return in which the deduction is claimed.
The personal super contributions that you claim as a deduction will count towards your concessional contributions cap, which for the 2017-2018 year is $25,000. When deciding whether to claim a deduction for super contributions you should consider the superannuation impacts that may arise from this. If you exceed your cap you will have to pay additional tax and any excess concessional contributions will count towards your non-concessional contributions cap.
The Australian Taxation Office (ATO) is turning their attention to the significant number of errors and false claims being made by rental property owners who use their property for personal holidays or where the property is otherwise not genuinely available for rent for the full year.
The ATO has also announced that it will focus on disproportionate interest expense claims and incorrect apportionment of rental income and expenses between rental property owners. It will also look at holiday homes that are not genuinely available for rent and incorrect claims for newly purchased rental properties.
The ATO wants to remind taxpayers that when claiming deductions for their rental property to include all the rental income and make sure that their property was genuinely available for rent when the expense was incurred. Taxpayers must also make sure to apportion any deductions to take into account for any private usage and must have records for the claims they make.
Assistant Commissioner Kath Anderson has reminded taxpayers that deductions can only be claimed against the rental property to the degree that the property is genuinely being rented out or is available for rent. While private use by family and friends of a holiday home is entirely legitimate, it does reduce the ability to earn income from the property and this in turn impacts the deductions you can claim for the rental property. You can only claim deductions for your rental property if your property is genuinely available for rent. You cannot claim for times when you were using it for your own personal holidays or letting friends and family stay rent-free. Also, if the property is rented to friends and family at “mate’s rates”, you can only claim deductions for expenses up to the amount of the income received.
The ATO is also focusing on other times when a property is not rented or genuinely available for rent. The ATO has had numerous cases where a taxpayer claims that their property is available for rent, but when the ATO investigates, it is clear they have little or no intention of renting it out. Some of these case have included situations where unreasonable conditions have been placed on prospective renters, rental rates have been set well above market rates, or failing to advertise a holiday home in a way that targets people who would genuinely be interested in it.
New technology, data matching and other systems allow the ATO to identify unusual claims and property owners whose claims are disproportionate to the income received can expect additional scrutiny from the ATO. The ATO has emphasised the importance of keeping accurate records of income and expenses, evidence of the property being rented or genuinely available for rent at market rates, and who stayed at the rental property and when, including the time when the property is used for personal purposes.
1) Advertise your property: Advertise your property to a large audience. Advertising through only a real-estate agent or an online site is not always enough evidence to show that a property is genuinely available for rent, and neither is only advertising locally or by word of mouth.
2) Ensure your property is in good condition: The property must be located and in a condition that will mean tenants want to rent it. If your property in a remote location or is run-down, it may not be realistic to expect that your property will appeal to anyone.
3) Charge market rates: Charging rent that is above-market rates to deter tenants from applying may mean your property is considered to not be genuinely available for rent. Likewise, if you, your friends or your family stay for free, the property will not meet the criteria during that time period. If your property is being tenanted at a discounted rate then the allowable deductions are limited to the amount of rent charged, not the market rates.
4) Accept tenants: If you refuse to rent out the property to interested potential tenants without good reason, this indicates that you may not have a genuine intent to make income from this property and could be reserving the property for private use. In this case, the property would not meet the criteria for being genuinely available for rent.
Source: Australian Taxation Office
The Australian Taxation Office (ATO) is making a broader push to quash the “standard deduction” claims on work-related clothing and laundry claims. Over the last five years a 20% increase in work-related clothing claims has been recorded. Last year there was nearly $1.8 billion claimed in clothing and laundry expenses by over 6 million taxpayers.
Assistant Commissioner Kath Anderson expressed their concern that while many of these claims are legitimate, they do not believe that half of all taxpayers were required to wear uniforms, protective clothing or occupation-specific clothing. Also, they noticed that around a quarter of clothing & laundry claims were exactly $150, which is precisely the threshold where tax payers are not required to keep detailed records. The ATO is concerned that some tax payers may think that they are entitled to claim $150 as a “standard deduction”, even though they do not meet the clothing and laundry requirements.
The ATO reiterated that the $150 limit for laundry expenses is granted to reduce the record-keeping burden but it’s not an automatic entitlement for everyone. While the ATO does not require written evidence for claims under $150, the claim must relate to the laundering of uniform, protective or occupation-specific clothing that the taxpayer is required to wear in earning their income and taxpayer must be able to show how the calculation was done.
Contrary to Commissioner Chris Jordan’s assertions that incorrect claims were more rampant in agent-prepared returns than the self-prepared returns, Mark Chapman, the H&R Block director of tax communications believes that the majority of incorrect claims come from self-prepared returns. In response to the ATO commissioner’s claims, Mr Chapman stated that “as tax agents, it is our job to make sure that clients claim everything they’re entitled to but equally that they don’t claim what they are not entitled to”.
To avoid confusion as to what are acceptable claims for uniforms, protective clothing, occupation-specific clothing & laundry, the following are some guidelines that have been gathered from the ATO website:
(such as one with your employer’s logo attached permanently to it) and it must be either:
In addition, taxpayer can also claim the cost of cleaning, repairing, and renting any of the above mentioned work-related clothing.
Washing, drying or ironing yourself is also claimable by using a reasonable basis to calculate the amount, such as $1 per load for work-related clothing, or 50 cents per load if other laundry items were included.
Costs of purchasing or cleaning plain uniforms or clothes, such as black trousers, white shirts, suits or stockings are not claimable, even if your employer requires you to wear them.
The ATO has confirmed that expenditure incurred by a swimming instructor in purchasing swimwear was not an allowable deduction.
The taxpayer worked as a swimming instructor and purchased swimsuits every six to eight weeks as a result of the damaging effect of the chlorine. The ATO advised that although the clothing was specialised, it was still conventional clothing, indistinguishable from any swimsuit used for private purposes.
Many taxpayers fall foul of these rules and try to claim deductions for expenditure for ordinary clothing. Unless the clothing is protective, such as safety boots, etc., or certain uniforms, the expenditure is generally not deductible.
Source: Australian Taxation Office
A fact sheet has been released by the ATO (Australian Taxation Office) in relation to employer superannuation guarantee obligations explaining its compliance and penalty approach, which was set out in the Superannuation Guarantee (Administration) Act 1992 (SGA Act).
The ATO explained that this approach will apply to employers who are unwilling or unable to meet their superannuation guarantee obligations, including late payment, under-payment or non-payment of SG contributions to eligible employees.
Employers are required to pay super to any eligible employee who earns $450 or more (before tax) in a calendar month. The super guarantee contribution, which must be paid to a complying super fund or retirement savings account, is currently 9.5% of an employee’s ordinary time earnings and is the minimum amount of super that must be paid.
In addition, the ATO added that contractors that are paid mainly for their labour are employees for SG purposes, even if the contractor quotes an Australian Business Number (ABN). Super contributions for these contractors must be made by employers if they are paid:
If employers do not pay the minimum amount of SG by the due date for an employee, they would be liable for the super guarantee charge (SGC), which comprises of:
SGC is not a deductible expense.
Additional penalties and charges may include the following:
Moreover, a company director who fails to meet SGC liability in full by the due date becomes personally liable for the penalty which is equivalent to the unpaid amount. The fact sheet provides compliance examples and the type of behaviour that will attract closer scrutiny from the ATO and mitigating factors that may be taken into consideration in determining the level and type of penalties that will be imposed.
During the conference held last February, Deputy Commissioner of Superannuation James O’Halloran discussed the changes and other plans that the ATO has set out for Self-Managed Superfunds (SMSFs).
The commissioner opened his statement by assuring that the ATO will continue to support SMSFs, not only by providing ongoing certainty and practical support but also by progressively and sensibly seeking to ensure that SMSFs comply with the law. He reminded SMSF holders that they can now view details of all their super accounts reported through the ATO via the online MyGov site. Included in the information that can be viewed are account balances and insurance indicators, total super balance and the status of bring-forward arrangements relating to non-concessional contributions.
Mr. O’Halloran confirmed that from 01 July 2018, SMSF event based-reporting (EBR) will be limited to SMSFs that have members with total superannuation account balances with a minimum of $1 million. This means that SMSF members whose total superannuation balance are under $1 million can choose to report events which impact their members transfer balances at the same time that the SMSF lodges its annual return.
On 22 August 2017, Mr O’Halloran said they issued a public position about SMSF event-based reporting. The feedback highlights concerns about the cost and effort that may be associated with the proposed approach. He stated that the ATO has listened to all the feedback and have decided to provide annual reporting for SMSFs with members that have lower superannuation balances and to permit a quarterly reporting timeframe for other SMSFs. The ATO will continue to evaluate the risks and benefits arising from this change to SMSF event-based reporting.
Mr O’Halloran reiterated the importance of SMSF lodgement and said it’s a cornerstone obligation for any trustee in a properly operating SMSF. Even if a SMSF trustee uses a tax agent, trustees themselves are responsible for their SMSF and there is still the requirement to lodge even if the SMSF is in pension phase.
One of the projects for this financial year is to target those SMSFs who have not lodged for some time. The ATO is seeking to reduce the level of long term outstanding lodgements. As identified, some 12,000 SMSFs (linked to 5,000 agents) have never lodged an SMSF annual return or had more than two years of overdue lodgements. Nearly 3,000 agents relating to over 8,600 funds have been contacted to gather reasons and information for the non- lodgement of returns, with a view to secure lodgements or to wind up the fund. The ATO will continue to work on this into the 2018-2019 financial year.
In relation to the 2016/17 lodgement of the SMSF annual return, the ATO has granted a deferral of all SMSF lodgements until 30 June 2018. This applies to the due date for payment of any relevant 2017 financial year income tax liability. As 30 June 2018 is a Saturday, trustees have until the next business day to lodge a return with an election for transitional GST relief as part of the super changes that came into effect 01 July 2017, or amend a lodged 2016/2017 return in order to include an election if one wasn’t made.
Sources: Australian Taxation Office